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Callander Corporation is a wholesaler that sells a single product. Management has
provided the following cost data for two levels of monthly sales volume. The company
sells the product for $151.60 per unit.
The best estimate of the total variable cost per unit is:
A. $141.00
B. $80.10
C. $69.30
D. $132.30
Answer:
Sales reported on the income statement totaled $850,000. The beginning balance in
accounts receivable was $90,000. The ending balance in accounts receivable was
$160,000. Under the direct method of determining the net cash provided by operating
activities on the statement of cash flows, sales adjusted to a cash basis are:
A. $780,000
B. $940,000
C. $860,000
D. $920,000
Answer:
Reference: 8A-4
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead volume variance for March is:
A) $1,000 favorable
B) $5,000 favorable
C) $2,500 unfavorable
D) $5,000 unfavorable
Answer:
Elhard Company produces a single product. The cost of producing and selling a single
unit of this product at the company's normal activity level of 40,000 units per month is
as follows:
The normal selling price of the product is $51.10 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered
this month at a special discounted price. This order would have no effect on the
company's normal sales and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be $0.10 less per unit on
this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose there is not enough idle capacity to produce all of the units for the overseas
customer and accepting the special order would require cutting back on production of
200 units for regular customers. The minimum acceptable price per unit for the special
order is closest to:
A. $38.80
B. $31.20
C. $51.10
D. $45.80
Answer:
Financial statements for Orange Company appear below:
Dividends during Year 2 totaled $156 thousand, of which $18 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $100.
Orange Company's accounts receivable turnover for Year 2 was closest to:
A. 15.7
B. 11.0
C. 17.7
D. 12.4
Answer:
Reference: 8-9
Parisi Clinic uses client-visits as its measure of activity. During March, the clinic
budgeted for 2,300 client-visits, but its actual level of activity was 2,350 client-visits.
The clinic has provided the following data concerning the formulas to be used in its
budgeting:
The net operating income in the flexible budget for March would be closest to:
A) $11,100
B) $9,905
C) $10,340
D) $12,500
Answer:
Overhead is applied to work in process in a standard costing system by:
A) multiplying actual hours times the predetermined rate.
B) multiplying standard hours allowed for the output of the period times the
predetermined rate.
C) multiplying actual hours times the actual rate.
D) multiplying standard hours allowed for the output of the period times the actual rate.
Answer:
Hadlock Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under variable costing?
A. $15,200
B. $4,000
C. $(9,200)
D. $19,200
Answer:
Reference: 8-45
The auto repair shop of Empire Motor Sales uses standards to control labor time and
labor cost in the shop. The standard time for a motor tune-up is 2.5 hours. The record
showing time spent in the shop last week on tune-ups has been misplaced; however, the
shop supervisor recalls that 50 tune-ups were completed during the week and the
controller recalls that the labor rate variance on tune-ups was $87, favorable. The shop
has a set standard labor rate of $9 per hour for tune-up work. The total labor variance
for the week on tune-up work was $93, unfavorable.
The number of actual hours spent on tune-up work last week was:
A) 125 hours
B) 105 hours
C) 145 hours
D) Cannot be computed without further information
Answer:
Erkkila Inc. reports that at an activity level of 7,900 machine-hours in a month, its total
variable inspection cost is $210,061 and its total fixed inspection cost is $191,970.
What would be the average fixed inspection cost per unit at an activity level of 8,100
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A. $50.89
B. $24.30
C. $23.70
D. $32.96
Answer:
Diltex Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:
o Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000
for January.
o Collections are expected to be 70% in the month of sale, 27% in the month following
the sale, and 3% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory at the end of each
month equal to 50% 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 $22,500.
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. $82,000
B. $113,400
C. $60,000
D. $54,000
Answer:
A manufacturing company uses a standard costing system in which standard
machine-hours (MHs) is the measure of activity. Data from the company's 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. $18.17 per MH
B. $18.31 per MH
C. $18.70 per MH
D. $18.84 per MH
Answer:
Atwich 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 5,100 units were started and 4,400 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 75% complete with respect to materials and 10% 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.
The cost of ending work in process inventory in the first processing department
according to the company's cost system is closest to:
A. $26,342
B. $62,679
C. $8,357
D. $83,572
Answer:
To record the use of direct materials in production, the general ledger would include
what kind of entry to the Materials Quantity Variance Account?
A) $46,000 debit
B) $60,000 credit
C) $60,000 debit
D) $36,000 debit
Answer:
Seroka Corporation estimates that its variable manufacturing overhead is $6.90 per
machine-hour and its fixed manufacturing overhead is $745,290 per period.
If the denominator level of activity is 9,100 machine-hours, the predetermined overhead
rate would be:
A. $88.80
B. $690.00
C. $6.90
D. $81.90
Answer:
Diltex Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:
o Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000
for January.
o Collections are expected to be 70% in the month of sale, 27% in the month following
the sale, and 3% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory at the end of each
month equal to 50% 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 $22,500.
o Monthly depreciation is $19,000.
o Ignore taxes.
December cash disbursements for merchandise purchases would be:
A. $136,500
B. $68,250
C. $133,250
D. $130,000
Answer:
Data concerning Carlo Corporation's single product appear below:
The break-even in monthly dollar sales is closest to:
A. $896,744
B. $466,900
C. $1,556,333
D. $667,000
Answer:
Which of the following are valid reasons for eliminating a product line?
I. The product line's contribution margin is negative.
II. The product line's traceable fixed costs plus its allocated common corporate costs are
less than its contribution margin.
A. Only I
B. Only II
C. Both I and II
D. Neither I nor II
Answer:
The following data have been recorded for recently completed Job 674 on its job cost
sheet. Direct materials cost was $2,039. A total of 32 direct labor-hours and 175
machine-hours were worked on the job. The direct labor wage rate is $14 per
labor-hour. The company applies manufacturing overhead on the basis of
machine-hours. The predetermined overhead rate is $15 per machine-hour. The total
cost for the job on its job cost sheet would be:
A. $2,967
B. $2,487
C. $2,068
D. $5,112
Answer:
Temblador Corporation purchased a machine 7 years ago for $319,000 when it
launched product E26T. Unfortunately, this machine has broken down and cannot be
repaired. The machine could be replaced by a new model 330 machine costing
$323,000 or by a new model 230 machine costing $285,000. Management has decided
to buy the model 230 machine. It has less capacity than the model 330 machine, but its
capacity is sufficient to continue making product E26T. Management also considered,
but rejected, the alternative of dropping product E26T and not replacing the old
machine. If that were done, the $285,000 invested in the new machine could instead
have been invested in a project that would have returned a total of $386,000.
In making the decision to buy the model 230 machine rather than the model 330
machine, the differential cost was:
A. $34,000
B. $38,000
C. $4,000
D. $67,000
Answer:
The difference between total sales in dollars and total variable expenses is called:
A. net operating income.
B. net profit.
C. the gross margin.
D. the contribution margin.
Answer:
Reference: 8-14
Tolentino 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 November, the kennel budgeted
for 2,600 tenant-days, but its actual level of activity was 2,620 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for November:
Data used in budgeting:
Actual results for November:
The facility expenses in the flexible budget for November would be closest to:
A) $21,052
B) $20,922
C) $20,604
D) $20,960
Answer:
Ekmark Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products:
Data for one of the company's products follow:
How much overhead cost would be assigned to Product P59G using the activity-based
costing system?
A. $54,482.56
B. $5,301.76
C. $10,014.40
D. $154.78
Answer:
Management of Mcentire Corporation has asked your help as an intern in preparing
some key reports for April. Direct materials cost was $64,000, direct labor cost was
$47,000, and manufacturing overhead was $75,000. Selling expense was $15,000 and
administrative expense was $44,000.
The conversion cost for April was:
A. $186,000
B. $100,000
C. $128,000
D. $122,000
Answer:
Reference: 8-35
Sande Corporation makes a product with the following standard costs:
In November the companys budgeted production was 2,900 units but the actual
production was 3,000 units. The company used 27,670 grams of the direct material and
1,390 direct labor-hours to produce this output. During the month, the company
purchased 31,700 grams of the direct material at a cost of $196,540. The actual direct
labor cost was $29,607 and the actual variable overhead cost was $2,502.
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 efficiency variance for November is:
A) $220 U
B) $198 F
C) $198 U
D) $220 F
Answer:
Reference: 8-40
The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the materials quantity variance for the month?
A) $1,880 U
B) $10,476 U
C) $1,940 U
D) $10,152 U
Answer:
Megna Company's net income last year was $143,000. Changes in the company's
balance sheet accounts for the year appear below:
The company paid a cash dividend and it did not dispose of any long-term investments
or property, plant, and equipment. The company 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) operating activities last year was:
A. $143,000
B. $201,000
C. $139,000
D. $197,000
Answer:
Gasco Corporation's balance sheet and income statement appear below:
Cash dividends were $54. The company sold equipment for $14 that was originally
purchased for $8 and that had accumulated depreciation of $1. It did not issue any
bonds payable or repurchase any of its own common stock.
The net cash provided by (used in) investing activities for the year was:
A. $(137)
B. $(151)
C. $14
D. $137
Answer:
Franklin Glass Works uses a standard cost system in which manufacturing overhead is
applied on the basis of standard direct labor-hours. Each unit requires two standard
hours of direct labor for completion. The denominator activity for the year was based
on budgeted production of 200,000 units. Total overhead was budgeted at $900,000 for
the year, and the fixed manufacturing overhead rate was $1.50 per direct labor-hour.
The actual data pertaining to the manufacturing overhead for the year are presented
below:
Franklin's fixed manufacturing overhead budget variance for the year is:
A. $19,000 favorable
B. $25,000 favorable
C. $25,000 unfavorable
D. $19,000 unfavorable
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 rate variance for October was:
A) $60,000 Favorable
B) $110,000 Unfavorable
C) $100,000 Unfavorable
D) $140,000 Unfavorable
Answer:
Buis Corporation, which makes landing gears, has provided the following data for a
recent month:
Required:
Determine the rate and efficiency variances for the variable overhead item supplies and
indicate whether those variables are favorable or unfavorable. Show your work!
Answer:
In September, Pino Corporation sold 2,100 units of its only product. Its total sales were
$195,300, its total variable expenses were $84,000, and its total fixed expenses were
$98,700.
a. Construct the company's contribution format income statement for September in
good form.
b. Redo the company's contribution format income statement assuming that the
company sells 2,300 units.
Answer:
Data from Ankeny Corporation's most recent balance sheet and income statement
appear below:
Compute the average sale period for this year:
Answer:
Dobrinski 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 13,000
labor-hours. The estimated variable manufacturing overhead was $2.35 per labor-hour
and the estimated total fixed manufacturing overhead was $156,130.
Compute the company's predetermined overhead rate.
Answer:
Alongi Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products.
Last year, Product P91M involved 33 batches, 1 customer orders, and 368 assembly
hours.
How much overhead cost would be assigned to Product P91M using the company's
activity-based costing system? Show your work!
Answer:
The following cost data relate to the manufacturing activities of Newberry Company
during the just completed year:
The company uses a predetermined overhead rate to apply manufacturing overhead cost
to production. The predetermined overhead rate for the year was $15 per machine-hour.
A total of 23,000 machine-hours were recorded for the year.
a. Compute the amount of underapplied or overapplied manufacturing overhead cost for
the year.
b. Prepare a Schedule of Cost of Goods Manufactured for the year.
Answer:
Penury Company offers two products. At present, the following represents the usual
results of a month's operations:
a. Find the break-even point in dollars.
b. Find the margin of safety in dollars.
c. The company is considering decreasing product K's unit sales to 80,000 and
increasing product L's unit sales to 180,000, leaving unchanged the selling price per
unit, variable expense per unit, and total fixed expenses. Would you advise adopting
this plan?
d. Refer to (c) above. Under the new plan, find the break-even point in dollars.
e. Under the new plan in (c) above, find the margin of safety in dollars.
Answer:
Torri Inc. produces and sells two products. During the most recent month, Product
C34M's sales were $25,000 and its variable expenses were $5,750. Product Y03Z's
sales were $40,000 and its variable expenses were $9,850. The company's fixed
expenses were $48,310.
a. Determine the overall break-even point for the company. Show your work!
b. If the sales mix shifts toward Product C34M with no change in total sales, what will
happen to the break-even point for the company? Explain.
Answer:
Renbud Computer Services Co. (RCS) specializes in customized software development
for the broadcast and telecommunications industries. The company was started by three
people in 1973 to develop software primarily for a national network to be used in
broadcasting national election results. After sustained and manageable growth for many
years, the company has grown very fast over the last three years, doubling in size.
This growth has placed the company in a challenging financial position. Within thirty
days, RCS will need to renew its $300,000 loan with the Third State Bank of San
Marcos. This loan is classified as a current liability on RCS's balance sheet. Harvey
Renbud, president of RCS, is concerned about renewing the loan. The bank has
requested RCS's most recent financial statements which appear below, including
balance sheets for this year and last year. The bank has also requested four ratios
relating to operating performance and liquidity.
a. Explain why the Third State Bank of San Marcos would be interested in reviewing
Renbud Computer Services Co.'s comparative financial statements and its financial
ratios before renewing the loan.
b. Calculate the following financial ratios for Renbud Computer Services Co:
1/ The current ratio for both this year and last year.
2/ Accounts receivable turnover for this year.
3/ Return on common stockholders' equity for this year.
4/ The debt-to-equity ratio for both this year and last year.
c. Discuss briefly the limitations and difficulties that can be encountered in using ratio
analysis.
Answer:
Carvey Corporation manufactures a variety of products. The following data pertain to
the company's operations over the last two years:
a. Determine the absorption costing net operating income for last year. Show your
work!
b. Determine the absorption costing net operating income for this year. Show your
work!
Answer:
Vitko Corporation makes automotive engines. For the most recent month, budgeted
production was 6,000 engines. The standard power cost is $8.80 per machine-hour. The
companys standards indicate that each engine requires 6.1 machine-hours. Actual
production was 6,400 engines. Actual machine-hours were 38,730 machine-hours.
Actual power cost totaled $350,628.
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!
Answer:
Pettengill Corporation's net operating income last year was $280,000; its interest
expense was $37,000; its total stockholders' equity was $920,000; and its total liabilities
were $620,000.
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.
Answer:
