1) Frankin Corporation’s net cash provided by operating activities was $192; its capital
expenditures were $154; and its cash dividends were $27. The company’s free cash flow
was:
A.$38
B.$373
C.$11
D.$165
2) The management of Westrope Corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity rather than on the
estimated amount of activity for the year. The company’s controller has provided an
example to illustrate how this new system would work. In this example, the allocation
base is machine-hours and the estimated amount of the allocation base for the upcoming
year is 76,000 machine-hours. In addition, capacity is 86,000 machine-hours and the
actual activity for the year is 71,000 machine-hours. All of the manufacturing overhead
is fixed and is $4,771,280 per year. For simplicity, it is assumed that this is the
estimated manufacturing overhead for the year as well as the manufacturing overhead at
capacity and the actual amount of manufacturing overhead for the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is
based on the estimated amount of the allocation base.
b. Determine the underapplied or overapplied overhead for the year if the
predetermined overhead rate is based on the estimated amount of the allocation base.
c. Determine the predetermined overhead rate if the predetermined overhead rate is
based on the amount of the allocation base at capacity.
d. Determine the underapplied or overapplied overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
3) The company’s return on equity for Year 2 is closest to:
A.67.25%
B.2.27%
C.1.47%
D.4.19%
Return on equity = Net income Average stockholders’ equity*
= $13,000 $882,500 = 1.47% (rounded)
*Average stockholders’ equity = ($885,000 + $880,000) 2 = $882,500
Garrott Corporation’s total assets were $1,505,000 at the end of Year 2 and $1,520,000
at the end of Year 1. Its total stockholders’ equity was $1,197,000 at the end of Year 2
and $1,180,000 at the end of Year 1.
4) Chibu Corporation is a single product firm with the following cost formula for all of
its costs for next year, where X is the number of units sold and Y is total cost:
Y = $225,000 + $30X
Chibu sells its product for $120 per unit. What would Chibu’s total sales dollars have to
be next year in order to generate $270,000 of net operating income?
A.$618,750
B.$660,000
C.$1,080,000
D.$1,980,000
5) Privett Hospital bases its budgets on patient-visits. The hospital’s static planning
budget for November appears below:
Actual results for the month were:
The spending variance for supplies costs in the flexible budget performance report for
the month is:
A.$120 F
B.$860 U
C.$860 F
D.$120 U
6) Hagel Clinic uses client-visits as its measure of activity. During July, the clinic
budgeted for 2,300 client-visits, but its actual level of activity was 2,320 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for July:
Data used in budgeting:
Actual results for July:
The spending variance for medical supplies in July would be closest to:
A.$580 U
B.$580 F
C.$728 F
D.$728 U
7) Part A42 is used by Elgin Corporation to make one of its products. A total of 16,000
units of this part are produced and used every year. The company’s Accounting
Department reports the following costs of producing the part at this level of activity:
An outside supplier has offered to make the part and sell it to the company for $30.40
each. If this offer is accepted, the supervisor’s salary and all of the variable costs,
including the direct labor, can be avoided. The special equipment used to make the part
was purchased many years ago and has no salvage value or other use. The allocated
general overhead represents fixed costs of the entire company, none of which would be
avoided if the part were purchased instead of produced internally. In addition, the space
used to make part A42 could be used to make more of one of the company’s other
products, generating an additional segment margin of $23,000 per year for that product.
What would be the impact on the company’s overall net operating income of buying
part A42 from the outside supplier?
A) Net operating income would decrease by $23,400 per year.
B) Net operating income would decrease by $143,400 per year.
C) Net operating income would increase by $23,000 per year.
D) Net operating income would decrease by $189,400 per year.
8) Sekuterski Air uses two measures of activity, flights and passengers, in the cost
formulas in its budgets and performance reports. The cost formula for plane operating
costs is $45,700 per month plus $2,892 per flight plus $4 per passenger. The company
expected its activity in November to be 81 flights and 283 passengers, but the actual
activity was 80 flights and 282 passengers. The actual cost for plane operating costs in
November was $286,360. The plane operating costs in the flexible budget for
November would be closest to:
A.$286,360
B.$277,614
C.$281,084
D.$278,188
9) Thoen Nuptial Bakery makes very elaborate wedding cakes to order. The company
has an activity-based costing system with three activity cost pools. The activity rate for
the Size-Related activity cost pool is $0.96 per guest. (The greater the number of guests,
the larger the cake.) The activity rate for the Complexity-Related cost pool is $54.24 per
tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the
Order-Related activity cost pool is $56.44 per order. (Each wedding involves one order
for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar,
eggs, and shortening. The activity rates do not include the costs of purchased
decorations such as miniature statues and wedding bells, which are accounted for
separately.
Data concerning two recent orders appear below:
Assuming that all of the costs listed above are avoidable costs in the event that an order
is turned down, what amount would the company have to charge for the Nie wedding
cake to just break even?
A.$56.44
B.$306.98
C.$23.50
D.$371.45
10) Which of the following is correct regarding the operating activities section of the
statement of cash flows?
A.The change in Accounts Receivable will be subtracted from net income; The change
in Inventory will be added to net income
B.The change in Accounts Receivable will be added to net income; The change in
Inventory will be subtracted from net income
C.The change in Accounts Receivable will be added to net income; The change in
Inventory will be added to net income
D.The change in Accounts Receivable will be subtracted from net income; The change
in Inventory will be subtracted from net income
An increase in a current asset is subtracted from net income; a decrease in a current
asset is added to net income.
11) Labombard Clinic uses client-visits as its measure of activity. During February, the
clinic budgeted for 3,600 client-visits, but its actual level of activity was 3,650
client-visits. The clinic has provided the following data concerning the formulas used in
its budgeting and its actual results for February:
Data used in budgeting:
Actual results for February:
The personnel expenses in the planning budget for February would be closest to:
A.$47,635
B.$47,340
C.$47,075
D.$46,430
12) Pulo Corporation uses a weighted-average process costing system. The company
has two processing departments. Production starts in the Assembly Department and is
completed in the Finishing Department. The units completed and transferred out of the
Assembly department during April will become the:
A.units in April’s ending work in process in Finishing.
B.units in May’s beginning work in process in Finishing.
C.units started in production in Finishing for April.
D.units started in production in Finishing for May.
13) Which of the following entries or sets of entries would record sales for the month of
July of $200,000 for goods costing $119,000 for?
A.Option A
B.Option B
C.Option C
D.Option D
14) In addition to the facts given above, assume that the space used to produce part P42
could be used to make more of one of the company’s other products, generating an
additional segment margin of $13,000 per year for that product. What would be the
impact on the company’s overall net operating income of buying part P42 from the
outside supplier and using the freed space to make more of the other product?
A) Net operating income would increase by $13,000 per year.
B) Net operating income would increase by $8,000 per year.
C) Net operating income would decline by $42,000 per year.
D) Net operating income would decline by $68,000 per year.
15) The overhead cost per unit of Product A under the traditional costing system is
closest to:
Adams Corporation makes two products: Product A and Product B. Annual production
and sales are 500 units of Product A and 900 units of Product B. The company has
traditionally used direct labor-hours as the basis for applying all manufacturing
overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B
requires 0.5 direct labor-hours per unit. The total estimated overhead for next period is
$67,52
The company is considering switching to an activity-based costing system for the
purpose of computing unit product costs for external reports. The new activity-based
costing system would have three overhead activity cost pools–Activity 1, Activity 2,
and General Factory–with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct
labor-hours.)
A.$21.94
B.$3.56
C.$5.53
D.$41.55
16) Peals Corporation has two divisions: Home Division and Commercial Division. The
following report is for the most recent operating period:
The company’s common fixed expenses total $125,280.
Required:
a. What is the Home Division’s break-even in sales dollars?
b. What is the Commercial Division’s break-even in sales dollars?
c. What is the company’s overall break-even in sales dollars?