Accounting 65405 | Course Paper

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The job cost sheet is used in both job-order and process costing.

Answer:

Reynold Enterprises sells a single product for $25. The variable expense per unit is $15

and the fixed expense per unit is $5 at the current level of sales. The company’s net

operating income will increase by $5 if one more unit is sold.

Answer:

An increase in the discount rate will result in an increase in the present value of a given

cash flow.

Answer:

In a contribution format income statement for a merchandising company, cost of goods

sold is a variable cost that gets included in the “Variable expenses” portion of the

income statement.

Answer:

If the actual direct labor-hours used is less than the standard direct labor-hours allowed

for the actual output, then the journal entry to record the Labor Efficiency Variance

would be a debit.

Answer:

Depreciation is always considered a product cost for external financial reporting

purposes in a manufacturing firm.

Answer:

Costs classified as batch-level costs should depend on the number of batches processed

rather than on the number of units produced, the number of units sold, or other

measures of volume.

Answer:

The production budget is typically prepared prior to the sales budget.

Answer:

Both planning and control are needed for an effective budgeting system.

Answer:

If fixed expenses increase by $10,000 per year, then the level of sales needed to break

even will also increase by $10,000.

Answer:

At the break-even point: Sales – Variable expenses = Fixed expenses.

Answer:

Managers of cost centers are evaluated according to the profits which their departments

are able to generate.

Answer:

Fixed costs are irrelevant in a decision.

Answer:

For asset accounts, credits are added to the beginning balance on the statement of cash

flows.

Answer:

Cash payments to retire bonds payable are reported as a cash outflow in the financing

activities section of the statement of cash flows.

Answer:

If the fixed manufacturing overhead volume variance is unfavorable, too much has been

spent on fixed manufacturing overhead items.

Answer:

In the cost reconciliation report, the costs accounted for equals the cost of beginning

work in process inventory plus the cost of ending work in process inventory.

Answer:

Advertising costs should be charged to the Manufacturing Overhead account.

Answer:

If the actual quantity of materials used is less than the standard quantity of materials

allowed for the actual output, then the journal entry to record the Direct Materials

Quantity Variance would be a credit.

Answer:

Manufacturing overhead combined with direct materials is known as conversion cost.

Answer:

The weighted-average method and the FIFO method of process costing use the same

manufacturing accounts.

Answer:

The ending and beginning balances of Parma Corporation’s balance sheet accounts for

the most recent year are listed below:

The company’s net income (loss) for the year was $0 and its cash dividends were

$4,000. It did not dispose of any property, plant, and equipment, retire any bonds

payable, or repurchase any of its own common stock during the year.

Compute the change in each noncash balance sheet account. Indicate whether the

change in each balance will be recorded in the operating, investing, or financing

activities section of the statement of cash flows. For items recorded in the operating

activities section, also indicate whether the change will be added to or subtracted from

net income. For all other items, indicate whether the change will be added as a cash

inflow or subtracted as a cash outflow.

Answer:

A company has a standard cost system in which fixed and variable manufacturing

overhead costs are applied to products on the basis of direct labor-hours. The amount of

overhead that the company would apply to finished production would ordinarily be the

standard hours allowed for the actual units of finished output times the predetermined

overhead rate per direct labor-hour.

Answer:

If the fixed expenses increase in a company, and all other factors remain unchanged,

then one would expect the margin of safety to decrease.

Answer:

Contribution margin and segment margin mean the same thing.

Answer:

Canler Inc. uses the weighted-average method in its process costing system. The

following data concern the operations of the company’s first processing department for

a recent month.

Using the weighted-average method, determine the equivalent units of production for

materials and conversion costs.

Answer:

In external financial reports, factory utilities costs may be included in an asset account

on the balance sheet at the end of the period.

Answer:

The total volume in sales dollars that would be required to attain a given target profit is

determined by dividing the sum of the fixed expenses and the target profit by the

contribution margin ratio.

Answer:

In activity-based costing, unit product costs computed for external financial reports

include manufacturing overhead costs that are computed by multiplying activity rates

by the direct labor-hours required to produce a product.

Answer:

If the actual quantity of materials used is less than the standard quantity of materials

allowed for the actual output, then the journal entry to record the Direct Materials

Quantity Variance would be a credit.

Answer:

A balanced scorecard should contain every performance measure that can be expected

to influence a company’s profits.

Answer:

Holtrop Corporation has received a request for a special order of 9,000 units of product

Z74 for $46.50 each. The normal selling price of this product is $51.60 each, but the

units would need to be modified slightly for the customer. The normal unit product cost

of product Z74 is computed as follows:

Direct labor is a variable cost. The special order would have no effect on the company’s

total fixed manufacturing overhead costs. The customer would like some modifications

made to product Z74 that would increase the variable costs by $6.20 per unit and that

would require a one-time investment of $46,000 in special molds that would have no

salvage value. This special order would have no effect on the company’s other sales.

The company has ample spare capacity for producing the special order.

Determine the effect on the company’s total net operating income of accepting the

special order. Show your work!

Answer:

Free cash flow increases when a company issues common stock for cash.

Answer:

Nutall Corporation is considering dropping product N28X. Data from the company’s

accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company’s

accounting system. Further investigation has revealed that $199,000 of the fixed

manufacturing expenses and $114,000 of the fixed selling and administrative expenses

are avoidable if product N28X is discontinued.

a. According to the company’s accounting system, what is the net operating income

earned by product N28X? Show your work!

b. What would be the effect on the company’s overall net operating income of dropping

product N28X? Should the product be dropped? Show your work!

Answer:

Under the FIFO method, the percentage of completion of the ending inventory must be

greater than the percentage of completion of the beginning inventory.

Answer:

The following costs should be considered by a law firm to be indirect costs of

defending a particular client in court: rent on the law firm’s offices, the law firm’s

receptionist’s wages, the costs of heating the law firm’s offices, and the depreciation on

the personal computer in the office of the attorney who has been assigned the client.

Answer:

Kelln Corporation’s most recent comparative balance sheet and income statement

appear below:

The company paid a cash dividend and it did not dispose of any 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) investing activities for the year was:

A. $(28)

B. $(58)

C. $28

D. $58

Answer:

Imbram Corporation uses the FIFO method in its process costing system. The first

processing department, the Forming Department, started the month with 23,000 units in

its beginning work in process inventory that were 40% complete with respect to

conversion costs. The conversion cost in this beginning work in process inventory was

$27,692. An additional 86,000 units were started into production during the month and

86,000 units were completed and transferred to the next processing department. There

were 23,000 units in the ending work in process inventory of the Forming Department

that were 10% complete with respect to conversion costs. A total of $221,480 in

conversion costs were incurred in the department during the month.

The cost per equivalent unit for conversion costs for the month is closest to:

A. $2.80

B. $2.29

C. $3.01

D. $2.58

Answer:

The standards for product C54L specify 4.5 direct labor-hours per unit at $12.40 per

direct labor-hour. Last month 1,560 units of product C54L were produced using 7,000

direct labor-hours at a total direct labor wage cost of $86,100.

Required:

a. What was the labor rate variance for the month?

b. What was the labor efficiency variance for the month?

Answer:

Gayles Corporation’s most recent balance sheet appears below:

The net income for the year was $144. Cash dividends were $31. The company did not

issue any bonds or repurchase any of its common stock during the year. The net cash

provided by (used in) financing activities for the year was:

A. $(46)

B. $(31)

C. $1

D. $(76)

Answer:

The Steff Company has the following flexible budget (in condensed form) for

manufacturing overhead:

The following data concerning production pertain to last year’s operations:

– The company used a denominator activity of 15,000 direct labor-hours to compute the

predetermined overhead rate.

– The company made 6,850 units of product and worked 14,200 actual hours during the

year.

– Actual variable manufacturing overhead was $15,904 and actual fixed manufacturing

overhead was $30, $850 for the year.

– The standard direct labor time is two hours per unit of product.

The fixed manufacturing overhead cost applied to work in process was:

A. $27,400

B. $30,000

C. $30,850

D. $13,700

Answer:

Salvadore Inc., a local retailer, has provided the following data for the month of

September:

The cost of goods sold for September was:

A. $132,000

B. $134,000

C. $133,000

D. $200,000

Answer:

Data from Kooistra Corporation’s most recent balance sheet appear below:

Sales on account in Year 2 amounted to $1,270 and the cost of goods sold was $770.

The current ratio at the end of Year 2 is closest to:

A. 0.96

B. 0.30

C. 0.31

D. 1.61

Answer:

Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during

March, a segment margin of $54,000, and traceable fixed expenses of $26,000. The

company as a whole had a contribution margin ratio of 25% and $120,000 in total

contribution margin. Based on this information, total variable expenses in Store M for

the month must have been:

A. $140,000

B. $260,000

C. $300,000

D. $360,000

Answer:

Mate Corporation’s standard wage rate is $11.90 per direct labor-hour (DLH) and

according to the standards, each unit of output requires 4.5 DLHs. In May, 2,900 units

were produced, the actual wage rate was $11.50 per DLH, and the actual hours were

15,530 DLHs.

In the journal entry to record the incurrence of direct labor costs in May, the Work in

Process entry would consist of a:

A. credit of $155,295.

B. debit of $155,295.

C. credit of $178,595.

D. debit of $178,595.

Answer:

A study has been conducted to determine if Product A should be dropped. Sales of the

product total $200,000 per year; variable expenses total $140,000 per year. Fixed

expenses charged to the product total $90,000 per year. The company estimates that

$40,000 of these fixed expenses will continue even if the product is dropped. These data

indicate that if Product A is dropped, the company’s overall net operating income

would:

A. decrease by $20,000 per year

B. increase by $20,000 per year

C. decrease by $10,000 per year

D. increase by $30,000 per year

Answer:

Part I51 is used in one of Pries Corporation’s products. The company makes 18,000

units of this part each 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 this part and sell it to the company for

$15.80 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 $26,000 of these allocated general overhead costs would be

avoided.

If management decides to buy part I51 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 $81,800 per year.

B. Net operating income would decline by $55,800 per year.

C. Net operating income would decline by $119,800 per year.

D. Net operating income would decline by $29,800 per year.

Answer:

The average stockholders’ equity for Horn Co. last year was $2,000,000. Included in

this figure was $200,000 of preferred stock. Preferred dividends were $16,000. If the

return on common stockholders’ equity was 12.5% for the year, net income was:

A. $225,000

B. $250,000

C. $241,000

D. $234,000

Answer:

Reference: 8-50

Fabiano Corporation makes a product whose direct labor standards are 0.5 hours per

unit and $23.00 per hour. In February the company produced 3,300 units using 1,640

direct labor-hours. The actual direct labor cost was $38,540.

The labor efficiency variance for February is:

A) $230 F

B) $235 F

C) $230 U

D) $235 U

Answer:

The standard cost card for a product shows that the product should use 4 kilograms of

material B per finished unit and that the standard price of material B is $4.50 per

kilogram. During April, when the budgeted production level was 1,000 units, 1,040

units were actually made. A total of 4,100 kilograms of material B were used in

production and the inventories of material B were reduced by 300 kilograms during

April. The total cost of material B purchased during April was $14,400. The material

variances for material B during April were:

Material Price Variance Material Quantity Variance

A) $2,700 F $1,620 F

B) $2,700 F $270 F

C) $4,050 F $270 F

D) $4,050 F $1,620 F

Answer:

Reference: 8A-3

The Chase Company uses a standard cost system in which manufacturing overhead

costs are applied to products on the basis of standard machine-hours. For November, the

companys flexible budget for manufacturing overhead showed the following total

budgeted costs at the denominator activity level of 40,000 machine-hours:

During November 42,000 machine-hours were used to complete 13,200 units of product

with the following actual overhead costs:

The standard time allowed to complete one unit of product is 3.6 machine-hours.

The variable overhead efficiency variance for utilities cost for November was:

A) $2,760 favorable

B) $3,760 unfavorable

C) $3,760 favorable

D) $1,000 favorable

Answer:

Cadarette Corporation’s most recent balance sheet and income statement appear below:

Dividends on common stock during Year 2 totaled $40 thousand. Dividends on

preferred stock totaled $10 thousand. The market price of common stock at the end of

Year 2 was $17.73 per share.

The dividend yield ratio for Year 2 is closest to:

A. 2.26%

B. 2.82%

C. 80.00%

D. 0.56%

Answer:

Tronnes Corporation’s net income last year was $1,750,000. The dividend on common

stock was $2.60 per share and the dividend on preferred stock was $2.50 per share. The

market price of common stock at the end of the year was $57.70 per share. Throughout

the year, 300,000 shares of common stock and 100,000 shares of preferred stock were

outstanding. The price-earnings ratio is closest to:

A. 17.85

B. 11.54

C. 24.04

D. 9.89

Answer:

Consider the following production and cost data for two products, X and Y:

The company has 15,000 machine hours available each period, and there is unlimited

demand for each product. What is the largest possible total contribution margin that can

be realized each period?

A. $120,000

B. $125,000

C. $135,000

D. $150,000

Answer:

Broze Company makes four products in a single facility. These products have the

following unit product costs:

Additional data concerning these products are listed below.

The grinding machines are potentially the constraint in the production facility. A total of

53,600 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Up to how much should the company be willing to pay for one additional minute of

grinding machine time if the company has made the best use of the existing grinding

machine capacity? (Round off to the nearest whole cent.)

A. $35.90

B. $0.00

C. $8.58

D. $11.60

Answer:

Dabney 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 monthly fixed manufacturing cost is:

A. $778,400

B. $1,457,400

C. $1,505,900

D. $1,554,400

Answer:

Watson Company’s comparative balance sheet and income statement for last year

appear below:

The company declared and paid a cash dividend during the year. It did not purchase or

dispose of any property, plant, and equipment. It did not issue any bonds 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) investing activities last year was:

A. $20,000

B. $119,000

C. $(20,000)

D. $(119,000)

Answer:

A company’s current net operating income is $16,800 and its average operating assets

are $80,000. The company’s required rate of return is 18%. A new project being

considered would require an investment of $15,000 and would generate annual net

operating income of $3,000. What is the residual income of the new project?

A. 20.8%

B. 20%

C. ($150)

D. $300

Answer:

Data concerning Delmore Corporation’s single product appear below:

The break-even in monthly unit sales is closest to:

A. 7,804 units

B. 4,390 units

C. 2,810 units

D. 5,001 units

Answer:

The advertising costs that Pepsi incurred to air its commercials during the Super Bowl

can best be described as a:

A. variable cost.

B. fixed cost.

C. product cost.

D. prime cost.

Answer:

Bakker Corporation has provided the following production and average 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. $89.70

B. $131.80

C. $19.50

D. $112.30

Answer:

Alam Company is a manufacturing firm that uses job-order costing. At the beginning of

the year, the company’s inventory balances were as follows:

The company applies overhead to jobs using a predetermined overhead rate based on

machine-hours. At the beginning of the year, the company estimated that it would work

45,000 machine-hours and incur $180,000 in manufacturing overhead cost. The

following transactions were recorded for the year:

a. Raw materials were purchased, $416,000.

b. Raw materials were requisitioned for use in production, $420,000 ($380,000 direct

and $40,000 indirect).

c. The following employee costs were incurred: direct labor, $414,000; indirect labor,

$60,000; and administrative salaries, $212,000.

d. Selling costs, $141,000.

e. Factory utility costs, $20,000.

f. Depreciation for the year was $81,000 of which $73,000 is related to factory

operations and $8,000 is related to selling, general, and administrative activities.

g. Manufacturing overhead was applied to jobs. The actual level of activity for the year

was 48,000 machine-hours.

h. The cost of goods manufactured for the year was $1,004,000.

i. Sales for the year totaled $1,416,000 and the costs on the job cost sheets of the goods

that were sold totaled $989,000.

j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods

Sold.

Prepare the appropriate journal entry for each of the items above (a. through j.). You can

assume that all transactions with employees, customers, and suppliers were conducted

in cash.

Answer:

Reference: 8-46

The following labor standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the labor rate variance for the month?

A) $400 F

B) $80 U

C) $80 F

D) $400 U

Answer:

Ring, Incorporated’s income statement for the most recent month is given below.

Refer to the original data.

The marketing department believes that a promotional campaign at Store P costing

$5,000 will increase sales by $15,000. If the campaign is adopted, overall company net

operating income should:

A. decrease by $800

B. decrease by $5,800

C. increase by $5,800

D. increase by $10,000

Answer:

Nando Company uses the weighted-average method in its process costing system.

Department J is the second of three sequential processes at the company. During

October, Department J collected the following data:

All materials are added at the beginning of the process.

The total cost assigned to ending work in process inventory was:

A. $75,400

B. $101,400

C. $152,800

D. $59,000

Answer:

Reference: 8-27

The Litton Company has established standards as follows:

Direct material: 3 pounds per unit @ $4 per pound = $12 per unit

Direct labor: 2 hours per unit @ $8 per hour = $16 per unit

Variable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit

Actual production figures for the past year are given below. The company records the

materials price variance when materials are purchased.

The company applies variable manufacturing overhead to products on the basis of

standard direct labor-hours.

The labor efficiency variance is:

A) $800 F

B) $800 U

C) $840 F

D) $840 U

Answer:

Paxton Corp has provided the following data concerning its operations last month:

Paxton Corp is a retailing organization.

The break-even sales in dollars is (round to the nearest dollar):

A. $148,148

B. $266,667

C. $333,333

D. $350,000

Answer:

The Phelps Company applies overhead costs to products on the basis of standard direct

labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit

of product. Phelps Company had the following budgeted and actual data for March:

The budgeted direct labor-hours is used as the denominator activity for the month.

The variable overhead rate variance for March is:

A. $7,000 unfavorable

B. $9,000 unfavorable

C. $13,000 unfavorable

D. $11,000 unfavorable

Answer:

Job 599 was recently completed. The following data have been recorded on its job cost

sheet:

The company applies manufacturing overhead on the basis of direct labor-hours. The

predetermined overhead rate is $20 per direct labor-hour.

Compute the unit product cost that would appear on the job cost sheet for this job.

Answer:

Financial statements for Qualle Company appear below:

Dividends during Year 2 totaled $149 thousand, of which $10 thousand were preferred

dividends.

The market price of a share of common stock on December 31, Year 2 was $280.

Compute the following for Year 2:

a. Earnings per share of common stock.

b. Price-earnings ratio.

c. Dividend yield ratio.

d. Return on total assets.

e. Return on common stockholders’ equity.

f. Book value per share.

Answer:

Torri Inc. produces and sells two products. During the most recent month, Product

C34M’s sales were $25,000 and its variable expenses were $5,750. Product Y03Z’s

sales were $40,000 and its variable expenses were $9,850. The company’s fixed

expenses were $48,310.

a. Determine the overall break-even point for the company. Show your work!

b. If the sales mix shifts toward Product C34M with no change in total sales, what will

happen to the break-even point for the company? Explain.

Answer:

The constraint at Vrana Inc. is an expensive milling machine. The three products listed

below use this constrained resource.

a. Rank the products in order of their current profitability from the most profitable to

the least profitable. In other words, rank the products in the order in which they should

be emphasized. Show your work!

b. 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?

Answer:

Hilario Urban Diner is a charity supported by donations that provides free meals to the

homeless. The diners budget for September is to be based on 2,600 meals. The diners

director has provided the following cost data to use in the budget: groceries, $2.10 per

meal; kitchen operations, $5,600 per month plus $1.80 per meal; administrative

expenses, $3,700 per month plus $0.55 per meal; and fundraising expenses, $1,400 per

month.

Required:

Prepare the diners budget for the month of September. The budget will only contain the

costs listed above; no revenues will be on the budget.

Answer:

Rubidoux Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The

company bases its budgets on two measures of activity (i.e., cost drivers), namely

guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep

has one tour guide. The company uses the following data in its budgeting:

In September, the company budgeted for 483 guests and 240 jeeps. The companys

income statement showing the actual results for the month appears below:

Required:

Prepare a report showing the companys revenue and spending variances for September.

Label each variance as favorable (F) or unfavorable (U).

Answer:

Heavey Fabrication is a division of a major corporation. Last year the division had total

sales of $21,120,000, net operating income of $2,006,400, and average operating assets

of $6,000,000. The company’s minimum required rate of return is 12%.

What is the division’s return on investment (ROI)?

Answer:

Condensed financial statements for Blackhurst Company appear below:

There were 72,000 shares of common stock outstanding throughout the year. Dividends

on common stock amounted to $320,400 and dividends on preferred stock amounted to

$45,000. The market value of a share of common stock was $54 at the end of the year.

On the basis of the information given above, fill in the blanks with the appropriate

figures:

Example: The gross margin as a percent of sales would be computed by dividing

$2,160,000 by $5,400,000.

a. The earnings per share of common stock for the year would be computed by dividing