Mertz Group is a consulting firm specializing in mergers and acquisitions. In addition to
the three partners, the firm employs nine consultants who work directly with clients.
The average budgeted compensation for the twelve professionals is $65,000. Each
consultant is budgeted at 1,600 billable hours per year. All professional labor costs are
included in a single direct cost pool and are traced to jobs on a per-hour basis. All
non-professional labor costs are included in a single overhead cost pool and are
allocated to jobs using professional labor hours as the allocation base. Budgeted
overhead costs total $600,000. During the period the firm worked on the following jobs:
(a) The Smith Account: Consultants booked 100 hours
(b) The Davis account: Consultants booked 175 hours.
Required:
1) Compute the budgeted direct cost rate per hour of professional labor. (Round your
answer to three decimal places.)
2) Compute the budgeted overhead cost rate per hour of professional labor.
3) Compute the cost assigned to each job.
4) Compute the fee to be charged to each client assuming the company uses a cost plus
pricing approach and marks up cost by 20%.
Long-term creditors are usually most interested in evaluating:
A. Liquidity.
B. Managerial effectiveness.
C. Solvency.
D. Profitability.
Arch Associates reports the following comparative balance sheets and income statement
information.
The amount of cash paid for inventory purchases during 2014 was:
A. $40,000.
B. $32,000.
C. $22,000.
D. $36,000.
Which of the following costs is the result of a facility-level activity?
A. Utility costs related to heating and lighting a manufacturing facility
B. The cost of landscaping the grounds for the manufacturing unit
C. Costs associated with trademarks
D. Both utility costs related to heating and lighting a manufacturing facility and the cost
of landscaping the grounds for the manufacturing unit are correct
Certified Management Accountants (CMA) must complete a specified number of
continuing professional education credits each reporting period. Which of the four
standards of ethical conduct issued by the Institute of Management Accountants likely
motivated this requirement?
A. Confidentiality
B. Competence
C. Integrity
D. Objectivity
Which of the following is not a cost resulting from a unit-level activity?
A. The cost of electricity to power manufacturing equipment
B. The cost of sending monthly statements to customers
C. The indirect cost of glue used on each product
D. The per unit cost of packaging goods
Outdoor Living Company has just received a special order for 500 hammocks. Outdoor
Living has sufficient idle capacity to accept the order. Accepting the order will increase
Outdoor Living’s total variable manufacturing costs. Which type of cost is considered
relevant to Outdoor Living’s decision of whether to accept or reject the special order?
A. Raw materials to make the 500 hammocks
B. Company president’s salary
C. Salary of the production manager
D. Depreciation on equipment that would be used to make the hammocks
The Landrum Company provides the following standard cost data per unit of product:
Landrum anticipated that they would produce and sell 24,000 units. During the period,
the company produced and sold 25,000 units incurring $210,000 of variable overhead
costs.
The variable overhead flexible budget variance was:
A. $8,000 unfavorable.
B. $10,000 unfavorable.
C. $8,000 favorable.
D. $10,000 favorable.
When calculating the present value of an ordinary annuity, it is assumed that:
A. cash flows will be reinvested at the required rate of return.
B. cash flows are withdrawn at the end of each year.
C. the investor will wait until the end of the investment period to withdraw cash flows.
D. Both cash flows will be reinvested at the required rate of return and cash flows are
withdrawn at the end of each year are correct.
The amount of cash paid for S&A expenses during the month of November is:
A. $21,000
B. $22,200
C. $21,700
D. $23,200
Select the correct statement from the following.
A. A fixed cost structure offers less risk (i.e., less earnings volatility) and higher
opportunity for profitability than does a variable cost structure.
B. A variable cost structure offers less risk and higher opportunity for profitability than
does a fixed cost structure.
C. A fixed cost structure offers greater risk but higher opportunity for profitability than
does a variable cost structure.
D. A variable cost structure offers greater risk but higher opportunity for profitability
than does a fixed cost structure.
The Ferguson Company estimated that October sales would be 100,000 units with an
average selling price of $6.00. Actual sales for October were 105,000 units and average
selling price was $5.95.
The sales revenue flexible budget variance was:
A. $5,000 favorable.
B. $5,000 unfavorable.
C. $5,250 favorable.
D. $5,250 unfavorable.
Actions or units of work undertaken by an organization to accomplish its mission are
referred to as:
A. costs.
B. work in process.
C. activities.
D. cost objects.
O’Hare Company is in the process of preparing a purchases budget for the first quarter
of 2014. The company has budgeted sales as follows:
Cost of goods sold is expected to be 75% of sales. The company would like to have
ending inventory each month equal to 25% of the following month’s predicted cost of
sales. The total cost of purchases in January is:
A. $35,719.
B. $46,500.
C. $44,438.
D. $59,250.
For 2014, Southern Company established a direct labor standards of 0.5 hour per unit at
$12 per hour for one of its products. In March, Southern used 12,000 direct labor hours,
and the total amount paid to direct labor employees was $143,400.
Required:Based on this information,
(a) Which variance can you calculate?
(b) What is the dollar amount of the variance?
(c) Is the variance favorable or unfavorable?
(d) Do you consider the variance to be sufficiently material that managers should
investigate to discover the cause of the variance?
O’Hare Company, is a manufacturing firm that uses a job-order cost system to
determine the costs of its products. During 2014, O’Hare paid $2,100 to production
employees who worked on job #132. The entry to record these wages would include an
increase to:
A. Cost of goods sold.
B. Work in process inventory.
C. Finished goods inventory.
D. Wage expense.
Which of the following statements is correct?
A. Investors need to understand that the value of a company’s earnings per share is
affected by its choices of accounting principles and assumptions.
B. Earnings per share is calculated for a company’s preferred stock.
C. The most widely quoted measure of a company’s earnings performance is return on
equity.
D. The book value per share measures the market value of a corporation’s stock.
Which of the following would not be reported as an investing activity on the statement
of cash flows?
A. Cash dividends received from an investment in marketable securities.
B. Cash loaned to another company.
C. Cash received from the sale of equipment.
D. Cash paid to purchase production equipment.
Harvey wants to determine the net present value for a proposed capital investment. He
has determined the desired rate of return, the expected investment time period, a series
of cash inflows of equal amount, the salvage value of the investment, and the required
cash outflows. Which of the following tables would most likely be used to calculate the
net present value of the investment?
A. Present value of annuity.
B. Future value of a lump sum.
C. Present value of annuity and present value of a lump sum.
D. Future value of annuity and future value of a lump sum.
Phillips Company can sell 15,000 units of its new product at a selling price of $116.
The unit cost is $72. The company’s target profit is 40% of sales. The Vice President of
Marketing has learned that a competitor plans to introduce a similar product for $104.
The Vice President has recommended that Phillips match the competitor’s price. She
believes the lower selling price will increase sales volume by 20%.
Required:
1) Compute the company’s net income assuming the product is sold for $116 and the
costs remain at $72. Assume there were no additional costs.
2) Compute the product’s target cost if it is sold at a $116 selling price.
3) Compute the company’s net income if the target cost computed in Requirement 2 is
achieved.
4) Compute the change in income from Requirement 1 if the product is sold for $104,
costs remain at $72, and volume is increased by 20%.
If a company had a pure fixed cost structure, what would be the relationship between a
given dollar increase in sales and net income?
How would you determine whether a particular cost is unit-level or batch-level? Use as
an example: product inspection costs.
Indicate whether each of the following statements is true or false.
To be relevant in decision making, information must be based on past experience.
All quantitative information that differs among the decision alternatives under
consideration is relevant.
Costs that cannot be changed are not relevant to a decision.
Sunk costs may appropriately be considered in decision making if they are significant in
amount.
Differential revenues are relevant in decision making.
What are materials requisition forms, and how are they used in a job-order cost system?
The Mendez Company is trying to decide whether to replace a packing machine that it
uses to pack salsa into individual serving size packages. The following information is
provided:
Required:
1) Compute the increase or decrease in total net income over the five-year period if the
company chooses to buy the new machine.
2) Compute the impact on the company’s net income in the first year if the current
machine is replaced. Do not take depreciation into account.
3) Under what circumstances might a manager not take the action that is in the best
interest of the firm in the long run?
The accountant for Haven Industries could not prepare the following budgets because
an item of information is missing for each one. Identify the missing items needed prior
to preparing each budget.
Select the term from the list provided that best matches each of the following
descriptions. The first is done for you.
