Avoidable costs are also called relevant costs.
Answer:
Standard costs should generally be based on the actual costs of prior periods.
Answer:
If a company’s return on assets is substantially higher than its cost of borrowing, then
the common stockholders would normally want the company to have a relatively high
debt/equity ratio.
Answer:
The dividend yield ratio is calculated by dividing dividends per share by earnings per
share.
Answer:
If fixed expenses increase by $10,000 per year, then the level of sales needed to break
even will also increase by $10,000.
Answer:
The revenue and spending variances are the differences between the static planning
budget and the actual results for the period.
Answer:
In order for a cost to be variable it must vary with either units produced or units sold.
Answer:
The process of assigning overhead cost to jobs is known as overhead application.
Answer:
The actual manufacturing overhead incurred at Hogans Corporation during April was
$59,000, while the manufacturing overhead applied to Work in Process was $74,000.
The company’s Cost of Goods Sold was $289,000 prior to closing out its Manufacturing
Overhead account. The company closes out its Manufacturing Overhead account to
Cost of Goods Sold. Which of the following statements is TRUE?
A. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $274,000
B. Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $274,000
C. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $304,000
D. Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $304,000
Answer:
A newly formed company with enormous growth prospects would be expected to have
negative free cash flow during its start-up phase.
Answer:
A favorable spending variance occurs when the actual cost exceeds the amount of that
cost in the flexible budget.
Answer:
A process cost system would be used to account for the cost of manufacturing an oil
tanker.
Answer:
A favorable labor efficiency variance is recorded as a credit in the Labor Efficiency
Variance account.
Answer:
Both planning and control are needed for an effective budgeting system.
Answer:
In the selling and administrative budget, the non-cash charges (such as depreciation) are
added to the total budgeted selling and administrative expenses to determine the
expected cash disbursements for selling and administrative expenses.
Answer:
The production budget is typically prepared prior to the sales budget.
Answer:
Period costs are expensed as incurred, rather than going into the Work in Process
account.
Answer:
The unit product cost under absorption costing does not include fixed manufacturing
overhead cost.
Answer:
Vandagriff Corporation has provided data concerning the company’s Manufacturing
Overhead account for the month of June. Prior to the closing of the overapplied or
underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing
Overhead account was $77,000 and the total of the credits to the account was $64,000.
Which of the following statements is TRUE?
A. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $77,000.
B. Manufacturing overhead applied to Work in Process for the month was $64,000.
C. Manufacturing overhead for the month was overapplied by $13,000.
D. Actual manufacturing overhead incurred during the month was $64,000.
Answer:
In the cost reconciliation report, the costs accounted for equals the cost of beginning
work in process inventory plus the cost of ending work in process inventory.
Answer:
An unfavorable materials quantity variance is recorded as a credit in the Materials
Quantity Variance account.
Answer:
Traditional format income statements are prepared primarily for external reporting
purposes.
Answer:
If two companies have the same total sales and total expenses and make the same
product, the volatility of net operating income with changes in sales will tend to be
greater in the company with a higher proportion of fixed expenses in its cost structure.
Answer:
Under variable costing, fixed manufacturing overhead cost is treated as a product cost.
Answer:
Underapplied or overapplied manufacturing overhead represents the difference between
actual overhead costs and applied overhead costs.
Answer:
Generally speaking, it is the responsibility of the production department to see that
material usage is kept in line with standards.
Answer:
In a process costing system, overhead costs are traced to units of product as they are
incurred.
Answer:
In process costing, the equivalent units computed for materials is generally the same as
that computed for direct labor.
Answer:
Although formal entry of standard costs and variances into the accounting records is not
required, some organizations make such entries in order to emphasize the importance of
variances as well as to simplify the bookkeeping process.
Answer:
In general, the purchasing agent is responsible for the materials price variance.
Answer:
The weighted-average method of process costing can only be used if materials are
added at the beginning of the production process.
Answer:
When computing the cost per equivalent unit, it is not necessary to consider the
percentage completion of the units in beginning inventory under the weighted-average
method.
Answer:
The standard cost per unit is computed by multiplying the standard quantity or hours by
the standard price or rate.
Answer:
One difficulty with self-imposed budgets is that they are not subject to any type of
review.
Answer:
In a standard costing system where the denominator activity for the predetermined
overhead rate is labor-hours, overhead costs are applied to work in process on the basis
of actual hours worked.
Answer:
Fixed costs that are traceable to a segment may become common if the segment is
divided into smaller units.
Answer:
In the cost reconciliation report, the costs to be accounted for equals the cost of
beginning work in process inventory plus the costs added during the period.
Answer:
Residual income equals average operating assets multiplied by the difference between
the return on investment and the minimum required rate of return.
Answer:
The activity rates in activity-based costing are not intended to set targets for how
quickly a task should be completed.
Answer:
The cost per equivalent unit for conversion costs will always be the same under both the
FIFO and the weighted-average methods if there is no ending work in process
inventory.
Answer:
Selected financial data for Bragg Company appear below:
Suppose that 45% of Bragg Company’s total sales are cash sales. The company’s
average collection period (age of receivables) for Year 2 was closest to:
A. 44.24 days
B. 54.07 days
C. 36.05 days
D. 29.49 days
Answer:
A company’s current ratio and acid-test ratios are both greater than 1. The collection of
a current accounts receivable of $29,000 would:
A. increase the current ratio.
B. decrease the current ratio.
C. not affect the current ratio or the acid-test ratio.
D. decrease the acid-test ratio.
Answer:
What was the fixed manufacturing overhead volume variance for the period to the
nearest dollar?
A) $2,565 F
B) $2,810 F
C) $225 U
D) $2,585 F
Answer:
Desrevisseau Inc., a manufacturing company, has provided the following data for the
month of August. The balance in the Work in Process inventory account was $10,000 at
the beginning of the month and $22,000 at the end of the month. During the month, the
company incurred direct materials cost of $63,000 and direct labor cost of $39,000. The
actual manufacturing overhead cost incurred was $40,000. The manufacturing overhead
cost applied to Work in Process was $43,000. The cost of goods manufactured for
August was:
A. $133,000
B. $142,000
C. $145,000
D. $130,000
Answer:
In describing the cost formula equation Y = a + bX, which of the following statements
is correct?
A. “X” is the dependent variable.
B. “a” is the fixed component.
C. In the high-low method, “b” equals change in activity divided by change in costs.
D. As “X” increases “Y” decreases.
Answer:
The following data pertains to activity and the cost of cleaning and maintenance for two
recent months:
The best estimate of the total month 1 variable cost for cleaning and maintenance is:
A. $300
B. $500
C. $800
D. $100
Answer:
Archer Company had net income of $40,000 last year. The company has 5,000 shares of
common stock and 2,500 shares of preferred stock outstanding. There was no change in
the number of common or preferred shares outstanding during the year. Preferred
dividends were $2 per share. The earnings per share of common stock was:
A. $7.00
B. $8.00
C. $5.33
D. $7.50
Answer:
The contribution margin ratio of Lime Corporation’s only product is 75%. The
company’s monthly fixed expense is $688,500 and the company’s monthly target profit
is $20,000. The dollar sales to attain that target profit is closest to:
A. $531,375
B. $944,667
C. $918,000
D. $516,375
Answer:
Hocking Corporation’s comparative balance sheet appears below:
The company’s net income (loss) for the year was $10,000 and its cash dividends were
$1,000. It did not sell or retire any property, plant, and equipment during the year. The
company uses the indirect method to determine the net cash provided by operating
activities.
Which of the following is correct regarding the operating activities section of the
statement of cash flows?
A. The change in Accounts Payable will be added to net income; The change in
Accrued Liabilities will be subtracted from net income
B. The change in Accounts Payable will be subtracted from net income; The change in
Accrued Liabilities will be added to net income
C. The change in Accounts Payable will be subtracted from net income; The change in
Accrued Liabilities will be subtracted from net income
D. The change in Accounts Payable will be added to net income; The change in
Accrued Liabilities will be added to net income
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 fixed manufacturing overhead budget variance for November was:
A. $2,970 unfavorable
B. $4,550 favorable
C. $7,520 favorable
D. $22,900 unfavorable
Answer:
Anderwald Corporation has provided the following production and average cost data
for two levels of monthly production volume. The company produces a single product.
The best estimate of the total monthly fixed manufacturing cost is:
A. $360,800
B. $136,800
C. $196,800
D. $176,800
Answer:
Ozogus Company uses the FIFO method in its process costing system. Operating data
for the Brazing Department for the month of November appear below:
What were the equivalent units for conversion costs in the Brazing Department for
November?
A. 36,600
B. 35,800
C. 39,300
D. 34,800
Answer:
Lund Company applies manufacturing overhead to jobs using a predetermined
overhead rate of 75% of direct labor cost. Any underapplied or overapplied
manufacturing overhead cost is closed out to Cost of Goods Sold at the end of the
month. During March, the following transactions were recorded by the company:
The Cost of Goods Manufactured for March was:
A. $66,500
B. $61,500
C. $59,500
D. $63,000
Answer:
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:
Emilio Corporation reports that at an activity level of 3,400 units, its total variable cost
is $59,058 and its total fixed cost is $101,150.
What would be the total variable cost at an activity level of 3,500 units? Assume that
this level of activity is within the relevant range.
A. $59,058
B. $160,208
C. $60,795
D. $104,125
Answer:
The following data have been taken from your company’s financial records for the
current year:
The price-earnings ratio is:
A. 12.5
B. 6.0
C. 8.0
D. 7.5
Answer:
The Steff Company has the following flexible budget (in condensed form) for
manufacturing overhead:
The following data concerning production pertain to last year’s operations:
– The company used a denominator activity of 15,000 direct labor-hours to compute the
predetermined overhead rate.
– The company made 6,850 units of product and worked 14,200 actual hours during the
year.
– Actual variable manufacturing overhead was $15,904 and actual fixed manufacturing
overhead was $30, $850 for the year.
– The standard direct labor time is two hours per unit of product.
The fixed manufacturing overhead budget variance was:
A. $3,450 unfavorable
B. $3,450 favorable
C. $850 unfavorable
D. $1,200 favorable
Answer:
Reference: 8-23
Dukeman Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During February, the company
budgeted for 7,100 units, but its actual level of activity was 7,060 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The selling and administrative expenses in the planning budget for February would be
closest to:
A) $28,656
B) $28,818
C) $28,436
D) $28,460
Answer:
The Gasson Company sells three products, Product A, Product B and Product C, and
had sales of $1,000,000 during the month of June. The company’s overall contribution
margin ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A,
$500,000; Product B, $300,000; and Product C, $200,000. Traceable fixed costs were:
Product A, $120,000; Product B, $100,000; and Product C, $60,000. The variable
expenses of Product A were $300,000 and the variable expenses of Product B were
$180,000.
The product line segment margin for Product A for June was:
A. $200,000
B. $80,000
C. $65,000
D. $10,000
Answer:
In May, Hervey Inc. incurred $60,000 of direct labor costs and $3,000 of indirect labor
costs. The journal entry to record the accrual of these wages would include a:
A. credit to Manufacturing Overhead of $3,000
B. debit to Work in Process of $63,000
C. credit to Work in Process of $63,000
D. debit to Manufacturing Overhead of $3,000
Answer:
Reference: 8-26
Wayland Corporations static planning budget for April appears below. The company
bases its budgets on machine-hours.
In April, the actual number of machine-hours was 6,600, the actual supplies cost was
$64,040, the actual power cost was $7,070, the actual salaries cost was $88,300, and the
actual equipment depreciation was $7,430.
The spending variance for power cost for the month should be:
A) $570 F
B) $470 F
C) $470 U
D) $570 U
Answer:
Reference: 8-4
Karmazyn Hospital bases its budgets on patient-visits. The hospitals static budget for
October appears below:
The total fixed cost at the activity level of 9,300 patient-visits per month should be:
A) $381,200
B) $207,370
C) $216,690
D) $364,900
Answer:
Reference: 8-30
Snuggs Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in October.
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 October is:
A) $495 U
B) $495 F
C) $525 U
D) $525 F
Answer:
Reference: 8-23
Dukeman Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During February, the company
budgeted for 7,100 units, but its actual level of activity was 7,060 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The direct materials in the flexible budget for February would be closest to:
A) $58,129
B) $58,598
C) $58,930
D) $58,789
Answer:
Galos Corporation uses the FIFO method in its process costing system. The Grinding
Department started the month with 3,000 units in its beginning work in process
inventory that were 70% complete with respect to conversion costs. An additional
82,000 units were transferred in from the prior department during the month to begin
processing in the Grinding Department. During the month 74,000 units were completed
in the Grinding Department and transferred to the next processing department. There
were 11,000 units in the ending work in process inventory of the Grinding Department
that were 10% complete with respect to conversion costs.
What were the equivalent units for conversion costs in the Grinding Department for the
month?
A. 74,000
B. 75,100
C. 90,000
D. 73,000
Answer:
Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during
March, a segment margin of $54,000, and traceable fixed expenses of $26,000. The
company as a whole had a contribution margin ratio of 25% and $120,000 in total
contribution margin. Based on this information, total variable expenses in Store M for
the month must have been:
A. $140,000
B. $260,000
C. $300,000
D. $360,000
Answer:
Atwich Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 600
units. The costs and percentage completion of these units in beginning inventory were:
A total of 5,100 units were started and 4,400 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 75% complete with respect to materials and 10% 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 cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $21.28
B. $20.07
C. $19.29
D. $18.19
Answer:
The market price of XYZ Company’s common stock dropped from $25 to $21 per
share. The dividend paid per share remained unchanged. The company’s dividend
payout ratio would:
A. increase.
B. decrease.
C. be unchanged.
D. impossible to determine without more information.
The dividend payout ratio is unaffected by market price (e.g., Dividend payout ratio =
Dividends per share ÷ Earnings per share)
Answer:
A manufacturing company that produces a single 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. $5,300
B. $3,000
C. $(12,700)
D. $8,300
Answer:
Smotherman Corporation produces and sells a single product. Data concerning that
product appear below:
The break-even in monthly dollar sales is closest to:
A. $307,160
B. $164,640
C. $514,640
D. $242,200
Answer:
Plotz Corporation’s net cash provided by operating activities was $59,000; its net
income was $67,000; its income taxes were $29,000; its capital expenditures were
$44,000; and its cash dividends were $13,000.
Determine the company’s free cash flow.
Answer:
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:
Churchwell Corporation produces and sells a single product. Data concerning that
product appear below:
a. Assume the company’s monthly target profit is $69,000. Determine the unit sales to
attain that target profit. Show your work!
b. Assume the company’s monthly target profit is $41,400. Determine the dollar sales to
attain that target profit. Show your work!
Answer:
Heckaman Corporation produces and sells a single product. Data concerning that
product appear below:
Determine the monthly break-even in unit sales. Show your work!
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:
Jalonen Inc., which produces and sells a single product, has provided the following
contribution format income statement for October:
Redo the company’s contribution format income statement assuming that the company
sells 4,500 units.
Answer:
Longiotti Corporation produces and sells a single product. Data concerning that product
appear below:
Determine the monthly break-even in total dollar sales. Show your work!
Answer:
Bonner Corporation’s balance sheet and income statement appear below:
The company sold equipment for $10 that was originally purchased for $4 and that had
accumulated depreciation of $4. It paid a cash dividend during the year and did not
issue any bonds payable or repurchase any of its own common stock.
Prepare a statement of cash flows for the year using the indirect method.
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:
A number of companies in different industries are listed below:
1/ Elevator production and installation company
2/ Cattle feedlot that fattens cattle prior to slaughter
3/ Brick manufacturer
4/ Architectural firm that designs custom homes
5/ Winery that produces a number of varietal wines
6/ Synthetic rubber manufacturer
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
Answer:
The IT Corporation produces and markets two types of electronic calculators: Model 11
and Model 12. The following data were gathered on activities last month:
Prepare a segmented income statement in the contribution format for last month.
Answer:
Wartenberg Corporation uses customers served as its measure of activity. The company
bases its budgets on the following information: Revenue should be $3.80 per customer
served. Wages and salaries should be $38,800 per month plus $1.00 per customer
served. Supplies should be $0.60 per customer served. Insurance should be $7,100 per
month. Miscellaneous expenses should be $5,100 per month plus $0.30 per customer
served.
The company reported the following actual results for January:
Required:
Prepare a report showing the companys revenue and spending variances for January.
Label each variance as favorable (F) or unfavorable (U).
Answer:
During May, Hiles Corporation budgeted for 31,000 customers, but actually served
29,000 customers. The company uses the following revenue and cost formulas in its
budgeting, where q is the number of customers served:
Revenue: $4.40q
Wages and salaries: $35,800 + $1.70q
Supplies: $0.60q
Insurance: $12,300
Miscellaneous: $5,500 + $0.10q
Required:
Prepare the companys flexible budget for May based on the actual level of activity for
the month.
Answer:
Hannah Corporation’s comparative balance sheet appears below:
The company’s net income (loss) for the year was $0 and its cash dividends were
$2,000. It did not dispose of any property, plant, and equipment, retire any bonds
payable, or repurchase any of its own common stock during the year.
Compute the change in each balance sheet account denoted with an asterisk (*).
Indicate whether the change in each balance will be recorded in the operating,
investing, or financing activities section of the statement of cash flows. For items
recorded in the operating activities section, also indicate whether the change will be
added to or subtracted from net income. For all other items, indicate whether the change
will be added as a cash inflow or subtracted as a cash outflow.
Answer:
Harris Corp. manufactures three products from a common input in a joint processing
operation. Joint processing costs up to the split-off point total $200,000 per year. The
company allocates these costs to the joint products on the basis of their total sales value
at the split-off point.
Each product may be sold at the split-off point or processed further. The additional
processing costs and sales value after further processing for each product (on an annual
basis) are:
The “Further Processing Costs” consist of variable and avoidable fixed costs.
Which product or products should be sold at the split-off point, and which product or
products should be processed further? Show computations.
Answer:
Block Corporation makes three products that use the current constraint, which is a
particular type of machine. Data concerning those products appear below:
a. Rank the products in order of their current profitability from the most profitable to
the least profitable. In other words, rank the products in the order in which they should
be emphasized. Show your work!
b. Assume that sufficient constraint time is available to satisfy demand for all but the
least profitable product. Up to how much should the company be willing to pay to
acquire more of the constrained resource?
Answer:
Masse Corporation uses part G18 in one of its products. The company’s Accounting
Department reports the following costs of producing the 16,000 units of the part that are
needed every year.
An outside supplier has offered to make the part and sell it to the company for $28.00
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 $22,000 of these allocated general overhead costs would be
avoided. In addition, the space used to produce part G18 could be used to make more of
one of the company’s other products, generating an additional segment margin of
$22,000 per year for that product.
a. Prepare a report that shows the effect on the company’s total net operating income of
buying part G18 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Answer:
During August, Diga Corporation plans to serve 35,000 customers. The company uses
the following revenue and cost formulas in its budgeting, where q is the number of
customers served:
Revenue: $4.20q
Wages and salaries: $33,700 + $1.50q
Supplies: $0.70q
Insurance: $11,000
Miscellaneous: $4,800 + $0.40q
Required:
Prepare the companys planning budget for August.
Answer: