Grosseiller Corporation uses the weighted-average method in its process costing
system. This month, the beginning inventory in the first processing department
consisted of 900 units. The costs and percentage completion of these units in beginning
inventory were:
A total of 6,400 units were started and 5,200 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 65% complete with respect to materials and 15% 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.
What are the equivalent units for conversion costs for the month in the first processing
department?
A. 7,300
B. 5,515
C. 5,200
D. 315
Answer:
Clayton Company produces a single product. Last year, the company’s variable
production costs totaled $8,000 and its fixed manufacturing overhead costs totaled
$4,800. The company produced 4,000 units during the year and sold 3,600 units.
Assuming no units in the beginning inventory:
A. under variable costing, the units in ending inventory will be costed at $3.20 each.
B. the net operating income under absorption costing for the year will be $480 lower
than net operating income under variable costing.
C. the ending inventory under variable costing will be $480 lower than the ending
inventory under absorption costing.
D. the net operating income under absorption costing for the year will be $800 lower
than net operating income under variable costing.
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:
The January contribution format income statement of Brotherton Corporation appears
below:
The degree of operating leverage is closest to:
A. 6.26
B. 0.27
C. 0.16
D. 3.64
Answer:
Callander Corporation is a wholesaler that sells a single product. Management has
provided the following cost data for two levels of monthly sales volume. The company
sells the product for $151.60 per unit.
The best estimate of the total variable cost per unit is:
A. $141.00
B. $80.10
C. $69.30
D. $132.30
Answer:
A furniture manufacturer has a standard costing system based on standard direct
labor-hours (DLHs) as the measure of activity. Data from the company’s flexible budget
for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
What is the predetermined overhead rate to the nearest cent?
A. $13.40
B. $13.61
C. $13.81
D. $13.20
Answer:
Kilihea Corporation produces a single product. The company’s absorption costing
income statement for July follows:
The company’s variable production costs are $20 per unit and its fixed manufacturing
overhead totals $80,000 per month.
Net operating income under the variable costing method for July would be:
A. $53,000
B. $49,800
C. $61,000
D. $57,000
Answer:
Stryker Corporation has two major business segments-East and West. In April, the East
business segment had sales revenues of $500,000, variable expenses of $280,000, and
traceable fixed expenses of $80,000. During the same month, the West business
segment had sales revenues of $970,000, variable expenses of $514,000, and traceable
fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were
allocated as follows: $112,000 to the East business segment and $168,000 to the West
business segment.
A properly constructed segmented income statement in a contribution format would
show that the net operating income of the company as a whole is:
A. $412,000
B. $676,000
C. -$148,000
D. $132,000
Answer:
The information below was obtained from the records of one of the departments of
Cushing Company for the month of August. The company uses the FIFO method in its
process costing system.
All materials are added at the beginning of the process.
The equivalent units for labor and overhead for the month of August are:
A. 85,000 units
B. 95,000 units
C. 87,500 units
D. 82,500 units
Answer:
Galino Company, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under the absorption costing approach?
A. $104,400
B. $31,200
C. $13,000
D. $135,600
Answer:
Canon Company has two sales areas: North and South. During last year, the
contribution margin in the North Area was $50,000, or 20% of sales. The segment
margin in the South was $15,000, or 8% of sales. Traceable fixed expenses are $15,000
in the North and $10,000 in the South. During last year, the company reported total net
operating income of $26,000.
The variable expenses for the South Area for the year were:
A. $230,000
B. $185,000
C. $162,500
D. $65,000
Answer:
Prasad Corporation uses the FIFO method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
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 conversion costs for the first department for the month
is closest to:
A. $38.96
B. $43.33
C. $40.98
D. $40.91
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 amount of direct materials cost in the May 30 work in process inventory account
was:
A. $5,680
B. $19,900
C. $8,400
D. $11,500
Answer:
Weinreich Corporation produces and sells a single product. Data concerning that
product appear below:
The company is currently selling 2,000 units per month. Fixed expenses are $131,000
per month. The marketing manager believes that an $18,000 increase in the monthly
advertising budget would result in a 170 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 $2,700
B. increase of $15,300
C. decrease of $18,000
D. decrease of $2,700
Answer:
Balbuena Corporation produces and sells two products. Data concerning those products
for the most recent month appear below:
The fixed expenses of the entire company were $15,630. If the sales mix were to shift
toward Product K87W with total sales dollars remaining constant, the overall
break-even point for the entire company:
A. would not change.
B. would increase.
C. would decrease.
D. could increase or decrease.
Answer:
Enz Corporation manufactures a variety of products. The following data pertain to the
company’s operations over the last two years:
What was the absorption costing net operating income last year?
A. $56,000
B. $37,000
C. $57,000
D. $75,000
Answer:
A manufacturing company uses a standard costing system in which standard
machine-hours (MHs) is the measure of activity. Data from the company’s flexible
budget for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
What was the variable overhead efficiency variance for the period to the nearest dollar?
A. $1,746 U
B. $70 U
C. $820 F
D. $74 U
Answer:
Delatrinidad Corporation’s net income last year was $7,736,000. The dividend on
common stock was $12.60 per share and the dividend on preferred stock was $2.80 per
share. The market price of common stock at the end of the year was $53.30 per share.
Throughout the year, 400,000 shares of common stock and 200,000 shares of preferred
stock were outstanding. The dividend payout ratio is closest to:
A. 0.70
B. 0.65
C. 2.36
D. 1.87
Answer:
Selena Company has two products: A and B. The company uses activity-based costing.
The estimated total cost and expected activity for each of the company’s three activity
cost pools are as follows:
The activity rate under the activity-based costing system for Supporting Customers is
closest to:
A. $46.33
B. $21.67
C. $65.00
D. $18.53
Answer:
Sohr Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $50 to buy from farmers and $15 to
crush in the company’s plant. Two intermediate products, beet fiber and beet juice,
emerge from the crushing process. The beet fiber can be sold as is for $20 or processed
further for $19 to make the end product industrial fiber that is sold for $58. The beet
juice can be sold as is for $41 or processed further for $23 to make the end product
refined sugar that is sold for $58.
Which of the intermediate products should be processed further?
A. beet fiber should NOT be processed into industrial fiber; beet juice should be
processed into refined sugar
B. beet fiber should NOT be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
C. beet fiber should be processed into industrial fiber; beet juice should be processed
into refined sugar
D. beet fiber should be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
Answer:
Excerpts from Goodrow Corporation’s most recent balance sheet and income statement
appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $5.34 per share.
The dividend payout ratio for Year 2 is closest to:
A. 50.0%
B. 28.6%
C. 33.3%
D. 3333.3%
Answer:
Coskey Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the month appear
below:
The company based its original budget on 3,900 machine-hours. The company actually
worked 3,580 machine-hours during the month. The standard hours allowed for the
actual output of the month totaled 3,770 machine-hours. What was the overall fixed
manufacturing overhead budget variance for the month?
A. $1,280 favorable
B. $320 favorable
C. $320 unfavorable
D. $1,280 unfavorable
Answer:
Aide Industries is a division of a major corporation. Data concerning the most recent
year appears below:
The division’s turnover is closest to:
A. 20.00
B. 4.35
C. 0.22
D. 3.57
Answer:
Bakker Corporation applies manufacturing overhead on the basis of direct labor-hours.
At the beginning of the most recent year, the company based its predetermined
overhead rate on total estimated overhead of $77,250 and 2,500 estimated direct
labor-hours. Actual manufacturing overhead for the year amounted to $79,000 and
actual direct labor-hours were 2,400.
The applied manufacturing overhead for the year was closest to:
A. $74,160
B. $71,184
C. $75,840
D. $79,008
Answer:
The Consumer Products Division of Weiter Corporation had average operating assets of
$570,000 and net operating income of $65,100 in March. The minimum required rate of
return for performance evaluation purposes is 12%.
What was the Consumer Products Division’s minimum required return in March?
A. $7,812
B. $76,212
C. $68,400
D. $65,100
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.
December cash disbursements for merchandise purchases would be:
A. $136,500
B. $68,250
C. $133,250
D. $130,000
Answer:
A static budget:
A) should be compared to actual costs to assess how well costs were controlled.
B) should be compared to a flexible budget to assess how well costs were controlled.
C) is valid for only one level of activity.
D) represents the best way to set spending targets for managers.
Answer:
At Jacobson Company, indirect labor is a variable cost that varies with direct
labor-hours. Last month the actual indirect labor cost totaled $5,780 for the month and
that the associated spending variance was $245 F. If 24,100 direct labor-hours were
actually worked last month, then the flexible budget cost formula for indirect labor
must be (per direct labor-hour):
A) $0.20
B) $0.25
C) $0.30
D) $0.35
Answer:
Reference: 8-2
Roye 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 September, the kennel budgeted for
3,300 tenant-days, but its actual level of activity was 3,330 tenant-days. The kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for September:
Data used in budgeting:
Actual results for September:
The revenue variance for September would be closest to:
A) $1,789 U
B) $2,830 U
C) $2,830 F
D) $1,789 F
Answer:
Mosbey Inc. is working on its cash budget for June. The budgeted beginning cash
balance is $16,000. Budgeted cash receipts total $188,000 and budgeted cash
disbursements total $187,000. The desired ending cash balance is $40,000. The excess
(deficiency) of cash available over disbursements for June will be:
A. $15,000
B. $1,000
C. $17,000
D. $204,000
Answer:
Hassick Corporation produces and sells a single product whose contribution margin
ratio is 63%. The company’s monthly fixed expense is $460,530 and the company’s
monthly target profit is $19,000. The dollar sales to attain that target profit is closest to:
A. $290,134
B. $302,104
C. $761,159
D. $731,000
Answer:
Balmforth Products, Inc. makes and sells a single product called a Bik. It takes three
yards of Material A to make one Bik. Budgeted production of Biks for the next five
months is as follows:
The company wants to maintain monthly ending inventories of Material A equal to 20%
of the following month’s production needs. On January 31, this target had not been
attained since only 2,000 yards of Material A were on hand. The cost of Material A is
$0.80 per yard. The company wants to prepare a Direct Materials Purchases Budget.
The total cost of Material A to be purchased in February is:
A. $45,200
B. $42,900
C. $39,440
D. $34,320
Answer:
The Chase Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard machine-hours. For November, the
company’s flexible budget for manufacturing overhead showed the following total
budgeted costs at the denominator activity level of 40,000 machine-hours:
During November 42,000 machine-hours were used to complete 13,200 units of product
with the following actual overhead costs:
The standard time allowed to complete one unit of product is 3.6 machine-hours.
The total predetermined overhead rate per machine-hour for November was:
A. $1.75
B. $2.40
C. $2.97
D. $1.40
Answer:
On April 1, Stelter Corporation had $34,000 of raw materials on hand. During the
month, the company purchased an additional $60,000 of raw materials. During April,
$70,000 of raw materials were requisitioned from the storeroom for use in production.
These raw materials included both direct and indirect materials. The indirect materials
totaled $7,000. Prepare journal entries to record these events. Use those journal entries
to answer the following questions:
The debits to the Raw Materials account for the month of April total:
A. $94,000
B. $70,000
C. $60,000
D. $34,000
Answer:
Dowan Company uses a predetermined overhead rate based on direct labor-hours to
apply manufacturing overhead to jobs. Last year Dowan Company incurred $156,600 in
actual manufacturing overhead cost. The Manufacturing Overhead account showed that
manufacturing overhead was underapplied by $12,600 for the year. If the predetermined
overhead rate is $6.00 per direct labor-hour, how many hours did the company work
during the year?
A. 26,000 hours
B. 24,000 hours
C. 28,200 hours
D. 25,000 hours
Answer:
Butremovic Corporation’s contribution format income statement for the most recent
month follows:
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in net
operating income that should result from an 8% increase in sales.
Answer:
Hudalla Corporation produces a single product and has the following cost structure:
Compute the unit product cost under variable costing. Show your work!
Answer:
Slonaker Inc. has provided the following data concerning its maintenance costs:
Management believes that maintenance cost is a mixed cost that depends on
machine-hours.
Estimate the variable cost per machine-hour and the fixed cost per month using the
high-low method. Show your work!
Answer:
The EG Company produces and sells one product. The following data refer to the year
just completed:
Assume that direct labor is a variable cost.
a. Compute the cost of a single unit of product under both the absorption costing and
variable costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in
(b) and (c) above.
Answer:
Wahlen Corporation has provided the following data concerning its direct labor costs
for November:
Prepare the journal entry to record the incurrence of direct labor costs.
Answer:
Mossor Corporation has two major business segments-Retail and Wholesale. In
December, the Retail business segment had sales revenues of $510,000, variable
expenses of $296,000, and traceable fixed expenses of $61,000. During the same
month, the Wholesale business segment had sales revenues of $510,000, variable
expenses of $240,000, and traceable fixed expenses of $82,000. Common fixed
expenses totaled $191,000 and were allocated as follows: $113,000 to the Retail
business segment and $78,000 to the Wholesale business segment.
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Answer:
Dana Inc. uses the FIFO method in its process costing system. The following data
concern the operations of the company’s first processing department for a recent month.
Using the FIFO method:
a. Determine the equivalent units of production for materials and conversion costs.
b. Determine the cost per equivalent unit for materials and conversion costs.
c. Determine the cost of ending work in process inventory.
d. Determine the cost of units transferred out of the department during the month.
Answer:
Ferris Wares is a division of a major corporation. The following data are for the latest
year of operations:
a. What is the division’s return on investment (ROI)?
b. What is the division’s residual income?
Answer:
Cavett Company’s comparative balance sheet and income statement for last year appear
below:
The following additional information is available for the year:
* During the year, the company sold long-term investments with a cost of $38,000
when purchased for $33,000 in cash.
* All sales were on credit.
* The company paid a cash dividend of $25,000.
* The company did not dispose of any property, plant, and equipment, issue any bonds
payable, or repurchase any of its own common stock during the year.
a. Using the direct method, determine the net cash provided by operating activities for
the year.
b. Using the indirect method, determine the net cash provided by operating activities for
the year.
c. Using the net cash provided by operating activities figure from either part a or b,
prepare a statement of cash flows for the year.
Answer:
Cabigas Company manufactures two products, Product C and Product D. The company
estimated it would incur $167,140 in manufacturing overhead costs during the current
period. Overhead currently is applied to the products on the basis of direct labor-hours.
Data concerning the current period’s operations appear below:
a. Compute the predetermined overhead rate under the current method, and determine
the unit product cost of each product for the current year.
b. The company is considering using an activity-based costing system to compute unit
product costs for external financial reports instead of its traditional system based on
direct labor-hours. The activity-based costing system would use three activity cost
pools. Data relating to these activities for the current period are given below:
Determine the unit product cost of each product for the current period using the
activity-based costing approach.
Answer:
Malbrough Corporation’s most recent balance sheet and income statement appear
below:
Compute the following for Year 2:
a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.
Answer:
Escatel Corporation bases its predetermined overhead rate on the estimated labor-hours
for the upcoming year. Data for the most recently completed year appear below:
Compute the company’s predetermined overhead rate for the recently completed year.
Answer:
Parkins Company produces and sells a single product. The company’s income statement
for the most recent month is given below:
There are no beginning or ending inventories.
a. Compute the company’s monthly break-even point in units of product.
b. What would the company’s monthly net operating income be if sales increased by
25% and there is no change in total fixed expenses?
c. What dollar sales must the company achieve in order to earn a net operating income
of $50,000 per month?
d. The company has decided to automate a portion of its operations. The change will
reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed
factory overhead. Compute the new break-even point in units.
Answer:
Kortge Corporation uses the FIFO method in its process costing. The following data
concern the company’s Mixing Department for the month of August.
Compute the cost per equivalent unit for materials and conversion for the Mixing
Department for August using the FIFO method.
Answer:
Arcade Corporation’s balance sheet and income statement appear below:
The company did not dispose of any property, plant, and equipment, retire any bonds
payable, or repurchase any of its own common stock during the year. The company
declared and paid a cash dividend.
Prepare a statement of cash flows in good form using the indirect method.
Answer:
Whether a company uses process costing or job-order costing depends on its industry. A
number of companies in different industries are listed below:
1/ Dairy farm
2/ Custom boat builder
3/ Food caterer that supplies food for wedding and other special events
4/ Advertising agency
5/ Coal mining company
6/ Cattle feedlot that fattens cattle prior to slaughter
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
Answer:
The following direct labor standards have been established for product H91D:
The following data pertain to the most recent month’s operations during which 3,860
units of product H91D were made:
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:
