1) A company whose inventory turnover ratio is much slower than the average for its
industry may have too much inventory or the wrong sorts of inventory.
2) Vertical analysis of financial statements is accomplished by preparing common-size
statements.
3) The present value of a given amount increases as the number of years over which it
is to be discounted decreases.
4) In a decision to drop a segment, the opportunity cost of the space occupied by the
segment is the cost of renting or building similar space nearby.
5) A common-size financial statement is a vertical analysis in which each financial
statement account is expressed as a percentage.
6) A fixed cost cannot be a differential cost.
7) The standard cost per unit is computed by dividing the standard quantity or hours by
the standard price or rate.
8) The sales budget often includes a schedule of expected cash collections.
9) One of the advantages of allocating common fixed costs to a product is that such
allocations more accurately reflect the products true profitability.
10) The North Division of the Lyman Company reported the following data for last
year:
The return on investment last year for the North Division was:
A.18%
B.40%
C.36%
D.80%
11) Brown Corporation has sales of 2,000 units at $70 per unit. Variable expenses are
40% of the selling price. If total fixed expenses are $44,000, the degree of operating
leverage is:
A.0.79
B.1.40
C.3.50
D.2.10
12) Dancause Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During October,
the company budgeted for 5,100 units, but its actual level of activity was 5,090 units.
The company has provided the following data concerning the formulas to be used in its
budgeting:
The direct materials in the flexible budget for October would be closest to:
A.$67,320
B.$64,905
C.$64,651
D.$67,188
13) Last year, Rassel Corporation’s variable costing net operating income was $63,200.
Fixed manufacturing overhead costs deferred in inventory under absorption costing
amounted to $31,900. What was the absorption costing net operating income last year?
A.$31,300
B.$95,100
C.$63,200
D.$31,900
14) The company’s price-earnings ratio for Year 2 is closest to:
A.3.79
B.10.58
C.0.17
D.7.44
15) The payback period on the new machine is closest to:
A.6.0 years
B.2.9 years
C.4.0 years
D.4.3 years
16) The company’s equity multiplier at the end of Year 2 is closest to:
A.1.60
B.1.68
C.0.63
D.0.60
Equity multiplier = Average total assets* Average stockholders’ equity*
= $1,326,500 $827,500 = 1.60 (rounded)
*Average total assets = ($1,333,000 + $1,320,000) 2 = $1,326,500
**Average stockholders’ equity = ($835,000 + $820,000) 2 = $827,500
Deacon Corporation has provided the following financial data from its balance sheet
and income statement:
17) Callicott Corporation produces a product that sells for $120 per unit. The product’s
current sales are 25,400 units and its break-even sales are 18,542 units.
What is the margin of safety in dollars?
A.$822,960
B.$2,032,000
C.$3,048,000
D.$2,225,040
18) Marlan Manufacturing produces a product that passes through two processing
departments. The units from the Molding Department are completed in the Assembly
Department. The activity in the Assembly Department for the current month is
presented below. Marlan uses the FIFO method in its process costing system.
The equivalent units for conversion costs for the Assembly Department during the
month were:
A.36,800 units
B.38,000 units
C.40,800 units
D.42,800 units
19) Barker 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:
a. Determine the equivalent units of production for materials and conversion costs.
b. Determine the cost per equivalent unit for materials and conversion costs.
c. Determine the cost of units transferred out of the department during the month.
d. Determine the cost of ending work in process inventory in the department.
20) Kenrick Corporation uses activity-based costing to compute product margins. In the
first stage, the activity-based costing system allocates two overhead
accounts-equipment expense and indirect labor-to three activity cost pools-Processing,
Supervising, and Other-based on resource consumption. Data to perform these
allocations appear below:
In the second stage, Processing costs are assigned to products using machine-hours
(MHs) and Supervising costs are assigned to products using the number of batches. The
costs in the Other activity cost pool are not assigned to products. Activity data for the
company’s two products follow:
Finally, sales and direct cost data are combined with Processing and Supervising costs
to determine product margins.
The activity rate for the Processing activity cost pool under activity-based costing is
closest to:
A.$2.00 per MH
B.$0.18 per MH
C.$0.24 per MH
D.$1.00 per MH
21) Which of the following is not a source of financial leverage?
A.Bonds payable.
B.Accounts payable.
C.Taxes payable.
D.Prepaid rent.
22) Crossland Corporation reported sales on its income statement of $435,000. On the
statement of cash flows, which used the direct method, sales adjusted to a cash basis
were $455,000. Crossland Corporation reported the following account balances on its
balance sheet for the year:
Based on this information, the beginning balance in accounts receivable was:
A.$50,000
B.$40,000
C.$30,000
D.$20,000
23) Dideda Corporation uses an activity-based costing system with three activity cost
pools. The company has provided the following data concerning its costs and its activity
based costing system:
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
You have been asked to complete the first-stage allocation of costs to the activity cost
pools.
How much cost, in total, would be allocated in the first-stage allocation to the Order
Size activity cost pool?
A.$150,000
B.$360,000
C.$255,000
D.$234,000
24) Suppose Melrose can sell 68,000 units of Product C to regular customers next year.
If Moore Corporation offers to buy the special order units at $90 per unit, the effect of
accepting the special order for 7,000 units on Melrose’s net operating income for next
year will be a:
A) $79,500 increase
B) $104,000 increase
C) $114,500 increase
D) $294,000 increase
25) Spectrum Manufacturing had the following information in its records at the end of
the year:
What was the balance in Manufacturing Overhead, and when closed what will the effect
be on gross margin?
A.$3,000 underapplied, and increase
B.$3,000 overapplied, and increase
C.$3,000 underapplied, and decrease
D.$3,000 overapplied, and decrease
26) The manufacturing overhead budget at Amrein Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will
be required in August. The variable overhead rate is $9.40 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $96,040 per month, which
includes depreciation of $7,350. All other fixed manufacturing overhead costs represent
current cash flows. The August cash disbursements for manufacturing overhead on the
manufacturing overhead budget should be:
A.$88,690
B.$134,750
C.$46,060
D.$142,100
27) Smay Corporation has provided the following data:
The accounts receivable turnover for this year is closest to:
A.1.01
B.0.99
C.6.08
D.6.11
28) Kingdon Corporation’s manufacturing overhead includes $7.10 per machine-hour
for variable manufacturing overhead and $207,000 per period for fixed manufacturing
overhead.
Required:
Determine the predetermined overhead rate for the denominator level of activity of
4,600 machine-hours.
29) Mondok Corporation has provided the following financial data:
30) Juliar Inc. has provided the following data concerning a proposed investment
project:
The company uses a discount rate of 12%.
Required:
Compute the net present value of the project.
31) Data from Yochem Corporation’s most recent balance sheet appear below:
32) Ronan Corporation produces a single product and has the following cost structure:
Required:
Compute the unit product cost under variable costing. Show your work!
33) Kaloi Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $3,500. The market price of common
stock at the end of Year 2 was $7.46 per share.
34) Jaquez Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $10,000. The market price of
common stock at the end of Year 2 was $5.45 per share.