1) If the actual rate per direct labor-hour is less than the standard rate per direct
labor-hour, then the journal entry to record the Labor rate variance would be a credit.
2) Direct materials is considered to be a product cost under variable costing but not
absorption costing.
3) As the inventory turnover increases, the average sales period decreases.
4) In a decision to drop a product, the product should not be charged for factory rent if
the space in which the product is produced has no alternative use and the rental
payment is unavoidable.
5) A flexible budget report should contain variable costs and mixed costs but not fixed
costs.
6) On a cash budget, the total amount of budgeted cash payments for manufacturing
overhead should not include any amounts for depreciation on factory equipment.
7) The fixed manufacturing overhead volume variance is more meaningful than the
budget variance for cost control purposes.
8) Buying property, plant, or equipment would be reported as a cash outflow on the
investing activities section of the statement of cash flows.
9) Using process costing, it is necessary to consider the stage of completion of the units
when assigning conversion cost to partially completed units in the ending work in
process inventory.
10) Issuing common stock will decrease a company’s financial leverage.
11) If the predetermined overhead rate on is based on the level of activity at capacity,
then products will be charged only for the capacity that they use and will not be charged
for the capacity they don’t use.
12) Depreciation expense on existing factory equipment is usually irrelevant in a
decision of whether to accept or reject a special offer for a company’s product.
13) The company’s equity multiplier at the end of Year 2 is closest to:
A.0.28
B.1.28
C.3.53
D.0.78
14) Erdahl Corporation’s management believes that every 7% increase in the selling
price of one of the company’s products leads to a 11% decrease in the product’s total
unit sales. The product’s price elasticity of demand as defined in the text is closest to:
A.-1.72
B.-1.84
C.-1.05
D.-2.05
15) Apex Corporation has two service departments and two operating departments. The
costs of the Personnel department (a service department) are allocated to other
departments on the basis of the number of employees in the other departments.
Departments and number of employees are as follows:
Costs in the Personnel Department total $777,000 for the year.
Suppose the company uses the step-down method of allocation and Personnel
Department costs are allocated first. The amount of this cost allocated to the
Engineering Department under the step-down method would be:
A.$466,200
B.$55,500
C.$0
D.$58,275
16) Cameron Corporation had 50,000 shares of common stock issued and outstanding
that it originally issued for $40 per share. The following information pertains to these
shares:
The total dividend on common stock for the year was $400,000. Cameron Corporation’s
dividend yield ratio for the year was:
A.20.00%
B.11.43%
C.9.41%
D.8.89%
17) Claris Corporation (a multi-product company) produces and sells 7,000 units of
Product X each year. Each unit of Product X sells for $12 and has a contribution margin
of $4. If Product X is discontinued, $19,000 of the $32,000 in fixed costs charged to
Product X could be eliminated. If Product X is discontinued, the company’s overall
operating income would:
A.decrease by $4,000 per year.
B.increase by $4,000 per year.
C.decrease by $9,000 per year.
D.increase by $9,000 per year.
18) Correl Corporation has provided the following data concerning an investment
project that it is considering:
The life of the project is 4 years. The company’s discount rate is 15%. The net present
value of the project is closest to:
A.$38,500
B.$228,500
C.$135,000
D.$24,200
19) ( An expansion at Fidell, Inc., would increase sales revenues by $75,000 per year
and cash operating expenses by $38,000 per year. The initial investment would be for
equipment that would cost $135,000 and have a 5 year life with no salvage value. The
annual depreciation on the equipment would be $27,000. The simple rate of return on
the investment is closest to:
A.20.0%
B.7.4%
C.27.4%
D.13.3%
20) Miao Clinic uses client-visits as its measure of activity. During July, the clinic
budgeted for 3,000 client-visits, but its actual level of activity was 2,980 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for July:
Data used in budgeting:
Actual results for July:
The spending variance for medical supplies in July would be closest to:
A.$936 F
B.$936 U
C.$1,100 U
D.$1,100 F
21) The following are budgeted data for the Bingham Corporation, a merchandising
company:
The desired ending inventory (at cost) for February would be:
A.$180,000
B.$300,000
C.$240,000
D.$160,000
22) The net present value of the entire project is closest to:
A.$94,128
B.$214,128
C.$168,000
D.$147,660
Depreciation expense = (Original cost – Salvage value) / Useful life
= ($120,000 – $0) / 4 years = $30,000 per year
Mitton Corporation is considering a capital budgeting project that would require
investing $160,000 in equipment with an expected life of 4 years and zero salvage
value. Annual incremental sales would be $440,000 and annual incremental cash
operating expenses would be $320,000. The project would also require a one-time
renovation cost of $0 in year 3. The company’s income tax rate is 35% and its after-tax
discount rate is 12%. The company uses straight-line depreciation. Assume cash flows
occur at the end of the year except for the initial investments. The company takes
income taxes into account in its capital budgeting.
23) The net cash provided by (used in) operating activities for the year was:
A.$168
B.$8
C.$152
D.$229
24) Snopek Corporation uses the step-down method to allocate service department costs
to operating departments. The company has two service departments, Administration
and Facilities, and two operating departments, Assembly and Finishing.
Administration Department costs are allocated first on the basis of employee time and
Facilities Department costs are allocated second on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the step-down
method.
25) Blaney 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 October, the company budgeted for 456 guests and 115 jeeps. The actual activity for
the month was 446 guests and 111 jeeps.
Required:
Prepare the company’s flexible budget for the actual level of activity in October.
26) Albertine Co. manufactures and sells trophies for winners of athletic and other
events. Its manufacturing plant has the capacity to produce 16,000 trophies each month;
current monthly production is 12,800 trophies. The company normally charges $113 per
trophy. Cost data for the current level of production are shown below:
The company has just received a special one-time order for 1,200 trophies at $61 each.
For this particular order, no variable selling and administrative costs would be incurred.
This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
27) Data from Dalpiaz Corporation’s most recent balance sheet and income statement
appear below:
28) Chargualaf Corporation uses the weighted-average method in its process costing.
The following data pertain to its Assembly Department for September.
Required:
Compute the equivalent units of production for both materials and conversion costs for
the Assembly Department for September using the weighted-average method.
29) Lagana Corporation uses process costing. The following data pertain to its
Assembly Department for February.
Required:
Determine the equivalent units of production for the Assembly Department for February
using the weighted-average method.
30) Dilisio Corporation has provided the following data: