Reference: 8-7
Edington Clinic uses client-visits as its measure of activity. During September, the
clinic budgeted for 2,800 client-visits, but its actual level of activity was 2,850
client-visits. The clinic has provided the following data concerning the formulas to be
used in its budgeting for September:
The personnel expenses in the planning budget for September would be closest to:
A) $62,946
B) $67,040
C) $66,420
D) $64,070
Answer:
Zylka Air uses two measures of activity, flights and passengers, in the cost formulas in
its flexible budgets. The cost formula for plane operating costs is $47,400 per month
plus $2,337 per flight plus $3 per passenger. The company expected its activity in April
to be 67 flights and 263 passengers, but the actual activity was 62 flights and 267
passengers. The actual cost for plane operating costs in April was $189,760. The plane
operating costs in the planning budget for April would be closest to:
A) $189,760
B) $193,095
C) $204,768
D) $205,063
Answer:
Lund Company applies manufacturing overhead to jobs using a predetermined
overhead rate of 75% of direct labor cost. Any underapplied or overapplied
manufacturing overhead cost is closed out to Cost of Goods Sold at the end of the
month. During March, the following transactions were recorded by the company:
The balance on March 1 in the Raw Materials inventory account was:
A. $8,500
B. $6,500
C. $7,500
D. $9,500
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 cash balance at the end of December would be:
A. $116,900
B. $16,000
C. $100,900
D. $56,400
Answer:
Ingerson 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. $12,000
B. $8,000
C. $(27,600)
D. $4,000
Answer:
Which of the following would be classified as a financing activity on the statement of
cash flows?
A. Interest paid to a lender.
B. Dividends paid to the company’s common stockholders.
C. Cash paid to acquire a long-term investment.
D. Cash received from a loan that was made to another company.
Answer:
Ozols Corporation’s most recent income statement appears below:
The gross margin percentage is closest to:
A. 33.2%
B. 55.7%
C. 300.8%
D. 125.6%
Answer:
Reference: 8-17
Hamp 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 December, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 3,050 tenant-days. The kennel
has provided the following data concerning the formulas to be used in its budgeting:
The net operating income in the planning budget for December would be closest to:
A) $13,420
B) $12,020
C) $12,984
D) $11,500
Answer:
Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units in
May and 70,000 units in June. The company desires that the inventory on hand at the
end of each month be equal to 40% of the next month’s expected unit sales. Due to
excessive production during March, on March 31 there were 25,000 units of Product W
in the ending inventory. Given this information, Walsh Company’s production of
Product W for the month of April should be:
A. 60,000 units
B. 65,000 units
C. 75,000 units
D. 66,000 units
Answer:
Which one of the following costs should NOT be considered a direct cost of serving a
particular customer who orders a customized personal computer by phone directly from
the manufacturer?
A. the cost of the hard disk drive installed in the computer.
B. the cost of shipping the computer to the customer.
C. the cost of leasing a machine on a monthly basis that automatically tests hard disk
drives before they are installed in computers.
D. the cost of packaging the computer for shipment.
Answer:
Selected financial data from Osterville Company for the most recent year appear below:
The income tax rate is 40%.
Net operating income as a percentage of sales was:
A. 40%
B. 30%
C. 10%
D. 5%
Answer:
The balance in the Work in Process account equals:
A. the balance in the Finished Goods inventory account.
B. the balance in the Cost of Goods Sold account.
C. the balances on the job cost sheets of uncompleted jobs.
D. the balance in the Manufacturing Overhead account.
Answer:
The Baily Division recorded operating data as follows for the past two years:
Baily Division’s turnover was exactly the same in both Year 1 and Year 2.
The average operating assets in Year 2 were:
A. $720,000
B. $750,000
C. $800,000
D. $900,000
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:
The term “relevant range” means the range of activity over which:
A. relevant costs are incurred.
B. costs may fluctuate.
C. production may vary.
D. the assumptions about fixed and variable cost behavior are reasonably valid.
Answer:
The Rial Company’s income statement for June is given below:
During June, the sales clerks in Division F received salaries totaling $35,000. Assume
that during July the salaries of these sales clerks are discontinued and instead they are
paid a commission of 18% of sales. If sales in Division F increase by $65,000 as a
result of this change, the July segment margin for Division F should be:
A. $42,700
B. $19,400
C. $54,400
D. $94,000
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 in dollars for Product B for June was:
A. $20,000
B. $111,000
C. $120,000
D. $200,000
Answer:
Mennig Corporation produces a single product and has the following cost structure:
The unit product cost under absorption costing is:
A. $92
B. $228
C. $182
D. $85
Answer:
Stuchlik Catering uses two measures of activity, jobs and meals, in the cost formulas in
its flexible budgets. The cost formula for catering supplies is $430 per month plus $80
per job plus $14 per meal. A typical job involves serving a number of meals to guests at
a corporate function or at a hosts home. The company expected its activity in January to
be 20 jobs and 190 meals, but the actual activity was 21 jobs and 194 meals. The actual
cost for catering supplies in January was $4,850. The catering supplies in the planning
budget for January would be closest to:
A) $4,850
B) $4,619
C) $4,690
D) $4,826
Answer:
The following monthly data are available for the Eager Company and its only product:
The margin of safety for the company for March was:
A. $315,000
B. $225,000
C. $135,000
D. $495,000
Answer:
A manufacturer of industrial equipment has a standard costing system based on
standard direct labor-hours (DLHs) as 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:
How much overhead was applied to products during the period to the nearest dollar?
A. $44,712
B. $44,125
C. $43,125
D. $44,850
Answer:
Boggs Company has 40,000 shares of common stock outstanding. The book value per
share of this stock was $60.00 and the market value per share was $75.00 at the end of
the year. Net income for the year was $400,000. Interest on long term debt was
$40,000. Dividends paid to common stockholders were $3.00 per share. The tax rate
was 30%. The company’s price-earnings ratio at the end of the year was:
A. 25
B. 20
C. 7.50
D. 6.00
Answer:
Deboer Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under the variable costing approach?
A. $8,400
B. $17,600
C. $26,000
D. $22,000
Answer:
Karo Corporation has provided the following data concerning its direct labor costs for
December:
The Labor Efficiency Variance for December would be recorded as a:
A. Debit of $9,682
B. Debit of $10,340
C. Credit of $10,340
D. Credit of $9,682
Answer:
What was the fixed manufacturing overhead budget variance for the period to the
nearest dollar?
A) $1,800 U
B) $222 F
C) $1,010 U
D) $785 U
Answer:
Beall Industries is a division of a major corporation. Last year the division had total
sales of $20,160,000, net operating income of $1,592,640, and average operating assets
of $8,000,000.
The division’s return on investment (ROI) is closest to:
A. 19.9%
B. 16.6%
C. 1.6%
D. 5.7%
Answer:
Kelsh Company uses a predetermined overhead rate based on machine-hours to apply
manufacturing overhead to jobs. The company has provided the following estimated
costs for next year:
Kelsh estimates that 5,000 direct labor-hours and 10,000 machine-hours will be worked
during the year. The predetermined overhead rate per hour will be:
A. $6.80
B. $6.40
C. $3.40
D. $8.20
Answer:
The wages of factory maintenance personnel would usually be considered to be:
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Reference: 8-37
Arrow Industries uses a standard cost system in which direct materials inventory is
carried at standard cost. Arrow has established the following standards for the prime
costs of one unit of product.
During May, Arrow purchased 160,000 pounds of direct material at a total cost of
$304,000. The total direct labor wages for May were $37,800. Arrow manufactured
19,000 units of product during May using 142,500 pounds of direct material and 5,000
direct labor-hours.
The direct materials price variance for May is:
A) $16,000 favorable
B) $16,000 unfavorable
C) $14,250 favorable
D) $14,250 unfavorable
Answer:
In November, one of the processing departments at Ijames Corporation had ending
work in process inventory of $26,000. During the month, $426,000 of costs were added
to production and the cost of units transferred out from the department was $436,000.
The company uses the FIFO method in its process costing system. In the department’s
cost reconciliation report for November, the total cost to be accounted for would be:
A. $924,000
B. $888,000
C. $62,000
D. $462,000
Answer:
The following data have been provided by a retailer that sells a single product.
What is the best estimate of the company’s contribution margin for this year?
A. $252,000
B. $300,000
C. $158,000
D. $120,000
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 net operating income in the flexible budget for November would be closest to:
A) $9,640
B) $9,858
C) $6,260
D) $6,357
Answer:
The Porter Company has a standard cost system. In July the company purchased and
used 22,500 pounds of direct material at an actual cost of $53,000; the materials
quantity variance was $1,875 Unfavorable; and the standard quantity of materials
allowed for July production was 21,750 pounds. The materials price variance for July
was:
A) $2,725 F
B) $2,725 U
C) $3,250 F
D) $3,250 U
Answer: