Reference: 8-17
Hamp 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 December, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 3,050 tenant-days. The kennel
has provided the following data concerning the formulas to be used in its budgeting:
The administrative expenses in the planning budget for December would be closest to:
A) $7,126
B) $7,245
C) $7,605
D) $7,600
Answer:
The Labor Efficiency Variance for May would be recorded as a:
A) debit of $29,512.
B) credit of $28,520.
C) credit of $29,512.
D) debit of $28,520.
Answer:
Robledo Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $625,000 per month. The company is currently selling 9,000 units
per month.
This question is to be considered independently of all other questions relating to
Robledo Corporation. Refer to the original data when answering this question.
The marketing manager believes that a $7,000 increase in the monthly advertising
budget would result in a 100 unit increase in monthly sales. What should be the overall
effect on the company’s monthly net operating income of this change?
A. decrease of $1,000
B. decrease of $7,000
C. increase of $1,000
D. increase of $8,000
Answer:
Hirt Corporation sells its product for $12 per unit. Next year, fixed expenses are
expected to be $400,000 and variable expenses are expected to be $8 per unit. How
many units must the company sell to generate net operating income of $80,000?
A. 50,000 units
B. 120,000 units
C. 60,000 units
D. 100,000 units
Answer:
The degree of operating leverage can be calculated as:
A. contribution margin divided by sales.
B. gross margin divided by net operating income.
C. net operating income divided by sales.
D. contribution margin divided by net operating income.
Answer:
Financial statements for Marcell Company appear below:
Marcell Company’s average collection period for Year 2 was closest to:
A. 22.6 days
B. 15.7 days
C. 25.8 days
D. 36.9 days
Answer:
Holzhauer Corporation, a merchandising company, reported the following results for
March:
Cost of goods sold is a variable cost in this company.
The gross margin for March is:
A. $922,600
B. $1,120,000
C. $2,202,600
D. $1,360,000
Answer:
Chace Products is a division of a major corporation. Last year the division had total
sales of $21,300,000, net operating income of $575,100, and average operating assets of
$5,000,000. The company’s minimum required rate of return is 12%.
The division’s margin is closest to:
A. 26.2%
B. 23.5%
C. 2.7%
D. 11.5%
Answer:
Bordes Corporation has provided the following data concerning its most important raw
material, compound R85F:
The raw material was purchased on account.
The Materials Quantity Variance for May would be recorded as a:
A. Debit of $4,788
B. Debit of $16,644
C. Credit of $4,788
D. Credit of $16,644
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
Net operating income in Year 2 amounted to:
A. $60,000
B. $50,000
C. $40,000
D. $35,000
Answer:
Compound Q11H is a raw material used to make Grater Corporation’s major product.
The standard cost of compound Q11H is $23.00 per ounce and the standard quantity is
3.8 ounces per unit of output. Data concerning the compound for October appear below:
The raw material was purchased on account.
The credits to the Raw Materials account for October would total:
A. $52,440
B. $48,760
C. $52,900
D. $53,130
Answer:
A manufacturing company that produces a single product has provided the following
data concerning its most recent month of operations:
What is the total period cost for the month under variable costing?
A. $185,000
B. $117,600
C. $273,200
D. $302,600
Answer:
The following cost formula relates to last year’s operations at Lemine Manufacturing
Corporation:
Y = $84,000 + $60.00X
In the formula above, 75% of the fixed cost and 90% of the variable cost are
manufacturing costs. Y is the total cost and X is the number of units produced and sold.
If Lemine produces and sells only 6,000 units, what is the unit product cost under each
of the following methods?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Hick Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on
preferred stock totaled $20 thousand. The market price of common stock at the end of
Year 2 was $9.57 per share.
The gross margin percentage for Year 2 is closest to:
A. 82.9%
B. 45.3%
C. 446.2%
D. 22.4%
Answer:
Reference: 8-4
Karmazyn Hospital bases its budgets on patient-visits. The hospitals static budget for
October appears below:
The total cost at the activity level of 9,200 patient-visits per month should be:
A) $364,900
B) $377,200
C) $370,770
D) $370,210
Answer:
Smith Company sells a single product at a selling price of $30 per unit. Variable
expenses are $12 per unit and fixed expenses are $41,400. Smith’s break-even point is:
A. 1,380 units
B. 2,300 units
C. 3,450 units
D. 6,900 units
Answer:
Excerpts from Zorra Corporation’s most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,370 and the cost of goods sold was $850.
The current ratio at the end of Year 2 is closest to:
A. 0.38
B. 2.62
C. 0.52
D. 0.74
Answer:
Reference: 8-32
Gentile Corporation makes a product with the following standard costs:
The company produced 6,000 units in May using 36,970 kilos of direct material and
4,340 direct labor-hours. During the month, the company purchased 40,400 kilos of the
direct material at $4.70 per kilo. The actual direct labor rate was $13.70 per hour and
the actual variable overhead rate was $2.70 per hour.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for May is:
A) $1,440 U
B) $1,302 F
C) $1,302 U
D) $1,440 F
Answer:
Electrical costs at one of Reifel Corporation’s factories are listed below:
Management believes that electrical cost is a mixed cost that depends on
machine-hours.
Using the high-low method, the estimate of the fixed component of electrical cost per
month is closest to:
A. $5,594
B. $3,514
C. $5,875
D. $5,840
Answer:
Cotuit Company has a current ratio of 3.2 and an acid-test ratio of 2.4. The company’s
current assets consist of cash, marketable securities, accounts receivable, and inventory.
The company’s inventory is $40,000. Cotuit Company’s current liabilities must be:
A. $40,000
B. $120,000
C. $50,000
D. $32,000
Answer:
Salvadore Inc., a local retailer, has provided the following data for the month of
September:
The net operating income for September was:
A. $60,000
B. $128,000
C. $127,000
D. $59,000
Answer:
A company’s current ratio and acid-test ratios are both greater than 1. Issuing bonds to
finance purchase of an office building with the first installment of the bonds due in the
current year would:
A. decrease net working capital.
B. decrease the current ratio.
C. decrease the acid-test ratio.
D. affect all of the above as indicated.
Answer:
Young Enterprises has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to
10% of the next month’s sales in units. The inventory on May 31 fell short of this goal
since it contained only 400 units. The company needs to prepare a Production Budget
for the next five months.
The desired ending inventory for August is:
A. 540 units
B. 680 units
C. 720 units
D. 380 units
Answer:
Excerpts from Tigner Corporation’s most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,230 and the cost of goods sold was $820.
The inventory turnover for Year 2 is closest to:
A. 0.86
B. 1.17
C. 6.31
D. 6.83
Answer:
In activity-based costing, unit product costs computed for external financial reports
include manufacturing overhead computed by:
A. multiplying the predetermined overhead rate by the direct labor-hours required per
unit of the product.
B. multiplying the activity rate for each cost pool by the direct labor-hours required per
unit of the product.
C. multiplying the activity rate for each cost pool by the corresponding amount of
activity required per unit of the product.
D. tracing the manufacturing overhead cost to the product.
Answer:
In activity-based costing, the total overhead cost in an activity cost pool can be
computed by:
A. dividing the total activity in the activity cost pool by the activity rate for the activity
cost pool.
B. multiplying the total activity in the activity cost pool by the activity rate for the
activity cost pool.
C. dividing the total direct labor-hours in the activity cost pool by the activity rate for
the activity cost pool.
D. multiplying the total direct labor-hours in the activity cost pool by the activity rate
for the activity cost pool.
Answer:
Reference: 8A-7
The Malcolm Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard direct labor-hours (DLHs). The
standards call for 3 hours of direct labor per unit produced. The following data pertain
to the companys manufacturing overhead for the month of July:
The Fixed component of the predetermined overhead rate for June is:
A) $3.11
B) $3.39
C) $3.77
D) $3.00
Answer:
Byron Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under absorption costing?
A. $83
B. $92
C. $86
D. $77
Answer:
Kornfeld Corporation produces metal telephone poles. In the most recent month, the
company budgeted production of 2,800 poles. Actual production was 3,200 poles.
According to standards, each pole requires 2.2 machine-hours. The actual
machine-hours for the month were 6,890 machine-hours. The standard variable
manufacturing overhead rate is $9.20 per machine-hour. The actual variable
manufacturing cost for the month was $67,020. The variable overhead efficiency
variance is:
A) $1,380 U
B) $1,380 F
C) $2,252 F
D) $2,252 U
Answer:
Temblador Corporation purchased a machine 7 years ago for $319,000 when it
launched product E26T. Unfortunately, this machine has broken down and cannot be
repaired. The machine could be replaced by a new model 330 machine costing
$323,000 or by a new model 230 machine costing $285,000. Management has decided
to buy the model 230 machine. It has less capacity than the model 330 machine, but its
capacity is sufficient to continue making product E26T. Management also considered,
but rejected, the alternative of dropping product E26T and not replacing the old
machine. If that were done, the $285,000 invested in the new machine could instead
have been invested in a project that would have returned a total of $386,000.
In making the decision to buy the model 230 machine rather than the model 330
machine, the sunk cost was:
A. $319,000
B. $386,000
C. $285,000
D. $323,000
Answer:
Brandon Company’s net income last year was $65,000 and its interest expense was
$20,000. Total assets at the beginning of the year were $640,000 and total assets at the
end of the year were $690,000. The company’s income tax rate was 30%. The
company’s return on total assets for the year was closest to:
A. 9.8%
B. 10.7%
C. 12.8%
D. 11.9%
Answer: