The economic impact of the inability to reach a target denominator level of activity
would best be measured by:
A. the amount of the volume variance.
B. the contribution margin lost by failing to meet the target denominator level of
activity.
C. the amount of the fixed manufacturing overhead budget variance.
D. the amount of the variable overhead efficiency variance.
Answer:
The Gasson Company sells three products, Product A, Product B and Product C, and
had sales of $1,000,000 during the month of June. The company’s overall contribution
margin ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A,
$500,000; Product B, $300,000; and Product C, $200,000. Traceable fixed costs were:
Product A, $120,000; Product B, $100,000; and Product C, $60,000. The variable
expenses of Product A were $300,000 and the variable expenses of Product B were
$180,000.
The common fixed expense for Gasson Company for the month of June was:
A. $350,000
B. $280,000
C. $70,000
D. $20,000
Answer:
Excerpts from Goodrow Corporation’s most recent balance sheet and income statement
appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $5.34 per share.
The earnings per share of common stock for Year 2 is closest to:
A. $0.35
B. $0.50
C. $0.30
D. $0.65
Answer:
Lampshire Inc. is considering using stocks of an old raw material in a special project.
The special project would require all 160 kilograms of the raw material that are in stock
and that originally cost the company $1,136 in total. If the company were to buy new
supplies of this raw material on the open market, it would cost $7.25 per kilogram.
However, the company has no other use for this raw material and would sell it at the
discounted price of $6.50 per kilogram if it were not used in the special project. The
sale of the raw material would involve delivery to the purchaser at a total cost of $75
for all 160 kilograms. What is the relevant cost of the 160 kilograms of the raw material
when deciding whether to proceed with the special project?
A. $1,040
B. $965
C. $1,136
D. $1,160
Answer:
An outdoor barbecue grill manufacturer has a standard costing system based on
standard direct labor-hours (DLHs) as the measure of activity. Data from the company’s
flexible budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
What was the fixed manufacturing overhead volume variance for the period to the
nearest dollar?
A. $900 F
B. $649 F
C. $180 U
D. $720 F
Answer:
Acitelli Corporation, which applies manufacturing overhead on the basis of
machine-hours, has provided the following data for its most recent year of operations.
The estimates of the manufacturing overhead and of machine-hours were made at the
beginning of the year for the purpose of computing the company’s predetermined
overhead rate for the year.
The predetermined overhead rate is closest to:
A. $42.30
B. $41.82
C. $42.12
D. $42.00
Answer:
The amount by which a company’s sales can decline before losses are incurred is called
the:
A. contribution margin.
B. degree of operating leverage.
C. margin of safety.
D. contribution margin ratio.
Answer:
Reference: 8A-4
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The variable overhead rate variance for March is:
A) $7,000 unfavorable
B) $9,000 unfavorable
C) $13,000 unfavorable
D) $11,000 unfavorable
Answer:
Falquez Company sells three products: R, S, and T. Data for activity of Falquez
Company during July are as follows:
Common fixed expenses for July amounted to $90,000.
Net operating income for the company was:
A. $166,000
B. $256,000
C. $334,000
D. $46,000
Answer:
Financial statements for Harwich Company for the most recent year appear below:
The balances in the Cash, Accounts Receivable, Inventory, Bonds Payable, Common
Stock, and Additional Paid-In Capital accounts are unchanged from the beginning of the
year. A $0.75 per share dividend was declared and paid during the year. On December
31, Harwich Company’s common stock was trading at $24.00 per share.
Harwich Company’s book value per share at December 31 was closest to:
A. $7.00
B. $15.00
C. $24.00
D. $30.00
Answer:
Butteco Corporation has provided the following cost data for last year when 100,000
units were produced and sold:
All costs are variable except for $100,000 of manufacturing overhead and $100,000 of
selling and administrative expense. There are no beginning or ending inventories. If the
selling price is $10 per unit, the net operating income from producing and selling
110,000 units would be:
A. $450,000
B. $385,000
C. $405,000
D. $560,000
Answer:
Data from Kooistra Corporation’s most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,270 and the cost of goods sold was $770.
The average collection period for Year 2 is closest to:
A. 0.9 days
B. 38.8 days
C. 40.2 days
D. 1.1 days
Answer:
At the beginning of the year, a company’s current ratio is 2.2. At the end of the year, the
company has a current ratio of 2.5. Which of the following could help explain the
change in the current ratio?
A. An increase in inventories.
B. An increase in accounts payable.
C. An increase in property, plant, and equipment.
D. An increase in bonds payable.
Answer:
The computation of equivalent units under the FIFO method:
A. treats units in the beginning work in process inventory as if they were started and
completed during the current period.
B. treats units in the beginning work in process inventory as if they represent a separate
batch of goods separate and distinct from goods started and completed during the
current period.
C. treats units in the ending work in process inventory as if they were started and
completed during the current period.
D. ignores units in the beginning and ending work in process inventories.
Answer:
The Gomez Company, a merchandising firm, has budgeted its activity for December
according to the following information:
– Sales at $500,000, all for cash.
– Merchandise Inventory on November 30 was $250,000.
– The cash balance at December 1 was $20,000.
– Selling and administrative expenses are budgeted at $50,000 for December and are
paid for in cash.
– Budgeted depreciation for December is $30,000.
– The planned merchandise inventory on December 31 is $260,000.
– The cost of goods sold represents 75% of the selling price.
– All purchases are paid for in cash.
The budgeted cash receipts for December are:
A. $125,000
B. $375,000
C. $530,000
D. $500,000
Answer:
In May, Hervey Inc. incurred $60,000 of direct labor costs and $3,000 of indirect labor
costs. The journal entry to record the accrual of these wages would include a:
A. credit to Manufacturing Overhead of $3,000
B. debit to Work in Process of $63,000
C. credit to Work in Process of $63,000
D. debit to Manufacturing Overhead of $3,000
Answer:
Average operating assets are $110,000 and net operating income is $23,100. The
company invests $25,000 in new assets for a project that will increase net operating
income by $4,750. What is the return on investment (ROI) of the new project?
A. 21%
B. 19%
C. 18.5%
D. 20%
Answer:
Jarvinen Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company’s variable costs per unit and total fixed
costs have been constant from month to month.
What is the unit product cost for the month under absorption costing?
A. $91
B. $87
C. $62
D. $58
Answer:
Wright Company produces products I, J, and K from a single raw material input.
Budgeted data for the next month follows:
If the cost of the raw material input is $78,000, which of the products should be
processed beyond the split-off point?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Meister Electronics Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs). The
company had budgeted its fixed manufacturing overhead cost at $68,800 for the month
and its level of activity at 2,000 MHs. The actual total fixed manufacturing overhead
was $73,300 for the month and the actual level of activity was 1,800 MHs. What was
the fixed manufacturing overhead budget variance for the month to the nearest dollar?
A) $11,380 unfavorable
B) $4,500 unfavorable
C) $11,380 favorable
D) $4,500 favorable
Answer:
Product R19N has been considered a drag on profits at Buzzeo Corporation for some
time and management is considering discontinuing the product altogether. Data from
the company’s accounting system appear below:
In the company’s accounting system all fixed expenses of the company are fully
allocated to products. Further investigation has revealed that $49,000 of the fixed
manufacturing expenses and $30,000 of the fixed selling and administrative expenses
are avoidable if product R19N is discontinued. What would be the effect on the
company’s overall net operating income if product R19N were dropped?
A. Overall net operating income would decrease by $59,000.
B. Overall net operating income would decrease by $22,000.
C. Overall net operating income would increase by $59,000.
D. Overall net operating income would increase by $22,000.
Answer:
Craft Company produces a single product. Last year, the company had a net operating
income of $80,000 using absorption costing and $74,500 using variable costing. The
fixed manufacturing overhead cost was $5 per unit. There were no beginning
inventories. If 21,500 units were produced last year, then sales last year were:
A. 16,000 units
B. 20,400 units
C. 22,600 units
D. 27,000 units
Answer:
Data concerning the direct labor costs for April of Dimaio Corporation appear below:
The journal entry to record the incurrence of direct labor costs in April would include
the following for Work in Process:
A) debit of $341,658.
B) credit of $341,658.
C) credit of $294,174.
D) debit of $294,174.
Answer:
Ciubal Corporation has provided the following data concerning its direct labor costs for
December:
The Labor Rate Variance for December would be recorded as a:
A. credit of $19,440.
B. credit of $21,168.
C. debit of $19,440.
D. debit of $21,168.
Answer:
An example of a committed fixed cost is:
A. a training program for salespersons.
B. executive travel expenses.
C. property taxes on the factory building.
D. new product research and development.
Answer:
Parmentier Company uses the weighted-average method in its process costing system.
The Molding Department is the second department in its production process. The data
below summarize the department’s operations in January.
The accounting records indicate that the conversion cost that had been assigned to
beginning work in process inventory was $5,096 and a total of $87,668 in conversion
costs were incurred in the department during January.
What was the cost per equivalent unit for conversion costs for January in the Molding
Department? (Round off to three decimal places.)
A. $1.654
B. $1.752
C. $1.490
D. $1.499
Answer:
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead volume variance for March is:
A. $1,000 favorable
B. $5,000 favorable
C. $2,500 unfavorable
D. $5,000 unfavorable
Answer:
The higher the denominator level of activity:
A) the higher the cost per unit of product.
B) the lower the cost per unit of product.
C) the less likely is the occurrence of a volume variance.
D) the more profitable operations likely will be.
Answer:
Reference: 8A-13
A manufacturer of industrial equipment has a standard costing system based on
standard direct labor-hours (DLHs) as the measure of activity. Data from the companys
flexible budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
What is the predetermined overhead rate to the nearest cent?
A) $16.97
B) $17.25
C) $16.59
D) $17.65
Answer:
Galino Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under the variable costing approach?
A. $31,200
B. $104,400
C. $117,400
D. $135,600
Answer:
Reference: 8-3
Macphail Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During April, the company budgeted
for 5,600 units, but its actual level of activity was 5,650 units. The company has
provided the following data concerning the formulas used in its budgeting and its actual
results for April:
Data used in budgeting:
Actual results for April:
The revenue variance for April would be closest to:
A) $1,645 F
B) $1,645 U
C) $3,840 U
D) $3,840 F
Answer:
Variable cost:
A. increases on a per unit basis as the number of units produced increases.
B. remains constant on a per unit basis as the number of units produced increases.
C. remains the same in total as production increases.
D. decreases on a per unit basis as the number of units produced increases.
Answer:
Inspection costs at one of Krivanek Corporation’s factories are listed below:
Management believes that inspection cost is a mixed cost that depends on units
produced.
Using the high-low method, the estimate of the fixed component of inspection cost per
month is closest to:
A. $8,743
B. $8,887
C. $8,683
D. $6,869
Answer:
Human resource management is an example of an activity at which of the following
levels?
A. Unit-level activity.
B. Product-level activity.
C. Batch-level activity.
D. Facility-level activity.
Answer:
Reference: 8-54
The following data have been provided by Augustave Corporation:
Indirect labor and power are both elements of variable manufacturing overhead.
The variable overhead rate variance for indirect labor is closest to:
A) $7,407 F
B) $4,347 F
C) $4,347 U
D) $3,060 F
Answer: