Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, a decrease in accounts receivable is added to net
income.
Answer:
Cash payments to retire bonds payable are reported as a cash outflow in the financing
activities section of the statement of cash flows.
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:
All debt is considered in the computation of the acid-test ratio.
Answer:
Under a job-order cost system the Work in Process account is debited with the cost of
materials purchased.
Answer:
If the actual direct labor-hours used is less than the standard direct labor-hours allowed
for the actual output, then the journal entry to record the Labor Efficiency Variance
would be a debit.
Answer:
A flexible budget can be used to determine what costs should have been at a given level
of activity.
Answer:
A favorable labor efficiency variance is recorded as a credit in the Labor Efficiency
Variance account.
Answer:
From the standpoint of cost control, the weighted-average method of process costing is
superior to the FIFO method.
Answer:
If accounts receivable increase during a period, then the amount of cash collected from
customers will be greater than the amount of sales reported on the income statement for
the period.
Answer:
The concept of the relevant range does not apply to fixed costs.
Answer:
In process costing, costs are accumulated in processing departments, rather than by job.
Answer:
Discretionary fixed costs arise from annual decisions by management to spend in
certain fixed cost areas.
Answer:
Advertising costs should be charged to the Manufacturing Overhead account.
Answer:
A balanced scorecard should contain every performance measure that can be expected
to influence a company’s profits.
Answer:
All other things the same, which of the following would be TRUE of the contribution
margin and variable expenses of a company with high fixed costs and low variable costs
as compared to a company with low fixed costs and high variable costs?
A. Option A
B. Option B
C. Option C
D. Option D
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. The companys
choice of the denominator level of activity affects the Variable component of the
predetermined overhead rate.
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:
If the fixed manufacturing overhead volume variance is unfavorable, too much has been
spent on fixed manufacturing overhead items.
Answer:
The fixed manufacturing overhead budget variance is not controllable by managers
because fixed costs are not controllable.
Answer:
When a job has been completed, the goods are transferred from the production
department to the finished goods warehouse and the journal entry would include a
credit to Work in Process.
Answer:
Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in inventory is subtracted from net income.
Answer:
Sales forecasts are drawn up after the cash budget has been completed because only
then are the funds available for marketing known.
Answer:
In October, Patnode Inc., a merchandising company, had sales of $294,000, selling
expenses of $27,000, and administrative expenses of $35,000. The cost of merchandise
purchased during the month was $211,000. The beginning balance in the merchandise
inventory account was $38,000 and the ending balance was $34,000.
Prepare a traditional format income statement for October.
Answer:
When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs deferred in inventory under absorption costing should be
added to variable costing net operating income to arrive at the absorption costing net
operating income.
Answer:
If a company has a great deal of product diversity, activity-based costing will generally
yield more accurate product costs than traditional overhead application rates based on
direct labor or machine hours.
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. The company’s
choice of the denominator level of activity affects the Fixed component of the
predetermined overhead rate.
Answer:
The budget variance represents the difference between the actual fixed manufacturing
overhead cost incurred during a period and the budgeted fixed manufacturing overhead
cost.
Answer:
In external financial reports, factory utilities costs may be included in an asset account
on the balance sheet at the end of the period.
Answer:
Hults Corporation has provided data concerning the company’s Manufacturing
Overhead account for the month of November. Prior to the closing of the overapplied or
underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing
Overhead account was $75,000 and the total of the credits to the account was $57,000.
Which of the following statements is TRUE?
A. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $75,000.
B. Actual manufacturing overhead incurred during the month was $57,000.
C. Manufacturing overhead applied to Work in Process for the month was $75,000.
D. Manufacturing overhead for the month was underapplied by $18,000.
Answer:
Bill Pope has developed a new device that is so exciting he is considering quitting his
job in order to produce and market it on a large-scale basis. Bill will rent a garage for
$300 per month for production purposes. Utilities will cost $40 per month. Bill has
already taken an industrial design course at the local community college to help prepare
for this venture. The course cost $300. Bill will rent production equipment at a monthly
cost of $800. He estimates the material cost per unit will be $5, and the labor cost will
be $3. He will hire workers and spend his time promoting the product. To do this he
will quit his job which pays $3,000 per month. Advertising and promotion will cost
$900 per month.
Complete the chart below by placing an “X” under each heading that helps to identify
the cost involved. There can be “Xs” placed under more than one heading for a single
cost, e.g., a cost might be a sunk cost, an overhead cost and a product cost; there would
be an “X” placed under each of these headings opposite the cost.
* Between the alternatives of going into business to make the device or not going into
business to make the device.
Answer:
A company can increase its net cash flow by increasing the depreciation expense it
records during the period.
Answer:
The margin of safety percentage is equal to the margin of safety in dollars divided by
total sales in dollars.
Answer:
Property taxes and insurance premiums paid on a factory building are examples of
manufacturing overhead.
Answer:
The sale of a long-term investment for cash would be classified as an investing activity
in the statement of cash flows.
Answer:
Issuing common stock will increase a company’s financial leverage.
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:
Gary Corporation prepares its statement of cash flows using the indirect method. Which
of the following would be subtracted from net income in the operating activities section
of the statement?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Duhamel 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 7,800 units were started and 7,000 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 55% complete with respect to materials and 50% 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. 1,400
B. 7,200
C. 900
D. 800
Answer:
Financial statements for Marcell Company appear below:
Marcell Company’s average sale period for Year 2 was closest to:
A. 15.7 days
B. 25.8 days
C. 36.9 days
D. 22.6 days
Answer:
The Rial Company’s income statement for June is given below:
If the sales in Division L increase by 30% while common fixed expenses in the
company decrease by $10,000, the segment margin for Division L should:
A. increase by $32,400
B. increase by $10,800
C. decrease by $22,400
D. decrease by $65,600
Answer:
Daguio Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $224,580. At the
end of the year, actual direct labor-hours for the year were 18,200 hours, manufacturing
overhead for the year was underapplied by $12,100, and the actual manufacturing
overhead was $219,580. The predetermined overhead rate for the year must have been
closest to:
A. $11.40 per machine-hour
B. $12.34 per machine-hour
C. $12.06 per machine-hour
D. $10.53 per machine-hour
Answer:
Dieringer Corporation’s most recent balance sheet and income statement appear below:
The average collection period for Year 2 is closest to:
A. 1.1 days
B. 0.9 days
C. 41.8 days
D. 44.6 days
Answer:
Reference: 8B-5
Mate Corporations 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.
In the journal entry to record the incurrence of direct labor costs in May, the Work in
Process entry would consist of a:
A) credit of $155,295.
B) debit of $155,295.
C) credit of $178,595.
D) debit of $178,595.
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 accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A. $154,000
B. $157,500
C. $85,500
D. $303,600
Answer:
Compound V11V is used to make Hickenbottom Corporation’s major product. The
standard cost of V11V is $50 per ounce and the standard quantity is 3.6 ounces per unit
of output. In the most recent month, 1,600 ounces of the raw material were purchased at
a cost of $00 per ounce. When recording the purchase of materials, Raw Materials
would be:
A. credited for $34,400.
B. credited for $33,600.
C. debited for $34,400.
D. debited for $33,600.
Answer:
Heersink Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $10.50 per machine-hour and fixed manufacturing overhead cost of
$108,108 per period. If the denominator level of activity is 2,700 machine-hours, the
fixed element in the predetermined overhead rate would be:
A) $1,050.00
B) $40.04
C) $10.50
D) $50.54
Answer:
The Consumer Products Division of Weiter Corporation had average operating assets of
$570,000 and net operating income of $65,100 in March. The minimum required rate of
return for performance evaluation purposes is 12%.
What was the Consumer Products Division’s minimum required return in March?
A. $7,812
B. $76,212
C. $68,400
D. $65,100
Answer:
Reference: 8-21
Hanekamp Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its flexible budgets. During August, the company
budgeted for 5,400 units, but its actual level of activity was 5,440 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The net operating income in the flexible budget for August would be closest to:
A) $18,940
B) $13,550
C) $13,351
D) $18,400
Answer:
Perona Corporation produces and sells a single product. Data concerning that product
appear below:
The unit sales to attain the company’s monthly target profit of $9,000 is closest to:
A. 5,601 units
B. 4,400 units
C. 2,464 units
D. 4,155 units
Answer:
Reference: 8-4
Karmazyn Hospital bases its budgets on patient-visits. The hospitals static budget for
October appears below:
The total cost at the activity level of 9,200 patient-visits per month should be:
A) $364,900
B) $377,200
C) $370,770
D) $370,210
Answer:
Sultzer 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 company based its original budget on 3,000 machine-hours. The company actually
worked 2,730 machine-hours during the month. The standard hours allowed for the
actual output of the month totaled 2,690 machine-hours. What was the overall fixed
manufacturing overhead budget variance for the month?
A) $3,317 favorable
B) $160 unfavorable
C) $3,317 unfavorable
D) $160 favorable
Answer:
Binnie Corporation’s most recent balance sheet appears below:
Net income for the year was $ Cash dividends were $16. 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) financing activities for the year was:
A. $3
B. $(14)
C. $(27)
D. $(16)
Answer:
A common cost that should not be assigned to a particular product on a segmented
income statement is:
A. the product’s advertising costs.
B. the salary of the corporation president.
C. direct materials costs.
D. the product manager’s salary.
Answer:
The following cost data pertain to the operations of Swestka Department Stores, Inc.,
for the month of July.
The Northridge Store is just one of many stores owned and operated by the company.
The Cosmetics Department is one of many departments at the Northridge Store. The
central warehouse serves all of the company’s stores.
What is the total amount of the costs listed above that are direct costs of the Cosmetics
Department?
A. $74,000
B. $36,000
C. $31,000
D. $40,000
Answer:
Reference: 8A-10
A furniture manufacturer has a standard costing system based on standard direct
labor-hours (DLHs) as the measure of activity. Data from the companys flexible budget
for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
What is the predetermined overhead rate to the nearest cent?
A) $13.40
B) $13.61
C) $13.81
D) $13.20
Answer:
Jaune Company uses a standard cost system in which it applies manufacturing overhead
to units of product on the basis of standard direct labor-hours (DLHs). The following
data pertain to last months operations:
The fixed manufacturing overhead budget variance is:
A) $500 U
B) $500 F
C) $2,200 U
D) $1,700 U
Answer:
Kuhner Corporation produces and sells two products. Data concerning those products
for the most recent month appear below:
Fixed expenses for the entire company were $33,100.
If the sales mix were to shift toward Product B64P with total dollar sales remaining
constant, the overall break-even point for the entire company:
A. would not change.
B. would decrease.
C. would increase.
D. could increase or decrease.
Answer:
Mccloe Corporation’s balance sheet and income statement appear below:
Cash dividends were $9. The company did not issue any bonds or repurchase any of its
own common stock during the year. The net cash provided by (used in) financing
activities for the year was:
A. $5
B. $(22)
C. $(18)
D. $(9)
Answer:
UHF Antennas, Inc., produces and sells a unique television antenna. The company has
just opened a new plant to manufacture the antenna, and the following cost and revenue
data have been reported for the first month of the new plant’s operation:
Management is anxious to see how profitable the new antenna will be and has asked
that an income statement be prepared for the month. Assume that direct labor is a
variable cost.
a. Assuming that the company uses absorption costing, compute the unit product cost
and prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit product cost and
prepare an income statement.
c. Explain the reason for any difference in the ending inventories under the two costing
methods and the impact of this difference on reported net operating income.
Answer:
Reference: 8-36
Landram Corporation makes a product with the following standard costs:
In March the company produced 4,700 units using 10,230 kilos of the direct material
and 2,210 direct labor-hours. During the month, the company purchased 10,800 kilos of
the direct material at a cost of $76,680. The actual direct labor cost was $38,233 and the
actual variable overhead cost was $11,934.
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 March is:
A) $5,810 F
B) $5,893 U
C) $5,893 F
D) $5,810 U
Answer:
Jumpst Corporation uses the cost formula Y = $3,600 + $0.30X for the maintenance
cost in Department B, where X is machine-hours. The August budget is based on
20,000 hours of planned machine time. Maintenance cost expected to be incurred
during August is:
A. $3,600
B. $6,000
C. $6,300
D. $9,600
Answer:
Budgeted sales in Allen Company over the next four months are given below:
Twenty-five percent of the company’s sales are for cash and 75% are on account.
Collections for sales on account follow a stable pattern as follows: 50% of a month’s
credit sales are collected in the month of sale, 30% are collected in the month following
sale, and 15% are collected in the second month following sale. The remainder are
uncollectible. Given these data, cash collections for December should be:
A. $138,000
B. $133,500
C. $120,000
D. $103,500
Answer:
The following is last month’s contribution format income statement:
What is the company’s margin of safety percentage to the nearest whole percent?
A. 42%
B. 40%
C. 17%
D. 20%
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 variable overhead rate variance for August is:
A) $105 F
B) $110 F
C) $105 U
D) $110 U
Answer:
Financial statements for Larned Company appear below:
Dividends during Year 2 totaled $263 thousand, of which $12 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $160.
Larned Company’s book value per share at the end of Year 2 was closest to:
A. $16.11
B. $63.89
C. $70.56
D. $10.00
Answer:
The Gasson Company sells three products, Product A, Product B and Product C, and
had sales of $1,000,000 during the month of June. The company’s overall contribution
margin ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A,
$500,000; Product B, $300,000; and Product C, $200,000. Traceable fixed costs were:
Product A, $120,000; Product B, $100,000; and Product C, $60,000. The variable
expenses of Product A were $300,000 and the variable expenses of Product B were
$180,000.
The contribution margin ratio for Product C is:
A. 75%
B. 69%
C. 31%
D. 25%
Answer:
Charlotte Company’s net income last year was $91,000. Changes in the company’s
balance sheet accounts for the year appear below:
The company did not dispose of any property, plant, and equipment, sell any long-term
investments, issue any bonds payable, or repurchase any of its own common stock
during the year. The company declared and paid a cash dividend.
a. Construct in good form the operating activities section of the company’s statement of
cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company’s statement of
cash flows for the year.
c. Construct in good form the financing activities section of the company’s statement of
cash flows for the year.
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:
Some companies use process costing and some use job-order costing. Which method a
company uses depends on its industry. A number of companies in different industries
are listed below:
1/ Contract water drilling company
2/ Commercial photographer
3/ Tortilla manufacturer
4/ Electric utility
5/ Mushroom farm that produces the standard button mushroom in caves
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
Answer:
During August, Allee Corporation incurred $64,000 of actual Manufacturing Overhead
costs. During the same period, the Manufacturing Overhead applied to Work in Process
was $66,000.
Prepare journal entries to record the incurrence of manufacturing overhead and the
application of manufacturing overhead to Work in Process.
Answer:
Escatel Corporation bases its predetermined overhead rate on the estimated labor-hours
for the upcoming year. Data for the most recently completed year appear below:
Compute the company’s predetermined overhead rate for the recently completed year.
Answer:
Vera Corporation bases its budgets on the activity measure customers served. During
September, the company planned to serve 28,000 customers, but actually served 27,000
customers. The company has provided the following data concerning the formulas it
uses in its budgeting:
Required:
Prepare the companys flexible budget for September based on the actual level of
activity for the month.
Answer:
Excerpts from Ruden Corporation’s most recent balance sheet appear below:
Net income for Year 2 was $102,000. Dividends on common stock were $47,000 in
total and dividends on preferred stock were $15,000 in total.
Compute the return on common stockholders’ equity. Show your work!
Answer:
Wahlen Corporation has provided the following data concerning its direct labor costs
for November:
Prepare the journal entry to record the incurrence of direct labor costs.
Answer:
Job 434 was recently completed. The following data have been recorded on its job cost
sheet:
The company applies manufacturing overhead on the basis of machine-hours. The
predetermined overhead rate is $12 per machine-hour.
Compute the unit product cost that would appear on the job cost sheet for this job.
Answer:
During March, Samorano Clinic plans for an activity level of 2,500 patient-visits.
Revenue is $42.10 per patient-visit. Personnel expenses are $30,400 per month plus
$11.20 per patient-visit. Medical supplies are $1,100 per month plus $6.50 per
patient-visit. Occupancy expenses are $6,500 per month plus $1.90 per patient-visit.
Administrative expenses are $5,200 per month plus $0.40 per patient-visit.
Required:
Prepare the clinics planning budget for March.
Answer:
Clines Corporation bases its budgets on machine-hours. The companys static planning
budget for November appears below:
Required:
Prepare a flexible budget for 9,800 machine-hours per month.
Answer:
Wahlen Corporation has provided the following data concerning its direct labor costs
for November:
Required:
Prepare the journal entry to record the incurrence of direct labor costs.
Answer:
Wahr Corporation bases its predetermined overhead rate on the estimated labor-hours
for the upcoming year. At the beginning of the most recently completed year, the
company estimated the labor-hours for the upcoming year at 32,000 labor-hours. The
estimated variable manufacturing overhead was $7.17 per labor-hour and the estimated
total fixed manufacturing overhead was $584,320. The actual labor-hours for the year
turned out to be 33,300 labor-hours.
Compute the company’s predetermined overhead rate for the recently completed year.
Answer:
Hertzler Corporation uses customers served as its measure of activity. During
November, the company budgeted for 33,000 customers, but actually served 34,000
customers. The company uses the following revenue and cost formulas in its budgeting,
where q is the number of customers served:
Revenue: $3.20q
Wages and salaries: $26,600 + $1.20q
Supplies: $0.40q
Insurance: $7,900
Miscellaneous: $6,400 + $0.10q
The company reported the following actual results for November:
Required:
Prepare a report showing the companys revenue and spending variances for November.
Label each variance as favorable (F) or unfavorable (U).
Answer:
Answer:
During September, Kocab Corporation plans to serve 37,000 customers. Revenue is
$2.80 per customer served. Wages and salaries are $33,300 per month plus $0.80 per
customer served. Supplies are $0.40 per customer served. Insurance is $9,000 per
month. Miscellaneous expenses are $5,300 per month plus $0.20 per customer served.
Required:
Prepare the companys planning budget for September.
Answer:
Answer:
A number of costs are listed below.
For each item above, indicate whether the cost is direct or indirect with respect to the
cost object listed next to it.
Answer:
The direct labor standards at Pihl Corporation are $11.70 per direct labor-hour (DLH)
and 7.2 DLHs per unit of output. In May, 1,300 units were produced, the actual wage
rate was $12.00 per DLH, and the actual hours were 9,460 DLHs.
Prepare the journal entry to record the incurrence of direct labor costs.
Answer:
Barona Memorial Diner is a charity supported by donations that provides free meals to
the homeless. The diners budget for March was based on 2,900 meals, but the diner
actually served 3,000 meals. The diners director has provided the following cost
formulas to use in budgets:
Required:
Prepare the diners flexible budget for the actual number of meals served in March. The
budget will only contain the costs listed above; no revenues will be on the budget.
Answer: