1) the tobler company has budgeted production for next year as follows:
four pounds of raw materials are required for each unit produced. raw materials on hand
at the start of the year total 4,000 pounds. the raw materials inventory at the end of each
quarter should equal 10% of the next quarter’s production needs. budgeted purchases of
raw materials in the third quarter would be:
a.63,200 pounds
b.62,400 pounds
c.56,800 pounds
d.50,400 pounds
2) rowena corporation manufactures laser printers. rowena currently manufactures the
32,000 imaging drums that it uses in its printers. the annual costs to manufacture these
32,000 drums are as follows:
hardware solutions, inc. has offered to provide rowena with all of its imaging drum
needs for $72 per drum. if rowena accepts this offer, 70% of the fixed manufacturing
cost above could be totally eliminated. also, rowena will be able to use the freed up
space to generate $240,000 of income each year in the production of alternative
products.
based on the information presented, would rowena be better off to make the drums or
buy the drums and by how much?
a.$112,000 better to make
b.$128,000 better to buy
c.$526,400 better to buy
d.$704,000 better to make
3) maintenance costs at a neller corporation factory are listed below:
management believes that maintenance cost is a mixed cost that depends on
machine-hours. using the high-low method to estimate the variable and fixed
components of this cost, these estimates would be closest to:
a.$1.85 per machine-hour; $21,325 per month
b.$3.77 per machine-hour; $15,648 per month
c.$9.07 per machine-hour; $26,762 per month
d.$0.27 per machine-hour; $26,071 per month
4) guynn corporation’s most recent balance sheet and income statement appear below:
dividends on common stock during year 2 totaled $10 thousand. dividends on preferred
stock totaled $5 thousand. the market price of common stock at the end of year 2 was
$7.05 per share.
the book value per share at the end of year 2 is closest to:
a.$8.70
b.$0.50
c.$7.70
d.$14.30
5) rippelmeyer 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 june, the kennel budgeted
for 3,600 tenant-days, but its actual level of activity was 3,550 tenant-days. the kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for june:
the activity variance for wages and salaries in june would be closest to:
a.$310 f
b.$110 f
c.$310 u
d.$110 u
6) excerpts from shelton corporation’s most recent balance sheet appear below:
sales on account in year 2 amounted to $1,320 and the cost of goods sold was $890.
the current ratio at the end of year 2 is closest to:
a.0.43
b.0.85
c.2.19
d.0.36
7) excerpts from melby corporation’s most recent balance sheet appear below:
net income for year 2 was $94,000. dividends on common stock were $33,000 in total
and dividends on preferred stock were $11,000 in total. the return on common
stockholders’ equity for year 2 is closest to:
a.7.8%
b.7.4%
c.4.8%
d.8.8%
8) which costs will change with a decrease in activity within the relevant range?
a.total fixed costs and total variable cost
b.unit fixed costs and total variable cost
c.unit variable cost and unit fixed cost
d.unit fixed cost and total fixed cost
9) enriques corporation manufactures and sells a single product. the company uses units
as the measure of activity in its budgets and performance reports. during february, the
company budgeted for 5,000 units, but its actual level of activity was 4,990 units. the
company has provided the following data concerning the formulas used in its budgeting
and its actual results for february:
the activity variance for selling and administrative expenses in february would be
closest to:
a.$1,308 f
b.$1,308 u
c.$2 u
d.$2 f
10) guasson 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 6,400 units were started and 5,800 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 50% 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.
what are the equivalent units for conversion costs for the month in the first processing
department?
a.6,900
b.6,350
c.5,800
d.550
11) there are various budgets within the master budget. one of these budgets is the
production budget. which of the following best describes the production budget?
a.it details the required direct labor hours
b.it details the required raw materials purchases
c.it is calculated based on the sales budget and the desired ending inventory
d.it summarizes the costs of producing units for the budget period
12) murphree clinic uses client-visits as its measure of activity. during april, the clinic
budgeted for 3,300 client-visits, but its actual level of activity was 3,350 client-visits.
the clinic has provided the following data concerning the formulas used in its budgeting
and its actual results for april:
the net operating income in the planning budget for april would be closest to:
a.$14,425
b.$19,519
c.$13,550
d.$20,115
13) justin’s plant store, a retailer, started operations on january 1. on that date, the only
assets were $16,000 in cash and $3,500 in merchandise inventory. for purposes of
budget preparation, assume that the company’s cost of goods sold is 60% of sales.
expected sales for the first four months appear below.
the company desires that the merchandise inventory on hand at the end of each month
be equal to 50% of the next month’s merchandise sales (stated at cost). all purchases of
merchandise inventory must be paid in the month of purchase. sixty percent of all sales
should be for cash; the balance will be on credit. seventy-five percent of the credit sales
should be collected in the month following the month of sale, with the balance collected
in the following month. variable selling and administrative expenses should be 10% of
sales and fixed expenses (all depreciation) should be $3,000 per month. cash payments
for the variable selling and administrative expenses are made during the month the
expenses are incurred.
in a budgeted income statement for the month of february, net income would be:
a.$9,000
b.$1,800
c.$0
d.$4,200
14) lantrip jeep tours operates jeep tours in the heart of the colorado rockies. the
company bases its budgets on two measures of activity (i.e., cost drivers), namely
guests and jeeps. one vehicle used in one tour on one day counts as a jeep. each jeep has
one tour guide. the company uses the following data in its budgeting:
in january, the company budgeted for 356 guests and 174 jeeps. the actual activity for
the month was 341 guests and 177 jeeps.
required:
prepare the company’s planning budget for january.
15) gamon memorial diner is a charity supported by donations that provides free meals
to the homeless. the diner’s budget for april was based on 3,600 meals. the diner’s
director has provided the following cost formulas to use in budgets:
the director has also provided the diner’s statement of actual expenses for the month:
required:
prepare a flexible budget performance report showing both the activity variances and
the spending variances for each of the expenses and for total expenses for april. label
each variance as favorable (f) or unfavorable (u).
16) (ignore income taxes in this problem.) bradley company’s required rate of return is
14%. the company has an opportunity to be the exclusive distributor of a very popular
consumer item. no new equipment would be needed, but the company would have to
use one-fourth of the space in a warehouse it owns. the warehouse cost $200,000 new.
the warehouse is currently half-empty and there are no other plans to use the empty
space. in addition, the company would have to invest $100,000 in working capital to
carry inventories and accounts receivable for the new product line. the company would
have the distributorship for only 5 years. the distributorship would generate a $17,000
annual net cash inflow.
required:
what is the net present value of the project at a discount rate of 14 per cent? should be
project be accepted?
17) data from colinger corporation’s most recent balance sheet appear below:
a total of 200,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year.
required:
compute the book value per share. show your work!
18) gruen corporation produces and sells a single product. data concerning that product
appear below:
fixed expenses are $505,000 per month. the company is currently selling 5,000 units per
month.
required:
the marketing manager would like to introduce sales commissions as an incentive for
the sales staff. the marketing manager has proposed a commission of $16 per unit. in
exchange, the sales staff would accept an overall decrease in their salaries of $65,000
per month. the marketing manager predicts that introducing this sales incentive would
increase monthly sales by 100 units. what should be the overall effect on the company’s
monthly net operating income of this change? show your work!