1) If the actual level of activity is 4% less than planned, then the variable costs in the
static budget should be decreased by 4% before comparing them to actual costs.
2) The dividend payout ratio is equal to the dividend per share divided by the earnings
per share.
3) Product-level activities relate to how many batches are run or units of product are
made.
4) The higher the discount rate, the lower the present value of a given future cash flow.
5) The present value of an amount to be received in five years is greater than the present
value of the same amount to be received in ten years.
6) Assuming the LIFO inventory flow assumption, if production is less than sales for
the period, absorption costing net operating income will generally be greater than
variable costing net operating income.
7) Under the indirect method of determining the net cash provided by operating
activities on the statement of cash flows, a decrease in inventory would be added to net
income.
8) The engineering approach to the analysis of mixed costs involves a detailed analysis
of what cost behavior should be, based on an industrial engineers evaluation of the
production methods to be used, the materials specifications, labor requirements,
equipment usage, production efficiency, power consumption, and so on.
9) The price elasticity of demand is NOT used in the absorption costing approach to
cost-plus pricing to determine the markup over cost.
10) All other things the same, purchasing merchandise inventory would have no effect
on the accounts receivable turnover ratio at a retailer.
11) If the actual direct labor-hours used is less than the standard direct labor-hours
allowed for the actual output, then the journal entry to record the Labor Efficiency
Variance would be a credit.
12) Zumbrunnen Corporation uses activity-based costing to compute product margins.
Overhead costs have already been allocated to the company’s three activity cost
pools-Processing, Supervising, and Other. The costs in those activity cost pools appear
below:
Processing costs are assigned to products using machine-hours (MHs) and Supervising
costs are assigned to products using the number of batches. The costs in the Other
activity cost pool are not assigned to products. Activity data appear below:
Finally, sales and direct cost data are combined with Processing and Supervising costs
to determine product margins.
The activity rate for the Supervising activity cost pool under activity-based costing is
closest to:
A.$8.00 per batch
B.$26.67 per batch
C.$46.80 per batch
D.$82.00 per batch
13) Dilbert Farm Supply is located in a small town in the rural west. Data regarding the
store’s operations follow:
Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000
for January.
Collections are expected to be 80% in the month of sale, 19% in the month following
the sale, and 1% uncollectible.
The cost of goods sold is 65% of sales.
The company desires to have an ending merchandise inventory at the end of each
month equal to 60% of the next month’s cost of goods sold. Payment for merchandise is
made in the month following the purchase.
Other monthly expenses to be paid in cash are $20,300.
Monthly depreciation is $20,000.
Ignore taxes.
The net income for December would be:
A.$60,200
B.$37,900
C.$40,200
D.$55,800
14) A company anticipates incremental net income (i.e., incremental taxable income) of
$50,000 in year 4 of a project. The company’s tax rate is 30% and its after-tax discount
rate is 12%. The present value of this future cash flow is closest to:
A.$22,260
B.$35,000
C.$9,533
D.$15,000
15) The debt-to-equity ratio at the end of Year 2 is closest to:
A.0.38
B.0.13
C.0.16
D.0.43
16) The contribution margin for October is:
A) $260,000
B) $232,000
C) $196,500
D) $369,500
17) The accounts receivable turnover for Year 2 is closest to:
A.6.62
B.1.10
C.6.32
D.0.91
18) Keefe Corporation has two divisions: Western Division and Eastern Division. The
following report is for the most recent operating period:
The common fixed expenses have been allocated to the divisions on the basis of sales.
The company’s overall break-even sales is closest to:
A.$121,759
B.$322,457
C.$246,550
D.$368,309
19) The standards for product F88W specify 3.4 direct labor-hours per unit at $13.00
per direct labor-hour. Last month 800 units of product F88W were produced using
2,500 direct labor-hours at a total direct labor wage cost of $30,500.
Required:
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
20) The following data have been provided by Gerlach Corporation, a company that
produces forklift trucks:
Supplies cost is an element of variable manufacturing overhead. The variable overhead
efficiency variance for supplies cost is:
A.$966 U
B.$5,897 U
C.$5,897 F
D.$966 F
21) Radakovich Corporation has provided the following data from its activity-based
costing system:
The company makes 230 units of product F60N a year, requiring a total of 480
machine-hours, 50 orders, and 30 inspection-hours per year. The product’s direct
materials cost is $12.70 per unit and its direct labor cost is $45.93 per unit. The product
sells for $126.60 per unit.
According to the activity-based costing system, the product margin for product F60N is:
A.$6,251.70
B.$4,490.70
C.$6,393.70
D.$15,633.10
22) Cabal Products is a division of a major corporation. Last year the division had total
sales of $10,040,000, net operating income of $582,320, and average operating assets of
$4,000,000. The company’s minimum required rate of return is 14%.
The division’s return on investment (ROI) is closest to:
A.4.1%
B.14.6%
C.36.6%
D.0.9%
23) What would be the total variable maintenance cost at an activity level of 8,600
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A) $777,212
B) $220,448
C) $576,888
D) $228,416
24) Perla 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 March, the kennel budgeted for
2,200 tenant-days, but its actual level of activity was 2,160 tenant-days. The kennel 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 wages and salaries in the planning budget for March would be closest to:
A.$18,860
B.$18,749
C.$18,568
D.$18,408
25) The net present value of the entire project is closest to:
A.$39,675
B.$68,280
C.$25,515
D.$65,000
26) Using the direct method, sales adjusted to a cash basis would be:
A.$300,000
B.$302,000
C.$298,000
D.$305,000
27) ( The following data on a proposed investment project have been provided:
The working capital would be released for use elsewhere at the end of the project. The
net present value of the project is closest to:
A.$3,730
B.$0
C.$32,450
D.$88,370
28) The following data have been provided by Allton Corporation, which uses the
weighted-average method in its process costing. The data are for the company’s Shaping
Department for October.
Required:
Compute the equivalent units of production for both materials and conversion costs for
the Shaping Department for October using the weighted-average method.
29) Zhang Corporation uses process costing. A number of transactions that occurred in
June are listed below.
(1) Raw materials that cost $41,700 are withdrawn from the storeroom for use in the
Mixing Department. All of these raw materials are classified as direct materials.
(2) Direct labor costs of $47,700 are incurred, but not yet paid, in the Mixing
Department.
(3) Manufacturing overhead of $56,900 is applied in the Mixing Department using the
department’s predetermined overhead rate.
(4) Units with a carrying cost of $128,300 finish processing in the Mixing Department
and are transferred to the Drying Department for further processing.
(5) Units with a carrying cost of $133,800 finish processing in the Drying Department,
the final step in the production process, and are transferred to the finished goods
warehouse.
(6) Finished goods with a carrying cost of $129,200 are sold.
Required:
Prepare journal entries for each of the transactions listed above.
30) Harmison Urban Diner is a charity supported by donations that provides free meals
to the homeless. The diner’s budget for July was based on 3,000 meals, but the diner
actually served 3,500 meals. The diner’s director has provided the following cost data to
use in the budget: groceries, $2.60 per meal; kitchen operations, $4,300 per month plus
$1.80 per meal; administrative expenses, $3,100 per month plus $0.80 per meal; and
fundraising expenses, $1,200 per month.
Required:
Prepare a report showing the activity variances for each of the expenses and for total
expenses for July. Label each variance as favorable (F) or unfavorable (U).
31) Excerpts from Candle Corporation’s most recent balance sheet (in thousands of
dollars) appear below:
Sales on account during the year totaled $1,200 thousand. Cost of goods sold was $800
thousand.
32) Globe Manufacturing Company has just obtained a request for a special order of
12,000 units to be shipped at the end of the current year at a discount price of $7.00
each. The company has a production capacity of 90,000 units per year. At present,
Globe is only selling 80,000 units per year through regular channels at a selling price of
$11.00 each. Globe’s per unit costs at an 80,000 unit level of production and sales are as
follows:
Variable selling and administrative expense will drop to $0.30 per unit on the special
order units. The special order has to be taken in its entirety. This means that by
accepting the special order, Globe will be forced to not sell 2,000 units to its regular
customers.
Required:
If Globe accepts this special order, by what amount will its net operating income
increase or decrease? SHOW YOUR COMPUTATIONS.
33) The management of Leinberger Corporation is considering dropping product S48J.
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 $28,000 of the fixed
manufacturing expenses and $21,000 of the fixed selling and administrative expenses
are avoidable if product S48J is discontinued.
Required:
What would be the effect on the company’s overall net operating income if product
S48J were dropped? Should the product be dropped? Show your work!
34) Northern Stores is a retailer in the upper Midwest. The most recent monthly income
statement for Northern Stores is given below:
Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable
fixed expenses would continue. Also, the closing of Store I would result in a 20%
decrease in sales in Store II. Northern allocates common fixed expenses on the basis of
sales dollars and none of these costs would be saved if a store were shut down.
Required:
Compute the overall increase or decrease in the net operating income of Northern
Stores if Store I is closed.
35) Fraction Corporation has provided the following financial data:
36) The following data pertain to the Milling Department of Vario Corporation for July.
The company uses the FIFO method in its process costing.
Required:
Compute the equivalent units of production for both materials and conversion costs for
the Milling Department for July using the FIFO method.