Reference: 8-27
The Litton Company has established standards as follows:
Direct material: 3 pounds per unit @ $4 per pound = $12 per unit
Direct labor: 2 hours per unit @ $8 per hour = $16 per unit
Variable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit
Actual production figures for the past year are given below. The company records the
materials price variance when materials are purchased.
The company applies variable manufacturing overhead to products on the basis of
standard direct labor-hours.
The variable overhead efficiency variance is:
A) $520 F
B) $520 U
C) $500 U
D) $500 F
Answer:
The following data pertain to the Whalen Division of Northern Industries.
The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
The minimum required rate of return in Year 1 was:
A. 18%
B. 17%
C. 16%
D. 15%
Answer:
More Company has two divisions, L and M. During July, the contribution margin in
Division L was $60,000. The contribution margin ratio in Division M was 40% and its
sales were $250,000. Division M’s segment margin was $60,000. The common fixed
expenses were $50,000 and the company net operating income was $20,000. The
segment margin for Division L was:
A. $0
B. $10,000
C. $50,000
D. $60,000
Answer:
The break-even point in unit sales increases when variable expenses:
A. increase and the selling price remains unchanged.
B. decrease and the selling price remains unchanged.
C. decrease and the selling price increases.
D. remain unchanged and the selling price increases.
Answer:
Kelsh Company uses a predetermined overhead rate based on machine-hours to apply
manufacturing overhead to jobs. The company has provided the following estimated
costs for next year:
Kelsh estimates that 5,000 direct labor-hours and 10,000 machine-hours will be worked
during the year. The predetermined overhead rate per hour will be:
A. $6.80
B. $6.40
C. $3.40
D. $8.20
Answer:
Echenko Corporation uses a job-order costing system and applies overhead to jobs
using a predetermined overhead rate. During the year the company’s Finished Goods
inventory account was debited for $380,000 and credited for $335,500. The ending
balance in the Finished Goods inventory account was $62,300. At the end of the year,
manufacturing overhead was overapplied by $2,900.
If the applied manufacturing overhead was $70,400, the actual manufacturing overhead
cost for the year was:
A. $73,300
B. $67,500
C. $129,800
D. $85,300
Answer:
Petersheim Snow Removals cost formula for its vehicle operating cost is $1,750 per
month plus $484 per snow-day. For the month of November, the company planned for
activity of 15 snow-days, but the actual level of activity was 14 snow-days. The actual
vehicle operating cost for the month was $8,360. The vehicle operating cost in the
flexible budget for November would be closest to:
A) $8,526
B) $8,409
C) $9,010
D) $8,360
Answer:
Last year, Shadow Corporation’s dividend on common stock was $9.90 per share and
the dividend on preferred stock was $1.00 per share. The market price of common stock
at the end of the year was $68.10 per share. The dividend yield ratio is closest to:
A. 0.15
B. 0.16
C. 0.91
D. 0.01
Answer:
The following monthly data are available for the W.K. Kent Company:
The break-even sales for the month for the company are closest to:
A. $170,089
B. $189,200
C. $139,164
D. $127,567
Answer:
When the actual direct labor-hours exceeds the standard direct labor-hours allowed for
the actual output of the period, the journal entry would include:
A) Debit to Wages Payable; Credit to Labor Efficiency Variance
B) Debit to Work-In-Process; Credit to Labor Efficiency Variance
C) Debit to Wages Payable; Debit to Labor Efficiency Variance
D) Debit to Work-In-Process; Debit to Labor Efficiency Variance
Answer:
Crandler Company’s net income last year was $60,000. The company paid preferred
dividends of $20,000 and its average common stockholders’ equity was $500,000. The
company’s return on common stockholders’ equity for the year was closest to:
A. 16.0%
B. 4.0%
C. 8.0%
D. 12.0%
Answer:
Franklins fixed manufacturing overhead budget variance for the year is:
A) $19,000 favorable
B) $25,000 favorable
C) $25,000 unfavorable
D) $19,000 unfavorable
Answer:
Financial statements for Harwich Company for the most recent year appear below:
The balances in the Cash, Accounts Receivable, Inventory, Bonds Payable, Common
Stock, and Additional Paid-In Capital accounts are unchanged from the beginning of the
year. A $0.75 per share dividend was declared and paid during the year. On December
31, Harwich Company’s common stock was trading at $24.00 per share.
Harwich Company’s dividend yield ratio for the year was closest to:
A. 3.125%
B. 12.500%
C. 9.125%
D. 25.000%
Answer:
Talboe Company makes wheels which it uses in the production of children’s wagons.
Talboe’s costs to produce 200,000 wheels annually are as follows:
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the
wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing
overhead would be avoided and the facilities now being used to make the wheels would
be rented to another company for $55,000 per year.
What is the highest price that Talboe could pay the outside supplier for each wheel and
still be economically indifferent between making or buying the wheels?
A. $0.95
B. $1.15
C. $1.00
D. $1.05
Answer:
Reference: 8-43
Cuda Corporation makes a product that uses a material with the following standards:
The company budgeted for production of 3,500 units in November, but actual
production was 3,300 units. The company used 23,050 pounds of direct material to
produce this output. The company purchased 26,000 pounds of the direct material at a
total cost of $158,600. The direct materials purchases variance is computed when the
materials are purchased.
The materials quantity variance for November is:
A) $9,600 U
B) $9,760 U
C) $9,760 F
D) $9,600 F
Answer:
Irastan Company, a retailer, had cost of goods sold of $250,000 last year. The beginning
inventory balance was $28,000 and the ending inventory balance was $20,000. The
company’s average sale period was closest to:
A. 40.88 days
B. 29.20 days
C. 35.03 days
D. 70.08 days
Answer:
Spade Company recorded the following events last year:
On the statement of cash flows, some of these events are classified as operating
activities, some are classified as investing activities, and some are classified as
financing activities.
Based solely on the information above, the net cash provided by (used in) financing
activities on the statement of cash flows would be:
A. $41,000
B. $(85,000)
C. $947,000
D. $(67,000)
Answer:
Soderquist Corporation uses residual income to evaluate the performance of its
divisions. The company’s minimum required rate of return is 11%. In April, the
Commercial Products Division had average operating assets of $100,000 and net
operating income of $9,400. What was the Commercial Products Division’s residual
income in April?
A. -$1,600
B. $1,600
C. $1,034
D. -$1,034
Answer:
The following costs were incurred in September:
Prime costs during the month totaled:
A. $79,000
B. $120,000
C. $62,000
D. $40,000
Answer:
The manufacturing overhead budget at Latronica Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will
be required in August. The variable overhead rate is $8.60 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $132,770 per month, which
includes depreciation of $24,850. All other fixed manufacturing overhead costs
represent current cash flows. The company recomputes its predetermined overhead rate
every month. The predetermined overhead rate for August should be:
A. $8.60
B. $27.30
C. $23.80
D. $18.70
Answer:
The Tingey Company has 500 obsolete microcomputers that are carried in inventory at
a total cost of $720,000. If these microcomputers are upgraded at a total cost of
$100,000, they can be sold for a total of $160,000. As an alternative, the
microcomputers can be sold in their present condition for $50,000.
What is the net advantage or disadvantage to the company from upgrading the
computers rather than selling them in their present condition?
A. $110,000 advantage
B. $660,000 disadvantage
C. $10,000 advantage
D. $60,000 advantage
Answer:
Washtenaw Corporation uses a job-order costing system. The following data are for last
year:
Washtenaw applies overhead using a predetermined rate based on direct labor-hours.
What predetermined overhead rate was used last year?
A. $3.55 per direct labor-hour
B. $3.25 per direct labor-hour
C. $3.08 per direct labor-hour
D. $3.36 per direct labor-hour
Answer:
Reference: 8A-5
The Dodge Company makes and sells a single product and uses a standard cost system
in which manufacturing overhead costs are applied to units of product on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are
required per unit of product. The Dodge Company had the following budgeted and
actual data for the year:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead budget variance was:
A) $750 F
B) $3,750 F
C) $7,500 F
D) $3,000 U
Answer:
The Steff Company has the following flexible budget (in condensed form) for
manufacturing overhead:
The following data concerning production pertain to last year’s operations:
– The company used a denominator activity of 15,000 direct labor-hours to compute the
predetermined overhead rate.
– The company made 6,850 units of product and worked 14,200 actual hours during the
year.
– Actual variable manufacturing overhead was $15,904 and actual fixed manufacturing
overhead was $30, $850 for the year.
– The standard direct labor time is two hours per unit of product.
The fixed element of the predetermined overhead rate was (per DLH):
A. $4.15
B. $3.00
C. $2.00
D. $1.15
Answer:
A manufacturer of cedar shingles has supplied the following data:
The company’s degree of operating leverage is closest to:
A. 7.85
B. 1.63
C. 2.34
D. 18.97
Answer:
Reference: 8A-4
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead budget variance for March is:
A) $2,000 favorable
B) $500 favorable
C) $2,000 unfavorable
D) $2,500 favorable
Answer:
Last year Lawsby Company reported sales of $120,000 on its income statement. During
the year, accounts receivable increased by $10,000 and accounts payable increased by
$15,000. The company uses the direct method to determine the net cash provided by
operating activities on the statement of cash flows. The sales revenue adjusted to a cash
basis for the year would be:
A. $105,000
B. $125,000
C. $110,000
D. $115,000
Answer:
Stickles Corporation incurred $79,000 of actual Manufacturing Overhead costs during
August. During the same period, the Manufacturing Overhead applied to Work in
Process was $75,000. The journal entry to record the incurrence of the actual
Manufacturing Overhead costs would include a:
A. debit to Manufacturing Overhead of $79,000
B. credit to Manufacturing Overhead of $79,000
C. credit to Work in Process of $75,000
D. debit to Work in Process of $75,000
Answer:
If the labor efficiency variance is unfavorable, then
A) actual hours exceeded standard hours allowed for the actual output.
B) standard hours allowed for the actual output exceeded actual hours.
C) the standard rate exceeded the actual rate.
D) the actual rate exceeded the standard rate.
Answer:
The Yost Company makes and sells a single product, Product A. Each unit of Product A
requires 1.2 hours of labor at a labor rate of $8.40 per hour. Yost Company needs to
prepare a Direct Labor Budget for the second quarter.
If the budgeted direct labor cost for May is $161,280, then the budgeted production of
Product A for May is:
A. 16,000 units
B. 19,200 units
C. 23,040 units
D. 16,800 units
Answer:
Botelho Corporation keeps careful track of the time required to fill orders. Data
concerning a particular order appear below:
The delivery cycle time was:
A. 33.1 hours
B. 3.7 hours
C. 12.6 hours
D. 30.9 hours
Answer:
Which of the following would NOT be treated as a product cost for external financial
reporting purposes?
A. Depreciation on a factory building.
B. Salaries of factory workers.
C. Indirect labor in the factory.
D. Advertising expenses.
Answer:
Daane Company had only one job in process on May 1. The job had been charged with
$1,000 of direct materials, $3,302 of direct labor, and $5,382 of manufacturing
overhead cost. The company assigns overhead cost to jobs using the predetermined
overhead rate of $20.70 per direct labor-hour.
During May, the following activity was recorded:
Work in process inventory on May 30 contains $2,921 of direct labor cost. Raw
materials consist solely of items that are classified as direct materials.
The entry to dispose of the underapplied or overapplied manufacturing overhead cost
for the month would include a:
A. debit of $1,350 to Manufacturing Overhead.
B. credit of $4,761 to Manufacturing Overhead.
C. credit of $1,350 to Manufacturing Overhead.
D. debit of $4,761 to Manufacturing Overhead.
Answer:
The Lahn Company produces and sells a single product. Standards have been
established for the product as follows:
Direct materials: 5 pounds @ $3.50 per pound = $17.50
Direct labor: 3 hours @ $5.50 per hour = $16.50
Actual cost and usage figures for the past month follow:
Prepare journal entries to record:
a. The purchase of raw materials.
b. The usage of raw materials in production.
c. The incurrence of direct labor cost.
Answer:
The standards for product A22G specify 8.2 direct labor-hours per unit at $11.90 per
direct labor-hour. Last month 200 units of product A22G were produced using 1,700
direct labor-hours at a total direct labor wage cost of $20,060.
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
c. Prepare a journal entry to record direct labor costs during the month, including the
direct labor variances.
Answer:
Enciso Corporation is preparing its cash budget for November. The budgeted beginning
cash balance is $31,000. Budgeted cash receipts total $135,000 and budgeted cash
disbursements total $141,000. The desired ending cash balance is $50,000. The
company can borrow up to $100,000 at any time from a local bank, with interest not
due until the following month.
Prepare the company’s cash budget for November in good form.
Answer:
The following information is taken from the operating activities section of the statement
of cash flows for the Parks Company for the year just ended:
The following information is taken from the company’s income statement for the year
just ended:
a. For each of the adjustments to convert net income to the cash basis, indicate whether
the account increased or decreased.
b. Determine the net cash provided by operating activities using the direct method. You
need not prepare the formal operating activities section of the statement of cash flows
but you should show the adjustments that must be made to sales, expenses, and so forth
and the cash flow balances of sales, expenses, etc.
Answer:
Recent financial statements for Madison Company are given below:
Madison Company paid dividends of $3.15 per share during the year. The company’s
common stock had a market price of $63 per share on December 31. Assets at the
beginning of the year totaled $1,100,000 and stockholders’ equity totaled $725,000.
Compute the following:
a. Earnings per share of common stock.
b. Dividend payout ratio.
c. Dividend yield ratio.
d. Price-earnings ratio.
e. Return on total assets.
f. Return on common stockholders’ equity.
g. Was financial leverage positive or negative for the year? Explain.
Answer:
Lahay Inc. bases its selling and administrative expense budget on the number of units
sold. The variable selling and administrative expense is $4.30 per unit. The budgeted
fixed selling and administrative expense is $30,240 per month, which includes
depreciation of $3,510. The remainder of the fixed selling and administrative expense
represents current cash flows. The sales budget shows 2,700 units are planned to be sold
in April.
Prepare the selling and administrative expense budget for April.
Answer:
Data for May concerning Dorow Corporation’s two major business segments-Fibers and
Feedstocks-appear below:
Common fixed expenses totaled $345,000 and were allocated as follows: $186,000 to
the Fibers business segment and $159,000 to the Feedstocks business segment.
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Answer:
Durkee Corporation keeps careful track of the time required to fill orders. The times
required for a particular order appear below:
a. Determine the throughput time. Show your work!
b. Determine the manufacturing cycle efficiency (MCE), Show your work!
c. Determine the delivery cycle time. Show your work!
Answer:
Last year, Teneyck Corporation’s variable costing net operating income was $63,500
and ending inventory decreased by 200 units. Fixed manufacturing overhead cost per
unit was $5.
Determine the absorption costing net operating income for last year. Show your work!
Answer:
Answer:
Nowlan Co. manufactures and sells trophies for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 11,000 trophies each month; current
monthly production is 8,800 trophies. The company normally charges $87 per trophy.
Cost data for the current level of production are shown below:
The company has just received a special one-time order for 500 trophies at $50 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:
Blockmon Hospital bases its budgets on patient-visits. The hospitals static planning
budget for November appears below:
Required:
Prepare a flexible budget for 8,600 patient-visits per month.
Answer:
Nesman 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.
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
Answer:
The management of Rodarmel Corporation is considering dropping product G91Q.
Data from the company’s accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s
accounting system. Further investigation has revealed that $57,000 of the fixed
manufacturing expenses and $40,000 of the fixed selling and administrative expenses
are avoidable if product G91Q is discontinued.
a. What is the net operating income earned by product G91Q according to the
company’s accounting system? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping
product G91Q? Should the product be dropped? Show your work!
Answer:
The Clayton Company uses a standard cost system in which manufacturing overhead
costs are applied to units of the company’s single product on the basis of standard direct
labor-hours (DLHs). The standard cost card for the product follows:
The following data pertain to last year’s activities:
– The company manufactured 18,000 units of product during the year. A total of 70,200
yards of material was purchased during the year at a cost of $3.75 per yard. All of this
material was used to manufacture the 18,000 units.
– The company worked 29,250 direct labor-hours during the year at a cost of $7.80 per
hour.
– The denominator activity level was 22,500 direct labor-hours.
– Budgeted fixed manufacturing overhead costs were $135,000 while actual
manufacturing overhead costs were $133,200.
– Actual variable overhead costs were $61,425.
a. Compute the direct materials price and quantity variances for the year.
b. Compute the direct labor rate and efficiency variances for the year.
c. Compute the variable overhead rate and efficiency variances for the year.
d. Compute the fixed manufacturing overhead budget and volume variances for the
year.
Answer: