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Sartain Corporation is in the process of preparing its annual budget. The following
beginning and ending inventory levels are planned for the year.
Each unit of finished goods requires 2 grams of raw material.
If the company plans to sell 670,000 units during the year, the number of units it would
have to manufacture during the year would be:
A. 670,000 units
B. 720,000 units
C. 740,000 units
D. 620,000 units
Answer:
The standards for product U31 call for 7.1 liters of a raw material that costs $12.10 per
liter. Last month, 1,900 liters of the raw material were purchased for $23,180. The
actual output of the month was 200 units of product U31. A total of 1,200 liters of the
raw material were used to produce this output.
Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
Answer:
Stephen Company has the following data for its three stores last year:
Given the above data, the total company sales were:
A. $1,250,000
B. $1,375,000
C. $1,450,000
D. $800,000
Answer:
Ring, Incorporated's income statement for the most recent month is given below.
Refer to the original data.
A proposal has been made that will lower variable costs in Store P to 65% of sales.
However, this reduction can only be accomplished by a $16,000 increase in Store P's
traceable fixed costs. If this proposal is implemented and sales remain constant, overall
company net operating income should:
A. remain the same
B. decrease by $2,000
C. increase by $2,000
D. increase by $14,000
Answer:
The margin of safety percentage is computed as:
A. Break-even sales ÷ Total sales.
B. Total sales - Break-even sales.
C. (Total sales - Break-even sales) ÷ Break-even sales.
D. (Total sales - Break-even sales) ÷ Total sales.
Answer:
Data from Adamis Corporation's most recent balance sheet appear below:
The company's acid-test ratio is closest to:
A. 0.33
B. 0.71
C. 0.81
D. 0.10
Answer:
Which of the following will not result in an increase in the residual income, assuming
other factors remain constant?
A. An increase in sales.
B. An increase in the minimum required rate of return.
C. A decrease in expenses.
D. A decrease in operating assets.
Answer:
The following production and average cost data for two levels of monthly production
volume have been supplied by a company that produces a single product:
The best estimate of the total cost to manufacture 1,200 units is closest to:
A. $132,160
B. $121,920
C. $129,600
D. $137,280
Answer:
Data concerning Lancaster Corporation's single product appear below:
Fixed expenses are $105,000 per month. The company is currently selling 1,000 units
per month. Management is considering using a new component that would increase the
unit variable cost by $44. Since the new component would increase the features of the
company's product, the marketing manager predicts that monthly sales would increase
by 400 units. What should be the overall effect on the company's monthly net operating
income of this change?
A. decrease of $38,400
B. decrease of $5,600
C. increase of $5,600
D. increase of $38,400
Answer:
In describing the cost formula equation Y = a + bX, which of the following statements
is correct?
A. "X" is the dependent variable.
B. "a" is the fixed component.
C. In the high-low method, "b" equals change in activity divided by change in costs.
D. As "X" increases "Y" decreases.
Answer:
Davol Corporation is preparing its Manufacturing Overhead Budget for the fourth
quarter of the year. The budgeted variable manufacturing overhead rate is $6.80 per
direct labor-hour; the budgeted fixed manufacturing overhead is $72,000 per month, of
which $20,000 is factory depreciation.
If the budgeted direct labor time for December is 4,000 hours, then the predetermined
manufacturing overhead per direct labor-hour for December would be:
A. $6.80
B. $11.80
C. $19.80
D. $24.80
Answer:
Segment margin is sales minus:
A. variable expenses.
B. traceable fixed expenses.
C. variable expenses and common fixed expenses.
D. variable expenses and traceable fixed expenses.
Answer:
Franklin Glass Works uses a standard cost system in which manufacturing overhead is
applied on the basis of standard direct labor-hours. Each unit requires two standard
hours of direct labor for completion. The denominator activity for the year was based
on budgeted production of 200,000 units. Total overhead was budgeted at $900,000 for
the year, and the fixed manufacturing overhead rate was $1.50 per direct labor-hour.
The actual data pertaining to the manufacturing overhead for the year are presented
below:
Franklin's variable overhead efficiency variance for the year is:
A. $33,000 unfavorable
B. $35,200 favorable
C. $35,200 unfavorable
D. $33,000 favorable
Answer:
At an activity level of 4,400 units in a month, Goldbach Corporation's total variable
maintenance and repair cost is $313,632 and its total fixed maintenance and repair cost
is $93,104. What would be the total maintenance and repair cost, both fixed and
variable, at an activity level of 4,600 units in a month? Assume that this level of activity
is within the relevant range.
A. $420,992
B. $425,224
C. $415,980
D. $406,736
Answer:
Cezar Corporation's comparative balance sheet appears below:
The company did not dispose of any property, plant, and equipment during the year. Its
net income for the year was $10,000 and its cash dividends were $4,000. The company
did not retire any bonds payable or issue any common stock during the year. Its net cash
provided by operating activities and net cash used in financing activities are:
A. net cash provided by operating activities, $35,000; net cash used in financing
activities,$8,000
B. net cash provided by operating activities, $35,000; net cash used in financing
activities,$4,000
C. net cash provided by operating activities, $39,000; net cash used in financing
activities,$8,000
D. net cash provided by operating activities, $39,000; net cash used in financing
activities,$4,000
Answer:
Budget data for the Bidwell Company are as follows:
The number of units Bidwell would have to sell to earn a net operating income of
$150,000 is:
A. 100,000 units
B. 120,000 units
C. 112,000 units
D. 145,000 units
Answer:
Byklea Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 200
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,000 units were started and 6,700 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 90% complete with respect to materials and 45% complete
with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $351,100
B. $366,552
C. $356,800
D. $341,097
Answer:
Which of the following should be classified as a financing activity on a statement of
cash flows?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Bakker Corporation applies manufacturing overhead on the basis of direct labor-hours.
At the beginning of the most recent year, the company based its predetermined
overhead rate on total estimated overhead of $77,250 and 2,500 estimated direct
labor-hours. Actual manufacturing overhead for the year amounted to $79,000 and
actual direct labor-hours were 2,400.
The predetermined overhead rate for the year was closest to:
A. $29.66
B. $32.92
C. $31.60
D. $30.90
Answer:
Tsuchiya Corporation manufactures a variety of products. Last year, the company's
variable costing net operating income was $57,500. Fixed manufacturing overhead
costs deferred in inventory under absorption costing amounted to $35,400. What was
the absorption costing net operating income last year?
A. $22,100
B. $35,400
C. $57,500
D. $92,900
Answer:
Reference: 8-33
Tidd Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in November.
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 rate variance for November is:
A) $1,574 F
B) $1,440 U
C) $1,574 U
D) $1,440 F
Answer:
Stephen Company produces a single product. Last year, the company had 20,000 units
in its ending inventory. During the year, Stephen's variable production costs were $12
per unit. The fixed manufacturing overhead cost was $8 per unit in the beginning
inventory. The company's net operating income for the year was $9,600 higher under
variable costing than it was under absorption costing. The company uses a
last-in-first-out (LIFO) inventory flow assumption. Given these facts, the number of
units of product in the beginning inventory last year must have been:
A. 21,200
B. 19,200
C. 18,800
D. 19,520
Answer:
Drake Company's contribution format income statement for the most recent year
appears below:
If the company desires a net operating income of $20,000, the number of units needed
to be sold is:
A. 28,500 units
B. 31,000 units
C. 31,750 units
D. 26,500 units
Answer:
Whit Catering uses two measures of activity, jobs and meals, in the cost formulas in its
flexible budgets. The cost formula for catering supplies is $380 per month plus $94 per
job plus $11 per meal. A typical job involves serving a number of meals to guests at a
corporate function or at a hosts home. The company expected its activity in October to
be 20 jobs and 216 meals, but the actual activity was 19 jobs and 221 meals. The actual
cost for catering supplies in October was $4,790. The catering supplies in the flexible
budget for October would be closest to:
A) $4,404
B) $4,790
C) $4,636
D) $4,597
Answer:
Falquez Company sells three products: R, S, and T. Data for activity of Falquez
Company during July are as follows:
Common fixed expenses for July amounted to $90,000.
The segment margin for Product T was:
A. $45,000
B. $85,000
C. $(10,000)
D. $80,000
Answer:
Reference: 8-3
Macphail Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During April, the company budgeted
for 5,600 units, but its actual level of activity was 5,650 units. The company has
provided the following data concerning the formulas used in its budgeting and its actual
results for April:
Data used in budgeting:
Actual results for April:
The spending variance for manufacturing overhead in April would be closest to:
A) $875 F
B) $970 U
C) $970 F
D) $875 U
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 average sale period for Year 2 is closest to:
A. 51.7 days
B. 221.3 days
C. 78.2 days
D. 85.3 days
Answer:
Knaack Corporation is presently making part R20 that is used in one of its products. A
total of 18,000 units of this part are produced and used every 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 and sell the part to the company for $27.70
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, none of which would be avoided
if the part were purchased instead of produced internally.
In addition to the facts given above, assume that the space used to produce part R20
could be used to make more of one of the company's other products, generating an
additional segment margin of $27,000 per year for that product. What would be the
impact on the company's overall net operating income of buying part R20 from the
outside supplier and using the freed space to make more of the other product?
A. Net operating income would increase by $27,000 per year.
B. Net operating income would decline by $135,000 per year.
C. Net operating income would decline by $23,400 per year.
D. Net operating income would decline by $189,000 per year.
Answer:
Dieringer Corporation's most recent balance sheet and income statement appear below:
The working capital at the end of Year 2 is:
A. $970 thousand
B. $570 thousand
C. $280 thousand
D. $810 thousand
Answer:
Reference: 8-33
Tidd Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in November.
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 labor efficiency variance for November is:
A) $10,720 U
B) $10,720 F
C) $10,653 U
D) $10,653 F
Answer:
Management of Modugno Corporation is considering whether to purchase a new model
370 machine costing $441,000 or a new model 240 machine costing $387,000 to
replace a machine that was purchased 7 years ago for $429,000. The old machine was
used to make product M25A until it broke down last week. Unfortunately, the old
machine cannot be repaired.
Management has decided to buy the new model 240 machine. It has less capacity than
the new model 370 machine, but its capacity is sufficient to continue making product
M25A.
Management also considered, but rejected, the alternative of simply dropping product
M25A. If that were done, instead of investing $387,000 in the new machine, the money
could be invested in a project that would return a total of $430,000.
In making the decision to buy the model 240 machine rather than the model 370
machine, the differential cost was:
A. $12,000
B. $1,000
C. $54,000
D. $42,000
Answer:
Reference: 8-32
Gentile Corporation makes a product with the following standard costs:
The company produced 6,000 units in May using 36,970 kilos of direct material and
4,340 direct labor-hours. During the month, the company purchased 40,400 kilos of the
direct material at $4.70 per kilo. The actual direct labor rate was $13.70 per hour and
the actual variable overhead rate was $2.70 per hour.
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 labor rate variance for May is:
A) $1,302 U
B) $1,440 U
C) $1,440 F
D) $1,302 F
Answer:
