1) enterprise risk management involves replacing risky investments with investments in
low-risk government securities.
2) under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in account receivable would be deducted
from sales revenue to convert revenue to a cash basis.
3) duration drivers ordinarily require more effort to record than transaction drivers.
4) a flexible budget is an estimate of what revenues and costs should have been, given
the level of activity that had been planned for the period.
5) under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in taxes payable would be added to income
tax expense to convert income tax expense to a cash basis.
6) a revenue variance is unfavorable if the actual revenue is less than what the revenue
should have been for the actual level of activity for the period.
7) stent 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 february, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 2,950 tenant-days. the kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for february:
the activity variance for administrative expenses in february would be closest to:
a.$150 u
b.$20 u
c.$20 f
d.$150 f
8) oran refiners, inc., processes sugar cane that it purchases from farmers. sugar cane is
processed in batches. a batch of sugar cane costs $76 to buy from farmers and $18 to
crush in the company’s plant. two intermediate products, cane fiber and cane juice,
emerge from the crushing process. the cane fiber can be sold as is for $21 or processed
further for $12 to make the end product industrial fiber that is sold for $43. the cane
juice can be sold as is for $47 or processed further for $21 to make the end product
molasses that is sold for $88.
which of the intermediate products should be processed further?
a.cane fiber should be processed into industrial fiber; cane juice should be processed
into molasses
b.cane fiber should be processed into industrial fiber; cane juice should not be
processed into molasses
c.cane fiber should not be processed into industrial fiber; cane juice should not be
processed into molasses
d.cane fiber should not be processed into industrial fiber; cane juice should be
processed into molasses
9) baugus corporation manufactures and sells a single product. the company uses units
as the measure of activity in its budgets and performance reports. during august, the
company budgeted for 6,900 units, but its actual level of activity was 6,950 units. the
company has provided the following data concerning the formulas used in its budgeting
and its actual results for august:
the revenue variance for august would be closest to:
a.$1,450 f
b.$1,450 u
c.$430 f
d.$430 u
10) (ignore income taxes in this problem.) the management of contrell corporation is
considering the following three investment projects:
the only cash outflows are the initial investments in the projects.
required:
rank the investment projects using the project profitability index. show your work
11) erie company manufactures a single product. assume the following data for the year
just completed:
there were no units in inventory at the beginning of the year. during the year 30,000
units were produced and 25,000 units were sold. each unit sells for $35.
under absorption costing, the unit product cost would be:
a.$8.00
b.$17.75
c.$13.00
d.$10.75
12) ilford 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.$87
b.$64
c.$68
d.$83
13) the mohawk-hudson company is an electric utility which has two service
departments, accounting and maintenance. it has two operating departments, generation
and transmission. the company does not distinguish between fixed and variable service
department costs. maintenance department costs are allocated on the basis of
maintenance hours. accounting department costs are allocated to operating departments
on the basis of accounting hours of service provided. budgeted costs and other data for
the coming year are as follows:
the step-down method is used to allocate service department costs, with the accounting
department being allocated first.
the amount of maintenance department cost allocated to the generation department
would be:
a.$132,000
b.$123,750
c.$150,685
d.$140,000
14) merced corporation has provided the following budgeted data:
if the selling price is raised by $5 per unit, the break-even point in units will be:
a.7,692 units
b.14,000 units
c.12,500 units
d.11,200 units
15) which of the following is true regarding the contribution margin ratio of a single
product company?
a.as fixed expenses decrease, the contribution margin ratio increases
b.the contribution margin ratio multiplied by the variable expense per unit equals the
contribution margin per unit
c.if sales increase, the dollar increase in net operating income can be computed by
multiplying the contribution margin ratio by the dollar increase in sales
d.the contribution margin ratio increases as the number of units sold increases
16) (ignore income taxes in this problem.) the connelly company has funds available to
invest in the following project:
the working capital needed now would be released at the end of the seven years for
investment elsewhere.
the present value of the salvage value to be received in seven years is:
a.$14,800
b.$12,560
c.$14,160
d.$152,480
17) wable inc. has provided the following data to be used in evaluating a proposed
investment project:
for tax purposes, the entire initial investment without any reduction for salvage value
will be depreciated over 5 years. the company uses a discount rate of 16%.
when computing the net present value of the project, what are the annual after-tax cash
receipts?
a.$165,000
b.$231,000
c.$99,000
d.$57,750
18) the calculation of the net present value of an investment project requires that the
depreciation tax shield be included at:
a.the amount of the depreciation with no adjustment for taxes
b.the amount of the depreciation times one minus the tax rate
c.the amount of the depreciation times the tax rate
d.zero, since depreciation is not relevant to the calculation of net present value
19) in a net present value analysis of an equipment upgrade using a 30% tax rate, what
amount of cash savings would have the same present value as a $168,000 depreciation
deduction?
a.$35,280
b.$50,400
c.$72,000
d.$117,600
20) vandall corporation manufactures and sells a single product. the company uses units
as the measure of activity in its budgets and performance reports. during april, the
company budgeted for 7,300 units, but its actual level of activity was 7,340 units. the
company has provided the following data concerning the formulas used in its budgeting
and its actual results for april:
the spending variance for direct materials in april would be closest to:
a.$210 u
b.$210 f
c.$426 u
d.$426 f
21) huger corporation makes automotive engines. for the most recent month, budgeted
production was 6,900 engines. the budgeted power cost is $5.10 per machine-hour. the
company’s standards indicate that each engine requires 7.5 machine-hours. actual
production was 7,000 engines. actual machine-hours were 53,240 machine-hours. actual
power cost totaled $247,598.
required:
determine the rate and efficiency variances for the variable overhead item power cost
and indicate whether those variances are unfavorable or favorable. show your work!
22) darter company manufactures two products, product f and product g. the company
expects to produce and sell 2,600 units of product f and 6,000 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:
required:
using the activity-based costing approach, determine the overhead cost per unit for each
product.
23) the following data has been provided by leser inc., a company that uses the fifo
method in its process costing system. the data concern the company’s shaping
department for the month of june.
required:
determine the cost of ending work in process inventory and the cost of the units
transferred out of the department during june using the fifo method.
24) data concerning three of hatt corporation’s activity cost pools appear below:
required:
compute the activity rates for each of the three cost pools. show your work!
25) alicuben memorial diner is a charity supported by donations that provides free
meals to the homeless. the diner’s budget for october was based on 2,200 meals, but the
diner actually served 2,000 meals. the diner’s director has provided the following cost
formulas to use in budgets:
the director has also provided the diner’s statement of actual expenses for the month:
required:
prepare a report showing the activity variances for each of the expenses and for total
expenses for october. label each variance as favorable (f) or unfavorable (u).
26) ries corporation has received a request for a special order of 8,000 units of product
r34 for $34.20 each. the normal selling price of this product is $35.70 each, but the
units would need to be modified slightly for the customer. the normal unit product cost
of product r34 is computed as follows:
direct labor is a variable cost. the special order would have no effect on the company’s
total fixed manufacturing overhead costs. the customer would like some modifications
made to product r34 that would increase the variable costs by $6.30 per unit and that
would require a one-time investment of $40,000 in special molds that would have no
salvage value. this special order would have no effect on the company’s other sales. the
company has ample spare capacity for producing the special order.
required:
determine the effect on the company’s total net operating income of accepting the
special order. show your work!
27) seebach corporation has two major business segments-apparel and accessories. data
concerning those segments for june appear below:
common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to
the apparel business segment and $137,000 to the accessories business segment.
required:
prepare a segmented income statement in the contribution format for the company. omit
percentages; show only dollar amounts.