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Financial leverage is negative when:
A. the return on total assets is less than the rate of return on common stockholders'
equity.
B. total liabilities are less than stockholders' equity.
C. total liabilities are less than total assets.
D. the return on total assets is less than the rate of return demanded by creditors.
Answer:
The information below was obtained from the records of the first processing department
of Moore Company for the month of May. The company uses the weighted-average
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 May were:
A. 60,000 units
B. 69,800 units
C. 65,800 units
D. 73,800 units
Answer:
Denise Corporation's standard wage rate is $14.40 per direct labor-hour (DLH) and
according to the standards, each unit of output requires 7.0 DLHs. In May, 5,200 units
were produced, the actual wage rate was $13.70 per DLH, and the actual hours were
36,520 DLHs. The Labor Efficiency Variance for May would be recorded as a:
A. credit of $1,644.
B. credit of $1,728.
C. debit of $1,728.
D. debit of $1,644.
Answer:
Abe Company, which has only one product, has provided the following data concerning
its most recent month of operations:
What is the net operating income for the month under absorption costing?
A. $11,400
B. $(12,900)
C. $16,800
D. $5,400
Answer:
During the last year, Snyder Co. produced 10,000 units of its only product. Costs
incurred by Snyder during the year were as follows:
The unit product cost under variable costing was:
A. $3.20
B. $3.81
C. $4.12
D. $3.51
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 spending variance for expendables in September would be closest to:
A) $1,185 F
B) $1,185 U
C) $750 F
D) $750 U
Answer:
Dunford Company produces three products with the following costs and selling prices:
If Dunford has a limit of 20,000 direct labor hours but no limit on units sold or machine
hours, then the ranking of the products from the most profitable to the least profitable
use of the constrained resource is:
A. X, Y, Z
B. Y, Z, X
C. X, Z, Y
D. Z, Y, X
Answer:
Financial statements for Marcell Company appear below:
Marcell Company's inventory turnover for Year 2 was closest to:
A. 16.2
B. 23.2
C. 14.2
D. 9.9
Answer:
The management of Fries Corporation has been concerned for some time with the
financial performance of its product R89H and has considered discontinuing it on
several occasions. Data from the company's accounting system appear below:
In the company's accounting system all fixed expenses of the company are fully
allocated to products. Further investigation has revealed that $31,000 of the fixed
manufacturing expenses and $46,000 of the fixed selling and administrative expenses
are avoidable if product R89H is discontinued.
What would be the effect on the company's overall net operating income if product
R89H were dropped?
A. Overall net operating income would decrease by $66,000.
B. Overall net operating income would decrease by $8,000.
C. Overall net operating income would increase by $66,000.
D. Overall net operating income would increase by $8,000.
Answer:
Drake Company's contribution format income statement for the most recent year
appears below:
The break-even point in sales dollars is:
A. $731,250
B. $676,000
C. $675,000
D. $720,000
Answer:
Reference: 8-50
Fabiano Corporation makes a product whose direct labor standards are 0.5 hours per
unit and $23.00 per hour. In February the company produced 3,300 units using 1,640
direct labor-hours. The actual direct labor cost was $38,540.
The labor rate variance for February is:
A) $825 U
B) $820 U
C) $820 F
D) $825 F
Answer:
The Malcolm Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard direct labor-hours (DLHs). The
standards call for 3 hours of direct labor per unit produced. The following data pertain
to the company's manufacturing overhead for the month of July:
The volume variance for July is:
A. $1,131 F
B. $900 F
C. $1,131 U
D. $900 U
Answer:
Data concerning Celenza Corporation's single product appear below:
Assume the company's monthly target profit is $18,000. The dollar sales to attain that
target profit are closest to:
A. $967,324
B. $1,478,766
C. $715,820
D. $2,753,154
Answer:
Which of the following entries would correctly record charging direct labor costs to
Work in Process, given an unfavorable labor efficiency variance and a favorable labor
rate variance?
A.
B.
C.
D.
Answer:
Millonzi Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
What was the variable overhead rate variance for the month?
A) $4,350 favorable
B) $2,000 unfavorable
C) $2,650 favorable
D) $1,700 favorable
Answer:
The following data are available for the South Division of Redride Products, Inc. and
the single product it makes:
If South wants a residual income of $50,000 and the minimum required rate of return is
10%, the annual turnover will have to be:
A. 0.32
B. 0.80
C. 1.25
D. 1.50
Answer:
Beall Industries is a division of a major corporation. Last year the division had total
sales of $20,160,000, net operating income of $1,592,640, and average operating assets
of $8,000,000.
The division's margin is closest to:
A. 39.7%
B. 47.6%
C. 7.9%
D. 19.9%
Answer:
Bridget Company uses activity-based costing. The company has two products: A and B.
The annual production and sales of Product A is 2,000 units and of Product B is 3,000
units. There are three activity cost pools, with estimated total cost and expected activity
as follows:
The overhead cost per unit of Product A under activity-based costing is closest to:
A. $6.00
B. $9.60
C. $8.63
D. $13.80
Answer:
Veltri Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.77 direct labor-hours. The direct labor rate is $11.20 per direct
labor-hour. The production budget calls for producing 7,100 units in October and 6,900
units in November. The company guarantees its direct labor workers a 40-hour paid
work week. With the number of workers currently employed, that means that the
company is committed to paying its direct labor work force for at least 5,480 hours in
total each month even if there is not enough work to keep them busy. What would be
the total combined direct labor cost for the two months?
A. $122,752.00
B. $120,736.00
C. $120,881.60
D. $122,606.40
Answer:
Financial statements for Larned Company appear below:
Dividends during Year 2 totaled $263 thousand, of which $12 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $160.
Larned Company's return on total assets for Year 2 was closest to:
A. 15.8%
B. 17.2%
C. 18.6%
D. 17.8%
Answer:
Meltzer Corporation is presently making part O13 that is used in one of its products. A
total of 3,000 units of this part are produced and used every year. The company's
Accounting Department reports the following costs of producing the part at this level of
activity:
An outside supplier has offered to produce and sell the part to the company for $27.00
each. If this offer is accepted, the supervisor's salary and all of the variable costs,
including direct labor, can be avoided. The special equipment used to make the part was
purchased many years ago and has no salvage value or other use. The allocated general
overhead represents fixed costs of the entire company. If the outside supplier's offer
were accepted, only $3,000 of these allocated general overhead costs would be avoided.
If management decides to buy part O13 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 $23,100 per year.
B. Net operating income would decline by $26,100 per year.
C. Net operating income would decline by $20,100 per year.
D. Net operating income would decline by $8,700 per year.
Answer:
Dickison Corporation reported the following data for the month of December:
The conversion cost for December was:
A. $107,000
B. $142,000
C. $111,000
D. $178,000
Answer:
Epstein Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 400
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,000 units were started and 6,500 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 85% complete with respect to materials and 45% 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.
The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $248,529
B. $218,303
C. $236,700
D. $228,800
Answer:
Forker Corporation has provided the following data concerning its direct labor costs for
April:
The Labor Efficiency Variance for April would be recorded as a:
A. debit of $54,634.
B. debit of $57,875.
C. credit of $54,634.
D. credit of $57,875.
Answer:
Ethridge Corporation is presently making part H25 that is used in one of its products. A
total of 9,000 units of this part are produced and used every year. The company's
Accounting Department reports the following costs of producing the part at this level of
activity:
An outside supplier has offered to make and sell the part to the company for $15.40
each. If this offer is accepted, the supervisor's salary and all of the variable costs can be
avoided. The special equipment used to make the part was purchased many years ago
and has no salvage value or other use. The allocated general overhead represents fixed
costs of the entire company, none of which would be avoided if the part were purchased
instead of produced internally. If management decides to buy part H25 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 increase by $24,300 per year.
B. Net operating income would decline by $24,300 per year.
C. Net operating income would increase by $58,500 per year.
D. Net operating income would decline by $58,500 per year.
Answer:
The budgeted amount of raw materials to be purchased is determined by:
A. adding the desired ending inventory of raw materials to the raw materials needed to
meet the production schedule.
B. subtracting the beginning inventory of raw materials from the raw materials needed
to meet the production schedule.
C. adding the desired ending inventory of raw materials to the raw materials needed to
meet the production schedule and subtracting the beginning inventory of raw materials.
D. adding the beginning inventory of raw materials to the raw materials needed to meet
the production schedule and subtracting the desired ending inventory of raw materials.
Answer:
Reference: 8-29
Hurren Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in June.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for June is:
A) $185 F
B) $200 U
C) $185 U
D) $200 F
Answer:
Reference: 8A-18
The following data for April has been provided by Mittler Corporation.
The budget variance for April is:
A) $5,660 U
B) $8,120 F
C) $8,120 U
D) $5,660 F
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:
Reference: 8-48
Davidson Corporation makes a product that has the following direct labor standards:
In September the company produced 4,900 units using 2,210 direct labor-hours. The
actual direct labor rate was $22.40 per hour.
The labor rate variance for September is:
A) $1,470 U
B) $1,326 U
C) $1,326 F
D) $1,470 F
Answer:
Lucas 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) investing
activities on the statement of cash flows would be:
A. $(5,000)
B. $10,000
C. $70,000
D. $(30,000)
Answer:
Kramer 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.
The cost of ending work in process inventory in the first processing department
according to the company's cost system is closest to:
A. $32,527
B. $46,467
C. $34,317
D. $39,497
Answer:
During February, the following transactions were recorded at Ferrington Corporation.
The company uses process costing.
(1) Raw materials that cost $42,400 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 $16,100 are incurred, but not yet paid, in the Assembly
Department.
(3) Manufacturing overhead of $30,200 is applied in the Assembly Department using
the department's predetermined overhead rate.
(4) Units with a carrying cost of $76,500 finish processing in the Assembly Department
and are transferred to the Painting Department for further processing.
(5) Units with a carrying cost of $97,200 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 $92,800 are sold.
Prepare journal entries for each of the transactions listed above.
Answer:
Dita Company uses a process costing system. The following information relates to one
month's activity in the company's Curing Department.
The conversion cost of the beginning inventory was $6,500. During the month,
$112,000 in additional conversion cost was incurred.
a. Assume that the company uses the FIFO method. Compute:
1/ The equivalent units of production for conversion for the month.
2/ The cost per equivalent unit for conversion for the month.
3/ The total cost transferred out during the month.
4/ The cost assigned to the ending work in process inventory.
b. Assume that the company uses the weighted-average cost method. Compute:
1/ The equivalent units of production for conversion for the month.
2/ The cost per equivalent unit for conversion for the month.
3/ The total cost transferred out during the month.
4/ The cost assigned to the ending work in process inventory.
Answer:
In the most recent month, Eckstrom Corporation's total contribution margin was
$208,000 and its net operating income $39,400.
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 a 1% increase in sales.
Answer:
The following monthly data in contribution format are available for the MN Company
and its only product, Product SD:
The company produced and sold 300 units during the month and had no beginning or
ending inventories.
a. Without resorting to calculations, what is the total contribution margin at the
break-even point?
b. Management is contemplating the use of plastic gearing rather than metal gearing in
Product SD. This change would reduce variable expenses by $18 per unit. The
company's sales manager predicts that this would reduce the overall quality of the
product and thus would result in a decline in sales to a level of 250 units per month.
Should this change be made?
c. Assume that MN Company is currently selling 300 units of Product SD per month.
Management wants to increase sales and feels this can be done by cutting the selling
price by $22 per unit and increasing the advertising budget by $20,000 per month.
Management believes that these actions will increase unit sales by 50 percent. Should
these changes be made?
d. Assume that MN Company is currently selling 300 units of Product SD. Management
wants to automate a portion of the production process for Product SD. The new
equipment would reduce direct labor costs by $20 per unit but would result in a
monthly rental cost for the new robotic equipment of $10,000. Management believes
that the new equipment will increase the reliability of Product SD thus resulting in an
increase in monthly sales of 12%. Should these changes be made?
Answer:
Calderon Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $110,000 per month. The company is currently selling 1,000 units
per month.
Management is considering using a new component that would increase the unit
variable cost by $56. Since the new component would improve the company's product,
the marketing manager predicts that monthly sales would increase by 500 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!
Answer:
Guedea Corporation's most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $5.22 per share.
Compute the following for Year 2:
a. Gross margin percentage.
b. Earnings per share (of common stock).
c. Price-earnings ratio.
d. Dividend payout ratio.
e. Dividend yield ratio.
f. Return on total assets.
g. Return on common stockholders' equity.
h. Book value per share.
Answer:
Mccoo Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $98,900 per month, which includes depreciation of $19,780.
All other fixed manufacturing overhead costs represent current cash flows. The
September direct labor budget indicates that 8,600 direct labor-hours will be required in
that month.
a. Determine the cash disbursement for manufacturing overhead for September.
b. Determine the predetermined overhead rate for September.
Answer:
Sweetman Corporation has provided the following financial data (in thousands of
dollars):
Net income for Year 2 was $120 thousand. Interest expense was $25 thousand. The tax
rate was 30%. Dividends on common stock during Year 2 totaled $80 thousand.
Dividends on preferred stock totaled $20 thousand. The market price of common stock
at the end of Year 2 was $4.75 per share.
Compute the following for Year 2:
a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders' equity.
g. Book value per share.
Answer:
Lunghofer Corporation's net income for the most recent year was $3,189,000. A total of
300,000 shares of common stock and 100,000 shares of preferred stock were
outstanding throughout the year. Dividends on common stock were $4.90 per share and
dividends on preferred stock were $1.95 per share.
Compute the earnings per share of common stock. Show your work!
Answer:
Hertzler Corporation uses customers served as its measure of activity. During
November, the company budgeted for 33,000 customers, but actually served 34,000
customers. The company uses the following revenue and cost formulas in its budgeting,
where q is the number of customers served:
Revenue: $3.20q
Wages and salaries: $26,600 + $1.20q
Supplies: $0.40q
Insurance: $7,900
Miscellaneous: $6,400 + $0.10q
The company reported the following actual results for November:
Required:
Prepare a report showing the companys revenue and spending variances for November.
Label each variance as favorable (F) or unfavorable (U).
Answer:
The following information summarizes the company's cost structure:
Estimate the following costs at the 40,000 unit level of activity:
a. Total variable cost.
b. Total fixed cost.
c. Variable cost per unit.
d. Fixed cost per unit.
Answer:
Sawyer Corporation's balance sheet and income statement appear below:
Cash dividends were $7. The company sold equipment for $13 that was originally
purchased for $3 and that had accumulated depreciation of $2.
Using the direct method, determine the net cash provided by operating activities.
Answer:
Foulds Company makes 10,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all of these parts it needs for $42.30
a unit. If the company accepts this offer, the facilities now being used to make the part
could be used to make more units of a product that is in high demand. The additional
contribution margin on this other product would be $39,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the
part would be avoided. However, $6.40 of the fixed manufacturing overhead cost being
applied to the part would continue even if the part were purchased from the outside
supplier. This fixed manufacturing overhead cost would be applied to the company's
remaining products.
a. How much of the unit product cost of $47.90 is relevant in the decision of whether to
make or buy the part?
b. What is the net total dollar advantage (disadvantage) of purchasing the part rather
than making it?
c. What is the maximum amount the company should be willing to pay an outside
supplier per unit for the part if the supplier commits to supplying all 10,000 units
required each year?
Answer:
Colen Corporation produces and sells a single product. In January, the company sold
1,700 units. Its total sales were $153,000, its total variable expenses were $79,900, and
its total fixed expenses were $56,800.
a. Construct the company's contribution format income statement for January in good
form.
b. Redo the company's contribution format income statement assuming that the
company sells 1,600 units.
Answer:
The direct labor standards at Pihl Corporation are $11.70 per direct labor-hour (DLH)
and 7.2 DLHs per unit of output. In May, 1,300 units were produced, the actual wage
rate was $12.00 per DLH, and the actual hours were 9,460 DLHs.
Required:
Prepare the journal entry to record the incurrence of direct labor costs.
Answer:
Guitian Corporation produces and sells a single product. The company's contribution
format income statement for June appears below:
Redo the company's contribution format income statement assuming that the company
sells 5,700 units.
Answer:
Garneau Corporation uses process costing. The following data pertain to its Assembly
Department for February.
Determine the equivalent units of production for the Assembly Department for February
using the weighted-average method.
Answer:
Moss Clinic bases its budgets on the activity measure patient-visits. During August, the
clinic planned for an activity level of 2,100 patient-visits, but the activity level was
actually 2,400 patient-visits. The clinic has provided the following data concerning the
formulas it uses in its budgeting:
Required:
Prepare the clinics flexible budget for August based on the actual level of activity for
the month.
Answer:
During September, Kocab Corporation plans to serve 37,000 customers. Revenue is
$2.80 per customer served. Wages and salaries are $33,300 per month plus $0.80 per
customer served. Supplies are $0.40 per customer served. Insurance is $9,000 per
month. Miscellaneous expenses are $5,300 per month plus $0.20 per customer served.
Required:
Prepare the companys planning budget for September.
Answer:
Glazener Corporation uses the FIFO method in its process costing. The following data
pertain to its Assembly Department for June.
Determine the equivalent units of production for the Assembly Department for June
using the FIFO method.
Answer:
