Reference: 8A-4
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead volume variance for March is:
A) $1,000 favorable
B) $5,000 favorable
C) $2,500 unfavorable
D) $5,000 unfavorable
Answer:
The changes in Tener Company’s balance sheet account balances for last year appear
below:
The company’s income statement for the year appears below:
The company declared and paid $67,000 in cash dividends during the year. It did not
dispose of any property, plant, and equipment during the year. The company uses the
direct method to determine the net cash provided by operating activities.
On the statement of cash flows, the selling and administrative expense adjusted to a
cash basis would be:
A. $245,000
B. $222,000
C. $260,000
D. $298,000
Answer:
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:
Reference: 8-45
The auto repair shop of Empire Motor Sales uses standards to control labor time and
labor cost in the shop. The standard time for a motor tune-up is 2.5 hours. The record
showing time spent in the shop last week on tune-ups has been misplaced; however, the
shop supervisor recalls that 50 tune-ups were completed during the week and the
controller recalls that the labor rate variance on tune-ups was $87, favorable. The shop
has a set standard labor rate of $9 per hour for tune-up work. The total labor variance
for the week on tune-up work was $93, unfavorable.
The number of actual hours spent on tune-up work last week was:
A) 125 hours
B) 105 hours
C) 145 hours
D) Cannot be computed without further information
Answer:
The Chase Company has a standard cost system in which manufacturing overhead is
applied on the basis of standard direct labor-hours (DLHs). The company recorded the
following activity and cost data relating to manufacturing overhead for October:
The fixed manufacturing overhead budget variance for September was:
A. $2,700 favorable
B. $2,700 unfavorable
C. $5,400 favorable
D. $5,400 unfavorable
Answer:
Supply costs at Lattea Corporation’s chain of gyms are listed below:
Management believes that supply cost is a mixed cost that depends on client-visits.
Using the high-low method to estimate the variable and fixed components of this cost,
those estimates would be closest to:
A. $2.44 per client-visit; $28,623 per month
B. $1.33 per client-visit; $12,768 per month
C. $0.79 per client-visit; $19,321 per month
D. $0.75 per client-visit; $19,826 per month
Answer:
Stickles Corporation incurred $79,000 of actual Manufacturing Overhead costs during
August. During the same period, the Manufacturing Overhead applied to Work in
Process was $75,000. The journal entry to record the incurrence of the actual
Manufacturing Overhead costs would include a:
A. debit to Manufacturing Overhead of $79,000
B. credit to Manufacturing Overhead of $79,000
C. credit to Work in Process of $75,000
D. debit to Work in Process of $75,000
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:
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 current ratio at the end of Year 2 was closest to:
A. 1.24
B. 0.55
C. 0.44
D. 1.71
Answer:
Data from Kempen Corporation’s most recent balance sheet and the company’s income
statement appear below:
The times interest earned for Year 2 is closest to:
A. 3.45
B. 6.36
C. 4.45
D. 2.42
Answer:
Operating data from Tindall Company for last year follows:
The average operating assets amounted to:
A. $600,000
B. $400,000
C. $500,000
D. $800,000
Answer:
Condit Corporation manufactures a variety of products. Variable costing net operating
income was $75,600 last year and was $80,100 this year. Last year, inventory decreased
by 3,400 units. This year, inventory increased by 3,000 units. Fixed manufacturing
overhead cost is $5 per unit.
What was the absorption costing net operating income this year?
A. $78,100
B. $95,100
C. $65,100
D. $73,600
Answer:
Megna Company’s net income last year was $143,000. Changes in the company’s
balance sheet accounts for the year appear below:
The company paid a cash dividend and it did not dispose of any long-term investments
or 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) investing activities last year was:
A. $(95,000)
B. $95,000
C. $(125,000)
D. $125,000
Answer:
Kirson Corporation incurred $89,000 of actual Manufacturing Overhead costs during
December. During the same period, the Manufacturing Overhead applied to Work in
Process was $92,000. The journal entry to record the application of Manufacturing
Overhead to Work in Process would include a:
A. debit to Manufacturing Overhead of $92,000
B. debit to Work in Process of $89,000
C. credit to Manufacturing Overhead of $92,000
D. credit to Work in Process of $89,000
Answer:
LHU Corporation makes and sells a product called Product WZ. Each unit of Product
WZ requires 2.5 hours of direct labor at the rate of $15.00 per direct labor-hour.
Management would like you to prepare a Direct Labor Budget for June.
The company plans to sell 38,000 units of Product WZ in June. The finished goods
inventories on June 1 and June 30 are budgeted to be 600 and 100 units, respectively.
Budgeted direct labor costs for June would be:
A. $562,500
B. $1,425,000
C. $1,406,250
D. $1,443,750
Answer:
Salyers Family Inn is a bed and breakfast establishment in a converted 100-year-old
mansion. The Inns guests appreciate its gourmet breakfasts and individually decorated
rooms. The Inns overhead budget for the most recent month appears below:
The Inns variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 53
guests?
A) $7,159.20
B) $6,680.60
C) $7,184.80
D) $26,154.40
Answer:
Reference: 8-17
Hamp 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 December, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 3,050 tenant-days. The kennel
has provided the following data concerning the formulas to be used in its budgeting:
The expendables in the flexible budget for December would be closest to:
A) $35,900
B) $34,466
C) $36,490
D) $35,624
Answer:
Franklins fixed manufacturing overhead volume variance for the year is:
A) $6,000 unfavorable
B) $19,000 favorable
C) $25,000 favorable
D) $55,000 unfavorable
Answer:
The following is Allison Corporation’s contribution format income statement for last
month:
The company has no beginning or ending inventories. The company produced and sold
10,000 units last month.
How many units would the company have to sell to attain target profits of $120,000?
A. 10,800 units
B. 12,000 units
C. 10,400 units
D. 11,200 units
Answer:
In August, one of the processing departments at Knepp Corporation had beginning work
in process inventory of $17,000 and ending work in process inventory of $13,000.
During the month, $178,000 of costs were added to production.
In the department’s cost reconciliation report for August, the total cost to be accounted
for would be:
A. $30,000
B. $390,000
C. $195,000
D. $373,000
Answer:
Watson Company’s comparative balance sheet and income statement for last year
appear below:
The company declared and paid a cash dividend during the year. It did not purchase or
dispose of any property, plant, and equipment. It did not issue any bonds 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) operating activities last year was:
A. $105,000
B. $87,000
C. $133,000
D. $123,000
Answer:
Talboe Company makes wheels which it uses in the production of children’s wagons.
Talboe’s costs to produce 200,000 wheels annually are as follows:
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the
wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing
overhead would be avoided and the facilities now being used to make the wheels would
be rented to another company for $55,000 per year.
What is the highest price that Talboe could pay the outside supplier for each wheel and
still be economically indifferent between making or buying the wheels?
A. $0.95
B. $1.15
C. $1.00
D. $1.05
Answer:
A continuous (or perpetual) budget:
A. is prepared for a range of activity so that the budget can be adjusted for changes in
activity.
B. is a plan that is updated monthly or quarterly, dropping one period and adding
another.
C. is a strategic plan that does not change.
D. is used in companies that experience no change in sales.
Answer:
The cost of leasing production equipment is classified as:
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Entin Corporation reported the following data for the month of January:
The direct materials cost for January is:
A. $59,000
B. $56,000
C. $71,000
D. $65,000
Answer:
Reference: 8-53
A manufacturing company that has only one product has established the following
standards for its variable manufacturing overhead. The company bases its variable
manufacturing overhead standards on machine-hours.
The following data pertain to operations for the last month:
What is the variable overhead efficiency variance for the month?
A) $7,105 U
B) $6,989 F
C) $6,989 U
D) $1,104 U
Answer:
Nordquist Company’s net income last year was $33,000. The company did not sell or
retire any property, plant, and equipment last year. Changes in selected balance sheet
accounts for the year appear below:
Based solely on this information, the net cash provided by operating activities under the
indirect method on the statement of cash flows would be:
A. $80,000
B. $18,000
C. $48,000
D. $56,000
Answer:
Lafountaine Manufacturing Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs). The
companys cost formula for variable manufacturing overhead is $4.70 per MH. During
the month, the actual total variable manufacturing overhead was $20,210 and the actual
level of activity for the period was 4,700 MHs. What was the variable overhead rate
variance for the month?
A) $400 unfavorable
B) $1,880 favorable
C) $1,880 unfavorable
D) $400 favorable
Answer:
Last year, Farrer Corporation had sales of $1,500,000, variable expenses of $900,000,
and fixed expenses of $400,000. What would be the dollar sales at the break-even
point?
A. $1,300,000
B. $1,000,000
C. $1,380,000
D. $1,200,000
Answer:
Clements Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The total gross margin for the month under the absorption costing approach is:
A. $19,500
B. $51,000
C. $74,000
D. $55,500
Answer:
The sale of equipment at a gain would be shown on the statement of cash flows
prepared under the indirect method in which of the following manners?
A. Cash received would be shown under Investing Activities and the gain would be
subtracted from net income.
B. Cash received would be shown under Investing Activities and the gain would be
added to net income.
C. Cash received would be shown under Investing Activities and the gain would not
appear on the statement of cash flows.
D. Cash received would be shown as an adjustment to net income and the gain would
not appear on the statement of cash flows.
Answer: