1) negative free cash flow invariably signals poor performance.
2) quantity standards indicate how much of an input should be used for manufacturing a
unit of product or in providing a unit of service.
3) an investment project with a project profitability index of less than zero should
ordinarily be rejected.
4) if the denominator activity (in hours) used to compute the predetermined overhead
rate is equal to the actual activity (in hours) for the period, then there is no volume
variance.
5) the contribution approach to the income statement classifies costs by behavior rather
than by function.
6) when comparing the two process costing methods for the same company, equivalent
units computed under the fifo method will always be less than or equal to equivalent
units computed under the weighted-average method.
7) the markup over cost under the absorption costing approach would decrease if selling
and administrative expenses increase, holding everything else constant.
8) all other things equal, it is profitable to continue processing a joint product after the
split-off point so long as the incremental revenue from further processing exceeds the
incremental costs of further processing.
9) in standard costing, the standard quantity allowed refers to the output that should
have been achieved based on the planned inputs for the period.
10) the gross margin percentage is computed taking the difference between sales and
cost of goods and then dividing the result by sales.
11) opportunity costs are recorded in the accounts of an organization.
12) process time is the only value-added component of throughput time.
13) the materials quantity variance is computed based on the amount of materials
purchased during the period.
14) cox company’s direct material costs for the month of january were as follows:
for january there was a favorable direct materials quantity variance of:
a.$3,360
b.$3,375
c.$3,400
d.$3,800
15) once the break-even point is reached:
a.the total contribution margin changes from negative to positive
b.net operating income will increase by the unit contribution margin for each additional
item sold
c.variable expenses will remain constant in total
d.the contribution margin ratio begins to decrease
16) knedler corporation is preparing a bid for a special order that would require 720
liters of material c01d. the company already has 200 liters of this raw material in stock
that originally cost $9.90 per liter. material c01d is used in the company’s main product
and is replenished on a periodic basis. the resale value of the existing stock of the
material is $9.60 per liter. new stocks of the material can be readily purchased for
$10.10 per liter. what is the relevant cost of the 720 liters of the raw material when
deciding how much to bid on the special order?
a.$7,232
b.$7,272
c.$6,912
d.$6,972
17) 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 expendables in the flexible budget for june would be closest to:
a.$33,666
b.$34,270
c.$34,740
d.$34,621
18) hanson company uses the weighted-average method in its process costing system.
the first processing department, the welding department, started the month with 17,000
units in its beginning work in process inventory that were 60% complete with respect to
conversion costs. the conversion cost in this beginning work in process inventory was
$90,780. an additional 84,000 units were started into production during the month and
82,000 units were completed in the welding department and transferred to the next
processing department. there were 19,000 units in the ending work in process inventory
of the welding department that were 40% complete with respect to conversion costs. a
total of $690,780 in conversion costs were incurred in the department during the month.
the cost per equivalent unit for conversion costs is closest to:
a.$6.707
b.$8.224
c.$8.900
d.$8.723
19) the constraint at bulman corporation is time on a particular machine. the company
makes three products that use this machine. data concerning those products appear
below:
assume that sufficient time is available on the constrained machine to satisfy demand
for all but the least profitable product. up to how much should the company be willing
to pay to acquire more of the constrained resource?
a.$28.31 per unit
b.$12.20 per minute
c.$14.90 per minute
d.$69.54 per unit
20) ahina industries is a division of a major corporation. data concerning the most
recent year appears below:
the division’s margin is closest to:
a.44.6%
b.26.7%
c.35.2%
d.9.4%
21) szafran corporation’s maintenance department provides services to the company’s
two operating divisions-the paints division and the stains division. the variable costs of
the maintenance department are budgeted based on the number of cases produced by
the operating departments. the fixed costs of the maintenance department are
determined based on the number of cases produced by the operating departments during
the peak period. data appear below:
required:
a. prepare a report showing how much of the maintenance department’s costs should be
charged to each of the operating divisions at the end of the year.
b. how much of the actual maintenance department costs should not be charged to the
operating divisions at the end of the year? who should be held responsible for these
uncharged costs?
22) kassebaum corporation’s comparative balance sheet appears below:
the company’s net income (loss) for the year was $13,000 and its cash dividends were
$1,000.
the total dollar amount of all of the items that would be classified as uses when
compiling a simplified statement of cash flows is:
a.$42,000
b.$35,000
c.$6,000
d.$36,000
23) a cost driver is:
a.the largest single category of cost in a company
b.a fixed cost that cannot be avoided
c.a factor that causes variations in a cost
d.an indirect cost that is essential to the business
24) the clark company makes a single product and uses standard costing. some data
concerning this product for the month of may follow:
the total standard cost for direct labor for may was closest to:
a.$168,000
b.$180,000
c.$120,000
d.$161,000
25) eckhart company uses the absorption costing approach to cost-plus pricing as
described in the text to set prices for its products. based on budgeted sales of 64,000
units next year, the unit product cost of a particular product is $13.60. the company’s
selling and administrative expenses for this product are budgeted to be $729,600 in total
for the year. the company has invested $460,000 in this product and expects a return on
investment of 11%.
the selling price based on the absorption costing approach for this product would be
closest to:
a.$25.00
b.$25.79
c.$15.10
d.$47.41
26) the vega division of ace company makes wheels which can either be sold to outside
customers or transferred to the walsh division of ace company. last month the walsh
division bought all 4,000 of its wheels from the vega division for $42 each. the
following data are available from last month’s operations for the vega company:
if the vega division sells wheels to the walsh division, vega can avoid $2 per wheel in
sales commissions. an outside supplier has offered to supply wheels to the walsh
division for $41 each.
suppose that vega can sell 9,000 wheels each month to outside consumers, so transfers
to the walsh division cut into outside sales. what should be the lowest acceptable
transfer price from the perspective of the vega division?
a.$28.00
b.$31.75
c.$41.00
d.$42.00
27) detter corporation’s balance sheet and income statement appear below:
cash dividends were $8. the company sold equipment for $20 that was originally
purchased for $11 and that had accumulated depreciation of $3.
required:
using the direct method, determine the net cash provided by (used by) operating
activities.
28) in october, ringler corporation had sales of $273,000, selling expenses of $26,000,
and administrative expenses of $47,000. the cost of goods manufactured was $183,000.
the beginning balance in the finished goods inventory account was $45,000 and the
ending balance was $34,000.
required:
prepare an income statement in good form for october.
29) burtchell corporation produces and sells a single product. data concerning that
product appear below:
required:
assume the company’s monthly target profit is $47,520. determine the unit sales to
attain that target profit. show your work!
30) data concerning hillegass corporation’s single product appear below:
fixed expenses are $502,000 per month. the company is currently selling 4,000 units per
month.
required:
management is considering using a new component that would increase the unit
variable cost by $18. since the new component would improve 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 if fixed expenses are unaffected? show your work!
31) the following data pertain to the milling department of herd corporation for
september. the company uses the fifo method in its process costing.
required:
compute the equivalent units of production for both materials and conversion costs for
the milling department for september using the fifo method.
32) mulvehill clinic bases its budgets on the activity measure patient-visits. during june,
the clinic planned for 3,000 patient-visits, but the actual level of activity was 3,400
patient-visits. the clinic has provided the following data concerning the formulas it uses
in its budgeting:
required:
prepare a report showing the clinic’s activity variances for june. indicate in each case
whether the variance is favorable (f) or unfavorable (u).
33) during july, the following transactions were recorded at vorwerk corporation. the
company uses process costing.
required:
prepare journal entries for each of the transactions listed above.
34) zaccagnino corporation makes a range of products. the company’s predetermined
overhead rate is $14 per direct labor-hour, which was calculated using the following
budgeted data:
management is considering a special order for 300 units of product d03c at $119 each.
the normal selling price of product d03c is $157 and the unit product cost is determined
as follows:
if the special order were accepted, normal sales of this and other products would not be
affected. the company has ample excess capacity to produce the additional units.
assume that direct labor is a variable cost, variable manufacturing overhead is really
driven by direct labor-hours, and total fixed manufacturing overhead would not be
affected by the special order.
required:
if the special order were accepted, what would be the impact on the company’s overall
profit?
35) the winter products division of american sports corporation produces and markets
two products for use in the snow: sleds and saucers. the following data were gathered
on activities last month:
required:
prepare a segmented income statement in the contribution format for last month.
36) salvia urban diner is a charity supported by donations that provides free meals to the
homeless. the diner’s budget for may was based on 3,400 meals, but the diner actually
served 3,700 meals. the diner’s director has provided the following cost data to use in
the budget: groceries, $2.90 per meal; kitchen operations, $4,100 per month plus $1.90
per meal; administrative expenses, $2,400 per month plus $0.20 per meal; and
fundraising expenses, $1,000 per month.
required:
prepare the diner’s flexible budget for the actual number of meals served in may. the
budget will only contain the costs listed above; no revenues will be on the budget.