1) What is the purpose of a responsibility accounting system?
2) Shock Company purchased merchandise from Mee Company with an invoice price
of $300,000 and credit terms of 2/10, n/30. The merchandise had cost Mee Company
$200,000. Shock Company paid within the discount period. Assume that both buyer and
seller use a perpetual inventory system.
3) A _______________ cost is one that remains unchanged in amount when volume of
activity varies from period to period within a relevant range. A ______________ cost is
one that changes in proportion to changes in volume of activity.
4) Herriot Co. has total fixed costs of $180,000 and a contribution margin ratio of 40%.
Assume that an additional advertising expenditure of $4,000 would increase sales by
$8,000. Should the company spend this additional amount on advertising? (Support
your answer with calculations.)
5) FOB _________________ means ownership of goods transfers to the buyer when
the goods arrive at the buyer’s place of business. The seller is responsible for paying
shipping charges and bears the risk of damage or loss in transit.
6) The comparison of a company’s financial condition and performance across time is
known as ______________________________.
7) The following information is available for the Eldridge Company:
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the
bonds retired.
(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.
(3) New machinery was purchased for $81,060 cash.
(4) Cash dividends of $40,320 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 2011 using the indirect
method.
8) On January 1, a machine costing $260,000 with a 4-year life and an estimated $5,000
salvage value was purchased. It was also estimated that the machine would produce
500,000 units during its life. The actual units produced during its first year of operation
were 110,000. Determine the amount of depreciation expense for the first year under
each of the following assumptions:
1> The company uses the straight-line method of depreciation.
2> The company uses the units-of-production method of depreciation.
3> The company uses the double-declining-balance method of depreciation.
9) In producing 700 units of Product CBA last period, Cobalt Company used 5,000
pounds of Material H, costing $34,250. The company has established the standard of
using 7.2 pounds of Material H per unit of CBA, at a price of $7.50 per pound.
Calculate the materials price and quantity variances associated with producing the 700
units, and indicate whether they are favorable or unfavorable: