1) The project profitability index is used to compare the net present values of two
investments that require different amounts of investment funds.
2) Commissions paid to salespersons are a variable selling expense.
3) Any difference in the equivalent units calculated under the weighted-average and the
FIFO methods is due to the units in the beginning work in process inventory.
4) When considering a number of investment projects, the project that has the shortest
payback period does not necessarily have the highest net present value.
5) In the statement of cash flows, collecting cash from customers is treated as a cash
inflow in the financing activities section.
6) Joint costs are relevant in the decision to sell a product at the split-off point or to
process the product further.
7) Quality of conformance is the degree to which an actual product meets its design
specifications and is free of defects or other problems that might affect appearance or
performance.
8) Self-imposed budgets prepared by lower-level managers should be scrutinized by
higher levels of management.
9) The term joint cost is used to describe the costs incurred after the split-off point in a
process involving joint products.
10) The formula for the return on equity is: Return on equity = Net income Average
total stockholders’ equity.
11) A continuous or perpetual budget is a budget that almost never needs to be revised.
12) Odonell Corporation estimates that its variable manufacturing overhead is $11.20
per machine-hour and its fixed manufacturing overhead is $563,640 per period.
If the denominator level of activity is 6,000 machine-hours, the fixed component in the
predetermined overhead rate would be:
A.$1,120.00 per machine-hour
B.$11.20 per machine-hour
C.$93.94 per machine-hour
D.$105.14 per machine-hour
13) Eddy Corporation has provided the following production and total cost data for two
levels of monthly production volume. The company produces a single product.
The best estimate of the total variable manufacturing cost per unit is:
A) $22.90
B) $119.80
C) $142.70
D) $97.10
14) Milliner Corporation has provided the following information concerning a capital
budgeting project:
The company uses straight-line depreciation on all equipment; the annual depreciation
expense will be $60,000. Assume cash flows occur at the end of the year except for the
initial investments. The company takes income taxes into account in its capital
budgeting.
The net present value of the project is closest to:
A.$112,824
B.$352,824
C.$193,380
D.$175,500
15) The manufacturing overhead that would be applied to a unit of product R09O under
the activity-based costing system is closest to:
Binegar 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, R58G and R09O, about
which it has provided the following data:
The company’s estimated total manufacturing overhead for the year is $1,617,600 and
the company’s estimated total direct labor-hours for the year is 24,000.
The company is considering using a form of activity-based costing to determine its unit
product costs for external reports. Data for this proposed activity-based costing system
appear below:
A.$113.46
B.$255.00
C.$141.54
D.$17.28
16) Which product makes the LEAST profitable use of the grinding machines?
A.Product A
B.Product B
C.Product C
D.Product D
17) Gilson Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During April,
the company budgeted for 5,100 units, but its actual level of activity was 5,060 units.
The company has provided the following data concerning the formulas used in its
budgeting and its actual results for April:
Data used in budgeting:
Actual results for April:
The spending variance for manufacturing overhead in April would be closest to:
A.$330 U
B.$330 F
C.$254 F
D.$254 U
18) Information about units processed and processing costs incurred during a recent
month in the Refining Department of a manufacturing company follow:
The beginning work in process inventory included $11,000 of conversion cost. During
the month, the Department incurred an additional $290,000 in conversion costs.
Assuming that the company uses the weighted-average cost method, what are the
equivalent units for conversion costs for the Blending Department for the month?
A.119,100
B.120,000
C.114,000
D.131,000
19) Franchi Inc. has provided the following data for the month of April. There were no
beginning inventories; consequently, the direct materials, direct labor, and
manufacturing overhead applied listed below are all for the current month.
Manufacturing overhead for the month was overapplied by $5,000.
The Corporation allocates any underapplied or overapplied manufacturing overhead
among work in process, finished goods, and cost of goods sold at the end of the month
on the basis of the manufacturing overhead applied during the month in those accounts.
The cost of goods sold for April after allocation of any underapplied or overapplied
manufacturing overhead for the month is closest to:
A.$214,380
B.$213,430
C.$205,330
D.$204,380
20) For Year 2, Etzkorn Corporation’s sales were $1,480,000, its gross margin was
$580,000, its net operating income was $63,714, its net income before taxes was
$42,714, and its net income was $29,900. The company’s total stockholders’ equity at
the end of Year 2 amounted to $829,000 and at the end of Year 1 to $800,000. The
company’s return on equity for Year 2 is closest to:
A.3.67%
B.60.16%
C.5.24%
D.7.82%
21) Bracken Corporation is a small wholesaler of gourmet food products. Data
regarding the store’s operations follow:
Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000
for January.
Collections are expected to be 80% in the month of sale, 17% in the month following
the sale, and 3% uncollectible.
The cost of goods sold is 75% of sales.
The company would like to maintain ending merchandise inventories equal to 70% of
the next month’s cost of goods sold. Payment for merchandise is made in the month
following the purchase.
Other monthly expenses to be paid in cash are $21,800.
Monthly depreciation is $19,000.
Ignore taxes.
The cost of December merchandise purchases would be:
A.$225,000
B.$178,500
C.$247,500
D.$255,000
22) Which of the following would be classified as an external failure cost on a quality
cost report?
A.Depreciation of test equipment.
B.Re-entering data because of keying errors.
C.Rework labor and overhead.
D.Liability arising from defective products.
23) Part A42 is used by Elgin Corporation to make one of its products. A total of 16,000
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 make the part and sell it to the company for $30.40
each. If this offer is accepted, the supervisor’s salary and all of the variable costs,
including the 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, none of which would be
avoided if the part were purchased instead of produced internally. In addition, the space
used to make part A42 could be used to make more of one of the company’s other
products, generating an additional segment margin of $23,000 per year for that product.
What would be the impact on the company’s overall net operating income of buying
part A42 from the outside supplier?
A.Net operating income would decrease by $23,400 per year.
B.Net operating income would decrease by $143,400 per year.
C.Net operating income would increase by $23,000 per year.
D.Net operating income would decrease by $189,400 per year.
24) Midgley Corporation makes a product whose direct labor standards are 0.8 hours
per unit and $22.00 per hour. In April the company produced 6,900 units using 5,250
direct labor-hours. The actual direct labor cost was $113,925.
The labor rate variance for April is:
A.$1,575 U
B.$1,656 F
C.$1,575 F
D.$1,656 U
25) If the company bases its predetermined overhead rate on capacity, the amount of
manufacturing overhead charged to job I86N is closest to:
The management of Cordona Corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity. The company’s controller
has provided an example to illustrate how this new system would work. In this
example, the allocation base is machine-hours and the estimated amount of the
allocation base for the upcoming year is 27,000 machine-hours. In addition, capacity is
33,000 machine-hours and the actual level of activity for the year is 27,900
machine-hours. All of the manufacturing overhead is fixed and is $231,660 per year.
For simplicity, it is assumed that this is the estimated manufacturing overhead for the
year as well as the manufacturing overhead at capacity. It is further assumed that this is
also the actual amount of manufacturing overhead for the year. A number of jobs were
worked on during the year, one of which was Job I86N. This job required 370
machine-hours.
A.$3,072.19
B.$3,296.70
C.$2,597.40
D.$3,234.50
26) Assume that sufficient constraint time is available to satisfy demand for all but the
least profitable product. Up to how much should the company be willing to pay to
acquire more of the constrained resource?
A.$10.80 per minute
B.$69.44 per unit
C.$16.40 per minute
D.$14.04 per unit
27) Garson Corporation uses the FIFO method in its process costing system. The
Grinding Department started the month with 18,000 units in its beginning work in
process inventory that were 10% complete with respect to conversion costs. An
additional 98,000 units were transferred in from the prior department during the month
to begin processing in the Grinding Department. During the month 115,000 units were
completed in the Grinding Department and transferred to the next processing
department. There were 1,000 units in the ending work in process inventory of the
Grinding Department that were 20% complete with respect to conversion costs.
What were the equivalent units for conversion costs in the Grinding Department for the
month?
A.81,000
B.115,200
C.115,000
D.113,400
28) Which of the following is NOT an objective of the budgeting process?
A.To communicate management’s plans throughout the entire organization.
B.To provide a means of allocating resources to those parts of the organization where
they can be used most effectively.
C.To ensure that the company continues to grow.
D.To uncover potential bottlenecks before they occur.