Question

Which of the following is true?

		Cash receipts should not be promptly deposited in a bank
		Payments should be made in cash, not by check or electronic transfer
		Handling cash should be separate from recordkeeping of cash
		inventory is the most liquid of assets

A company purchased a delivery van for $23,000 with a salvage value of $3,000. It has an estimated useful life of 5 years. Using the straight-line method, how much is accumulated depreciation after three years?

		$9,000
		$12,000
		$12,600
		$13,800

A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n)

		incremental cost
		opportunity cost
		uncontrollable cost
		sunk cost

At the beginning of the year, Jill's Design had a balance in Supplies of $1,200. During the year, additional supplies of $4,000 were purchased. It was determined that $5,000 worth of supplies were used up during the year. What will be the balance in the Supplies account after adjustments?

		$5,200
		$4,000
		$1,200
		$200

A job was budgeted to require 3 hours of labor per unit at $8.00 per hour. The job consisted of 8,000 units and was completed in 22,000 hours at a total labor cost of $198,000. What is the direct labor rate variance?

		$22,000 unfavorable
		$16,000 favorable
		$16,000 unfavorable
		$9,000 favorable

Answer 1

Solution:1

• Cash receipts should not be promptly deposited in a bank - False
• Payments should be made in cash, not by check or electronic transfer - False
• Handling cash should be separate from recordkeeping of cash - True
• inventory is the most liquid of assets - False

Explanation: It is a good internal control to keep cash handling and record keeping of cash separately to avoid fraud and error.

Therefore, option Handling cash should be separate from recordkeeping of cash is correct answer.

Solution:2

Purchase Price = $23,000

Salvage Value = $3,000

Estimated Life = 5 years

Annual straight line depreciation = (Cost of asset - Salvage Value) / Life of asset

= (23,000 - 3,000) / 5

= $4,000

Therefore,

Accumulated depreciation after three years = $4,000 * 3years

= $12,000

Therefore, option $12,000 is correct answer.

Solution: 3

A cost which had incurred in past or cannot be changed as it is due to past decision, are called sunk cost. These costs are irrelevant for future decision making.

Hence , Option Sunk Cost is correct answer.

Solution: 4

Beginning balance = $1,200

Purchases = $4,000

Supplies used = $5,000

Balance in supplies after adjustment = Beginning balance + Purchases - Supplies Used

= $1,200 + $4,000 - $5,000

= $200

Therefore, Option $200 is correct answer.

Solution: 5

Budgeted labour rate = $8 per hour

Actual Labour Hours = 22,000 hours

Actual Labour Rate = $198,000 / 22,000 = $9 per hour

Direct Labour Rate Variance = Actual Labour Hours * (Budgeted Labour rate - Actual Labour rate)

= 22,000 * (8 - 9)

= - $22,000

Therefore, Option $22,000 (Unfavourable) is the correct answer.