1) In the absorption approach to cost-plus pricing, the anticipated markup in dollars is
NOT equal to the anticipated profit.
2) Paying taxes to governmental bodies is considered a cash outflow in the operating
activities section on the statement of cash flows.
3) Depreciation on manufacturing equipment is a product cost.
4) Setting transfer prices at full cost can lead to good decisions because, among other
reasons, full cost takes into account opportunity costs.
5) In the cost reconciliation report under the FIFO method, the costs accounted for
equals the cost of beginning work in process inventory plus the cost of units transferred
out.
6) A vertically integrated company is more dependent on its suppliers than a company
that is not vertically integrated.
7) The equivalent units of production for a department using the FIFO process costing
method is equal to the number of units completed plus the equivalent units in the ending
inventory less the equivalent units in the beginning inventory.
8) Unless the organization is tax-exempt, income taxes should be considered when
using net present value analysis to make capital budgeting decisions.
9) In determining whether a company’s financial condition is improving or deteriorating
over time, horizontal analysis of financial statement data would be more useful than
vertical analysis.
10) The materials price variance is computed by multiplying the difference between the
actual price and the standard price by the actual quantity of materials purchased.
11) The overall contribution margin ratio for a company producing three products may
be obtained by adding the contribution margin ratios for the three products and dividing
the total by three.
12) A quantity standard indicates how much output should have been produced.
13) Cost behavior is considered linear whenever a straight line is a reasonable
approximation for the relation between cost and activity.
14) An unfavorable materials price variance is recorded as a debit in the Materials Price
Variance account.
15) The target cost per lawn blower is closest to:
A.$33.63
B.$30.30
C.$38.00
D.$42.18
16) Simmons Corporation estimated that the following costs and activity would be
associated with Product T:
If the company uses the absorption costing approach to cost-plus pricing described in
the text and desires a 20% ROI, the selling price for Product T would be:
A.$37.25
B.$38.75
C.$42.00
D.$44.75
17) Selling used equipment at book value for cash will:
A.increase working capital.
B.decrease working capital.
C.decrease the debt-to-equity ratio.
D.increase net income.
18) Stench Foods Corporation uses a standard cost system to collect costs related to the
production of its garlic flavored yogurt. The garlic (materials) standards for each
container of yogurt produced are 0.8 ounces of crushed garlic at a standard cost of
$2.30 per ounce.
During the month of June, Stench purchased 75,000 ounces of crushed garlic at a total
cost of $171,000. Stench used 64,000 of these ounces to produce 71,500 containers of
yogurt.
The direct materials purchases variance is computed when the materials are purchased.
What is Stench’s materials price variance for June?
A.$1,500 Favorable
B.$15,640 Unfavorable
C.$17,250 Favorable
D.$23,800 Favorable
19) The product’s price elasticity of demand as defined in the text is closest to:
A.-2.13
B.-1.47
C.-1.57
D.-1.81
20) The company’s net cash provided by operating activities is:
A.$48,000
B.$18,000
C.$40,000
D.$52,000
21) Higgins Labs, Inc. uses a process costing system. The following data are available
for one department for October:
The department started 45,000 units into production during the month and completed
and transferred 50,000 units to the next department.
Assuming the weighted-average method is used, the equivalent units for material for
October would be:
A.54,000 units
B.50,000 units
C.48,000 units
D.44,000 units
22) Pribyl Corporation has provided the following financial data:
23) How many units of product G92X should be produced each month?
A.0
B.1,655
C.820
D.390
24) Morbeck Corporation’s net income last year was $56,000. The company paid a cash
dividend of $31,000 and did not sell or retire any property, plant, and equipment last
year. Changes in selected balance sheet accounts for the year appear below:
Based solely on this information, the net cash provided by operating activities under the
indirect method on the statement of cash flows would be:
A.$83,000
B.$102,000
C.$29,000
D.$79,000
25) The average sale period for Year 2 is closest to:
A.63.0 days
B.89.2 days
C.236.3 days
D.97.3 days
26) Solen Corporation’s break-even-point in sales is $900,000, and its variable expenses
are 75% of sales. If the company lost $32,000 last year, sales must have amounted to:
A.$868,000
B.$804,000
C.$772,000
D.$628,000
27) Which of the following is not a source of financial leverage?
A.Bonds payable.
B.Accounts payable.
C.Taxes payable.
D.Prepaid rent.
28) Data concerning Wang Corporation’s single product appear below:
The break-even in monthly dollar sales is closest to:
A.$207,000
B.$255,321
C.$138,690
D.$420,273
29) Amundson 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 456 guests and 155 jeeps. The company’s
income statement showing the actual results for the month appears below:
Required:
Prepare a report showing the company’s revenue and spending variances for September.
Label each variance as favorable (F) or unfavorable (U).
30) Some companies use process costing and some use job-order costing. Which
method a company uses depends on its industry. A number of companies in different
industries are listed below:
1) Contract printer that produces posters, books, and pamphlets to order
2) Corn meal mill
3) Cattle feedlot that fattens cattle prior to slaughter
4) Shirt manufacturer that makes clothing on contract for department stores
5) Commercial photographer
Required:
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
31) Rossetto Corporation bases its budgets on the activity measure customers served.
During January, the company planned to serve 30,000 customers, but actually served
33,000 customers. Revenue is $4.10 per customer served. Wages and salaries are
$36,000 per month plus $1.50 per customer served. Supplies are $0.50 per customer
served. Insurance is $12,000 per month. Miscellaneous expenses are $4,800 per month
plus $0.10 per customer served.
Required:
Prepare a report showing the company’s activity variances for January. Indicate in each
case whether the variance is favorable (F) or unfavorable (U).
32) Sehrt Corporation has provided the following financial data:
The company’s net income for Year 2 was $44,000. Dividends on common stock during
Year 2 totaled $11,000. The market price of common stock at the end of Year 2 was
$6.29 per share.
33) Data concerning Kurek Corporation’s single product appear below:
Fixed expenses are $190,000 per month. The company is currently selling 4,000 units
per month.
Required:
The marketing manager would like to cut the selling price by $12 and increase the
advertising budget by $11,100 per month. The marketing manager predicts that these
two changes would increase monthly sales by 1,500 units. What should be the overall
effect on the company’s monthly net operating income of this change? Show your work!
34) Carver 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.
Required:
Using the weighted-average method, determine the equivalent units of production for
materials and conversion costs.
35) ( Janes, Inc., is considering the purchase of a machine that would cost $400,000 and
would last for 5 years, at the end of which, the machine would have a salvage value of
$67,000. The machine would reduce labor and other costs by $109,000 per year.
Additional working capital of $4,000 would be needed immediately, all of which would
be recovered at the end of 5 years. The company requires a minimum pretax return of
12% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
36) Pultz Corporation produces and sells a single product. Data concerning that product
appear below:
Required:
Determine the monthly break-even in total dollar sales. Show your work!