1) in the manufacturing overhead budget, the non-cash charges (such as depreciation)
are added to the total budgeted manufacturing overhead to determine the expected cash
disbursements for manufacturing overhead.
2) the three cost categories appearing on a job cost sheet are: selling expense,
manufacturing expense, and administrative expense.
3) the first-stage allocation in activity-based costing is the process by which overhead
costs are assigned to products before they are assigned to customers.
4) in activity-based costing, a plantwide overhead rate is used to apply overhead to
products.
5) in the selling and administrative budget, the non-cash charges (such as depreciation)
are deducted from the total budgeted selling and administrative expenses to determine
the expected cash disbursements for selling and administrative expenses.
6) on a cost-volume-profit graph, the revenue line will be shown above the total
expense line for any activity level above the break-even point.
7) the fixed portion of the predetermined overhead rate is used for product costing
purposes and has no significance in terms of cost control.
8) in both the direct and step-down methods of allocating service department costs, any
amount of the allocation base that is attributable to the service department whose cost is
being allocated is ignored.
9) all variable costs are included in the cost base used to set a selling price under the
absorption approach to cost-plus pricing described in the text.
10) budgets are used for planning rather than for control of operations.
11) the acid-test ratio is a test of the quality of accounts receivable–in other words,
whether they are likely to be collected.
12) advertising is a product cost as long as it promotes specific products.
13) the cost of napkins put on each person’s tray at a fast food restaurant is a fixed cost.
14) a company with sales of $100,000, variable expenses of $70,000, and fixed
expenses of $50,000 will reach its break-even point if sales are increased by $20,000.
15) a differential cost is a variable cost.
16) during the year the balance in the accrued liabilities account increased by $12,000.
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.deduct the $12,000 from the operating expenses on the income statement
b.add the $12,000 to the operating expenses on the income statement
c.deduct the $12,000 from the cost of goods sold reported on the income statement
d.add the $12,000 to the cost of goods sold reported on the income statement
17) the markup on absorption cost is closest to:
a.37.2%
b.8.0%
c.102.4%
d.38.4%
18) hayase corporation processes sugar beets that it purchases from farmers. sugar beets
are processed in batches. a batch of sugar beets costs $35 to buy from farmers and $14
to crush in the company’s plant. two intermediate products, beet fiber and beet juice,
emerge from the crushing process. the beet fiber can be sold as is for $27 or processed
further for $11 to make the end product industrial fiber that is sold for $40. the beet
juice can be sold as is for $36 or processed further for $21 to make the end product
refined sugar that is sold for $46.
how much profit (loss) does the company make by processing one batch of sugar beets
into the end products industrial fiber and refined sugar?
a.($81)
b.$14
c.$5
d.($9)
19) the following direct labor standards have been established for product w88v:
the following data pertain to last month’s operations:
required:
a. what was the labor rate variance for the month?
b. what was the labor efficiency variance for the month?
20) if every 10% increase in price leads to an 11% decrease in quantity sold, the
profit-maximizing price is closest to:
a.$234.46
b.$214.69
c.$256.45
d.$78.50
21) reenu company manufactures wigs out of used dental floss. the variable cost
standards for wig production developed by reenu are as follows:
variable overhead at reenu is based on direct labor-hours. the actual results for the
month of october were as follows:
what is reenu’s labor efficiency variance for october?
a.$2,700 favorable
b.$7,200 unfavorable
c.$9,900 unfavorable
d.$27,600 favorable
22) fagin company’s quality cost report is to be based on the following data:
what would be the total prevention cost appearing on the quality cost report?
a.$119,000
b.$84,000
c.$96,000
d.$120,000
23) kimbeth manufacturing makes dust density sensors (dds), a safety device for the
mining industry. the company uses a process costing system and has only a single
processing department. the following information pertains to operations for the month
of may:
the beginning work in process inventory was 60% complete with respect to materials
and 20% complete with respect to conversion costs. the ending work in process
inventory was 90% complete with respect to materials and 40% complete with respect
to conversion costs. the costs were as follows:
using the weighted-average method, the cost per equivalent unit of materials for may is
closest to:
a.$4.12
b.$4.50
c.$4.60
d.$5.03
24) higgenbotham clinic uses client-visits as its measure of activity. during may, the
clinic budgeted for 3,600 client-visits, but its actual level of activity was 3,580
client-visits. the clinic has provided the following data concerning the formulas to be
used in its budgeting for may:
the medical supplies in the flexible budget for may would be closest to:
a.$20,164
b.$19,340
c.$19,941
d.$19,242
25) kleffman corporation is presently making part x31 that is used in one of its
products. a total of 2,000 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 $23.40
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 $1,000 of these allocated general overhead costs would be avoided.
if management decides to buy part x31 from the outside supplier rather than to continue
making the part, what would be the annual impact on the company’s overall net
operating income?
a.net operating income would decline by $5,600 per year
b.net operating income would decline by $1,800 per year
c.net operating income would decline by $4,600 per year
d.net operating income would decline by $6,600 per year
26) castanada corporation has provided the following data concerning its direct labor
costs for august:
the labor rate variance for august would be recorded as a:
a.debit of $18,912
b.credit of $18,912
c.credit of $17,136
d.debit of $17,136
27) bessey hospital bases its budgets on patient-visits. the hospital’s static planning
budget for january appears below:
the spending variance for laundry costs in the flexible budget performance report for the
month is:
a.$730 f
b.$2,470 f
c.$730 u
d.$2,470 u
28) wigley inc. has provided the following data concerning its maintenance costs:
management believes that maintenance cost is a mixed cost that depends on
machine-hours.
required:
estimate the variable cost per machine-hour and the fixed cost per month using the
high-low method. show your work!
29) the direct method is used by rastorfer clinic to allocate its service department costs
to its operating departments. data concerning those departments follow:
information technology costs are allocated on the basis of computers and personnel
costs are allocated on the basis of employees.
required:
allocate the service department costs to the operating departments using the direct
method.
30) data concerning hogarth corporation’s single product appear below:
fixed expenses are $96,000 per month. the company is currently selling 1,000 units per
month.
required:
the marketing manager believes that a $12,000 increase in the monthly advertising
budget would result in a 110 unit increase in monthly sales. what should be the overall
effect on the company’s monthly net operating income of this change? show your work!
31) (ignore income taxes in this problem.) romas corporation uses a discount rate of
18% in its capital budgeting. management is considering an investment in
telecommunications equipment with a useful life of 8 years. excluding the salvage value
of the equipment, the net present value of the investment in the equipment is -$260,340.
required:
how large would the salvage value of the telecommunications equipment have to be to
make the investment in the telecommunications equipment financially attractive?
32) fasano clinic bases its budgets on the activity measure patient-visits. during april,
the clinic planned for 3,800 patient-visits. the clinic has provided the following data
concerning the formulas it uses in its budgeting:
the clinic has also furnished its income statement for april:
required:
prepare a report showing the clinic’s activity variances for april.
33) salomone inc. has provided the following data concerning a proposed investment
project:
the company’s tax rate is 30%. for tax purposes, the entire initial investment without
any reduction for salvage value will be depreciated over 3 years. the company uses a
discount rate of 13%.
required:
compute the net present value of the project.
34) costillo corporation has two service departments, service department a and service
department b, and two operating departments, operating department x and operating
department y.
the company uses the step-down method to allocate service department costs to
operating departments. service department a costs are allocated first on the basis of
allocation base a and service department b costs are allocated second on the basis of
allocation base b.
required:
allocate the service department costs to the operating departments using the step-down
method.
35) data from panganiban corporation’s most recent balance sheet appear below:
required:
compute the company’s acid-test ratio. show your work!
36) goffinet consultancy uses the direct method to allocate its service department costs
to its operating departments. the company has two service departments, information
technology and administration, and two operating departments, corporate practice and
government practice. data concerning those departments follow:
information technology department costs are allocated on the basis of computers and
administration department costs are allocated on the basis of employees.
required:
allocate the service department costs to the operating departments using the direct
method.