1) In business, a budget is a method for putting a limit on spending.
2) Insurance and utility expenses are considered operating activities on the statement of
cash flows.
3) A self-imposed budget is a budget that is prepared with the full cooperation and
participation of managers at all levels.
4) The cash budget is usually prepared after the budgeted income statement.
5) The investment in working capital at the start of an investment project can not be
deducted from revenues when computing taxable income.
6) A favorable volume variance means that the company operated at an activity level
greater than that planned for the period.
7) Activity-based management seeks to eliminate waste by allocating costs to products
that waste resources.
8) The internal rate of return method assumes that the cash flows generated by the
project are immediately reinvested elsewhere at a rate of return that equals the internal
rate of return.
9) Acquiring land by taking out a long-term mortgage will not affect the current ratio.
10) The opportunity cost of using a unit of the constrained resource in a volume
trade-off decision is determined by the profitability index of the product whose
production would be cut back as a result of using the constrained resource.
11) Net operating income is income after interest and taxes.
12) Variable costs are costs that vary, in total, in direct proportion to changes in the
volume or level of activity.
13) Future costs that do not differ between the alternatives in a decision are avoidable
costs.
14) A disadvantage of vertical integration is that by pooling demand for parts from a
number of companies, a supplier will face diseconomies of scale that result in lower
quality and higher cost than if every company makes its own parts.
15) Controllability has little to do with whether a cost is fixed or variable.
16) Lindsey Company uses activity-based costing. The company has two products: A
and B. The annual production and sales of Product A is 5,000 units and of Product B is
2,000 units. There are three activity cost pools, with total cost and activity as follows:
The activity-based costing cost per unit of Product A is closest to:
A.$14.11
B.$13.77
C.$7.00
D.$17.70
17) Hammes 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 5,500 units, but its actual level of activity was
5,510 units. The company has provided the following data concerning the formulas to
be used in its budgeting:
The activity variance for selling and administrative expenses in February would be
closest to:
A.$803 F
B.$803 U
C.$7 F
D.$7 U
18) Stitt Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its budgets and performance reports. During November, the
company budgeted for 5,900 units, but its actual level of activity was 5,880 units. The
company has provided the following data concerning the formulas used in its budgeting
and its actual results for November:
Data used in budgeting:
Actual results for November:
The activity variance for selling and administrative expenses in November would be
closest to:
A.$516 U
B.$16 F
C.$516 F
D.$16 U
19) Neelty Corporation has interest expense of $16,000, sales of $600,000, a tax rate of
30%, and after-tax net income of $56,000. The company’s times interest earned ratio is
closest to:
A.6.0
B.5.0
C.4.5
D.3.5
20) The company’s debt-to-equity ratio at the end of Year 2 is closest to:
A.0.30
B.0.36
C.0.41
D.0.60
21) Suppose there is not enough idle capacity to produce all of the units for the overseas
customer and accepting the special order would require cutting back on production of
700 units for regular customers. The minimum acceptable price per unit for the special
order is closest to:
A.$86.10
B.$78.90
C.$69.10
D.$63.78
22) A furniture manufacturer 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 overhead applied to products during the period was closest to:
A.$74,460
B.$72,270
C.$67,408
D.$71,955
23) In addition to the facts given above, assume that the space used to produce part P42
could be used to make more of one of the company’s other products, generating an
additional segment margin of $13,000 per year for that product. What would be the
impact on the company’s overall net operating income of buying part P42 from the
outside supplier and using the freed space to make more of the other product?
A.Net operating income would increase by $13,000 per year.
B.Net operating income would increase by $8,000 per year.
C.Net operating income would decline by $42,000 per year.
D.Net operating income would decline by $68,000 per year.
24) The Murray Corporation uses a standard cost system in which it applies
manufacturing overhead on the basis of standard direct labor-hours (DLHs). The
company recorded the following activity and cost data for May:
The amount of fixed manufacturing overhead cost applied during May was:
A.$52,535
B.$54,135
C.$36,090
D.$50,400
25) Compound K52E is a raw material used to make Pinkos Corporation’s major
product. The standard cost of compound K52E is $46.00 per ounce and the standard
quantity is 5.0 ounces per unit of output. Data concerning the compound for March
appear below:
The raw material was purchased on account.
The Materials Quantity Variance for March would be recorded as a:
A.Credit of $19,780
B.Credit of $5,980
C.Debit of $19,780
D.Debit of $5,980
26) Last year Truro Corporation purchased $800,000 of inventory. The cost of goods
sold was $750,000 and the ending inventory was $125,000. The inventory turnover for
the year was:
A.6.0
B.7.5
C.6.4
D.8.0
27) The company’s acid-test (quick) ratio is closest to:
A.1.90
B.1.85
C.2.65
D.1.81
28) The accounts receivable turnover for Year 2 is closest to:
A.5.95
B.5.70
C.1.09
D.0.92
29) The company’s times interest earned for Year 2 is closest to:
A.1.43
B.3.47
C.2.43
D.1.00
30) Vontungeln Corporation uses activity-based costing to compute product margins. In
the first stage, the activity-based costing system allocates two overhead
accounts-equipment depreciation and supervisory expense-to three activity cost
pools-Machining, Order Filling, and Other-based on resource consumption. Data to
perform these allocations appear below:
In the second stage, Machining costs are assigned to products using machine-hours
(MHs) and Order Filling costs are assigned to products using the number of orders. The
costs in the Other activity cost pool are not assigned to products.
Finally, sales and direct cost data are combined with Machining and Order Filling costs
to determine product margins.
The activity rate for the Machining activity cost pool under activity-based costing is
closest to:
A.$1.60 per MH
B.$1.62 per MH
C.$0.67 per MH
D.$3.40 per MH
31) Pearse 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 December, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 2,980 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for December:
Data used in budgeting:
Actual results for December:
The net operating income in the planning budget for December would be closest to:
A.$11,200
B.$12,121
C.$11,960
D.$11,400
32) Jendro LLC is a consulting firm that is considering six projects for the upcoming
period. The six projects under consideration are listed below, along with relevant data.
The managing partner’s time is the constraint in the firm. Only 76 hours of this
constrained resource are available during the upcoming period.
Required:
a. Determine which projects should be accepted for the upcoming period.
b. Determine the total incremental profit for the upcoming period if your plan from part
(a) above is adopted.
33) The company’s times interest earned for Year 2 is closest to:
A.7.71
B.2.61
C.5.01
D.4.01
34) The standard cost card for one unit of a certain finished product shows the
following:
If the total standard variable cost for one unit of finished product is $85, then the
standard price per pound for direct materials is:
A.$1.74
B.$4.60
C.$5.90
D.$3.00
35) The journal entry to record the allocation of any underapplied or overapplied
manufacturing overhead for August would include the following:
A.debit to Work in Process of $11,650
B.debit to Work in Process of $400
C.credit to Work in Process of $11,650
D.credit to Work in Process of $400
36) Lovette Corporation has an activity-based costing system with three activity cost
pools-Processing, Setting Up, and Other. The company’s overhead costs, which consist
of factory utilities and indirect labor, are allocated to the cost pools in proportion to the
activity cost pools’ consumption of resources. Data concerning the company’s costs and
activity-based costing system appear below:
Required:
Assign overhead costs to activity cost pools using activity-based costing.
37) Rehmer Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.61 direct labor-hours. The direct labor rate is $8.90 per
direct labor-hour. The production budget calls for producing 2,600 units in June and
2,100 units in July.
Required:
Construct the direct labor budget for the next two months, assuming that the direct labor
work force is fully adjusted to the total direct labor-hours needed each month.
38) Kouba Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.23 direct labor-hours. The direct labor rate is $11.20 per
direct labor-hour. The production budget calls for producing 4,000 units in April and
3,400 units in May. The company guarantees its direct labor workers a 40-hour paid
work week. With the number of workers currently employed, that means that the
company is committed to paying its direct labor work force for at least 920 hours in
total each month even if there is not enough work to keep them busy.
Required:
Construct the direct labor budget for the next two months.
39) Moallankamp Corporation produces and sells a single product. Data concerning that
product appear below:
Fixed expenses are $1,131,000 per month. The company is currently selling 7,000 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 $20 per unit. In
exchange, the sales staff would accept an overall decrease in their salaries of $117,000
per month. The marketing manager predicts that introducing this sales incentive would
increase monthly sales by 400 units. What should be the overall effect on the company’s
monthly net operating income of this change? Show your work!
40) Wyand Corporation’s net operating income last year was $212,000; its interest
expense was $26,000; its total stockholders’ equity was $1,000,000; and its total
liabilities were $370,000.
41) Brill Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $2,100. The market price of common
stock at the end of Year 2 was $2.32 per share.
42) Larita Corporation produces and sells a single product. Data concerning that
product appear below:
Fixed expenses are $243,000 per month. The company is currently selling 2,000 units
per month.
Required:
The marketing manager believes that a $28,000 increase in the monthly advertising
budget would result in a 180 unit increase in monthly sales. What should be the overall
effect on the company’s monthly net operating income of this change? Show your work!
43) The contribution margin ratio of Donath Corporation’s only product is 65%. The
company’s monthly fixed expense is $573,300 and the company’s monthly target profit
is $9,100.
Required:
Determine the dollar sales to attain the company’s target profit. Show your work!
44) In October, one of the processing departments at Moake Corporation had beginning
work in process inventory of $21,000 and ending work in process inventory of $35,000.
During the month, $247,000 of costs were added to production. The company uses the
FIFO method in its process costing system.
Required:
Construct a cost reconciliation report for the department for the month of October.
45) Shauer, Inc., produces and sells a single product whose selling price is $150.00 per
unit and whose variable expense is $33.00 per unit. The company’s fixed expense is
$436,410 per month.
Required:
Determine the monthly break-even in either unit or total dollar sales. Show your work!
