1) When a company has a production constraint, the selling price of any new product
should cover both its fully allocated cost–including common fixed costs–and the
opportunity cost involved in using the constrained resource.
2) All differences between super-variable costing and absorption costing net operating
income are explained by the accounting for direct materials costs.
3) When a company pays a supplier for inventory it has purchased, the cash outflow is
recorded in the investing activities section of the statement of cash flows.
4) Free cash flow is net cash provided by operating activities less capital expenditures.
5) The basic premise of the payback method is that the more quickly the cost of an
investment is recovered the more desirable is the investment.
6) A product whose revenues do not cover its variable costs, its traceable fixed costs,
and its allocated share of general corporate administrative expenses should usually be
dropped.
7) When using segmented income statements, the dollar sales for a company to break
even equals the sum of the traceable fixed expenses and the common fixed expenses
divided by the overall CM ratio.
8) Crosswhite Corporation’s sales last year were $1,270,000, its gross margin was
$400,000, its net operating income was $53,769, and its net income was $26,500. The
company’s net profit margin percentage is closest to:
A.31.5%
B.3.2%
C.4.2%
D.2.1%
9) Costs associated with two alternatives, code-named Q and R, being considered by
Hunnicutt Corporation are listed below:
Required:
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?
10) The acid-test ratio at the end of Year 2 is closest to:
A.0.96
B.1.36
C.1.50
D.1.93
11) Acklac Corporation uses the weighted-average method in its process costing
system. This month, the beginning inventory in the first processing department
consisted of 700 units. The costs and percentage completion of these units in beginning
inventory were:
A total of 9,200 units were started and 8,300 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 15% 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.
What are the equivalent units for conversion costs for the month in the first processing
department?
A.8,300
B.240
C.9,900
D.8,540
12) The following data for February has been provided by Gillard Corporation.
The volume variance for February is:
A.$5,580 F
B.$5,580 U
C.$7,440 U
D.$7,440 F
13) Younis Corporation’s income statement appears below:
The company’s net profit margin percentage is closest to:
A.37.1%
B.3.5%
C.2.4%
D.1.7%
14) Beecham Memorial Diner is a charity supported by donations that provides free
meals to the homeless. The diner’s budget for October was based on 3,400 meals, but
the diner actually served 3,200 meals. The diner’s director has provided the following
cost formulas to use in budgets:
The director has also provided the diner’s statement of actual expenses for the month:
Required:
Prepare a report showing the activity variances for each of the expenses and for total
expenses for October. Label each variance as favorable (F) or unfavorable (U).
15) The total cash flow net of income taxes in year 2 is:
A.$160,000
B.$100,000
C.$130,000
D.$74,000
16) The company’s current ratio is closest to:
A.0.47
B.0.40
C.0.19
D.4.25
17) Keske Corporation has an activity-based costing system with three activity cost
pools-Machining, Order Filling, and Other. In the first stage allocations, costs in the two
overhead accounts, equipment depreciation and supervisory expense, are allocated to
the three activity cost pools based on resource consumption. Data used in the first stage
allocations follow:
Machining costs are assigned to products using machine-hours (MHs) and Order Filling
costs are assigned to products using the number of orders. The costs in the Other
activity cost pool are not assigned to products. Activity data for the company’s two
products follow:
Finally, the costs of Machining and Order Filling are combined with the following sales
and direct cost data to determine product margins.
What is the product margin for Product L6 under activity-based costing?
A.$8,406
B.$20,266
C.$51,600
D.$41,100
18) Clear Colors Corporation uses a predetermined overhead rate based on direct labor
costs to apply manufacturing overhead to jobs. At the beginning of the year the
Corporation estimated its total manufacturing overhead cost at $350,000 and its direct
labor costs at $200,000. The actual overhead cost incurred during the year was
$362,000 and the actual direct labor costs incurred on jobs during the year was
$208,000. The manufacturing overhead for the year would be:
A.$12,000 underapplied.
B.$12,000 overapplied.
C.$2,000 underapplied.
19) Nicolini 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 October, the kennel budgeted
for 2,200 tenant-days, but its actual level of activity was 2,250 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for October:
Data used in budgeting:
Actual results for October:
The spending variance for food and supplies in October would be closest to:
A.$600 F
B.$5 F
C.$600 U
D.$5 U
20) Higgins Corporation sells three products, Product A, Product B, and Product C.
Data concerning the company’s most recent month of operations, June, appear below:
The total fixed expense for the company was $525,000.
Common fixed expenses for Higgins Corporation for June were:
A.$45,000
B.$420,000
C.$150,000
D.$105,000
21) Eliezrie Corporation makes a product with the following standard costs:
In January the company’s budgeted production was 7,400 units but the actual
production was 7,500 units. The company used 45,580 kilos of the direct material and
2,030 direct labor-hours to produce this output. During the month, the company
purchased 48,500 kilos of the direct material at a cost of $53,350. The actual direct
labor cost was $18,473 and the actual variable overhead cost was $7,714.
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 labor efficiency variance for January is:
A.$2,200 U
B.$2,002 F
C.$2,200 F
D.$2,002 U
22) The budget method that maintains a constant twelve-month planning horizon by
adding a new month on the end as the current month is completed is called:
A.an operating budget.
B.a capital budget.
C.a continuous budget.
D.a master budget.
23) The Adams Corporation, a merchandising firm, has budgeted its activity for
November according to the following information:
Sales at $450,000, all for cash.
Merchandise inventory on October 31 was $200,000.
The cash balance November 1 was $18,000.
Selling and administrative expenses are budgeted at $60,000 for November and are paid
for in cash.
Budgeted depreciation for November is $25,000.
The planned merchandise inventory on November 30 is $230,000.
The cost of goods sold is 70% of the selling price.
All purchases are paid for in cash.
There is no interest expense or income tax expense.
The budgeted cash receipts for November are:
A.$315,000
B.$450,000
C.$135,000
D.$475,000
24) The payback period is closest to:
A.5.7 years
B.4.0 years
C.2.3 years
D.1.8 years
25) ( Vernon Corporation has been offered a 5-year contract to supply a part for the
military. After careful study, the company has developed the following estimated data
relating to the contract:
It is not expected that the contract would be extended beyond the initial contract period.
The company’s discount rate is 10%.
Required:
Use the net present value method to determine if the contract should be accepted.
26) The direct labor standards at Hebden Corporation are $10.30 per direct labor-hour
(DLH) and 3.4 DLHs per unit of output. In December, 7,800 units were produced, the
actual wage rate was $9.90 per DLH, and the actual hours were 21,340 DLHs.
Required:
Prepare the journal entry to record the incurrence of direct labor costs.
27) Pashicke Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are presented
below.
The product’s variable cost is $17.10 per unit.
Required:
a Compute the product’s price elasticity of demand as defined in the text to two decimal
places.
b. Compute the product’s profit-maximizing price according to the formula in the text.
28) Cosme Tech is a for-profit vocational school. The school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. The school uses the
following data in its budgeting:
In April, the school budgeted for 1,870 students and 174 courses. The school’s income
statement showing the actual results for the month appears below:
Required:
Prepare a flexible budget performance report showing both the school’s activity
variances and revenue and spending variances for April. Label each variance as
favorable (F) or unfavorable (U).
29) Abdool Corporation has provided the following financial data:
30) Lopp Corporation produces and sells a single product. Data concerning that product
appear below:
Required:
Assume the company’s monthly target profit is $38,280. Determine the unit sales to
attain that target profit. Show your work!
31) Seekell Memorial Diner is a charity supported by donations that provides free meals
to the homeless. The diner’s budget for October was based on 2,500 meals, but the diner
actually served 2,900 meals. The diner’s director has provided the following cost
formulas to use in budgets:
Required:
Prepare the diner’s flexible budget for the actual number of meals served in October.
The budget will only contain the costs listed above; no revenues will be on the budget.