1) The sales budget is usually prepared before the production budget.
2) The split-off point in a process that produces joint products is the point in the
manufacturing process at which the joint products are sent to separate customers.
3) The formula for the net profit margin percentage is: Net profit margin percentage =
Net income Sales.
4) When a job is completed, the goods are transferred from the production department
to the finished goods warehouse and the journal entry would include a debit to Work in
Process.
5) An avoidable cost is a cost that can be completely eliminated irrespective of whether
one chooses one alternative or another in a decision.
6) Fixed costs should be ignored when evaluating how well a manager has controlled
costs.
7) The amount of depreciation added to net income equals the sum of the debits to the
Accumulated Depreciation account.
8) Job cost sheets are used to record the costs of preparing routine accounting reports.
9) Contribution margin equals revenue minus all fixed costs.
10) A favorable labor efficiency variance would result in a debit balance in the labor
efficiency variance account.
11) The statement of cash flows relies on a fundamental principle of double-entry
bookkeeping; namely, the change in the cash balance must equal the change in total
liabilities and stockholders’ equity.
12) The best estimate of the total variable manufacturing cost per unit is:
A) $39.10
B) $27.70
C) $11.40
D) $13.20
13) Dancause Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During October,
the company budgeted for 5,100 units, but its actual level of activity was 5,090 units.
The company has provided the following data concerning the formulas to be used in its
budgeting:
The net operating income in the flexible budget for October would be closest to:
A.$33,869
B.$25,240
C.$34,003
D.$25,056
14) Alex Corporation has a large underapplied overhead balance in the manufacturing
overhead account. This could be explained by:
A.an unfavorable volume variance, assuming all other variances are zero.
B.a favorable volume variance, assuming all other variances are zero.
C.standard hours allowed for the period’s output being greater than denominator hours
for the period.
15) The Millard Corporation has two service departments and two operating
departments. The following data are available for a recent period:
Millard makes no distinction between fixed and variable costs. Costs of Service
Department A are allocated on the basis of number of employees while costs of Service
Department B are allocated on the basis of total labor hours.
Assume Millard allocates service department costs by the step-down method with
Service Department A allocated first. After all allocations, the total amount of overhead
cost in Operating Department 2 will be closest to:
A.$128,000
B.$127,000
C.$154,143
D.$102,833
16) Kenrick Corporation uses activity-based costing to compute product margins. In the
first stage, the activity-based costing system allocates two overhead
accounts-equipment expense and indirect labor-to three activity cost pools-Processing,
Supervising, and Other-based on resource consumption. Data to perform these
allocations appear below:
In the second stage, Processing costs are assigned to products using machine-hours
(MHs) and Supervising costs are assigned to products using the number of batches. The
costs in the Other activity cost pool are not assigned to products. Activity data for the
company’s two products follow:
Finally, sales and direct cost data are combined with Processing and Supervising costs
to determine product margins.
How much overhead cost is allocated to the Processing activity cost pool under
activity-based costing in the first stage of allocation?
A.$2,400
B.$600
C.$1,800
D.$11,400
17) Labombard Clinic uses client-visits as its measure of activity. During February, the
clinic budgeted for 3,600 client-visits, but its actual level of activity was 3,650
client-visits. The clinic 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 administrative expenses in the planning budget for February would be closest to:
A.$4,853
B.$4,920
C.$4,720
D.$4,730
18) The acid-test ratio at the end of Year 2 is closest to:
A.2.17
B.1.78
C.1.74
D.1.06
19) Enwall Corporation’s standard wage rate is $11.20 per direct labor-hour (DLH) and
according to the standards, each unit of output requires 2.9 DLHs. In December, 5,900
units were produced, the actual wage rate was $10.20 per DLH, and the actual hours
were 14,150 DLHs.
The Labor Efficiency Variance for December would be recorded as a:
A.debit of $33,152.
B.credit of $30,192.
C.credit of $33,152.
D.debit of $30,192.
20) Prehn Corporation manufactures and sells one product. The following information
pertains to the company’s first year of operations:
The company does not have any variable manufacturing overhead costs or variable
selling and administrative costs. During its first year of operations, the company
produced 36,000 units and sold 30,000 units. The company’s only product is sold for
$251 per unit.
The company is considering using either super-variable costing or an absorption costing
system that assigns $28 of direct labor cost and $70 of fixed manufacturing overhead to
each unit that is produced. Which of the following statements is true regarding the net
operating income in the first year?
A.Super-variable costing net operating income exceeds absorption costing net operating
income by $6,000.
B.Absorption costing net operating income exceeds super-variable costing net operating
income by $588,000.
C.Absorption costing net operating income exceeds super-variable costing net operating
income by $6,000.
D.Super-variable costing net operating income exceeds absorption costing net operating
income by $588,000.
21) Mujalli Corporation is considering a capital budgeting project that would require an
initial investment of $200,000. The investment would generate annual cash inflows of
$64,000 for the life of the project, which is 4 years. At the end of the project, equipment
that had been used in the project could be sold for $10,000. The company’s discount
rate is 9%. The net present value of the project is closest to:
A.$14,376
B.$66,000
C.$214,376
D.$7,296
22) Cabal Products is a division of a major corporation. Last year the division had total
sales of $10,040,000, net operating income of $582,320, and average operating assets of
$4,000,000. The company’s minimum required rate of return is 14%.
The division’s margin is closest to:
A.5.8%
B.45.6%
C.14.6%
D.39.8%
23) The following data relate to the Blending Department of Tru-Color Paint
Corporation for a recent month:
All materials are added prior to the beginning of work in the Blending Department.
Assuming that Tru-Color Paint Corporation uses the weighted-average method, the
equivalent units for materials would be:
A.48,000
B.46,000
C.54,000
D.45,000
24) 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
25) The income tax expense in year 3 is:
A.$27,000
B.$6,000
C.$21,000
D.$39,000
26) Malley Corporation has provided the following data concerning its only product:
What is the margin of safety in dollars?
A.$1,390,000
B.$562,950
C.$2,085,000
D.$1,522,050
27) 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.
The carrying value on the balance sheet of the ending finished goods inventory under
variable costing would be:
A.the same as under absorption costing
B.$1,500 less than under absorption costing
C.$2,000 higher than under absorption costing
D.$2,000 less than under absorption costing
28) A manufacturing company uses a standard costing system in which standard
machine-hours (MHs) is the measure of activity. Data from the company’s flexible
budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
The predetermined overhead rate per MH is closest to:
A.$17.91 per MH
B.$18.59 per MH
C.$18.00 per MH
D.$18.50 per MH
29) Larance Detailing’s cost formula for its materials and supplies is $2,230 per month
plus $1 per vehicle. For the month of November, the company planned for activity of 75
vehicles, but the actual level of activity was 25 vehicles. The actual materials and
supplies for the month was $2,160.
The spending variance for materials and supplies in November would be closest to:
A.$145 F
B.$145 U
C.$95 F
D.$95 U
30) A customer has asked Goes Corporation to supply 6,000 units of product Y19, with
some modifications, for $31.30 each. The normal selling price of this product is $46.50
each. The normal unit product cost of product Y19 is computed 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 some modifications
made to product Y19 that would increase the variable costs by $8.90 per unit and that
would require a one-time 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.
Required:
Determine the effect on the company’s total net operating income of accepting the
special order. Show your work!
31) Last year, Hruska Corporation’s variable costing net operating income was $92,200
and ending inventory decreased by 600 units. Fixed manufacturing overhead cost per
unit was $3 in both beginning and ending inventory.
Required:
Determine the absorption costing net operating income for last year. Show your work!
32) Grable Corporation produces and sells a single product. Data concerning that
product appear below:
Fixed expenses are $628,000 per month. The company is currently selling 5,000 units
per month.
Required:
The marketing manager would like to cut the selling price by $18 and increase the
advertising budget by $45,000 per month. The marketing manager predicts that these
two changes would increase monthly sales by 800 units. What should be the overall
effect on the company’s monthly net operating income of this change? Show your work!
33) ( The management of Basler Corporation is considering the purchase of a machine
that would cost $440,000, would last for 5 years, and would have no salvage value. The
machine would reduce labor and other costs by $128,000 per year. The company
requires a minimum pretax return of 12% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
34) Sigel Corporation bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. At the beginning of the most recently completed
year, the company estimated the machine-hours for the upcoming year at 52,000
machine-hours. The estimated variable manufacturing overhead was $3.40 per
machine-hour and the estimated total fixed manufacturing overhead was $624,520.
Required:
Compute the company’s predetermined overhead rate.
35) Gambino Corporation has provided the following financial data:
36) ( Jergenson Corporation uses a discount rate of 13% in its capital budgeting.
Management is considering an investment in telecommunications equipment with a
useful life of 9 years. Excluding the salvage value of the equipment, the net present
value of the investment in the equipment is -$581,045.
Required:
How large would the salvage value of the telecommunications equipment have to be to
make the investment in the telecommunications equipment financially attractive?