The following data were taken from the accounting records of the Hazel Corporation
which uses the weighted-average method in its process costing system:
The equivalent units for conversion costs was:
A. 102,000 units
B. 112,000 units
C. 111,000 units
D. 100,000 units
Answer:
Reference: 8-34
Caquias Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in August.
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 labor rate variance for August is:
A) $440 F
B) $440 U
C) $420 U
D) $420 F
Answer:
The following is Allison Corporation’s contribution format income statement for last
month:
The company has no beginning or ending inventories. The company produced and sold
10,000 units last month.
What is the company’s contribution margin ratio?
A. 62.5%
B. 160.0%
C. 500%
D. 20%
Answer:
Zylka Air uses two measures of activity, flights and passengers, in the cost formulas in
its flexible budgets. The cost formula for plane operating costs is $47,400 per month
plus $2,337 per flight plus $3 per passenger. The company expected its activity in April
to be 67 flights and 263 passengers, but the actual activity was 62 flights and 267
passengers. The actual cost for plane operating costs in April was $189,760. The plane
operating costs in the planning budget for April would be closest to:
A) $189,760
B) $193,095
C) $204,768
D) $205,063
Answer:
Reference: 8-53
A manufacturing company that has only one product has established the following
standards for its variable manufacturing overhead. The company bases its variable
manufacturing overhead standards on machine-hours.
The following data pertain to operations for the last month:
What is the variable overhead efficiency variance for the month?
A) $7,105 U
B) $6,989 F
C) $6,989 U
D) $1,104 U
Answer:
Operating data from Tindall Company for last year follows:
The average operating assets amounted to:
A. $600,000
B. $400,000
C. $500,000
D. $800,000
Answer:
Zumpano Inc. produces and sells a single product. The selling price of the product is
$170.00 per unit and its variable cost is $73.10 per unit. The fixed expense is $125,001
per month.
The break-even in monthly dollar sales is closest to:
A. $211,667
B. $125,001
C. $290,700
D. $219,300
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 return on total assets for Year 2 is closest to:
A. 5.74%
B. 7.46%
C. 7.40%
D. 5.79%
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 rate variance for June is:
A) $1,365 U
B) $1,365 F
C) $1,350 F
D) $1,350 U
Answer:
Which of the following would be classified as a financing activity on the statement of
cash flows?
A. Interest paid to a lender.
B. Dividends paid to the company’s common stockholders.
C. Cash paid to acquire a long-term investment.
D. Cash received from a loan that was made to another company.
Answer:
The Tingey Company has 500 obsolete microcomputers that are carried in inventory at
a total cost of $720,000. If these microcomputers are upgraded at a total cost of
$100,000, they can be sold for a total of $160,000. As an alternative, the
microcomputers can be sold in their present condition for $50,000.
The sunk cost in this situation is:
A. $720,000
B. $160,000
C. $50,000
D. $100,000
Answer:
The following standards have been established for a raw material used in the production
of product O99:
The following data pertain to a recent months operations:
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.)
Answer:
Laro Corporation produces and sells a single product with the following characteristics:
The company is currently selling 5,000 units per month. Fixed expenses are $302,000
per month.
This question is to be considered independently of all other questions relating to Laro
Corporation. Refer to the original data when answering this question.
The marketing manager believes that a $7,000 increase in the monthly advertising
budget would result in a 110 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 $1,250
B. decrease of $7,000
C. decrease of $1,250
D. increase of $8,250
Answer:
Condit Corporation manufactures a variety of products. Variable costing net operating
income was $75,600 last year and was $80,100 this year. Last year, inventory decreased
by 3,400 units. This year, inventory increased by 3,000 units. Fixed manufacturing
overhead cost is $5 per unit.
What was the absorption costing net operating income last year?
A. $77,600
B. $75,600
C. $92,600
D. $58,600
Answer:
Reference: 8-8
Diiorio Clinic uses client-visits as its measure of activity. During February, the clinic
budgeted for 2,700 client-visits, but its actual level of activity was 2,750 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for February:
Data used in budgeting:
Actual results for February:
The medical supplies in the flexible budget for February would be closest to:
A) $19,332
B) $19,500
C) $20,055
D) $19,850
Answer:
The following information pertains to Yap Company’s Grinding Department for the
month of April:
All materials are added at the beginning of the process. Using the weighted-average
method, the cost per equivalent unit for materials is closest to:
A. $0.59
B. $0.55
C. $0.45
D. $0.43
Answer:
Alkine Company’s comparative balance sheet appears below:
Alkine reported the following net income for the year:
Dividends were declared and paid during the year. A gain of $8,000 was recorded on the
sale of the long-term investments. The company did not purchase any long-term
investments or dispose of any property, plant, and equipment during the year. It also did
not issue any bonds payable or repurchase any of its own common stock.
The net cash provided (used) by investing activities would be:
A. $10,000
B. $(2,000)
C. $22,000
D. $1,000
Answer:
Ingerson 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 variable costing?
A. $12,000
B. $8,000
C. $(27,600)
D. $4,000
Answer:
Reference: 8A-15
Seroka Corporation estimates that its variable manufacturing overhead is $6.90 per
machine-hour and its fixed manufacturing overhead is $745,290 per period.
If the denominator level of activity is 9,000 machine-hours, the variable element in the
predetermined overhead rate would be:
A) $88.80
B) $82.81
C) $89.71
D) $6.90
Answer:
Ciubal Corporation has provided the following data concerning its direct labor costs for
December:
The Labor Rate Variance for December would be recorded as a:
A) credit of $19,440.
B) credit of $21,168.
C) debit of $19,440.
D) debit of $21,168.
Answer:
Kornfeld Corporation produces metal telephone poles. In the most recent month, the
company budgeted production of 2,800 poles. Actual production was 3,200 poles.
According to standards, each pole requires 2.2 machine-hours. The actual
machine-hours for the month were 6,890 machine-hours. The standard variable
manufacturing overhead rate is $9.20 per machine-hour. The actual variable
manufacturing cost for the month was $67,020. The variable overhead efficiency
variance is:
A) $1,380 U
B) $1,380 F
C) $2,252 F
D) $2,252 U
Answer:
Victorin Corporation has provided the following data concerning its only product:
The margin of safety as a percentage of sales is closest to:
A. 19%
B. 77%
C. 23%
D. 81%
Answer:
A manufacturing company that produces a single product has provided the following
data concerning its most recent month of operations:
What is the total period cost for the month under absorption costing?
A. $58,300
B. $37,100
C. $259,900
D. $201,600
Answer:
Which of the following is not a potential source of financial leverage?
A. Long-term debt.
B. Common stock.
C. Accounts payable.
D. Interest payable.
Answer:
In a standard cost system, the volume variance will be unfavorable when:
A) actual hours are greater than the denominator hours.
B) the standard hours allowed for the output of the period are less than the denominator
hours.
C) the standard hours allowed for the output of the period are greater than the actual
hours incurred.
D) actual hours are less than the denominator hours.
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:
Reference: 8A-4
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The variable overhead efficiency variance for March is:
A) $8,000 unfavorable
B) $4,000 favorable
C) $8,000 unfavorable
D) $4,000 unfavorable
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.
The net income for December would be:
A. $40,400
B. $22,500
C. $47,500
D. $28,500
Answer:
An unfavorable direct labor efficiency variance could be caused by:
A) an unfavorable materials quantity variance.
B) an unfavorable variable overhead rate variance.
C) a favorable materials quantity variance.
D) a favorable variable overhead rate variance.
Answer:
Knaack Corporation is presently making part R20 that is used in one of its products. A
total of 18,000 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 $27.70
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, none of which would be avoided
if the part were purchased instead of produced internally.
If management decides to buy part R20 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 $162,000 per year.
B. Net operating income would increase by $50,400 per year.
C. Net operating income would decline by $50,400 per year.
D. Net operating income would decline by $162,000 per year.
Answer:
The purpose of the Data Processing Department of Falena Corporation is to assist the
various departments of the corporation with their information needs free of charge. The
Data Processing Department would best be evaluated as a:
A. cost center.
B. revenue center.
C. profit center.
D. investment center.
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:
Vanstraten Inc. has provided the following data concerning the Assembly Department
for the month of April. The company uses the weighted-average method in its process
costing.
During the month, 4,800 units were completed and transferred from the Assembly
Department to the next department.
Determine the cost of ending work in process inventory and the cost of units transferred
out of the department during April using the weighted-average method.
Answer:
Gordy Corporation manufactures a variety of products. Last year, variable costing net
operating income was $81,000. The fixed manufacturing overhead costs released from
inventory under absorption costing amounted to $39,000.
Determine the absorption costing net operating income last year. Show your work!
Answer:
The contribution margin ratio of Thronson Corporation’s only product is 69%. The
company’s monthly fixed expense is $455,400 and the company’s monthly target profit
is $41,400.
Determine the dollar sales to attain the company’s target profit. Show your work!
Answer:
Donmoyer Sales Corporation, a merchandising company, reported total sales of
$2,230,200 for May. The cost of goods sold (all variable) was $1,518,300, the total
variable selling expense was $214,200, the total fixed selling expense was $86,700, the
total variable administrative expense was $119,700, and the total fixed administrative
expense was $138,400.
a. Prepare a contribution format income statement for May.
b. Prepare a traditional format income statement for May.
Answer:
Turnner Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The
company bases its budgets on two measures of activity (i.e., cost drivers), namely
guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep
has one tour guide. The company uses the following data in its budgeting:
In April, the company budgeted for 374 guests and 166 jeeps. The actual activity for the
month was 364 guests and 167 jeeps.
Required:
Prepare the companys planning budget for April.
Answer:
Jaster Corporation’s management keeps track of the time it takes to process orders.
During the most recent month, the following average times were recorded per order:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
Answer:
Mish Clinic bases its budgets on patient-visits. During November, the clinic plans for a
level of activity of 3,200 patient-visits. The clinic has provided the following data
concerning the formulas it uses in its budgeting:
Required:
Prepare the clinics planning budget for November.
Answer:
Bady Inc. makes a range of products. The company’s predetermined overhead rate is
$14 per direct labor-hour, which was calculated using the following budgeted data:
Component M3 is used in one of the company’s products. The unit cost of the
component according to the company’s cost accounting system is determined as
follows:
An outside supplier has offered to supply component M3 for $108 each. The outside
supplier is known for quality and reliability. Assume that direct labor is a variable cost,
variable manufacturing overhead is really driven by direct labor-hours, and total fixed
manufacturing overhead would not be affected by this decision. Bady chronically has
idle capacity.
Is the offer from the outside supplier financially attractive? Why?
Answer:
The changes in each balance sheet account for Bryan Company during the year just
completed are as follows:
Bryan Company’s income statement for the year just ended shows the following:
The company did not dispose of any property, plant, and equipment, buy any long-term
investments, issue any bonds payable, or repurchase any of its own common stock
during the year. Bryan Company uses the direct method to construct its statement of
cash flows.
a. Determine the sales adjusted to the cash basis.
b. Determine the cost of goods sold adjusted to the cash basis.
c. Determine the selling and administrative expenses adjusted to a cash basis.
d. Determine the net cash provided (used) by operating activities.
e. Determine the net cash provided (used) by investing activities.
f. Determine the net cash provided (used) by financing activities.
Answer:
Smigel Corporation’s balance sheet and income statement appear below:
Cash dividends were $1. The company sold equipment for $15 that was originally
purchased for $5 and that had accumulated depreciation of $5.
Determine the net cash provided by (used in) operating activities for the year using the
indirect method.
Answer:
Guagliano Corporation produces and sells a single product whose selling price is
$110.00 per unit and whose variable expense is $29.70 per unit. The company’s
monthly fixed expense is $345,290.
a. Assume the company’s monthly target profit is $16,060. Determine the unit sales to
attain that target profit. Show your work!
b. Assume the company’s monthly target profit is $40,150. Determine the dollar sales to
attain that target profit. Show your work!
Answer:
Capp Corporation is a wholesaler of industrial goods. Data regarding the store’s
operations follow:
o Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000
for January.
o Collections are expected to be 60% in the month of sale, 39% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires an ending merchandise inventory equal to 40% of the following
month’s cost of goods sold. Payment for merchandise is made in the month following
the purchase.
o The November beginning balance in the accounts receivable account is $70,000.
o The November beginning balance in the accounts payable account is $257,000.
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
Answer:
Kren Corporation’s balance sheet and income statement appear below:
Cash dividends were $35. The company did not dispose of any property, plant, and
equipment during the year.
Prepare the operating activities section of the statement of cash flows in good form
using the direct method.
Answer:
Zide Corporation’s most recent balance sheet and income statement appear below:
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.
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:
Cuffee Inc., which produces a single product, has provided the following data for its
most recent month of operation:
The company had no beginning or ending inventories.
a. Compute the unit product cost under absorption costing. Show your work!
b. Compute the unit product cost under variable costing. Show your work!
Answer:
Goodenough Inc. has provided the following data for August:
Prepare T-accounts for Raw Materials, Work in Process, Finished Goods, and
Manufacturing Overhead, and Cost of Goods Sold. Record the beginning balances and
each of the transactions listed above. Finally, determine the ending balances.
Answer:
Compound Y23Z is used by Mcfadin Corporation to make one of its products. The
standard cost of compound Y23Z is $38.70 per ounce and the standard quantity is 4.6
per unit of output. Data concerning the compound in the most recent month appear
below:
The raw material was purchased on account.
a. Record the purchase of the raw material in a journal entry.
b. Record the use of the raw material in production in a journal entry.
Answer:
Marchant Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diners budget for June was based on 2,200 meals, but the diner
actually served 1,800 meals. The diners director has provided the following cost data to
use in the budget: groceries, $3.85 per meal; kitchen operations, $4,300 per month plus
$1.70 per meal; administrative expenses, $2,000 per month plus $0.45 per meal; and
fundraising expenses, $1,100 per month.
Required:
Prepare the diners flexible budget for the actual number of meals served in June. The
budget will only contain the costs listed above; no revenues will be on the budget.
Answer:
