1) In a traditional format income statement for a merchandising company, the selling
and administrative expenses report all period costs that have been expensed as incurred.
2) An increase in the number of shares of common stock outstanding will increase a
company’s price-earnings ratio if the market price per share remains unchanged.
3) The selling division in a transfer pricing situation should want the transfer price to
cover at least the variable cost per unit plus the lost contribution margin per unit on
outside sales.
4) When a company has a production constraint, total contribution margin will be
maximized by emphasizing the products with the lowest contribution margin per unit of
the constrained resource.
5) The information in a quality cost report can be used to help managers determine if
their quality costs are poorly distributed.
6) At the break-even point, the total contribution margin and fixed expenses are equal.
7) A company could improve its acid-test ratio by selling some equipment it no longer
needs for cash.
8) The gross margin percentage is computed by dividing the gross margin by net
income before interest and taxes.
9) Using the high-low method, the estimate of the variable component of inspection
cost per unit produced is closest to:
A) $10.57
B) $0.11
C) $17.89
D) $9.33
10) When preparing a production budget, the required production equals:
A.budgeted sales + beginning inventory + desired ending inventory.
B.budgeted sales – beginning inventory + desired ending inventory.
C.budgeted sales – beginning inventory – desired ending inventory.
D.budgeted sales + beginning inventory – desired ending inventory.
11) Marusarz Corporation has provided the following data concerning its most
important raw material, compound F55M:
When recording the purchase of materials, Raw Materials would be:
A.credited for $74,120.
B.debited for $73,270.
C.debited for $74,120.
D.credited for $73,270.
12) Griffy Corporation manufactures and sells one product. The following information
pertains to the company’s first year of operations:
The company does not have any variable manufacturing overhead costs or variable
selling and administrative costs. During its first year of operations, the company
produced 30,000 units and sold 23,000 units. The company’s only product is sold for
$239 per unit.
Required:
a. Assume the company uses super-variable costing. Compute the unit product cost for
the year and prepare an income statement for the year.
b. Assume that the company uses an absorption costing system that assigns $14 of
direct labor cost and $70 of fixed manufacturing overhead to each unit that is produced.
Compute the unit product cost for the year and prepare an income statement for the
year.
c. Prepare a reconciliation that explains the difference between the super-variable
costing and absorption costing net incomes.
13) The company’s times interest earned for Year 2 is closest to:
A.1.43
B.3.47
C.2.43
D.1.00
14) Juett 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 $72.90 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 $1.10 less per unit on
this order than on normal sales.
Direct labor is a variable cost in this company.
Required:
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 $66.10 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
1,300 units for regular customers. What would be the minimum acceptable price per
unit for the special order?
15) How much profit (loss) does the company make by processing the intermediate
product beet juice into refined sugar rather than selling it as is?
A) $(34)
B) $(11)
C) $(26)
D) $(57)
16) The product’s profit-maximizing price according to the formula in the text is closest
to:
A.$15.31
B.$16.67
C.$20.79
D.$13.86
17) The Gerald Corporation makes and sells a single product called a Clop. Each Clop
requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor workforce
is fully adjusted each month to the required workload. The company is preparing a
Direct Labor Budget for the first quarter of the year.
If the company has budgeted to produce 20,000 Clops in January, then the budgeted
direct labor cost for January is:
A.$164,000
B.$180,400
C.$172,200
D.$195,600
18) Illescas Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During
December, the company budgeted for 6,400 units, but its actual level of activity was
6,440 units. The company has provided the following data concerning the formulas to
be used in its budgeting:
The direct labor in the planning budget for December would be closest to:
A.$40,412
B.$40,572
C.$40,161
D.$40,320
19) What is the maximum contribution margin the company can earn per month?
A.$52,806
B.$36,788
C.$32,742
D.$40,266
20) Vota Clinic uses the direct method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Support, and two
operating departments, Prenatal and Pediatrics.
Personnel Department costs are allocated on the basis of employee hours and Support
Department costs are allocated on the basis of space occupied in square feet. The total
Pediatrics Department cost after the allocations of service department costs is closest to:
A.$432,159
B.$428,724
C.$431,400
D.$422,160
21) Marano Corporation produces and sells a single product. In October, the company
sold 6,200 units. Its total sales were $223,200, its total variable expenses were
$105,400, and its total fixed expenses were $100,400.
Required:
a. Construct the company’s contribution format income statement for October.
b. Redo the company’s contribution format income statement assuming that the
company sells 6,400 units.
22) Farron 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 variable costing?
A.$10,600
B.$(17,000)
C.$16,600
D.$6,000
23) Koutz Corporation uses activity-based costing to compute product margins.
Overhead costs have already been allocated to the company’s three activity cost
pools-Processing, Supervising, and Other. The costs in those activity cost pools appear
below:
Processing costs are assigned to products using machine-hours (MHs) and Supervising
costs are assigned to products using the number of batches. The costs in the Other
activity cost pool are not assigned to products. Activity data appear below:
Finally, sales and direct cost data are combined with Processing and Supervising costs
to determine product margins.
The activity rate for the Processing activity cost pool under activity-based costing is
closest to:
A.$9.40 per MH
B.$0.63 per MH
C.$3.56 per MH
D.$3.61 per MH
24) Cridberg Corporation’s selling and administrative expenses for last year totaled
$260,000. During the year the company’s prepaid expense account balance increased by
$18,000 and accrued liabilities decreased by $12,000. Depreciation for the year was
$25,000. Based on this information, selling and administrative expenses adjusted to a
cash basis under the direct method on the statement of cash flows would be:
A.$255,000
B.$315,000
C.$205,000
D.$265,000
25) The management of Del Corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity rather than on the
estimated amount of activity for the year. 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 37,000 machine-hours. In addition, capacity is 44,000 machine-hours and the
actual activity for the year is 40,100 machine-hours. All of the manufacturing overhead
is fixed and is $634,920 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
and the actual amount of manufacturing overhead for the year.
Required:
Determine the underapplied or overapplied overhead for the year if the predetermined
overhead rate is based on the amount of the allocation base at capacity.
26) During December, Deller Corporation purchased $79,000 of raw materials on credit
to add to its raw materials inventory. A total of $68,000 of raw materials was
requisitioned from the storeroom for use in production. These requisitioned raw
materials included $4,000 of indirect materials.
Required:
Prepare journal entries to record the purchase of materials and their use in production.
27) The standards for product K17 call for 5.0 meters of a raw material that costs
$19.10 per meter. Last month, 2,700 meters of the raw material were purchased for
$51,435. The actual output of the month was 460 units of product K17. A total of 2,500
meters of the raw material were used to produce this output.
The direct materials purchases variance is computed when the materials are purchased.
28) Wowk Corporation has provided the following financial data:
29) Globe Manufacturing Company has just obtained a request for a special order of
12,000 units to be shipped at the end of the current year at a discount price of $7.00
each. The company has a production capacity of 90,000 units per year. At present,
Globe is only selling 80,000 units per year through regular channels at a selling price of
$11.00 each. Globe’s per unit costs at an 80,000 unit level of production and sales are as
follows:
Variable selling and administrative expense will drop to $0.30 per unit on the special
order units. The special order has to be taken in its entirety. This means that by
accepting the special order, Globe will be forced to not sell 2,000 units to its regular
customers.
Required:
If Globe accepts this special order, by what amount will its net operating income
increase or decrease? SHOW YOUR COMPUTATIONS.
30) Dukas Corporation’s net cash provided by operating activities was $218,000; its net
income was $203,000; its capital expenditures were $146,000; and its cash dividends
were $49,000.
Required:
Determine the company’s free cash flow.
31) Vogelsberg Corporation has provided the following financial data:
The company’s net operating income in Year 2 was $62,308; its interest expense was
$12,000; and its net income was $32,700. Dividends on common stock during Year 2
totaled $2,700. The market price of common stock at the end of Year 2 was $6.37 per
share.