Elard Company uses the FIFO method in its process costing system. The first
processing department, the Welding Department, started the month with 17,000 units in
its beginning work in process inventory that were 70% complete with respect to
conversion costs. The conversion cost in this beginning work in process inventory was
$101,150. An additional 68,000 units were started into production during the month.
There were 23,000 units in the ending work in process inventory of the Welding
Department that were 80% complete with respect to conversion costs. A total of
$565,125 in conversion costs were incurred in the department during the month.
The cost per equivalent unit for conversion costs is closest to:
A. $8.50
B. $8.31
C. $8.25
D. $7.84
Answer:
During December at Ingrim Corporation, $74,000 of raw materials were requisitioned
from the storeroom for use in production. These raw materials included both direct and
indirect materials. The indirect materials totaled $6,000. The journal entry to record the
requisition from the storeroom would include a:
A. debit to Raw Materials of $74,000
B. debit to Work in Process of $68,000
C. credit to Manufacturing Overhead of $6,000
D. debit to Work in Process of $74,000
Answer:
Edeen 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 variable manufacturing cost per unit is:
A. $62.20
B. $96.50
C. $109.30
D. $12.80
Answer:
Carpon Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store’s operations follow:
o Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000
for January.
o Collections are expected to be 55% in the month of sale, 44% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires to have an ending merchandise inventory equal to 60% 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 $21,100.
o Monthly depreciation is $19,000.
o Ignore taxes.
The net income for December would be:
A. $66,400
B. $43,900
C. $47,400
D. $61,500
Answer:
Reference: 8-30
Snuggs Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in October.
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 materials quantity variance for October is:
A) $1,798 U
B) $1,798 F
C) $1,740 F
D) $1,740 U
Answer:
Addy Company has two products: A and B. The annual production and sales of Product
A is 1,700 units and of Product B is 1,100 units. The company has traditionally used
direct labor-hours as the basis for applying all manufacturing overhead to products.
Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct
labor-hours per unit. The total estimated overhead for next period is $98,785.
The company is considering switching to an activity-based costing system for the
purpose of computing unit product costs for external reports. The new activity-based
costing system would have three overhead activity cost pools–Activity 1, Activity 2,
and General Factory–with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct
labor-hours.)
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the
activity-based costing system is closest to:
A. $9.15
B. $51.99
C. $86.93
D. $10.23
Answer:
Eagle Corporation manufactures a picnic table. Shown below is Eagle’s cost structure:
In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for
$120 each.
If Eagle had sold only 9,000 tables in its first year, what total amount of cost would
have been assigned to the 1,000 tables in finished goods inventory under the absorption
costing method?
A. $37,100
B. $45,800
C. $58,000
D. $74,200
Answer:
Reference: 8-35
Sande Corporation makes a product with the following standard costs:
In November the companys budgeted production was 2,900 units but the actual
production was 3,000 units. The company used 27,670 grams of the direct material and
1,390 direct labor-hours to produce this output. During the month, the company
purchased 31,700 grams of the direct material at a cost of $196,540. The actual direct
labor cost was $29,607 and the actual variable overhead cost was $2,502.
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 materials quantity variance for November is:
A) $420 U
B) $434 F
C) $420 F
D) $434 U
Answer:
Elbon Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under variable costing?
A. $10,200
B. $(19,000)
C. $8,800
D. $1,400
Answer:
Crandler Company’s net income last year was $60,000. The company paid preferred
dividends of $20,000 and its average common stockholders’ equity was $500,000. The
company’s return on common stockholders’ equity for the year was closest to:
A. 16.0%
B. 4.0%
C. 8.0%
D. 12.0%
Answer:
Reference: 8-19
Amadon Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During July, the company budgeted for
7,900 units, but its actual level of activity was 7,920 units. The company has provided
the following data concerning the formulas to be used in its budgeting:
The net operating income in the planning budget for July would be closest to:
A) $22,360
B) $22,150
C) $15,082
D) $15,158
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 inventory turnover for Year 2 is closest to:
A. 0.93
B. 1.08
C. 5.85
D. 6.08
Answer:
Management of Mcentire Corporation has asked your help as an intern in preparing
some key reports for April. Direct materials cost was $64,000, direct labor cost was
$47,000, and manufacturing overhead was $75,000. Selling expense was $15,000 and
administrative expense was $44,000.
The prime cost for April was:
A. $59,000
B. $122,000
C. $100,000
D. $111,000
Answer:
Reference: 8-15
Maliszewski 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 March, the kennel budgeted for
3,400 tenant-days, but its actual level of activity was 3,410 tenant-days. The kennel has
provided the following data concerning the formulas to be used in its budgeting:
The facility expenses in the flexible budget for March would be closest to:
A) $19,664
B) $18,912
C) $18,880
D) $19,780
Answer:
The constraint at Dalbey Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear
below:
Assume that sufficient time is available on the constrained machine 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 this constrained resource?
A. $12.50 per minute
B. $29.96 per unit
C. $10.70 per minute
D. $71.92 per unit
Answer:
Deboer Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under the absorption costing approach?
A. $8,400
B. $17,600
C. $26,000
D. $13,600
Answer:
Which of the following would be considered a cash outflow in the investing activities
section of the statement of cash flows?
A. Dividends paid to the company’s own stockholders.
B. Payment of interest to a lender.
C. Purchase of equipment.
D. Retirement of bonds payable.
Answer:
The Reed Division reports the following operating data for the past two years:
The return on investment at Reed was exactly the same in Year 1 and Year 2
Average operating assets in Year 1 were:
A. $160,000
B. $150,000
C. $125,000
D. $100,000
Answer:
Gummer Hospital bases its budgets on patient-visits. The hospitals static budget for
February appears below:
The total overhead cost at an activity level of 10,800 patient-visits per month should be:
A) $317,520
B) $303,810
C) $291,060
D) $302,850
Answer:
Shuck Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 8,100 direct labor-hours will be required in May.
The variable overhead rate is $1.40 per direct labor-hour. The company’s budgeted fixed
manufacturing overhead is $100,440 per month, which includes depreciation of $8,910.
All other fixed manufacturing overhead costs represent current cash flows. The May
cash disbursements for manufacturing overhead on the manufacturing overhead budget
should be:
A. $102,870
B. $11,340
C. $91,530
D. $111,780
Answer:
Under the indirect method of determining net cash provided by operating activities on
the statement of cash flows, which of the following would be subtracted from net
income?
A. A decrease in accounts receivable.
B. An increase in accrued liabilities.
C. A decrease in accounts payable.
D. An increase in dividend payments to stockholders.
Answer:
Chae Corporation uses the weighted-average method in its process costing system. This
month, the beginning inventory in the first processing department consisted of 500
units. The costs and percentage completion of these units in beginning inventory were:
A total of 8,100 units were started and 7,500 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 80% complete with respect to materials and 75% complete
with respect to conversion costs.
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.
How many units are in ending work in process inventory in the first processing
department at the end of the month?
A. 1,100
B. 900
C. 600
D. 7,600
Answer:
Reference: 8-38
The Thompson Company uses standard costing and has established the following direct
material and direct labor standards for each unit of Lept.
Direct materials: 2 gallons at $4 per gallon
Direct labor: 0.5 hours at $8 per hour
During September, the company made 6,000 Lepts and incurred the following costs:
Direct materials purchased: 13,400 gallons at $4.10 per gallon
Direct materials used: 12,600 gallons
Direct labor used: 2,800 hours at $7.65 per hour
The materials quantity variance for September was:
A) $2,460 unfavorable
B) $5,600 unfavorable
C) $2,400 unfavorable
D) $5,740 unfavorable
Answer:
Tepla Corporation uses the FIFO method in its process costing system. Operating data
for the Curing Department for the month of March appear below:
According to the company’s records, the conversion cost in beginning work in process
inventory was $40,608 at the beginning of March. The cost per equivalent unit for
conversion costs for March was $9.
How much conversion cost would be assigned to the units completed and transferred
out of the department during March?
A. $562,152
B. $561,720
C. $520,800
D. $521,544
Answer:
Mclaughlin Corporation’s most recent balance sheet and income statement appear
below:
The debt-to-equity ratio at the end of Year 2 is closest to:
A. 0.69
B. 0.40
C. 0.35
D. 0.93
Answer:
Zippy Company has a process costing system. Information about units processed and
processing costs incurred during a recent month in the Refining Department follow:
The beginning work in process inventory had $10,946 of processing cost attached to it
at the beginning of the month. During the month, the Department incurred an additional
$289,954 in processing cost.
Assuming that the company uses the FIFO method, what is the cost per equivalent unit
of production for processing for the month?
A. $2.89
B. $2.98
C. $3.00
D. $3.09
Answer:
In February, one of the processing departments at Carpentier Corporation had beginning
work in process inventory of $14,000 and ending work in process inventory of $29,000.
During the month, $148,000 of costs were added to production and the cost of units
transferred out from the department was $133,000. In the department’s cost
reconciliation report for February, the total cost to be accounted for would be:
A. $310,000
B. $162,000
C. $324,000
D. $43,000
Answer:
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:
What was the variable overhead rate variance for the period to the nearest dollar?
A. $1,750 U
B. $820 F
C. $1,750 F
D. $820 U
Answer:
A segment is any portion or activity of an organization about which a manager seeks
revenue, cost, or profit data.
Answer:
Nguyen Corporation uses the weighted-average method in its process costing system.
Operating data for the Lubricating Department for the month of October appear below:
What were the equivalent units for conversion costs in the Lubricating Department for
October?
A. 53,700
B. 52,280
C. 54,080
D. 50,100
Answer:
Carpon Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store’s operations follow:
o Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000
for January.
o Collections are expected to be 55% in the month of sale, 44% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires to have an ending merchandise inventory equal to 60% 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 $21,100.
o Monthly depreciation is $19,000.
o Ignore taxes.
Retained earnings at the end of December would be:
A. $572,900
B. $614,400
C. $621,300
D. $529,000
Answer:
Erkkila Inc. reports that at an activity level of 7,900 machine-hours in a month, its total
variable inspection cost is $210,061 and its total fixed inspection cost is $191,970.
What would be the total variable inspection cost at an activity level of 8,100
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A. $210,061
B. $196,830
C. $215,379
D. $402,031
Answer:
Fiene Sales, Inc., a merchandising company, reported sales of 2,200 units in June at a
selling price of $600 per unit. Cost of goods sold, which is a variable cost, was $364 per
unit. Variable selling expenses were $23 per unit and variable administrative expenses
were $33 per unit. The total fixed selling expenses were $30,500 and the total
administrative expenses were $55,300.
The gross margin for June was:
A. $310,200
B. $1,234,200
C. $396,000
D. $519,200
Answer:
In August, the Universal Solutions Division of Jugan Corporation had average
operating assets of $670,000 and net operating income of $77,500. The company uses
residual income, with a minimum required rate of return of 12%, to evaluate the
performance of its divisions. What was the Universal Solutions Division’s residual
income in August?
A. $2,900
B. -$2,900
C. -$9,300
D. $9,300
Answer:
