When switching from a traditional costing system to an activity-based costing system
that includes some batch-level costs:
A. the unit product costs of high volume products typically change less than the unit
product costs of low volume products.
B. the unit product costs of high volume products typically change more than the unit
product costs of low volume products.
C. the unit product costs of high volume products change as much as the unit product
costs of low volume products.
D. the unit product costs of high volume do not change.
Answer:
Hocking Corporation’s comparative balance sheet appears below:
The company’s net income (loss) for the year was $10,000 and its cash dividends were
$1,000. It did not sell or retire any property, plant, and equipment during the year. The
company uses the indirect method to determine the net cash provided by operating
activities.
The company’s net cash used in investing activities is:
A. $5,000
B. $18,000
C. $27,000
D. $41,000
Answer:
Ahsan Company makes 60,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $45.70
a unit. If the company accepts this offer, the facilities now being used to make the part
could be used to make more units of a product that is in high demand. The additional
contribution margin on this other product would be $318,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the
part would be avoided. However, $3.50 of the fixed manufacturing overhead cost being
applied to the part would continue even if the part were purchased from the outside
supplier. This fixed manufacturing overhead cost would be applied to the company’s
remaining products.
How much of the unit product cost of $40.50 is relevant in the decision of whether to
make or buy the part?
A. $40.50
B. $15.20
C. $27.90
D. $37.00
Answer:
A manufacturer of tiling grout has supplied the following data:
The company’s break-even in kilograms is closest to:
A. 215,000 kilograms
B. 55,302 kilograms
C. 307,765 kilograms
D. 464,865 kilograms
Answer:
The following cost data pertain to the operations of Swestka Department Stores, Inc.,
for the month of July.
The Northridge Store is just one of many stores owned and operated by the company.
The Cosmetics Department is one of many departments at the Northridge Store. The
central warehouse serves all of the company’s stores.
What is the total amount of the costs listed above that are direct costs of the Cosmetics
Department?
A. $74,000
B. $36,000
C. $31,000
D. $40,000
Answer:
The following data have been provided by a retailer that sells a single product.
What is the best estimate of the company’s total fixed selling and administrative
expense per year?
A. $0
B. $80,000
C. $44,000
D. 174,000
Answer:
A furniture 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:
How much overhead was applied to products during the period to the nearest dollar?
A. $86,394
B. $88,440
C. $89,760
D. $92,555
Answer:
Mordue Corporation keeps careful track of the time required to fill orders. Data
concerning a particular order appear below:
The manufacturing cycle efficiency (MCE) was closest to:
A. 0.15
B. 0.53
C. 0.05
D. 0.16
Answer:
Reference: 8-58
Schuetz Corporation makes a product whose variable overhead standards are based on
direct labor-hours. The quantity standard is 0.4 hours per unit. The variable overhead
rate standard is $5.00 per hour. In July the company produced 7,500 units using 2,740
direct labor-hours. The actual variable overhead rate was $5.20 per hour.
The variable overhead efficiency variance for July is:
A) $1,352 U
B) $1,352 F
C) $1,300 U
D) $1,300 F
Answer:
The Rial Company’s income statement for June is given below:
If the sales in Division L increase by 30% while common fixed expenses in the
company decrease by $10,000, the segment margin for Division L should:
A. increase by $32,400
B. increase by $10,800
C. decrease by $22,400
D. decrease by $65,600
Answer:
Accola Company uses activity-based costing. The company has two products: A and B.
The annual production and sales of Product A is 1,100 units and of Product B is 700
units. There are three activity cost pools, with estimated costs and expected activity as
follows:
The overhead cost per unit of Product A is closest to:
A. $59.22
B. $57.20
C. $47.89
D. $22.70
Answer:
Lunderville Inc. bases its selling and administrative expense budget on budgeted unit
sales. The sales budget shows 3,200 units are planned to be sold in December. The
variable selling and administrative expense is $3.10 per unit. The budgeted fixed selling
and administrative expense is $60,800 per month, which includes depreciation of
$6,720 per month. The remainder of the fixed selling and administrative expense
represents current cash flows. The cash disbursements for selling and administrative
expenses on the December selling and administrative expense budget should be:
A. $70,720
B. $54,080
C. $64,000
D. $9,920
Answer:
The Kafusi Company has the following budgeted sales:
The regular pattern of collection of credit sales is 30% in the month of sale, 60% in the
month following the month of sale, and the remainder in the second month following
the month of sale. There are no bad debts.
The budgeted cash receipts for July would be:
A. $400,000
B. $430,000
C. $435,000
D. $390,000
Answer:
Franklins fixed manufacturing overhead budget variance for the year is:
A) $19,000 favorable
B) $25,000 favorable
C) $25,000 unfavorable
D) $19,000 unfavorable
Answer:
If Thomson Company did not issue any bonds payable during the year and its bonds
payable account decreased by $200,000 over the course of a year, then this amount
would be shown on the company’s statement of cash flows prepared under the indirect
method as:
A. a cash inflow of $200,000 under investing activities.
B. a cash outflow of $200,000 under investing activities.
C. a cash inflow of $200,000 under financing activities.
D. a cash outflow of $200,000 under financing activities.
Answer:
Henning Corporation produces and sells two models of hair dryers, Standard and
Deluxe. The company has provided the following data relating to these two products:
The company’s total monthly fixed expense is $13,800.
If the expected monthly sales in units were divided equally between the two models
(900 Standard and 900 Deluxe), the break-even level of sales would be:
A. lower than with the expected sales mix.
B. higher than with the expected sales mix.
C. the same as with the expected sales mix.
D. cannot be determined with the available data.
Answer:
A common cost that should not be assigned to a particular product on a segmented
income statement is:
A. the product’s advertising costs.
B. the salary of the corporation president.
C. direct materials costs.
D. the product manager’s salary.
Answer:
The Reed Division reports the following operating data for the past two years:
The return on investment at Reed was exactly the same in Year 1 and Year 2
Sales in Year 2 amounted to:
A. $250,000
B. $300,000
C. $325,000
D. $350,000
Answer:
Epstein Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 400
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,000 units were started and 6,500 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 85% complete with respect to materials and 45% complete
with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $12.84
B. $13.32
C. $13.08
D. $12.61
Answer:
Last year the return on total assets in Jeffrey Company was 8.5%. The total assets were
2.9 million at the beginning of the year and 3.1 million at the end of the year. The tax
rate was 30%, interest expense totaled $110 thousand, and sales were $5.2 million. Net
income for the year was:
A. $145,000
B. $222,000
C. $332,000
D. $178,000
Answer:
Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets
costs $48 to buy from farmers and $10 to crush in the company’s plant. Two
intermediate products, beet fiber and beet juice, emerge from the crushing process. The
beet fiber can be sold as is for $24 or processed further for $16 to make the end product
industrial fiber that is sold for $36. The beet juice can be sold as is for $44 or processed
further for $28 to make the end product refined sugar that is sold for $70. How much
profit (loss) does the company make by processing the intermediate product beet juice
into refined sugar rather than selling it as is?
A. $(31)
B. $(60)
C. $(2)
D. $(12)
Answer:
The Dodge Company makes and sells a single product and uses a standard cost system
in which manufacturing overhead costs are applied to units of product on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are
required per unit of product. The Dodge Company had the following budgeted and
actual data for the year:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead budget variance was:
A. $750 F
B. $3,750 F
C. $7,500 F
D. $3,000 U
Answer:
A manufacturer of cedar shingles has supplied the following data:
The company’s contribution margin ratio is closest to:
A. 66.9%
B. 33.1%
C. 41.4%
D. 58.6%
Answer:
Reference: 8-21
Hanekamp Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its flexible budgets. During August, the company
budgeted for 5,400 units, but its actual level of activity was 5,440 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The net operating income in the flexible budget for August would be closest to:
A) $18,940
B) $13,550
C) $13,351
D) $18,400
Answer:
Atwich Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 600
units. The costs and percentage completion of these units in beginning inventory were:
A total of 5,100 units were started and 4,400 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 75% complete with respect to materials and 10% complete
with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $21.28
B. $20.07
C. $19.29
D. $18.19
Answer:
(Ignore income taxes in this problem.) Tweedie Corporation has entered into a 7 year
lease for a building it will use as a warehouse. The annual payment under the lease will
be $1,662. The first payment will be at the end of the current year and all subsequent
payments will be made at year-ends. What is the present value of the lease payments if
the discount rate is 13%?
A. $10,296
B. $11,634
C. $7,351
D. $4,945
Answer:
Pappan Corporation makes three products that use compound W, the current
constrained resource. Data concerning those products appear below:
Rank the products in order of their current profitability from most profitable to least
profitable. In other words, rank the products in the order in which they should be
emphasized.
A. RH,GY,QF
B. GY,RH,QF
C. QF,GY,RH
D. RH,QF,GY
Answer:
The fixed manufacturing overhead applied to Franklins production for the year is:
A) $484,200
B) $575,000
C) $594,000
D) $600,000
Answer:
The constraint at Mcglathery Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear
below:
Assume that sufficient time is available on the constrained machine to satisfy demand
for all but the least profitable product. Up to how much should the company be willing
to pay to acquire more of the constrained resource?
A. $75.26 per unit
B. $38.94 per unit
C. $11.80 per minute
D. $15.20 per minute
Answer:
Which of the following should NOT be included as part of manufacturing overhead at a
company that makes office furniture?
A. sheet steel in a file cabinet made by the company.
B. manufacturing equipment depreciation.
C. idle time for direct labor.
D. taxes on a factory building.
Answer:
Tapp Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $226,000 per month. The company is currently selling 2,000 units
per month.
The marketing manager would like to cut the selling price by $12 and increase the
advertising budget by $13,000 per month. The marketing manager predicts that these
two changes would increase monthly sales by 200 units. What should be the overall
effect on the company’s monthly net operating income of this change? Show your
work!
Answer:
Jalonen Inc., which produces and sells a single product, has provided the following
contribution format income statement for October:
Redo the company’s contribution format income statement assuming that the company
sells 4,500 units.
Answer:
The following standards have been established for a raw material used in the production
of product O99:
The following data pertain to a recent month’s operations:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
c. Prepare journal entries to record the purchase and use of the raw material during the
month. (All raw materials are purchased on account.)
Answer:
Kawalek Corporation’s balance sheet appears below:
The net income for the year was $151. Cash dividends were $42. The company did not
dispose of any property, plant, and equipment, issue any bonds payable, or repurchase
any of its own common stock during the year.
Prepare a statement of cash flows in good form using the indirect method.
Answer:
Marcell Corporation is considering two alternatives that are code-named M and N.
Costs associated with the alternatives are listed below:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
Answer:
The direct labor standards at Pihl Corporation are $11.70 per direct labor-hour (DLH)
and 7.2 DLHs per unit of output. In May, 1,300 units were produced, the actual wage
rate was $12.00 per DLH, and the actual hours were 9,460 DLHs.
Prepare the journal entry to record the incurrence of direct labor costs.
Answer:
Mish Clinic bases its budgets on patient-visits. During November, the clinic plans for a
level of activity of 3,200 patient-visits. The clinic has provided the following data
concerning the formulas it uses in its budgeting:
Required:
Prepare the clinics planning budget for November.
Answer:
Leigh 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.
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare a contribution format income statement for the month using variable costing.
d. Prepare an income statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the
month.
Answer:
Nesman 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.
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
Answer:
Barsoux Inc. uses the weighted-average method in its process costing system. The
following data concern the operations of the company’s first processing department for
a recent month.
Using the weighted-average method:
a. Determine the equivalent units of production for materials and conversion costs.
b. Determine the cost per equivalent unit for materials and conversion costs.
c. Determine the cost of units transferred out of the department during the month.
d. Determine the cost of ending work in process inventory in the department.
Answer:
The following data has been provided by Palafox Inc., a company that uses the FIFO
method in its process costing system. The data concern the company’s Shaping
Department for the month of March.
Determine the cost of ending work in process inventory and the cost of the units
transferred out of the department during March using the FIFO method.
Answer:
Spurrier Corporation produces two intermediate products, A and B, from a common
input. Intermediate product A can be further processed into end product X. Intermediate
product B can be further processed into end product Y. The common input is purchased
in batches that cost $50 each and the cost of processing a batch to produce intermediate
products A and B is $15. Intermediate product A can be sold as is for $28 or processed
further for $18 to make end product X that is sold for $43. Intermediate product B can
be sold as is for $31 or processed further for $24 to make end product Y that is sold for
$68.
a. Assuming that no other costs are involved in processing potatoes or in selling
products, how much money does the company make from processing one batch of the
common input into the end products X and Y? Show your work!
b. Should each of the intermediate products, A and B, be sold as is or processed further
into an end product? Explain.
Answer:
Carston Company’s comparative balance sheet and income statement for last year
appear below:
The company declared and paid $27,000 in cash dividends during the year. It did not
dispose of any property, plant, and equipment during the year.
Construct in good form the operating activities section of the company’s statement of
cash flows for the year using the direct method.
Answer:
Madrazo Corporation uses residual income to evaluate the performance of its divisions.
The minimum required rate of return for performance evaluation purposes is 19%. The
Games Division had average operating assets of $410,000 and net operating income of
$86,000 in June.
What was the Games Division’s residual income in June?
Answer:
Vera Corporation bases its budgets on the activity measure customers served. During
September, the company planned to serve 28,000 customers, but actually served 27,000
customers. The company has provided the following data concerning the formulas it
uses in its budgeting:
Required:
Prepare the companys flexible budget for September based on the actual level of
activity for the month.
Answer:
Salonia Corporation manufactures a variety of products. The following data pertain to
the company’s operations over the last two years:
a. Determine the absorption costing net operating income last year. Show your work!
b. Determine the absorption costing net operating income this year. Show your work!
Answer:
Marchant Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diners budget for June was based on 2,200 meals, but the diner
actually served 1,800 meals. The diners director has provided the following cost data to
use in the budget: groceries, $3.85 per meal; kitchen operations, $4,300 per month plus
$1.70 per meal; administrative expenses, $2,000 per month plus $0.45 per meal; and
fundraising expenses, $1,100 per month.
Required:
Prepare the diners flexible budget for the actual number of meals served in June. The
budget will only contain the costs listed above; no revenues will be on the budget.
Answer:
Answer: