Porl Corporation makes and sells a single product called a Yute. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last quarter
of the year. The following budget data are available:
All of these expenses (except depreciation) are paid in cash in the month they are
incurred.
If the total budgeted selling and administrative expense for October is $409,000, then
how many Yutes does the company plan to sell in October?
A. 19,700 units
B. 20,000 units
C. 20,500 units
D. 20,200 units
Answer:
Byron Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?
A. $86
B. $77
C. $83
D. $92
Answer:
Excerpts from Lasso Corporation’s most recent balance sheet appear below:
Net income for Year 2 was $145,000. Dividends on common stock were $55,000 in
total and dividends on preferred stock were $20,000 in total. The return on common
stockholders’ equity for Year 2 is closest to:
A. 12.3%
B. 8.1%
C. 13.0%
D. 14.3%
Answer:
The Pacific Company manufactures a single product. The following data relate to the
year just completed:
During the last year, 5,000 units were produced and 4,800 units were sold. There were
no beginning inventories.
The carrying value of finished goods inventory at the end of the year under variable
costing would be:
A. $8,800 greater than under absorption costing.
B. $8,800 less than under absorption costing.
C. $5,800 less than under absorption costing.
D. The same as absorption costing.
Answer:
Reference: 8-21
Hanekamp Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its flexible budgets. During August, the company
budgeted for 5,400 units, but its actual level of activity was 5,440 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The manufacturing overhead in the flexible budget for August would be closest to:
A) $39,040
B) $39,140
C) $39,000
D) $39,722
Answer:
Todco planned to produce 3,000 units of its single product, Teragram, during
November. The standard specifications for one unit of Teragram include six pounds of
material at $0.30 per pound. Actual production in November was 3,100 units of
Teragram. The accountant computed a favorable materials purchase price variance of
$380 and an unfavorable materials quantity variance of $120. Based on these variances,
one could conclude that:
A) more materials were purchased than were used.
B) more materials were used than were purchased.
C) the actual cost of materials was less than the standard cost.
D) the actual usage of materials was less than the standard allowed.
Answer:
Excerpts from Goodrow Corporation’s most recent balance sheet and income statement
appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $5.34 per share.
The price-earnings ratio for Year 2 is closest to:
A. 8.22
B. 15.26
C. 17.80
D. 10.68
Answer:
Lemar Corporation’s net cash provided by operating activities was $70; its income taxes
were $13; its capital expenditures were $67; and its cash dividends were $5. The
company’s free cash flow was:
A. $155
B. -$59
C. $11
D. -$2
Answer:
The following data for April has been provided by Mittler Corporation.
The budget variance for April is:
A. $5,660 U
B. $8,120 F
C. $8,120 U
D. $5,660 F
Answer:
Sinclair Company’s single product has a selling price of $25 per unit. Last year the
company reported a profit of $20,000 and variable expenses totaling $180,000. The
product has a 40% contribution margin ratio. Because of competition, Sinclair
Company will be forced in the current year to reduce its selling price by $2 per unit.
How many units must be sold in the current year to earn the same profit as was earned
last year?
A. 15,000 units
B. 12,000 units
C. 16,500 units
D. 12,960 units
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.
Retained earnings at the end of December would be:
A. $572,900
B. $614,400
C. $621,300
D. $529,000
Answer:
Reference: 8-26
Wayland Corporations static planning budget for April appears below. The company
bases its budgets on machine-hours.
In April, the actual number of machine-hours was 6,600, the actual supplies cost was
$64,040, the actual power cost was $7,070, the actual salaries cost was $88,300, and the
actual equipment depreciation was $7,430.
The spending variance for supplies cost for the month should be:
A) $5,540 F
B) $4,640 U
C) $4,640 F
D) $5,540 U
Answer:
Reference: 8-13
Foxworthy 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 July, the kennel budgeted for
2,000 tenant-days, but its actual level of activity was 2,050 tenant-days. The kennel has
provided the following data concerning the formulas to be used in its budgeting:
The wages and salaries in the planning budget for July would be closest to:
A) $18,070
B) $17,239
C) $17,700
D) $17,670
Answer:
Average operating assets are $110,000 and net operating income is $23,100. The
company invests $25,000 in new assets for a project that will increase net operating
income by $4,750. What is the return on investment (ROI) of the new project?
A. 21%
B. 19%
C. 18.5%
D. 20%
Answer:
Newburn Corporation’s most recent balance sheet appears below:
The company’s net income for the year was $53 and it did not sell or retire any property,
plant, and equipment during the year. Cash dividends were $11. The net cash provided
by (used in) investing activities for the year was:
A. $(33)
B. $33
C. $(66)
D. $66
Answer:
The spending variance for facility expenses in September would be closest to:
A) $290 F
B) $191 U
C) $290 U
D) $191 F
Answer:
Last year a company had stockholder’s equity of $160,000, net operating income of
$16,000 and sales of $100,000. The turnover was 0.5. The return on investment (ROI)
was:
A. 10%
B. 9%
C. 8%
D. 7%
Answer:
Morvan Corporation uses the FIFO method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed.
The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $603,400
B. $597,619
C. $632,583
D. $614,400
Answer:
The changes in Tener Company’s balance sheet account balances for last year appear
below:
The company’s income statement for the year appears below:
The company declared and paid $67,000 in cash dividends during the year. It did not
dispose of any property, plant, and equipment during the year. The company uses the
direct method to determine the net cash provided by operating activities.
On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
A. $67,000
B. $42,000
C. $35,000
D. $51,000
Answer:
All of the following should be recorded in the operating activities section of the
statement of cash flows EXCEPT:
A. a decrease in inventory.
B. the total credits to the accumulated depreciation account.
C. a decrease in prepaid expenses.
D. a purchase of equipment in exchange for cash.
E. an increase in income taxes payable.
Answer:
The Wright Company has a standard costing system. The following data are available
for September:
The actual price per pound of direct materials purchased in September is:
A) $1.85
B) $2.00
C) $2.10
D) $2.15
Answer:
Gayles Corporation’s most recent balance sheet appears below:
The net income for the year was $144. Cash dividends were $31. The company did not
issue any bonds or repurchase any of its common stock during the year. The net cash
provided by (used in) financing activities for the year was:
A. $(46)
B. $(31)
C. $1
D. $(76)
Answer:
Watson Company’s comparative balance sheet and income statement for last year
appear below:
The company declared and paid a cash dividend during the year. It did not purchase or
dispose of any property, plant, and equipment. It did not issue any bonds or repurchase
any of its own common stock. The following question pertain to the company’s
statement of cash flows.
The net cash provided by (used in) investing activities last year was:
A. $20,000
B. $119,000
C. $(20,000)
D. $(119,000)
Answer:
The contribution margin ratio is 25% for Grain Company and the break-even point in
sales is $200,000. To obtain a target net operating income of $60,000, sales would have
to be:
A. $260,000
B. $440,000
C. $280,000
D. $240,000
Answer:
Fussner Medical Clinic measures its activity in terms of patient-visits. Last month, the
budgeted level of activity was 1,610 patient-visits and the actual level of activity was
1,670 patient-visits. The cost formula for administrative expenses is $3.30 per
patient-visit plus $17,900 per month. The actual administrative expense was $24,600.
Last month, the spending variance for administrative expenses was:
A) $1,287 U
B) $198 U
C) $69 U
D) $1,189 U
Answer:
Tower Company planned to produce 3,000 units of its single product, Titactium, during
November. The standards for one unit of Titactium specify six pounds of materials at
$0.30 per pound. Actual production in November was 3,100 units of Titactium. There
was an unfavorable materials price variance of $380 and a favorable materials quantity
variance of $120. Based on these variances, one could conclude that:
A) more materials were purchased than were used.
B) more materials were used than were purchased.
C) the actual cost per pound for materials was less than the standard cost per pound.
D) the actual usage of materials was less than the standard allowed.
Answer:
Sensabaugh Inc., a company that produces and sells a single product, has provided its
contribution format income statement for January.
If the company sells 1,600 units, its total contribution margin should be closest to:
A. $22,200
B. $28,800
C. $4,800
D. $32,400
Answer:
Heller Corporation uses the weighted-average method in its process costing system.
Data concerning the first processing department for the most recent month are listed
below:
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The cost per equivalent unit for conversion costs for the first department for the month
is closest to:
A. $18.29
B. $17.42
C. $15.54
D. $17.10
Answer:
Hadlock Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?
A. $61
B. $71
C. $69
D. $79
Answer:
Newsom Footwear Corporations flexible budget cost formula for supplies, a variable
cost, is $2.61 per unit of output. The company had a $6,840 unfavorable spending
variance for supplies last month. During that month, 17,100 units were produced.
Budgeted activity for the month had been 16,700 units. The actual cost per unit for
indirect materials must have been closest to:
A) $3.01
B) $3.49
C) $3.41
D) $2.61
Answer:
Budgeted production needs are determined by:
A. adding budgeted sales in units to the desired ending inventory in units and
deducting the beginning inventory in units from this total.
B. adding budgeted sales in units to the beginning inventory in units and deducting the
desired ending inventory in units from this total.
C. adding budgeted sales in units to the desired ending inventory in units.
D. deducting the beginning inventory in units from budgeted sales in units.
Answer:
Debutiaco Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $12.00 per share.
Compute the following for Year 2:
a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders’ equity.
g. Book value per share.
Answer:
The following standards have been established for a raw material used in the production
of product O99:
The following data pertain to a recent month’s operations:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
c. Prepare journal entries to record the purchase and use of the raw material during the
month. (All raw materials are purchased on account.)
Answer:
Dita Company uses a process costing system. The following information relates to one
month’s activity in the company’s Curing Department.
The conversion cost of the beginning inventory was $6,500. During the month,
$112,000 in additional conversion cost was incurred.
a. Assume that the company uses the FIFO method. Compute:
1/ The equivalent units of production for conversion for the month.
2/ The cost per equivalent unit for conversion for the month.
3/ The total cost transferred out during the month.
4/ The cost assigned to the ending work in process inventory.
b. Assume that the company uses the weighted-average cost method. Compute:
1/ The equivalent units of production for conversion for the month.
2/ The cost per equivalent unit for conversion for the month.
3/ The total cost transferred out during the month.
4/ The cost assigned to the ending work in process inventory.
Answer:
Calderon Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $110,000 per month. The company is currently selling 1,000 units
per month.
Management is considering using a new component that would increase the unit
variable cost by $56. Since the new component would improve the company’s product,
the marketing manager predicts that monthly sales would increase by 500 units. What
should be the overall effect on the company’s monthly net operating income of this
change if fixed expenses are unaffected? Show your work!
Answer:
Iaukea Company makes two products from a common input. Joint processing costs up
to the split-off point total $49,600 a year. The company allocates these costs to the joint
products on the basis of their total sales values at the split-off point. Each product may
be sold at the split-off point or processed further. Data concerning these products appear
below:
a. What is the net monetary advantage (disadvantage) of processing Product X beyond
the split-off point?
b. What is the net monetary advantage (disadvantage) of processing Product Y beyond
the split-off point?
c. What is the minimum amount the company should accept for Product X if it is to be
sold at the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be
sold at the split-off point?
Answer:
Dullen Corporation has provided the following data concerning its most important raw
material, compound I51D:
The raw material was purchased on account.
a. Record the purchase of the raw material in a journal entry.
b. Record the use of the raw material in production in a journal entry.
Answer:
Daston Company manufactures two products, Product F and Product G. The company
expects to produce and sell 1,600 units of Product F and 3,000 units of Product G
during the current year. The company uses activity-based costing to compute unit
product costs for external reports. Data relating to the company’s three activity cost
pools are given below for the current year:
Using the activity-based costing approach, determine the overhead cost per unit for
each product.
Answer:
Tapp Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $226,000 per month. The company is currently selling 2,000 units
per month.
The marketing manager would like to cut the selling price by $12 and increase the
advertising budget by $13,000 per month. The marketing manager predicts that these
two changes would increase monthly sales by 200 units. What should be the overall
effect on the company’s monthly net operating income of this change? Show your
work!
Answer:
Ferris Wares is a division of a major corporation. The following data are for the latest
year of operations:
a. What is the division’s return on investment (ROI)?
b. What is the division’s residual income?
Answer:
Glunn Company makes three products in a single facility. These products have the
following unit product costs:
Additional data concerning these products are listed below.
The mixing machines are potentially the constraint in the production facility. A total of
24,200 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
a. How many minutes of mixing machine time would be required to satisfy demand for
all three products?
b. How much of each product should be produced to maximize net operating income?
(Round off to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of
mixing machine time if the company has made the best use of the existing mixing
machine capacity? (Round off to the nearest whole cent.)
Answer:
Sperazza International, Inc., produces and sells a single product. The product sells for
$240.00 per unit and its variable expense is $96.00 per unit. The company’s monthly
fixed expense is $699,840.
Determine the monthly break-even in total dollar sales. Show your work!
Answer:
Madlem, Inc., produces and sells a single product whose selling price is $240.00 per
unit and whose variable expense is $86.40 per unit. The company’s fixed expense is
$720,384 per month.
Determine the monthly break-even in either unit or total dollar sales. Show your work!
Answer:
Guedea Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $5.22 per share.
Compute the following for Year 2:
a. Gross margin percentage.
b. Earnings per share (of common stock).
c. Price-earnings ratio.
d. Dividend payout ratio.
e. Dividend yield ratio.
f. Return on total assets.
g. Return on common stockholders’ equity.
h. Book value per share.
Answer:
Costs associated with two alternatives, code-named Q and R, being considered by
Corniel Corporation are listed below:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
Answer:
Dehne Corporation has provided the following data from its most recent income
statement:
Compute the times interest earned ratio. Show your work!
Answer:
Bedrosian Incorporated has a line of credit from the Belmont National Bank that is due
to be renewed on February 1. The bank has requested the company’s current Income
Statement and Comparative Statements of Financial Position which appear below.
The bank has also requested that Bedrosian calculate a number of financial ratios.
Bedrosian’s financial ratios have not yet been calculated for this year, but the company’s
accounting staff has gathered the following industry averages for the ratios from various
sources.
a. Calculate the following financial ratios for this year for Bedrosian Incorporated.
1/ Return on total assets.
2/ Return on common stockholders’ equity.
3/ Current ratio.
4/ Acid-test ratio.
5/ Debt-to-equity ratio.
6/ Times interest earned.
7/ Dividend payout ratio.
b. By comparing the ratios calculated in Requirement A with the industry ratios,
evaluate Bedrosian’s operations.
Answer: