1) A cost that differs from one month to another is known as a differential cost.
2) Incremental analysis is generally the most complicated and least direct approach to
decision making.
3) The acid-test ratio is usually greater than the current ratio.
4) If predetermined overhead rates are based on budgeted activity and overhead
includes significant fixed costs, then the unit product costs will be stable regardless of
the budgeted level of activity for the period.
5) An unfavorable labor efficiency variance is recorded as a debit in the Labor
Efficiency Variance account.
6) A profit center is responsible for generating revenue and for controlling costs.
7) Cash received from the sale of equipment the company had used in its own
operations would be considered an operating activity on a statement of cash flows.
8) Eliminating nonproductive processing time is particularly important in work stations
that do not contain bottlenecks.
9) A high price-earnings ratio means that investors are willing to pay a premium for the
company’s stock.
10) George Corporation has no beginning inventory and manufactures a single product.
If the number of units produced exceeds the number of units sold, then net operating
income under the absorption method for the year will:
A.be equal to the net operating income under variable costing.
B.be greater than the net operating income under variable costing.
C.be equal to the net operating income under variable costing plus total fixed
manufacturing costs.
D.be equal to the net operating income under variable costing less total fixed
manufacturing costs.
11) Buonocore Clinic uses client-visits as its measure of activity. During August, the
clinic budgeted for 2,800 client-visits, but its actual level of activity was 2,770
client-visits. The clinic has provided the following data concerning the formulas used in
its budgeting and its actual results for August:
Data used in budgeting:
Actual results for August:
The personnel expenses in the planning budget for August would be closest to:
A.$74,232
B.$75,480
C.$75,036
D.$75,012
12) Chirico Clinic uses client-visits as its measure of activity. During February, the
clinic budgeted for 2,500 client-visits, but its actual level of activity was 2,550
client-visits. The clinic has provided the following data concerning the formulas used in
its budgeting and its actual results for February:
Data used in budgeting:
Actual results for February:
The personnel expenses in the planning budget for February would be closest to:
A.$68,642
B.$70,015
C.$69,125
D.$68,350
13) 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 variable component in
the predetermined overhead rate would be:
A.$93.94 per machine-hour
B.$11.20 per machine-hour
C.$105.14 per machine-hour
D.$103.60 per machine-hour
14) Smithj 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 February, the kennel budgeted
for 3,500 tenant-days, but its actual level of activity was 3,490 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for February:
Data used in budgeting:
Actual results for February:
The spending variance for food and supplies in February would be closest to:
A.$1,040 U
B.$1,040 F
C.$949 F
D.$949 U
15) Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop
purchased the car 40 years ago for $6,000. Cybil is either going to sell the car for
$8,000 or have it restored and sell it for $22,000. The restoration will cost $6,000. Cybil
would be better off by:
A.$2,000 to have the vehicle restored
B.$6,000 to have the vehicle restored
C.$8,000 to have the vehicle restored
D.$10,000 to have the vehicle restored
16) Comparing actual results to a budget based on the actual activity for the period is
possible with the use of a:
A.monthly budget.
B.master budget.
C.flexible budget.
D.rolling budget.
17) Haab Inc. is a merchandising company. Last month the company’s cost of goods
sold was $66,000. The company’s beginning merchandise inventory was $17,000 and
its ending merchandise inventory was $11,000. What was the total amount of the
company’s merchandise purchases for the month?
A) $72,000
B) $66,000
C) $94,000
D) $60,000
18) At Cady Corporation, maintenance is a variable overhead cost that is based on
machine-hours. The performance report for June showed that actual maintenance costs
totaled $9,600 and that the associated rate variance was $400 unfavorable. If 8,000
machine-hours were actually worked during June, the standard maintenance cost per
machine-hour was:
A.$1.30 per MH
B.$1.25 per MH
C.$1.20 per MH
D.$1.15 per MH
19) Larance Detailing’s cost formula for its materials and supplies is $2,230 per month
plus $1 per vehicle. For the month of November, the company planned for activity of 75
vehicles, but the actual level of activity was 25 vehicles. The actual materials and
supplies for the month was $2,160.
The materials and supplies in the planning budget for November would be closest to:
A.$2,255
B.$2,160
C.$2,305
D.$6,480
20) During May, Cockrel Corporation plans to serve 34,000 customers. The company
uses the following revenue and cost formulas in its budgeting, where q is the number of
customers served:
Revenue: $2.90q
Wages and salaries: $25,400 + $0.90q
Supplies: $0.40q
Insurance: $7,000
Miscellaneous expense: $4,900 + $0.30q
Required:
Prepare the company’s planning budget for May.
21) Rubendall Corporation’s total current assets are $310,000, its noncurrent assets are
$630,000, its total current liabilities are $250,000, its long-term liabilities are $300,000,
and its stockholders’ equity is $390,000.
22) ( The management of Gramby Corporation is investigating the purchase of a new
satellite routing system with a useful life of 5 years. The company uses a discount rate
of 18% in its capital budgeting. The net present value of the investment, excluding its
intangible benefits, is -$245,970.
Required:
How large would the additional cash flow per year from the intangible benefits have to
be to make the investment in the automated equipment financially attractive?
23) Degollado Corporation’s most recent income statement appears below:
The beginning balance of total assets was $200,000 and the ending balance was
$220,000.
24) Grossenbacher Clinic bases its budgets on the activity measure patient-visits.
During January, the clinic planned for 3,800 patient-visits, but the actual level of
activity was 3,700 patient-visits. The clinic has provided the following data concerning
the formulas it uses in its budgeting:
Required:
Prepare a report showing the clinic’s activity variances for January. Indicate in each
case whether the variance is favorable (F) or unfavorable (U).
25) ( DE Corporation is considering the purchase of a machine that promises to reduce
operating costs by the same amount for every year of its 5-year useful life. The machine
will cost $144,200 and has no salvage value. The machine has a 12% internal rate of
return.
Required:
What are the annual cost savings promised by the machine?
26) The following data have been provided by Felux Corporation for the Circuit Prep
Department. The company uses the FIFO method in its process costing.
Required:
Determine the equivalent units of production for the Circuit Prep Department for
August using the FIFO method.
