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1) A common fixed cost is a fixed cost that supports more than one business segment
and is traceable in whole or in part to at least one of the business segments.
2) There is no difference in the unit costs computed under the weighted-average and
FIFO methods of process costing if there are no ending work in process inventories.
3) Super-variable costing is a costing method that treats direct labor and manufacturing
overhead costs as period costs and includes only direct materials cost in unit product
costs.
4) For capital budgeting decisions, the simple rate of return method is superior to the
net present value method.
5) Waste on the production line will result in an unfavorable materials quantity
variance.
6) The formula for the times interest earned ratio is: Times interest earned = Earnings
before interest expense and income taxes Interest expense.
7) The traditional format income statement provides managers with an income
statement that clearly distinguishes between fixed and variable costs and therefore aids
planning, control, and decision making.
8) When viewed over the long term, cumulative net operating income will be the same
for variable and absorption costing if ending inventories exceed beginning inventories.
9) In the cost reconciliation report under the FIFO method, the costs to be accounted for
equals the cost of ending work in process inventory plus the cost of units transferred
out.
10) Operation costing is a hybrid system that employs certain aspects of both job-order
and process costing.
11) Operating assets include cash, accounts receivable, and inventory but not any
depreciable fixed assets.
12) The standard labor rate per hour defines the company's expected direct labor wage
rate per hour, including employment taxes and fringe benefits.
13) The direct materials budget is typically prepared before the production budget.
14) Shelby Boat Wash's cost formula for its cleaning equipment and supplies is $2,200
per month plus $34 per boat. For the month of September, the company planned for
activity of 82 boats, but the actual level of activity was 32 boats. The actual cleaning
equipment and supplies for the month was $3,340.
The activity variance for cleaning equipment and supplies in September would be
closest to:
A.$1,648 F
B.$1,700 F
C.$1,700 U
D.$1,648 U
15) Ramon Corporation makes 18,000 units of part E44 each year. This part is used in
one of the company's products. 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 and sell the part to the company for $23.30
each. If this offer is accepted, the supervisor's salary and all of the variable costs,
including 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. If the outside supplier's offer
were accepted, only $5,000 of these allocated general overhead costs would be avoided.
In addition, the space used to produce part E44 would be used to make more of one of
the company's other products, generating an additional segment margin of $21,000 per
year for that product.
What would be the impact on the company's overall net operating income of buying
part E44 from the outside supplier?
A.Net operating income would increase by $21,000 per year.
B.Net operating income would increase by $18,800 per year.
C.Net operating income would decrease by $123,000 per year.
D.Net operating income would decrease by $165,000 per year.
16) The company is considering launching a new product that would have a variable
cost of $88.00 per unit. It would require 11 minutes of the constrained resource. The
absolute minimum acceptable selling price for the new product should be:
A.$89.80
B.$107.80
C.$110.00
D.$88.00
17) A manufacturing company uses a standard costing system in which standard
machine-hours (MHs) is the measure of activity. Data from the company's flexible
budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
The variable overhead efficiency variance for the period is closest to:
A.$300 F
B.$1,465 U
C.$1,760 U
D.$1,775 U
18) ( Wombles Corporation is contemplating purchasing equipment that would increase
sales revenues by $478,000 per year and cash operating expenses by $249,000 per year.
The equipment would cost $738,000 and have a 9 year life with no salvage value. The
annual depreciation would be $82,000. The simple rate of return on the investment is
closest to:
A.19.9%
B.30.8%
C.31.0%
D.11.1%
19) Data concerning Marchman Corporation's single product appear below:
The company is currently selling 4,000 units per month. Fixed expenses are $166,000
per month. Consider each of the following questions independently.
Management is considering using a new component that would increase the unit
variable cost by $2. Since the new component would increase the features of the
company's product, the marketing manager predicts that monthly sales would increase
by 200 units. What should be the overall effect on the company's monthly net operating
income of this change?
A.decrease of $9,200
B.increase of $1,200
C.decrease of $1,200
D.increase of $9,200
20) Forse Florist specializes in large floral bouquets for hotels and other commercial
spaces. The company has provided the following data concerning its annual overhead
costs and its activity based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
The amount of activity for the year is as follows:
What would be the total overhead cost per delivery according to the activity based
costing system? In other words, what would be the overall activity rate for the
deliveries activity cost pool? (Round to the nearest whole cent.)
A.$6.00
B.$6.60
C.$7.20
D.$6.80
21) The following information relates to next year's projected operating results of the
Consumer Division of Xampa Corporation:
If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could
be avoided. What will be the effect on Xampas profit next year if Consumer Division is
eliminated?
A) $300,000 increase
B) $300,000 increase
C) $200,000 decrease
D) $200,000 increase
22) Home Corporation will open a new store on January 1. Based on experience from
its other retail outlets, Home Corporation is making the following sales projections:
Home Corporation estimates that 70% of the credit sales will be collected in the month
following the month of sale, with the balance collected in the second month following
the month of sale.
In a cash budget for April, the total cash receipts will be:
A.$74,000
B.$57,000
C.$114,000
D.$97,000
23) The following information is available on Browning Inc.'s Product A:
The company uses the absorption costing approach to cost-plus pricing described in the
text. Based on these data, the total selling and administrative expenses each year are:
A.$720,000
B.$480,000
C.$640,000
D.$400,000
24) ( Farah Corporation has provided the following data concerning a proposed
investment project:
The company uses a discount rate of 11%. The working capital would be released at the
end of the project.
Required:
Compute the net present value of the project.
25) Catoire Consultancy uses the direct method to allocate its service department costs
to its operating departments. The company has two service departments, Information
Technology and Administration, and two operating departments, Corporate Practice and
Government Practice. Data concerning those departments follow:
Information Technology Department costs are allocated on the basis of computers and
Administration Department costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct
method.
26) Sinopoli Corporation bases its budgets on machine-hours. The company's static
planning budget for September appears below:
Required:
Prepare a flexible budget for 8,600 machine-hours per month.
27) Bowen Corporation produces products P, Q, and R from a joint production process.
Each product may be sold at the split-off point or processed further. Joint production
costs of $80,000 per year are allocated to the products based on the relative number of
units produced. Data for Bowen's operations for last year follow:
Required:
Which products should be processed beyond the split-off point?
28) Financial statements for Praeger Corporation appear below:
Dividends during Year 2 totaled $45 thousand. The market price of a share of common
stock on December 31, Year 2 was $30.
29) Quark Spy Equipment manufactures espionage equipment. Quark uses a job-order
costing system and applies overhead to jobs on the basis of direct labor-hours. For the
current year, Quark estimated that it would work 100,000 direct labor-hours and incur
$20,000,000 of manufacturing overhead cost. The following summarized information
relates to January of the current year. The raw materials purchased include both direct
and indirect materials.
Required:
Prepare journal entries to record Quark's transactions for the month of January. Do not
close out the manufacturing overhead account.
30) Moselle Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $4,200. The market price of common
stock at the end of Year 2 was $9.72 per share.
31) Pearle Corporation makes automotive engines. For the most recent month, budgeted
production was 3,300 engines. The standard power cost is $9.20 per machine-hour. The
company's standards indicate that each engine requires 2.1 machine-hours. Actual
production was 3,400 engines. Actual machine-hours were 7,160 machine-hours. Actual
power cost totaled $61,815.
Required:
Determine the rate and efficiency variances for the variable overhead item power cost
and indicate whether those variances are unfavorable or favorable. Show your work!
32) Mitchener Corp. manufactures three products from a common input in a joint
processing operation. Joint processing costs up to the split-off point total $300,000 per
year. The company allocates these costs to the joint products on the basis of their total
sales value at the split-off point.
Each product may be sold at the split-off point or processed further. The additional
processing costs and sales value after further processing for each product (on an annual
basis) are:
Required:
Which product or products should be sold at the split-off point, and which product or
products should be processed further? Show computations.
33) During August, Kociolek Clinic plans for an activity level of 2,800 patient-visits.
The clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $28.20q
Personnel expenses: $22,200 + $7.60q
Medical supplies: $1,100 + $5.20q
Occupancy expenses: $5,100 + $1.00q
Administrative expenses: $3,200 + $0.40q
Required:
Prepare the clinic's planning budget for August.
