1) A direct materials quantity standard generally includes an allowance for waste.
2) The costs assigned to units in inventory are typically lower under variable costing
than under absorption costing.
3) Suppose a company evaluates divisional performance using both ROI and residual
income. The company’s minimum required rate of return for the purposes of residual
income calculations is 12%. If a division has a residual income of $6,000, then its ROI
is greater than 12%.
4) The net cash provided by operating activities on the statement of cash flows does not
include any dividends paid to the company’s own shareholders.
5) Direct material costs are generally fixed costs.
6) Comparing a static planning budget to actual costs is a good way to assess whether
variable costs are under control.
7) All other things being the same, a decrease in average operating assets will decrease
return on investment (ROI).
8) To increase total asset turnover, management must either increase sales or reduce
total stockholders’ equity.
9) When fixed costs are included in the cost of goods sold, the gross margin percentage
should increase and decrease with sales volume.
10) Costs are accumulated by department in a process costing system.
11) An increase in appraisal costs will usually result in a decrease in internal failure
costs.
12) Relative profitability should be measured by dividing a segment’s market share by
its revenues.
13) The formula for the times interest earned ratio is: Times interest earned = Earnings
before interest expense and income taxes Interest expense.
14) Zenon Kennel uses tenant-days as its measure of activity; an animal housed in the
kennel for one day is counted as one tenant-day. During July, the kennel budgeted for
3,300 tenant-days, but its actual level of activity was 3,260 tenant-days. The kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for July:
Data used in budgeting:
Actual results for July:
The net operating income in the flexible budget for July would be closest to:
A.$9,700
B.$6,599
C.$6,762
D.$9,340
15) The cost of goods manufactured for May was:
A.$109,670
B.$124,620
C.$143,300
D.$126,820
16) At an activity level of 6,900 units in a month, Zelinski Corporations total variable
maintenance and repair cost is $408,756 and its total fixed maintenance and repair cost
is $230,253. What would be the total maintenance and repair cost, both fixed and
variable, at an activity level of 7,100 units in a month? Assume that this level of activity
is within the relevant range.
A) $648,270
B) $639,009
C) $650,857
D) $657,531
17) The net cash provided by (used in) investing activities for the year was:
A.$(81)
B.$(66)
C.$66
D.$15
18) Which product makes the LEAST profitable use of the grinding machines?
A) Product A
B) Product B
C) Product C
D) Product D
19) Using the high-low method, the estimate of the fixed component of electrical cost
per month is closest to:
A) $7,371
B) $5,731
C) $5,875
D) $5,840
20) If the company bases its predetermined overhead rate on the estimated amount of
the allocation base for the upcoming year, by how much was manufacturing overhead
underapplied or overapplied?
The management of Aamot Corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity. The company’s controller
has provided an example to illustrate how this new system would work. In this
example, the allocation base is machine-hours and the estimated amount of the
allocation base for the upcoming year is 43,000 machine-hours. In addition, capacity is
47,000 machine-hours and the actual level of activity for the year is 42,100
machine-hours. All of the manufacturing overhead is fixed and is $828,610 per year.
For simplicity, it is assumed that this is the estimated manufacturing overhead for the
year as well as the manufacturing overhead at capacity. It is further assumed that this is
also the actual amount of manufacturing overhead for the year.
A.$17,343 Overapplied
B.$86,387 Underapplied
C.$86,387 Overapplied
D.$17,343 Underapplied
21) ( Mercer Corporation is considering replacing a technologically obsolete machine
with a new state-of-the-art numerically controlled machine. The new machine would
cost $250,000 and would have a ten-year useful life. Unfortunately, the new machine
would have no salvage value. The new machine would cost $12,000 per year to operate
and maintain, but would save $55,000 per year in labor and other costs. The old
machine can be sold now for scrap for $10,000. The simple rate of return on the new
machine is closest to:
A.17.9%
B.7.5%
C.22.0%
D.7.2%
22) The following information relates to Marter Manufacturing Corporation for next
quarter:
How many units should the company plan on producing for the month of February?
A.360,000 units
B.362,000 units
C.358,000 units
D.398,000 units
23) Blackner Corporation produces and sells a single product. Data concerning that
product appear below:
The break-even in monthly unit sales is closest to:
A.1,413 units
B.2,920 units
C.5,436 units
D.1,910 units
24) ( Allen Corporation’s required rate of return is 14%. The company is considering the
purchase of a new machine that will save $10,000 per year in cash operating costs. The
machine will cost $39,540 and will have an 8-year useful life with zero salvage value.
Straight-line depreciation will be used.
Required:
Compute the machine’s internal rate of return. Would you recommend purchase of the
machine? Explain.
25) Huckeby Corporation bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. Data for the upcoming year appear below:
Required:
Compute the company’s predetermined overhead rate.
26) Carson Corporation’s comparative balance sheet and income statement for last year
appear below:
Carson did not dispose of any property, plant, and equipment during the year. It
constructs its statement of cash flows using the direct method.
Required:
Using the direct method, prepare in good form the operating activities section of the
statement of cash flows.
27) The changes in each balance sheet account for Carver Corporation during the year
just completed are as follows:
Carver Corporation’s income statement for the year just ended shows the following:
The company did not dispose of any property, plant, and equipment, buy any long-term
investments, issue any bonds payable, or repurchase any of its own common stock
during the year. Carver Corporation uses the direct method to construct its statement of
cash flows.
28) In December, one of the processing departments at Weisz Corporation had
beginning work in process inventory of $20,000 and ending work in process inventory
of $14,000. During the month, the cost of units transferred out from the department was
$244,000.
Required:
Construct a cost reconciliation report for the department for the month of December.
29) In February, one of the processing departments at Mateus Corporation had
beginning work in process inventory of $20,000 and ending work in process inventory
of $30,000. During the month, $206,000 of costs were added to production and the cost
of units transferred out from the department was $196,000. The company uses the FIFO
method in its process costing system.
Required:
Construct a cost reconciliation report for the department for the month of February.