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Ribb Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $913,000 per month. The company is currently selling 9,000 units
per month. Management is considering using a new component that would increase the
unit variable cost by $6. Since the new component would increase the features of the
company's product, the marketing manager predicts that monthly sales would increase
by 400 units. What should be the overall effect on the company's monthly net operating
income of this change?
A. decrease of $3,200
B. increase of $50,800
C. decrease of $50,800
D. increase of $3,200
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 dividend yield ratio for Year 2 is closest to:
A. 2.81%
B. 66.67%
C. 1.87%
D. 0.94%
Answer:
Reference: 8-32
Gentile Corporation makes a product with the following standard costs:
The company produced 6,000 units in May using 36,970 kilos of direct material and
4,340 direct labor-hours. During the month, the company purchased 40,400 kilos of the
direct material at $4.70 per kilo. The actual direct labor rate was $13.70 per hour and
the actual variable overhead rate was $2.70 per hour.
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 May is:
A) $1,380 F
B) $1,242 U
C) $1,242 F
D) $1,380 U
Answer:
A process costing system:
A. uses a separate Work in Process account for each processing department.
B. uses a single Work in Process account for the entire company.
C. uses a separate Work in Process account for each type of product produced.
D. does not use a Work in Process account in any form.
Answer:
Data concerning Homme Corporation's single product appear below:
The company is currently selling 2,000 units per month. Fixed expenses are $130,000
per month.
This question is to be considered independently of all other questions relating to
Homme Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $18 and increase the
advertising budget by $8,000 per month. The marketing manager predicts that these two
changes would increase monthly sales by 700 units. What should be the overall effect
on the company's monthly net operating income of this change?
A. decrease of $32,600
B. increase of $32,600
C. increase of $112,400
D. decrease of $3,400
Answer:
A decrease in the discount rate:
A. will increase present values of future cash flows.
B. is one way to compensate for greater risk in a project.
C. will reduce present values of future cash flows.
D. responses a and b are both correct.
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:
Which of the following is not a benefit of budgeting?
A. It reduces the need for tracking actual cost activity.
B. It sets benchmarks for evaluation performance.
C. It uncovers potential bottlenecks.
D. It formalizes a manager's planning efforts.
Answer:
Rostad Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the most recent month
appear below:
The company based its original budget on 7,100 machine-hours. The company actually
worked 7,060 machine-hours during the month. The standard hours allowed for the
actual output of the month totaled 6,990 machine-hours. What was the overall fixed
manufacturing overhead volume variance for the month?
A) $512 favorable
B) $512 unfavorable
C) $1,408 favorable
D) $1,408 unfavorable
Answer:
Austin Wool Products purchases raw wool and processes it into yarn. The spindles of
yarn can then be sold directly to stores or they can be used by Austin Wool Products to
make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data
for the spindles of yarn and for the afghans are as follows:
Each month 4,000 spindles of yarn are produced that can either be sold outright or
processed into afghans.
If Austin chooses to produce 4,000 afghans each month, the change in the monthly net
operating income as compared to selling 4,000 spindles of yarn is:
A. $24,000 decrease
B. $24,000 increase
C. $16,000 decrease
D. $16,000 increase
Answer:
Reference: 8-20
Herard Corporation manufactures and sells a single product. The company uses units as
the measure of activity in its flexible budgets. During March, the company budgeted for
7,900 units, but its actual level of activity was 7,890 units. The company has provided
the following data concerning the formulas used in its budgeting and its actual results
for March:
Data used in budgeting:
Actual results for March:
The manufacturing overhead in the flexible budget for March would be closest to:
A) $50,730
B) $52,287
C) $50,713
D) $52,419
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.
What are the equivalent units for conversion costs for the month in the first processing
department?
A. 405
B. 6,905
C. 6,500
D. 7,400
Answer:
The Varone Company makes a single product called a Hom. The company has the
capacity to produce 40,000 Homs per year. Per unit costs to produce and sell one Hom
at that activity level are:
The regular selling price for one Hom is $60. A special order has been received at
Varone from the Fairview Company to purchase 8,000 Homs next year at 15% off the
regular selling price. If this special order were accepted, the variable selling expense
would be reduced by 25%. However, Varone would have to purchase a specialized
machine to engrave the Fairview name on each Hom in the special order. This machine
would cost $12,000 and it would have no use after the special order was filled. The total
fixed costs, both manufacturing and selling, are constant within the relevant range of
30,000 to 40,000 Homs per year. Assume direct labor is a variable cost.
If Varone can expect to sell 32,000 Homs next year through regular channels and the
special order is accepted at 15% off the regular selling price, the effect on net operating
income next year due to accepting this order would be a:
A. $52,000 increase
B. $80,000 increase
C. $24,000 decrease
D. $68,000 increase
Answer:
Reference: 8-7
Edington Clinic uses client-visits as its measure of activity. During September, the
clinic budgeted for 2,800 client-visits, but its actual level of activity was 2,850
client-visits. The clinic has provided the following data concerning the formulas to be
used in its budgeting for September:
The personnel expenses in the planning budget for September would be closest to:
A) $62,946
B) $67,040
C) $66,420
D) $64,070
Answer:
Which of the following is not an operating asset?
A. Cash
B. Inventory
C. Plant equipment
D. Common stock
Answer:
Reference: 8-1
Nussey Clinic uses client-visits as its measure of activity. During May, the clinic
budgeted for 2,100 client-visits, but its actual level of activity was 2,050 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for May:
Data used in budgeting:
Actual results for May:
The revenue variance for May would be closest to:
A) $1,040 F
B) $1,040 U
C) $960 F
D) $960 U
Answer:
The Reed Division reports the following operating data for the past two years:
The return on investment at Reed was exactly the same in Year 1 and Year 2
Average operating assets in Year 1 were:
A. $160,000
B. $150,000
C. $125,000
D. $100,000
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 total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $366,430
B. $284,600
C. $309,200
D. $282,858
Answer:
The management of Freshwater Corporation is considering dropping product C11B.
Data from the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's
accounting system. Further investigation has revealed that $211,000 of the fixed
manufacturing expenses and $122,000 of the fixed selling and administrative expenses
are avoidable if product C11B is discontinued.
What would be the effect on the company's overall net operating income if product
C11B were dropped?
A. Overall net operating income would decrease by $188,000.
B. Overall net operating income would increase by $74,000.
C. Overall net operating income would decrease by $74,000.
D. Overall net operating income would increase by $188,000.
Answer:
Butscher Company allocates materials handling cost to the company's two products
using the below data:
The total materials handling cost for the year is expected to be $9,072.
If the materials handling cost is allocated on the basis of material moves, how much of
the total materials handling cost should be allocated to the modular homes? (Round off
your answer to the nearest whole dollar.)
A. $5,885
B. $7,056
C. $7,938
D. $4,536
Answer:
Borwan Company uses the weighted-average method in its process costing system. The
Assembly Department started the month with 8,000 units in its beginning work in
process inventory that were 70% complete with respect to conversion costs. An
additional 69,000 units were transferred in from the prior department during the month
to begin processing in the Assembly Department. There were 5,000 units in the ending
work in process inventory of the Assembly Department that were 20% complete with
respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the
month?
A. 67,400
B. 73,000
C. 72,000
D. 66,000
Answer:
At the end of the year, actual manufacturing overhead costs were $110,000 and applied
manufacturing overhead costs were $118,800. If the denominator activity for the year
was 20,000 machine-hours, and if 22,000 standard machine-hours were allowed for the
year's production, the predetermined overhead rate per machine-hour was:
A. $5.00
B. $5.94
C. $5.50
D. $5.40
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 contribution margin when 6,300 units are sold is:
A. $450,450
B. $518,490
C. $121,590
D. $66,780
Answer:
Jaderston 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 per equivalent unit for conversion costs for the first department for the month
is closest to:
A. $38.29
B. $36.47
C. $34.68
D. $36.06
Answer:
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 minimum required return in March?
A. $80,100
B. $86,800
C. $11,214
D. $98,014
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:
Reference: 8-44
Carskadon Corporation makes a product that uses a material with the following direct
material standards:
The company produced 3,000 units in December using 6,270 pounds of the material.
During the month, the company purchased 7,100 pounds of the direct material at a total
cost of $13,490. The direct materials purchases variance is computed when the
materials are purchased.
The materials quantity variance for December is:
A) $660 F
B) $660 U
C) $627 F
D) $627 U
Answer:
Marrin Corporation makes three products that use the current constraint-a particular
type of machine. Data concerning those products appear below:
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?
A. $14.30 per minute
B. $14.80 per minute
C. $33.81 per unit
D. $118.69 per unit
Answer:
Beilke Corporation processes sugar beets in batches that it purchases from farmers for
$53 a batch. A batch of sugar beets costs $12 to crush in the company's plant. Two
intermediate products, beet fiber and beet juice, emerge from the crushing process. The
beet fiber can be sold as is for $20 or processed further for $10 to make the end product
industrial fiber that is sold for $26. The beet juice can be sold as is for $30 or processed
further for $29 to make the end product refined sugar that is sold for $79. Which of the
intermediate products should be processed further?
A. beet fiber should be processed into industrial fiber; beet juice should be processed
into refined sugar
B. beet fiber should NOT be processed into industrial fiber; beet juice should be
processed into refined sugar
C. beet fiber should NOT be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
D. beet fiber should be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
Answer:
Farver 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 $44,420 per month
plus $2,008 per flight plus $1 per passenger. The company expected its activity in May
to be 80 flights and 281 passengers, but the actual activity was 81 flights and 277
passengers. The actual cost for plane operating costs in May was $199,650. The
spending variance for plane operating costs in May would be closest to:
A) $5,691 F
B) $7,695 U
C) $7,695 F
D) $5,691 U
Answer:
At a sales volume of 35,000 units, Thoma Corporation's sales commissions (a cost that
is variable with respect to sales volume) total $448,000.
To the nearest whole cent, what should be the average sales commission per unit at a
sales volume of 36,800 units? (Assume that this sales volume is within the relevant
range.)
A. $13.49
B. $12.17
C. $12.80
D. $12.49
Answer:
Schlender Corporation produces and sells two products. In the most recent month,
Product L40O had sales of $22,000 and variable expenses of $8,580. Product Y27L had
sales of $49,000 and variable expenses of $17,690. The fixed expenses of the entire
company were $43,950.
If the sales mix were to shift toward Product L40O with total dollar sales remaining
constant, the overall break-even point for the entire company:
A. would not change.
B. would increase.
C. would decrease.
D. could increase or decrease.
Answer:
The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the materials price variance for the month?
A) $15,405 F
B) $5,775 U
C) $5,925 U
D) $1,600 U
Answer:
