The West Division of Shekarchi Corporation had average operating assets of $620,000
and net operating income of $80,100 in March. The minimum required rate of return for
performance evaluation purposes is 14%.
What was the West Division’s residual income in March?
A. -$6,700
B. $6,700
C. -$11,214
D. $11,214
Answer:
The Materials Quantity Variance for October would be recorded as a:
A) Credit of $3,680
B) Debit of $4,140
C) Credit of $4,140
D) Debit of $3,680
Answer:
During the month of September, direct labor cost totaled $11,000 and direct labor cost
was 40% of prime cost. If total manufacturing costs during September were $73,000,
the manufacturing overhead was:
A. $16,500
B. $27,500
C. $62,000
D. $45,500
Answer:
Rubyor Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $10.70 per machine-hour and fixed manufacturing overhead cost of
$821,104 per period. If the denominator level of activity is 7,300 machine-hours, the
variable element in the predetermined overhead rate would be:
A) $112.48
B) $123.18
C) $121.66
D) $10.70
Answer:
Callander Corporation is a wholesaler that sells a single product. Management has
provided the following cost data for two levels of monthly sales volume. The company
sells the product for $151.60 per unit.
The best estimate of the total monthly fixed cost is:
A. $846,000
B. $886,050
C. $365,400
D. $926,100
Answer:
The activity in Nolan Company’s Blending Department for the month of April is given
below:
All materials are added at the beginning of processing in the Blending Department.
The equivalent units for material for the month, using the FIFO method, are:
A. 50,000 units
B. 58,000 units
C. 54,000 units
D. 60,000 units
Answer:
Reference: 8A-8
The Hawkins Company uses a standard costing system in which manufacturing
overhead is applied on the basis of standard direct labor-hours (DLHs). During
February, the company actually used 9,200 direct labor-hours and made 2,900 units of
finished product. The standard cost card for one unit of product includes the following:
Variable factory overhead: 3 DLHs @ $4.75 per DLH
Fixed factory overhead: 3 DLHs @ $3.00 per DLH
For February, the company incurred $28,450 in fixed manufacturing overhead costs and
recorded a $900 favorable volume variance.
The denominator activity level in direct labor-hours used by Hawkins in setting the
predetermined overhead rate for February is:
A) 9,300 hours
B) 8,400 hours
C) 9,000 hours
D) 8,700 hours
Answer:
Cadarette 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 $17.73 per share.
The book value per share at the end of Year 2 is closest to:
A. $8.00
B. $0.90
C. $13.00
D. $9.00
Answer:
Bonine Corporation has provided the following data:
The accounts receivable turnover for this year is closest to:
A. 0.83
B. 8.94
C. 9.85
D. 1.20
Answer:
Financial statements for Orange Company appear below:
Dividends during Year 2 totaled $156 thousand, of which $18 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $100.
Orange Company’s times interest earned for Year 2 was closest to:
A. 16.0
B. 28.3
C. 17.0
D. 11.2
Answer:
Stryker Corporation has two major business segments-East and West. In April, the East
business segment had sales revenues of $500,000, variable expenses of $280,000, and
traceable fixed expenses of $80,000. During the same month, the West business
segment had sales revenues of $970,000, variable expenses of $514,000, and traceable
fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were
allocated as follows: $112,000 to the East business segment and $168,000 to the West
business segment.
A properly constructed segmented income statement in a contribution format would
show that the segment margin of the East business segment is:
A. $108,000
B. $28,000
C. $140,000
D. $280,000
Answer:
Scarfo Hotel bases its budgets on guest-days. The hotels static budget for December
appears below:
The total overhead cost at an activity level of 2,900 guest-days per month should be:
A) $20,680
B) $17,640
C) $24,360
D) $20,890
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 cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $12.84
B. $13.32
C. $13.08
D. $12.61
Answer:
Mate Corporation’s standard wage rate is $11.90 per direct labor-hour (DLH) and
according to the standards, each unit of output requires 4.5 DLHs. In May, 2,900 units
were produced, the actual wage rate was $11.50 per DLH, and the actual hours were
15,530 DLHs.
In the journal entry to record the incurrence of direct labor costs in May, the Work in
Process entry would consist of a:
A. credit of $155,295.
B. debit of $155,295.
C. credit of $178,595.
D. debit of $178,595.
Answer:
Dieringer Corporation’s most recent balance sheet and income statement appear below:
The acid-test ratio at the end of Year 2 is closest to:
A. 1.69
B. 1.97
C. 1.39
D. 1.52
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 variable costing?
A. $185,000
B. $117,600
C. $273,200
D. $302,600
Answer:
In a sell or process further decision, which of the following costs are relevant?
I. A variable production cost incurred prior to the split-off point.
II. An avoidable fixed production cost incurred after the split-off point.
A. Only I.
B. Only II.
C. Both I and II.
D. Neither I nor II.
Answer:
Mennig Corporation produces a single product and has the following cost structure:
The unit product cost under absorption costing is:
A. $92
B. $228
C. $182
D. $85
Answer:
Shown below is the sales forecast for Cooper Inc. for the first four months of the
coming year.
On average, 50% of credit sales are paid for in the month of the sale, 30% in the month
following sale, and the remainder are paid two months after the month of the sale.
Assuming there are no bad debts, the expected cash inflow in March is:
A. $138,000
B. $122,000
C. $119,000
D. $108,000
Answer:
Schemm Inc. regularly uses material F04E and currently has in stock 460 liters of the
material for which it paid $2,622 several weeks ago. If this were to be sold as is on the
open market as surplus material, it would fetch $5.25 per liter. New stocks of the
material can be purchased on the open market for $5.85 per liter, but it must be
purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of
800 liters of the material to be used in a job for a customer. The relevant cost of the 800
liters of material F04E is:
A. $5,850
B. $4,200
C. $4,404
D. $4,680
Answer:
Gummer Hospital bases its budgets on patient-visits. The hospitals static budget for
February appears below:
The total overhead cost at an activity level of 10,800 patient-visits per month should be:
A) $317,520
B) $303,810
C) $291,060
D) $302,850
Answer:
Erkkila Inc. reports that at an activity level of 7,900 machine-hours in a month, its total
variable inspection cost is $210,061 and its total fixed inspection cost is $191,970.
What would be the total variable inspection cost at an activity level of 8,100
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A. $210,061
B. $196,830
C. $215,379
D. $402,031
Answer:
Liffick Corporation is a specialty component manufacturer with idle capacity.
Management would like to use its extra capacity to generate additional profits. A
potential customer has offered to buy 6,200 units of component VFG. Each unit of VFG
requires 8 units of material C79 and 6 units of material X70. Data concerning these two
materials follow:
Material C79 is in use in many of the company’s products and is routinely replenished.
Material X70 is no longer used by the company in any of its normal products and
existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a
minimum acceptable price for the order for product VFG?
A. $528,551
B. $523,280
C. $476,350
D. $484,455
Answer:
Mark Corporation produces two models of calculators. The Business model sells for
$60, and the Math model sells for $40. The variable expenses are given below:
The fixed expenses are $75,000 per month. The expected monthly sales of each model
are: Business, 1,000 units; Math, 500 units.
The break-even point in unit sales for the expected sales mix is closest to:
A. 833 of each product
B. 1,667 Business Model and 833 Math Model
C. 1,667 of each product
D. 833 Business Model and 1,667 Math Model
Answer:
Reference: 8-14
Tolentino 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 November, the kennel budgeted
for 2,600 tenant-days, but its actual level of activity was 2,620 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for November:
Data used in budgeting:
Actual results for November:
The expendables in the flexible budget for November would be closest to:
A) $27,548
B) $26,440
C) $26,638
D) $27,129
Answer:
Phillipson Corporation has two divisions: the IEB Division and the PIH Division. The
corporation’s net operating income is $83,900. The IEB Division’s divisional segment
margin is $149,700 and the PIH Division’s divisional segment margin is $60,100. What
is the amount of the common fixed expense not traceable to the individual divisions?
A. $233,600
B. $209,800
C. $144,000
D. $125,900
Answer:
The degree of operating leverage can be calculated as:
A. contribution margin divided by sales.
B. gross margin divided by net operating income.
C. net operating income divided by sales.
D. contribution margin divided by net operating income.
Answer:
Loren Company’s single product has a selling price of $15 per unit. Last year the
company reported total variable expenses of $180,000, fixed expenses of $90,000, and
a net operating income of $30,000. A study by the sales manager discloses that a 15%
increase in the selling price would reduce unit sales by 10%. If her proposal is adopted,
net operating income would:
A. increase by $45,000
B. increase by $37,500
C. increase by $7,500
D. increase by $28,500
Answer:
Herston Company uses the FIFO method in its process costing system. The beginning
work in process inventory in a particular department consisted of 6,000 units,
two-thirds complete with respect to conversion costs. During the month, 42,000 units
were started and 40,000 units were completed and transferred out of the department.
The company had 40,000 equivalent units for conversion costs. The ending work in
process inventory in the department consisted of:
A. 8,000 units, 25% complete with respect to conversion costs
B. 0 units
C. 8,000 units, 50% complete with respect to conversion costs
D. 4,000 units, 100% complete with respect to conversion costs
Answer:
Pinnini Co. uses a predetermined overhead rate based on direct labor-hours to apply
manufacturing overhead to jobs. Last year, Pinnini Company incurred $225,000 in
actual manufacturing overhead cost. The Manufacturing Overhead account showed that
overhead was overapplied $14,500 for the year. If the predetermined overhead rate was
$5.00 per direct labor-hour, how many hours did the company work during the year?
A. 45,000 hours
B. 47,900 hours
C. 42,100 hours
D. 44,000 hours
Answer:
Inspection costs at one of Krivanek Corporation’s factories are listed below:
Management believes that inspection cost is a mixed cost that depends on units
produced.
Using the high-low method, the estimate of the variable component of inspection cost
per unit produced is closest to:
A. $3.15
B. $0.32
C. $3.40
D. $13.91
Answer:
When the actual direct labor-hours exceeds the standard direct labor-hours allowed for
the actual output of the period, the journal entry would include:
A. Debit to Wages Payable; Credit to Labor Efficiency Variance
B. Debit to Work-In-Process; Credit to Labor Efficiency Variance
C. Debit to Wages Payable; Debit to Labor Efficiency Variance
D. Debit to Work-In-Process; Debit to Labor Efficiency Variance
Answer:
Hagos Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct
labor-hour. The production budget calls for producing 2,100 units in June and 1,900
units in July. If the direct labor work force is fully adjusted to the total direct
labor-hours needed each month, what would be the total combined direct labor cost for
the two months?
A. $15,792.00
B. $15,002.40
C. $16,581.60
D. $31,584.00
Answer:
Answer:
Mountain Manufacturing uses a standard cost system in which manufacturing overhead
is applied to units of product on the basis of standard machine-hours. At standard, each
unit of product requires one machine-hour to complete. The standard variable overhead
is $1.75 per machine-hour and Budgeted Fixed Manufacturing Costs are $300,000 per
year. The denominator level of activity is 150,000 machine-hours, or 150,000 units.
Actual data for the year were as follows:
a. What are the predetermined variable and fixed manufacturing overhead rates for the
year?
b. Compute the variable overhead rate and efficiency variances for the year.
c. Compute the fixed manufacturing overhead budget and volume variances for the
year.
Answer:
Arzola Corporation produces and sells a single product. Data concerning that product
appear below:
Assume the company’s monthly target profit is $17,080. Determine the unit sales to
attain that target profit. Show your work!
Answer:
Clasby Corporation uses the FIFO method in its process costing. The following data
concern the company’s Assembly Department for the month of January.
Compute the costs per equivalent unit for the Assembly Department for January using
the FIFO method.
Answer:
Whether a company uses process costing or job-order costing depends on its industry. A
number of companies in different industries are listed below:
1/ Dairy farm
2/ Custom boat builder
3/ Food caterer that supplies food for wedding and other special events
4/ Advertising agency
5/ Coal mining company
6/ Cattle feedlot that fattens cattle prior to slaughter
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
Answer:
Eckels Wares is a division of a major corporation. The following data are for the latest
year of operations:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
d. What is the division’s residual income?
Answer:
Answer:
The following data have been provided by Tiano Corporation:
Required:
Compute the variable overhead rate variances for lubricants and for supplies. Indicate
whether each of the variances is favorable (F) or unfavorable (U). Show your work!
Answer:
Meares Corporation bases its budgets on the activity measure customers served. During
May, the company plans to serve 27,000 customers. The company has provided the
following data concerning the formulas it uses in its budgeting:
Required:
Prepare the companys planning budget for May.
Answer:
Last year, Holroyd Corporation’s variable costing net operating income was $95,000.
The fixed manufacturing overhead costs deferred in inventory under absorption costing
amounted to $29,000.
Determine the absorption costing net operating income last year. Show your work!
Answer:
The selling price of Bayard Corporation’s only product is $230.00 per unit and its
variable expense is $80.50 per unit. The company’s monthly fixed expense is $792,350.
Assume the company’s monthly target profit is $29,900. Determine the unit sales to
attain that target profit. Show your work!
Answer:
Data concerning Tietz Corporation’s single product appear below:
Fixed expenses are $1,044,000 per month. The company is currently selling 9,000 units
per month.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $14 per unit. In
exchange, the sales staff would accept an overall decrease in their salaries of $110,000
per month. The marketing manager predicts that introducing this sales incentive would
increase monthly sales by 400 units. What should be the overall effect on the company’s
monthly net operating income of this change? Show your work!
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:
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:
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:
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:
The following data have been provided by Fattig Corporation, which uses the
weighted-average method in its process costing. The data are for the company’s Shaping
Department for October.
Compute the equivalent units of production for both materials and conversion costs for
the Shaping Department for October using the weighted-average method.
Answer:
Honey Corporation, a merchandising company, reported the following results for
January:
Cost of goods sold is a variable cost in this company.
Required:
a. Prepare a traditional format income statement for January.
b. Prepare a contribution format income statement for January.
Answer:
