1) Purchasing inventory on credit increases the book value per share of a retailer.
2) One disadvantage of a self-imposed budget is that budget estimates prepared by
front-line managers are often less accurate and reliable than estimates prepared by top
managers.
3) The acid-test ratio is usually greater than the current ratio.
4) A transfer price is the price charged when a company provides goods or services to
an outside company.
5) If the internal rate of return exceeds the required rate of return for a project, then the
net present value of that project is negative.
6) If sales volume decreases, and all other factors remain unchanged, the contribution
margin ratio will decrease.
7) In activity-based costing, nonmanufacturing costs are not assigned to products.
8) An activity variance is due to the difference between the level of activity used in the
flexible budget and the actual level of activity.
9) The management of Bercegeay Corporation is considering dropping product Y25C.
Data from the company’s accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s
accounting system. Further investigation has revealed that $117,000 of the fixed
manufacturing expenses and $78,000 of the fixed selling and administrative expenses
are avoidable if product Y25C is discontinued.
Required:
a. What is the net operating income earned by product Y25C according to the
company’s accounting system? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping
product Y25C? Should the product be dropped? Show your work!
10) ( Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The
auto was purchased for $28,000 and will have a 6-year useful life and a $4,000 salvage
value. Delivering prescriptions (which the pharmacy has never done before) should
increase gross revenues by at least $32,000 per year. The cost of these prescriptions to
the pharmacy will be about $25,000 per year. The pharmacy depreciates all assets using
the straight-line method. The payback period for the auto is closest to:
A.4 years
B.1.8 years
C.2 years
D.1.2 years
11) James just received an $8,000 inheritance check from the estate of his deceased rich
uncle. James wants to set aside enough money to pay for a trip in five years. If the trip
is expected to cost $5,000, how much of the $8,000 must James deposit now if the rate
of return is 12% per year in order to have the $5,000 in five years?
A.$2,535
B.$2,835
C.$2,000
D.$5,000
12) Arakaki Inc. is working on its cash budget for January. The budgeted beginning
cash balance is $41,000. Budgeted cash receipts total $114,000 and budgeted cash
disbursements total $113,000. The desired ending cash balance is $60,000. The excess
(deficiency) of cash available over disbursements for January will be:
A.$42,000
B.$155,000
C.$40,000
D.$1,000
13) Homer Corporation has a standard cost system in which manufacturing overhead is
applied on the basis of standard machine-hours. The company has provided the
following data concerning its manufacturing overhead costs for last year:
The volume variance was:
A.$200 F
B.$400 U
C.$300 F
D.$240 U
14) Vette Tie Corporation has developed the following manufacturing overhead
standards to use in applying overhead to the production of its hand-painted silk ties.
Manufacturing overhead at Vette is applied to production on the basis of standard direct
labor-hours (DLHs).
The above standards were based on an expected annual volume of 60,000 ties. The
actual results for last year were as follows:
What was Vette’s fixed manufacturing overhead budget variance?
A.$1,600 Unfavorable
B.$3,000 Favorable
C.$13,000 Unfavorable
D.$17,600 Unfavorable
15) Alpha Corporation reported the following data for its most recent year: sales,
$500,000; variable expenses, $300,000; and fixed expenses, $150,000. The company’s
degree of operating leverage is:
A.10
B.2
C.4
D.2.5
16) Consider the following statements:
I. A division’s net operating income, after deducting both traceable and allocated
common fixed costs, is negative.
II. The division’s avoidable fixed costs exceed its contribution margin.
III. The division’s traceable fixed costs plus its allocated common corporate costs
exceed its contribution margin.
Which of the above statements is a valid reason for eliminating the division?
A.Only I
B.Only II
C.Only III
D.Only I and II
17) Gilder Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in June.
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 June is:
A.$640 F
B.$640 U
C.$612 F
D.$612 U
18) 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 administrative expenses in the planning budget for July would be closest to:
A.$4,568
B.$4,418
C.$4,597
D.$4,420
19) The Adlake Corporation makes and sells a single product and uses a standard cost
system. During October, the company budgeted $300,000 in manufacturing overhead
cost at a denominator activity of 20,000 machine-hours. At standard, each unit of
finished product requires 5 machine-hours. The following cost and activity were
recorded during October:
The amount of overhead cost that the company applied to work in process for October
was:
A.$279,300
B.$291,330
C.$294,000
D.$285,000
20) The Swenson Corporation has a standard costing system. The following data are
available for June:
The actual price per pound of direct materials purchased in June is:
A.$3.92
B.$4.32
C.$4.08
D.$4.20
21) Mcrae Corporation’s total current assets are $380,000, its noncurrent assets are
$500,000, its total current liabilities are $340,000, its long-term liabilities are $250,000,
and its stockholders’ equity is $290,000. Working capital is:
A.$380,000
B.$40,000
C.$250,000
D.$290,000
22) Sidell Inc., which produces a single product, has provided the following data for its
most recent month of operation:
The company had no beginning or ending inventories.
Required:
Compute the unit product cost under absorption costing. Show your work!
23) Perrett Corporation has provided the following financial data:
24) Mitchener Corp. manufactures three products from a common input in a joint
processing operation. Joint processing costs up to the split-off point total $300,000 per
year. The company allocates these costs to the joint products on the basis of their total
sales value at the split-off point.
Each product may be sold at the split-off point or processed further. The additional
processing costs and sales value after further processing for each product (on an annual
basis) are:
Required:
Which product or products should be sold at the split-off point, and which product or
products should be processed further? Show computations.
25) Walker Corporation has provided the following financial data:
The company’s net operating income for Year 2 was $63,615 and its interest expense
was $15,000.
26) Northern Stores is a retailer in the upper Midwest. The most recent monthly income
statement for Northern Stores is given below:
Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable
fixed expenses would continue. Also, the closing of Store I would result in a 20%
decrease in sales in Store II. Northern allocates common fixed expenses on the basis of
sales dollars and none of these costs would be saved if a store were shut down.
Required:
Compute the overall increase or decrease in the net operating income of Northern
Stores if Store I is closed.
27) Bredder Supply Corporation manufactures and sells cotton gauze. Expected sales of
gauze (in boxes) for upcoming months are as follows:
Management likes to maintain a finished goods inventory equal to 20% of the next
month’s estimated sales.
Required:
Prepare the company’s production budget for the third quarter of this year (the months
of July, August and September). Include a column for each month and a total column
for the entire quarter.
28) Arkin Corporation’s total current assets are $290,000, its noncurrent assets are
$520,000, its total current liabilities are $210,000, its long-term liabilities are $420,000,
and its stockholders’ equity is $180,000.