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The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
Answer:
Reference: 8-52
The Richie Company uses a standard costing system in which variable manufacturing
overhead is assigned to production on the basis of the number of machine setups. Data
for the month of October include the following:
- Variable manufacturing overhead cost incurred: $42,750
- Total variable manufacturing overhead variance: $5,430 favorable
- Standard machine setups allowed for actual production: 2,920 setups
- Actual machine setups incurred: 2,850 setups
The variable overhead rate variance is:
A) $4,275 favorable
B) $4,275 unfavorable
C) $1,050 unfavorable
D) $1,050 favorable
Answer:
Carpon Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store's operations follow:
o Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000
for January.
o Collections are expected to be 55% in the month of sale, 44% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires to have an ending merchandise inventory equal to 60% of the
next month's cost of goods sold. Payment for merchandise is made in the month
following the purchase.
o Other monthly expenses to be paid in cash are $21,100.
o Monthly depreciation is $19,000.
o Ignore taxes.
The cash balance at the end of December would be:
A. $13,000
B. $52,400
C. $65,400
D. $74,500
Answer:
Reference: 8-41
Johnny Corporation makes a product that uses a material with the following standards:
The company budgeted for production of 9,500 units in April, but actual production was
9,600 units. The company used 85,400 kilos of direct material to produce this output.
The company purchased 91,900 kilos of the direct material at $1.10 per kilo.
The direct materials purchases variance is computed when the materials are purchased.
The materials quantity variance for April is:
A) $7,348 U
B) $6,680 U
C) $6,680 F
D) $7,348 F
Answer:
Financial statements for Orange Company appear below:
Dividends during Year 2 totaled $156 thousand, of which $18 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $100.
Orange Company's average sale period for Year 2 was closest to:
A. 23.2 days
B. 29.5 days
C. 33.2 days
D. 20.6 days
Answer:
Kelln Corporation's most recent comparative balance sheet and income statement
appear below:
The company paid a cash dividend and it did not dispose of any property, plant, and
equipment. The company did not issue any bonds payable 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 for the year was:
A. $36
B. $3
C. $75
D. $56
Answer:
Archer Company had net income of $40,000 last year. The company has 5,000 shares of
common stock and 2,500 shares of preferred stock outstanding. There was no change in
the number of common or preferred shares outstanding during the year. Preferred
dividends were $2 per share. The earnings per share of common stock was:
A. $7.00
B. $8.00
C. $5.33
D. $7.50
Answer:
The following data for April has been provided by Mittler Corporation.
The volume variance for April is:
A. $10,150 U
B. $8,120 U
C. $8,120 F
D. $10,150 F
Answer:
The Western Company is considering the addition of a new product to its current
product lines. The expected cost and revenue data for the new product are as follows:
If the new product is added to the existing product line, then sales of existing products
will decline. As a consequence, the contribution margin of the other existing product
lines is expected to drop $78,000 per year.
If the new product is added next year, the increase in net operating income resulting
from this decision would be:
A. $387,000
B. $261,000
C. $183,000
D. $207,000
Answer:
Wright Corporation's contribution format income statement for last month appears
below.
There were no beginning or ending inventories. The company produced and sold 3,000
units during the month.
If sales decrease by 500 units by next month, by how much would fixed expenses have
to be reduced to maintain the current net operating income?
A. $7,500
B. $6,000
C. $2,000
D. $3,000
Answer:
Colosi Corporation's comparative balance sheet appears below:
The company's net income (loss) for the year was $3,000 and its cash dividends were
$1,000. It did not sell or retire any property, plant, and equipment during the year.
The company's net cash used in investing activities is:
A. $41,000
B. $5,000
C. $9,000
D. $18,000
Answer:
The Reedy Company uses a standard costing system. The following data are available
for November:
The actual direct labor rate for November is:
A) $8.80
B) $8.90
C) $9.00
D) $9.20
Answer:
James Company has a margin of safety percentage of 20% based on its actual sales. The
break-even point is $200,000 and the variable expenses are 45% of sales. Given this
information, the actual profit is:
A. $27,500
B. $18,000
C. $22,500
D. $22,000
Answer:
A process costing system:
A. uses a separate Work in Process account for each processing department.
B. uses a single Work in Process account for the entire company.
C. uses a separate Work in Process account for each type of product produced.
D. does not use a Work in Process account in any form.
Answer:
Saffer Corporation keeps careful track of the time required to fill orders. Data
concerning a particular order appear below:
The throughput time was:
A. 9.3 hours
B. 4.9 hours
C. 30.9 hours
D. 26 hours
Answer:
Excerpts from Lasso Corporation's most recent balance sheet appear below:
Net income for Year 2 was $145,000. Dividends on common stock were $55,000 in
total and dividends on preferred stock were $20,000 in total. The return on common
stockholders' equity for Year 2 is closest to:
A. 12.3%
B. 8.1%
C. 13.0%
D. 14.3%
Answer:
Stryker Corporation has two major business segments-East and West. In April, the East
business segment had sales revenues of $500,000, variable expenses of $280,000, and
traceable fixed expenses of $80,000. During the same month, the West business
segment had sales revenues of $970,000, variable expenses of $514,000, and traceable
fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were
allocated as follows: $112,000 to the East business segment and $168,000 to the West
business segment.
The contribution margin of the West business segment is:
A. $456,000
B. $140,000
C. $28,000
D. $676,000
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 months operations:
Required:
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:
Abe Company, which has only one product, has provided the following data concerning
its most recent month of operations:
What is the total period cost for the month under the variable costing approach?
A. $156,600
B. $210,000
C. $366,600
D. $307,800
Answer:
Talboe Company makes wheels which it uses in the production of children's wagons.
Talboe's costs to produce 200,000 wheels annually are as follows:
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the
wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing
overhead would be avoided and the facilities now being used to make the wheels would
be rented to another company for $55,000 per year.
If Talboe chooses to buy the wheel from the outside supplier, then the change in annual
net operating income is a:
A. $5,000 decrease
B. $50,000 increase
C. $70,000 increase
D. $40,000 increase
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 invest in the model 230 machine, the opportunity cost was:
A. $386,000
B. $319,000
C. $285,000
D. $323,000
Answer:
Pellman Inc., which produces a single product, has provided the following data for its
most recent month of operations:
There were no beginning or ending inventories.
The unit product cost under absorption costing was:
A. $91
B. $72
C. $25
D. $32
Answer:
Which of the following are valid reasons for eliminating a product line?
I. The product line's contribution margin is negative.
II. The product line's traceable fixed costs plus its allocated common corporate costs are
less than its contribution margin.
A. Only I
B. Only II
C. Both I and II
D. Neither I nor II
Answer:
Paxton Corp has provided the following data concerning its operations last month:
Paxton Corp is a retailing organization.
The contribution margin ratio is:
A. 12.5%
B. 33.0%
C. 25.0%
D. 37.5%
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.
Management is considering using a new component that would increase the unit
variable cost by $16. Since the new component would increase the features of the
company's product, the marketing manager predicts that monthly sales would increase
by 500 units. What should be the overall effect on the company's monthly net operating
income of this change?
A. increase of $2,000
B. decrease of $2,000
C. decrease of $30,000
D. increase of $30,000
Answer:
Ellis Television makes and sells portable televisions. Each television regularly sells for
$210. The following cost data per television is based on a full capacity of 10,000
televisions produced each period.
A special order has been received by Ellis for a sale of 2,000 televisions to an overseas
customer. The only selling costs that would be incurred on this order would be $6 per
television for shipping. Ellis is now selling 6,000 televisions through regular channels
each period. What should be the minimum selling price per television in negotiating a
price for this special order?
A. $174
B. $168
C. $210
D. $180
Answer:
Financial statements for Marcell Company appear below:
Marcell Company's accounts receivable turnover for Year 2 was closest to:
A. 16.2
B. 9.9
C. 23.2
D. 14.2
Answer:
Niemiec Corporation keeps careful track of the time required to fill orders. The times
recorded for a particular order appear below:
The manufacturing cycle efficiency (MCE) was closest to:
A. 0.20
B. 0.06
C. 0.12
D. 0.96
Answer:
Break-even analysis assumes that:
A. total costs are constant.
B. the average fixed expense per unit is constant.
C. the average variable expense per unit is constant.
D. variable expenses are nonlinear.
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.
What are the equivalent units for materials for the month in the first processing
department?
A. 10,500
B. 960
C. 8,300
D. 9,530
Answer:
Reference: 8-1
Nussey Clinic uses client-visits as its measure of activity. During May, the clinic
budgeted for 2,100 client-visits, but its actual level of activity was 2,050 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for May:
Data used in budgeting:
Actual results for May:
The spending variance for medical supplies in May would be closest to:
A) $200 F
B) $200 U
C) $195 F
D) $195 U
Answer:
The Immanuel Company has just obtained a request for a special order of 6,000 jigs to
be shipped at the end of the month at a selling price of $7 each. The company has a
production capacity of 90,000 jigs per month with total fixed production costs of
$144,000. At present, the company is selling 80,000 jigs per month through regular
channels at a selling price of $11 each. For these regular sales, the cost for one jig is:
If the special order is accepted, Immanuel will not incur any selling expense; however,
it will incur shipping costs of $0.30 per unit. Total fixed production cost would not be
affected by this order.
Suppose that regular sales of jigs total 85,000 units per month. All other conditions
remain the same. If Immanuel accepts the special order, the change in monthly net
operating income will be:
A. $14,400 increase
B. $7,200 increase
C. $3,600 decrease
D. $5,400 decrease
Answer:
Danneman Corporation's fixed monthly expenses are $13,000 and its contribution
margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is
the best estimate of the company's net operating income in a month when sales are
$41,000?
A. $9,960
B. $5,040
C. $22,960
D. $28,000
Answer:
Prejean Corporation's most recent comparative balance sheet and income statement
appear below:
Cash dividends were $32. The company did not retire or sell any property, plant, and
equipment during the year. The net cash provided by (used in) operating activities for
the year was:
A. $45
B. $87
C. $177
D. $189
Answer:
Data for May concerning Dorow Corporation's two major business segments-Fibers and
Feedstocks-appear below:
Common fixed expenses totaled $345,000 and were allocated as follows: $186,000 to
the Fibers business segment and $159,000 to the Feedstocks business segment.
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Answer:
Guagliano Corporation produces and sells a single product whose selling price is
$110.00 per unit and whose variable expense is $29.70 per unit. The company's
monthly fixed expense is $345,290.
a. Assume the company's monthly target profit is $16,060. Determine the unit sales to
attain that target profit. Show your work!
b. Assume the company's monthly target profit is $40,150. Determine the dollar sales to
attain that target profit. Show your work!
Answer:
Redner, Inc. produces three products. Data concerning the selling prices and unit costs
of the three products appear below:
Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company's productive capacity. The grinding
machine is the constraint, with only 2,400 minutes of grinding machine time available
this week.
a. Given the grinding machine constraint, which product should be emphasized?
Support your answer with appropriate calculations.
b. Assuming that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to pay for
an additional hour of grinding machine time?
Answer:
Wartenberg Corporation uses customers served as its measure of activity. The company
bases its budgets on the following information: Revenue should be $3.80 per customer
served. Wages and salaries should be $38,800 per month plus $1.00 per customer
served. Supplies should be $0.60 per customer served. Insurance should be $7,100 per
month. Miscellaneous expenses should be $5,100 per month plus $0.30 per customer
served.
The company reported the following actual results for January:
Required:
Prepare a report showing the companys revenue and spending variances for January.
Label each variance as favorable (F) or unfavorable (U).
Answer:
Utility costs at one of Helker Corporation's factories are listed below:
Management believes that utility cost is a mixed cost that depends on machine-hours.
Estimate the variable cost per machine-hour and the fixed cost per month using the
high-low method. Show your work! Round off all calculations to the nearest whole
cent.
Answer:
Cecere 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 February, the school budgeted for 1,740 students and 160 courses. The actual activity
for the month was 1,540 students and 161 courses.
Required:
Prepare the schools planning budget for February.
Answer:
Krouse Corporation's manufacturing overhead includes $14.70 per machine-hour for
variable manufacturing overhead and $191,580 per period for fixed manufacturing
overhead.
Determine the predetermined overhead rate for the denominator level of activity of
3,100 machine-hours.
Answer:
Waltner Corporation's management reports that its average delivery cycle time is 20.0
days, its average throughput time is 7.5 days, its manufacturing cycle efficiency (MCE)
is 0.32, its average move time is 0.2 day, and its average queue time is 4.0 days.
a. What is the wait time?
b. What is the process time?
c. What is the inspection time?
Answer:
In March, one of the processing departments at Perrill Corporation had beginning work
in process inventory of $31,000. During the month, $368,000 of costs were added to
production and the cost of units transferred out from the department was $367,000.
Construct a cost reconciliation report for the department for the month of March.
Answer:
Dullen Corporation has provided the following data concerning its most important raw
material, compound I51D:
The raw material was purchased on account.
a. Record the purchase of the raw material in a journal entry.
b. Record the use of the raw material in production in a journal entry.
Answer:
Humes Corporation makes a range of products. The company's predetermined overhead
rate is $16 per direct labor-hour, which was calculated using the following budgeted
data:
Management is considering a special order for 700 units of product J45K at $64 each.
The normal selling price of product J45K is $75 and the unit product cost is determined
as follows:
If the special order were accepted, normal sales of this and other products would not be
affected. The company has ample excess capacity to produce the additional units.
Assume that direct labor is a variable cost, variable manufacturing overhead is really
driven by direct labor-hours, and total fixed manufacturing overhead would not be
affected by the special order.
If the special order were accepted, what would be the impact on the company's overall
profit?
Answer:
Answer:
Arzola Corporation produces and sells a single product. Data concerning that product
appear below:
Assume the company's monthly target profit is $17,080. Determine the unit sales to
attain that target profit. Show your work!
Answer:
Milton Corporation's balance sheet and income statement appear below:
Cash dividends were $2. The company did not dispose of any property, plant, and
equipment during the year.
Prepare the operating activities section of the statement of cash flows using the direct
method.
Answer:
EMD Corporation manufactures two products, Product S and Product W. Product W is
of fairly recent origin, having been developed as an attempt to enter a market closely
related to that of Product W. Product W is the more complex of the two products,
requiring one hour of direct labor time per unit to manufacture compared to one-half
hour of direct labor time for Product S. Product W is produced on an automated
production line.
Overhead is currently assigned to the products on the basis of direct labor-hours. The
company estimated it would incur $500,000 in manufacturing overhead costs and
produce 10,000 units of Product W and 60,000 units of Product S during the current
year. Unit cost for materials and direct labor are:
a. Compute the predetermined overhead rate under the current method of allocation and
determine the unit product cost of each product for the current year.
b. The company's overhead costs can be attributed to four major activities. These
activities and the amount of overhead cost attributable to each for the current year are
given below:
Using the data above and an activity-based costing approach, determine the unit product
cost of each product for the current year.
Answer:
In July, one of the processing departments at Wrightsel Corporation had beginning work
in process inventory of $22,000 and ending work in process inventory of $16,000.
During the month, $225,000 of costs were added to production and the cost of units
transferred out from the department was $231,000.
Construct a cost reconciliation report for the department for the month of July.
Answer:
The selling price of Bayard Corporation's only product is $230.00 per unit and its
variable expense is $80.50 per unit. The company's monthly fixed expense is $792,350.
Assume the company's monthly target profit is $29,900. Determine the unit sales to
attain that target profit. Show your work!
Answer:
Schmeider Corporation uses the following activity rates from its activity-based costing
system to assign overhead costs to products.
Data concerning two products appear below:
How much overhead cost would be assigned to each of the two products using the
company's activity-based costing system?
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:
Plotz Corporation's net cash provided by operating activities was $59,000; its net
income was $67,000; its income taxes were $29,000; its capital expenditures were
$44,000; and its cash dividends were $13,000.
Determine the company's free cash flow.
Answer:
