1) in companies that have “no lay-off” policies, the total direct labor cost for a budget
period is computed by multiplying the total direct labor hours needed to make the
budgeted output of completed units by the direct labor wage rate.
2) a newly formed company with enormous growth prospects would be expected to
have positive free cash flow during its start-up phase.
3) the institute of management accountants’ statement of ethical professional practice
specifically states, among other things, that management accountants have a
responsibility to keep information confidential except when disclosure is authorized or
legally required.
4) direct material cost combined with manufacturing overhead cost is known as
conversion cost.
5) the “costs accounted for” portion of the cost reconciliation report includes the cost of
ending work in process inventory and the cost of units transferred out.
6) if the predetermined overhead rate is based on the estimated total amount of the
allocation base at capacity, it is more likely that overhead will be overapplied than
underapplied.
7) a planning budget is prepared before the period begins and is valid for only the
planned level of activity.
8) one cause of an unfavorable overhead volume variance would be increases in cost for
fixed manufacturing overhead items.
9) the following journal entry would be made in a processing costing system when units
that have been completed in the final processing department are transferred to the
finished goods warehouse:
10) scales corporation has received a request for a special order of 6,000 units of
product y45 for $13.70 each. product y45’s unit product cost is $11.50, determined as
follows:
direct labor is a variable cost. the special order would have no effect on the company’s
total fixed manufacturing overhead costs. the customer would like modifications made
to product y45 that would increase the variable costs by $8.10 per unit and that would
require an investment of $20,000 in special molds that would have no salvage value.
this special order would have no effect on the company’s other sales. the company has
ample spare capacity for producing the special order. if the special order is accepted, the
company’s overall net operating income would increase (decrease) by:
a.($26,600)
b.$13,200
c.($55,400)
d.($21,300)
11) lineman corporation sells a product for $230 per unit. the product’s current sales are
23,400 units and its break-even sales are 20,124 units.
what is the margin of safety in dollars?
a.$3,588,000
b.$5,382,000
c.$753,480
d.$4,628,520
12) junsin corporation’s budget for next year appears below. the budget assumes the
company will sell 30,000 units.
the break-even point in annual sales dollars is:
a.$530,000
b.$350,000
c.$460,000
d.$400,000
13) 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 predetermined overhead rate is closest to:
a.$30.38
b.$30.44
c.$27.50
d.$32.45
14) discretionary fixed costs:
a.vary directly and proportionately with the level of activity
b.have a long-term planning horizon, generally encompassing many years
c.are made up of plant, equipment, and basic organizational costs
d.none of these
15) allegretti corporation uses the weighted-average method in its process costing. the
following data concern the company’s assembly department for the month of january.
during the month, 8,700 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 january using the weighted-average method.
16) eckhart company uses the absorption costing approach to cost-plus pricing as
described in the text to set prices for its products. based on budgeted sales of 64,000
units next year, the unit product cost of a particular product is $13.60. the company’s
selling and administrative expenses for this product are budgeted to be $729,600 in total
for the year. the company has invested $460,000 in this product and expects a return on
investment of 11%.
the markup on absorption cost for this product would be closest to:
a.83.8%
b.11.0%
c.94.8%
d.89.6%
17) lauter printing uses two measures of activity, press runs and book set-ups, in the
cost formulas in its budgets and performance reports. the cost formula for wages and
salaries is $5,300 per month plus $480 per press run plus $1,080 per book set-up. the
company expected its activity in october to be 169 press runs and 64 book set-ups, but
the actual activity was 167 press runs and 60 book set-ups. the actual cost for wages and
salaries in october was $155,690.
the activity variance for wages and salaries in october would be closest to:
a.$5,280 u
b.$150 u
c.$150 f
d.$5,280 f
18) dadisman corporation’s most recent balance sheet and income statement appear
below:
dividends on common stock during year 2 totaled $30 thousand. dividends on preferred
stock totaled $20 thousand. the market price of common stock at the end of year 2 was
$6.75 per share.
the price-earnings ratio for year 2 is closest to:
a.13.50
b.5.40
c.9.64
d.6.75
19) deano products is a division of a major corporation. the following data are for the
last year of operations:
the division’s return on investment (roi) is closest to:
a.9.9%
b.31.5%
c.0.3%
d.2.4%
20) kava inc. manufactures industrial components. one of its products, which is used in
the construction of industrial air conditioners, is known as k65. data concerning this
product are given below:
the above per unit data are based on annual production of 4,000 units of the component.
direct labor can be considered to be a variable cost.
source: cma, adapted
the company has received a special, one-time-only order for 500 units of component
k65. there would be no variable selling expense on this special order and the total fixed
manufacturing overhead and fixed selling and administrative expenses of the company
would not be affected by the order. assuming that kava has excess capacity and can fill
the order without cutting back on the production of any product, what is the minimum
price per unit on the special order below which the company should not go?
a.$180
b.$38
c.$59
d.$78
21) scobie corporation’s fixed monthly expenses are $16,000 and its contribution
margin ratio is 57%. assuming that the fixed monthly expenses do not change, what is
the best estimate of the company’s net operating income in a month when sales are
$69,000?
a.$39,330
b.$23,330
c.$13,670
d.$53,000
22) the dexon company makes and sells a single product called a mip and uses a
standard costing system. the following standards have been established for one unit of
mip:
there were no inventories of any kind on august 1. during august, the following events
occurred:
purchased 15,000 board feet at the total cost of $24,000.
used 12,000 board feet to produce 2,100 mips.
used 1,700 hours of direct labor time at a total cost of $20,060.
to record the incurrence of direct labor cost and its use in production, the general ledger
would include what entry to the labor rate variance account?
a.$240 credit
b.$240 debit
c.$340 debit
d.$340 credit
23) pedaci corporation produces and sells a single product. data concerning that product
appear below:
assume the company’s monthly target profit is $17,000. the dollar sales to attain that
target profit is closest to:
a.$387,392
b.$635,069
c.$671,925
d.$993,313
24) gallichio corporation’s balance sheet and income statement appear below:
cash dividends were $1. the company sold equipment for $11 that was originally
purchased for $5 and that had accumulated depreciation of $2.
required:
determine the net cash provided by (used by) operating activities for the year using the
indirect method.
25) maclennan corporation uses the direct method to allocate service department costs
to operating departments. the company has two service departments, administrative and
facilities, and two operating departments, assembly and finishing.
administrative department costs are allocated on the basis of employee hours and
facilities department costs are allocated on the basis of space occupied.
required:
allocate the service department costs to the operating departments using the direct
method.
26) hasselman tech is a for-profit vocational school. the school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. the school uses the
following data in its budgeting:
in january, the school budgeted for 1,110 students and 105 courses. the actual activity
for the month was 1,210 students and 103 courses.
required:
prepare the school’s flexible budget for the actual level of activity in january.
27) sifford corporation, which makes landing gears, has provided the following data for
a recent month:
required:
determine the rate and efficiency variances for the variable overhead item supplies and
indicate whether those variables are favorable or unfavorable. show your work!
28) akerley, inc., produces and sells a single product. the product sells for $140.00 per
unit and its variable expense is $42.00 per unit. the company’s monthly fixed expense is
$393,960.
required:
determine the monthly break-even in unit sales. show your work!
29) (ignore income taxes in this problem.) whitmarsh corporation is considering a
project that would require an initial investment of $334,000 and would last for 9 years.
the incremental annual revenues and expenses for each of the 9 years would be as
follows:
at the end of the project, the scrap value of the project’s assets would be $10,000.
required:
determine the payback period of the project. show your work!