Prestwich Company has budgeted production for next year as follows:
Two pounds of material A are required for each unit produced. The company has a
policy of maintaining a stock of material A on hand at the end of each quarter equal to
25% of the next quarter’s production needs for material A. A total of 30,000 pounds of
material A are on hand to start the year. Budgeted purchases of material A for the
second quarter would be:
A. 82,500 pounds
B. 165,000 pounds
C. 200,000 pounds
D. 205,000 pounds
Answer:
Kelln Corporation’s most recent comparative balance sheet and income statement
appear below:
The company paid a cash dividend and it did not dispose of any property, plant, and
equipment. The company did not issue any bonds payable or repurchase any of its own
common stock. The following question pertain to the company’s statement of cash
flows.
The net cash provided by (used in) financing activities for the year was:
A. $(15)
B. $4
C. $(9)
D. $(10)
Answer:
The Gomez Company, a merchandising firm, has budgeted its activity for December
according to the following information:
– Sales at $500,000, all for cash.
– Merchandise Inventory on November 30 was $250,000.
– The cash balance at December 1 was $20,000.
– Selling and administrative expenses are budgeted at $50,000 for December and are
paid for in cash.
– Budgeted depreciation for December is $30,000.
– The planned merchandise inventory on December 31 is $260,000.
– The cost of goods sold represents 75% of the selling price.
– All purchases are paid for in cash.
The budgeted cash receipts for December are:
A. $125,000
B. $375,000
C. $530,000
D. $500,000
Answer:
Reference: 8-56
Hickory Corporation, which produces commercial safes, has provided the following
data:
Supplies cost is an element of variable manufacturing overhead.
The variable overhead efficiency variance for supplies is closest to:
A) $47,251 U
B) $4,350 U
C) $4,350 F
D) $47,251 F
Answer:
Reference: 8-9
Parisi Clinic uses client-visits as its measure of activity. During March, the clinic
budgeted for 2,300 client-visits, but its actual level of activity was 2,350 client-visits.
The clinic has provided the following data concerning the formulas to be used in its
budgeting:
The occupancy expenses in the flexible budget for March would be closest to:
A) $14,510
B) $15,370
C) $15,147
D) $15,515
Answer:
Prejean Corporation’s most recent comparative balance sheet and income statement
appear below:
Cash dividends were $32. The company did not retire or sell any property, plant, and
equipment during the year. The net cash provided by (used in) operating activities for
the year was:
A. $45
B. $87
C. $177
D. $189
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 rate variance for May is:
A) $1,440 U
B) $1,302 F
C) $1,302 U
D) $1,440 F
Answer:
Salge Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
variable overhead rate is $8.10 per direct labor-hour. The company’s budgeted fixed
manufacturing overhead is $74,730 per month, which includes depreciation of $20,670.
All other fixed manufacturing overhead costs represent current cash flows. The direct
labor budget indicates that 5,300 direct labor-hours will be required in September.
The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for September should be:
A. $18.30
B. $14.10
C. $8.10
D. $22.20
Answer:
A company’s current ratio and acid-test ratios are both greater than 1. Issuing bonds to
finance purchase of an office building with the first installment of the bonds due in the
current year would:
A. decrease net working capital.
B. decrease the current ratio.
C. decrease the acid-test ratio.
D. affect all of the above as indicated.
Answer:
Reference: 8-51
The following standards for variable manufacturing overhead have been established for
a company that makes only one product:
The following data pertain to operations for the last month:
What is the variable overhead efficiency variance for the month?
A) $3,192 U
B) $6,913 F
C) $7,161 U
D) $6,913 U
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 price-earnings ratio at December 31 was closest to:
A. 3.00
B. 8.25
C. 8.00
D. 7.25
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 operating activities would be:
A. $45,200
B. $60,000
C. $37,200
D. $55,200
Answer:
Franklin Glass Works uses a standard cost system in which manufacturing overhead is
applied on the basis of standard direct labor-hours. Each unit requires two standard
hours of direct labor for completion. The denominator activity for the year was based
on budgeted production of 200,000 units. Total overhead was budgeted at $900,000 for
the year, and the fixed manufacturing overhead rate was $1.50 per direct labor-hour.
The actual data pertaining to the manufacturing overhead for the year are presented
below:
Franklin’s variable overhead efficiency variance for the year is:
A. $33,000 unfavorable
B. $35,200 favorable
C. $35,200 unfavorable
D. $33,000 favorable
Answer:
Froment Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 200
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,900 units were started and 7,400 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 65% complete with respect to materials and 25% 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 of ending work in process inventory in the first processing department
according to the company’s cost system is closest to:
A. $28,359
B. $18,433
C. $7,090
D. $11,809
Answer:
At an activity level of 5,300 machine-hours in a month, Clyburn Corporation’s total
variable maintenance cost is $114,268 and its total fixed maintenance cost is $154,336.
What would be the average fixed maintenance cost per unit at an activity level of 5,600
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A. $50.68
B. $27.56
C. $35.79
D. $29.12
Answer:
The Rial Company’s income statement for June is given below:
A proposal has been made that will lower variable expenses in Division L to 35% of
sales. However, this reduction can only be accomplished by a $15,000 increase in
Division L’s traceable fixed expenses. If this proposal is implemented and if sales
remain constant, overall company net operating income should:
A. increase by $15,000
B. increase by $24,000
C. decrease by $15,000
D. decrease by $6,000
Answer:
Hartzog Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on
preferred stock totaled $5 thousand. The market price of common stock at the end of
Year 2 was $7.04 per share.
The average collection period for Year 2 is closest to:
A. 0.9 days
B. 70.3 days
C. 1.1 days
D. 67.6 days
Answer:
Capalbo Corporation bases its predetermined overhead rate on the estimated
labor-hours for the upcoming year. At the beginning of the most recently completed
year, the company estimated the labor-hours for the upcoming year at 52,000
labor-hours. The estimated variable manufacturing overhead was $2.78 per labor-hour
and the estimated total fixed manufacturing overhead was $1,192,360. The actual
labor-hours for the year turned out to be 52,600 labor-hours. The predetermined
overhead rate for the recently completed year was closest to:
A. $2.78
B. $25.45
C. $25.71
D. $22.93
Answer:
Stephen Company produces a single product. Last year, the company had 20,000 units
in its ending inventory. During the year, Stephen’s variable production costs were $12
per unit. The fixed manufacturing overhead cost was $8 per unit in the beginning
inventory. The company’s net operating income for the year was $9,600 higher under
variable costing than it was under absorption costing. The company uses a
last-in-first-out (LIFO) inventory flow assumption. Given these facts, the number of
units of product in the beginning inventory last year must have been:
A. 21,200
B. 19,200
C. 18,800
D. 19,520
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 common stockholders’ equity for Year 2 is closest to:
A. 8.70%
B. 10.17%
C. 10.14%
D. 11.86%
Answer:
Reference: 8-12
Nakhle 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 October, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 2,960 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for October:
Data used in budgeting:
Actual results for October:
The wages and salaries in the planning budget for October would be closest to:
A) $22,920
B) $22,644
C) $22,614
D) $22,900
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.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $12.93
B. $14.38
C. $16.38
D. $14.73
Answer:
Porl Corporation makes and sells a single product called a Yute. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last quarter
of the year. The following budget data are available:
All of these expenses (except depreciation) are paid in cash in the month they are
incurred.
If the company has budgeted to sell 19,000 Yutes in December, then the budgeted total
cash disbursements for selling and administrative expenses for December would be:
A. $387,100
B. $231,000
C. $169,100
D. $400,100
Answer:
Stampka 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 4,200 units of component JJF. Each unit of JJF
requires 6 units of material O38 and 9 units of material P56. Data concerning these two
materials follow:
Material O38 is in use in many of the company’s products and is routinely replenished.
Material P56 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 JJF?
A. $146,790
B. $199,080
C. $155,610
D. $212,340
Answer:
The materials quantity variance should be computed:
A) when materials are purchased.
B) based upon the amount of materials used in production.
C) based upon the difference between the actual and standard prices per unit times the
actual quantity used.
D) only when there is a difference between standard and actual cost per unit for the
materials.
Answer:
Which department should usually be held responsible for an unfavorable materials price
variance?
A) Production.
B) Materials Handling.
C) Engineering.
D) Purchasing.
Answer:
During February, Degan Inc. transferred $60,000 from Work in Process to Finished
Goods and recorded a Cost of Goods Sold of $65,000. The journal entries to record
these transactions would include a:
A. debit to Finished Goods of $65,000
B. credit to Cost of Goods Sold of $65,000
C. credit to Work in Process of $60,000
D. credit to Finished Goods of $60,000
Answer:
Acri Corporation produces large commercial doors for warehouses and other facilities.
In the most recent month, the company budgeted production of 6,900 doors. Actual
production was 7,300 doors. According to standards, each door requires 5.6
machine-hours. The actual machine-hours for the month were 40,360 machine-hours.
The standard supplies cost, and element of variable manufacturing overhead, is $4.20
per machine-hour. The actual supplies cost for the month was $168,251. The variable
overhead efficiency variance for supplies cost is:
A) $3,445 U
B) $2,184 F
C) $2,184 U
D) $3,445 F
Answer:
Zippy Company has a process costing system. Information about units processed and
processing costs incurred during a recent month in the Refining Department follow:
The beginning work in process inventory had $10,946 of processing cost attached to it
at the beginning of the month. During the month, the Department incurred an additional
$289,954 in processing cost.
Assuming that the company uses the weighted-average method, what is the cost per
equivalent unit for processing for the month?
A. $2.89
B. $2.98
C. $3.00
D. $3.08
Answer:
The following data have been taken from your company’s financial records for the
current year:
The price-earnings ratio is:
A. 7.5
B. 10.0
C. 9.4
D. 13.3
Answer:
The economic impact of the inability to reach a target denominator level of activity
would best be measured by:
A) the amount of the volume variance.
B) the contribution margin lost by failing to meet the target denominator level of
activity.
C) the amount of the fixed manufacturing overhead budget variance.
D) the amount of the variable overhead efficiency variance.
Answer:
Ruston 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 original budget was based on 4,500 machine-hours. The company actually worked
4,590 machine-hours during the month and the standard hours allowed for the actual
output were 4,700 machine-hours. What was the overall variable overhead efficiency
variance for the month?
A) $50 unfavorable
B) $869 favorable
C) $969 unfavorable
D) $100 unfavorable
Answer:
Reference: 8A-7
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 companys 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:
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 amount of direct materials cost in the March 31 Work in Process inventory account
was:
A. $5,250
B. $3,500
C. $9,000
D. $8,750
Answer:
Reference: 8-25
Lotson Corporation bases its budgets on machine-hours. The companys static planning
budget for May appears below:
Actual results for the month were:
The spending variance for supplies costs for the month should be:
A) $600 U
B) $600 F
C) $270 F
D) $270 U
Answer: