1) The cost categories that appear on a job cost sheet include selling expense,
manufacturing expense, and administrative expense.
2) If the actual rate per direct labor-hour exceeds the standard rate per direct labor-hour,
then the journal entry to record the Labor Rate Variance would be a debit.
3) When a company sells used equipment for a loss, the net profit margin percentage is
unaffected.
4) Buying inventory in large lots to take advantage of quantity discounts can be
responsible for a high inventory turnover ratio.
5) If the actual quantity of materials used is less than the standard quantity of materials
allowed for the actual output, then the journal entry to record the Direct Materials
Quantity Variance would be a debit.
6) All other things the same, in periods of increasing sales, net operating income will
tend to increase more rapidly in a company with high fixed costs and low variable costs
than in a company with high variable costs and low fixed costs.
7) If accounts receivable increase during a period, then the amount of cash collected
from customers will be less than the amount of sales reported on the income statement
for the period.
8) In the cost reconciliation report under the FIFO method, the costs accounted for
equals the cost of ending work in process inventory plus the cost of units transferred
out.
9) In the cost reconciliation report under the FIFO method, the costs to be accounted for
equals the cost of beginning work in process inventory plus the cost of units transferred
out.
10) To the nearest whole dollar, what should be the total lease cost at a sales volume of
30,900 units in a month? (Assume that this sales volume is within the relevant range.)
A) $742,317
B) $692,160
C) $704,480
D) $716,800
11) Breedon Corporation produces a single product. Data concerning the company’s
operations last year appear below:
Required:
a. Compute the unit product cost under both absorption and variable costing.
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Prepare a report reconciling the difference in net operating income between
absorption and variable costing for the year.
12) If direct labor-hours is the company’s production constraint, then the ranking of the
products from the most profitable to the least profitable use of the constrained resource
is:
A.A, B, C
B.B, C, A
C.C, A. B
D.A, C, B
13) How many units of product J45Z should be produced each month?
A.390
B.0
C.170
D.725
14) The income tax expense in year 2 is:
A.$111,000
B.$84,000
C.$18,000
D.$9,000
15) The accounts receivable turnover for Year 2 is closest to:
A.5.95
B.5.70
C.1.09
D.0.92
16) Croes Corporation has provided the following information concerning a capital
budgeting project:
The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:
A.$116,000
B.$80,000
C.$74,000
D.$56,000
17) Gilder Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in June.
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.$15,340 F
B.$15,600 F
C.$15,600 U
D.$15,340 U
18) Pascarelli Corporation’s inventory at the end of Year 2 was $122,000 and its
inventory at the end of Year 1 was $150,000. Cost of goods sold amounted to $870,000
in Year 2. The company’s average sale period (turnover in days) for Year 2 is closest to:
A.230.1 days
B.51.2 days
C.57.0 days
D.32.3 days
19) If Q equals the level of output, P is the selling price per unit, V is the variable
expense per unit, and F is the fixed expense, then the degree of operating leverage is
equal to:
A.Q/(P-V).
B.F/(P-V).
C.F/[(P-V)/P].
D.[(P-V)Q]/[(P-V)Q-F].
20) Maraby Corporation’s accounts receivable turnover for Year 2 was closest to:
A.13.5
B.7.8
C.11.2
D.9.4
21) The Plastechnics Company began operations several years ago. The company’s
product requires materials that cost $25 per unit. The company employs a production
supervisor whose salary is $2,000 per month. Production line workers are paid $15 per
hour to manufacture and assemble the product. The company rents the equipment
needed to produce the product at a rental cost of $1,500 per month. The building is
depreciated on the straight-line basis at $9,000 per year.
The company spends $40,000 per year to market the product. Shipping costs for each
unit are $20 per unit.
The company plans to liquidate several investments in order to expand production.
These investments currently earn a return of $8,000 per year.
Required:
Complete the answer sheet below by placing an “X” under each heading that identifies
the cost involved. The “Xs” can be placed under more than one heading for a single
cost, e.g., a cost might be a sunk cost, an overhead cost, and a product cost.
22) Jimerson Corporation produces a single product and has the following cost
structure:
Required:
Compute the unit product cost under absorption costing. Show your work!
23) Albertine Co. manufactures and sells trophies for winners of athletic and other
events. Its manufacturing plant has the capacity to produce 16,000 trophies each month;
current monthly production is 12,800 trophies. The company normally charges $113 per
trophy. Cost data for the current level of production are shown below:
The company has just received a special one-time order for 1,200 trophies at $61 each.
For this particular order, no variable selling and administrative costs would be incurred.
This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
24) Foradori Corporation’s activity-based costing system has three activity cost
pools-Fabricating, Setting Up, and Other. The company’s overhead costs have already
been allocated to these cost pools as follows:
Costs in the Fabricating cost pool are assigned to products based on machine-hours
(MHs) and costs in the Setting Up cost pool are assigned to products based on the
number of batches. Costs in the Other cost pool are not assigned to products. The
following table shows the machine-hours and number of batches associated with each
of the company’s two products:
Required:
Calculate activity rates for each activity cost pool using activity-based costing.
25) The management of Leinberger Corporation is considering dropping product S48J.
Data from the company’s accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s
accounting system. Further investigation has revealed that $28,000 of the fixed
manufacturing expenses and $21,000 of the fixed selling and administrative expenses
are avoidable if product S48J is discontinued.
Required:
What would be the effect on the company’s overall net operating income if product
S48J were dropped? Should the product be dropped? Show your work!
26) Loyola International, Inc. is considering adding a portable CD player to its product
line. Management believes that in order to be competitive, the CD player cannot be
priced above $79. The company requires a minimum return of 20% on its investments.
Launching the new product would require an investment of $20,000,000. Sales are
expected to be 250,000 units of the CD player per year.
Required:
Compute the target cost of a CD player.