1) in activity-based costing, organization-sustaining costs should not be included in
product costs for internal management reports that are used for decision-making.
however, companies frequently include organization-sustaining costs in product costs to
satisfy external reporting requirements.
2) if the standard hours allowed for the actual output of the period is greater than the
denominator level of activity (in hours), then the overhead budget variance will be
unfavorable.
3) an investment center is any responsibility center in an organization that controls cost
and revenues and invested funds.
4) variable costs are always relevant costs.
5) only the variable costs identified with a product are relevant in a decision concerning
whether to eliminate the product.
6) werber clinic uses client-visits as its measure of activity. during january, the clinic
budgeted for 2,700 client-visits, but its actual level of activity was 2,730 client-visits.
the clinic has provided the following data concerning the formulas used in its budgeting
and its actual results for january:
the activity variance for net operating income in january would be closest to:
a.$2,019 u
b.$2,019 f
c.$489 f
d.$489 u
7) dombrowski corporation would like to determine the relative profitability of the
company’s products for purposes of making volume trade-off decisions. for example,
the selling price of product v48q is $150.00, its unit variable cost is $135.00, and its
unit contribution margin is $15.00. one unit of the product requires 6 minutes of the
constrained resource. monthly sales are 5,800 units. what is the profitability index for
product v48q?
a.$2.50 per minute
b.0.10
c.$25.00 per minute
d.$87,000
8) lilienthal products inc. makes two productsm38o and e34g. product m38o’s selling
price is $145.00 and its unit variable cost is $87.00. product e34g’s selling price is
$300.00 and its unit variable cost is $210.00. the monthly demand is 1,590 units for
product m38o and 640 units for e34g. the constrained resource is a particular machine
that is available for 10,100 minutes each month. each unit of product m38o requires 5
minutes on this machine and each unit of product e34g requires 10 minutes on this
machine.
how many units of product e34g should be produced each month?
a.0
b.1,435
c.640
d.215
9) lutts 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 november, the kennel budgeted
for 3,800 tenant-days, but its actual level of activity was 3,850 tenant-days. the kennel
has provided the following data concerning the formulas to be used in its budgeting:
the wages and salaries in the planning budget for november would be closest to:
a.$27,610
b.$27,280
c.$28,238
d.$28,610
10) veale corporation’s most recent balance sheet appears below:
net income for the year was $107. cash dividends were $29.
the net cash provided by (used by) investing activities for the year was:
a.($31)
b.$31
c.($68)
d.$68
11) ahina industries is a division of a major corporation. data concerning the most
recent year appears below:
the division’s turnover is closest to:
a.2.84
b.10.64
c.2.24
d.0.27
12) the total-cost approach and the incremental-cost approach to evaluating two
competing investment opportunities:
a.are dissimilar in that one deals with net present value and the other deals with internal
rate of return
b.are similar in that they will recommend the same alternative as the best
c.are dissimilar in that one uses the cost of capital as a discount rate and the other does
not
d.are similar in that neither considers the time value of money
13) raymond company estimates that an investment of $800,000 would be necessary to
produce and sell 40,000 units of product s each year. costs associated with the new
product would be:
the company requires a 20% return on the investment in all products. the company used
the absorption costing approach to cost-plus pricing as described in the text.
the selling price based on the absorption costing approach would be:
a.$48.38
b.$56.25
c.$52.50
d.$51.38
14) the following information was collected for one of the costs at demetra
manufacturing corporation over the past two years:
assuming that there has been no change in the cost structure over the last two years and
this activity is within the relevant range, this cost at demetra would best be described as
a:
a.fixed cost
b.mixed cost
c.step-variable cost
d.true variable cost
15) the management of wymer corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity. 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 50,000 machine-hours. in addition, capacity is 59,000
machine-hours and the actual level of activity for the year is 53,300 machine-hours. all
of the manufacturing overhead is fixed and is $1,622,500 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. it is further assumed that this is also the actual
amount of manufacturing overhead for the year. a number of jobs were worked on
during the year, one of which was job j44v. this job required 230 machine-hours.
if the company bases its predetermined overhead rate on the estimated amount of the
allocation base for the upcoming year the amount of manufacturing overhead charged to
the job j44v is closest to:
a.$6,325.00
b.$7,463.50
c.$7,001.41
d.$6,988.30
16) (ignore income taxes in this problem.) tighe corporation is contemplating
purchasing equipment that would increase sales revenues by $420,000 per year and
cash operating expenses by $231,000 per year. the equipment would cost $747,000 and
have a 9 year life with no salvage value. the annual depreciation would be $83,000. the
simple rate of return on the investment is closest to:
a.25.3%
b.14.2%
c.11.1%
d.25.2%
17) in july, one of the processing departments at keen corporation had beginning work
in process inventory of $19,000 and ending work in process inventory of $18,000.
during the month, the cost of units transferred out from the department was $216,000.
the company uses the fifo method in its process costing system.
in the department’s cost reconciliation report for july, the total cost accounted for would
be:
a.$37,000
b.$449,000
c.$234,000
d.$468,000
18) lyons company consists of two divisions, a and b. lyons company reported a
contribution margin of $50,000 for division a, and had a contribution margin ratio of
30% in division b, when sales in division b were $200,000. net operating income for the
company was $25,000 and traceable fixed expenses were $40,000. lyons company’s
common fixed expenses were:
a.$85,000
b.$70,000
c.$45,000
d.$40,000
19) entler framing’s cost formula for its supplies cost is $2,250 per month plus $16 per
frame. for the month of june, the company planned for activity of 502 frames, but the
actual level of activity was 497 frames. the actual supplies cost for the month was
$10,580. the supplies cost in the planning budget for june would be closest to:
a.$10,580
b.$10,282
c.$10,686
d.$10,202
20) which of the following is true regarding the calculation of return on total assets?
a.the numerator of the ratio consists only of net income
b.the denominator of the ratio consists of the balance of total assets at the end of the
period under consideration
c.the numerator of the ratio consists of net income plus interest expense times the tax
rate
d.the numerator of the ratio consists of net income plus interest expense times one
minus the tax rate
21) niesen corporation has two major business segments-consumer and commercial.
data for the segment and for the company for august appear below:
in addition, common fixed expenses totaled $282,000 and were allocated as follows:
$127,000 to the consumer business segment and $155,000 to the commercial business
segment.
the contribution margin of the commercial business segment is:
a.$146,000
b.$169,000
c.$546,000
d.$296,000
22) an automated turning machine is the current constraint at greenleaf corporation.
three products use this constrained resource. data concerning those products appear
below:
rank the products in order of their current profitability from most profitable to least
profitable. in other words, rank the products in the order in which they should be
emphasized.
a.dk,bg,qu
b.dk,qu,bg
c.qu,bg,dk
d.bg,qu,dk
23) vim company purchased $100,000 in inventory from its suppliers on credit terms.
the company’s acid-test ratio would most likely:
a.increase
b.decrease
c.be unchanged
d.impossible to determine without more information
24) mcgougan corporation produces a single product and has the following cost
structure:
the unit product cost under absorption costing is:
a.$126
b.$158
c.$139
d.$121
25) (ignore income taxes in this problem.) the following data concern an investment
project:
the working capital will be released for use elsewhere at the conclusion of the project.
required:
compute the project’s net present value.
26) immen corporation bases its budgets on the activity measure customers served.
during may, the company planned to serve 38,000 customers. the company has provided
the following data concerning the formulas its uses in its budgeting:
the company has also furnished its income statement for may:
required:
prepare a report showing the company’s activity variances for may. indicate in each case
whether the variance is favorable (f) or unfavorable (u).
27) loss corporation’s contribution margin ratio is 63% and its fixed monthly expenses
are $76,000. assume that the company’s sales for march are expected to be $179,000.
required:
estimate the company’s net operating income for march, assuming that the fixed
monthly expenses do not change. show your work!
28) whether a company uses process costing or job-order costing depends on its
industry. a number of companies in different industries are listed below:
brick manufacturer
contract printer that produces posters, books, and pamphlets to order
natural gas production company
dairy farm
coal mining company
specialty coffee roaster (roasts small batches of specialty coffee beans)
required:
for each company, indicate whether the company is most likely to use job-order costing
or process costing.
29) garing urban diner is a charity supported by donations that provides free meals to
the homeless. the diner’s budget for march was based on 3,600 meals. the diner’s
director has provided the following cost data to use in the budget: groceries, $2.20 per
meal; kitchen operations, $4,300 per month plus $1.90 per meal; administrative
expenses, $3,300 per month plus $0.20 per meal; and fundraising expenses, $1,000 per
month. the director has also provided the diner’s statement of actual expenses for the
month:
required:
prepare a report showing the diner’s spending variances for each of the expenses and for
total expenses for march. label each variance as favorable (f) or unfavorable (u).
30) bellido inc., a manufacturing company, has provided the following data for
december:
required:
prepare an income statement in good form for december using the contribution
approach.
31) auguste corporation uses the fifo method in its process costing. the following data
pertain to its assembly department for october.
required:
compute the equivalent units of production for both materials and conversion costs for
the assembly department for october using the fifo method.
32) delamarter clinic bases its budgets on the activity measure patient-visits. during
june, the clinic planned for 2,600 patient-visits, but its actual level of activity was 3,100
patient-visits. revenue should be $53.40 per patient-visit. personnel expenses should be
$39,700 per month plus $12.60 per patient-visit. medical supplies should be $1,800 per
month plus $10.40 per patient-visit. occupancy expenses should be $8,200 per month
plus $2.30 per patient-visit. administrative expenses should be $6,100 per month plus
$0.20 per patient-visit.
required:
prepare a report showing the clinic’s activity variances for june. indicate in each case
whether the variance is favorable (f) or unfavorable (u).
