TEST BANK AND SOLUTIONS
1-1: Accounting and Control
The controller of a small private college is complaining about the amount of work
she is required to do at the beginning of each month. The president of the university
requires the controller to submit a monthly report by the fifth day of the following month.
The monthly report contains pages of financial data from operations. The controller was
heard saying, "Why does the president need all this information? He probably doesn't
read half of the report. He's an old English professor and probably doesn't know the
difference between a cost and a revenue."
Required:
a. What is the probable role of the monthly report?
b. What is the controller's responsibility with respect to a president who doesn't
know much accounting?
2-1: Fixed, Variable, and Average Costs
Midstate University is trying to decide whether to allow 100 more students into
the university. Tuition is $5000 per year. The controller has determined the following
schedule of costs to educate students:
Number of Students Total Costs
4000 $30,000,000
4100 30,300,000
4200 30,600,000
4300 30,900,000
The current enrollment is 4200 students. The president of the university has calculated
the cost per student in the following manner: $30,600,000/4200 students = $7286 per
student. The president was wondering why the university should accept more students if
the tuition is only $5000.
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