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The following cost data pertain to the operations of Mancia Department Stores, Inc., for
the month of February.
The Brentwood Store is just one of many stores owned and operated by the company.
The Shoe Department is one of many departments at the Brentwood Store. The central
warehouse serves all of the company's stores.
What is the total amount of the costs listed above that are direct costs of the Shoe
Department?
A. $80,000
B. $88,000
C. $130,000
D. $92,000
Answer:
Hartzog Corporation's most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on
preferred stock totaled $5 thousand. The market price of common stock at the end of
Year 2 was $7.04 per share.
The book value per share at the end of Year 2 is closest to:
A. $6.60
B. $4.30
C. $3.80
D. $0.40
Answer:
Karo Corporation has provided the following data concerning its direct labor costs for
December:
The journal entry to record the incurrence of direct labor costs in December would
include the following for Work in Process:
A. Credit of $142,780
B. Debit of $142,780
C. Debit of $124,012
D. Credit of $124,012
Answer:
Reference: 8A-8
The Hawkins Company uses a standard costing system in which manufacturing
overhead is applied on the basis of standard direct labor-hours (DLHs). During
February, the company actually used 9,200 direct labor-hours and made 2,900 units of
finished product. The standard cost card for one unit of product includes the following:
Variable factory overhead: 3 DLHs @ $4.75 per DLH
Fixed factory overhead: 3 DLHs @ $3.00 per DLH
For February, the company incurred $28,450 in fixed manufacturing overhead costs and
recorded a $900 favorable volume variance.
The denominator activity level in direct labor-hours used by Hawkins in setting the
predetermined overhead rate for February is:
A) 9,300 hours
B) 8,400 hours
C) 9,000 hours
D) 8,700 hours
Answer:
If the labor efficiency variance is unfavorable, then
A) actual hours exceeded standard hours allowed for the actual output.
B) standard hours allowed for the actual output exceeded actual hours.
C) the standard rate exceeded the actual rate.
D) the actual rate exceeded the standard rate.
Answer:
DeAnne Company produces a single product. The company's variable costing income
statement for August appears below:
The company produced 35,000 units in August and the beginning inventory consisted of
8,000 units. Variable production costs per unit and total fixed costs have remained
constant over the past several months.
The value of the company's inventory on August 31 under the absorption costing
method is:
A. $27,000
B. $42,000
C. $36,000
D. $47,000
Answer:
The most recent balance sheet and income statement of Marroquin Corporation appear
below:
The company paid a cash dividend and it did not dispose of any property, plant, and
equipment. The company did not issue any bonds payable 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 for the year was:
A. $130
B. $(130)
C. $(155)
D. $155
Answer:
The following data pertain to the Whalen Division of Northern Industries.
The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
The minimum required rate of return in Year 1 was:
A. 18%
B. 17%
C. 16%
D. 15%
Answer:
Bakker Corporation applies manufacturing overhead on the basis of direct labor-hours.
At the beginning of the most recent year, the company based its predetermined
overhead rate on total estimated overhead of $77,250 and 2,500 estimated direct
labor-hours. Actual manufacturing overhead for the year amounted to $79,000 and
actual direct labor-hours were 2,400.
The overhead for the year was:
A. $3,090 overapplied
B. $4,840 underapplied
C. $4,840 overapplied
D. $3,090 underapplied
Answer:
More Company's net income last year was $37,000. The company paid a cash dividend
of $2,000 and did not sell or retire any property, plant, and equipment last year.
Changes in selected balance sheet accounts for the year appear below:
Based solely on this information, the net cash provided by operating activities under the
indirect method on the statement of cash flows would be:
A. $63,000
B. $32,000
C. $18,000
D. $56,000
Answer:
The Herald Company manufactures and sells a single product which sells for $50 per
unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses
are $25,000. If Herald desires a monthly target net operating income equal to 20% of
sales dollars, sales in units will have to be (rounded):
A. 2,500 units
B. 5,000 units
C. 1,666 units
D. 1,000 units
Answer:
Knaack Corporation is presently making part R20 that is used in one of its products. A
total of 18,000 units of this part are produced and used every year. The company's
Accounting Department reports the following costs of producing the part at this level of
activity:
An outside supplier has offered to produce and sell the part to the company for $27.70
each. If this offer is accepted, the supervisor's salary and all of the variable costs,
including direct labor, can be avoided. The special equipment used to make the part was
purchased many years ago and has no salvage value or other use. The allocated general
overhead represents fixed costs of the entire company, none of which would be avoided
if the part were purchased instead of produced internally.
If management decides to buy part R20 from the outside supplier rather than to
continue making the part, what would be the annual impact on the company's overall
net operating income?
A. Net operating income would increase by $162,000 per year.
B. Net operating income would increase by $50,400 per year.
C. Net operating income would decline by $50,400 per year.
D. Net operating income would decline by $162,000 per year.
Answer:
Financial statements of Ansbro Corporation follow:
Cash dividends were $14. The company did not dispose of any property, plant, and
equipment. It did not issue any bonds payable 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) financing activities for the year was:
A. $(6)
B. $(14)
C. $3
D. $(17)
Answer:
In September direct labor was 40% of conversion cost. If the manufacturing overhead
for the month was $66,000 and the direct materials cost was $20,000, the direct labor
cost was:
A. $13,333
B. $44,000
C. $99,000
D. $30,000
Answer:
Reference: 8-49
Pikus Corporation makes a product that has the following direct labor standards:
In January the companys budgeted production was 3,400 units, but the actual
production was 3,500 units. The company used 640 direct labor-hours to produce this
output. The actual direct labor cost was $8,960.
The labor rate variance for January is:
A) $700 F
B) $640 U
C) $640 F
D) $700 U
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:
Loren Company's single product has a selling price of $15 per unit. Last year the
company reported total variable expenses of $180,000, fixed expenses of $90,000, and
a net operating income of $30,000. A study by the sales manager discloses that a 15%
increase in the selling price would reduce unit sales by 10%. If her proposal is adopted,
net operating income would:
A. increase by $45,000
B. increase by $37,500
C. increase by $7,500
D. increase by $28,500
Answer:
The Varone Company makes a single product called a Hom. The company has the
capacity to produce 40,000 Homs per year. Per unit costs to produce and sell one Hom
at that activity level are:
The regular selling price for one Hom is $60. A special order has been received at
Varone from the Fairview Company to purchase 8,000 Homs next year at 15% off the
regular selling price. If this special order were accepted, the variable selling expense
would be reduced by 25%. However, Varone would have to purchase a specialized
machine to engrave the Fairview name on each Hom in the special order. This machine
would cost $12,000 and it would have no use after the special order was filled. The total
fixed costs, both manufacturing and selling, are constant within the relevant range of
30,000 to 40,000 Homs per year. Assume direct labor is a variable cost.
If Varone can expect to sell 32,000 Homs next year through regular channels, at what
special order price from Fairview should Varone be economically indifferent between
either accepting or not accepting this special order?
A. $51.00
B. $48.20
C. $42.50
D. $39.60
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:
The February contribution format income statement of Caines Corporation appears
below:
If the company's sales increase by 18%, its net operating income should increase by
about:
A. 18%
B. 197%
C. 9%
D. 63%
Answer:
Reference: 8-45
The auto repair shop of Empire Motor Sales uses standards to control labor time and
labor cost in the shop. The standard time for a motor tune-up is 2.5 hours. The record
showing time spent in the shop last week on tune-ups has been misplaced; however, the
shop supervisor recalls that 50 tune-ups were completed during the week and the
controller recalls that the labor rate variance on tune-ups was $87, favorable. The shop
has a set standard labor rate of $9 per hour for tune-up work. The total labor variance
for the week on tune-up work was $93, unfavorable.
The actual hourly rate of pay for tune-up work last week was:
A) $8.40 per hour
B) $9.00 per hour
C) $9.60 per hour
D) Cannot be computed without further information
Answer:
The Chase Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard machine-hours. For November, the
company's flexible budget for manufacturing overhead showed the following total
budgeted costs at the denominator activity level of 40,000 machine-hours:
During November 42,000 machine-hours were used to complete 13,200 units of product
with the following actual overhead costs:
The standard time allowed to complete one unit of product is 3.6 machine-hours.
The fixed manufacturing overhead budget variance for November was:
A. $2,970 unfavorable
B. $4,550 favorable
C. $7,520 favorable
D. $22,900 unfavorable
Answer:
The Work in Process inventory account of a manufacturing firm shows a balance of
$3,000 at the end of an accounting period. The job cost sheets of two uncompleted jobs
show charges of $500 and $300 for direct materials, and charges of $400 and $600 for
direct labor. From this information, it appears that the company is using a
predetermined overhead rate, as a percentage of direct labor costs, of:
A. 83%
B. 120%
C. 40%
D. 300%
Answer:
Hunter Corporation sells a product for $180 per unit. The product's current sales are
34,900 units and its break-even sales are 25,128 units.
The margin of safety as a percentage of sales is closest to:
A. 39%
B. 28%
C. 72%
D. 61%
Answer:
Excerpts from Tigner Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,230 and the cost of goods sold was $820.
The working capital at the end of Year 2 is:
A. $740
B. $790
C. $430
D. $150
Answer:
The following data have been taken from the budget reports of Brandon company, a
merchandising company.
Forty percent of purchases are paid for in cash at the time of purchase, and 30% are
paid for in each of the next two months. Purchases for the previous November and
December were $150,000 per month. Employee wages are 10% of sales for the month
in which the sales occur. Selling and administrative expenses are 20% of the following
month's sales. (July sales are budgeted to be $220,000.) Interest payments of $20,000
are paid quarterly in January and April. Brandon's cash disbursements for the month of
April would be:
A. $140,000
B. $254,000
C. $200,000
D. $248,000
Answer:
Njombe Corporation manufactures a variety of products. In the past, Njombe has been
using a traditional costing system in which the predetermined overhead rate was 150%
of direct labor cost. Selling prices had been set by multiplying total product cost by
200%. Sensing that this system was distorting costs and selling prices, Njombe has
decided to switch to an activity-based costing system for manufacturing overhead costs
using three activity cost pools. Selling prices are still to be set at 200% of unit product
cost under the new system. Information on these cost pools for next year are as follows:
Information (on a per unit basis) related to three popular products at Njombe are as
follows:
Under the activity-based costing system, what would be the selling price of one unit of
Model #36?
A. $2,536
B. $2,712
C. $4,080
D. $5,506
Answer:
Cress Company makes four products in a single facility. Data concerning these products
appear below:
The milling machines are potentially the constraint in the production facility. A total of
11,500 minutes are available per month on these machines.
Which product makes the MOST profitable use of the milling machines?
A. Product A
B. Product B
C. Product C
D. Product D
Answer:
Abe Company, which has only one product, has provided the following data concerning
its most recent month of operations:
The total gross margin for the month under the absorption costing approach is:
A. $319,200
B. $16,800
C. $226,800
D. $256,500
Answer:
Heersink Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $10.50 per machine-hour and fixed manufacturing overhead cost of
$108,108 per period. If the denominator level of activity is 2,700 machine-hours, the
fixed element in the predetermined overhead rate would be:
A) $1,050.00
B) $40.04
C) $10.50
D) $50.54
Answer:
A partial listing of costs incurred during December at Gagnier Corporation appears
below:
The total of the product costs listed above for December is:
A. $310,000
B. $89,000
C. $635,000
D. $325,000
Answer:
Swiatek Corporation produces a single product and has the following cost structure:
The variable costing unit product cost is:
A. $161
B. $225
C. $153
D. $158
Answer:
Diltex Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:
o Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000
for January.
o Collections are expected to be 70% in the month of sale, 27% in the month following
the sale, and 3% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory at the end of each
month equal to 50% 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 $22,500.
o Monthly depreciation is $19,000.
o Ignore taxes.
The difference between cash receipts and cash disbursements for December would be:
A. $17,900
B. $22,500
C. $40,400
D. $62,900
Answer:
The standards for product A22G specify 8.2 direct labor-hours per unit at $11.90 per
direct labor-hour. Last month 200 units of product A22G were produced using 1,700
direct labor-hours at a total direct labor wage cost of $20,060.
Required:
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
c. Prepare a journal entry to record direct labor costs during the month, including the
direct labor variances.
Answer:
Wehr Inc. is preparing its cash budget for April. The budgeted beginning cash balance is
$19,000. Budgeted cash receipts total $105,000 and budgeted cash disbursements total
$98,000. The desired ending cash balance is $50,000. The company can borrow up to
$120,000 at any time from a local bank, with interest not due until the following month.
Prepare the company's cash budget for April in good form. Make sure to indicate what
borrowing, if any, would be needed to attain the desired ending cash balance.
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:
The following cost data relate to the manufacturing activities of Newberry Company
during the just completed year:
The company uses a predetermined overhead rate to apply manufacturing overhead cost
to production. The predetermined overhead rate for the year was $15 per machine-hour.
A total of 23,000 machine-hours were recorded for the year.
a. Compute the amount of underapplied or overapplied manufacturing overhead cost for
the year.
b. Prepare a Schedule of Cost of Goods Manufactured for the year.
Answer:
Turnner Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The
company bases its budgets on two measures of activity (i.e., cost drivers), namely
guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep
has one tour guide. The company uses the following data in its budgeting:
In April, the company budgeted for 374 guests and 166 jeeps. The actual activity for the
month was 364 guests and 167 jeeps.
Required:
Prepare the companys planning budget for April.
Answer:
Dampf Inc. has provided the following data concerning its only product:
Compute the margin of safety in both dollars and as a percentage of sales.
Answer:
Data concerning Goulbourne Corporation's single product appear below:
Fixed expenses are $444,000 per month. The company is currently selling 7,000 units
per month.
Management is considering using a new component that would increase the unit
variable cost by $2. Since the new component would improve the company's product,
the marketing manager predicts that monthly sales would increase by 200 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:
During August, Cardenas Clinic budgeted for 3,900 patient-visits, but its actual level of
activity was 3,800 patient-visits. The clinic uses the following revenue and cost
formulas in its budgeting, where q is the number of patient-visits:
Revenue: $27.80q
Personnel expenses: $25,100 + $7.80q
Medical supplies: $1,100 + $5.60q
Occupancy expenses: $7,900 + $1.20q
Administrative expenses: $3,200 + $0.10q
Required:
Prepare the clinics flexible budget for August based on the actual level of activity for
the month.
Answer:
The standards for product A22G specify 8.2 direct labor-hours per unit at $11.90 per
direct labor-hour. Last month 200 units of product A22G were produced using 1,700
direct labor-hours at a total direct labor wage cost of $20,060.
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
c. Prepare a journal entry to record direct labor costs during the month, including the
direct labor variances.
Answer:
Gaskamp Corporation's total current assets are $270,000, its noncurrent assets are
$610,000, its total current liabilities are $170,000, its long-term liabilities are $400,000,
and its stockholders' equity is $310,000.
Compute the company's current ratio. Show your work!
Answer:
Pinion Memorial Diner is a charity supported by donations that provides free meals to
the homeless. The diners budget for August was based on 2,700 meals. The diners
director has provided the following cost formulas to use in budgets:
The director has also provided the diners statement of actual expenses for the month:
Required:
Prepare a report showing the spending variances for each of the expenses and for total
expenses for August. Label each variance as favorable (F) or unfavorable (U).
Answer:
Production and cost data for the month of February for Process A of the Packer
manufacturing Company follow:
The company uses the weighted-average cost method in its process costing system.
a. Calculate the equivalent units and cost per equivalent unit for February for materials
and for conversion costs. (Carry calculations out to the nearest tenth of a cent.)
b. Determine the cost transferred to finished goods.
c. Determine the amount of cost that should be assigned to the ending work in process.
Answer:
Lundberg Corporation's most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $50 thousand. Dividends on
preferred stock totaled $20 thousand. The market price of common stock at the end of
Year 2 was $9.36 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.
i. Working capital.
j. Current ratio.
k. Acid-test ratio.
l. Accounts receivable turnover.
m. Average collection period.
n. Inventory turnover.
o. Average sale period.
p. Times interest earned.
q. Debt-to-equity ratio.
Answer:
Dominick Inc. uses the weighted-average method in its process costing. The following
data concern the company's Mixing Department for the month of December.
Compute the cost per equivalent unit for materials and conversion for the Mixing
Department in December.
Answer:
Data from Weichbrodt Corporation's most recent balance sheet appear below:
Compute the company's acid-test ratio. Show your work!
Answer:
Block Corporation makes three products that use the current constraint, which is a
particular type of machine. Data concerning those products appear below:
a. Rank the products in order of their current profitability from the most profitable to
the least profitable. In other words, rank the products in the order in which they should
be emphasized. Show your work!
b. Assume that sufficient constraint time is available 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?
Answer:
Data concerning three of Pressnell Corporation's activity cost pools appear below:
Compute the activity rates for each of the three cost pools. Show your work!
Answer:
Hereford Corporation has provided the following data for February.
a. Compute the budget variance for February. Show your work!
b. Compute the volume variance for February. Show your work!
Answer:
Sandler Corporation bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. Data for the upcoming year appear below:
Compute the company's predetermined overhead rate.
Answer:
