1) All other things the same, if the fixed expenses increase in a company then one
would expect the margin of safety to increase.
2) As the inventory turnover increases, the average sales period decreases.
3) An unfavorable labor rate variance is recorded as a debit in the Labor Rate Variance
account.
4) Negative free cash flow does not automatically signal poor performance.
5) A benefit of self-imposed budgeting is that it may allow lower-level managers to
create budgetary slack.
6) Manufacturing overhead is overapplied if actual manufacturing overhead costs for a
period are greater than the amount of manufacturing overhead cost that was charged to
Work in Process.
7) Vertical analysis of financial statements is accomplished by preparing common-size
statements.
8) The release of working capital at the end of an investment project is not a taxable
cash inflow.
9) When computing the net cash provided by operating activities under the indirect
method on the statement of cash flows, an increase in prepaid expenses would be added
to net income.
10) Joint costs are relevant in the decision to sell a product at the split-off point or to
process the product further.
11) If a retailer sells a product whose contribution margin equals the gross margin
percentage, the gross margin percentage will be unaffected by the transaction.
12) All other things the same, if long-term debt is exchanged for short-term debt, the
debt-to-equity ratio will be unchanged.
13) The following data pertains to activity and utility cost for two recent periods:
Utility cost is a mixed cost with both fixed and variable components. Using the
high-low method, the cost formula for utility cost is:
A) Y = $1.00 X
B) Y = $1.25 X
C) Y = $4,000 + $0.50 X
D) Y = $1,500 + $1.25 X
14) Data concerning Marchman Corporation’s single product appear below:
The company is currently selling 4,000 units per month. Fixed expenses are $166,000
per month. Consider each of the following questions independently.
The marketing manager believes that a $6,000 increase in the monthly advertising
budget would result in a 130 unit increase in monthly sales. What should be the overall
effect on the company’s monthly net operating income of this change?
A.decrease of $240
B.decrease of $6,000
C.increase of $240
D.increase of $6,240
15) Desue Corporation makes a product with the following standards for labor and
variable overhead:
The company budgeted for production of 6,500 units in December, but actual
production was 6,300 units. The company used 610 direct labor-hours to produce this
output. The actual variable overhead rate was $6.40 per hour. The company applies
variable overhead on the basis of direct labor-hours.
The variable overhead efficiency variance for December is:
A.$140 F
B.$128 F
C.$128 U
D.$140 U
16) The company’s total asset turnover for Year 2 is closest to:
A.1.17
B.11.04
C.0.09
D.0.85
Total asset turnover = Sales Average total assets*
= $1,450,000 $1,243,000 = 1.17 (rounded)
*Average total assets = ($1,236,000 + $1,250,000) 2 = $1,243,000
Mahoe Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $500. The market price of common
stock at the end of Year 2 was $8.06 per share.
17) Opportunity costs are:
A) not used for decision making.
B) the same as variable costs.
C) the same as historical costs.
D) relevant in decision making.
18) Hartung Corporation produces and sells a single product. Data concerning that
product appear below:
Fixed expenses are $147,000 per month. The company is currently selling 2,000 units
per month. The marketing manager would like to introduce sales commissions as an
incentive for the sales staff. The marketing manager has proposed a commission of $13
per unit. In exchange, the sales staff would accept a decrease in their salaries of $22,000
per month. (This is the company’s savings for the entire sales staff.) The marketing
manager predicts that introducing this sales incentive would increase monthly sales by
400 units. What should be the overall effect on the company’s monthly net operating
income of this change?
A.increase of $16,800
B.increase of $226,000
C.increase of $30,000
D.decrease of $14,000
19) Ortman Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in May.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for May is:
A.$27 F
B.$27 U
C.$30 U
D.$30 F
20) Turner Co. presently has a current ratio of 0.8. The company has been informed by
its bank that it must improve its current ratio to qualify for a line of credit. Which of the
following actions would improve the current ratio?
A.Use cash to pay off some current liabilities.
B.Purchase additional marketable securities with cash.
C.Acquire a parcel of land in exchange for common stock.
D.Purchase additional inventory on credit.
21) The work in process inventory at the end of November after allocation of any
underapplied or overapplied manufacturing overhead for the month is closest to:
A.$11,791
B.$12,209
C.$12,280
D.$11,720
22) Cafferty Corporation has provided the following data concerning its direct labor
costs for March:
The Labor Rate Variance for March would be recorded as a:
A.Credit of $855
B.Credit of $780
C.Debit of $780
D.Debit of $855
23) Halbrooks Clinic bases its budgets on the activity measure patient-visits. During
December, the clinic planned for 2,600 patient-visits. The clinic has provided the
following data concerning the formulas it uses in its budgeting:
The clinic has also furnished its income statement for December:
Required:
Prepare a report showing the clinic’s activity variances for December.
24) Alcina Corporation produces and sells a single product whose contribution margin
ratio is 80%. The company’s monthly fixed expense is $576,000 and the company’s
monthly target profit is $43,200.
Required:
Determine the dollar sales to attain the company’s target profit. Show your work!
25) Hartz Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diner’s budget for July was based on 3,100 meals. The diner’s
director has provided the following cost data to use in the budget: groceries, $2.50 per
meal; kitchen operations, $4,700 per month plus $1.75 per meal; administrative
expenses, $2,200 per month plus $0.85 per meal; and fundraising expenses, $1,700 per
month. The director has also provided the diner’s statement of actual expenses for the
month:
Required:
Prepare a report showing the diner’s spending variances for each of the expenses and for
total expenses for July. Label each variance as favorable (F) or unfavorable (U).
26) Lindon Company uses 5,000 units of Part X each year as a component in the
assembly of one of its products. The company is presently producing Part X internally
at a total cost of $80,000 as follows:
An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon
Company stops producing the part internally, one-third of the fixed manufacturing
overhead would be eliminated.
Required:
Prepare an analysis showing the annual advantage or disadvantage of accepting the
outside supplier’s offer.
27) Iba Industries is a division of a major corporation. The following data are for the
latest year of operations:
Required:
What is the division’s residual income?
28) ( Burba Inc. is considering investing in a project that would require an initial
investment of $200,000. The life of the project would be 5 years. The annual net cash
inflows from the project would be $60,000. The salvage value of the assets at the end of
the project would be $30,000. The company uses a discount rate of 17%.
Required:
Compute the net present value of the project.
29) Aslett Corporation’s manufacturing overhead includes $3.80 per machine-hour for
supplies; $8.80 per machine-hour for indirect labor; $214,132 per period for salaries;
and $546,720 per period for depreciation.
Required:
Determine the predetermined overhead rate if the denominator level of activity is 6,800
machine-hours. Show your work!
30) Vercher Natal Clinic uses the step-down method to allocate service department
costs to operating departments. The clinic has two service departments, Administration
and Information Technology (IT), and two operating departments, Prenatal Care and
Postnatal Care.
Administration Department costs are allocated first on the basis of employees and IT
Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down
method.
31) Lindon Company uses 5,000 units of Part X each year as a component in the
assembly of one of its products. The company is presently producing Part X internally
at a total cost of $80,000 as follows:
An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon
Company stops producing the part internally, one-third of the fixed manufacturing
overhead would be eliminated.
Required:
Prepare an analysis showing the annual advantage or disadvantage of accepting the
outside supplier’s offer.
32) Steinkraus Corporation has provided the following data: