1) One way to increase the effective utilization of a bottleneck is to put less emphasis
on preventing defects and simply discard defective units at final inspection before
sending them to customers.
2) Under variable costing, variable production costs are not treated as product costs.
3) In general, duration drivers are more accurate measures of the consumption of
resources than transaction drivers.
4) An unfavorable activity variance for a variable cost occurs because the actual level of
activity is higher than expected when the static planning budget was prepared.
5) Paying wages and salaries to employees is classified as a cash outflow in the
operating activities section of the statement of cash flows.
6) The book value of old equipment is a relevant cost in a decision to replace that
equipment. (Ignore taxes.)
7) All other things the same, purchasing inventory would decrease the inventory
turnover ratio.
8) Activity-based costing uses a number of activity cost pools, each of which may have
a different allocation base.
9) Residual income is the net operating income that an investment center earns above
the minimum required return on the investment in fixed assets.
10) When preparing a direct materials budget, the units of raw material needed to meet
production should be added to desired ending inventory and the beginning inventory for
raw materials should be subtracted to determine the amount of raw materials to be
purchased.
11) In a standard costing system, if the actual fixed manufacturing overhead cost
exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed
manufacturing overhead cost would be overapplied for the period.
12) Data from Fontecchio Corporation’s most recent balance sheet appear below:
The corporation’s acid-test ratio is closest to:
A.0.35
B.0.15
C.0.68
D.0.79
13) Data for Cost A and Cost B appear below:
Which of the above best describes the behavior of Costs A and B?
A) Cost A is fixed, Cost B is variable.
B) Cost A is variable, Cost B is fixed.
C) Both Cost A and Cost B are variable.
D) Both Cost A and Cost B are fixed.
14) Which of the following would be classified as a prevention cost on a quality cost
report?
A.Re-entering data because of keying errors.
B.Rework labor and overhead.
C.Net cost of scrap.
D.Technical support provided to suppliers.
15) Division T of Clocker Company makes a timer which it sells for $30 to outside
customers. The division has supplied the following data concerning the timer:
Division S of Clocker Company is currently buying 5,000 similar timers each month
from an overseas supplier at $27 each. Division S would like to acquire its timers from
Division T if the price is right.
Suppose Division T is operating at capacity and can sell all of the timers it produces to
outside customers at its usual selling price. If Division T meets the price of the overseas
supplier and sells 5,000 timers to Division S each month, the effect on the monthly net
operating income of the company as a whole will be:
A.increase of $15,000
B.decrease of $15,000
C.decrease of $60,000
D.increase of $10,000
16) Information about units processed and processing costs incurred during a recent
month in the Refining Department of a manufacturing company follow:
The beginning work in process inventory included $11,000 of conversion cost. During
the month, the Department incurred an additional $290,000 in conversion costs.
Assuming that the company uses the FIFO method, what is the cost per equivalent unit
for conversion costs for the month in the Blending Department to the nearest cent?
A.$2.52
B.$2.55
C.$2.44
D.$2.59
17) What is the maximum contribution margin the company can earn per month?
A.$94,088
B.$66,080
C.$67,547
D.$69,192
18) Aldot Candy Corporation is implementing a target costing approach for its latest
new product, the “Big Glob” candy bar. The following information relates to the Big
Glob:
Based on this information, what is Aldot’s target selling price per bar for the Big Glob?
A.$0.48
B.$0.50
C.$0.64
D.$0.70
19) Groeneweg Corporation has provided the following data:
Dividends on common stock during Year 2 totaled $4,500. The market price of common
stock at the end of Year 2 was $9.45 per share. The company’s dividend payout ratio for
Year 2 is closest to:
A.8.7%
B.13.4%
C.4.5%
D.1.0%
20) The acid-test ratio at the end of Year 2 is closest to:
A.0.96
B.1.36
C.1.50
D.1.93
21) Gnas Corporation’s total current assets are $210,000, its noncurrent assets are
$590,000, its total current liabilities are $160,000, its long-term liabilities are $490,000,
and its stockholders’ equity is $150,000. The current ratio is closest to:
A.1.31
B.0.76
C.0.33
D.0.36
22) To the nearest whole cent, what should be the average property tax per unit at a
sales volume of 40,300 units? (Assume that this sales volume is within the relevant
range.)
A) $21.70
B) $20.22
C) $19.92
D) $20.81
23) Chabot Company had the following results last year: net operating income, $2,160;
turnover, 5; and ROI 18%. Chabot Company’s average operating assets were:
A.$300,000
B.$60,000
C.$10,800
D.$12,000
24) Which of the following journal entries would be used to record application of
manufacturing overhead to work in process in a process costing system with two
processing departments, department A and department B?
A.Option A
B.Option B
C.Option C
D.Option D
25) During a recent lengthy strike at Morell Manufacturing Company, management
replaced striking assembly line workers with office workers. The assembly line workers
had been paid $18 per hour while the office workers are only paid $10 per hour. What is
the most likely effect on the labor variances in the first month of this strike?
A.Option A
B.Option B
C.Option C
D.Option D
26) The Gerald Corporation makes and sells a single product called a Clop. Each Clop
requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor workforce
is fully adjusted each month to the required workload. The company is preparing a
Direct Labor Budget for the first quarter of the year.
If the budgeted direct labor cost for February is $162,360, then the budgeted production
of Clops for February is:
A.23,200 units
B.21,000 units
C.19,800 units
D.18,000 units
27) Stoppkotte Corporation has provided its contribution format income statement for
April.
If the company’s sales increase by 10%, its net operating income should increase by
about:
A.10.00%
B.10.64%
C.34.60%
D.93.98%
28) Ingersol Draperies makes custom draperies for homes and businesses. The company
uses an activity-based costing system for its overhead costs. The company has provided
the following data concerning its annual overhead costs and its activity cost pools.
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
The amount of activity for the year is as follows:
Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling
in the table below:
b. Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and
Job Support activity cost pools by filling in the table below:
c. Prepare an action analysis report in good form of a job that involves making 71 yards
of drapes and has direct materials and direct labor cost of $2,510. The sales revenue
from this job is $4,400.
For purposes of this action analysis report, direct materials and direct labor should be
classified as a Green cost; production overhead as a Red cost; and office expense as a
Yellow cost.
29) Data concerning three of the activity cost pools of Brevo LLC, a legal firm, have
been provided below:
The activity rate for the “meeting with clients” activity cost pool is closest to:
A.$147 per meeting hour
B.$154,791 per meeting hour
C.$37 per meeting hour
D.$68 per meeting hour
30) The production department of Tadris Corporation has submitted the following
forecast of units to be produced by quarter for the upcoming fiscal year.
Each unit requires 0.25 direct labor-hours at $18.00 per hour.
Required:
Prepare a direct labor budget for the upcoming fiscal year, assuming that the direct
labor work force is adjusted each quarter to match the number of hours required to
produce the budgeted production.
31) Lueders Memorial Diner is a charity supported by donations that provides free
meals to the homeless. The diner’s budget for April was based on 3,800 meals. The
diner’s director has provided the following cost formulas to use in budgets:
The director has also provided the diner’s statement of actual expenses for the month:
Required:
Prepare a flexible budget performance report showing both the activity variances and
the spending variances for each of the expenses and for total expenses for April. Label
each variance as favorable (F) or unfavorable (U).
32) Errera Corporation has two major business segments-Retail and Wholesale. In July,
the Retail business segment had sales revenues of $100,000, variable expenses of
$54,000, and traceable fixed expenses of $16,000. During the same month, the
Wholesale business segment had sales revenues of $920,000, variable expenses of
$386,000, and traceable fixed expenses of $156,000. Common fixed expenses totaled
$269,000 and were allocated as follows: $156,000 to the Retail business segment and
$113,000 to the Wholesale business segment.
Required:
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
33) Pen Corporation manufactures a single product. Last year, the company’s variable
costing net operating income was $55,700 and ending inventory increased by 800 units.
Fixed manufacturing overhead cost per unit was $3 in both beginning and ending
inventory.
Required:
Determine the absorption costing net operating income for last year. Show your work!
34) Hysong Corporation uses residual income to evaluate the performance of its
divisions. The minimum required rate of return for performance evaluation purposes is
11%. The Games Division had average operating assets of $530,000 and net operating
income of $56,200 in June.
Required:
What was the Games Division’s residual income in June?
35) During February, the following transactions were recorded at Cuenca Corporation.
The company uses process costing.
(1) Raw materials that cost $38,300 are withdrawn from the storeroom for use in the
Assembly Department. All of these raw materials are classified as direct materials.
(2) Direct labor costs of $21,700 are incurred, but not yet paid, in the Assembly
Department.
(3) Manufacturing overhead of $45,200 is applied in the Assembly Department using
the department’s predetermined overhead rate.
(4) Units with a carrying cost of $86,500 finish processing in the Assembly Department
and are transferred to the Painting Department for further processing.
(5) Units with a carrying cost of $109,100 finish processing in the Painting Department,
the final step in the production process, and are transferred to the finished goods
warehouse.
(6) Finished goods with a carrying cost of $106,100 are sold.
Required:
Prepare journal entries for each of the transactions listed above.
