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Paying taxes to governmental bodies is considered an operating activity on the
statement of cash flows.
Answer:
A sales budget is a detailed schedule showing the expected sales for the budget period;
typically, it is expressed in both dollars and units of product.
Answer:
The budget variance represents the difference between the actual fixed manufacturing
overhead cost incurred during a period and the budgeted fixed manufacturing overhead
cost.
Answer:
Variable manufacturing overhead costs are treated as period costs under both absorption
and variable costing.
Answer:
The fixed manufacturing overhead budget variance is not controllable by managers
because fixed costs are not controllable.
Answer:
One benefit of budgeting is that it coordinates the activities of the entire organization.
Answer:
In process costing, costs are accumulated in processing departments, rather than by job.
Answer:
Sales forecasts are drawn up after the cash budget has been completed because only
then are the funds available for marketing known.
Answer:
All other things the same, which of the following would be TRUE of the contribution
margin and variable expenses of a company with high fixed costs and low variable costs
as compared to a company with low fixed costs and high variable costs?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
The following costs should be considered direct costs of providing delivery room
services to a particular mother and her baby: the costs of drugs administered in the
operating room, the attending physician's fees, and a portion of the liability insurance
carried by the hospital to cover the delivery room.
Answer:
Advertising costs are considered product costs for external financial reports because
they are incurred in order to promote specific products.
Answer:
In a standard costing system where the denominator activity for the predetermined
overhead rate is labor-hours, overhead costs are applied to work in process on the basis
of actual hours worked.
Answer:
If two companies produce the same product and have the same total sales and same
total expenses, operating leverage will be lower in the company with a higher
proportion of fixed expenses in its cost structure.
Answer:
A shift in the sales mix from products with a low contribution margin ratio toward
products with a high contribution margin ratio will lower the break-even point in the
company as a whole.
Answer:
When a flexible budget is used in performance evaluation, actual costs are compared to
what the costs should have been for the actual level of activity during the period rather
than to the static planning budget.
Answer:
Under the weighted-average method, the cost of materials in the beginning work in
process inventory is not used in the computation of the cost per equivalent unit for
materials.
Answer:
Fellner Corporation produces a single product and has the following cost structure:
a. Compute the unit product cost under absorption costing. Show your work!
b. Compute the unit product cost under variable costing. Show your work!
Answer:
One would expect the book value of a share of stock to be about the same as the stock's
market value.
Answer:
A job cost sheet is used to accumulate costs charged to a job.
Answer:
The fixed manufacturing overhead volume variance will be unfavorable if production
volume is less than sales volume.
Answer:
Direct labor-hours should never be used as a measure of activity in an activity-based
costing system.
Answer:
Process costing would be used by companies producing the following items: bricks,
bolts, pharmaceutical items, natural gas, and electricity.
Answer:
The activity rates in activity-based costing are not intended to set targets for how
quickly a task should be completed.
Answer:
Under the FIFO method, the equivalent units of production relate only to work done
during the current period.
Answer:
A variable cost is a cost whose cost per unit varies as the activity level rises and falls.
Answer:
A company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. The amount of
overhead that the company would apply to finished production would ordinarily be the
standard hours allowed for the actual units of finished output times the predetermined
overhead rate per direct labor-hour.
Answer:
A decrease in production will ordinarily result in an increase in fixed production costs
per unit.
Answer:
Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in inventory is subtracted from net income.
Answer:
On a CVP graph for a profitable company, the total revenue line will be steeper than the
total expense line.
Answer:
Managers should not authorize working overtime at a work station that contains a
bottleneck.
Answer:
When the level of activity increases, total variable cost will increase.
Answer:
A volume variance and an efficiency variance are computed for fixed manufacturing
overhead costs.
Answer:
Which terms will make the following statement TRUE? When manufacturing overhead
is overapplied, the Manufacturing Overhead account has a __________ balance and
applied manufacturing overhead is greater than __________ manufacturing overhead.
A. debit, actual
B. credit, actual
C. debit, estimated
D. credit, estimated
Answer:
Automation results in a shift away from variable costs toward more fixed costs.
Answer:
If activity is higher than expected, total variable costs should be higher than expected. If
activity is lower than expected, total variable costs should be lower than expected.
Answer:
If a company's return on assets is substantially higher than its cost of borrowing, then
the common stockholders would normally want the company to have a relatively high
debt/equity ratio.
Answer:
For stockholders' equity accounts, credits are added to the beginning balance on the
statement of cash flows.
Answer:
A company can have a net loss and still generate a positive net cash provided by
operating activities in its statement of cash flows.
Answer:
The variable expense per unit is $12 and the selling price per unit is $40. Then the
contribution margin ratio is 70%.
Answer:
Byklea Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 200
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,000 units were started and 6,700 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 90% complete with respect to materials and 45% 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. $22,910
B. $15,703
C. $25,455
D. $11,455
Answer:
Elhard Company produces a single product. The cost of producing and selling a single
unit of this product at the company's normal activity level of 40,000 units per month is
as follows:
The normal selling price of the product is $51.10 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered
this month at a special discounted price. This order would have no effect on the
company's normal sales and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be $0.10 less per unit on
this order than on normal sales.
Direct labor is a variable cost in this company.
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
200 units for regular customers. The minimum acceptable price per unit for the special
order is closest to:
A. $38.80
B. $31.20
C. $51.10
D. $45.80
Answer:
Data concerning Runnells Corporation's single product appear below:
The company is currently selling 6,000 units per month. Fixed expenses are $424,000
per month. The marketing manager believes that a $7,000 increase in the monthly
advertising budget would result in a 100 unit increase in monthly sales. What should be
the overall effect on the company's monthly net operating income of this change?
A. increase of $8,000
B. increase of $1,000
C. decrease of $7,000
D. decrease of $1,000
Answer:
Hardy, Inc., has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to
20% of the next month's sales in units. The inventory on May 31 contained 1,640 units.
The company needs to prepare a production budget for the next five months.
The total number of units produced in July should be:
A. 7,240 units
B. 6,620 units
C. 6,300 units
D. 5,980 units
Answer:
A partial listing of costs incurred at Backes Corporation during November appears
below:
The total of the manufacturing overhead costs listed above for November is:
A. $348,000
B. $31,000
C. $592,000
D. $77,000
Answer:
Diltex Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:
o Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000
for January.
o Collections are expected to be 70% in the month of sale, 27% in the month following
the sale, and 3% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory at the end of each
month equal to 50% of the next month's cost of goods sold. Payment for merchandise is
made in the month following the purchase.
o Other monthly expenses to be paid in cash are $22,500.
o Monthly depreciation is $19,000.
o Ignore taxes.
The net income for December would be:
A. $40,400
B. $22,500
C. $47,500
D. $28,500
Answer:
Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson
Company reported a contribution margin of $40,000 for Plant A. Plant B had sales of
$200,000 and a contribution margin ratio of 40%. Net operating income for the
company was $27,000 and traceable fixed expenses for the two stores totaled $50,000.
Johnson Company's common fixed expenses were:
A. $43,000
B. $50,000
C. $93,000
D. $120,000
Answer:
The following cost formula relates to last year's operations at Lemine Manufacturing
Corporation:
Y = $84,000 + $60.00X
In the formula above, 75% of the fixed cost and 90% of the variable cost are
manufacturing costs. Y is the total cost and X is the number of units produced and sold.
If Lemine produces and sells 7,000 units, what is the unit product cost under each of the
following methods?
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Deschambault Corporation's total current assets are $260,000, its noncurrent assets are
$700,000, its total current liabilities are $130,000, its long-term liabilities are $510,000,
and its stockholders' equity is $320,000. Working capital is:
A. $260,000
B. $320,000
C. $190,000
D. $130,000
Answer:
The Odle Company makes and sells a single product called a Kitt. Odle uses a standard
costing system. Each Kitt has a standard cost of 5 pounds of material at $12 per pound
and 0.9 direct labor-hours at $15 per hour. There were no inventories of any kind on
June 1. During June, the following events occurred:
- Purchased 17,000 pounds of material at a total cost of $190,000.
- Used 15,000 pounds of material to produce 2,400 Kitts.
- Used 1,900 hours of direct labor time at a total cost of $38,000.
To record the incurrence of direct labor cost and its use in production, the general ledger
would include what kind of entry to the Labor Efficiency Variance account?
A. $7,500 credit
B. $5,600 debit
C. $5,600 credit
D. $3,900 credit
Answer:
Jumper Company uses the weighted-average method in its process costing system. The
following data pertain to operations in the first processing department for a recent
month:
What was the cost per equivalent unit for conversion cost?
A. $5.00
B. $12.30
C. $8.50
D. $14.75
Answer:
Reference: 8-28
Cox Engineering performs cement core tests in its laboratory. The following standards
have been set for each core test performed:
During March, the laboratory performed 2,000 core tests. On March 1 no direct
materials (sand) were on hand. Variable manufacturing overhead is assigned to core
tests on the basis of standard direct labor-hours. The following events occurred during
March:
- 8,600 pounds of sand were purchased at a cost of $7,310.
- 7,200 pounds of sand were used for core tests.
- 840 actual direct labor-hours were worked at a cost of $8,610.
- Actual variable manufacturing overhead incurred was $3,200.
The labor efficiency variance for March is:
A) $480 favorable
B) $480 unfavorable
C) $192 favorable
D) $192 unfavorable
Answer:
The manufacturing overhead budget at Mahapatra Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 7,900 direct labor-hours will
be required in May. The variable overhead rate is $9.50 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $112,970 per month, which
includes depreciation of $18,170. All other fixed manufacturing overhead costs
represent current cash flows.
The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for May should be:
A. $14.30
B. $21.50
C. $9.50
D. $23.80
Answer:
The Materials Quantity Variance for October would be recorded as a:
A) Credit of $3,680
B) Debit of $4,140
C) Credit of $4,140
D) Debit of $3,680
Answer:
Selling and administrative expenses are considered to be:
A. a product cost under variable costing.
B. a product cost under absorption costing.
C. part of fixed manufacturing overhead under variable costing.
D. a period cost under variable costing.
Answer:
Gasco Corporation's balance sheet and income statement appear below:
Cash dividends were $54. The company sold equipment for $14 that was originally
purchased for $8 and that had accumulated depreciation of $1. It did not issue any
bonds payable or repurchase any of its own common stock.
The net cash provided by (used in) financing activities for the year was:
A. $(54)
B. $2
C. $(72)
D. $(20)
Answer:
The following partially completed T-accounts summarize the transactions of Belson
Company for last year:
At the end of the year, the company closes out the balance in the Manufacturing
Overhead account to Cost of Goods Sold.
The cost of direct materials used in production is:
A. $12,000
B. $13,000
C. $16,000
D. $20,000
Answer:
Drake Company's contribution format income statement for the most recent year
appears below:
The unit contribution margin is:
A. $17
B. $8
C. $1
D. $9
Answer:
Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in
March and 11,000 tons for $549,000 in April. Shipping costs for 12,000 tons to be
shipped in May would be expected to be:
A. $548,780
B. $549,020
C. $594,000
D. $598,500
Answer:
Getchman Marketing, Inc., a merchandising company, reported sales of $592,500 and
cost of goods sold of $305,000 for April. The company's total variable selling expense
was $37,500; its total fixed selling expense was $16,000; its total variable
administrative expense was $35,000; and its total fixed administrative expense was
$38,900. The cost of goods sold in this company is a variable cost.
The contribution margin for April is:
A. $465,100
B. $287,500
C. $160,100
D. $215,000
Answer:
Chae 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 8,100 units were started and 7,500 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 80% 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 per equivalent unit for materials for the month in the first processing
department is closest to:
A. $16.32
B. $17.17
C. $15.91
D. $16.73
Answer:
The West Division of Shekarchi Corporation had average operating assets of $620,000
and net operating income of $80,100 in March. The minimum required rate of return for
performance evaluation purposes is 14%.
What was the West Division's residual income in March?
A. -$6,700
B. $6,700
C. -$11,214
D. $11,214
Answer:
Anderwald Corporation has provided the following production and average cost data
for two levels of monthly production volume. The company produces a single product.
The best estimate of the total monthly fixed manufacturing cost is:
A. $360,800
B. $136,800
C. $196,800
D. $176,800
Answer:
Laro Corporation produces and sells a single product with the following characteristics:
The company is currently selling 5,000 units per month. Fixed expenses are $302,000
per month.
This question is to be considered independently of all other questions relating to Laro
Corporation. Refer to the original data when answering this question.
Management is considering using a new component that would increase the unit
variable cost by $7. Since the new component would increase the features of the
company's product, the marketing manager predicts that monthly sales would increase
by 500 units. What should be the overall effect on the company's monthly net operating
income of this change?
A. increase of $1,000
B. decrease of $1,000
C. increase of $34,000
D. decrease of $34,000
Answer:
Data concerning Odum Corporation's single product appear below:
The break-even in monthly unit sales is closest to:
A. 1,413 units
B. 1,110 units
C. 622 units
D. 1,048 units
Answer:
Moralez Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
What was the total of the variable overhead rate and fixed manufacturing overhead
budget variances for the month?
A) $380 unfavorable
B) $1,620 favorable
C) $1,660 unfavorable
D) $3,280 unfavorable
Answer:
The operations of the Kerry Company resulted in underapplied overhead of $5,000. The
entry to close out this balance to Cost of Goods Sold and the effect of the underapplied
overhead on Cost of Goods Sold would be:
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Reference: 8-59
Mazzo Corporation makes a product with the following standards for direct labor and
variable overhead:
In February the companys budgeted production was 5,000 units, but the actual
production was 5,100 units. The company used 2,090 direct labor-hours to produce this
output. The actual variable overhead cost was $6,688. The company applies variable
overhead on the basis of direct labor-hours.
The variable overhead rate variance for February is:
A) $408 U
B) $418 F
C) $418 U
D) $408 F
Answer:
Reference: 8A-11
A manufacturer of playground equipment uses a standard costing system in which
standard machine-hours (MHs) is the measure of activity. Data from the companys
flexible budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
How much fixed manufacturing overhead was applied to products during the period to
the nearest dollar?
A) $85,571
B) $84,690
C) $86,190
D) $85,085
Answer:
Jarvinen Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
What is the net operating income for the month under variable costing?
A. $11,600
B. $2,900
C. $8,700
D. $0
Answer:
Rothery Co. manufactures and sells medals for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 18,000 medals each month; current
monthly production is 17,100 medals. The company normally charges $88 per medal.
Cost data for the current level of production are shown below:
The company has just received a special one-time order for 600 medals at $73 each. For
this particular order, no variable selling and administrative costs would be incurred.
This order would also have no effect on fixed costs.
Should the company accept this special order? Why?
Answer:
Financial statements for Rarig Company appear below:
Compute the following for Year 2:
a. Current ratio.
b. Acid-test ratio.
c. Average collection period.
d. Inventory turnover.
e. Times interest earned.
f. Debt-to-equity ratio.
Answer:
Almo company manufactures and sells adjustable canopies that attach to motor homes
and trailers. Almo developed its budget for the current year assuming that the canopies
would sell at a price of $400 each. The variable expenses for each canopy were
forecasted to be $200 and the annual fixed expenses were forecasted to be $100,000.
Almo had targeted a profit of $400,000.
While Almo's sales usually rise during the second quarter, the May financial statements
reported that sales were not meeting expectations. For the first five months of the year,
only 350 units had been sold at the established price, with variable expense as planned,
and it was clear that the target profit for the year would not be reached unless some
actions were taken. Almo's president assigned a management committee to analyze the
situation and develop several alternative courses of action. The following three
alternatives were presented to the president, only one of which can be selected.
1/ Reduce the selling price by $40. The marketing department forecasts that with the
lower price, 2,700 units could be sold during the remainder of the year.
2/ Lower variable expenses per unit by $25 through the use of less expensive materials.
Because of the difference in materials, the selling price would have to be lowered by
$30 and sales of 2,200 units for the remainder of the year are forecast.
3/ Cut fixed expenses by $10,000 and lower the selling price by 5 percent. Sales of
2,000 units would be expected for the remainder of the year.
a. If no changes are made to the selling price or cost structure, estimate the number of
units that must be sold during the year to break even.
b. If no changes are made to the selling price or cost structure, estimate the number of
units that must be sold during the year to attain the target profit of $400,000.
c. Determine which of the alternatives Almo's president should select to maximize
profit.
Answer:
Hernande Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diners budget for October was based on 2,800 meals. The diners
director has provided the following cost data to use in the budget: groceries, $2.45 per
meal; kitchen operations, $5,200 per month plus $1.70 per meal; administrative
expenses, $2,600 per month plus $0.65 per meal; and fundraising expenses, $1,100 per
month. The director has also provided the diners statement of actual expenses for the
month:
Required:
Prepare a report showing the diners spending variances for each of the expenses and for
total expenses for October. Label each variance as favorable (F) or unfavorable (U).
Answer:
Ok Corporation uses the weighted-average method in its process costing. The following
data concern the company's Assembly Department for the month of June.
During the month, 7,100 units were completed and transferred from the Assembly
Department to the next department.
Determine the cost of ending work in process inventory and the cost of units transferred
out of the department during June using the weighted-average method.
Answer:
Last year, Bickham Corporation's dividend on common stock was $8.70 per share and
the dividend on preferred stock was $3.80 per share. The market price of common stock
at the end of the year was $66.10 per share.
Compute the dividend yield ratio. Show your work!
Answer:
The management of Harrigill Corporation would like to have a better understanding of
the behavior of its inspection costs. The company has provided the following data:
Management believes that inspection cost is a mixed cost that depends on direct
labor-hours.
Estimate the variable cost per direct labor-hour and the fixed cost per month using the
high-low method. Show your work! Round off all calculations to the nearest whole
cent.
Answer:
Carvey Corporation manufactures a variety of products. The following data pertain to
the company's operations over the last two years:
a. Determine the absorption costing net operating income for last year. Show your
work!
b. Determine the absorption costing net operating income for this year. Show your
work!
Answer:
Answer:
Honey Corporation, a merchandising company, reported the following results for
January:
Cost of goods sold is a variable cost in this company.
Required:
a. Prepare a traditional format income statement for January.
b. Prepare a contribution format income statement for January.
Answer:
The following data for November have been provided by Rickenbaker Corporation, a
producer of precision drills for oil exploration:
Required:
Compute the variable overhead rate variances for indirect labor and for power for
November. Indicate whether each of the variances is favorable (F) or unfavorable (U).
Show your work!
Answer:
The manufacturing overhead budget of Lewison Corporation is based on budgeted
direct labor-hours. The June direct labor budget indicates that 5,800 direct labor-hours
will be required in that month. The variable overhead rate is $7.70 per direct labor-hour.
The company's budgeted fixed manufacturing overhead is $111,360 per month, which
includes depreciation of $17,400. All other fixed manufacturing overhead costs
represent current cash flows.
a. Determine the cash disbursement for manufacturing overhead for June. Show your
work!
b. Determine the predetermined overhead rate for June. Show your work!
Answer:
Capp Corporation is a wholesaler of industrial goods. Data regarding the store's
operations follow:
o Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000
for January.
o Collections are expected to be 60% in the month of sale, 39% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires an ending merchandise inventory equal to 40% of the following
month's cost of goods sold. Payment for merchandise is made in the month following
the purchase.
o The November beginning balance in the accounts receivable account is $70,000.
o The November beginning balance in the accounts payable account is $257,000.
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
Answer:
Cassin Corporation manufactures a variety of products. Last year, the company's
variable costing net operating income was $86,300 and ending inventory decreased by
1,700 units. Fixed manufacturing overhead cost per unit was $8.
Determine the absorption costing net operating income for last year. Show your work!
Answer:
Condensed financial statements for Pardin Company are given below:
The company paid total dividends of $100,000 during the year. At the end of Year 2, the
company's common stock was selling for $38 per share.
On the basis of the information given above, fill in the blanks with the appropriate
figures:
Example: The current ratio at the end of Year 2 would be computed by dividing
$1,080,000 by $400,000.
a. The acid-test ratio at the end of Year 2 would be computed by dividing
_______________ by _________________.
b. The accounts receivable turnover during Year 2 would be computed by dividing
_______________ by _________________.
c. The inventory turnover during Year 2 would be computed by dividing
_______________ by _________________.
d. The times interest earned for Year 2 would be computed by dividing
_______________ by _________________.
e. The earnings per share of common stock for Year 2 would be computed by dividing
_______________ by _________________.
f. The return on total assets for Year 2 would be computed by dividing
_______________ by _________________.
g. The debt-to-equity ratio at the end of Year 2 would be computed by dividing
_______________ by _________________.
h. The dividend yield ratio would be computed by dividing _______________ by
_________________.
i. The return on common stockholders' equity for Year 2 would be computed by
dividing _______________ by _________________.
j. Whether the common stockholders gained or lost from the use of financial leverage
during Year 2 would be determined by comparing the ratio computed in question ___
above to the ratio computed in question above ____. In this case, financial leverage is
(positive/negative) ___________________.
Answer:
Rizza Tech is a for-profit vocational school. The school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. The school uses the
following data in its budgeting:
In April, the school budgeted for 1,250 students and 45 courses. The schools income
statement showing the actual results for the month appears below:
Required:
Prepare a report showing the schools revenue and spending variances for April. Label
each variance as favorable (F) or unfavorable (U).
Answer:
Aziz Corporation produces and sells a single product. Data concerning that product
appear below:
Determine the monthly break-even in either unit or total dollar sales. Show your work!
Answer:
Answer:
