The first-stage allocation in activity-based costing is the process by which overhead
costs are assigned to activity cost pools.
Answer:
Discretionary fixed costs arise from annual decisions by management to spend in
certain fixed cost areas.
Answer:
For liability accounts, debits are added to the beginning balance on the statement of
cash flows.
Answer:
Lietz Corporation has provided the following data concerning manufacturing overhead
for January:
The company’s Cost of Goods Sold was $369,000 prior to closing out its Manufacturing
Overhead account. The company closes out its Manufacturing Overhead account to
Cost of Goods Sold. Which of the following statements is TRUE?
A. Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $392,000
B. Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $346,000
C. Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $346,000
D. Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $392,000
Answer:
The master budget is a network consisting of many separate budgets that are
interdependent.
Answer:
The investing and financing sections of the statement of cash flows record net cash
flows rather than gross cash flows.
Answer:
When production is less than sales for the period, absorption costing net operating
income will generally be less than variable costing net operating income.
Answer:
Product-level activities relate to specific products and typically must be carried out
regardless of how many batches are run or units of product are made.
Answer:
O’Keefe Company, which has only one product, has provided the following data
concerning its most recent month of operations:
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
Answer:
A flexible budget can be used to determine what costs should have been at a given level
of activity.
Answer:
Incremental analysis is an analytical approach that focuses only on those revenues and
costs that will change as a result of a decision.
Answer:
The fixed manufacturing overhead volume variance will be unfavorable if production
volume is less than sales volume.
Answer:
The gross margin percentage is computed by dividing the gross margin by sales.
Answer:
Although formal entry of standard costs and variances into the accounting records is not
required, some organizations make such entries in order to emphasize the importance of
variances as well as to simplify the bookkeeping process.
Answer:
Both variable and fixed manufacturing overhead costs are included in the
manufacturing overhead budget.
Answer:
Sunk costs are considered to be avoidable costs.
Answer:
Flexible budgets cannot be used when there is more than one cost driver (i.e., measure
of activity).
Answer:
The use of return on investment as a performance measure may lead managers to make
decisions that are not in the best interests of the company as a whole.
Answer:
A process cost system would be used to account for the cost of manufacturing an oil
tanker.
Answer:
Traditional format income statements are prepared primarily for external reporting
purposes.
Answer:
The book value of a machine, as shown on the balance sheet, is relevant in a decision
concerning the replacement of that machine by another machine.
Answer:
The margin of safety percentage is equal to the margin of safety in dollars divided by
total sales in dollars.
Answer:
The salary paid to a store manager is a traceable fixed expense of the store.
Answer:
An unfavorable materials quantity variance is recorded as a credit in the Materials
Quantity Variance account.
Answer:
Dividing the market price of a share of stock by the dividends per share gives the
price-earnings ratio.
Answer:
On a CVP graph for a profitable company, the total expense line will be steeper than the
line representing fixed costs.
Answer:
Generally speaking, it is the responsibility of the production department to see that
material usage is kept in line with standards.
Answer:
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. A fixed
manufacturing overhead volume variance will necessarily occur in a month in which
there is a fixed manufacturing overhead budget variance.
Answer:
If manufacturing overhead applied exceeds the actual manufacturing overhead costs of
the period, then manufacturing overhead is overapplied.
Answer:
Even if operations are interrupted or cut back, committed fixed costs remain largely
unchanged in the short term because the costs of restoring them later are likely to be far
greater than any short-run savings that might be realized.
Answer:
Consider a company that has only variable costs. All other things the same, an increase
in unit sales will result in no change in the return on investment.
Answer:
The use of predetermined overhead rates in a job-order cost system makes it possible to
estimate the total cost of a given job as soon as production is completed.
Answer:
From the standpoint of cost control, the weighted-average method of process costing is
superior to the FIFO method.
Answer:
In the cost reconciliation report, the costs to be accounted for equals the cost of
beginning work in process inventory plus the costs added during the period.
Answer:
In a standard costing system, underapplied or overapplied fixed manufacturing
overhead is equal to the sum of the fixed manufacturing overhead budget variance and
the fixed manufacturing overhead volume variance.
Answer:
Depreciation expense on existing factory equipment is generally relevant to a decision
of whether to accept or reject a special offer for a company’s product.
Answer:
Moore Company produces a single product. During last year, Moore’s variable
production costs totaled $10,000 and its fixed manufacturing overhead costs totaled
$6,800. The company produced 5,000 units during the year and sold 4,600 units. There
were no units in the beginning inventory. Which of the following statements is TRUE?
A. The net operating income under absorption costing for the year will be $800 higher
than net operating income under variable costing.
B. The net operating income under absorption costing for the year will be $544 higher
than net operating income under variable costing.
C. The net operating income under absorption costing for the year will be $544 lower
than net operating income under variable costing.
D. The net operating income under absorption costing for the year will be $800 lower
than net operating income under variable costing.
Answer:
The following journal entry would be made to apply overhead cost to jobs in a
job-order costing system:
Answer:
An avoidable cost is a cost that can be eliminated (in whole or in part) as a result of
choosing one alternative over another.
Answer:
All costs incurred in a merchandising firm are considered to be period costs.
Answer:
Turnover is computed by dividing average operating assets into:
A. invested capital.
B. total assets.
C. net operating income.
D. sales.
Answer:
Dooling Corporation’s balance sheet and income statement appear below:
Cash dividends were $14. The company sold equipment for $15 that was originally
purchased for $11 and that had accumulated depreciation of $3. The net cash provided
by (used in) investing activities for the year was:
A. $(83)
B. $68
C. $15
D. $(68)
Answer:
Reference: 8-34
Caquias Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in August.
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 efficiency variance for August is:
A) $480 F
B) $500 U
C) $500 F
D) $480 U
Answer:
Reference: 8-8
Diiorio Clinic uses client-visits as its measure of activity. During February, the clinic
budgeted for 2,700 client-visits, but its actual level of activity was 2,750 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for February:
Data used in budgeting:
Actual results for February:
The occupancy expenses in the flexible budget for February would be closest to:
A) $11,250
B) $11,160
C) $11,183
D) $10,780
Answer:
A manufacturer of playground equipment 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 fixed manufacturing overhead volume variance for the period to the
nearest dollar?
A. $486 F
B. $1,105 U
C. $619 U
D. $612 U
Answer:
The manufacturing overhead budget at Cutchin Corporation is based on budgeted direct
labor-hours. The direct labor budget indicates that 2,800 direct labor-hours will be
required in September. The variable overhead rate is $7.00 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $43,120 per month, which
includes depreciation of $3,640. All other fixed manufacturing overhead costs represent
current cash flows. The September cash disbursements for manufacturing overhead on
the manufacturing overhead budget should be:
A. $59,080
B. $62,720
C. $19,600
D. $39,480
Answer:
Whitney, Inc., produces a single product. The following data pertain to one month’s
operations:
For the month referred to above, net operating income under variable costing will be:
A. higher than net operating income under absorption costing.
B. lower than net operating income under absorption costing.
C. the same as net operating income under absorption costing.
D. The relation between variable costing and absorption costing net operating income
cannot be determined.
Answer:
The changes in Tener Company’s balance sheet account balances for last year appear
below:
The company’s income statement for the year appears below:
The company declared and paid $67,000 in cash dividends during the year. It did not
dispose of any property, plant, and equipment during the year. The company uses the
direct method to determine the net cash provided by operating activities.
On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
A. $67,000
B. $42,000
C. $35,000
D. $51,000
Answer:
Ingerson Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?
A. $109
B. $79
C. $99
D. $89
Answer:
Data from Kooistra Corporation’s most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,270 and the cost of goods sold was $770.
The working capital at the end of Year 2 is:
A. $990
B. $170
C. $1,010
D. $450
Answer:
The salary paid to the production manager in a factory is:
A. a variable cost.
B. part of prime cost.
C. part of conversion cost.
D. both a variable cost and a prime cost.
Answer:
Compound K47E is used to make Goforth Corporations major product. The standard
cost of compound K47E is $24.50 per ounce and the standard quantity is 6.1 ounces per
unit of output. In the most recent month, 5,030 ounces of the compound were used to
make 700 units of the output. When recording the use of materials in production, Raw
Materials would be:
A) credited for $123,235.
B) debited for $123,235.
C) debited for $104,615.
D) credited for $104,615.
Answer:
Data concerning Carlo Corporation’s single product appear below:
The break-even in monthly dollar sales is closest to:
A. $896,744
B. $466,900
C. $1,556,333
D. $667,000
Answer:
Atwich Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 600
units. The costs and percentage completion of these units in beginning inventory were:
A total of 5,100 units were started and 4,400 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 75% complete with respect to materials and 10% 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.
The cost of ending work in process inventory in the first processing department
according to the company’s cost system is closest to:
A. $26,342
B. $62,679
C. $8,357
D. $83,572
Answer:
Slappy Corporation leases its corporate headquarters building. This lease cost is fixed
with respect to the company’s sales volume. In a recent month in which the sales
volume was 20,000 units, the lease cost was $482,000.
To the nearest whole cent, what should be the average lease cost per unit at a sales
volume of 19,200 units in a month? (Assume that this sales volume is within the
relevant range.)
A. $28.52
B. $24.60
C. $25.10
D. $24.10
Answer:
Liffick Corporation is a specialty component manufacturer with idle capacity.
Management would like to use its extra capacity to generate additional profits. A
potential customer has offered to buy 6,200 units of component VFG. Each unit of VFG
requires 8 units of material C79 and 6 units of material X70. Data concerning these two
materials follow:
Material C79 is in use in many of the company’s products and is routinely replenished.
Material X70 is no longer used by the company in any of its normal products and
existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a
minimum acceptable price for the order for product VFG?
A. $528,551
B. $523,280
C. $476,350
D. $484,455
Answer:
Data from Kempen Corporation’s most recent balance sheet and the company’s income
statement appear below:
The debt-to-equity ratio at the end of Year 2 is closest to:
A. 0.71
B. 0.33
C. 0.24
D. 0.57
Answer:
Reference: 8-22
Friou 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
6,300 units, but its actual level of activity was 6,250 units. The company 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 direct labor in the planning budget for July would be closest to:
A) $27,295
B) $28,350
C) $28,125
D) $27,513
Answer:
Reference: 8-9
Parisi Clinic uses client-visits as its measure of activity. During March, the clinic
budgeted for 2,300 client-visits, but its actual level of activity was 2,350 client-visits.
The clinic has provided the following data concerning the formulas to be used in its
budgeting:
The net operating income in the flexible budget for March would be closest to:
A) $11,100
B) $9,905
C) $10,340
D) $12,500
Answer:
Wright Corporation’s contribution format income statement for last month appears
below.
There were no beginning or ending inventories. The company produced and sold 3,000
units during the month.
The company has an opportunity to secure a special order of 800 units if it is willing to
drop the selling price on these units to $13. Costs of securing the special order would be
$1,000. The special order would not affect the company’s regular sales. If the special
order is accepted, the company’s overall net operating income will:
A. increase by $3,200
B. increase by $2,200
C. increase by $3,800
D. remain the same
Answer:
Tennison Corporation has two major business segments-Consumer and Commercial.
Data for the segment and for the company for May appear below:
In addition, common fixed expenses totaled $371,000 and were allocated as follows:
$186,000 to the Consumer business segment and $185,000 to the Commercial 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. $769,000
B. $104,000
C. $475,000
D. -$267,000
Answer:
Assume a company has a current ratio that is greater than 1. Which of the following
transactions will reduce the company’s current ratio?
A. Selling office equipment at book value.
B. Paying a cash dividend already declared.
C. Borrowing by taking out a short-term loan.
D. Selling equipment at a loss.
When the current ratio is greater than 1 (e.g., $500 ÷ $400 = 1.25) then increasing both
portions of the fraction by an equal amount would reduce the current ratio (e.g., $550 ÷
$450 = 1.22.)
Answer:
Reference: 8-29
Hurren 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) $4,095 F
B) $4,050 F
C) $4,095 U
D) $4,050 U
Answer:
Reference: 8-34
Caquias Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in August.
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 August is:
A) $200 F
B) $205 U
C) $205 F
D) $200 U
Answer:
The Yost Company makes and sells a single product, Product A. Each unit of Product A
requires 1.2 hours of labor at a labor rate of $8.40 per hour. Yost Company needs to
prepare a Direct Labor Budget for the second quarter.
The company has budgeted to produce 20,000 units of Product A in June. The finished
goods inventories on June 1 and June 30 were budgeted at 400 and 600 units,
respectively. Budgeted direct labor cost for June is:
A. $207,648
B. $168,000
C. $199,584
D. $201,600
Answer:
Which of the following statements regarding fixed costs is incorrect?
A. Expressing fixed costs on a per unit basis usually is the best approach for decision
making.
B. Fixed costs expressed on a per unit basis will decrease with increases in activity.
C. Total fixed costs are constant within the relevant range.
D. Fixed costs expressed on a per unit basis will increase with decreases in activity.
Answer:
Given the cost formula, Y = $9,000 + $2.50X, total cost for an activity level of 3,000
units would be:
A. $9,750
B. $12,000
C. $16,500
D. $7,500
Answer:
Equivalent units for a process costing system using the FIFO method would be equal to:
A. units completed during the period plus equivalent units in the ending work in
process inventory.
B. units started and completed during the period plus equivalent units in the ending
work in process inventory.
C. units completed during the period and transferred out.
D. units started and completed during the period plus equivalent units in the ending
work in process inventory plus work needed to complete units in the beginning work in
process inventory.
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 are the equivalent units for
processing costs for the Department for the month?
A. 97,300
B. 91,300
C. 94,000
D. 100,300
Answer:
Broze Company makes four products in a single facility. These products have the
following unit product costs:
Additional data concerning these products are listed below.
The grinding machines are potentially the constraint in the production facility. A total of
53,600 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Which product makes the MOST profitable use of the grinding machines?
A. Product A
B. Product B
C. Product C
D. Product D
Answer:
A cement manufacturer has supplied the following data:
What is the company’s unit contribution margin?
A. $2.00
B. $0.32
C. $4.30
D. $2.30
Answer:
The information below was obtained from the records of one of the departments of
Cushing Company for the month of August. The company uses the FIFO method in its
process costing system.
All materials are added at the beginning of the process.
The equivalent units for materials for the month of August are:
A. 75,000 units
B. 85,000 units
C. 87,500 units
D. 95,000 units
Answer:
The following data pertain to Epsom Corporation’s operations:
The variable expense per unit is:
A. $10.00 per unit
B. $17.50 per unit
C. $7.50 per unit
D. $15.00 per unit
Answer:
Schlag Inc. expects its sales in January to be $111,000. The company’s contribution
margin ratio is 65% and its fixed monthly expenses are $64,000.
Estimate the company’s net operating income for January, assuming that the fixed
monthly expenses do not change. Show your work!
Answer:
Stailey Clinic uses patient-visits as its measure of activity. During September, the clinic
budgeted for 3,200 patient-visits, but its actual level of activity was 2,800 patient-visits.
The clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $34.90q
Personnel expenses: $27,300 + $10.30q
Medical supplies: $1,400 + $6.50q
Occupancy expenses: $6,000 + $1.80q
Administrative expenses: $5,300 + $0.40q
The clinic reported the following actual results for September:
Required:
Prepare a report showing the clinics revenue and spending variances for September.
Label each variance as favorable (F) or unfavorable (U).
Answer:
Stanger Inc. produces and sells two products. Data concerning those products for the
most recent month appear below:
Fixed expenses for the entire company were $17,570.
a. Determine the overall break-even point for the company. Show your work!
b. If the sales mix shifts toward Product N16S with no change in total sales, what will
happen to the break-even point for the company? Explain.
Answer:
Penury Company offers two products. At present, the following represents the usual
results of a month’s operations:
a. Find the break-even point in dollars.
b. Find the margin of safety in dollars.
c. The company is considering decreasing product K’s unit sales to 80,000 and
increasing product L’s unit sales to 180,000, leaving unchanged the selling price per
unit, variable expense per unit, and total fixed expenses. Would you advise adopting
this plan?
d. Refer to (c) above. Under the new plan, find the break-even point in dollars.
e. Under the new plan in (c) above, find the margin of safety in dollars.
Answer:
Randall Company is a merchandising company that sells a single product. The
company’s inventories, production, and sales in units for the next three months have
been forecasted as follows:
Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and
the balance are paid for in the following month. Accounts receivable at September 30
totaled $450,000.
Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the
month of the purchase and the remainder are paid for in the month following purchase.
Selling and administrative expenses are expected to total $120,000 each month. One
half of these expenses will be paid in the month in which they are incurred and the
balance will be paid in the following month. There is no depreciation. Accounts payable
at September 30 totaled $290,000.
Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of
equipment is scheduled for November, and a dividend of $200,000 is to be paid in
December.
a. Prepare a schedule of expected cash collections for each of the months of October,
November, and December.
b. Prepare a schedule showing expected cash disbursements for merchandise purchases
and selling and administrative expenses for each of the months October, November, and
December.
c. Prepare a cash budget for each of the months October, November, and December.
There is no minimum required ending cash balance.
Answer:
The IT Corporation produces and markets two types of electronic calculators: Model 11
and Model 12. The following data were gathered on activities last month:
Prepare a segmented income statement in the contribution format for last month.
Answer:
Excerpts from Stepney Corporation’s most recent balance sheet (in thousands of dollars)
appear below:
Sales on account during the year totaled $1,440 thousand. Cost of goods sold was $890
thousand.
Compute the following for Year 2:
a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.
Answer:
Churchwell Corporation produces and sells a single product. Data concerning that
product appear below:
a. Assume the company’s monthly target profit is $69,000. Determine the unit sales to
attain that target profit. Show your work!
b. Assume the company’s monthly target profit is $41,400. Determine the dollar sales to
attain that target profit. Show your work!
Answer:
Roosevelt Corporation’s balance sheet appears below:
Net income for the year was -$43. Cash dividends were $1. The company did not
dispose of any property, plant, and equipment, issue any bonds payable, or repurchase
any of its own common stock during the year.
Prepare a statement of cash flows in good form using the indirect method.
Answer:
Zeeb Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $355,000 per month. The company is currently selling 5,000 units
per month.
The marketing manager believes that a $12,000 increase in the monthly advertising
budget would result in a 160 unit increase in monthly sales. What should be the overall
effect on the company’s monthly net operating income of this change? Show your
work!
Answer:
Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following
product-line income data:
The following additional information is available:
* The factory rent of $1,500 assigned to Product C is avoidable if the product were
dropped.
* The company’s total depreciation would not be affected by dropping C.
* Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.
* All supervisors’ salaries are avoidable.
* If Product C is discontinued, the maintenance department will be able to reduce
monthly expenses from $3,000 to $2,000.
* Elimination of Product C will make it possible to cut two persons from the
administrative staff; their combined salaries total $3,000.
Prepare an analysis showing whether Product C should be eliminated.
Answer:
Answer:
Camren Corporation has two major business segments-Apparel and Accessories. Data
concerning those segments for December appear below:
Common fixed expenses totaled $357,000 and were allocated as follows: $161,000 to
the Apparel business segment and $196,000 to the Accessories business segment.
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Answer:
Kapoor Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products.
Data concerning two products appear below:
a. How much overhead cost would be assigned to Product J00A using the company’s
activity-based costing system? Show your work!
b. How much overhead cost would be assigned to Product S06U using the company’s
activity-based costing system? Show your work!
Answer:
Walkenhorst Corporation’s manufacturing overhead includes $7.80 per machine-hour
for supplies; $7.30 per machine-hour for indirect labor; $21,210 per period for salaries;
and $19,950 per period for depreciation.
Determine the predetermined overhead rate if the denominator level of activity is 1,500
machine-hours. Show your work!
Answer:
Gilde Industries is a division of a major corporation. Last year the division had total
sales of $23,380,000, net operating income of $2,828,980, and average operating assets
of $7,000,000. The company’s minimum required rate of return is 12%.
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
Answer:
Daston Company manufactures two products, Product F and Product G. The company
expects to produce and sell 1,600 units of Product F and 3,000 units of Product G
during the current year. The company uses activity-based costing to compute unit
product costs for external reports. Data relating to the company’s three activity cost
pools are given below for the current year:
Using the activity-based costing approach, determine the overhead cost per unit for
each product.
Answer:
Heckaman Corporation produces and sells a single product. Data concerning that
product appear below:
Determine the monthly break-even in unit sales. Show your work!
Answer: