Reichelderfer Corporation has provided data concerning the company’s Manufacturing
Overhead account for the month of August. Prior to the closing of the overapplied or
underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing
Overhead account was $50,000 and the total of the credits to the account was $72,000.
Which of the following statements is TRUE?
A. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $72,000.
B. Manufacturing overhead applied to Work in Process for the month was $50,000.
C. Actual manufacturing overhead for the month was $50,000.
D. Manufacturing overhead for the month was underapplied by $22,000.
Answer:
A volume variance and an efficiency variance are computed for fixed manufacturing
overhead costs.
Answer:
Process costing would be used by companies producing the following items: bricks,
bolts, pharmaceutical items, natural gas, and electricity.
Answer:
At the break-even point: Sales – Variable expenses = Fixed expenses.
Answer:
For asset accounts, credits are added to the beginning balance on the statement of cash
flows.
Answer:
An unfavorable volume variance means that a firm operated at an activity level that was
above the activity level planned for the period.
Answer:
Reynold Enterprises sells a single product for $25. The variable expense per unit is $15
and the fixed expense per unit is $5 at the current level of sales. The company’s net
operating income will increase by $5 if one more unit is sold.
Answer:
The fixed manufacturing overhead budget variance is not controllable by managers
because fixed costs are not controllable.
Answer:
A revenue variance is favorable if the revenue in the static planning budget exceeds the
revenue in the flexible budget.
Answer:
Negative working capital indicates that the sum of all current assets is negative.
Answer:
An unfavorable materials quantity variance is recorded as a credit in the Materials
Quantity Variance account.
Answer:
Incremental analysis is an analytical approach that focuses only on those revenues and
costs that will change as a result of a decision.
Answer:
If the actual purchase price for materials exceeds the standard purchase price, then the
journal entry to record the Direct Materials Price Variance would be a debit.
Answer:
When computing the acid-test ratio, a short-term note receivable would be included in
the numerator.
Answer:
The break-even point in units can be obtained by dividing total fixed expenses by the
contribution margin ratio.
Answer:
The materials price variance is computed by multiplying the difference between the
actual price and the standard price by the actual quantity of materials used in
production.
Answer:
In a standard costing system, underapplied or overapplied fixed manufacturing
overhead is equal to the sum of the fixed manufacturing overhead budget variance and
the fixed manufacturing overhead volume variance.
Answer:
In the second-stage allocation in activity-based costing, costs that were not allocated in
the first stage are assigned to the company’s most profitable products.
Answer:
A decrease in production will ordinarily result in an increase in fixed production costs
per unit.
Answer:
A favorable labor rate variance is recorded as a debit in the Labor Rate Variance
account.
Answer:
The use of predetermined overhead rates in a job-order cost system makes it possible to
estimate the total cost of a given job as soon as production is completed.
Answer:
Product-level activities relate to specific products and typically must be carried out
regardless of how many batches are run or units of product are made.
Answer:
Facility-level activities are activities that support specific products.
Answer:
The present value of a given amount decreases as the number of years over which it is
to be discounted also decreases.
Answer:
A job cost sheet is used to accumulate costs charged to a job.
Answer:
One would expect the book value of a share of stock to be about the same as the stock’s
market value.
Answer:
Costs classified as batch-level costs should depend on the number of batches processed
rather than on the number of units produced, the number of units sold, or other
measures of volume.
Answer:
A process costing system would be best suited for production of a large quantity of a
homogeneous product.
Answer:
Hubiak Corporation produces a single product and has the following cost structure:
Compute the unit product cost under absorption costing. Show your work!
Answer:
Consider a company that has only variable costs. All other things the same, an increase
in unit sales will result in no change in the return on investment.
Answer:
A materials price variance is favorable if the actual price exceeds the standard price.
Answer:
Committed fixed costs are fixed costs that are not controllable.
Answer:
The following costs should be considered direct costs of providing delivery room
services to a particular mother and her baby: the costs of drugs administered in the
operating room, the attending physician’s fees, and a portion of the liability insurance
carried by the hospital to cover the delivery room.
Answer:
If the actual purchase price for materials exceeds the standard purchase price, then the
journal entry to record the Direct Materials Price Variance would be a debit.
Answer:
The following journal entry would be made to apply overhead cost to jobs in a
job-order costing system:
Answer:
The following would typically be considered indirect costs of manufacturing a
particular Boeing 747 to be delivered to Singapore Airlines: electricity to run
production equipment, the factory manager’s salary, and the cost of the General Electric
jet engines installed on the aircraft.
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:
Bordes Corporation has provided the following data concerning its most important raw
material, compound R85F:
The raw material was purchased on account.
The credits to the Raw Materials account for May would total:
A. $75,240
B. $77,880
C. $58,596
D. $53,808
Answer:
Ire Corporation uses the weighted-average method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
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. $10.50
B. $9.95
C. $10.89
D. $10.32
Answer:
Given the cost formula Y = $15,000 + $5X, total cost at an activity level of 8,000 units
would be:
A. $23,000
B. $15,000
C. $55,000
D. $40,000
Answer:
Rameriz Company erred in selecting a denominator activity and chose a much higher
level than was realistic. This error would most likely result in a large:
A. favorable variable overhead efficiency variance.
B. favorable fixed manufacturing overhead budget variance.
C. unfavorable overhead volume variance.
D. unfavorable fixed manufacturing overhead budget variance.
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:
Alkine Company’s comparative balance sheet appears below:
Alkine reported the following net income for the year:
Dividends were declared and paid during the year. A gain of $8,000 was recorded on the
sale of the long-term investments. The company did not purchase any long-term
investments or dispose of any property, plant, and equipment during the year. It also did
not issue any bonds payable or repurchase any of its own common stock.
The net cash provided (used) by financing activities would be:
A. $3,000
B. $(5,000)
C. $(58,200)
D. $(61,200)
Answer:
Yista Corporation uses a predetermined overhead rate based on direct labor-hours to
apply manufacturing overhead to jobs. The company estimated manufacturing overhead
at $510,000 for the year and direct labor-hours at 100,000 hours. Actual manufacturing
overhead costs incurred during the year totaled $540,000. Actual direct labor-hours
were 105,000. What was the overapplied or underapplied overhead for the year?
A. $30,000 overapplied
B. $30,000 underapplied
C. $4,500 overapplied
D. $4,500 underapplied
Answer:
Data concerning Homme Corporation’s single product appear below:
The company is currently selling 2,000 units per month. Fixed expenses are $130,000
per month.
This question is to be considered independently of all other questions relating to
Homme Corporation. Refer to the original data when answering this question.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $14 per unit. In
exchange, the sales staff would accept a decrease in their salaries of $24,000 per month.
(This is the company’s savings for the entire sales staff.) The marketing manager
predicts that introducing this sales incentive would increase monthly sales by 100 units.
What should be the overall effect on the company’s monthly net operating income of
this change?
A. decrease of $45,800
B. increase of $154,200
C. increase of $22,600
D. increase of $2,200
Answer:
Reference: 8-39
The Geurtz Company uses standard costing. The company makes and sells a single
product called a Roff. The following data are for the month of August:
– Actual cost of direct material purchased and used: $65,560
– Material price variance: $5,960 unfavorable
– Total materials variance: $22,360 unfavorable
– Standard cost per pound of material: $4
– Standard cost per direct labor-hour: $5
– Actual direct labor-hours: 6,500 hours
– Labor efficiency variance: $3,500 favorable
– Standard number of direct labor-hours per unit of Roff: 2 hours
– Total labor variance: $400 unfavorable
The total number of units of Roff produced during August was:
A) 10,800
B) 14,400
C) 3,600
D) 6,500
Answer:
A tile manufacturer has supplied the following data:
What is the company’s unit contribution margin?
A. $4.70
B. $0.42
C. $2.15
D. $2.55
Answer:
Imme Corporations variable overhead is applied on the basis of direct labor-hours. The
company has established the following variable overhead standards for product I81Z:
The following data pertain to the most recent months operations during which 1,360
units of product I81Z were made:
Required:
a. What was the variable overhead rate variance for the month?
b. What was the variable overhead efficiency variance for the month?
Answer:
Prasad Corporation uses the FIFO method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
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 total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $449,250
B. $528,560
C. $485,100
D. $473,100
Answer:
Olis Corporation sells a product for $130 per unit. The product’s current sales are
28,900 units and its break-even sales are 25,721 units. What is the margin of safety in
dollars?
A. $413,270
B. $3,343,730
C. $2,504,667
D. $3,757,000
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:
Data concerning Bouerneuf Company’s common stock follow:
The price-earnings ratio would be:
A. 2.00
B. 2.67
C. 3.00
D. 4.00
Answer:
Reference: 8-33
Tidd Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in November.
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 materials quantity variance for November is:
A) $7,530 U
B) $7,028 U
C) $7,530 F
D) $7,028 F
Answer:
To record the purchase of direct materials, the general ledger would include what kind
of entry to the Materials Price Variance Account?
A) $14,000 credit
B) $14,000 debit
C) $10,000 credit
D) $10,000 debit
Answer:
Watson Company’s comparative balance sheet and income statement for last year
appear below:
The company declared and paid a cash dividend during the year. It did not purchase or
dispose of any property, plant, and equipment. It did not issue any bonds or repurchase
any of its own common stock. The following question pertain to the company’s
statement of cash flows.
The net cash provided by (used in) operating activities last year was:
A. $105,000
B. $87,000
C. $133,000
D. $123,000
Answer:
Two alternatives, code-named X and Y, are under consideration at Afalava Corporation.
Costs associated with the alternatives are listed below.
Are the materials costs and processing costs relevant in the choice between alternatives
X and Y? (Ignore the equipment rental and occupancy costs in this question.)
A. Only materials costs are relevant
B. Only processing costs are relevant
C. Both materials costs and processing costs are relevant
D. Neither materials costs nor processing costs are relevant
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:
Reference: 8-27
The Litton Company has established standards as follows:
Direct material: 3 pounds per unit @ $4 per pound = $12 per unit
Direct labor: 2 hours per unit @ $8 per hour = $16 per unit
Variable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit
Actual production figures for the past year are given below. The company records the
materials price variance when materials are purchased.
The company applies variable manufacturing overhead to products on the basis of
standard direct labor-hours.
The variable overhead rate variance is:
A) $240 U
B) $220 U
C) $220 F
D) $240 F
Answer:
Reference: 8-5
Yewston Hotel bases its budgets on guest-days. The hotels static budget for April
appears below:
The total variable cost at the activity level of 3,200 guest-days per month should be:
A) $40,960
B) $49,280
C) $29,440
D) $35,420
Answer:
Brewster Company has an acid-test ratio of 1.5 and a current ratio of 2.5. Current assets
equal $200,000, of which $10,000 is prepaid expenses. The company’s current assets
consist of cash, marketable securities, accounts receivable, prepaid expenses, and
inventory. Brewster Company’s inventory must be:
A. $30,000
B. $110,000
C. $70,000
D. $80,000
Answer:
Drewniak Corporation has provided the following data from its activity-based costing
system:
The company makes 430 units of product O37W a year, requiring a total of 690
machine-hours, 40 orders, and 10 inspection-hours per year. The product’s direct
materials cost is $35.72 per unit and its direct labor cost is $29.46 per unit.
According to the activity-based costing system, the unit product cost of product O37W
is closest to:
A. $94.11 per unit
B. $89.72 per unit
C. $65.18 per unit
D. $92.49 per unit
Answer:
The management of Fries Corporation has been concerned for some time with the
financial performance of its product R89H and has considered discontinuing it on
several occasions. 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 $31,000 of the fixed
manufacturing expenses and $46,000 of the fixed selling and administrative expenses
are avoidable if product R89H is discontinued.
According to the company’s accounting system, what is the net operating income earned
by product R89H?
A. $143,000
B. $8,000
C. $(8,000)
D. $(143,000)
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:
Diorio Corporation keeps careful track of the time required to fill orders. The times
recorded for a particular order appear below:
The delivery cycle time was:
A. 29.1 hours
B. 30.6 hours
C. 8 hours
D. 2.7 hours
Answer:
(Ignore income taxes in this problem.) You have deposited $5,188 in a special account
that has a guaranteed interest rate. If you withdraw $1,400 at the end of each year for 7
years, you will completely exhaust the balance in the account. The guaranteed interest
rate is closest to:
A. 13%
B. 27%
C. 19%
D. 89%
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:
Loll Company uses the weighted-average method in its process costing system.
Operating data for the first processing department for the month of June appear below:
According to the company’s records, the conversion cost in beginning work in process
inventory was $46,915 at the beginning of June. Additional conversion costs of
$825,183 were incurred in the department during the month.
What was the cost per equivalent unit for conversion costs for the month? (Round off to
three decimal places.)
A. $8.420
B. $6.934
C. $8.530
D. $8.322
Answer:
Chae Corporation uses the weighted-average method in its process costing system. This
month, the beginning inventory in the first processing department consisted of 500
units. The costs and percentage completion of these units in beginning inventory were:
A total of 8,100 units were started and 7,500 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 80% complete with respect to materials and 75% 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 total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $486,614
B. $472,000
C. $459,200
D. $424,373
Answer:
Financial statements for Rarig Company appear below:
Compute the following for Year 2:
a. Current ratio.
b. Acid-test ratio.
c. Average collection period.
d. Inventory turnover.
e. Times interest earned.
f. Debt-to-equity ratio.
Answer:
Data concerning Lantieri Corporation’s single product appear below:
Fixed expenses are $162,000 per month. The company is currently selling 3,000 units
per month.
The marketing manager believes that a $10,000 increase in the monthly advertising
budget would result in a 180 unit increase in monthly sales. What should be the overall
effect on the company’s monthly net operating income of this change? Show your
work!
Answer:
Sandler Corporation bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. Data for the upcoming year appear below:
Compute the company’s predetermined overhead rate.
Answer:
Mitzel Corporation has provided its contribution format income statement for May.
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in net
operating income that should result from an 18% increase in sales.
Answer:
Jeoffroy Inc. uses the weighted-average method in its process costing. The following
data concern the company’s Assembly Department for the month of November.
Compute the costs per equivalent unit for the Assembly Department for November.
Answer:
Data from Adame Corporation’s most recent balance sheet and income statement appear
below:
Compute the average collection period for this year:
Answer:
During January, Agron Clinic plans for an activity level of 2,500 patient-visits. The
clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $51.50q
Personnel expenses: $33,800 + $16.60q
Medical supplies: $700 + $7.40q
Occupancy expenses: $10,900 + $2.10q
Administrative expenses: $4,300 + $0.40q
Required:
Prepare the clinics planning budget for January.
Answer:
Financial statements for Qualle Company appear below:
Dividends during Year 2 totaled $149 thousand, of which $10 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $280.
Compute the following for Year 2:
a. Earnings per share of common stock.
b. Price-earnings ratio.
c. Dividend yield ratio.
d. Return on total assets.
e. Return on common stockholders’ equity.
f. Book value per share.
Answer:
Gaskamp Corporation’s total current assets are $270,000, its noncurrent assets are
$610,000, its total current liabilities are $170,000, its long-term liabilities are $400,000,
and its stockholders’ equity is $310,000.
Compute the company’s current ratio. Show your work!
Answer:
The EG Company produces and sells one product. The following data refer to the year
just completed:
Assume that direct labor is a variable cost.
a. Compute the cost of a single unit of product under both the absorption costing and
variable costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in
(b) and (c) above.
Answer:
Condensed financial statements for Blackhurst Company appear below:
There were 72,000 shares of common stock outstanding throughout the year. Dividends
on common stock amounted to $320,400 and dividends on preferred stock amounted to
$45,000. The market value of a share of common stock was $54 at the end of the year.
On the basis of the information given above, fill in the blanks with the appropriate
figures:
Example: The gross margin as a percent of sales would be computed by dividing
$2,160,000 by $5,400,000.
a. The earnings per share of common stock for the year would be computed by dividing
_______________ by _________________.
b. The times interest earned for the year would be computed by dividing
_______________ by _________________.
c. The price-earnings ratio at the end of the year would be computed by dividing
_______________ by _________________.
d. The dividend payout ratio for the year would be computed by dividing
_______________ by _________________.
e. The dividend yield ratio for the year would be computed by dividing
_______________ by _________________.
f. The return on total assets for the year would be computed by dividing
_______________ by _________________.
g. The return on common stockholders’ equity for the year would be computed by
dividing _______________ by _________________.
h. The acid-test ratio at the end of the year would be computed by dividing
_______________ by _________________.
i. The accounts receivable turnover for the year would be computed by dividing
_______________ by _________________.
j. The inventory turnover for the year would be computed by dividing
_______________ by _________________.
k. The debt-to-equity ratio at the end of the year would be computed by dividing
_______________ by _________________.
Answer:
Basta Corporation’s net income last year was $1,401,000. The dividend on common
stock was $1.00 per share and the dividend on preferred stock was $3.90 per share. The
market price of common stock at the end of the year was $65.40 per share. Throughout
the year, 300,000 shares of common stock and 100,000 shares of preferred stock were
outstanding.
Compute the price-earnings ratio. Show your work!
Answer:
The following data have been provided by Bicknese Corporation for the Circuit Prep
Department. The company uses the FIFO method in its process costing.
Determine the equivalent units of production for the Circuit Prep Department for
August using the FIFO method.
Answer:
Kapoor Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products.
Data concerning two products appear below:
a. How much overhead cost would be assigned to Product J00A using the company’s
activity-based costing system? Show your work!
b. How much overhead cost would be assigned to Product S06U using the company’s
activity-based costing system? Show your work!
Answer:
Wehr Inc. is preparing its cash budget for April. The budgeted beginning cash balance is
$19,000. Budgeted cash receipts total $105,000 and budgeted cash disbursements total
$98,000. The desired ending cash balance is $50,000. The company can borrow up to
$120,000 at any time from a local bank, with interest not due until the following month.
Prepare the company’s cash budget for April in good form. Make sure to indicate what
borrowing, if any, would be needed to attain the desired ending cash balance.
Answer:
Corio Corporation reports that at an activity level of 3,800 units, its total variable cost is
$221,464 and its total fixed cost is $94,848.
For the activity level of 3,900 units, compute: (a) the total variable cost; (b) the total
fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed
cost per unit; and (f) the average total cost per unit. Assume that this activity level is
within the relevant range.
Answer:
At an activity level of 5,900 units, Haas Corporation’s total variable cost is $347,982
and its total fixed cost is $284,321.
For the activity level of 6,100 units, compute: (a) the total variable cost; (b) the total
fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed
cost per unit; and (f) the average total cost per unit. Assume that this activity level is
within the relevant range.
Answer: