The balance sheets at the end of each of the first two years of operations indicate the
following:
If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate
earned on total assets for the year?
a. 10.4%
b. 11.9%
c. 10.5%
d. 8.4%
working capital
Match each ratio that follows to its use (items a’“h). Items may be used more than
once.
a. assess the profitability of the assets
b. assess the effectiveness in the use of assets
c. indicate the ability to meet currently maturing obligations
d. indicate the margin of safety to creditors
e. indicate instant debt-paying ability
f. assess the profitability of the investment by common stockholders
g. indicate future earnings prospects
h. indicate the extent to which earnings are being distributed to common stockholders
For which of the following businesses would the job order cost system be appropriate?
a. canned soup processor
b. oil refinery
c. lumber mill
d. hospital
The capital expenditures budget details future plans for acquisition of fixed assets.
a. True
b. False
The cash budget presents the expected inflow and outflow of cash for a specified period
of time.
a. True
b. False
A qualitative characteristic that may impact upon capital investment analysis is
employee morale.
a. True
b. False
Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part
used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co. to
make the part is $9.00, which includes $0.60 of fixed costs. If 4,000 units of the part are
normally purchased each year but could be manufactured using unused capacity, what
would be the amount of differential cost increase or decrease for making the part rather
than purchasing it?
a. $12,000 cost decrease
b. $4,000 cost increase
c. $20,000 cost decrease
d. $1,600 cost increase
Factory overhead is an example of a product cost.
a. True
b. False
The Bottlebrush Company has income from operations of $60,000, invested assets of
$345,000, and sales of $786,000. Use the DuPont formula to calculate the rate of return
on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate
of return on investment. Round the profit margin percentage to two decimal places and
the investment turnover to three decimal places.
Industries that typically use process cost systems include chemicals, oil, metals, food,
paper, and pharmaceuticals.
a. True
b. False
Delaney Company is considering replacing equipment which originally cost $600,000
and which has $420,000 accumulated depreciation to date. A new machine will cost
$790,000 and the old equipment can be sold for $8,000. What is the sunk cost in this
situation?
a. $172,000
b. $180,000
c. $188,000
d. $290,000
Extreme Wreaths, Inc. makes wreaths in batch sizes of 15 at a time. The cutting &
assembly process takes 10 minutes per wreath, and the decorating process time is 7
minutes per wreath. It takes 5 minutes to move the wreaths from the cutting & assembly
process to the decorating process.
In a effort to improve the lead time, the company has tried reducing the batch size to 10
units. The new process is as follows: cutting & assembly process – 8 minutes. The
decorating process is still 7 minutes per wreath. It takes 5 minutes to move the wreaths
from the cutting & assembly process to the decorating process.
(a) Compute the value-added, non-value-added, and the total lead time of the wreath
process for both the old and the new manufacturing process.
(b) Compute the value-added ratio for both the old and new process. Round to the
nearest decimal.
Under absorption costing, which of the following costs would not be included in
finished goods inventory?
a. direct labor cost
b. direct materials cost
c. variable and fixed factory overhead cost
d. variable and fixed selling and administrative expenses
A business operated at 100% of capacity during its first month and incurred the
following costs:
If 2,000 units remain unsold at the end of the month and sales total $300,000 for the
month, what would be the amount of income from operations reported on the variable
costing income statement?
a. $100,800
b. $100,000
c. $114,800
d. $140,000
In a pull manufacturing system, raw materials are released to production based on
actual customer orders.
a. True
b. False
Finch Company began its operations on March 31 of the current year. Finch has the
following projected costs:
(1) Of the manufacturing costs, three-fourths are paid for in the month they are
incurred; one-fourth is paid in the following month.
(2) Insurance expense is $1,000 a month; however, the insurance is paid four times
yearly in the first month of the quarter, (i.e., January, April, July, and October).
(3) Property tax is paid once a year in November.
The cash payments expected for Finch Company in the month of April are
a. $122,600
b. $120,600
c. $123,100
d. $121,100
Selected data from the Carmen Company at year end are presented below:
Calculate: (a) ratio of sales to assets; (b) rate earned on total assets; (c) rate earned on
common stockholders’ equity and (d) earnings per share on common stock. Assume the
company had no preferred stock or interest expense. Round percentage values to one
decimal place and dollar values to zero decimal place.
The Mountain Springs Water Company has two departments, Purifying and Bottling.
The Bottling Department received 58,000 liters from the Purifying Department. During
the period, the Bottling Department completed 56,000 liters, including 4,000 liters of
work in process at the beginning of the period. The ending work in process was 6,000
liters. How many liters were started and completed during the period?
Lockrite Security Company manufacturers home alarms. Currently, it is manufacturing
one of its components at a total cost of $45 which includes fixed costs of $15 per unit.
An outside provider of this component has offered to sell Lockrite the component for
$40. Provide a differential analysis of the outside purchase proposal.
The Pikes Peak Leather Company manufactures leather handbags and moccasins. The
company has been using the factory overhead rate method but has decided to evaluate
activity based costing to allocate factory overhead. The factory overhead estimated per
unit together with direct materials and direct labor will help determine selling prices.
Total budgeted factory overhead cost = $360,000
Calculate the amount of factory overhead to be allocated to each unit using activity
based costing. The factory plans to produce 60,000 handbags and 40,000 moccasins.
Technics Inc., a manufacturing company, utilizes job order costing. Each division
establishes its own estimates regarding overhead, which are as follows:
A company reported the following:
Calculate the company’s priceÂearnings ratio. Round your answer to one decimal place.
Average rate of return method
Match the methods that follow with the correct category (a’“b).
e. Methods that does not use present value
f. Methods that uses present value
What is a cash budget? How does management use a cash budget?
For Garrison Corporation, the working capital at the end of the current year is $10,000
more than the working capital at the end of the preceding year, reported as follows:
Has the current position of Garrison Corporation improved? Explain.
Condensed data taken from the ledger of St. Louis Company at December 31, for the
current and preceding years, are as follows:
Prepare a comparative balance sheet, with horizontal analysis, for December 31, Year 2
and Year 1. (Round percents to one decimal point.)
