1) A fixed cost cannot be a differential cost.
2) In a special order situation, any fixed cost that could be avoided if the special order
were not accepted would be irrelevant.
3) The price-earnings ratio is determined by dividing market price per share of stock by
the earnings per share.
4) A favorable spending variance occurs when the actual cost exceeds the amount of the
cost in the static planning budget.
5) A balanced scorecard should not contain any performance measures concerning
customer satisfaction since the extent to which customers are satisfied is beyond the
control of any manager in the company.
6) In a flexible budget performance report, actual costs should be compared to the
flexible budget at the original budgeted activity level.
7) Cash payments to repay the principal amount of debt are reported as a cash outflow
in the investing activities section of the statement of cash flows.
8) Net operating income is affected by the number of units produced when absorption
costing is used.
9) The markup over cost under the absorption costing approach would increase if
selling and administrative expenses increase, holding everything else constant.
10) Monard Clinic uses client-visits as its measure of activity. During January, the clinic
budgeted for 3,700 client-visits, but its actual level of activity was 3,710 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for January:
Data used in budgeting:
Actual results for January:
The activity variance for personnel expenses in January would be closest to:
A.$66 U
B.$66 F
C.$2,256 F
D.$2,256 U
11) Smithj 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 February, the kennel budgeted
for 3,500 tenant-days, but its actual level of activity was 3,490 tenant-days. The kennel
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 overall revenue and spending variance (i.e., the variance for net operating income
in the revenue and spending variance column on the flexible budget performance
report) for February would be closest to:
A.$1,055 U
B.$970 U
C.$970 F
D.$1,055 F
12) Delaware Manufacturing Corporation has a traditional costing system in which it
applies manufacturing overhead to its products using a predetermined overhead rate
based on direct labor-hours (DLHs). The company has two products, W36M and U45D,
about which it has provided the following data:
The company’s estimated total manufacturing overhead for the year is $1,746,000 and
the company’s estimated total direct labor-hours for the year is 30,000.
The company is considering using a variation of activity-based costing to determine its
unit product costs for external reports. Data for this proposed activity-based costing
system appear below:
Required:
a. Determine the manufacturing overhead cost per unit of each of the company’s two
products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company’s two
products under activity-based costing system.
13) The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
The direct materials purchases variance is computed when the materials are purchased.
Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
14) The Hudson Block Company has a trucking department that delivers crushed stone
from the company’s quarry to its two cement block production facilities–the West Plant
and the East Plant. Budgeted costs for the trucking department are $340,000 per year in
fixed costs and $0.30 per ton variable cost. Last year, 70,000 tons of crushed stone were
budgeted to be delivered to the West Plant and 100,000 tons of crushed stone to the East
Plant. During the year, the trucking department actually delivered 75,000 tons of
crushed stone to the West Plant and 90,000 tons to the East Plant. Its actual costs for the
year were $65,000 variable and $350,000 fixed. The level of budgeted fixed costs is
determined by peak-period requirements. The West Plant requires 40% of the
peak-period capacity and the East Plant requires 60%. The company allocates fixed and
variable costs separately.
For performance evaluation purposes, how much fixed trucking department cost should
be charged to the West Plant at the end of the year?
A.$160,000
B.$204,000
C.$140,000
D.$136,000
15) Which of the following might be included as a disbursement on a cash budget?
A.Option A
B.Option B
C.Option C
D.Option D
16) 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.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $8 per unit. In
exchange, the sales staff would accept a decrease in their salaries of $27,000 per month.
(This is the company’s savings for the entire sales staff.) The marketing manager
predicts that introducing this sales incentive would increase monthly sales by 100 units.
What should be the overall effect on the company’s monthly net operating income of
this change?
A.decrease of $1,000
B.decrease of $55,000
C.increase of $26,200
D.increase of $191,000
17) The company’s inventory turnover for Year 2 is closest to:
A.5.17
B.5.56
C.6.00
D.0.86
18) Bevans Corporation is considering a capital budgeting project that would require an
initial investment of $190,000. The investment would generate annual cash inflows of
$58,000 for the life of the project, which is 4 years. The company’s discount rate is 7%.
The net present value of the project is closest to:
A.$190,000
B.$6,446
C.$196,446
D.$42,000
19) The acid-test ratio at the end of Year 2 is closest to:
A.1.67
B.1.00
C.0.97
D.1.25
20) DC Construction has two divisions: Remodeling and New Home Construction.
Each division has an on-site supervisor who is paid a salary of $62,000 annually and
one salaried estimator who is paid $36,000 annually. The corporate office has two office
administrative assistants who are paid salaries of $40,000 and $32,000 annually. The
president’s salary is $138,000. How much of these salaries are common fixed expenses?
A.$138,000
B.$210,000
C.$72,000
D.$258,000
21) Leaphart 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 May, the kennel budgeted
for 2,800 tenant-days, but its actual level of activity was 2,840 tenant-days. The kennel
has provided the following data concerning the formulas to be used in its budgeting:
The net operating income in the planning budget for May would be closest to:
A.$10,920
B.$10,437
C.$11,356
D.$10,737