1) Delta Railroad has two operating divisions–Freight and Passenger. The Maintenance
Department serves both divisions. Variable Maintenance Department costs are budgeted
at $12 per thousand miles. The fixed Maintenance Department costs are budgeted at
$800,000 per year. The level of the fixed Maintenance Department costs are determined
by the peak-period requirements. Data for last year follow:
During last year, the Maintenance Department actually incurred $650,000 in variable
costs and $815,000 in fixed costs.
For performance evaluation purposes, how much of the Maintenance Department’s
actual variable costs should be retained in that department as a spending variance?
A.$74,000
B.$0
C.$50,000
D.$60,000
2) ( Tranter, Inc., is considering a project that would have a ten-year life and would
require a $1,500,000 investment in equipment. At the end of ten years, the project
would terminate and the equipment would have no salvage value. The project would
provide net operating income each year as follows:
All of the above items, except for depreciation, represent cash flows. The company’s
required rate of return is 12%.
Required:
a. Compute the project’s net present value.
b. Compute the project’s internal rate of return to the nearest whole percent.
c. Compute the project’s payback period.
d. Compute the project’s simple rate of return.
3) A manufacturing company prepays its insurance coverage for a three-year period.
The premium for the three years is $2,400 and is paid at the beginning of the first year.
Seventy percent of the premium applies to manufacturing operations and thirty percent
applies to selling and administrative activities. What amounts should be considered
product and period costs respectively for the first year of coverage?
Product Period
A) $800 $0
B) $0 $800
C) $560 $240
D) $240 $560
4) 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 cost of ending work in process inventory in the first processing department
according to the company’s cost system is closest to:
A.$54,299
B.$51,613
C.$58,495
D.$68,817
5) Iaci Company makes two products from a common input. Joint processing costs up
to the split-off point total $42,000 a year. The company allocates these costs to the joint
products on the basis of their total sales values at the split-off point. Each product may
be sold at the split-off point or processed further. Data concerning these products appear
below:
Required:
a. What is the net monetary advantage (disadvantage) of processing Product X beyond
the split-off point?
b. What is the net monetary advantage (disadvantage) of processing Product Y beyond
the split-off point?
c. What is the minimum amount the company should accept for Product X if it is to be
sold at the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be
sold at the split-off point?
6) Irawaddy Company, a retailer, had cost of goods sold of $230,000 last year. The
beginning inventory balance was $24,000 and the ending inventory balance was
$22,000. The company’s average sale period was closest to:
A.36.5 days
B.73.0 days
C.38.1 days
D.34.9 days
7) Nitrol Corporation manufactures brass vases using a standard cost system with
standard machine-hours as the activity base for overhead. The following information
relates to vase production at Nitrol for last year:
The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.
What was Nitrol’s total underapplied or overapplied overhead cost for last year?
A.$1,060 overapplied
B.$1,060 underapplied
C.$7,940 overapplied
D.$13,940 overapplied
8) What is the differential cost of Alternative Y over Alternative X, including all of the
relevant costs?
A) $122,000
B) $136,000
C) $108,000
D) $28,000
9) Are the materials costs and processing costs relevant in the choice between
alternatives X and Y? (Ignore the equipment rental and occupancy costs in this
question.)
A) Only processing costs are relevant
B) Both materials costs and processing costs are relevant
C) Only materials costs are relevant
D) Neither materials costs nor processing costs are relevant
10) Buker Corporation bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. Data for the upcoming year appear below:
The predetermined overhead rate for the recently completed year was closest to:
A.$22.04
B.$29.59
C.$7.67
D.$29.71
11) Ros Corporation’s flexible budget cost formula for indirect materials, a variable
cost, is $0.90 per unit of output. If the company’s performance report for last month
shows a $500 unfavorable spending variance for indirect materials and if 8,000 units of
output were produced last month, then the actual costs incurred for indirect materials
for the month must have been:
A.$7,650
B.$7,700
C.$7,200
D.$6,700
12) A manufacturer of premium wire strippers has supplied the following data:
The company’s degree of operating leverage is closest to:
A.20.09
B.7.73
C.1.86
D.55.64
13) (Ignore income taxes in this problem) Buse Corporation is investigating buying a
small used aircraft for the use of its executives. The aircraft would have a useful life of
8 years. The company uses a discount rate of 14% in its capital budgeting. The net
present value of the investment, excluding the salvage value of the aircraft, is
-$488,487. Management is having difficulty estimating the salvage value of the aircraft.
To the nearest whole dollar how large would the salvage value of the aircraft have to be
to make the investment in the aircraft financially attractive?
A.$1,391,701
B.$3,489,193
C.$68,388
D.$488,487
14) Bosques Corporation has in stock 35,800 kilograms of material L that it bought five
years ago for $5.55 per kilogram. This raw material was purchased to use in a product
line that has been discontinued. Material L can be sold as is for scrap for $1.67 per
kilogram. An alternative would be to use material L in one of the company’s current
products, Q08C, which currently requires 2 kilograms of a raw material that is available
for $9.15 per kilogram. Material L can be modified at a cost of $0.78 per kilogram so
that it can be used as a substitute for this material in the production of product Q08C.
However, after modification, 4 kilograms of material L is required for every unit of
product Q08C that is produced. Bosques Corporation has now received a request from a
company that could use material L in its production process. Assuming that Bosques
Corporation could use all of its stock of material L to make product Q08C or the
company could sell all of its stock of the material at the current scrap price of $1.67 per
kilogram, what is the minimum acceptable selling price of material L to the company
that could use material L in its own production process?
A.$5.365 per kg
B.$3.795 per kg
C.$2.133 per kg
D.$1.675 per kg
15) Dexter Corporation uses a standard cost system and applies manufacturing
overhead cost to units of product on the basis of standard direct labor-hours (DLHs).
Information on Dexter Corporation’s manufacturing overhead costs for last period is
given below:
Given these data, the underapplied or overapplied overhead cost for the period would
be:
A.$10,000 overapplied
B.$2,000 overapplied
C.$10,000 underapplied
D.$8,000 underapplied