Heroman Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. The budgeted fixed manufacturing overhead cost for the most
recent month was $26,550 and the actual fixed manufacturing overhead cost for the
month was $26,570. The company based its original budget on 5,900 machine-hours.
The standard hours allowed for the actual output of the month totaled 5,750
machine-hours. What was the overall fixed manufacturing overhead budget variance for
the month?
A) $20 unfavorable
B) $675 favorable
C) $20 favorable
D) $675 unfavorable
Answer:
In August, one of the processing departments at Knepp Corporation had beginning work
in process inventory of $17,000 and ending work in process inventory of $13,000.
During the month, $178,000 of costs were added to production.
In the department’s cost reconciliation report for August, the cost of units transferred
out of the department would be:
A. $182,000
B. $195,000
C. $169,000
D. $165,000
Answer:
Mannarelli Corporation uses the FIFO method in its process costing system. Operating
data for the Casting Department for the month of September appear below:
According to the company’s records, the conversion cost in beginning work in process
inventory was $15,660 at the beginning of September. Additional conversion costs of
$526,524 were incurred in the department during the month.
The cost per equivalent unit for conversion costs for September is closest to: (Round off
to three decimal places.)
A. $5.916
B. $5.340
C. $5.220
D. $5.213
Answer:
Residual income is a better measure for performance evaluation of an investment center
manager than return on investment because:
A. the problems associated with measuring the asset base are eliminated.
B. desirable investment decisions will not be rejected by divisions that already have a
high ROI.
C. only the gross book value of assets needs to be calculated.
D. returns do not increase as assets are depreciated.
Answer:
Favini Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
Answer:
Beall Industries is a division of a major corporation. Last year the division had total
sales of $20,160,000, net operating income of $1,592,640, and average operating assets
of $8,000,000.
The division’s return on investment (ROI) is closest to:
A. 19.9%
B. 16.6%
C. 1.6%
D. 5.7%
Answer:
Grosseiller Corporation uses the weighted-average method in its process costing
system. This month, the beginning inventory in the first processing department
consisted of 900 units. The costs and percentage completion of these units in beginning
inventory were:
A total of 6,400 units were started and 5,200 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 65% 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.
The cost of ending work in process inventory in the first processing department
according to the company’s cost system is closest to:
A. $62,720
B. $31,668
C. $14,474
D. $96,493
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:
Ring, Incorporated’s income statement for the most recent month is given below.
Refer to the original data.
Currently the sales clerks receive a salary of $17,000 per month in Store Q. A proposal
has been made to change from a fixed salary to a sales commission of 5%. Assume that
this proposal is adopted, and that as a result sales in Store Q increase by $40,000. The
new segment margin for Store Q should be:
A. $47,000
B. $61,000
C. $85,000
D. $44,000
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 return on investment (ROI) is closest to:
A. 49.0%
B. 11.5%
C. 0.3%
D. 2.2%
Answer:
Favreau Corporation estimates that its variable manufacturing overhead is $6.10 per
machine-hour and its fixed manufacturing overhead is $352,590 per period.
If the denominator level of activity is 6,900 machine-hours, the variable element in the
predetermined overhead rate would be:
A. $6.10
B. $51.10
C. $57.20
D. $56.47
Answer:
Nikkel Corporation, a merchandising company, reported the following results for July:
The gross margin for July is:
A. $358,500
B. $209,000
C. $233,700
D. $164,700
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:
Power Systems Inc. manufactures jet engines for the United States armed forces on a
cost-plus basis. The production cost of a particular jet engine is shown below:
If production of this engine was discontinued, the production capacity would be idle,
and the supervisor would be laid off. The depreciation referred to above is for special
equipment that would have no resale value and that does not wear out through use.
When asked to bid on the next contract for this engine, the minimum unit price that
Power Systems should bid is:
A. $408,000
B. $365,000
C. $397,000
D. $385,000
Answer:
Financial statements for Harwich Company for the most recent year appear below:
The balances in the Cash, Accounts Receivable, Inventory, Bonds Payable, Common
Stock, and Additional Paid-In Capital accounts are unchanged from the beginning of the
year. A $0.75 per share dividend was declared and paid during the year. On December
31, Harwich Company’s common stock was trading at $24.00 per share.
Harwich Company’s average collection period for the year was closest to:
A. 72 days
B. 8 days
C. 120 days
D. 46 days
Answer:
Grosseiller Corporation uses the weighted-average method in its process costing
system. This month, the beginning inventory in the first processing department
consisted of 900 units. The costs and percentage completion of these units in beginning
inventory were:
A total of 6,400 units were started and 5,200 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 65% 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 materials for the month in the first processing
department?
A. 1,365
B. 6,565
C. 7,300
D. 5,200
Answer:
Elbon Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?
A. $1,400
B. $(19,000)
C. $8,800
D. $10,200
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:
Fjeld Corporation produces and sells two products. In the most recent month, Product
C66G had sales of $20,000 and variable expenses of $7,200. Product U11T had sales of
$19,000 and variable expenses of $8,400. And the fixed expenses of the entire company
were $21,740. If the sales mix were to shift toward Product C66G with total dollar sales
remaining constant, the overall break-even point for the entire company:
A. would increase.
B. would not change.
C. would decrease.
D. could increase or decrease.
Answer:
The Varone Company makes a single product called a Hom. The company has the
capacity to produce 40,000 Homs per year. Per unit costs to produce and sell one Hom
at that activity level are:
The regular selling price for one Hom is $60. A special order has been received at
Varone from the Fairview Company to purchase 8,000 Homs next year at 15% off the
regular selling price. If this special order were accepted, the variable selling expense
would be reduced by 25%. However, Varone would have to purchase a specialized
machine to engrave the Fairview name on each Hom in the special order. This machine
would cost $12,000 and it would have no use after the special order was filled. The total
fixed costs, both manufacturing and selling, are constant within the relevant range of
30,000 to 40,000 Homs per year. Assume direct labor is a variable cost.
If Varone has an opportunity to sell 37,960 Homs next year through regular channels
and the special order is accepted for 15% off the regular selling price, the effect on net
operating income next year due to accepting this order would be a:
A. $33,320 decrease
B. $33,320 increase
C. $35,480 decrease
D. $35,480 increase
Answer:
Cridman Company’s selling and administrative expenses for last year totaled $180,000.
During the year the company’s prepaid expense account balance decreased by $5,000
and accrued liabilities increased by $8,000. Depreciation for the year was $12,000.
Based on this information, selling and administrative expenses adjusted to a cash basis
under the direct method on the statement of cash flows would be:
A. $205,000
B. $181,000
C. $155,000
D. $179,000
Answer:
Seroka Corporation estimates that its variable manufacturing overhead is $6.90 per
machine-hour and its fixed manufacturing overhead is $745,290 per period.
If the denominator level of activity is 9,000 machine-hours, the fixed element in the
predetermined overhead rate would be:
A. $6.90
B. $89.71
C. $690.00
D. $82.81
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:
Pool Company’s variable expenses are 36% of sales. Pool is contemplating an
advertising campaign that will cost $20,000. If sales increase by $80,000, the
company’s net operating income should increase by:
A. $28,800
B. $64,000
C. $8,800
D. $31,200
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.
A properly constructed segmented income statement in a contribution format would
show that the net operating income of the company as a whole is:
A. $412,000
B. $676,000
C. -$148,000
D. $132,000
Answer:
Weiss Corporation produces two models of wood chairs, Colonial and Early American.
The Colonial sells for $60 per chair and the Early American sells for $80 per chair.
Variable expenses for each model are as follows:
Total fixed expenses are $39,600 per month. Expected monthly sales are: Colonial,
1,800 units; Early American, 600 units.
The contribution margin per chair for the Colonial model is:
A. $51
B. $16
C. $35
D. $25
Answer:
(Ignore income taxes in this problem.) You have deposited $21,618 in a special account
that has a guaranteed interest rate of 18% per year. If you are willing to completely
exhaust the account, what is the maximum amount that you could withdraw at the end
of each of the next 9 years? Select the amount below that is closest to your answer.
A. $5,024
B. $7,080
C. $2,402
D. $2,834
Answer:
Binnie Corporation’s most recent balance sheet appears below:
Net income for the year was $83. Cash dividends were $16. The company did not
dispose of any property, plant, and equipment. It 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. $99
B. $67
C. $16
D. $119
Answer:
The following partially completed T-accounts summarize transactions for Fabatz
Company during the year:
The direct materials cost was:
A. $3,300
B. $8,700
C. $6,300
D. $7,300
Answer:
Dickonson Products is a division of a major corporation. The following data are for the
last year of operations:
The division’s margin is closest to:
A. 26.4%
B. 10.0%
C. 2.4%
D. 24.0%
Answer:
Mosbey Inc. is working on its cash budget for June. The budgeted beginning cash
balance is $16,000. Budgeted cash receipts total $188,000 and budgeted cash
disbursements total $187,000. The desired ending cash balance is $40,000. The excess
(deficiency) of cash available over disbursements for June will be:
A. $15,000
B. $1,000
C. $17,000
D. $204,000
Answer:
The Collins Company uses predetermined overhead rates to apply manufacturing
overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and
machine-hours in Dept. B. At the beginning of the year, the company made the
following estimates:
What predetermined overhead rates would be used in Dept A and Dept B, respectively?
A. 71% and $4.00
B. 140% and $4.00
C. 140% and $4.80
D. 71% and $4.80
Answer:
The standards for product J42 call for 3.6 feet of a raw material that costs $14.00 per
feet. Last month, 5,500 feet of the raw material were purchased for $76,175. The actual
output of the month was 1,260 units of product J42. A total of 4,800 feet of the raw
material were used to produce this output.
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:
During August, Cardenas Clinic budgeted for 3,900 patient-visits, but its actual level of
activity was 3,800 patient-visits. The clinic uses the following revenue and cost
formulas in its budgeting, where q is the number of patient-visits:
Revenue: $27.80q
Personnel expenses: $25,100 + $7.80q
Medical supplies: $1,100 + $5.60q
Occupancy expenses: $7,900 + $1.20q
Administrative expenses: $3,200 + $0.10q
Required:
Prepare the clinics flexible budget for August based on the actual level of activity for
the month.
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:
Answer:
Glassey Clinic uses patient-visits as its measure of activity. The clinic bases its budgets
on the following information: Revenue should be $41.80 per patient-visit. Personnel
expenses should be $35,400 per month plus $10.60 per patient-visit. Medical supplies
should be $700 per month plus $7.90 per patient-visit. Occupancy expenses should be
$8,800 per month plus $1.30 per patient-visit. Administrative expenses should be
$5,600 per month plus $0.40 per patient-visit.
The clinic reported the following actual results for February:
Required:
Prepare a report showing the clinics revenue and spending variances for February.
Label each variance as favorable (F) or unfavorable (U).
Answer:
Lunghofer Corporation’s net income for the most recent year was $3,189,000. A total of
300,000 shares of common stock and 100,000 shares of preferred stock were
outstanding throughout the year. Dividends on common stock were $4.90 per share and
dividends on preferred stock were $1.95 per share.
Compute the earnings per share of common stock. Show your work!
Answer:
Crovo Corporation uses customers served as its measure of activity. During December,
the company budgeted for 38,000 customers, but actually served 40,000 customers. The
company has provided the following data concerning the formulas used in its budgeting
and its actual results for December:
Data used in budgeting:
Actual results for December:
Required:
Prepare a report showing the companys revenue and spending variances for December.
Label each variance as favorable (F) or unfavorable (U).
Answer:
Condensed financial statements for Pardin Company are given below:
The company paid total dividends of $100,000 during the year. At the end of Year 2, the
company’s common stock was selling for $38 per share.
On the basis of the information given above, fill in the blanks with the appropriate
figures:
Example: The current ratio at the end of Year 2 would be computed by dividing
$1,080,000 by $400,000.
a. The acid-test ratio at the end of Year 2 would be computed by dividing
_______________ by _________________.
b. The accounts receivable turnover during Year 2 would be computed by dividing
_______________ by _________________.
c. The inventory turnover during Year 2 would be computed by dividing
_______________ by _________________.
d. The times interest earned for Year 2 would be computed by dividing
_______________ by _________________.
e. The earnings per share of common stock for Year 2 would be computed by dividing
_______________ by _________________.
f. The return on total assets for Year 2 would be computed by dividing
_______________ by _________________.
g. The debt-to-equity ratio at the end of Year 2 would be computed by dividing
_______________ by _________________.
h. The dividend yield ratio would be computed by dividing _______________ by
_________________.
i. The return on common stockholders’ equity for Year 2 would be computed by
dividing _______________ by _________________.
j. Whether the common stockholders gained or lost from the use of financial leverage
during Year 2 would be determined by comparing the ratio computed in question ___
above to the ratio computed in question above ____. In this case, financial leverage is
(positive/negative) ___________________.
Answer:
Krasnow Inc., which produces a single product, has provided the following data for its
most recent month of operation:
The company had no beginning or ending inventories.
Compute the unit product cost under absorption costing. Show your work!
Answer:
Schlag Inc. expects its sales in January to be $111,000. The company’s contribution
margin ratio is 65% and its fixed monthly expenses are $64,000.
Estimate the company’s net operating income for January, assuming that the fixed
monthly expenses do not change. Show your work!
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:
Camren Corporation has two major business segments-Apparel and Accessories. Data
concerning those segments for December appear below:
Common fixed expenses totaled $357,000 and were allocated as follows: $161,000 to
the Apparel business segment and $196,000 to the Accessories business segment.
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Answer:
Schiff Corporation has provided the following data from its most recent balance sheet:
Compute the debt-to-equity ratio. Show your work!
Answer:
Sabb Corporation’s net income last year was $6,190,000. The dividend on common
stock was $13.90 per share and the dividend on preferred stock was $1.60 per share.
The market price of common stock at the end of the year was $41.50 per share.
Throughout the year, 300,000 shares of common stock and 100,000 shares of preferred
stock were outstanding.
Compute the dividend payout ratio. Show your work!
Answer:
Answer: