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1) The salvage value of new equipment should be considered when using the internal
rate of return method to evaluate a project.
2) Assuming the LIFO inventory flow assumption, if production equals sales for the
period, absorption costing and variable costing will produce the same net operating
income.
3) Internal failure costs result from identification of defects during the appraisal
process. Such costs may include scrap, rejected products, rework, and downtime.
4) In a decision to drop a product, the product should not be charged for factory rent if
the space in which the product is produced has no alternative use and the rental
payment is unavoidable.
5) Purchase of poor quality materials may cause a favorable materials price variance
and an unfavorable labor efficiency variance.
6) A fixed cost remains constant if expressed on a unit basis.
7) A cost that is relevant in one decision may not be relevant in another decision.
8) For performance evaluation purposes, the lump-sum amount of fixed service
department costs charged to an operating department should usually be based on either
the operating department's peak-period or long-run average needs.
9) Property taxes and insurance premiums paid on a factory building are examples of
period costs.
10) During its first year of operations, Carlos Manufacturing Corporation incurred the
following costs to produce 8,000 units of its only product:
The company also incurred the following costs in selling 7,500 units of product during
its first year:
Assume that direct labor is a variable cost.
Under absorption costing, what is the total cost that would be assigned to Carlos'
finished goods inventory at the end of the first year of operations?
A.$15,000
B.$42,125
C.$44,000
D.$47,125
11) What is Stone's net cash provided (used) by operating activities?
A.$(18,000)
B.$(33,000)
C.$69,000
D.$84,000
12) Ungvarsky Corporation has provided the following data concerning its most
important raw material, compound J38F:
The raw material was purchased on account.
Required:
a. Record the purchase of the raw material in a journal entry.
b. Record the use of the raw material in production in a journal entry.
13) Hamelinck Corporation would like to determine the relative profitability of a
number of jobs. For example, the revenue from Job W06Z is $77,000 and its avoidable
costs amount to $69,300, resulting in an incremental profit of $7,700. Furthermore, the
job requires 220 hours of the constrained resource. What is the profitability index for
job W06Z?
A.$315 per hour
B.$35 per hour
C.$350 per hour
D.0.10
14) Liukko Corporation's standard wage rate is $14.90 per direct labor-hour (DLH) and
according to the standards, each unit of output requires 2.8 DLHs. In June, 1,800 units
were produced, the actual wage rate was $15.80 per DLH, and the actual hours were
5,110 DLHs. The Labor Efficiency Variance for June would be recorded as a:
A.debit of $1,106.
B.credit of $1,106.
C.credit of $1,043.
D.debitof $1,043.
15) Refer to the original data in the problem. What is the current contribution margin
per unit for component D53 based on its selling price of $150 and its annual production
of 8,000 units?
A) $83 per unit
B) $118 per unit
C) $32 per unit
D) $120 per unit
16) The company's earnings per share is closest to:
A.$7.37 per share
B.$0.45 per share
C.$0.30 per share
D.$0.19 per share
17) The current ratio at the end of Year 2 is closest to:
A.0.32
B.0.38
C.1.25
D.1.20
18) Allenton Company is a manufacturing firm that uses job-order costing. At the
beginning of the year, the company's inventory balances were as follows:
The company applies overhead to jobs using a predetermined overhead rate based on
machine-hours. At the beginning of the year, the company estimated that it would work
31,000 machine-hours and incur $248,000 in manufacturing overhead cost. The
following transactions were recorded for the year:
a. Raw materials were purchased, $411,000.
b. Raw materials were requisitioned for use in production, $409,000 ($388,000 direct
and $21,000 indirect).
c. The following employee costs were incurred: direct labor, $145,000; indirect labor,
$61,000; and administrative salaries, $190,000.
d. Selling costs, $148,000.
e. Factory utility costs, $12,000.
f. Depreciation for the year was $121,000 of which $114,000 is related to factory
operations and $7,000 is related to selling, general, and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year
was 29,000 machine-hours.
h. The cost of goods manufactured for the year was $783,000.
i. Sales for the year totaled $1,107,000 and the costs on the job cost sheets of the goods
that were sold totaled $768,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods
Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a. through j.). You can
assume that all transactions with employees, customers, and suppliers were conducted
in cash.
19) Guo Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 500
units. The costs and percentage completion of these units in beginning inventory were:
A total of 9,700 units were started and 9,100 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 85% complete with respect to materials and 75% 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.$623,600
B.$638,122
C.$614,200
D.$569,301
20) 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 budget variance for the period is closest to:
A.$4,470 U
B.$950 U
C.$2,790 F
D.$1,381 U
21) If the company bases its predetermined overhead rate on the estimated amount of
the allocation base for the upcoming year, by how much was manufacturing overhead
underapplied or overapplied?
The management of Richbourg Corporation would like to investigate the possibility of
basing its predetermined overhead rate on activity at capacity. The company's controller
has provided an example to illustrate how this new system would work. In this
example, the allocation base is machine-hours and the estimated amount of the
allocation base for the upcoming year is 63,000 machine-hours. In addition, capacity is
70,000 machine-hours and the actual level of activity for the year is 66,200
machine-hours. All of the manufacturing overhead is fixed and is $2,866,500 per year.
For simplicity, it is assumed that this is the estimated manufacturing overhead for the
year as well as the manufacturing overhead at capacity. It is further assumed that this is
also the actual amount of manufacturing overhead for the year.
A.$145,600 Underapplied
B.$145,600 Overapplied
C.$155,610 Overapplied
D.$155,610 Underapplied
Predetermined overhead rate = Estimated total manufacturing overhead / Estimated
total amount of the allocation base = $2,866,500 / 63,000 machine-hours = $45.50 per
machine-hour
22) Bobe Air uses two measures of activity, flights and passengers, in the cost formulas
in its budgets and performance reports. The cost formula for plane operating costs is
$44,580 per month plus $2,390 per flight plus $8 per passenger. The company expected
its activity in May to be 68 flights and 211 passengers, but the actual activity was 71
flights and 210 passengers. The actual cost for plane operating costs in May was
$215,140.
The plane operating costs in the planning budget for May would be closest to:
A.$208,788
B.$215,950
C.$206,050
D.$215,140
23) When a multi-product factory operates at full capacity, decisions must be made
about which products to emphasize. In making such decisions, products should be
ranked based on:
A.selling price per unit
B.contribution margin per unit
C.contribution margin per unit of the constraining resource
D.unit sales volume
24) The Prattle Corporation makes and sells only one product called a Deb. The
company is in the process of preparing its Selling and Administrative Expense Budget
for next year. The following budget data are available:
All of these expenses (except depreciation) are paid in cash in the month they are
incurred.
If the company has budgeted to sell 16,000 Debs in February, then the total budgeted
fixed selling and administrative expenses for February is:
A.$75,000
B.$70,000
C.$110,000
D.$100,000
25) Which product makes the MOST profitable use of the milling machines?
A.Product A
B.Product B
C.Product C
D.Product D
26) Vancuren Corporation has two operating divisions--an East Division and a West
Division. The company's Logistics Department services both divisions. The variable
costs of the Logistics Department are budgeted at $31 per shipment. The Logistics
Department's fixed costs are budgeted at $274,400 for the year. The fixed costs of the
Logistics Department are determined based on peak-period demand.
At the end of the year, actual Logistics Department variable costs totaled $215,820 and
fixed costs totaled $294,690. The East Division had a total of 3,200 shipments and the
West Division had a total of 3,400 shipments for the year.
How much actual Logistics Department cost should not be allocated to the operating
divisions at the end of the year?
A.$31,510
B.$11,220
C.$20,290
D.$0
