1) The price elasticity of demand is NOT used to determine the markup over cost when
computing the profit-maximizing price.
2) Queue time is considered value-added time.
3) Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, one step in adjusting selling and administrative
expenses from an accrual to a cash basis is to subtract any increase in prepaid expenses.
4) If the acid-test ratio is less than one, then paying off some current liabilities with
cash will increase the acid-test (quick) ratio.
5) The variable overhead efficiency variance measures how efficiently variable
manufacturing overhead resources were used.
6) The unit sales volume necessary to reach a target profit is determined by dividing the
sum of the fixed expenses and the target profit by the contribution margin per unit.
7) If the actual manufacturing overhead cost for a period exceeds the manufacturing
overhead cost applied, then manufacturing overhead would be considered to be
underapplied.
8) The dividend payout ratio is equal to the dividend per share divided by the earnings
per share.
9) The formula for target cost is:
Target cost = Anticipated selling price + Desired profit
10) The price-earnings ratio is determined by dividing market price per share of stock
by the earnings per share.
11) Under the direct method of determining the net cash provided by operating
activities on the statement of cash flows, a decrease in prepaid expenses would be
added to selling and administrative expenses to convert selling and administrative
expenses to a cash basis.
12) Thread that is used in the production of mattresses is an indirect material that is
therefore classified as manufacturing overhead.
13) The internal rate of return is computed by finding the discount rate that maximizes
the difference between the present value of a project’s cash outflows and the present
value of its cash inflows.
14) How much more profit (loss) does the company make by processing the
intermediate product cane juice into molasses rather than selling it as is?
A.$(43)
B.$(17)
C.$10
D.$(3)
15) The following data pertain to operations at Quick Incorporated:
The combined inspection and move time for this operation would be:
A.4 hours
B.1 hour
C.2 hours
D.cannot be determined from information provided
16) Hoang Corporation makes three products that use compound W, the current
constrained resource. Data concerning those products appear below:
Rank the products in order of their current profitability from most profitable to least
profitable. In other words, rank the products in the order in which they should be
emphasized.
A.RP,KI,LH
B.RP,LH,KI
C.KI,RP,LH
D.LH,RP,KI
17) Aaker Corporation, 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 absorption costing?
A.$3,900
B.$(14,100)
C.$12,000
D.$8,100
18) If Carne Company were to sell 32,000 units, the total expected cost would be:
A) $75,000
B) $78,000
C) $80,000
D) $77,000
19) Tish Corporation produces a part used in the manufacture of one of its products.
The unit product cost is $26, computed as follows:
An outside supplier has offered to provide the annual requirement of 5,000 of the parts
for only $21 each. The company estimates that 75% of the fixed manufacturing
overhead cost above could be eliminated if the parts are purchased from the outside
supplier. Assume that direct labor is an avoidable cost in this decision. Based on these
data, the per-unit dollar advantage or disadvantage of purchasing from the outside
supplier would be:
A.$1 disadvantage
B.$5 advantage
C.$3 advantage
D.$4 disadvantage
Because the part could be purchased from the outside supplier for $21, but costs $24 to
make internally, purchasing the parts from the outside supplier would yield a $3
advantage.
20) The company’s working capital is:
A.$1,215,000
B.$542,000
C.$793,000
D.$709,000
21) The current ratio at the end of Year 2 is closest to:
A.1.67
B.0.32
C.0.80
D.0.41
22) Eliezrie Corporation makes a product with the following standard costs:
In January the company’s budgeted production was 7,400 units but the actual
production was 7,500 units. The company used 45,580 kilos of the direct material and
2,030 direct labor-hours to produce this output. During the month, the company
purchased 48,500 kilos of the direct material at a cost of $53,350. The actual direct
labor cost was $18,473 and the actual variable overhead cost was $7,714.
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 January is:
A.$3,487 F
B.$3,170 U
C.$3,170 F
D.$3,487 U
23) Sammis Inc, which produces and sells a single product, has provided its
contribution format income statement for January.
If the company sells 2,500 units, its net operating income should be closest to:
A.$34,900
B.$16,900
C.$3,700
D.$30,086
24) Guinta Manufacturing Corporation has a traditional costing system in which it
applies manufacturing overhead to its products using a predetermined overhead rate
based on direct labor-hours (DLHs). The company has two products, O48C and G94Z,
about which it has provided the following data:
The company’s estimated total manufacturing overhead for the year is $1,102,500 and
the company’s estimated total direct labor-hours for the year is 42,000.
The company is considering using a variation of activity-based costing to determine its
unit product costs for external reports. Data for this proposed activity-based costing
system appear below:
Required:
a. Determine the unit product cost of each of the company’s two products under the
traditional costing system.
b. Determine the unit product cost of each of the company’s two products under
activity-based costing system.
25) Vassallo Corporation’s activity-based costing system has three activity cost
pools-Machining, Setting Up, and Other. The company’s overhead costs, which consist
of equipment depreciation and indirect labor, are allocated to the cost pools in
proportion to the activity cost pools’ consumption of resources.
Costs in the Machining 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.
Additional data concerning the company’s products appears below:
Required:
a. Assign overhead costs to activity cost pools using activity-based costing.
b. Calculate activity rates for each activity cost pool using activity-based costing.
c. Determine the amount of overhead cost that would be assigned to each product using
activity-based costing.
d. Determine the product margins for each product using activity-based costing.
26) Which of the following is correct regarding the operating activities section of the
statement of cash flows?
A.The change in Accounts Payable will be added to net income; The change in Accrued
Liabilities will be subtracted from net income
B.The change in Accounts Payable will be subtracted from net income; The change in
Accrued Liabilities will be added to net income
C.The change in Accounts Payable will be subtracted from net income; The change in
Accrued Liabilities will be subtracted from net income
D.The change in Accounts Payable will be added to net income; The change in Accrued
Liabilities will be added to net income
An increase in a current liability is added to net income. A decrease in a current liability
is subtracted from net income.
27) Vanikord Corporation currently has two divisions which had the following
operating results for last year:
Because the Rubber Division sustained a loss, the president of Vanikoro is considering
the elimination of this division. All of the division’s traceable fixed costs could be
avoided if the division was dropped. None of the allocated common corporate fixed
costs could be avoided. If the Rubber Division was dropped at the beginning of last
year, how much higher or lower would Vanikoro’s total net operating income have been
for the year?
A.$20,000 higher
B.$50,000 higher
C.$50,000 lower
D.$30,000 lower
28) Gearhart Corporation bases its budgets on the activity measure customers served.
During September, the company planned to serve 25,000 customers, but actually served
29,000 customers. The company has provided the following data concerning the
formulas it uses in its budgeting:
Required:
Prepare the company’s flexible budget for September based on the actual level of
activity for the month.
29) A number of costs and measures of activity are listed below.
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with
respect to the possible measure of activity listed next to it.
30) Data from Yochem Corporation’s most recent balance sheet appear below:
31) Halm Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diner’s budget for August was based on 3,000 meals. The diner’s
director has provided the following cost data to use in the budget: groceries, $3.85 per
meal; kitchen operations, $4,600 per month plus $1.15 per meal; administrative
expenses, $3,800 per month plus $0.85 per meal; and fundraising expenses, $1,600 per
month. The director has also provided the diner’s statement of actual expenses for the
month:
Required:
Prepare a flexible budget performance report showing both the activity variances and
the spending variances for each of the expenses and for total expenses for August. Label
each variance as favorable (F) or unfavorable (U).
32) Bruess Clinic uses patient-visits as its measure of activity. During July, the clinic
budgeted for 2,700 patient-visits, but its actual level of activity was 3,200 patient-visits.
The clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $49.60q
Personnel expenses: $31,200 + $15.10q
Medical supplies: $700 + $9.60q
Occupancy expenses: $10,000 + $2.00q
Administrative expenses: $7,000 + $0.20q
The clinic reported the following actual results for July:
Required:
Prepare the clinic’s flexible budget performance report for July. Label each variance as
favorable (F) or unfavorable (U).
33) Falstaff Company’s quality cost report is to be based on the following data:
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention costs,
appraisal costs, internal failure costs, and external failure costs.
34) Toadvine Clinic uses patient-visits as its measure of activity. During April, the clinic
budgeted for 3,800 patient-visits, but its actual level of activity was 3,400 patient-visits.
The clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $39.70q
Personnel expenses: $38,700 + $11.50q
Medical supplies: $1,000 + $7.30q
Occupancy expenses: $11,700 + $1.30q
Administrative expenses: $6,700 + $0.30q
The clinic reported the following actual results for April:
Required:
Prepare a report showing the clinic’s revenue and spending variances for April. Label
each variance as favorable (F) or unfavorable (U).
35) Pirkl Corporation has provided the following data for the month of March:
Required:
Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods
Sold.
