1) whoever is responsible for the control of the denominator activity in the
predetermined overhead rate should also be responsible for the variable overhead
efficiency variance.
2) the activity variance for revenue is unfavorable if the actual revenue for the period is
less than the revenue in the static planning budget.
3) self-imposed budgets are those that are prepared by top management and then
assigned to other managers within the organization.
4) all other things the same, a decrease in average operating assets will increase return
on investment (roi).
5) all other things the same, a decrease in variable expense per unit will reduce the
break-even point.
6) the most common accounting treatment of underapplied manufacturing overhead is
to transfer it to the manufacturing overhead control account.
7) a company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. the company’s
choice of the denominator level of activity has no effect on the fixed manufacturing
overhead volume variance.
8) the direct method is used by hoeffner publishing, inc., to allocate service department
costs to operating departments. the company has two service departments, information
technology and personnel, and two operating departments, prepress and printing.
information technology department costs are allocated on the basis of computer
workstations and personnel department costs are allocated on the basis of employees.
the total prepress department cost after service department allocations is closest to:
a.$345,276
b.$342,428
c.$334,685
d.$339,455
9) demagistris corporation’s balance sheet and income statement appear below:
cash dividends were $22. the company sold equipment for $14 that was originally
purchased for $6 and that had accumulated depreciation of $4. the net cash provided by
(used by) financing activities for the year was:
a.($21)
b.($22)
c.$5
d.($38)
10) fraize 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, b21p and o11l, about which it
has provided the following data:
the company’s estimated total manufacturing overhead for the year is $2,870,100 and
the company’s estimated total direct labor-hours for the year is 54,000.
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 unit product cost of each of the company’s two products under the
traditional costing system.
b. determine the unit product cost of each of the company’s two products under
activity-based costing system.
11) (ignore income taxes in this problem.) steinmann inc. is considering the acquisition
of a new machine that costs $410,000 and has a useful life of 5 years with no salvage
value. the incremental net operating income and incremental net cash flows that would
be produced by the machine are:
if the discount rate is 14%, the net present value of the investment is closest to:
a.$410,000
b.$239,000
c.$446,002
d.$36,141
12) at overland company, maintenance cost is exclusively a variable cost that varies
directly with machine-hours. the performance report for july showed that actual
maintenance costs totaled $9,800 and that the associated rate variance was $200
unfavorable. if 8,000 machine-hours were actually worked during july, the budgeted
maintenance cost per machine-hour was:
a.$1.20
b.$1.25
c.$1.275
d.$1.225
13) dewiel corporation manufactures a variety of products. the following data pertain to
the company’s operations over the last two years:
what was the absorption costing net operating income this year?
a.$105,900
b.$115,500
c.$89,700
d.$109,500
14) salling corporation bases its budgets on machine-hours. the company’s static
planning budget for may appears below:
the spending variance for supplies costs in the flexible budget performance report for
the month should be:
a.$1,340 u
b.$1,340 f
c.$460 u
d.$460 f
15) (ignore income taxes in this problem.) ferris company has an old machine that is
fully depreciated but has a current salvage value of $5,000. the company wants to
purchase a new machine which would cost $60,000 and have a 5-year useful life and
zero salvage value. expected changes in annual revenues and expenses if the new
machine is purchased are:
required:
a. compute the payback period on the new equipment.
b. compute the simple rate of return on the new equipment.
16) the following materials standards have been established for a particular product:
the following data pertain to operations concerning the product for the last month:
what is the materials quantity variance for the month?
a.$15,240 u
b.$6,350 u
c.$14,340 u
d.$5,975 u
17) erholm inc. has provided the following data for the month of march. the balance in
the finished goods inventory account at the beginning of the month was $43,000 and at
the end of the month was $42,000. the cost of goods manufactured for the month was
$221,000. the actual manufacturing overhead cost incurred was $45,000 and the
manufacturing overhead cost applied to work in process was $49,000. the adjusted cost
of goods sold that would appear on the income statement for march is:
a.$218,000
b.$220,000
c.$222,000
d.$221,000
18) data for september for mossman corporation and its two major business segments,
north and south, appear below:
in addition, common fixed expenses totaled $319,000 and were allocated as follows:
$160,000 to the north business segment and $159,000 to the south business segment.
a properly constructed segmented income statement in a contribution format would
show that the net operating income of the company as a whole is:
a.$673,000
b.$523,000
c.-$115,000
d.$204,000
19) in the preparation of a statement of cash flows all of the following would be
classified as investing activities except:
a.collection of a loan from a subsidiary
b.purchase of a patent from an inventor
c.sale of plant assets
d.dividends received on stock held as an investment
20) rosiek corporation uses part a55 in one of its products. the company’s accounting
department reports the following costs of producing the 4,000 units of the part that are
needed every year.
an outside supplier has offered to make the part and sell it to the company for $32.30
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. if the outside supplier’s offer
were accepted, only $4,000 of these allocated general overhead costs would be avoided.
in addition, the space used to produce part a55 could be used to make more of one of
the company’s other products, generating an additional segment margin of $26,000 per
year for that product.
required:
a. prepare a report that shows the effect on the company’s total net operating income of
buying part a55 from the supplier rather than continuing to make it inside the company.
b. which alternative should the company choose?
21) dilloo company uses an activity-based costing system with three activity cost pools.
the company has provided the following data concerning its costs and its activity based
costing system:
the “other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
you have been asked to complete the first-stage allocation of costs to the activity cost
pools.
how much cost, in total, would be allocated in the first-stage allocation to the order size
activity cost pool?
a.$271,000
b.$280,500
c.$297,000
d.$264,000
22) (ignore income taxes in this problem.) sue falls is the president of sports, inc. she is
considering buying a new machine that would cost $14,125. sue has determined that the
new machine promises an internal rate of return of 12%, but sue has misplaced the
paper which tells the annual cost savings promised by the new machine. she does
remember that the machine has a projected life of 10 years. based on these data, the
annual cost savings are:
a.it is impossible to determine from the data given
b.$1,412.50
c.$2,500.00
d.$1,695.00
23) curly inc. is considering whether to continue to make a component or to buy it from
an outside supplier. the company uses 16,000 of the components each year. the unit
product cost of the component according to the company’s cost accounting system is
given as follows:
assume that direct labor is a variable cost. of the fixed manufacturing overhead, 30% is
avoidable if the component were bought from the outside supplier. in addition, making
the component uses 1 minutes on the machine that is the company’s current constraint.
if the component were bought, this machine time would be freed up for use on another
product that requires 2 minutes on the constraining machine and that has a contribution
margin of $8.10 per unit.
when deciding whether to make or buy the component, what cost of making the
component should be compared to the price of buying the component?
a.$20.60
b.$17.52
c.$24.65
d.$21.57
24) a company that makes organic fertilizer has supplied the following data:
the company’s margin of safety in units is closest to:
a.115,128
b.16,111
c.168,986
d.100,444
25) baaca corporation has provided the following production and total cost data for two
levels of monthly production volume. the company produces a single product.
the best estimate of the total cost to manufacture 6,300 units is closest to:
a.$1,425,690
b.$1,355,760
c.$1,495,620
d.$1,449,000
26) the following data for august has been provided by mirabelli corporation.
the volume variance for august is:
a.$6,960 f
b.$6,960 u
c.$2,320 f
d.$2,320 u
27) concepcion inc. expects its sales in march to be $126,000. the company’s
contribution margin ratio is 67% and its fixed monthly expenses are $48,000.
required:
estimate the company’s net operating income for march, assuming that the fixed
monthly expenses do not change. show your work!
28) data for december concerning dinnocenzo corporation’s two major business
segments-fibers and feedstocks-appear below:
common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to
the fibers business segment and $185,000 to the feedstocks business segment.
required:
prepare a segmented income statement in the contribution format for the company. omit
percentages; show only dollar amounts.
29) a number of costs and measures of activity are listed below.
required:
for each item above, indicate whether the cost is mainly fixed or variable with respect
to the possible measure of activity listed next to it.
30) przygocki inc., which produces a single product, has provided the following data
for its most recent month of operation:
the company had no beginning or ending inventories.
required:
compute the unit product cost under absorption costing. show your work!
31) madero corporation’s manufacturing overhead includes $6.20 per machine-hour for
variable manufacturing overhead and $711,360 per period for fixed manufacturing
overhead.
required:
determine the predetermined overhead rate for the denominator level of activity of
9,600 machine-hours.
32) borling inc. bases its selling and administrative expense budget on the number of
units sold. the variable selling and administrative expense is $8.30 per unit. the
budgeted fixed selling and administrative expense is $93,870 per month, which includes
depreciation of $16,380. the remainder of the fixed selling and administrative expense
represents current cash flows. the sales budget shows 6,300 units are planned to be sold
in july.
required:
prepare the selling and administrative expense budget for july.
