1) In the absence of a constraint, all business segments that are absolutely profitable
should be retained.
2) A company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. The company’s
choice of the denominator level of activity has no effect on the variable portion of the
predetermined overhead rate.
3) An unfavorable labor rate variance can occur if workers with high hourly wage rates
are assigned to work on products with standards that assume workers have low hourly
wage rates.
4) 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.
5) All other things the same, purchasing inventory would decrease the inventory
turnover ratio.
6) All other things the same, those who hold the company’s debt (i.e., its creditors)
would like a low debt-to-equity ratio to provide a buffer of protection.
7) If a cost must be arbitrarily allocated in order to be assigned to a particular segment,
then that cost should not be considered a common cost.
8) When the predetermined overhead rate is based on direct labor-hours, the amount of
overhead applied to a job is proportional to the estimated amount of direct labor-hours
for the job.
9) Cash equivalents on the statement of cash flows consist of any investment that can be
converted into cash within one year.
10) When a company pays cash to repurchase its own common stock, this is reported as
a cash outflow in the financing activities section of the statement of cash flows.
11) Morrish Inc. bases its manufacturing overhead budget on budgeted direct
labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be
required in January. The variable overhead rate is $1.80 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $102,950 per month, which
includes depreciation of $19,880. All other fixed manufacturing overhead costs
represent current cash flows. The January cash disbursements for manufacturing
overhead on the manufacturing overhead budget should be:
A.$115,730
B.$95,850
C.$12,780
D.$83,070
12) A company that is seeking to increase ROI should attempt to decrease:
A.sales.
B.turnover.
C.margin.
D.average operating assets.
13) Hanson Corporation recently changed the selling price of one of its products. Data
concerning sales for comparable periods before and after the price change are presented
below.
The product’s price elasticity of demand as defined in the text is closest to:
A.-1.71
B.-1.65
C.-1.85
D.-2.45
14) The company’s return on equity for Year 2 is closest to:
A.5.60%
B.4.09%
C.2.66%
D.68.28%
15) The company’s dividend payout ratio for Year 2 is closest to:
A.26.3%
B.2.5%
C.18.4%
D.1.0%
16) Kari Kennel uses tenant-days as its measure of activity; an animal housed in the
kennel for one day is counted as one tenant-day. During May, the kennel budgeted for
3,200 tenant-days, but its actual level of activity was 3,230 tenant-days. The kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for May:
Data used in budgeting:
Actual results for May:
The administrative expenses in the planning budget for May would be closest to:
A.$7,879
B.$7,806
C.$7,960
D.$7,969
17) A manufacturer of playground equipment uses a standard costing system in which
standard machine-hours (MHs) is the measure of activity. Data from the company’s
flexible budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
The fixed manufacturing overhead applied to products during the period is closest to:
A.$40,650
B.$42,981
C.$41,600
D.$46,070
18) Palinkas Cane Products, Inc., processes sugar cane in batches. The company buys a
batch of sugar cane from farmers for $80 which is then crushed in the company’s plant
at a cost of $11. Two intermediate products, cane fiber and cane juice, emerge from the
crushing process. The cane fiber can be sold as is for $22 or processed further for $10 to
make the end product industrial fiber that is sold for $30. The cane juice can be sold as
is for $41 or processed further for $27 to make the end product molasses that is sold for
$101. How much profit (loss) does the company make by processing one batch of sugar
cane into the end products industrial fiber and molasses?
A) $(128)
B) $3
C) $(28)
D) $31
19) Carsten Wedding Fantasy Corporation makes very elaborate wedding cakes to
order. The owner of the company has provided the following data concerning the
activity rates in its activity-based costing system:
The measure of activity for the size-related activity cost pool is the number of planned
guests at the wedding reception. The greater the number of guests, the larger the cake.
The measure of complexity is the number of tiers in the cake. The activity measure for
the order-related cost pool is the number of orders. (Each wedding involves one order.)
The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and
shortening. The activity rates do not include the costs of purchased decorations such as
miniature statues and wedding bells, which are accounted for separately.
Data concerning two recent orders appear below:
Suppose that the company decides that the present activity-based costing system is too
complex and that all costs (except for the costs of purchased decorations) should be
allocated on the basis of the number of guests. In that event, what would you expect to
happen to the costs of cakes?
A.The cost of cakes for receptions with more than the average number of guests would
go down.
B.The cost of cakes for receptions with fewer than the average number of guests would
go down.
C.The costs of all cakes would go down.
D.The costs of all cakes would go up.
20) The company’s operating cycle for Year 2 is closest to:
A.70.8 days
B.10.0 days
C.87.7 days
D.148.5 days
21) Foster Company makes 20,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $51.80
a unit. If the company accepts this offer, the facilities now being used to make the part
could be used to make more units of a product that is in high demand. The additional
contribution margin on this other product would be $44,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the
part would be avoided. However, $5.10 of the fixed manufacturing overhead cost being
applied to the part would continue even if the part were purchased from the outside
supplier. This fixed manufacturing overhead cost would be applied to the company’s
remaining products.
Required:
a. How much of the unit product cost of $56.70 is relevant in the decision of whether to
make or buy the part?
b. What is the net total dollar advantage (disadvantage) of purchasing the part rather
than making it?
c. What is the maximum amount the company should be willing to pay an outside
supplier per unit for the part if the supplier commits to supplying all 20,000 units
required each year?
22) Crystal Corporation produces a single product. The company’s variable costing
income statement for the month of May appears below:
The company produced 80,000 units in May and the beginning inventory consisted of
25,000 units. Variable production costs per unit and total fixed costs have remained
constant over the past several months.
The value of the company’s inventory on May 31 under absorption costing would be:
A.$120,000
B.$90,000
C.$75,000
D.$60,000
23) Using the least-squares regression method, the estimated variable cost per labor
hour for maintenance is closest to:
A.$1.88
B.$1.52
C.$1.09
D.$1.96
24) Gehlhausen Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $5,600. The market price of common
stock at the end of Year 2 was $5.60 per share.
25) In September, one of the processing departments at Farquer Corporation had
beginning work in process inventory of $34,000. During the month, $342,000 of costs
were added to production and the cost of units transferred out from the department was
$357,000.
Required:
Construct a cost reconciliation report for the department for the month of September.
26) Villeda Corporation uses the following activity rates from its activity-based costing
to assign overhead costs to products.
Data concerning two products appear below:
Required:
How much overhead cost would be assigned to each of the two products using the
company’s activity-based costing system?
27) ( Flamio Corporation is considering a project that would require an initial
investment of $210,000 and would last for 6 years. The incremental annual revenues
and expenses for each of the 6 years would be as follows:
At the end of the project, the scrap value of the project’s assets would be $24,000.
Required:
Determine the payback period of the project. Show your work!
28) Below are cost and activity data for a particular cost over the last four periods. Your
boss has asked you to analyze this cost so that management will have a better
understanding of how this cost changes in response to changes in activity.
Required:
Using the least-squares regression method, estimate the cost formula for this cost.
