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 labor efficiency variance for May is:
A) $6,302 U
B) $6,440 U
C) $6,440 F
D) $6,302 F
Answer:
Imme Corporations variable overhead is applied on the basis of direct labor-hours. The
company has established the following variable overhead standards for product I81Z:
The following data pertain to the most recent months operations during which 1,360
units of product I81Z were made:
Required:
a. What was the variable overhead rate variance for the month?
b. What was the variable overhead efficiency variance for the month?
Answer:
Henning Corporation produces and sells two models of hair dryers, Standard and
Deluxe. The company has provided the following data relating to these two products:
The company’s total monthly fixed expense is $13,800.
The break-even in sales dollars for the expected sales mix is (rounded):
A. $36,800
B. $30,000
C. $28,105
D. $31,222
Answer:
The Tingey Company has 500 obsolete microcomputers that are carried in inventory at
a total cost of $720,000. If these microcomputers are upgraded at a total cost of
$100,000, they can be sold for a total of $160,000. As an alternative, the
microcomputers can be sold in their present condition for $50,000.
Suppose the selling price of the upgraded computers has not been set. At what selling
price per unit would the company be as well off upgrading the computers as if it just
sold the computers in their present condition?
A. $100
B. $770
C. $300
D. $210
Answer:
Heller Corporation uses the weighted-average method in its process costing system.
Data concerning the first processing department for the most recent month are listed
below:
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 per equivalent unit for materials for the month in the first processing
department is closest to:
A. $10.51
B. $10.12
C. $9.91
D. $9.54
Answer:
Ravalt Corporation uses the weighted-average method in its process costing system.
The Molding Department is the second department in its production process. The data
below summarize the department’s operations in January.
The Molding Department’s cost per equivalent unit for conversion cost for January was
$7.90.
How much conversion cost was assigned to the ending work in process inventory in the
Molding Department for January?
A. $27,729
B. $30,810
C. $3,081
D. $5,056
Answer:
Jackson Company’s operating results for last year are given below:
If the company wants to increase its total contribution margin by 40% over last year, it
will need to increase its sales by:
A. $17,160
B. $24,960
C. $38,400
D. $26,400
Answer:
Carr Company produces a single product. During the past year, Carr manufactured
25,000 units and sold 20,000 units. Production costs for the year were as follows:
Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling
and administrative expenses totaled $170,000. There were no units in beginning
inventory. Assume that direct labor is a variable cost.
The net operating income for the year under variable costing would be:
A. $28,000 lower than under absorption costing
B. $28,000 higher than under absorption costing
C. $50,000 lower than under absorption costing
D. $50,000 higher than under absorption costing
Answer:
Aide Industries is a division of a major corporation. Data concerning the most recent
year appears below:
The division’s return on investment (ROI) is closest to:
A. 4.1%
B. 21.75%
C. 17.9%
D. 1.1%
Answer:
Southwest Industries produces a sports glove that sells for $15 per pair. Variable
expenses are $8 per pair and fixed expenses are $35,000 annually.
The contribution margin ratio is closest to:
A. 46.7%
B. 53.3%
C. 33.3%
D. 42.9%
Answer:
Pedulla Inc, which produces and sells a single product, has provided its contribution
format income statement for February.
If the company sells 2,100 units, its total contribution margin should be closest to:
A. $90,300
B. $25,765
C. $68,300
D. $111,800
Answer:
Hartzog Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on
preferred stock totaled $5 thousand. The market price of common stock at the end of
Year 2 was $7.04 per share.
The return on total assets for Year 2 is closest to:
A. 7.85%
B. 7.77%
C. 6.51%
D. 6.44%
Answer:
Cargin Company uses the FIFO method in its process costing system. The Assembly
Department started the month with 15,000 units in its beginning work in process
inventory that were 50% complete with respect to conversion costs. An additional
71,000 units were transferred in from the prior department during the month to begin
processing in the Assembly Department. There were 9,000 units in the ending work in
process inventory of the Assembly Department that were 30% complete with respect to
conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the
month?
A. 79,700
B. 77,000
C. 65,000
D. 72,200
Answer:
Dimitrov Corporation, a company that produces and sells a single product, has provided
its contribution format income statement for July.
If the company sells 6,900 units, its net operating income should be closest to:
A. $35,979
B. $34,500
C. $36,500
D. $32,000
Answer:
A company produces a single product. Last year, fixed manufacturing overhead was
$30,000, variable production costs were $48,000, fixed selling and administration costs
were $20,000, and variable selling administrative expenses were $9,600. There was no
beginning inventory. During the year, 3,000 units were produced and 2,400 units were
sold at a price of $40 per unit. Under variable costing, net operating income would be:
A. a profit of $6,000.
B. a profit of $4,000.
C. a loss of $2,000.
D. a loss of $4,400.
Answer:
Stelluti Corporations variable overhead is applied on the basis of direct labor-hours. The
standard cost card for product H67F specifies 7.8 direct labor-hours per unit of H67F.
The standard variable overhead rate is $6.50 per direct labor-hour. During the most
recent month, 400 units of product H67F were made and 2,900 direct labor-hours were
worked.
The actual variable overhead incurred was $20,155.
Required:
a. What was the variable overhead rate variance for the month?
b. What was the variable overhead efficiency variance for the month?
Answer:
Franklins variable overhead rate variance for the year is:
A) $20,000 unfavorable
B) $22,000 favorable
C) $22,000 unfavorable
D) $20,000 favorable
Answer:
Epstein Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 400
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,000 units were started and 6,500 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 85% complete with respect to materials and 45% 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.
What are the equivalent units for conversion costs for the month in the first processing
department?
A. 405
B. 6,905
C. 6,500
D. 7,400
Answer:
Carr Company produces a single product. During the past year, Carr manufactured
25,000 units and sold 20,000 units. Production costs for the year were as follows:
Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling
and administrative expenses totaled $170,000. There were no units in beginning
inventory. Assume that direct labor is a variable cost.
The contribution margin per unit would be:
A. $12.10
B. $22.10
C. $17.70
D. $16.60
Answer:
Reference: 8-23
Dukeman Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During February, the company
budgeted for 7,100 units, but its actual level of activity was 7,060 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The direct materials in the flexible budget for February would be closest to:
A) $58,129
B) $58,598
C) $58,930
D) $58,789
Answer:
The Tingey Company has 500 obsolete microcomputers that are carried in inventory at
a total cost of $720,000. If these microcomputers are upgraded at a total cost of
$100,000, they can be sold for a total of $160,000. As an alternative, the
microcomputers can be sold in their present condition for $50,000.
The sunk cost in this situation is:
A. $720,000
B. $160,000
C. $50,000
D. $100,000
Answer:
Porl Corporation makes and sells a single product called a Yute. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last quarter
of the year. The following budget data are available:
All of these expenses (except depreciation) are paid in cash in the month they are
incurred.
If the company has budgeted to sell 19,000 Yutes in December, then the budgeted total
cash disbursements for selling and administrative expenses for December would be:
A. $387,100
B. $231,000
C. $169,100
D. $400,100
Answer:
The following is last month’s contribution format income statement:
What is the company’s break-even in sales dollars?
A. $1,200,000
B. $0
C. $1,800,000
D. $1,600,000
Answer:
A total of 30,000 units were sold last year. The contribution margin per unit was $2, and
fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to
increase to $26,000, but the contribution margin per unit will remain unchanged at $2.
How many units must be sold this year to earn the same profit as was earned last year?
A. 23,000 units
B. 43,000 units
C. 30,000 units
D. 13,000 units
Answer:
Sohr Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $50 to buy from farmers and $15 to
crush in the company’s plant. Two intermediate products, beet fiber and beet juice,
emerge from the crushing process. The beet fiber can be sold as is for $20 or processed
further for $19 to make the end product industrial fiber that is sold for $58. The beet
juice can be sold as is for $41 or processed further for $23 to make the end product
refined sugar that is sold for $58.
How much profit (loss) does the company make by processing one batch of sugar beets
into the end products industrial fiber and refined sugar?
A. $(107)
B. $(4)
C. $9
D. $13
Answer:
The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics
has traceable fixed expenses of $146,280 and the DBD/Video Sales has traceable fixed
expenses of $81,765. If ARB Company has a total of $322,490 in fixed expenses, what
are its common fixed expenses?
A. $94,445
B. $322,490
C. $228,045
D. $47,223
Answer:
Hartzog Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on
preferred stock totaled $5 thousand. The market price of common stock at the end of
Year 2 was $7.04 per share.
The accounts receivable turnover for Year 2 is closest to:
A. 5.19
B. 5.40
C. 1.08
D. 0.92
Answer:
The materials quantity variance should be computed:
A) when materials are purchased.
B) based upon the amount of materials used in production.
C) based upon the difference between the actual and standard prices per unit times the
actual quantity used.
D) only when there is a difference between standard and actual cost per unit for the
materials.
Answer:
Reference: 8A-6
Able Control Company, which manufactures electrical switches, uses a standard cost
system in which manufacturing overhead costs are applied to units of product on the
basis of standard direct labor-hours (DLHs). The standard overhead costs are shown
below:
*Based on 300,000 DLHs per month.
The following information is available for the month of October:
– Plans called for the production of 60,000 switches.
– 56,000 switches were actually produced.
– 275,000 direct labor-hours were worked at a total cost of $2,550,000.
– Actual variable manufacturing overhead costs were $2,340,000.
– Actual fixed manufacturing overhead costs were $3,750,000.
The variable overhead efficiency variance for October was:
A) $40,000 Favorable
B) $60,000 Favorable
C) $160,000 Unfavorable
D) $210,000 Unfavorable
Answer:
The Hawkins Company uses a standard costing system in which manufacturing
overhead is applied on the basis of standard direct labor-hours (DLHs). During
February, the company actually used 9,200 direct labor-hours and made 2,900 units of
finished product. The standard cost card for one unit of product includes the following:
Variable factory overhead: 3 DLHs @ $4.75 per DLH
Fixed factory overhead: 3 DLHs @ $3.00 per DLH
For February, the company incurred $28,450 in fixed manufacturing overhead costs and
recorded a $900 favorable volume variance.
The denominator activity level in direct labor-hours used by Hawkins in setting the
predetermined overhead rate for February is:
A. 9,300 hours
B. 8,400 hours
C. 9,000 hours
D. 8,700 hours
Answer:
Daane Company had only one job in process on May 1. The job had been charged with
$1,000 of direct materials, $3,302 of direct labor, and $5,382 of manufacturing
overhead cost. The company assigns overhead cost to jobs using the predetermined
overhead rate of $20.70 per direct labor-hour.
During May, the following activity was recorded:
Work in process inventory on May 30 contains $2,921 of direct labor cost. Raw
materials consist solely of items that are classified as direct materials.
The entry to dispose of the underapplied or overapplied manufacturing overhead cost
for the month would include a:
A. debit of $1,350 to Manufacturing Overhead.
B. credit of $4,761 to Manufacturing Overhead.
C. credit of $1,350 to Manufacturing Overhead.
D. debit of $4,761 to Manufacturing Overhead.
Answer:
Inspection costs at one of Krivanek Corporation’s factories are listed below:
Management believes that inspection cost is a mixed cost that depends on units
produced.
Using the high-low method, the estimate of the variable component of inspection cost
per unit produced is closest to:
A. $3.15
B. $0.32
C. $3.40
D. $13.91
Answer:
Reference: 8-28
Cox Engineering performs cement core tests in its laboratory. The following standards
have been set for each core test performed:
During March, the laboratory performed 2,000 core tests. On March 1 no direct
materials (sand) were on hand. Variable manufacturing overhead is assigned to core
tests on the basis of standard direct labor-hours. The following events occurred during
March:
– 8,600 pounds of sand were purchased at a cost of $7,310.
– 7,200 pounds of sand were used for core tests.
– 840 actual direct labor-hours were worked at a cost of $8,610.
– Actual variable manufacturing overhead incurred was $3,200.
The labor rate variance for March is:
A) $4,578 unfavorable
B) $1,470 unfavorable
C) $4,578 favorable
D) $1,470 favorable
Answer: