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Carpon Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store's operations follow:
o Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000
for January.
o Collections are expected to be 55% in the month of sale, 44% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires to have an ending merchandise inventory equal to 60% of the
next month's cost of goods sold. Payment for merchandise is made in the month
following the purchase.
o Other monthly expenses to be paid in cash are $21,100.
o Monthly depreciation is $19,000.
o Ignore taxes.
The cash balance at the end of December would be:
A. $13,000
B. $52,400
C. $65,400
D. $74,500
Answer:
Durrant Corporation has provided the following data concerning its most important raw
material, compound O96H:
When recording the use of materials in production, Raw Materials would be:
A) debited for $55,930.
B) debited for $54,264.
C) credited for $55,930.
D) credited for $54,264.
Answer:
Behring Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual fixed manufacturing overhead costs for
the most recent month appear below:
The company based its original budget on 3,200 machine-hours. The company actually
worked 3,170 machine-hours during the month. The standard hours allowed for the
actual output of the month totaled 3,250 machine-hours. What was the overall fixed
manufacturing overhead volume variance for the month?
A. $435 favorable
B. $261 unfavorable
C. $435 unfavorable
D. $261 favorable
Answer:
Evans Company produces a single product. During the most recent year, the company
had a net operating income of $90,000 using absorption costing and $84,000 using
variable costing. The fixed overhead application rate was $6 per unit. There were no
beginning inventories. If 22,000 units were produced last year, then sales for last year
were:
A. 15,000 units
B. 21,000 units
C. 23,000 units
D. 28,000 units
Answer:
The constraint at Mcglathery Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear
below:
Assume that sufficient time is available on the constrained machine to satisfy demand
for all but the least profitable product. Up to how much should the company be willing
to pay to acquire more of the constrained resource?
A. $75.26 per unit
B. $38.94 per unit
C. $11.80 per minute
D. $15.20 per minute
Answer:
The Yost Company makes and sells a single product, Product A. Each unit of Product A
requires 1.2 hours of labor at a labor rate of $8.40 per hour. Yost Company needs to
prepare a Direct Labor Budget for the second quarter.
The company has budgeted to produce 20,000 units of Product A in June. The finished
goods inventories on June 1 and June 30 were budgeted at 400 and 600 units,
respectively. Budgeted direct labor cost for June is:
A. $207,648
B. $168,000
C. $199,584
D. $201,600
Answer:
Ciubal Corporation has provided the following data concerning its direct labor costs for
December:
The Labor Rate Variance for December would be recorded as a:
A. credit of $19,440.
B. credit of $21,168.
C. debit of $19,440.
D. debit of $21,168.
Answer:
Gasco Corporation's balance sheet and income statement appear below:
Cash dividends were $54. The company sold equipment for $14 that was originally
purchased for $8 and that had accumulated depreciation of $1. It did not issue any
bonds payable or repurchase any of its own common stock.
The net cash provided by (used in) operating activities for the year was:
A. $261
B. $299
C. $214
D. $207
Answer:
Management of Modugno Corporation is considering whether to purchase a new model
370 machine costing $441,000 or a new model 240 machine costing $387,000 to
replace a machine that was purchased 7 years ago for $429,000. The old machine was
used to make product M25A until it broke down last week. Unfortunately, the old
machine cannot be repaired.
Management has decided to buy the new model 240 machine. It has less capacity than
the new model 370 machine, but its capacity is sufficient to continue making product
M25A.
Management also considered, but rejected, the alternative of simply dropping product
M25A. If that were done, instead of investing $387,000 in the new machine, the money
could be invested in a project that would return a total of $430,000.
In making the decision to buy the model 240 machine rather than the model 370
machine, the differential cost was:
A. $12,000
B. $1,000
C. $54,000
D. $42,000
Answer:
Darth Company sells three products. Sales and contribution margin ratios for the three
products follow:
Given these data, the contribution margin ratio for the company as a whole would be:
A. 25%
B. 75%
C. 33.3%
D. it is impossible to determine from the data given.
Answer:
A drop in the market price of a firm's common stock will immediately affect its:
A. return on common stockholders' equity.
B. current ratio.
C. dividend payout ratio.
D. dividend yield ratio.
Answer:
Ahsan Company makes 60,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $45.70
a unit. If the company accepts this offer, the facilities now being used to make the part
could be used to make more units of a product that is in high demand. The additional
contribution margin on this other product would be $318,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the
part would be avoided. However, $3.50 of the fixed manufacturing overhead cost being
applied to the part would continue even if the part were purchased from the outside
supplier. This fixed manufacturing overhead cost would be applied to the company's
remaining products.
What is the maximum amount the company should be willing to pay an outside supplier
per unit for the part if the supplier commits to supplying all 60,000 units required each
year?
A. $40.50
B. $42.30
C. $45.80
D. $5.30
Answer:
Buckeye Company has provided the following data for maintenance cost:
The best estimate of the cost formula for maintenance would be:
A. $21,625 per year plus $0.625 per machine hour
B. $7,000 per year plus $0.625 per machine hour
C. $7,000 per year plus $1.60 per machine hour
D. $27,000 per year plus $1.60 per machine hour
Answer:
The Kelsh Company has two divisions--North and South. The divisions have the
following revenues and expenses:
Management at Kelsh is pondering the elimination of North Division. If North Division
were eliminated, its traceable fixed expenses could be avoided. The total common
corporate expenses would be unaffected. Given these data, the elimination of North
Division would result in an overall company net operating income of:
A. $100,000
B. $150,000
C. $(140,000)
D. $50,000
Answer:
Fahey Company manufactures a single product that it sells for $25 per unit. The
company has the following cost structure:
There were no units in beginning inventory. During the year, 18,000 units were
produced and 15,000 units were sold.
Under absorption costing, the unit product cost is:
A. $9
B. $12
C. $13
D. $16
Answer:
Guerra Electronics manufactures a variety of electronic gadgets for use in the home.
Which of the following would probably be the most accurate measure of activity to use
for allocating the cost of inspecting the finished products at Guerra?
A. Machine-hours
B. Direct labor-hours
C. Inspection time
D. Number of inspections
Answer:
Reference: 8-6
Mock Clinic uses client-visits as its measure of activity. During August, the clinic
budgeted for 3,100 client-visits, but its actual level of activity was 3,150 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for August:
Data used in budgeting:
Actual results for August:
The net operating income in the planning budget for August would be closest to:
A) $8,404
B) $17,880
C) $16,820
D) $8,678
Answer:
Rothe Company manufactures and sells a single product that it sells for $90 per unit and
has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If
Rothe desires a monthly target net operating income equal to 15% of sales, the amount
of sales in units will have to be (rounded):
A. 1,486 units
B. 3,467 units
C. 1,040 units
D. 2,600 units
Answer:
Rameriz Company erred in selecting a denominator activity and chose a much higher
level than was realistic. This error would most likely result in a large:
A) favorable variable overhead efficiency variance.
B) favorable fixed manufacturing overhead budget variance.
C) unfavorable overhead volume variance.
D) unfavorable fixed manufacturing overhead budget variance.
Answer:
On April 1, Stelter Corporation had $34,000 of raw materials on hand. During the
month, the company purchased an additional $60,000 of raw materials. During April,
$70,000 of raw materials were requisitioned from the storeroom for use in production.
These raw materials included both direct and indirect materials. The indirect materials
totaled $7,000. Prepare journal entries to record these events. Use those journal entries
to answer the following questions:
The debits to the Raw Materials account for the month of April total:
A. $94,000
B. $70,000
C. $60,000
D. $34,000
Answer:
Which of the following represents the normal sequence in which the indicated budgets
are prepared?
A. Direct Materials, Cash, Sales
B. Production, Cash, Income Statement
C. Sales, Balance Sheet, Direct Labor
D. Production, Manufacturing Overhead, Sales
Answer:
Petitte Corporation has provided the following data from its activity-based costing
system:
Data concerning the company's product K54A appear below:
According to the activity-based costing system, the unit product cost of product K54A
is closest to:
A. $112.64 per unit
B. $114.99 per unit
C. $116.98 per unit
D. $76.91 per unit
Answer:
Drake Company's contribution format income statement for the most recent year
appears below:
The sales manager is convinced that a $60,000 expenditure on advertising will increase
unit sales by 50% without any other increase in fixed expenses. If the sales manager is
correct, the company's net operating income would increase by:
A. $44,000
B. $34,000
C. $30,000
D. $49,000
Answer:
Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar
cane is processed in batches. A batch of sugar cane costs $48 to buy from farmers and
$16 to crush in the company's plant. Two intermediate products, cane fiber and cane
juice, emerge from the crushing process. The cane fiber can be sold as is for $24 or
processed further for $17 to make the end product industrial fiber that is sold for $38.
The cane juice can be sold as is for $34 or processed further for $23 to make the end
product molasses that is sold for $76.
How much profit (loss) does the company make by processing the intermediate product
cane juice into molasses rather than selling it as is?
A. $3
B. $19
C. $(45)
D. $(13)
Answer:
Financial statements for Marcell Company appear below:
Marcell Company's current ratio at the end of Year 2 was closest to:
A. 1.04
B. 0.42
C. 0.48
D. 1.22
Answer:
Salyers Family Inn is a bed and breakfast establishment in a converted 100-year-old
mansion. The Inns guests appreciate its gourmet breakfasts and individually decorated
rooms. The Inns overhead budget for the most recent month appears below:
The Inns variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 53
guests?
A) $7,159.20
B) $6,680.60
C) $7,184.80
D) $26,154.40
Answer:
Severn Corporation prepares its statement of cash flows using the direct method. Last
year, Severn reported Income Tax Expense of $27,000. At the beginning of last year,
Severn had a $2,000 balance in the Income Taxes Payable account. At the end of last
year, Severn had a $5,000 balance in the account. On its statement of cash flows for last
year, what amount should Severn have shown for its Income Tax Expense adjusted to a
cash basis (i.e., income taxes paid)?
A. $20,000
B. $22,000
C. $24,000
D. $30,000
Answer:
Elhard Company produces a single product. The cost of producing and selling a single
unit of this product at the company's normal activity level of 40,000 units per month is
as follows:
The normal selling price of the product is $51.10 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered
this month at a special discounted price. This order would have no effect on the
company's normal sales and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be $0.10 less per unit on
this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose there is ample idle capacity to produce the units required by the overseas
customer and the special discounted price on the special order is $41.60 per unit. By
how much would this special order increase (decrease) the company's net operating
income for the month?
A. $2,000
B. $25,200
C. $(8,400)
D. $(18,800)
Answer:
Payne Company makes two products, M and N, in a joint process. At the split-off point,
40,000 units of M and 50,000 units of N are available each month. Monthly joint
production costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be
sold at the split-off point for $3.20 per unit or it can be processed further and sold for
$6.30 per unit. If N is processed further, additional processing costs of $2.50 per unit
will be incurred.
If N is processed further and then sold, rather than being sold at the split-off point, the
change in monthly operating income would be a:
A. $30,000 increase
B. $315,000 increase
C. $155,000 increase
D. $125,000 decrease
Answer:
The Rial Company's income statement for June is given below:
If sales for Division F increase $40,000 with a $10,000 increase in the Division's
traceable fixed costs, the overall company net operating income should:
A. increase by $30,000
B. increase by $6,000
C. increase by $2,889
D. decrease by $4,000
Answer:
Carpon Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store's operations follow:
o Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000
for January.
o Collections are expected to be 55% in the month of sale, 44% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires to have an ending merchandise inventory equal to 60% of the
next month's cost of goods sold. Payment for merchandise is made in the month
following the purchase.
o Other monthly expenses to be paid in cash are $21,100.
o Monthly depreciation is $19,000.
o Ignore taxes.
The net income for December would be:
A. $66,400
B. $43,900
C. $47,400
D. $61,500
Answer:
