1) when a dispute arises over a transfer price, top managers should intervene to keep
divisional managers from making a costly mistake, even though the divisions are
evaluated as profit centers.
2) the denominator activity represents the actual level of activity recorded for a period.
3) in standard costing, practical standards can be used to forecast cash flows and to plan
inventory, as well as to signal abnormal deviations in costs.
4) residual income is primarily useful because it helps to compare the performance of
divisions of different sizes.
5) if the actual level of activity is 4% more than planned, then the fixed costs in the
static budget should be increased by 4% before comparing them to actual costs.
6) the controller occupies a staff position in an organization.
7) a self-imposed budget can be a very effective control device in an organization.
8) a division of a company has idle capacity and produces a part that has a variable cost
of $52 per unit and a full (absorption) cost of $87. another division of the same
company uses such a part in one of its products and it can buy an identical part from an
outside supplier for $81 per unit. the company will be worse off if the latter division
decides to buy exclusively from the outside supplier than if the part is made inside the
company and transferred from one division to the other.
9) under the indirect method of determining the net cash provided by operating
activities on the statement of cash flows, increases in current assets such as prepaid
expenses are subtracted from net income.
10) an activity-based costing system is generally easier to set up and run than a
traditional cost system.
11) merced corporation has provided the following budgeted data:
the break-even point in units is closest to:
a.14,000 units
b.75,002 units
c.12,500 units
d.16,000 units
12) winkle company uses the fifo method in its process costing system. at the beginning
of march, the work in process inventory in the blending processing center consisted of
5,000 units, 90% complete with respect to conversion costs. at the end of the month, the
work in process inventory consisted of 2,000 units that were 60% complete with respect
to conversion costs. if 10,000 units were transferred to the next processing center during
the month, the equivalent units for conversion costs were:
a.6,700 units
b.11,700 units
c.10,300 units
d.13,000 units
13) the standards for product c78 call for 2.0 pounds of a raw material that costs $13.30
per pound. last month, 5,900 pounds of the raw material were purchased for $74,045.
the actual output of the month was 2,640 units of product c78. a total of 5,300 pounds
of the raw material were used to produce this output.
required:
a. what is the materials price variance for the month?
b. what is the materials quantity variance for the month?
c. prepare journal entries to record the purchase and use of the raw material during the
month. (all raw materials are purchased on account.)
14) stent 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 february, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 2,950 tenant-days. the kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for february:
the spending variance for facility expenses in february would be closest to:
a.$130 u
b.$130 f
c.$5 u
d.$5 f
15) rymore company would like to classify the following costs according to their cost
behavior:
which of the following classifications best describes the behavior of cost b?
a.mixed
b.variable
c.fixed
d.none of these
16) which of the following is not a benefit of budgeting?
a.it uncovers potential bottlenecks before they occur
b.it coordinates the activities of the entire organization by integrating the plans and
objectives of the various parts
c.it ensures that accounting records comply with generally accepted accounting
principles
d.it provides benchmarks for evaluating subsequent performance
17) the koski company has established standards as follows:
actual production figures for the past year were as follows:
the materials price variance is:
a.$160 u
b.$6,300 u
c.$300 u
d.$150 u
18) in october, 5,000 meters of raw material were purchased at an actual cost of $4.50
per meter. during october, 4,850 meters of the raw material were used to produce 2,400
units of the completed product. standards call for 2 meters of the raw material for each
unit of the completed product. the standard price of the raw material is $4.70 per meter.
the materials variances for october were:
a.choice a
b.choice b
c.choice c
d.choice d
19) hanson corporation uses the weighted-average 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.
what are the equivalent units for materials for the month in the first processing
department?
a.480
b.6,700
c.6,580
d.6,100
20) faram corporation has provided the following production and total cost data for two
levels of monthly production volume. the company produces a single product.
the best estimate of the total cost to manufacture 2,300 units is closest to:
a.$446,660
b.$465,840
c.$462,415
d.$478,170
21) hypes clinic uses the direct method to allocate service department costs to operating
departments. the clinic has two service departments, personnel and support, and two
operating departments, prenatal and pediatrics.
personnel department costs are allocated on the basis of employee hours and support
department costs are allocated on the basis of space occupied in square feet. the total
pediatrics department cost after the allocations of service department costs is closest to:
a.$1,036,914
b.$1,036,040
c.$1,024,310
d.$1,033,809
22) last year cumley company reported a cost of goods sold of $90,000. inventories
increased by $21,000 during the year, and accounts payable decreased by $14,000. the
company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. the cost of goods sold adjusted to a cash basis
would be:
a.$55,000
b.$111,000
c.$125,000
d.$104,000
23) zoopsia hospital has two service departments and three operating departments.
selected information on the five departments for last year is as follows:
zoopsia allocates power generation cost first on the basis of kilowatt hours. zoopsia
then allocates laundry cost on the basis of the number of employees. operating costs in
power generation for last year were $250,000. operating costs in laundry for last year
were $60,000. no distinction is made between variable and fixed costs.
if service department costs are allocated using the step-down method, what is the total
amount of service cost that will be allocated to maternity?
a.$66,425
b.$73,000
c.$84,500
d.$88,000
24) a year ago, crunchy cola corporation bought a stamping machine to make the cans
for its cola. the cost of the machine was $60,000. the machine has a useful life of 5
years and a salvage value of zero at the end of those five years. annual depreciation on
the machine is $12,000. one year of depreciation has been recorded. the variable
manufacturing cost of producing the cans is $0.05 per can. the only fixed manufacturing
cost is the annual depreciation of $12,000 on the stamping machine. crunchy needs
200,000 cans annually. dagmar stamping company recently gave crunchy an offer to
supply all of its can needs for the next four years at $0.07 per can. if crunchy buys from
dagmar, the stamping machine would not be needed and would be sold for $35,000. if
crunchy buys from dagmar, what will be the total dollar increase or decrease in income
for the next four years?
a.$16,000 decrease
b.$19,000 increase
c.$29,000 decrease
d.$32,000 increase
25) purchase order processing is an example of a:
a.unit-level activity
b.batch-level activity
c.product-level activity
d.organization-sustaining activity
26) during july, bosell corporation budgeted for 22,000 customers, but actually served
21,000 customers. revenue should be $6.80 per customer served. wages and salaries
should be $35,900 per month plus $2.40 per customer served. supplies should be $1.20
per customer served. insurance should be $12,000 per month. miscellaneous expenses
should be $6,000 per month plus $0.30 per customer served.
required:
prepare the company’s flexible budget for july based on the actual level of activity for
the month.
27) vernon clinic uses patient-visits as its measure of activity. during february, the clinic
budgeted for 3,100 patient-visits, but its actual level of activity was 2,800 patient-visits.
the clinic bases its budgets on the following information: revenue should be $30.20 per
patient-visit. personnel expenses should be $20,600 per month plus $9.70 per
patient-visit. medical supplies should be $1,400 per month plus $5.40 per patient-visit.
occupancy expenses should be $5,700 per month plus $1.50 per patient-visit.
administrative expenses should be $2,500 per month plus $0.30 per patient-visit. the
clinic reported the following actual results for february:
required:
prepare the clinic’s flexible budget performance report for february. label each variance
as favorable (f) or unfavorable (u).
28) the allen company uses a job-order costing system. the following activity took place
during the month of march:
required:
prepare journal entries to record the information above. key your entries by the letters a
through i. assume all purchases are made on account.
29) odegaard corporation’s net income last year was $1,811,000. the dividend on
common stock was $3.20 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 $50.20 per share.
throughout the year, 300,000 shares of common stock and 200,000 shares of preferred
stock were outstanding.
required:
compute the price-earnings ratio. show your work!
30) spence corporation, which makes skylights, has provided the following data for
december:
required:
compute the rate variances and the efficiency variances for indirect labor and power and
indicate whether they are favorable or unfavorable.