1) To encourage salespersons to sell the most profitable products, they should be paid
sales commissions based on the profitability index and the amount of constraint time
sold rather than on sales revenue.
2) All other things the same, when a company increases its inventories in anticipation of
later higher sales, the accounts receivable turnover ratio for the current period increases.
3) A revenue variance is unfavorable if the actual revenue is less than the revenue in the
static planning budget.
4) Conversion cost equals product cost less direct labor cost.
5) All other things the same, when a customer purchases an item for cash, the accounts
receivable turnover ratio increases.
6) The Warrel Corporation reported the following data for last year:
Based solely on this information, the net cash provided (used) by financing activities on
the statement of cash flows would be:
A.$12,000
B.$34,000
C.$(12,000)
D.$(18,000)
7) Moccio Enterprises, Inc., produces and sells a single product whose selling price is
$120.00 per unit and whose variable expense is $37.20 per unit. The company’s
monthly fixed expense is $356,040.
Assume the company’s target profit is $14,000. The unit sales to attain that target profit
is closest to:
A.3,084 units
B.4,469 units
C.5,833 units
D.9,947 units
8) The Covey Corporation is preparing its Manufacturing Overhead Budget for the
fourth quarter of the year. The budgeted variable manufacturing overhead rate is $4.00
per direct labor-hour; the budgeted fixed manufacturing overhead is $64,000 per month,
of which $18,000 is factory depreciation.
If the budgeted cash disbursements for manufacturing overhead for November are
$90,000, then the budgeted direct labor-hours for November must be:
A.11,000 direct labor-hours
B.22,500 direct labor-hours
C.6,500 direct labor-hours
D.2,000 direct labor-hours
9) If management decides to buy part P42 from the outside supplier rather than to
continue making the part, what would be the annual impact on the company’s overall
net operating income?
A) Net operating income would decline by $5,000 per year.
B) Net operating income would decline by $59,000 per year.
C) Net operating income would decline by $51,000 per year.
D) Net operating income would decline by $55,000 per year.
10) The total cash flow net of income taxes in year 3 is:
A.$58,500
B.$76,000
C.$90,000
D.$108,500
11) Steeler Corporation is planning to sell 100,000 units for $2.00 per unit and will
break even at this level of sales. Fixed expenses will be $75,000. What are the
company’s variable expenses per unit?
A.$0.75
B.$1.00
C.$1.25
D.$1.10
12) Arizaga Corporation manufactures canoes in two departments, Fabrication and
Waterproofing. In the Fabrication Department, fiberglass panels are attached to a canoe-
shaped aluminum frame. The canoes are then transferred to the Waterproofing
department to be coated with sealant. Arizaga uses a weighted-average process cost
system to collect costs in both departments.
All materials in the Fabrication Department are added at the beginning of the
production process. On July 1, the Fabrication Department had 320 canoes in process
that were 20% complete with respect to conversion cost. On July 31, Fabrication had
540 canoes in process that were 30% complete with respect to conversion cost. During
July, the Fabrication Department completed 6,700 canoes and transferred them to the
Waterproofing Department.
What journal entry should Arizaga make to record the completion of the production
process by the Waterproofing Department?
A.Option A
B.Option B
C.Option C
D.Option D
13) The company’s total asset turnover for Year 2 is closest to:
A.0.99
B.0.19
C.5.32
D.1.01
14) Lasseter Corporation has provided its contribution format income statement for
August. The company produces and sells a single product.
If the company sells 3,800 units, its total contribution margin should be closest to:
A.$16,227
B.$59,200
C.$60,800
D.$62,100
15) Boenisch Corporation produces and sells a single product with the following
characteristics:
The company is currently selling 8,000 units per month. Fixed expenses are $406,000
per month. Consider each of the following questions independently.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $16 per unit. In
exchange, the sales staff would accept a decrease in their salaries of $102,000 per
month. (This is the company’s savings for the entire sales staff.) The marketing manager
predicts that introducing this sales incentive would increase monthly sales by 700 units.
What should be the overall effect on the company’s monthly net operating income of
this change?
A.decrease of $193,600
B.increase of $554,400
C.increase of $90,800
D.increase of $10,400
16) Kaleohano Corporation has provided data concerning the Corporation’s
Manufacturing Overhead account for the month of July. Prior to the closing of the
overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the
Manufacturing Overhead account was $62,000 and the total of the credits to the account
was $73,000. Which of the following statements is true?
A.Manufacturing overhead for the month was underapplied by $11,000.
B.Manufacturing overhead applied to Work in Process for the month was $62,000.
C.Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $73,000.
D.Actual manufacturing overhead for the month was $62,000.
17) Pohl Corporation uses a standard cost system in which manufacturing overhead is
applied on the basis of standard machine-hours. For June, the company’s manufacturing
overhead flexible budget showed the following total budgeted costs at a denominator
activity level of 20,000 machine-hours:
During June, 17,000 machine-hours were used to complete 13,000 units of product, and
the following actual total overhead costs were incurred:
At standard, each unit of finished product requires 1.4 hours of machine time.
The variable overhead rate variance for maintenance cost for June was
A.$1,020 F
B.$1,020 U
C.$3,230 F
D.$3,230 U
18) How many units of product E25Y should be produced each month?
A.520
B.0
C.982
D.218
19) The income tax expense in year 2 is:
A.$9,000
B.$30,000
C.$39,000
D.$60,000
20) Crossbow Corp. produces a single product. Data concerning June’s operations
follow:
Under variable costing, ending inventory on the balance sheet would be valued at:
A.$10,000
B.$7,000
C.$9,000
D.$12,000
21) Deraney Corporation has an activity-based costing system with three activity cost
pools-Machining, Setting Up, and Other. The company’s overhead costs have already
been allocated to the cost pools and total $5,800 for the Machining cost pool, $4,700 for
the Setting Up cost pool, and $7,500 for the Other cost pool. Costs in the Machining
cost pool are assigned to products based on machine-hours (MHs) and costs in the
Setting Up cost pool are assigned to products based on the number of batches. Costs in
the Other cost pool are not assigned to products. Data concerning the two products
appear below:
Required:
a. Calculate activity rates for each activity cost pool using activity-based costing.
b. Determine the amount of overhead cost that would be assigned to each product using
activity-based costing.
22) Capilla Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diner’s budget for October is to be based on 3,300 meals. The diner’s
director has provided the following cost data to use in the budget: groceries, $2.85 per
meal; kitchen operations, $4,100 per month plus $1.25 per meal; administrative
expenses, $3,400 per month plus $0.40 per meal; and fundraising expenses, $1,800 per
month.
Required:
Prepare the diner’s budget for the month of October. The budget will only contain the
costs listed above; no revenues will be on the budget.
23) Data for March concerning Mauger Corporation’s two major business
segments-Fibers and Feedstocks-appear below:
Common fixed expenses totaled $461,000 and were allocated as follows: $249,000 to
the Fibers business segment and $212,000 to the Feedstocks business segment.
Required:
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
24) Vitro Corporation has two service departments, Service Department A and Service
Department B, and two operating departments, Operating Department X and Operating
Department Y.
The company uses the step-down method to allocate service department costs to
operating departments. Service Department A costs are allocated first on the basis of
allocation base A and Service Department B costs are allocated second on the basis of
allocation base B.
Required:
Allocate the service department costs to the operating departments using the step-down
method.
25) Data concerning Sumter Corporation’s single product appear below:
Fixed expenses are $1,024,000 per month. The company is currently selling 8,000 units
per month.
Required:
Management is considering using a new component that would increase the unit
variable cost by $6. Since the new component would improve the company’s product,
the marketing manager predicts that monthly sales would increase by 300 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!
26) Mottai Corporation uses the FIFO method in its process costing system. The
following data concern the company’s Assembly Department for the month of August.
Required:
Determine the cost of ending work in process inventory and the cost of units transferred
out of the department during August using the FIFO method.
27) Escalona Printing Corp., a book printer, has provided the following data:
Management believes that the press setup cost is a mixed cost that depends on the
number of titles printed. (A specific book that is to be printed is called a “title”.
Typically, thousands of copies will be printed of each title. Specific steps must be taken
to setup the presses for printing each title-for example, changing the printing plates. The
costs of these steps are the press setup costs.)
Required:
Estimate the variable cost per title printed and the fixed cost per month using the
least-squares regression method.
28) ( The management of Komatz Corporation is considering the purchase of a
automated molding machine that would cost $308,424, would have a useful life of 8
years, and would have no salvage value. The automated molding machine would result
in cash savings of $71,000 per year due to lower labor and other costs.
Required:
Determine the internal rate of return on the investment in the new automated molding
machine. Show your work!