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The overall revenue and spending variance (i.e., the variance for net operating income
in the revenue and spending variance column) for May would be closest to:
A) $230 F
B) $1,200 U
C) $1,200 F
D) $230 U
Answer:
Assuming stable business conditions, an increase in the accounts receivable turnover
ratio could be explained by:
A. stricter policies with respect to the granting of credit to customers.
B. an easing of policies with respect to the granting of credit to customers.
C. a slowdown in collecting accounts receivables from customers.
D. none of these.
Answer:
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:
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.
The contribution margin of the South business segment is:
A. $343,000
B. $63,000
C. $119,000
D. $192,000
Answer:
Reference: 8-16
Pong 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 December, the kennel budgeted for
2,000 tenant-days, but its actual level of activity was 1,980 tenant-days. The kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for December:
Data used in budgeting:
Actual results for December:
The net operating income in the flexible budget for December would be closest to:
A) $8,001
B) $6,300
C) $8,164
D) $6,042
Answer:
Evergreen Corp. has provided the following data:
The margin of safety percentage is:
A. 45.0%
B. 71.4%
C. 55.0%
D. 25.0%
Answer:
Bordes Corporation has provided the following data concerning its most important raw
material, compound R85F:
The raw material was purchased on account.
The Materials Price Variance for May would be recorded as a:
A. Credit of $2,056
B. Debit of $2,640
C. Debit of $2,056
D. Credit of $2,640
Answer:
Krast Company has total assets of $160,000 and total liabilities of $70,000. The
company's debt-to-equity ratio is closest to:
A. 0.56
B. 0.44
C. 0.30
D. 0.78
Answer:
Soehl Natural Dying Corporation measures its activity in terms of skeins of yarn dyed.
Last month, the budgeted level of activity was 14,100 skeins and the actual level of
activity was 13,700 skeins. The companys owner budgets for dye costs, a variable cost,
at $0.40 per skein. The actual dye cost last month was $4,510. What would have been
the spending variance for dye costs last month?
A) $970 F
B) $132 F
C) $160 F
D) $1,130 F
Answer:
Brace Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 21,600 hours. At the end of
the year, actual direct labor-hours for the year were 20,400 hours, the actual
manufacturing overhead for the year was $506,920, and manufacturing overhead for the
year was underapplied by $23,440. The estimated manufacturing overhead at the
beginning of the year used in the predetermined overhead rate must have been:
A. $501,920
B. $531,445
C. $483,480
D. $511,920
Answer:
The Odle Company makes and sells a single product called a Kitt. Odle uses a standard
costing system. Each Kitt has a standard cost of 5 pounds of material at $12 per pound
and 0.9 direct labor-hours at $15 per hour. There were no inventories of any kind on
June 1. During June, the following events occurred:
- Purchased 17,000 pounds of material at a total cost of $190,000.
- Used 15,000 pounds of material to produce 2,400 Kitts.
- Used 1,900 hours of direct labor time at a total cost of $38,000.
To record the incurrence of direct labor cost and its use in production, the general ledger
would include what kind of entry to the Labor Rate Variance account?
A. $9,500 credit
B. $9,500 debit
C. $15,200 debit
D. $2,000 debit
Answer:
Chae Corporation uses the weighted-average method in its process costing system. This
month, the beginning inventory in the first processing department consisted of 500
units. The costs and percentage completion of these units in beginning inventory were:
A total of 8,100 units were started and 7,500 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 80% complete with respect to materials and 75% complete
with respect to conversion costs.
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 total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $486,614
B. $472,000
C. $459,200
D. $424,373
Answer:
Last month Hamner Corporation actual indirect materials cost, a variable cost, was
$45,240 and the spending variance for indirect materials cost was $3,480 unfavorable.
During that month, the company worked 17,400 machine-hours. Budgeted activity for
the month had been 17,000 machine-hours. The cost formula per machine-hour for
indirect materials cost must have been closest to:
A) $2.46
B) $2.87
C) $2.40
D) $2.80
Answer:
The following is Allison Corporation's contribution format income statement for last
month:
The company has no beginning or ending inventories. The company produced and sold
10,000 units last month.
What is the company's margin of safety percentage?
A. 25%
B. 20%
C. 40%
D. 10%
Answer:
The following standards for variable manufacturing overhead have been established for
a company that makes only one product:
The following data pertain to operations for the last month:
What is the variable overhead rate variance for the month?
A) $1,200 F
B) $9,625 F
C) $8,425 F
D) $990 U
Answer:
In February, one of the processing departments at Grosz Corporation had beginning
work in process inventory of $18,000 and ending work in process inventory of $11,000.
During the month, the cost of units transferred out from the department was $204,000.
The company uses the FIFO method in its process costing system.
In the department's cost reconciliation report for February, the costs added to production
in the department would be:
A. $211,000
B. $197,000
C. $186,000
D. $193,000
Answer:
Bennett Company uses the FIFO method in its process costing system. During April the
equivalent units of production with respect to conversion costs totaled 24,600 units.
Work in process inventory on April 1 consisted of 8,000 units, 40% complete with
respect to conversion costs. A total of 25,000 units were started into production during
the month and 20,000 units were transferred to finished goods. Based on this
information, Bennett Company's work in process inventory on April 30 consisted of:
A. 13,000 units, 40% complete with respect to conversion costs
B. 5,000 units, 40% complete with respect to conversion costs
C. 13,000 units, 60% complete with respect to conversion costs
D. 4,600 units, 40% complete with respect to conversion costs
Answer:
Hansen Company produces a single product. During the last year, Hansen had net
operating income under absorption costing that was $5,500 lower than its income under
variable costing. The company sold 9,000 units during the year, and its variable costs
were $10 per unit, of which $6 was variable selling expense. If fixed production cost is
$5 per unit under absorption costing every year, then how many units did the company
produce during the year?
A. 7,625 units
B. 8,450 units
C. 10,100 units
D. 7,900 units
Answer:
Jackson Company's operating results for last year are given below:
If the company's fixed expenses decrease by 20% next year, the break-even point will
change from its previous level by:
A. 150 unit increase
B. 360 unit decrease
C. 150 unit decrease
D. no change in the break-even point
Answer:
Kierst Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
What is the net operating income for the month under absorption costing?
A. $7,500
B. $16,200
C. $6,200
D. $10,600
Answer:
Reference: 8-15
Maliszewski 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 March, the kennel budgeted for
3,400 tenant-days, but its actual level of activity was 3,410 tenant-days. The kennel has
provided the following data concerning the formulas to be used in its budgeting:
The expendables in the flexible budget for March would be closest to:
A) $32,800
B) $31,598
C) $32,895
D) $31,413
Answer:
The following direct labor standards have been established for product E45O:
The following data pertain to last months operations:
Required:
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
Answer:
Financial statements for Larned Company appear below:
Dividends during Year 2 totaled $263 thousand, of which $12 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $160.
Larned Company's dividend payout ratio for Year 2 was closest to:
A. 75.8%
B. 28.5%
C. 76.7%
D. 47.4%
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 efficiency variance was:
A. $6,000 U
B. $6,000 F
C. $12,000 U
D. $12,000 F
Answer:
The following costs were incurred in September:
Conversion costs during the month totaled:
A. $50,000
B. $59,000
C. $137,000
D. $67,000
Answer:
The following data pertain to the Whalen Division of Northern Industries.
The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
The return on investment in Year 1 was:
A. 48.00%
B. 32.50%
C. 7.58%
D. 1.92%
Answer:
Oscarson Midwiferys cost formula for its wages and salaries is $2,720 per month plus
$351 per birth. For the month of September, the company planned for activity of 121
births, but the actual level of activity was 119 births. The actual wages and salaries for
the month was $43,380. The wages and salaries in the planning budget for September
would be closest to:
A) $45,191
B) $43,380
C) $44,489
D) $44,109
Answer:
Reference: 8A-5
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 fixed manufacturing overhead volume variance as:
A) $7,500 F
B) $1,500 F
C) $3,750 U
D) $7,500 U
Answer:
Megna Company's net income last year was $143,000. Changes in the company's
balance sheet accounts for the year appear below:
The company paid a cash dividend and it did not dispose of any long-term investments
or property, plant, and equipment. The company did not issue any bonds payable or
repurchase any of its own common stock. The following question pertain to the
company's statement of cash flows.
The net cash provided by (used in) financing activities last year was:
A. $20,000
B. $(20,000)
C. $69,000
D. $(69,000)
Answer:
Jolly Company uses the FIFO method in its process costing system. Beginning
inventory in the mixing processing center consisted of 4,000 units, 75% complete with
respect to conversion costs. Ending work in process inventory consisted of 3,000 units,
60% complete with respect to conversion costs. If 12,000 units were transferred to the
next processing center during the period, the equivalent units for conversion costs
would be:
A. 13,200 units
B. 10,800 units
C. 12,000 units
D. 13,000 units
Answer:
On April 1, Stelter Corporation had $34,000 of raw materials on hand. During the
month, the company purchased an additional $60,000 of raw materials. During April,
$70,000 of raw materials were requisitioned from the storeroom for use in production.
These raw materials included both direct and indirect materials. The indirect materials
totaled $7,000. Prepare journal entries to record these events. Use those journal entries
to answer the following questions:
The debits to the Work in Process account as a consequence of the raw materials
transactions in April total:
A. $60,000
B. $0
C. $70,000
D. $63,000
Answer:
Nyman Company successfully switched to a lean production system at the beginning of
March. Therefore, as shown by the summary below, there were no work in process
inventories on hand at the end of the month.
If Nyman Company uses the weighted-average cost method, the March equivalent units
for materials would be:
A. 190,000 units
B. 174,000 units
C. 150,000 units
D. 166,000 units
Answer:
Jumonville Company produces a single product. The cost of producing and selling a
single unit of this product at the company's normal activity level of 70,000 units per
month is as follows:
The normal selling price of the product is $56.70 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered
this month at a special discounted price. This order would have no effect on the
company's normal sales and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be $0.70 less per unit on
this order than on normal sales.
Direct labor is a variable cost in this company.
a. Suppose there is ample idle capacity to produce the units required by the overseas
customer and the special discounted price on the special order is $51.20 per unit. By
how much would this special order increase (decrease) the company's net operating
income for the month?
b. Suppose the company is already operating at capacity when the special order is
received from the overseas customer. What would be the opportunity cost of each unit
delivered to the overseas customer?
c. Suppose there is not enough idle capacity to produce all of the units for the overseas
customer and accepting the special order would require cutting back on production of
700 units for regular customers. What would be the minimum acceptable price per unit
for the special order?
Answer:
Jeoffroy Inc. uses the weighted-average method in its process costing. The following
data concern the company's Assembly Department for the month of November.
Compute the costs per equivalent unit for the Assembly Department for November.
Answer:
Sabb Corporation's net income last year was $6,190,000. The dividend on common
stock was $13.90 per share and the dividend on preferred stock was $1.60 per share.
The market price of common stock at the end of the year was $41.50 per share.
Throughout the year, 300,000 shares of common stock and 100,000 shares of preferred
stock were outstanding.
Compute the dividend payout ratio. Show your work!
Answer:
The standards for product J42 call for 3.6 feet of a raw material that costs $14.00 per
feet. Last month, 5,500 feet of the raw material were purchased for $76,175. The actual
output of the month was 1,260 units of product J42. A total of 4,800 feet of the raw
material were used to produce this output.
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
c. Prepare journal entries to record the purchase and use of the raw material during the
month. (All raw materials are purchased on account.)
Answer:
A number of costs are listed below.
For each item above, indicate whether the cost is direct or indirect with respect to the
cost object listed next to it.
Answer:
Part E43 is used in one of Ran Corporation's products. The company's Accounting
Department reports the following costs of producing the 12,000 units of the part that are
needed every year.
An outside supplier has offered to make the part and sell it to the company for $14.70
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 $5,000 of these allocated general overhead costs would be avoided.
a. Prepare a report that shows the effect on the company's total net operating income of
buying part E43 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Answer:
During August, Diga Corporation plans to serve 35,000 customers. The company uses
the following revenue and cost formulas in its budgeting, where q is the number of
customers served:
Revenue: $4.20q
Wages and salaries: $33,700 + $1.50q
Supplies: $0.70q
Insurance: $11,000
Miscellaneous: $4,800 + $0.40q
Required:
Prepare the companys planning budget for August.
Answer:
Iron Decor manufactures decorative iron railings. In preparing for next year's
operations, management has developed the following estimates:
Compute the following items:
a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in dollar sales.
d. Margin of safety percentage.
e. If the sales volume increases by 20% with no change in total fixed expenses, what
will be the change in net operating income?
f. If the per unit variable production costs increase by 15%, and if fixed selling and
administrative expenses increase by 12%, what will be the new break-even point in
dollar sales?
Answer:
Kindschuh Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.07 direct labor-hours. The direct labor rate is $8.50 per
direct labor-hour. The production budget calls for producing 4,800 units in June and
5,300 units in July.
Construct the direct labor budget for the next two months, assuming that the direct labor
work force is fully adjusted to the total direct labor-hours needed each month.
Answer:
The Lahn Company produces and sells a single product. Standards have been
established for the product as follows:
Direct materials: 5 pounds @ $3.50 per pound = $17.50
Direct labor: 3 hours @ $5.50 per hour = $16.50
Actual cost and usage figures for the past month follow:
Prepare journal entries to record:
a. The purchase of raw materials.
b. The usage of raw materials in production.
c. The incurrence of direct labor cost.
Answer:
Masse Corporation uses part G18 in one of its products. The company's Accounting
Department reports the following costs of producing the 16,000 units of the part that are
needed every year.
An outside supplier has offered to make the part and sell it to the company for $28.00
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 $22,000 of these allocated general overhead costs would be
avoided. In addition, the space used to produce part G18 could be used to make more of
one of the company's other products, generating an additional segment margin of
$22,000 per year for that product.
a. Prepare a report that shows the effect on the company's total net operating income of
buying part G18 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Answer:
Jaster Corporation's management keeps track of the time it takes to process orders.
During the most recent month, the following average times were recorded per order:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
Answer:
Dobrinski Corporation bases its predetermined overhead rate on the estimated
labor-hours for the upcoming year. At the beginning of the most recently completed
year, the company estimated the labor-hours for the upcoming year at 13,000
labor-hours. The estimated variable manufacturing overhead was $2.35 per labor-hour
and the estimated total fixed manufacturing overhead was $156,130.
Compute the company's predetermined overhead rate.
Answer:
Charlotte Company's net income last year was $91,000. Changes in the company's
balance sheet accounts for the year appear below:
The company did not dispose of any property, plant, and equipment, sell any long-term
investments, issue any bonds payable, or repurchase any of its own common stock
during the year. The company declared and paid a cash dividend.
a. Construct in good form the operating activities section of the company's statement of
cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement of
cash flows for the year.
c. Construct in good form the financing activities section of the company's statement of
cash flows for the year.
Answer:
Bedrosian Incorporated has a line of credit from the Belmont National Bank that is due
to be renewed on February 1. The bank has requested the company's current Income
Statement and Comparative Statements of Financial Position which appear below.
The bank has also requested that Bedrosian calculate a number of financial ratios.
Bedrosian's financial ratios have not yet been calculated for this year, but the company's
accounting staff has gathered the following industry averages for the ratios from various
sources.
a. Calculate the following financial ratios for this year for Bedrosian Incorporated.
1/ Return on total assets.
2/ Return on common stockholders' equity.
3/ Current ratio.
4/ Acid-test ratio.
5/ Debt-to-equity ratio.
6/ Times interest earned.
7/ Dividend payout ratio.
b. By comparing the ratios calculated in Requirement A with the industry ratios,
evaluate Bedrosian's operations.
Answer:
