A product sells for $20 per unit and has a contribution margin ratio of 40 percent. Fixed
expenses total $240,000 annually. How many units of the product must be sold to yield
a profit of $60,000?
A. 37,500 units
B. 40,000 units
C. 65,000 units
D. 30,000 units
Answer:
Darth Company sells three products. Sales and contribution margin ratios for the three
products follow:
Given these data, the contribution margin ratio for the company as a whole would be:
A. 25%
B. 75%
C. 33.3%
D. it is impossible to determine from the data given.
Answer:
Sissac Catering uses two measures of activity, jobs and meals, in the cost formulas in its
flexible budgets. The cost formula for catering supplies is $470 per month plus $101
per job plus $24 per meal. A typical job involves serving a number of meals to guests at
a corporate function or at a hosts home. The company expected its activity in May to be
12 jobs and 123 meals, but the actual activity was 9 jobs and 126 meals. The actual cost
for catering supplies in May was $4,240. The spending variance for catering supplies in
May would be closest to:
A) $394 U
B) $394 F
C) $163 F
D) $163 U
Answer:
The Assembly Department started the month with 14,000 units in its beginning work in
process inventory. An additional 296,000 units were transferred in from the prior
department during the month to begin processing in the Assembly Department. There
were 14,000 units in the ending work in process inventory of the Assembly Department.
How many units were transferred to the next processing department during the month?
A. 293,000
B. 310,000
C. 324,000
D. 296,000
Answer:
Rojo Corporation has received a request for a special order of 8,000 units of product
W68 for $27.20 each. Product W68’s unit product cost is $18.50, 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 W68 that would increase the variable costs by $7.90 per unit and that would
require an investment of $31,000 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. $(4,400)
B. $69,600
C. $30,600
D. $(24,600)
Answer:
Reference: 8-27
The Litton Company has established standards as follows:
Direct material: 3 pounds per unit @ $4 per pound = $12 per unit
Direct labor: 2 hours per unit @ $8 per hour = $16 per unit
Variable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit
Actual production figures for the past year are given below. The company records the
materials price variance when materials are purchased.
The company applies variable manufacturing overhead to products on the basis of
standard direct labor-hours.
The labor rate variance is:
A) $480 F
B) $480 U
C) $440 F
D) $440 U
Answer:
Qik Corporation uses the FIFO method in its process costing system. Operating data for
the Cutting Department for the month of March appear below:
According to the company’s records, the conversion cost in beginning work in process
inventory was $45,662 at the beginning of March. Additional conversion costs of
$305,576 were incurred in the department during the month.
The cost per equivalent unit for conversion costs for March is closest to:
A. $5.77
B. $5.72
C. $5.91
D. $6.04
Answer:
Acitelli Corporation, which applies manufacturing overhead on the basis of
machine-hours, has provided the following data for its most recent year of operations.
The estimates of the manufacturing overhead and of machine-hours were made at the
beginning of the year for the purpose of computing the company’s predetermined
overhead rate for the year.
The overhead for the year was:
A. $1,520 underapplied
B. $2,520 overapplied
C. $1,520 overapplied
D. $2,520 underapplied
Answer:
Data concerning Delmore Corporation’s single product appear below:
The break-even in monthly dollar sales is closest to:
A. $646,300
B. $1,794,920
C. $1,009,700
D. $1,150,230
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 efficiency variance for January is:
A) $840 U
B) $900 U
C) $840 F
D) $900 F
Answer:
Brasher Company manufactures and sells a single product that has a positive
contribution margin. If the selling price and variable expenses both decrease by 5% and
fixed expenses do not change, then what would be the effect on the contribution margin
per unit and the contribution margin ratio?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
The following data pertain to Epsom Corporation’s operations:
The break-even level in sales dollars is:
A. $210,000
B. $120,000
C. $180,000
D. $84,000
Answer:
Kahn Company is a merchandiser that reported net income of $90,000. Additional
information follows:
Based on this information, under the indirect method the cash provided by operating
activities on the statement of cash flows would be:
A. $90,000
B. $99,000
C. $81,000
D. $79,000.
Answer:
Starwalt Corporation produces and sells a single product. The company has provided its
contribution format income statement for March.
If the company sells 7,900 units, its total contribution margin should be closest to:
A. $77,051
B. $322,200
C. $316,000
D. $308,000
Answer:
Mclaughlin Corporation’s most recent balance sheet and income statement appear
below:
The times interest earned for Year 2 is closest to:
A. 2.73
B. 4.91
C. 7.01
D. 3.91
Answer:
Drake Company’s contribution format income statement for the most recent year
appears below:
The sales manager is convinced that a $60,000 expenditure on advertising will increase
unit sales by 50% without any other increase in fixed expenses. If the sales manager is
correct, the company’s net operating income would increase by:
A. $44,000
B. $34,000
C. $30,000
D. $49,000
Answer:
Robledo Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $625,000 per month. The company is currently selling 9,000 units
per month.
This question is to be considered independently of all other questions relating to
Robledo Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $6 and increase the
advertising budget by $46,000 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?
A. increase of $13,200
B. increase of $29,200
C. decrease of $13,200
D. decrease of $40,800
Answer:
Prasad 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. To reduce
rounding error, carry out all computations to at least three decimal places.
The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $449,250
B. $528,560
C. $485,100
D. $473,100
Answer:
Reference: 8-4
Karmazyn Hospital bases its budgets on patient-visits. The hospitals static budget for
October appears below:
The total fixed cost at the activity level of 9,300 patient-visits per month should be:
A) $381,200
B) $207,370
C) $216,690
D) $364,900
Answer:
What is the predetermined overhead rate to the nearest cent?
A) $18.17 per MH
B) $18.31 per MH
C) $18.70 per MH
D) $18.84 per MH
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 total amount of overhead cost applied to Work in Process during November was:
A. $47,520
B. $66,528
C. $106,528
D. $114,048
Answer:
Reference: 8-28
Cox Engineering performs cement core tests in its laboratory. The following standards
have been set for each core test performed:
During March, the laboratory performed 2,000 core tests. On March 1 no direct
materials (sand) were on hand. Variable manufacturing overhead is assigned to core
tests on the basis of standard direct labor-hours. The following events occurred during
March:
– 8,600 pounds of sand were purchased at a cost of $7,310.
– 7,200 pounds of sand were used for core tests.
– 840 actual direct labor-hours were worked at a cost of $8,610.
– Actual variable manufacturing overhead incurred was $3,200.
The materials quantity variance for March is:
A) $900 favorable
B) $1,950 favorable
C) $1,950 unfavorable
D) $900 unfavorable
Answer:
Reference: 8A-5
The Dodge Company makes and sells a single product and uses a standard cost system
in which manufacturing overhead costs are applied to units of product on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are
required per unit of product. The Dodge Company had the following budgeted and
actual data for the year:
The budgeted direct labor-hours is used as the denominator activity for the month.
The variable overhead efficiency variance was:
A) $6,000 U
B) $6,000 F
C) $12,000 U
D) $12,000 F
Answer:
Selected financial data for Bragg Company appear below:
Suppose that 45% of Bragg Company’s total sales are cash sales. The company’s
average collection period (age of receivables) for Year 2 was closest to:
A. 44.24 days
B. 54.07 days
C. 36.05 days
D. 29.49 days
Answer:
Reference: 8A-4
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead budget variance for March is:
A) $2,000 favorable
B) $500 favorable
C) $2,000 unfavorable
D) $2,500 favorable
Answer:
Reference: 8-36
Landram Corporation makes a product with the following standard costs:
In March the company produced 4,700 units using 10,230 kilos of the direct material
and 2,210 direct labor-hours. During the month, the company purchased 10,800 kilos of
the direct material at a cost of $76,680. The actual direct labor cost was $38,233 and the
actual variable overhead cost was $11,934.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for March is:
A) $756 U
B) $700 F
C) $756 F
D) $700 U
Answer:
In determining the dollar amount to use for operating assets in the return on investment
(ROI) calculation, companies will generally use either net book value or gross cost of
the assets. Which of the following is an argument for the use of net book value rather
than gross cost?
A. It is consistent with how assets are reported on the balance sheet.
B. It eliminates the depreciation method as a factor in ROI calculations.
C. It encourages the replacement of old, worn-out equipment.
D. all of the above.
Answer:
A manufacturing company that produces a single product has provided the following
data concerning its most recent month of operations:
The total contribution margin for the month under variable costing is:
A. $183,600
B. $90,000
C. $70,400
D. $169,200
Answer:
A cement manufacturer has supplied the following data:
The company’s contribution margin ratio is closest to:
A. 46.5%
B. 53.5%
C. 7.4%
D. 42.8%
Answer:
The following data have been provided by a retailer that sells a single product.
What is the best estimate of the company’s variable selling and administrative expense
per unit?
A. $4.17 per unit
B. $0.24 per unit
C. $0.90 per unit
D. $0.71 per unit
Answer:
Falquez Company sells three products: R, S, and T. Data for activity of Falquez
Company during July are as follows:
Common fixed expenses for July amounted to $90,000.
The contribution margin for Product R was:
A. $48,750
B. $63,500
C. $51,000
D. $48,000
Answer:
Issuing new shares of stock in a five-for-one split of common stock would:
A. decrease the book value per share of common stock.
B. increase the book value per share of common stock.
C. increase total stockholders’ equity.
D. decrease total stockholders’ equity.
Answer:
Jaderston 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. $38.29
B. $36.47
C. $34.68
D. $36.06
Answer:
The Steff Company has the following flexible budget (in condensed form) for
manufacturing overhead:
The following data concerning production pertain to last year’s operations:
– The company used a denominator activity of 15,000 direct labor-hours to compute the
predetermined overhead rate.
– The company made 6,850 units of product and worked 14,200 actual hours during the
year.
– Actual variable manufacturing overhead was $15,904 and actual fixed manufacturing
overhead was $30, $850 for the year.
– The standard direct labor time is two hours per unit of product.
The volume variance was:
A. $2,000 favorable
B. $2,600 unfavorable
C. $1,000 favorable
D. $800 favorable
Answer:
Alkine Company’s comparative balance sheet appears below:
Alkine reported the following net income for the year:
Dividends were declared and paid during the year. A gain of $8,000 was recorded on the
sale of the long-term investments. The company did not purchase any long-term
investments or dispose of any property, plant, and equipment during the year. It also did
not issue any bonds payable or repurchase any of its own common stock.
The net cash provided (used) by investing activities would be:
A. $10,000
B. $(2,000)
C. $22,000
D. $1,000
Answer: