At the end of the year, actual manufacturing overhead costs were $110,000 and applied
manufacturing overhead costs were $118,800. If the denominator activity for the year
was 20,000 machine-hours, and if 22,000 standard machine-hours were allowed for the
years production, the predetermined overhead rate per machine-hour was:
A) $5.00
B) $5.94
C) $5.50
D) $5.40
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 expendables in the flexible budget for November would be closest to:
A) $27,548
B) $26,440
C) $26,638
D) $27,129
Answer:
The Dodge Company makes and sells a single product and uses a standard cost system
in which manufacturing overhead costs are applied to units of product on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are
required per unit of product. The Dodge Company had the following budgeted and
actual data for the year:
The budgeted direct labor-hours is used as the denominator activity for the month.
The variable overhead rate variance was:
A. $4,500 U
B. $10,500 U
C. $13,500 U
D. $16,500 U
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 net operating income in Year 1 was:
A. $90,000
B. $135,000
C. $140,000
D. $150,000
Answer:
A manufacturing company that produces a single 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. $21,600
B. $(15,200)
C. $8,000
D. $13,600
Answer:
Chaffee Corporation staffs a helpline to answer questions from customers. The costs of
operating the helpline are variable with respect to the number of calls in a month. At a
volume of 33,000 calls in a month, the costs of operating the helpline total $742,500.
To the nearest whole cent, what should be the average cost of operating the helpline per
call at a volume of 36,100 calls in a month? (Assume that this call volume is within the
relevant range.)
A. $21.54
B. $20.57
C. $21.34
D. $22.50
Answer:
Reference: 8-13
Foxworthy 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 July, the kennel budgeted for
2,000 tenant-days, but its actual level of activity was 2,050 tenant-days. The kennel has
provided the following data concerning the formulas to be used in its budgeting:
The wages and salaries in the planning budget for July would be closest to:
A) $18,070
B) $17,239
C) $17,700
D) $17,670
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 quantity variance for May is:
A) $14,400 unfavorable
B) $1,100 favorable
C) $17,100 unfavorable
D) $17,100 favorable
Answer:
Durrant Corporation has provided the following data concerning its most important raw
material, compound O96H:
When recording the use of materials in production, Raw Materials would be:
A. debited for $55,930.
B. debited for $54,264.
C. credited for $55,930.
D. credited for $54,264.
Answer:
Roy Corporation produces a single product. During July, Roy produced 10,000 units.
Costs incurred during the month were as follows:
Under absorption costing, any unsold units would be carried in the inventory account at
a unit product cost of:
A. $5.10
B. $4.40
C. $3.80
D. $3.50
Answer:
Two alternatives, code-named X and Y, are under consideration at Afalava Corporation.
Costs associated with the alternatives are listed below.
What is the differential cost of Alternative Y over Alternative X, including all of the
relevant costs?
A. $103,000
B. $39,000
C. $142,000
D. $122,500
Answer:
Excerpts from Goodrow Corporation’s most recent balance sheet and income statement
appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $5.34 per share.
The return on total assets for Year 2 is closest to:
A. 5.74%
B. 7.46%
C. 7.40%
D. 5.79%
Answer:
The contribution margin ratio is 25% for Grain Company and the break-even point in
sales is $200,000. To obtain a target net operating income of $60,000, sales would have
to be:
A. $260,000
B. $440,000
C. $280,000
D. $240,000
Answer:
Which of the following statements is not correct?
A. The sales budget is the starting point in preparing the master budget.
B. The sales budget is constructed by multiplying the expected sales in units by the
sales price.
C. The sales budget generally is accompanied by a computation of expected cash
receipts for the forthcoming budget period.
D. The cash budget must be prepared prior to the sales budget because managers want
to know the expected cash collections on sales made to customers in prior periods
before projecting sales for the current period.
Answer:
Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar
cane is processed in batches. A batch of sugar cane costs $48 to buy from farmers and
$16 to crush in the company’s plant. Two intermediate products, cane fiber and cane
juice, emerge from the crushing process. The cane fiber can be sold as is for $24 or
processed further for $17 to make the end product industrial fiber that is sold for $38.
The cane juice can be sold as is for $34 or processed further for $23 to make the end
product molasses that is sold for $76.
How much profit (loss) does the company make by processing one batch of sugar cane
into the end products industrial fiber and molasses?
A. $16
B. $(104)
C. $(6)
D. $10
Answer:
The Kafusi Company has the following budgeted sales:
The regular pattern of collection of credit sales is 30% in the month of sale, 60% in the
month following the month of sale, and the remainder in the second month following
the month of sale. There are no bad debts.
The budgeted accounts receivable balance on May 31 would be:
A. $210,000
B. $212,000
C. $180,000
D. $242,000
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 dividend yield ratio for Year 2 is closest to:
A. 0.36%
B. 92.31%
C. 4.26%
D. 4.62%
Answer:
For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver
lamps to customers is best described as a:
A. prime cost.
B. manufacturing overhead cost.
C. period cost.
D. differential (incremental) cost of a lamp.
Answer:
Morisey Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $8.60 per machine-hour and fixed manufacturing overhead cost of
$457,002 per period. If the denominator level of activity is 6,300 machine-hours, the
predetermined overhead rate would be:
A) $81.14
B) $860.00
C) $72.54
D) $8.60
Answer:
Aberge Company’s manufacturing overhead is 60% of its total conversion costs. If
direct labor is $38,000 and if direct materials are $21,000, the manufacturing overhead
is:
A. $57,000
B. $88,500
C. $25,333
D. $31,500
Answer:
Schemm Inc. regularly uses material F04E and currently has in stock 460 liters of the
material for which it paid $2,622 several weeks ago. If this were to be sold as is on the
open market as surplus material, it would fetch $5.25 per liter. New stocks of the
material can be purchased on the open market for $5.85 per liter, but it must be
purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of
800 liters of the material to be used in a job for a customer. The relevant cost of the 800
liters of material F04E is:
A. $5,850
B. $4,200
C. $4,404
D. $4,680
Answer:
The following direct labor standards have been established for product H91D:
The following data pertain to the most recent months operations during which 3,860
units of product H91D were made:
Required:
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
c. Prepare a journal entry to record direct labor costs during the month, including the
direct labor variances.
Answer:
During the year the balance in the Inventory account increased by $4,000. In order to
adjust the company’s net income to a cash basis using the direct method on the
statement of cash flows, it would be necessary to:
A. subtract the $4,000 from the sales revenue reported on the income statement.
B. add the $4,000 to the sales revenue reported on the income statement.
C. subtract the $4,000 from the cost of goods sold reported on the income statement.
D. add the $4,000 to the cost of goods sold reported on the income statement.
Answer:
Evergreen Corp. has provided the following data:
The number of units needed to achieve a target net operating income of $49,500 would
be:
A. 1,238 units
B. 2,750 units
C. 3,200 units
D. 2,057 units
Answer:
Data for June for Ozaki Corporation and its two major business segments, North and
South, appear below:
In addition, common fixed expenses totaled $145,000 and were allocated as follows:
$73,000 to the North business segment and $72,000 to the South business segment.
A properly constructed segmented income statement in a contribution format would
show that the segment margin of the North business segment is:
A. $270,000
B. $119,000
C. $207,000
D. $192,000
Answer:
Laro Corporation produces and sells a single product with the following characteristics:
The company is currently selling 5,000 units per month. Fixed expenses are $302,000
per month.
This question is to be considered independently of all other questions relating to Laro
Corporation. Refer to the original data when answering this question.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $9 per unit. In
exchange, the sales staff would accept a decrease in their salaries of $40,000 per month.
(This is the company’s savings for the entire sales staff.) The marketing manager
predicts that introducing this sales incentive would increase monthly sales by 100 units.
What should be the overall effect on the company’s monthly net operating income of
this change?
A. increase of $376,600
B. increase of $1,600
C. decrease of $78,400
D. increase of $39,100
Answer:
Morvan Corporation uses the FIFO 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.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $27.70
B. $26.82
C. $28.13
D. $28.40
Answer:
Which of the following is not an operating asset?
A. Cash
B. Inventory
C. Plant equipment
D. Common stock
Answer:
At a sales level of $90,000, Blue Company’s contribution margin is $24,000. If the
degree of operating leverage is 6 at a $90,000 sales level, net operating income must
equal:
A. $15,000
B. $11,000
C. $4,000
D. $20,000
Answer:
In computing its predetermined overhead rate, Marple Company inadvertently left its
indirect labor costs out of the computation. This oversight will cause:
A. Manufacturing Overhead to be overapplied.
B. the Cost of Goods Manufactured to be understated.
C. the debits to the Manufacturing Overhead account to be understated.
D. the ending balance in Work in Process to be overstated.
Answer:
Ire 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.
What are the equivalent units for conversion costs for the month in the first processing
department?
A. 8,800
B. 1,045
C. 10,700
D. 9,845
Answer:
Reference: 8-4
Karmazyn Hospital bases its budgets on patient-visits. The hospitals static budget for
October appears below:
The total variable cost at the activity level of 9,000 patient-visits per month should be:
A) $157,530
B) $209,700
C) $207,370
D) $159,300
Answer:
The following data were taken from the accounting records of Abacus Company which
uses the FIFO method in its process costing system:
The equivalent units are:
A. Material, 90,000 units; labor and overhead, 89,000 units
B. Material, 100,000 units; labor and overhead, 91,000 units
C. Material, 60,000 units; labor and overhead, 53,000 units
D. Material, 80,000 units; labor and overhead, 79,000 units
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:
In October, one of the processing departments at Schones Corporation had beginning
work in process inventory of $26,000 and ending work in process inventory of $17,000.
During the month, $279,000 of costs were added to production and the cost of units
transferred out from the department was $288,000. The company uses the FIFO method
in its process costing system. In the department’s cost reconciliation report for October,
the total cost to be accounted for would be:
A. $584,000
B. $43,000
C. $610,000
D. $305,000
Answer: