1) A flexible budget should not be used when making comparisons to actual results such
as actual expenses.
2) Directly comparing static budget costs to actual costs only makes sense if the costs
are variable.
3) In calculating cost per equivalent unit under the weighted-average method, prior
period costs are not combined with current period costs.
4) When a company shifts from a traditional cost system in which manufacturing
overhead is applied based on direct labor-hours to an activity-based costing system with
batch-level and product-level costs, the unit product costs of low volume products
typically decrease whereas the unit product costs of high volume products typically
increase.
5) Collecting the principal on a loan to another company would be reported on the
investing activities section of the statement of cash flows.
6) The formula for the average sale period is: Average sale period = Accounts
receivable turnover Inventory turnover.
7) The first-stage allocation in activity-based costing is the process by which overhead
costs are assigned to activity cost pools.
8) The “costs accounted for” portion of the cost reconciliation report includes the cost
of beginning work in process inventory and the cost of units transferred out.
9) A traditional format income statement organizes costs on the basis of behavior.
10) A major advantage of the FIFO method is that it allows managers to judge the
performance of the current period independently of the performance of the prior period.
11) If a retailer sells a product whose contribution margin equals the gross margin
percentage, the gross margin percentage will be unaffected by the transaction.
12) An action analysis report reconciles activity-based costing product costs with
traditional product costs based on direct labor.
13) If Talbot chooses to buy the wheel from the outside supplier, then annual net
operating income would:
A.increase by $35,000.
B.decrease by $10,000.
C.increase by $45,000.
D.increase by $70,000.
14) Ebsen Corporation keeps careful track of the time required to fill orders. Data
concerning a particular order appear below:
The delivery cycle time was:
A.2.9 hours
B.12.3 hours
C.30.5 hours
D.28.9 hours
15) The journal entry to record the purchase of raw materials would include a:
A.credit to Raw Materials of $62,000
B.credit to Raw Materials of $99,000
C.debit to Raw Materials of $99,000
D.debit to Raw Materials of $62,000
16) The amount of direct materials cost in the May 31 Work in Process inventory
account was:
A.$7,600
B.$2,000
C.$6,300
D.$4,300
17) Gilder Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in June.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for June is:
A.$330 U
B.$330 F
C.$306 U
D.$306 F
18) The balance on May 1 in the Raw Materials inventory account was:
A.$11,000
B.$5,000
C.$7,000
D.$9,000
19) Berends Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in April.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for April is:
A.$792 F
B.$792 U
C.$768 F
D.$768 U
20) Baker Corporation uses the weighted-average method in its process costing system.
The Assembly Department started the month with 8,000 units in its beginning work in
process inventory that were 90% complete with respect to conversion costs. An
additional 95,000 units were transferred in from the prior department during the month
to begin processing in the Assembly Department. There were 11,000 units in the ending
work in process inventory of the Assembly Department that were 90% complete with
respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the
month?
A.94,700
B.101,900
C.98,000
D.92,000
21) Yankee Corporation manufactures a single product. The company has the following
cost structure:
Last year, 4,000 units were produced and 3,500 units were sold. There were no
beginning inventories.
Under variable costing, the unit product cost would be:
A.$4 per unit
B.$5 per unit
C.$7 per unit
D.$8 per unit
22) Edgington Inc. bases its manufacturing overhead budget on budgeted direct
labor-hours. The variable overhead rate is $4.90 per direct labor-hour. The company’s
budgeted fixed manufacturing overhead is $39,590 per month, which includes
depreciation of $5,920. All other fixed manufacturing overhead costs represent current
cash flows. The November direct labor budget indicates that 3,700 direct labor-hours
will be required in that month.
Required:
a. Determine the cash disbursements for manufacturing overhead for November.
b. Determine the predetermined overhead rate for November.
23) What is the net monetary advantage (disadvantage) of processing Product X beyond
the split-off point?
A.$1,600
B.$22,400
C.$27,600
D.$(3,600)
24) The total cash flow net of income taxes in year 2 is:
A.$62,500
B.$80,000
C.$43,000
D.$50,000
25) Deflorio Corporation’s inventory at the end of Year 2 was $156,000 and its
inventory at the end of Year 1 was $140,000. The company’s total assets at the end of
Year 2 were $1,416,000 and its total assets at the end of Year 1 were $1,390,000. Sales
amounted to $1,320,000 in Year 2. The company’s total asset turnover for Year 2 is
closest to:
A.0.94
B.1.06
C.5.38
D.0.19
26) Karpel Inc. has provided the following data for the month of April. There were no
beginning inventories; consequently, the direct materials, direct labor, and
manufacturing overhead applied listed below are all for the current month.
Manufacturing overhead for the month was underapplied by $4,000.
The Corporation allocates any underapplied or overapplied manufacturing overhead
among work in process, finished goods, and cost of goods sold at the end of the month
on the basis of the manufacturing overhead applied during the month in those accounts.
The finished goods inventory at the end of April after allocation of any underapplied or
overapplied manufacturing overhead for the month is closest to:
A.$44,040
B.$45,240
C.$45,242
D.$44,038
27) At what selling price would the new product be just breaking even?
A.$52.25 per unit
B.$50.50 per unit
C.$55.75 per unit
D.$49.00 per unit
28) Gaal Industries is a division of a major corporation. Last year the division had total
sales of $26,110,000, net operating income of $1,801,590, and average operating assets
of $7,000,000. The company’s minimum required rate of return is 18%.
Required:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
29) The Covey Corporation is preparing its Manufacturing Overhead Budget for the
fourth quarter of the year. The budgeted variable manufacturing overhead rate is $4.00
per direct labor-hour; the budgeted fixed manufacturing overhead is $64,000 per month,
of which $18,000 is factory depreciation.
If the budgeted direct labor time for October is 8,000 hours, then the total budgeted
manufacturing overhead for October is:
A.$96,000
B.$78,000
C.$64,000
D.$76,000
30) Which of the following is NOT a correct definition of the break-even point?
A.the point where total sales equals total expenses.
B.the point where total profit equals total fixed expenses.
C.the point where total contribution margin equals total fixed expenses.
D.the point where total profit equals zero.
31) On February 1, Manwill Corporation had $24,000 of raw materials on hand. During
the month, the Corporation purchased an additional $60,000 of raw materials. During
February, $54,000 of raw materials were requisitioned from the storeroom for use in
production. The debits entered in the Raw Materials account during the month of
February total:
A.$84,000
B.$54,000
C.$60,000
D.$24,000
32) Hatfield Corporation, 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 variable costing?
A.$6,600
B.$5,600
C.$(17,200)
D.$12,200
33) Jepson Corporation’s most recent income statement appears below:
34) Bulan Inc. makes a range of products. The company’s predetermined overhead rate
is $20 per direct labor-hour, which was calculated using the following budgeted data:
Component T6 is used in one of the company’s products. The unit product cost of the
component according to the company’s cost accounting system is determined as
follows:
An outside supplier has offered to supply component T6 for $101 each. The outside
supplier is known for quality and reliability. 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 this decision. Bulan chronically has
idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?
35) Data concerning three of Falkenstein Corporation’s activity cost pools appear
below:
Required:
Compute the activity rates for each of the three cost pools. Show your work!
36) Beames Emergency Care Hospital uses the step-down method to allocate service
department costs to operating departments. The hospital has two service departments,
Administration and Information Technology (IT), and two operating departments,
Emergency Room and Intensive Care.
Administration Department costs are allocated first on the basis of employees and IT
Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down
method.
37) Data concerning Ulwelling Corporation’s single product appear below:
Fixed expenses are $753,000 per month. The company is currently selling 8,000 units
per month.
Required:
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $11 per unit. In
exchange, the sales staff would accept an overall decrease in their salaries of $73,000
per month. The marketing manager predicts that introducing this sales incentive would
increase monthly sales by 300 units. What should be the overall effect on the company’s
monthly net operating income of this change? Show your work!
38) Oleksy Corporation uses the weighted-average method in its process costing. The
following data concern the company’s Assembly Department for the month of June.
During the month, 4,900 units were completed and transferred from the Assembly
Department to the next department.
Required:
Determine the cost of ending work in process inventory and the cost of units transferred
out of the department during June using the weighted-average method.
39) Lopez Company has a purchasing department that provides services to a factory
located in Muncie and another in North Bend. Budgeted costs for the purchasing
department consist of $72,000 per year of fixed costs and $5 per purchase order for
variable costs.
The level of budgeted fixed costs is determined by peak-period requirements. The
Muncie factory requires 4/9 of the peak-period capacity and the North Bend factory
requires 5/9. Variable costs are driven by the number of purchase orders processed.
During the year, 3,500 purchase orders were processed for the Muncie factory and
4,500 purchase orders for the North Bend factory.
Required:
Compute the amount of purchasing department cost that should be charged to each
factory for the year.
40) Mulberry Clinic uses patient-visits as its measure of activity. The clinic bases its
budgets on the following information: Revenue should be $48.70 per patient-visit.
Personnel expenses should be $27,600 per month plus $14.70 per patient-visit. Medical
supplies should be $1,000 per month plus $10.10 per patient-visit. Occupancy expenses
should be $9,500 per month plus $2.40 per patient-visit. Administrative expenses
should be $3,800 per month plus $0.10 per patient-visit.
The clinic reported the following actual results for August:
Required:
Prepare a report showing the clinic’s revenue and spending variances for August. Label
each variance as favorable (F) or unfavorable (U).