1) The degree of operating leverage in a company is largest at the break-even point and
decreases as sales rise.
2) The manufacturing overhead budget lists all costs of production other than selling
and administrative expenses.
3) A product whose revenues do not cover the sum of its variable costs, its traceable
fixed costs, and its allocated share of general corporate administrative expenses should
usually be dropped.
4) Total variable cost is expected to remain unchanged as activity changes within the
relevant range.
5) Fixed costs may or may not be sunk costs.
6) The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
The direct materials purchases variance is computed when the materials are purchased.
What is the materials price variance for the month?
A.$4,060 U
B.$3,640 F
C.$3,640 U
D.$4,060 F
7) What is the maximum contribution margin the company can earn per month?
A.$82,940
B.$76,920
C.$80,023
D.$103,408
8) The payback period of this investment is closest to:
A.5.0 years
B.3.2 years
C.1.9 years
D.2.8 years
9) Hepburn Clinic uses client-visits as its measure of activity. During July, the clinic
budgeted for 3,200 client-visits, but its actual level of activity was 3,180 client-visits.
The clinic has provided the following data concerning the formulas to be used in its
budgeting for July:
The personnel expenses in the planning budget for July would be closest to:
A.$76,494
B.$79,860
C.$79,594
D.$76,975
10) 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.$2,870 U
B.$2,870 F
C.$1,715 U
D.$1,715 F
11) The company’s earnings per share for Year 2 is closest to:
A.$6.33 per share
B.$0.29 per share
C.$0.45 per share
D.$0.62 per share
12) When the actual amount of a raw material used in production is greater than the
standard amount allowed for the actual output, the journal entry would include:
A.Credit to Raw Materials; Credit to Materials Quantity Variance
B.Credit to Work-In-Process; Credit to Materials Quantity Variance
C.Credit to Raw Materials; Debit to Materials Quantity Variance
D.Credit to Work-In-Process; Debit to Materials Quantity Variance
13) The average collection period for Year 2 is closest to:
A.55.1 days
B.0.9 days
C.1.1 days
D.57.8 days
14) ( Boyson, Inc., is investigating an investment in equipment that would have a useful
life of 9 years. The company uses a discount rate of 16% in its capital budgeting. The
net present value of the investment, excluding the salvage value, is -$315,027. To the
nearest whole dollar how large would the salvage value of the equipment have to be to
make the investment in the equipment financially attractive?
A.$1,197,821
B.$50,404
C.$1,968,919
D.$315,027
15) A national retail company has segmented its income statement by sales territories. If
each sales territory statement is further segmented by individual stores, which of the
following will most likely occur?
A.some common fixed expenses in the sales territory segmented statement will become
traceable fixed expenses in the individual store segmented statement.
B.some traceable fixed expenses in the sales territory segmented statement will become
common fixed expenses in the individual store segmented statement.
C.the sum total of the individual stores’ segment margins in each sales territory will be
equal to the segment margin for the sales territory.
D.the sum total of the sales territory segment margins will equal the total net operating
income for the entire company.
16) What is Stone’s net cash provided by (used in) financing activities?
A.$(20,000)
B.$(15,000)
C.$5,000
D.$65,000
17) If the company bases its predetermined overhead rate on capacity, by how much
was manufacturing overhead underapplied or overapplied?
The management of Richbourg 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 63,000 machine-hours. In addition, capacity is
70,000 machine-hours and the actual level of activity for the year is 66,200
machine-hours. All of the manufacturing overhead is fixed and is $2,866,500 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.$145,600 Overapplied
B.$155,610 Underapplied
C.$145,600 Underapplied
D.$155,610 Overapplied
18) Jester Corporation’s most recent income statement appears below:
The beginning balance of total assets was $360,000 and the ending balance was
$320,000. The return on total assets is closest to:
A.26.5%
B.18.5%
C.22.6%
D.32.4%
19) Stimac Corporation has total cash of $210,000, no marketable securities, total
current receivables of $281,000, total inventory of $151,000, total prepaid expenses of
$53,000, total current assets of $695,000, total current liabilities of $261,000, total
stockholders’ equity of $1,014,000, total assets of $1,415,000, and total liabilities of
$401,000. The company’s acid-test (quick) ratio is closest to:
A.2.08
B.1.73
C.2.66
D.1.88
20) Using the high-low method, the estimate of the fixed component of office expense
per month is closest to:
A) $9,606
B) $13,485
C) $13,181
D) $13,793
21) Stott Company requires one full-time dock hand for every 500 packages loaded
daily. The wages for these dock hands would be:
A) variable.
B) mixed.
C) step-variable.
D) curvilinear.
22) Cajun Corporation manufactures a labor-intensive product. The cost standards
developed by Cajun appear below. Manufacturing overhead at Cajun is applied to
production on the basis of standard direct labor-hours:
The standards above were based on an expected annual volume of 8,000 units. The
actual results for last year were as follows:
23) Which of the following classifications best describes the behavior of clerical
expense?
A) Mixed
B) Variable
C) Fixed
D) none of the above
24) The entry to dispose of the under or overapplied manufacturing overhead cost for
the month would include:
A.a debit of $2,000 to the Manufacturing Overhead account.
B.a credit of $2,500 to the Manufacturing Overhead account.
C.a debit of $2,000 to Cost of Goods Sold.
25) Data concerning Wythe Corporation’s single product appear below:
Fixed expenses are $106,000 per month. The company is currently selling 2,000 units
per month. The marketing manager would like to cut the selling price by $15 and
increase the advertising budget by $5,000 per month. The marketing manager predicts
that these two changes would increase monthly sales by 800 units. What should be the
overall effect on the company’s monthly net operating income of this change?
A.increase of $31,000
B.decrease of $31,000
C.increase of $103,000
D.increase of $1,000
26) Harkey Corporation’s balance sheet and income statement appear below:
Cash dividends were $29. The company sold equipment for $15 that was originally
purchased for $6 and that had accumulated depreciation of $2.
Required:
Using the direct method, determine the net cash provided by operating activities.
27) ( The management of Moya Corporation is investigating purchasing equipment that
would cost $336,000 and have an 8 year life with no salvage value. The equipment
would allow an expansion of capacity that would increase sales revenues by $288,000
per year and cash operating expenses by $164,000 per year.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
Show your work!
28) The Los Angeles Division of Awercamp Manufacturing produces and markets two
product lines: Racquets and Gloves. The following data were gathered on activities last
month:
Required:
Prepare a segmented income statement for last month.
29) Tobia Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $6,300. The market price of common
stock at the end of Year 2 was $1.78 per share.
30) Shingler Corporation bases its budgets on the activity measure customers served.
During May, the company planned to serve 39,000 customers. The company has
provided the following data concerning the formulas it uses in its budgeting:
The company has also furnished its income statement for May:
Required:
Prepare a report showing the company’s activity variances for May. Indicate in each
case whether the variance is favorable (F) or unfavorable (U).
31) Branner Corporation uses customers served as its measure of activity. During June,
the company budgeted for 26,000 customers, but actually served 23,000 customers. The
company bases its budgets on the following information: Revenue should be $2.80 per
customer served. Wages and salaries should be $22,100 per month plus $0.70 per
customer served. Supplies should be $0.50 per customer served. Insurance should be
$5,200 per month. Miscellaneous expenses should be $2,100 per month plus $0.30 per
customer served. The company reported the following actual results for June:
Revenue $63,800
Wages and salaries $37,100
Supplies $9,900
Insurance $5,400
Miscellaneous expense $6,200
Required:
Prepare the company’s flexible budget performance report for June. Label each variance
as favorable (F) or unfavorable (U).
