1) (Ignore income taxes in this problem) The management of Favreau Corporation is
considering the purchase of a machine that would cost $310,464 and would have a
useful life of 5 years. The machine would have no salvage value. The machine would
reduce labor and other operating costs by $84,000 per year. The internal rate of return
on the investment in the new machine is closest to:
A.12%
B.14%
C.11%
D.13%
2) A sales budget is given below for one of the products manufactured by the OMI Co.:
The inventory of finished goods at the end of each month must equal 20% of the next
month’s sales. However, on December 31 the finished goods inventory totaled only
4,000 units.
Each unit of product requires three pounds of specialized material. Since the production
of this specialized material by OMI’s suppliers is sometimes irregular, the company has
a policy of maintaining an ending inventory at the end of each month equal to 30% of
the next month’s production needs. This requirement had been met on January 1 of the
current year.
Required:
a. Prepare a budget showing the required production each month for January, February,
March, and April.
b. Prepare a budget showing the quantity of switches to be purchased each month for
January, February, and March.
3) The net cash provided by (used in) operating activities for the year was:
A.$117
B.$45
C.$36
D.$116
4) Zenon 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
3,300 tenant-days, but its actual level of activity was 3,260 tenant-days. The kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for July:
Data used in budgeting:
Actual results for July:
The facility expenses in the flexible budget for July would be closest to:
A.$25,311
B.$24,770
C.$24,701
D.$24,574
5) Homer Corporation has a standard cost system in which manufacturing overhead is
applied on the basis of standard machine-hours. The company has provided the
following data concerning its manufacturing overhead costs for last year:
The fixed manufacturing overhead budget variance was:
A.$200 F
B.$400 U
C.$300 F
D.$240 U
6) Phong Corporation has two divisions: Consumer Division and Business Division.
The following data are for the most recent operating period:
The company’s common fixed expenses total $102,340.
The Business Division’s break-even sales is closest to:
A.$376,077
B.$317,885
C.$244,872
D.$584,762
7) What would the annual cost of additional supervision have to be in order for Hadley
to be indifferent between making or buying the component? (Assume everything else
remains the same.)
A.$20,000
B.$19,000
C.$18,000
D.$17,000
8) The debits entered in the Raw Materials account during the month of August total:
A.$91,000
B.$69,000
C.$35,000
D.$56,000
9) Ruetz Clinic uses client-visits as its measure of activity. During November, the clinic
budgeted for 2,500 client-visits, but its actual level of activity was 2,520 client-visits.
The clinic has provided the following data concerning the formulas to be used in its
budgeting:
The medical supplies in the flexible budget for November would be closest to:
A.$22,950
B.$22,474
C.$23,124
D.$22,835
10) Nouri 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.
What are the equivalent units for materials for the month in the first processing
department?
A.850
B.7,240
C.7,600
D.6,300
11) If the company bases its predetermined overhead rate on capacity, the amount of
manufacturing overhead charged to the job B04D is closest to:
The management of Richbourg Corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity. The company’s controller
has provided an example to illustrate how this new system would work. In this
example, the allocation base is machine-hours and the estimated amount of the
allocation base for the upcoming year is 63,000 machine-hours. In addition, capacity is
70,000 machine-hours and the actual level of activity for the year is 66,200
machine-hours. All of the manufacturing overhead is fixed and is $2,866,500 per year.
For simplicity, it is assumed that this is the estimated manufacturing overhead for the
year as well as the manufacturing overhead at capacity. It is further assumed that this is
also the actual amount of manufacturing overhead for the year.
A.$1,566.00
B.$1,551.46
C.$1,883.91
D.$1,392.00
12) Trumbull Corporation budgeted sales on account of $120,000 for July, $211,000 for
August, and $198,000 for September. Experience indicates that none of the sales on
account will be collected in the month of the sale, 60% will be collected the month after
the sale, 36% in the second month, and 4% will be uncollectible. The cash receipts from
accounts receivable that should be budgeted for September would be:
A.$169,800
B.$147,960
C.$197,880
D.$194,760
13) Which product makes the MOST profitable use of the grinding machines?
A) Product A
B) Product B
C) Product C
D) Product D
14) Birchett Corporation’s most recent balance sheet appears below:
The company’s net income for the year was $91 and it did not sell or retire any property,
plant, and equipment during the year. Cash dividends were $22. The net cash provided
by (used in) operating activities for the year was:
A.$86
B.$5
C.$96
D.$130
15) Gilder Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in June.
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 labor rate variance for June is:
A.$385 F
B.$357 F
C.$357 U
D.$385 U
16) Soland Corporation has two operating divisions–an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable
costs of the Logistics Department are budgeted at $46 per shipment. The Logistics
Department’s fixed costs are budgeted at $253,700 for the year. The fixed costs of the
Logistics Department are determined based on peak-period demand.
At the end of the year, actual Logistics Department variable costs totaled $342,000 and
fixed costs totaled $273,230. The Atlantic Division had a total of 4,400 shipments and
the Pacific Division had a total of 2,800 shipments for the year. For performance
evaluation purposes, how much actual Logistics Department cost should NOT be
charged to the operating divisions at the end of the year?
A.$30,330
B.$0
C.$19,530
D.$10,800
17) Kubinski Inc. has provided the following data for the month of September. There
were no beginning inventories; consequently, the direct materials, direct labor, and
manufacturing overhead applied listed below are all for the current month.
Manufacturing overhead for the month was overapplied by $2,000.
The Corporation allocates any underapplied or overapplied manufacturing overhead
among work in process, finished goods, and cost of goods sold at the end of the month
on the basis of the manufacturing overhead applied during the month in those accounts.
The journal entry to record the allocation of any underapplied or overapplied
manufacturing overhead for September would include the following:
A.debit to Finished Goods of $33,090
B.debit to Finished Goods of $300
C.credit to Finished Goods of $33,090
D.credit to Finished Goods of $300
18) Capello Corporation manufactures and sells one product. In the company’s first year
of operations, the variable cost consisted solely of direct materials of $93 per unit. The
annual fixed costs were $675,000 of direct labor cost, $1,701,000 of fixed
manufacturing overhead expense, and $780,000 of fixed selling and administrative
expense. 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 27,000 units and sold 20,000 units. The company’s only product is
sold for $258 per unit.
Required:
a. Assume the company uses super-variable costing. Compute the unit product cost for
the year and prepare an income statement for the year.
b. Assume that the company uses an absorption costing system that assigns $25 of
direct labor cost and $63 of fixed manufacturing overhead to each unit that is produced.
Compute the unit product cost for the year and prepare an income statement for the
year.
19) Omary Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
What was the total of the variable overhead rate and fixed manufacturing overhead
budget variances for the month?
A.$1,520 Unfavorable
B.$3,180 Favorable
C.$4,820 Unfavorable
D.$6,340 Unfavorable