1) the demand for products that are sold in discount stores is generally more elastic than
the demand for products sold in upscale boutiques.
2) if all four of argo corporation’s overhead variances are favorable, argo’s overhead
will be overapplied.
3) if a company is operating at a profit, all cash inflows associated with an investment
project should be multiplied by one minus the tax rate to be placed on an after-tax basis.
4) job-order costing is usually not used in service organizations such as hospitals and
law firms.
5) assuming that a company has a current ratio greater than 1.0, repaying a short-term
note payable will increase the current ratio.
6) a factory supervisor’s salary would be classified as a direct cost of a unit of product.
7) profits move in the same direction as sales when variable costing is used if selling
prices, the sales mix, and the cost structure remain the same.
8) the cost of goods manufactured for a period is the amount transferred from work in
process inventory to finished goods inventory during the period.
9) the changes in tench company’s balance sheet account balances for last year appear
below:
the company’s income statement for the year appears below:
the company declared and paid $70,000 in cash dividends during the year. the company
uses the direct method to determine the net cash provided by operating activities.
on the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
a.$73,000
b.$64,000
c.$63,000
d.$62,000
10) for which situation(s) below would an organization be more likely to use a
job-order costing system of accumulating product costs rather than a process costing
system?
a.a steel factory that processes iron ore into steel bars
b.a factory that processes sugar and other ingredients into black licorice
c.a costume maker that makes specialty costumes for figure skaters
d.all of these
11) the changes in tench company’s balance sheet account balances for last year appear
below:
the company’s income statement for the year appears below:
the company declared and paid $70,000 in cash dividends during the year. the company
uses the direct method to determine the net cash provided by operating activities.
on the statement of cash flows, the sales revenue adjusted to a cash basis would be:
a.$990,000
b.$1,000,000
c.$970,000
d.$975,000
12) damesin inc. uses the fifo method in its process costing system. the following data
concern the operations of the company’s first processing department for a recent month.
required:
using the fifo method:
a. determine the equivalent units of production for materials and conversion costs.
b. determine the cost per equivalent unit for materials and conversion costs.
c. determine the cost of ending work in process inventory.
d. determine the cost of units transferred out of the department during the month.
13) in september, one of the processing departments at becka corporation had ending
work in process inventory of $23,000. during the month, $362,000 of costs were added
to production and the cost of units transferred out from the department was $372,000.
the company uses the fifo method in its process costing system. in the department’s cost
reconciliation report for september, the total cost accounted for would be:
a.$56,000
b.$395,000
c.$790,000
d.$757,000
14) the plans of management are expressed formally in:
a.the annual report to shareholders
b.form 10-q submitted to the securities and exchange commission
c.performance reports
d.budgets
15) the medical services department of bantam company budgeted $20 of variable
medical expenses per employee for the year, based on 1,500 employees in the operating
departments. during the year, an average of 1,200 employees were employed in
operating departments. actual variable medical expenses totaled $28,800 for the year.
how much variable medical expenses should be charged to operating departments at
year-end?
a.$28,800
b.$24,000
c.$23,040
d.$28,000
16) degner inc. has some material that originally cost $19,500. the material has a scrap
value of $13,300 as is, but if reworked at a cost of $2,100, it could be sold for $14,000.
what would be the incremental effect on the company’s overall profit of reworking and
selling the material rather than selling it as is as scrap?
a.-$20,900
b.$11,900
c.-$7,600
d.-$1,400
17) ranft clinic uses the step-down method to allocate service department costs to
operating departments. the clinic has two service departments, personnel and
information technology (it), and two operating departments, family medicine and
pediatric. data concerning those departments follow:
personnel costs are allocated first on the basis of employees and it costs are allocated
second on the basis of pcs. the total pediatric department cost after allocations is closest
to:
a.$456,993
b.$456,904
c.$409,220
d.$447,702
18) pfalzgraf corporation, a manufacturing company, has provided the following
financial data for january:
the company had no beginning or ending inventories.
the gross margin for january was:
a.$14,000
b.$151,000
c.$91,000
d.$163,000
19) the following is alsatia corporation’s contribution format income statement for last
month:
the company has no beginning or ending inventories and produced and sold 10,000
units during the month.
required:
a. what is the company’s contribution margin ratio?
b. what is the company’s break-even in units?
c. if sales increase by 100 units, by how much should net operating income increase?
d. how many units would the company have to sell to attain target profits of $225,000?
e. what is the company’s margin of safety in dollars?
f. what is the company’s degree of operating leverage?
20) the koski company has established standards as follows:
actual production figures for the past year were as follows:
the labor rate variance is:
a.$210 f
b.$190 f
c.$399 f
d.$190 u
21) the charade company is preparing its manufacturing overhead budget for the fourth
quarter of the year. the budgeted variable factory overhead is $5.00 per direct
labor-hour; the budgeted fixed factory overhead is $75,000 per month, of which
$15,000 is factory depreciation.
if the budgeted direct labor time for november is 7,000 hours, then the total budgeted
factory overhead for november is:
a.$95,000
b.$110,000
c.$75,000
d.$125,000
22) jessep corporation has a standard cost system in which manufacturing overhead is
applied on the basis of standard direct labor-hours. the company has provided the
following data concerning its fixed manufacturing overhead costs in march:
the fixed manufacturing overhead budget variance is:
a.$1,000 u
b.$3,000 u
c.$2,000 u
d.$2,000 f
23) roger company uses the fifo method in its process costing system. the following
data are taken from the accounting records of a particular department for june:
the cost of the 75,000 units transferred out of the department during june is:
a.$151,250
b.$145,250
c.$131,500
d.$168,750
24) graciana corporation’s most recent comparative balance sheet and income statement
appear below:
cash dividends were $28.
the net cash provided by (used by) financing activities for the year was:
a.($28)
b.$2
c.($67)
d.($41)
25) weisenborn corporation uses the direct method to allocate service department costs
to operating departments. the company has two service departments, information
technology and personnel, and two operating departments, fabrication and
customization.
information technology department costs are allocated on the basis of computer
workstations and personnel department costs are allocated on the basis of employees.
the total fabrication department cost after service department allocations is closest to:
a.$235,821
b.$227,905
c.$234,336
d.$231,641
26) twitty inc. has provided the following data concerning the assembly department for
the month of august. the company uses the weighted-average method in its process
costing.
during the month, 6,800 units were completed and transferred from the assembly
department to the next department.
required:
determine the cost of ending work in process inventory and the cost of units transferred
out of the department during august using the weighted-average method.
27) eisner tech is a for-profit vocational school. the school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. the school uses the
following data in its budgeting:
in october, the school budgeted for 1,490 students and 85 courses. the school’s income
statement showing the actual results for the month appears below:
required:
prepare a report showing the school’s activity variances for october. label each variance
as favorable (f) or unfavorable (u).
28) ziebol natal clinic uses the step-down method to allocate service department costs to
operating departments. the clinic has two service departments, administration and
information technology (it), and two operating departments, prenatal care and postnatal
care.
administration department costs are allocated first on the basis of employees and it
department costs are allocated second on the basis of computers.
required:
allocate the service department costs to the operating departments using the step-down
method.
29) tingstrom inc. makes a range of products. the company’s predetermined overhead
rate is $20 per direct labor-hour, which was calculated using the following budgeted
data:
component b6 is used in one of the company’s products. the unit cost of the component
according to the company’s cost accounting system is determined as follows:
an outside supplier has offered to supply component b6 for $76 each. the outside
supplier is known for quality and reliability. assume that direct labor is a variable cost,
variable manufacturing overhead is really driven by direct labor-hours, and total fixed
manufacturing overhead would not be affected by this decision. tingstrom chronically
has idle capacity.
required:
is the offer from the outside supplier financially attractive? why?
30) mcgannon clinic uses patient-visits as its measure of activity. during november, the
clinic budgeted for 3,700 patient-visits, but its actual level of activity was 4,100
patient-visits. the clinic uses the following revenue and cost formulas in its budgeting,
where q is the number of patient-visits:
revenue: $23.90q
personnel expenses: $20,800 + $7.90q
medical supplies: $800 + $3.50q
occupancy expenses: $6,100 + $1.30q
administrative expenses: $3,100 + $0.10q
the clinic reported the following actual results for november:
required:
prepare the clinic’s flexible budget performance report for november. label each
variance as favorable (f) or unfavorable (u).
31) turnhilm, inc. is considering adding a small electric mower to its product line.
management believes that in order to be competitive, the mower cannot be priced above
$139. the company requires a minimum return of 25% on its investments. launching the
new product would require an investment of $8,000,000. sales are expected to be
40,000 units of the mower per year.
required:
compute the target cost of a mower.
32) during october, moceri clinic budgeted for 3,000 patient-visits, but its actual level of
activity was 3,500 patient-visits. the clinic uses the following revenue and cost formulas
in its budgeting, where q is the number of patient-visits:
revenue: $41.80q
personnel expenses: $30,900 + $13.70q
medical supplies: $700 + $7.80q
occupancy expenses: $8,900 + $1.50q
administrative expenses: $3,600 + $0.20q
required:
prepare the clinic’s flexible budget for october based on the actual level of activity for
the month.
33) during august, klinck corporation plans to serve 33,000 customers. revenue is $2.50
per customer served. wages and salaries are $24,300 per month plus $0.90 per customer
served. supplies are $0.30 per customer served. insurance is $7,100 per month.
miscellaneous expenses are $5,200 per month plus $0.10 per customer served.
required:
prepare the company’s planning budget for august.
34) the 4 x 4 shop is a large retailer of equipment for pickup trucks. an income
statement for the company’s bed liner department for the most recent quarter is
presented below:
the liners sell, on average, for $350 each. the department’s variable selling expenses are
$35 per liner sold. the remaining selling expenses are fixed. the administrative expenses
are 25% variable and 75% fixed. the company purchases its liners from a supplier at a
cost of $125 per liner.
required:
prepare an income statement for the quarter, using the contribution approach.
