Reference: 8-31
Kibodeaux Corporation makes a product with the following standard costs:
The company budgeted for production of 3,300 units in June, but actual production was
3,400 units. The company used 33,240 liters of direct material and 320 direct
labor-hours to produce this output. The company purchased 35,900 liters of the direct
material at $4.90 per liter. The actual direct labor rate was $22.70 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 materials quantity variance for June is:
A) $392 U
B) $392 F
C) $400 F
D) $400 U
Answer:
The information below was obtained from the records of one of the departments of
Cushing Company for the month of August. The company uses the FIFO method in its
process costing system.
All materials are added at the beginning of the process.
The equivalent units for labor and overhead for the month of August are:
A. 85,000 units
B. 95,000 units
C. 87,500 units
D. 82,500 units
Answer:
What was the variable overhead rate variance for the period to the nearest dollar?
A) $1,750 U
B) $820 F
C) $1,750 F
D) $820 U
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 current ratio at the end of Year 2 is closest to:
A. 2.03
B. 0.35
C. 0.75
D. 0.46
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 labor efficiency variance for March is:
A) $2,660 F
B) $2,422 F
C) $2,422 U
D) $2,660 U
Answer:
Brayboy Tile Installation Corporation measures its activity in terms of square feet of tile
installed. Last month, the budgeted level of activity was 1,260 square feet and the actual
level of activity was 1,200 square feet. The companys owner budgets for supply costs, a
variable cost, at $3.90 per square foot. The actual supply cost last month was $4,300.
What would have been the spending variance for supply costs last month?
A) $770 F
B) $1,004 F
C) $198 F
D) $234 F
Answer:
The following partially completed T-accounts summarize the transactions of Belson
Company for last year:
At the end of the year, the company closes out the balance in the Manufacturing
Overhead account to Cost of Goods Sold.
The cost of direct materials used in production is:
A. $12,000
B. $13,000
C. $16,000
D. $20,000
Answer:
Snappy Company has a job-order costing system and uses a predetermined overhead
rate based on direct labor-hours to apply manufacturing overhead to jobs.
Manufacturing overhead cost and direct labor hours were estimated at $100,000 and
40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of
$5,000 in direct materials and $2,400 in direct labor. The labor rate is $6 per hour. By
the end of the year, Snappy had worked a total of 45,000 direct labor-hours and had
incurred $110,250 actual manufacturing overhead cost.
Snappy’s manufacturing overhead for the year was:
A. $10,250 underapplied
B. $12,500 overapplied
C. $12,500 underapplied
D. $2,250 overapplied
Answer:
In May, one of the processing departments at Lukman Corporation had beginning work
in process inventory of $11,000. During the month, $120,000 of costs were added to
production and the cost of units transferred out from the department was $94,000. The
company uses the FIFO method in its process costing system.
In the department’s cost reconciliation report for May, the cost of ending work in
process inventory would be:
A. $15,000
B. $63,000
C. $37,000
D. $26,000
Answer:
Excerpts from Tigner Corporation’s most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,230 and the cost of goods sold was $820.
The acid-test ratio at the end of Year 2 is closest to:
A. 1.18
B. 1.55
C. 1.00
D. 0.96
Answer:
At an activity level of 9,200 machine-hours in a month, Nooner Corporation’s total
variable production engineering cost is $761,300 and its total fixed production
engineering cost is $154,008. What would be the total production engineering cost per
unit, both fixed and variable, at an activity level of 9,300 machine-hours in a month?
Assume that this level of activity is within the relevant range.
A. $98.42
B. $99.49
C. $99.31
D. $98.96
Answer:
Whitney, Inc., produces a single product. The following data pertain to one month’s
operations:
The carrying value on the balance sheet of the ending finished goods inventory under
variable costing would be:
A. $16,000
B. $10,000
C. $19,000
D. $12,000
Answer:
Which of the following entries would correctly record charging direct labor costs to
Work in Process, given an unfavorable labor efficiency variance and a favorable labor
rate variance?
A.
B.
C.
D.
Answer:
Tennison Corporation has two major business segments-Consumer and Commercial.
Data for the segment and for the company for May appear below:
In addition, common fixed expenses totaled $371,000 and were allocated as follows:
$186,000 to the Consumer business segment and $185,000 to the Commercial business
segment.
A properly constructed segmented income statement in a contribution format would
show that the net operating income of the company as a whole is:
A. $769,000
B. $104,000
C. $475,000
D. -$267,000
Answer:
Meltzer Corporation is presently making part O13 that is used in one of its products. A
total of 3,000 units of this part are produced and used every year. The company’s
Accounting Department reports the following costs of producing the part at this level of
activity:
An outside supplier has offered to produce and sell the part to the company for $27.00
each. If this offer is accepted, the supervisor’s salary and all of the variable costs,
including direct labor, can be avoided. The special equipment used to make the part was
purchased many years ago and has no salvage value or other use. The allocated general
overhead represents fixed costs of the entire company. If the outside supplier’s offer
were accepted, only $3,000 of these allocated general overhead costs would be avoided.
In addition to the facts given above, assume that the space used to produce part O13
could be used to make more of one of the company’s other products, generating an
additional segment margin of $26,000 per year for that product. What would be the
impact on the company’s overall net operating income of buying part O13 from the
outside supplier and using the freed space to make more of the other product?
A. Net operating income would decline by $49,100 per year.
B. Net operating income would increase by $26,000 per year.
C. Net operating income would increase by $2,900 per year.
D. Net operating income would increase by $17,300 per year.
Answer:
LHU Corporation makes and sells a product called Product WZ. Each unit of Product
WZ requires 2.5 hours of direct labor at the rate of $15.00 per direct labor-hour.
Management would like you to prepare a Direct Labor Budget for June.
The company plans to sell 38,000 units of Product WZ in June. The finished goods
inventories on June 1 and June 30 are budgeted to be 600 and 100 units, respectively.
Budgeted direct labor costs for June would be:
A. $562,500
B. $1,425,000
C. $1,406,250
D. $1,443,750
Answer:
Montgomery Corporation produces and sells a single product. Data concerning that
product appear below:
Fixed expenses are $239,000 per month. The company is currently selling 3,000 units
per month. The marketing manager would like to cut the selling price by $12 and
increase the advertising budget by $12,000 per month. The marketing manager predicts
that these two changes would increase monthly sales by 500 units. What should be the
overall effect on the company’s monthly net operating income of this change?
A. increase of $102,000
B. decrease of $30,000
C. decrease of $6,000
D. increase of $30,000
Answer:
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 rate variance for May is:
A) $1,302 U
B) $1,440 U
C) $1,440 F
D) $1,302 F
Answer:
Delreal Corporation has provided the following data concerning its only product:
What is the margin of safety in dollars?
A. $4,532,000
B. $815,760
C. $3,716,240
D. $3,021,333
Answer:
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:
Which of the following are considered to be product costs under variable costing?
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
A. I.
B. I and II.
C. I and III.
D. I, II, and III.
Answer:
A static budget:
A) should be compared to actual costs to assess how well costs were controlled.
B) should be compared to a flexible budget to assess how well costs were controlled.
C) is valid for only one level of activity.
D) represents the best way to set spending targets for managers.
Answer:
Lothian 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 conversion costs for the first department for the month
is closest to:
A. $34.05
B. $32.17
C. $32.43
D. $30.30
Answer:
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 materials quantity variance for May is:
A) $13,150 F
B) $12,361 F
C) $13,150 U
D) $12,361 U
Answer:
Maintenance costs at a Tierce Corporation factory are listed below:
Management believes that maintenance cost is a mixed cost that depends on
machine-hours. Using the high-low method to estimate the variable and fixed
components of this cost, these estimates would be closest to:
A. $14.54 per machine-hour; $52,671 per month
B. $9.27 per machine-hour; $19,076 per month
C. $0.11 per machine-hour; $52,591 per month
D. $9.27 per machine-hour; $19,071 per month
Answer:
Reference: 8A-14
Favreau Corporation estimates that its variable manufacturing overhead is $6.10 per
machine-hour and its fixed manufacturing overhead is $352,590 per period.
If the denominator level of activity is 6,900 machine-hours, the variable element in the
predetermined overhead rate would be:
A) $6.10
B) $51.10
C) $57.20
D) $56.47
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 variable overhead rate variance for March is:
A) $884 U
B) $884 F
C) $940 U
D) $940 F
Answer:
Reference: 8-39
The Geurtz Company uses standard costing. The company makes and sells a single
product called a Roff. The following data are for the month of August:
– Actual cost of direct material purchased and used: $65,560
– Material price variance: $5,960 unfavorable
– Total materials variance: $22,360 unfavorable
– Standard cost per pound of material: $4
– Standard cost per direct labor-hour: $5
– Actual direct labor-hours: 6,500 hours
– Labor efficiency variance: $3,500 favorable
– Standard number of direct labor-hours per unit of Roff: 2 hours
– Total labor variance: $400 unfavorable
The labor rate variance was:
A) $3,900 favorable
B) $3,900 unfavorable
C) $3,100 unfavorable
D) $3,100 favorable
Answer:
On February 1, Caddell Corporation had $28,000 of raw materials on hand. During the
month, the company purchased an additional $70,000 of raw materials. During
February, $81,000 of raw materials were requisitioned from the storeroom for use in
production. The debits to the Raw Materials account for the month of February total:
A. $98,000
B. $70,000
C. $28,000
D. $81,000
Answer:
In activity-based costing, the total overhead cost in an activity cost pool can be
computed by:
A. dividing the total activity in the activity cost pool by the activity rate for the activity
cost pool.
B. multiplying the total activity in the activity cost pool by the activity rate for the
activity cost pool.
C. dividing the total direct labor-hours in the activity cost pool by the activity rate for
the activity cost pool.
D. multiplying the total direct labor-hours in the activity cost pool by the activity rate
for the activity cost pool.
Answer: