Echenko Corporation uses a job-order costing system and applies overhead to jobs
using a predetermined overhead rate. During the year the company’s Finished Goods
inventory account was debited for $380,000 and credited for $335,500. The ending
balance in the Finished Goods inventory account was $62,300. At the end of the year,
manufacturing overhead was overapplied by $2,900.
The balance in the Finished Goods inventory account at the beginning of the year was:
A. $2,900
B. $62,300
C. $44,500
D. $17,800
Answer:
Hocking Corporation’s comparative balance sheet appears below:
The company’s net income (loss) for the year was $10,000 and its cash dividends were
$1,000. It did not sell or retire any property, plant, and equipment during the year. The
company uses the indirect method to determine the net cash provided by operating
activities.
Which of the following is correct regarding the operating activities section of the
statement of cash flows?
A. The change in Accounts Payable will be added to net income; The change in
Accrued Liabilities will be subtracted from net income
B. The change in Accounts Payable will be subtracted from net income; The change in
Accrued Liabilities will be added to net income
C. The change in Accounts Payable will be subtracted from net income; The change in
Accrued Liabilities will be subtracted from net income
D. The change in Accounts Payable will be added to net income; The change in
Accrued Liabilities will be added to net income
Answer:
Reference: 8-32
Gentile Corporation makes a product with the following standard costs:
The company produced 6,000 units in May using 36,970 kilos of direct material and
4,340 direct labor-hours. During the month, the company purchased 40,400 kilos of the
direct material at $4.70 per kilo. The actual direct labor rate was $13.70 per hour and
the actual variable overhead rate was $2.70 per hour.
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 May is:
A) $13,150 F
B) $12,361 F
C) $13,150 U
D) $12,361 U
Answer:
Which department should usually be held responsible for an unfavorable materials price
variance?
A) Production.
B) Materials Handling.
C) Engineering.
D) Purchasing.
Answer:
Newsom Footwear Corporations flexible budget cost formula for supplies, a variable
cost, is $2.61 per unit of output. The company had a $6,840 unfavorable spending
variance for supplies last month. During that month, 17,100 units were produced.
Budgeted activity for the month had been 16,700 units. The actual cost per unit for
indirect materials must have been closest to:
A) $3.01
B) $3.49
C) $3.41
D) $2.61
Answer:
Madengrad Company manufactures a single product called a densimeter. This product
is a density monitoring device attached to large industrial mixing machines used in
flour, rubber, petroleum, and chemical manufacturing. A densimeter sells for $900 per
unit. The following variable expenses are incurred to produce and sell each densimeter:
Madengrad’s annual fixed expenses are $6,600,000.
The annual sales volume required for Madengrad Company to break-even is:
A. 22,000 units
B. 11,000 units
C. 8,400 units
D. 14,000 units
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 labor rate variance for October is:
A) $495 U
B) $495 F
C) $525 U
D) $525 F
Answer:
Variable manufacturing overhead is applied to products on the basis of standard direct
labor-hours. If the direct labor efficiency variance is unfavorable, the variable overhead
efficiency variance will be:
A) favorable.
B) unfavorable.
C) either favorable or unfavorable.
D) zero.
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 budgeted direct labor cost per unit of Product A is:
A. $8.40
B. $7.00
C. $10.08
D. $9.60
Answer:
The activity in Nolan Company’s Blending Department for the month of April is given
below:
All materials are added at the beginning of processing in the Blending Department.
The equivalent units for labor and overhead for the month, using the weighted-average
method, are:
A. 50,000 units
B. 51,000 units
C. 47,000 units
D. 55,000 units
Answer:
Kilihea Corporation produces a single product. The company’s absorption costing
income statement for July follows:
The company’s variable production costs are $20 per unit and its fixed manufacturing
overhead totals $80,000 per month.
The break-even point in units for the month under variable costing is:
A. 6,850 units
B. 4,000 units
C. 3,200 units
D. 5,100 units
Answer:
Ruston Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the most recent month
appear below:
The original budget was based on 4,500 machine-hours. The company actually worked
4,590 machine-hours during the month and the standard hours allowed for the actual
output were 4,700 machine-hours. What was the overall variable overhead efficiency
variance for the month?
A) $50 unfavorable
B) $869 favorable
C) $969 unfavorable
D) $100 unfavorable
Answer:
In February, one of the processing departments at Grosz Corporation had beginning
work in process inventory of $18,000 and ending work in process inventory of $11,000.
During the month, the cost of units transferred out from the department was $204,000.
The company uses the FIFO method in its process costing system.
In the department’s cost reconciliation report for February, the total cost accounted for
would be:
A. $29,000
B. $412,000
C. $215,000
D. $430,000
Answer:
Which of the following are considered to be product costs under variable costing?
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
A. I.
B. I and II.
C. I and III.
D. I, II, and III.
Answer:
Franklins variable overhead efficiency variance for the year is:
A) $33,000 unfavorable
B) $35,200 favorable
C) $35,200 unfavorable
D) $33,000 favorable
Answer:
Marrin Corporation makes three products that use the current constraint-a particular
type of machine. Data concerning those products appear below:
Assume that sufficient constraint time is available 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 the constrained resource?
A. $14.30 per minute
B. $14.80 per minute
C. $33.81 per unit
D. $118.69 per unit
Answer:
Maze Company’s cash and cash equivalents consist of cash and marketable securities.
Last year the company’s cash account increased by $24,000 and its marketable
securities account decreased by $16,000. Cash provided by operating activities was
$40,000. Net cash used in financing activities was $39,000. Based on this information,
the net cash flow from investing activities on the statement of cash flows was:
A. a net $9,000 increase.
B. a net $23,000 increase.
C. a net $39,000 increase.
D. a net $7,000 increase.
Answer:
Austin Wool Products purchases raw wool and processes it into yarn. The spindles of
yarn can then be sold directly to stores or they can be used by Austin Wool Products to
make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data
for the spindles of yarn and for the afghans are as follows:
Each month 4,000 spindles of yarn are produced that can either be sold outright or
processed into afghans.
What is the lowest price Austin should be willing to accept for one afghan as long as it
can sell spindles of yarn to the outside market for $12 each?
A. $32
B. $30
C. $28
D. $26
Answer:
Baldock Corporation’s balance sheet and income statement appear below:
Cash dividends were $23. The company sold equipment for $14 that was originally
purchased for $10 and that had accumulated depreciation of $10. The net cash provided
by (used in) operating activities for the year was:
A. $153
B. $162
C. $107
D. $139
Answer:
Green Enterprises produces a single product. The following data were provided by the
company for the most recent period:
Under absorption costing, the unit product cost is:
A. $20
B. $18
C. $15
D. $25
Answer:
Spade Company recorded the following events last year:
On the statement of cash flows, some of these events are classified as operating
activities, some are classified as investing activities, and some are classified as
financing activities.
Based solely on the information above, the net cash provided by (used in) investing
activities on the statement of cash flows would be:
A. $(947,000)
B. $(430,000)
C. $(300,000)
D. $(620,000)
Answer:
At a sales volume of 27,000 units, Danielle Corporation’s property taxes (a cost that is
fixed with respect to sales volume) total $207,900.
To the nearest whole cent, what should be the average property tax per unit at a sales
volume of 27,600 units? (Assume that this sales volume is within the relevant range.)
A. $6.73
B. $7.70
C. $7.62
D. $7.53
Answer:
Financial statements of Ansbro Corporation follow:
Cash dividends were $14. The company did not dispose of any property, plant, and
equipment. It did not issue any bonds payable or repurchase any of its own common
stock. The following question pertain to the company’s statement of cash flows.
The net cash provided by (used in) investing activities for the year was:
A. $13
B. $38
C. $(38)
D. $(13)
Answer:
Elhard Company produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 40,000 units per month is
as follows:
The normal selling price of the product is $51.10 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered
this month at a special discounted price. This order would have no effect on the
company’s normal sales and would not change the total amount of the company’s fixed
costs. The variable selling and administrative expense would be $0.10 less per unit on
this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose the company is already operating at capacity when the special order is received
from the overseas customer. What would be the opportunity cost of each unit delivered
to the overseas customer?
A. $5.40
B. $5.30
C. $9.50
D. $22.00
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 variable overhead rate variance is:
A) $240 U
B) $220 U
C) $220 F
D) $240 F
Answer:
Cadarette Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $17.73 per share.
The price-earnings ratio for Year 2 is closest to:
A. 11.08
B. 12.40
C. 19.70
D. 17.73
Answer:
Mate Corporation’s standard wage rate is $11.90 per direct labor-hour (DLH) and
according to the standards, each unit of output requires 4.5 DLHs. In May, 2,900 units
were produced, the actual wage rate was $11.50 per DLH, and the actual hours were
15,530 DLHs.
The Labor Rate Variance for May would be recorded as a:
A. debit of $5,220.
B. credit of $6,212.
C. credit of $5,220.
D. debit of $6,212.
Answer:
A decrease in the discount rate:
A. will increase present values of future cash flows.
B. is one way to compensate for greater risk in a project.
C. will reduce present values of future cash flows.
D. responses a and b are both correct.
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 variable overhead rate variance for June is:
A) $1,365 U
B) $1,365 F
C) $1,350 F
D) $1,350 U
Answer:
Moralez 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. $380 unfavorable
B. $1,620 favorable
C. $1,660 unfavorable
D. $3,280 unfavorable
Answer:
On February 1, Caddell Corporation had $28,000 of raw materials on hand. During the
month, the company purchased an additional $70,000 of raw materials. During
February, $81,000 of raw materials were requisitioned from the storeroom for use in
production. The debits to the Raw Materials account for the month of February total:
A. $98,000
B. $70,000
C. $28,000
D. $81,000
Answer:
Reference: 8A-9
The Steff Company has the following flexible budget (in condensed form) for
manufacturing overhead:
The following data concerning production pertain to last years 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,s850 for the year.
– The standard direct labor time is two hours per unit of product.
The fixed manufacturing overhead budget variance was:
A) $3,450 unfavorable
B) $3,450 favorable
C) $850 unfavorable
D) $1,200 favorable
Answer:
Mitzel Corporation has provided its contribution format income statement for May.
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in net
operating income that should result from an 18% increase in sales.
Answer:
Corio Corporation reports that at an activity level of 3,800 units, its total variable cost is
$221,464 and its total fixed cost is $94,848.
For the activity level of 3,900 units, compute: (a) the total variable cost; (b) the total
fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed
cost per unit; and (f) the average total cost per unit. Assume that this activity level is
within the relevant range.
Answer:
Dull Corporation applies overhead to products based on machine-hours. The
denominator level of activity is 8,600 machine-hours. The budgeted fixed
manufacturing overhead costs are $286,380. In October, the actual fixed manufacturing
overhead costs were $274,330 and the standard machine-hours allowed for the actual
output were 8,400 machine-hours.
a. Compute the budget variance for October. Show your work!
b. Compute the volume variance for October. Show your work!
Answer:
Krasnow 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.
Compute the unit product cost under absorption costing. Show your work!
Answer:
Iles Industries is a division of a major corporation. The following data are for the latest
year of operations:
What is the division’s residual income?
Answer:
Eckels Wares is a division of a major corporation. The following data are for the latest
year of operations:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
d. What is the division’s residual income?
Answer:
During January, Agron Clinic plans for an activity level of 2,500 patient-visits. The
clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $51.50q
Personnel expenses: $33,800 + $16.60q
Medical supplies: $700 + $7.40q
Occupancy expenses: $10,900 + $2.10q
Administrative expenses: $4,300 + $0.40q
Required:
Prepare the clinics planning budget for January.
Answer:
Harris Corp. manufactures three products from a common input in a joint processing
operation. Joint processing costs up to the split-off point total $200,000 per year. The
company allocates these costs to the joint products on the basis of their total sales value
at the split-off point.
Each product may be sold at the split-off point or processed further. The additional
processing costs and sales value after further processing for each product (on an annual
basis) are:
The “Further Processing Costs” consist of variable and avoidable fixed costs.
Which product or products should be sold at the split-off point, and which product or
products should be processed further? Show computations.
Answer:
Flitter Corporation uses the weighted-average method in its process costing. The
following data pertain to its Materials Preparation Department for November.
Determine the equivalent units of production for the Materials Preparation Department
for November using the weighted-average method.
Answer:
Pettengill Corporation’s net operating income last year was $280,000; its interest
expense was $37,000; its total stockholders’ equity was $920,000; and its total liabilities
were $620,000.
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.
Answer:
The changes in each balance sheet account for Bryan Company during the year just
completed are as follows:
Bryan Company’s income statement for the year just ended shows the following:
The company did not dispose of any property, plant, and equipment, buy any long-term
investments, issue any bonds payable, or repurchase any of its own common stock
during the year. Bryan Company uses the direct method to construct its statement of
cash flows.
a. Determine the sales adjusted to the cash basis.
b. Determine the cost of goods sold adjusted to the cash basis.
c. Determine the selling and administrative expenses adjusted to a cash basis.
d. Determine the net cash provided (used) by operating activities.
e. Determine the net cash provided (used) by investing activities.
f. Determine the net cash provided (used) by financing activities.
Answer:
In September, Pino Corporation sold 2,100 units of its only product. Its total sales were
$195,300, its total variable expenses were $84,000, and its total fixed expenses were
$98,700.
a. Construct the company’s contribution format income statement for September in
good form.
b. Redo the company’s contribution format income statement assuming that the
company sells 2,300 units.
Answer:
Alongi Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products.
Last year, Product P91M involved 33 batches, 1 customer orders, and 368 assembly
hours.
How much overhead cost would be assigned to Product P91M using the company’s
activity-based costing system? Show your work!
Answer:
The Hayes Company manufactures and sells several products, one of which is called a
slip differential. The company normally sells 30,000 units of the slip differential each
month. At this activity level, unit costs are:
An outside supplier has offered to produce the slip differentials for the Hayes Company,
and to ship them directly to the Hayes Company’s customers. This arrangement would
permit the Hayes Company to reduce its variable selling expenses by one third (due to
elimination of freight costs). The facilities now being used to produce the slip
differentials would be idle and fixed manufacturing overhead would continue at 60
percent of its present level. The total fixed selling expenses of the company would be
unaffected by this decision.
What is the maximum acceptable price quotation for the slip differentials from the
outside supplier?
Answer:
Costs associated with two alternatives, code-named Q and R, being considered by
Corniel Corporation are listed below:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
Answer:
Nygaard Corporation uses the weighted-average method in its process costing. The
following data pertain to its Assembly Department for September.
Compute the equivalent units of production for both materials and conversion costs for
the Assembly Department for September using the weighted-average method.
Answer:
