1) when reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs released from inventory under absorption costing should
be deducted from variable costing net operating income to arrive at the absorption
costing net operating income.
2) net operating income is affected by changes in production under both variable
costing and absorption costing.
3) a static planning budget is suitable for planning and for evaluating how well costs are
controlled.
4) a value chain consists of the major subassemblies that add value to a product.
5) direct labor is a part of both prime cost and conversion cost.
6) a strategy is a game plan that enables a company to attract customers by mimicking
what successful competitors do.
7) the labor time ticket contains the details of how much time an employee takes on
each task throughout the day.
8) although depreciation is always a period cost in a merchandising firm, it can be a
product cost in a manufacturing firm.
9) walsh company produces a single product. last year, the company manufactured
25,000 units and sold 22,000 units. production costs were as follows:
sales totaled $440,000, variable selling and administrative expenses were $110,000, and
fixed selling and administrative expenses were $45,000. there was no beginning
inventory. assume that direct labor is a variable cost.
the net operating income under variable costing would be:
a.$2,000
b.$21,000
c.$12,000
d.$9,000
10) the tolar company has 400 obsolete desk calculators that are carried in inventory at
a total cost of $26,800. if these calculators are upgraded at a total cost of $10,000, they
can be sold for a total of $30,000. as an alternative, the calculators can be sold in their
present condition for $11,200.
what is the net advantage or disadvantage to the company from upgrading the
calculators?
a.$8,800 advantage
b.$18,000 disadvantage
c.$20,000 advantage
d.$8,000 disadvantage
11) lian corporation’s standard wage rate is $12.10 per direct labor-hour (dlh) and
according to the standards, each unit of output requires 7.1 dlhs. in june, 4,500 units
were produced, the actual wage rate was $11.90 per dlh, and the actual hours were
35,930 dlhs.
in the journal entry to record the incurrence of direct labor costs in june, the work in
process entry would consist of a:
a.debit of $427,567
b.credit of $427,567
c.debit of $386,595
d.credit of $386,595
12) the management of baggerly 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 81,000 machine-hours. in addition, capacity is 95,000
machine-hours and the actual level of activity for the year is 84,900 machine-hours. all
of the manufacturing overhead is fixed and is $6,617,700 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. if the company bases its predetermined
overhead rate on capacity, by how much was manufacturing overhead underapplied or
overapplied?
a.$318,630 overapplied
b.$703,566 underapplied
c.$703,566 overapplied
d.$318,630 underapplied
13) each of the following would be classified as variable in terms of cost behavior
except:
a.cost of shipping goods to customers via express mail
b.sales commissions
c.plant manager’s salary
d.direct materials
14) colley corporation’s balance sheet and income statement appear below:
cash dividends were $26. the company sold equipment for $15 that was originally
purchased for $6 and that had accumulated depreciation of $2. the net cash provided by
(used by) operations for the year was:
a.$120
b.$124
c.$135
d.$150
15) botwinick corporation manufactures a variety of products. the following data
pertain to the company’s operations over the last two years:
what was the absorption costing net operating income last year?
a.$90,000
b.$59,000
c.$28,000
d.$68,000
16) razor 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 november, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 3,010 tenant-days. the kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for november:
the spending variance for facility expenses in november would be closest to:
a.$416 u
b.$416 f
c.$390 f
d.$390 u
17) buffaloe corporation manufactures and sells a single product. the company uses
units as the measure of activity in its budgets and performance reports. during august,
the company budgeted for 5,200 units, but its actual level of activity was 5,250 units.
the company has provided the following data concerning the formulas used in its
budgeting and its actual results for august:
the spending variance for manufacturing overhead in august would be closest to:
a.$2,055 f
b.$2,055 u
c.$2,120 u
d.$2,120 f
18) the management of dorl corporation has been concerned for some time with the
financial performance of its product i54j and has considered discontinuing it on several
occasions. data from the company’s accounting system appear below:
in the company’s accounting system all fixed expenses of the company are fully
allocated to products. further investigation has revealed that $95,000 of the fixed
manufacturing expenses and $85,000 of the fixed selling and administrative expenses
are avoidable if product i54j is discontinued.
what would be the effect on the company’s overall net operating income if product i54j
were dropped?
a.overall net operating income would decrease by $177,000
b.overall net operating income would increase by $177,000
c.overall net operating income would increase by $14,000
d.overall net operating income would decrease by $14,000
19) centerville company’s debt-to-equity ratio is 0.60 total assets are $320,000, current
assets are $170,000 and working capital is $80,000. centerville’s long-term liabilities
must be:
a.$30,000
b.$80,000
c.$90,000
d.$120,000
20) dilom farm supply is located in a small town in the rural west. data regarding the
store’s operations follow:
sales are budgeted at $260,000 for november, $230,000 for december, and $210,000 for
january.
collections are expected to be 55% in the month of sale, 40% in the month following
the sale, and 5% uncollectible.
the cost of goods sold is 80% of sales.
the company purchases 50% of its merchandise in the month prior to the month of sale
and 50% in the month of sale. payment for merchandise is made in the month following
the purchase.
other monthly expenses to be paid in cash are $21,700.
monthly depreciation is $17,000.
ignore taxes.
the net income (loss) for december would be:
a.$24,300
b.$12,800
c.($4,200)
d.$7,300
21) a company increased the selling price for its product from $5 to $6 per unit when
total fixed expenses increased from $100,000 to $200,000 and variable expense per unit
remained unchanged. how would these changes affect the break-even point?
a.the break-even point in units would increase
b.the break-even point in units would decrease
c.the break-even point in units would remain unchanged
d.the effect cannot be determined from the information given
22) the apoundright company uses standard costing and has established the following
standards for its single product:
direct materials: 2 gallons at $3 per gallon
direct labor: 0.5 hours at $8 per hour
variable overhead: 0.5 hours at $2 per hour
during november, the company made 4,000 units and incurred the following costs:
direct materials purchased: 8,100 gallons at $3.10 per gallon
direct materials used: 7,600 gallons
direct labor used: 2,200 hours at $8.25 per hour
actual variable overhead: $4,175
the company applies variable overhead to products on the basis of standard direct
labor-hours.
the labor efficiency variance for november was:
a.$1,050 u
b.$550 u
c.$1,600 f
d.$1,600 u
23) couey corporation, which produces highway lighting poles, has provided the
following data:
the variable overhead efficiency variance for indirect labor is:
a.$2,196 u
b.$1,829 u
c.$2,196 f
d.$1,829 f
24) financial statements for oram company appear below:
dividends during year 2 totaled $161 thousand, of which $10 thousand were preferred
dividends. the market price of a share of common stock on december 31, year 2 was
$610.
oram company’s earnings per share of common stock for year 2 was closest to:
a.$36.38
b.$4.28
c.$37.63
d.$53.75
25) weber company computes net operating income under both the absorption costing
approach and the variable costing approach. for a given year the absorption costing net
operating income was greater than the variable costing net operating income. this fact
suggests that:
a.variable manufacturing costs were less than fixed manufacturing costs
b.more units were produced during the year than were sold
c.more units were sold during the year than were produced
d.common costs were greater than variable costs for the year
26) groote corporation’s balance sheet appears below:
the net income for the year was $50. cash dividends were $12.
required:
prepare a statement of cash flows using the indirect method.
27) attleson corporation has designed a new product, r94, whose variable cost is
$122.90 per unit and that requires 6.70 minutes of the constrained resource. the
opportunity cost is $58.00 per minute used of the constrained resource.
required:
what advice would you give to the company concerning the price that should be
charged for the new product r94?
28) ahler corporation uses the fifo method in its process costing. the following data
concern the company’s assembly department for the month of october.
required:
compute the costs per equivalent unit for the assembly department for october using the
fifo method.
29) the management of mozdzierz, inc., is considering a new product that would have a
selling price of $83 per unit and projected sales of 90,000 units. the new product would
require an investment of $200,000. the desired return on investment is 15%.
required:
determine the target cost per unit for the new product.
30) turiano corporation bases its budgets on machine-hours. the company’s static
planning budget for november appears below:
required:
prepare a flexible budget for 9,800 machine-hours per month.