1) The number of units to be produced in a period can be determined by adding the
expected sales to the beginning inventory and then deducting the desired ending
inventory.
2) Return on investment is superior to residual income as a means of measuring
performance because it encourages managers to make investment decisions that are
more consistent with the interests of the company as a whole.
3) When a company has a production constraint, total contribution margin will be
maximized by emphasizing the products with the lowest contribution margin per unit of
the constrained resource.
4) Under absorption costing, fixed manufacturing overhead cost is not included in
product cost.
5) Wait time is considered non-value-added time.
6) Product costs are recorded as expenses in the period in which the related products are
sold.
7) The
is a measure of the goodness-of-fit in least-squares regression.
8) In a contribution format income statement, the gross margin minus selling and
administrative expenses equals net operating income.
9) The following journal entry would be made in a processing costing system when
units that have been completed with respect to the work done in Processing Department
Z are transferred from Processing Department Z to Processing Department Y:
10) When computing the net cash provided by operating activities under the indirect
method on the statement of cash flows, a decrease in common stock would be
subtracted from net income.
11) In calculating the payback period where new equipment is replacing old equipment,
any salvage value to be received on disposal of the old equipment should be added to
the cost of the new equipment.
12) The step-down method of allocating service department costs takes into account
some, but not all, of the reciprocal services that service departments provide to each
other.
13) Liquidity refers to how quickly an asset can be converted into cash.
14) Barnett Corporation uses the weighted-average method in its process costing
system. The company adds materials at the beginning of the process in Department M.
Conversion costs were 75% complete with respect to the 4,000 units in work in process
at May 1 and 50% complete with respect to the 6,000 units in work in process at May
31. During May, 12,000 units were completed and transferred to the next department.
An analysis of the costs relating to work in process at May 1 and to production activity
for May follows:
The total cost per equivalent unit for May was:
A.$5.02
B.$5.10
C.$5.12
D.$5.25
15) Narstad Corporation’s times interest earned for Year 2 was closest to:
A.11.0
B.10.0
C.18.0
D.7.0
16) A manufacturer of cedar shingles has supplied the following data:
The company’s break-even in unit sales is closest to:
A.130,149
B.81,081
C.25,038
D.240,000
17) Steinhagen 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 2,600 machine-hours. The company actually
worked 2,790 machine-hours during the month. The standard hours allowed for the
actual output of the month totaled 2,960 machine-hours. What was the overall fixed
manufacturing overhead volume variance for the month?
A.$5,148 Favorable
B.$5,148 Unfavorable
C.$2,717 Favorable
D.$2,717 Unfavorable
18) Noel Enterprises has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month must be equal to
10% of the next month’s sales in units. The inventory on May 31 contained 400 units.
The company needs to prepare a production budget for the second quarter of the year.
The desired ending inventory for August is:
A.720 units
B.460 units
C.540 units
D.380 units
19) ( Ataxia Fitness Center is considering an investment in some additional weight
training equipment. The equipment has an estimated useful life of 10 years with no
salvage value at the end of the 10 years. Ataxia’s internal rate of return on this
equipment is 14%. Ataxia’s discount rate is also 14%. The payback period on this
equipment is closest to:
A.1.92 years
B.2.70 years
C.3.70 years
D.5.22 years
20) The direct method is used by Ohair Clinic to allocate its service department costs to
its operating departments. Data concerning those departments follow:
Information Technology costs are allocated on the basis of computers and Personnel
costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct
method.
21) Meyer Corporation has two sales areas: North and South. During April, the
contribution margin in the North was $90,000, or 30% of sales. The segment margin in
the South was $25,000, or 10% of sales. Traceable fixed expenses were $30,000 in the
North and $15,000 in the South. Meyer Corporation reported a total net operating
income of $52,000.
The total sales for Meyer Corporation were:
A.$983,333
B.$430,000
C.$550,000
D.$480,000
22) Carriveau Corporation’s most recent balance sheet appears below:
Net income for the year was $172. Cash dividends were $35. The company did not sell
or retire any property, plant, and equipment during the year. The net cash provided by
(used in) operating activities for the year was:
A.$183
B.$246
C.($11)
D.$161
23) Leamon Corporation is considering a capital budgeting project that would require
an investment of $240,000 in equipment with a 4 year useful life and zero salvage
value. The annual incremental sales would be $630,000 and the annual incremental cash
operating expenses would be $480,000. In addition, there would be a one-time
renovation expense in year 3 of $40,000. The company’s income tax rate is 35%. The
company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:
A.$92,500
B.$110,000
C.$78,500
D.$118,500
Depreciation expense = (Original cost – Salvage value) / Useful life
= ($240,000 – $0) / 4 years = $60,000 per year
Folino Corporation is considering a capital budgeting project that would require
investing $120,000 in equipment with an expected life of 4 years and zero salvage
value. Annual incremental sales would be $380,000 and annual incremental cash
operating expenses would be $300,000. The project would also require an immediate
investment in working capital of $10,000 which would be released for use elsewhere at
the end of the project. The project would also require a one-time renovation cost of
$30,000 in year 3. The company’s income tax rate is 35% and its after-tax discount rate
is 15%. The company uses straight-line depreciation. Assume cash flows occur at the
end of the year except for the initial investments. The company takes income taxes into
account in its capital budgeting.
24) The profitability index of investment project C is closest to:
A.0.13
B.0.87
C.0.12
D.1.13
25) Which product makes the MOST profitable use of the milling machines?
A) Product A
B) Product B
C) Product C
D) Product D
26) The Seabury Corporation has a current ratio of 3.5 and an acid-test ratio of 2.8. The
corporation’s current assets consist of cash, marketable securities, accounts receivable,
and inventories. Inventory equals $49,000. Seabury Corporation’s current liabilities
must be:
A.$70,000
B.$100,000
C.$49,000
D.$125,000
27) What would be the total external failure cost appearing on the quality cost report?
A.$481,000
B.$107,000
C.$80,000
D.$324,000
28) The company’s return on total assets for Year 2 is closest to:
A.2.09%
B.2.08%
C.1.67%
D.1.66%
29) Phong Corporation has two divisions: Consumer Division and Business Division.
The following data are for the most recent operating period:
The company’s common fixed expenses total $102,340.
The Consumer Division’s break-even sales is closest to:
A.$273,000
B.$405,442
C.$167,442
D.$584,762
30) Dodd 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 5,400 units were started and 4,700 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 30% 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.5,800
B.5,030
C.4,700
D.330
Weighted-average method
31) Schaadt Corporation manufactures and sells one product. The following
information pertains to the company’s first year of operations:
The company does not have any variable manufacturing overhead costs or variable
selling and administrative costs. During its first year of operations, the company
produced 23,000 units and sold 16,000 units. The company’s only product is sold for
$243 per unit.
The unit product cost under super-variable costing is:
A.$167 per unit
B.$106 per unit
C.$212 per unit
D.$84 per unit
32) Monard Clinic uses client-visits as its measure of activity. During January, the clinic
budgeted for 3,700 client-visits, but its actual level of activity was 3,710 client-visits.
The clinic has provided the following data concerning the formulas used in its
budgeting and its actual results for January:
Data used in budgeting:
Actual results for January:
The activity variance for net operating income in January would be closest to:
A.$143 U
B.$5,957 F
C.$143 F
D.$5,957 U
33) Dace Company manufactures two products, Product F and Product G. The company
expects to produce and sell 3,200 units of Product F and 2,100 units of Product G
during the current year. Data relating to the company’s three activity cost pools are
given below for the current year:
Required:
Using the activity-based costing approach, determine the overhead cost per unit for
each product.
34) The selling and administrative expense budget of Gullette Corporation is based on
the number of units sold, which are budgeted to be 2,700 units in April. The variable
selling and administrative expense is $1.90 per unit. The budgeted fixed selling and
administrative expense is $35,640 per month, which includes depreciation of $7,290.
The remainder of the fixed selling and administrative expense represents current cash
flows.
Required:
Prepare the selling and administrative expense budget for April.
35) Ivancevic Inc., which produces a single product, has provided the following data for
its most recent month of operation:
The company had no beginning or ending inventories.
Required:
Compute the unit product cost under variable costing. Show your work!
36) Skeete Inc. bases its selling and administrative expense budget on the number of
units sold. The variable selling and administrative expense is $1.70 per unit. The
budgeted fixed selling and administrative expense is $57,720 per month, which includes
depreciation of $9,360. The remainder of the fixed selling and administrative expense
represents current cash flows. The sales budget shows 3,900 units are planned to be sold
in November.
Required:
Prepare the selling and administrative expense budget for November.
37) Reigel Corporation is about to launch a new product, I51, whose variable cost is
$106.00 per unit and that would require 5.50 centiliters of a key raw material that is the
company’s constrained resource. The opportunity cost of this raw material is $54.00 per
centiliter used.
Required:
What advice would you give to the company concerning the price that should be
charged for the new product I51?
38) Drey Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The
company bases its budgets on two measures of activity (i.e., cost drivers), namely
guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep
has one tour guide. The company uses the following data in its budgeting:
In July, the company budgeted for 399 guests and 127 jeeps. The actual activity for the
month was 419 guests and 123 jeeps.
Required:
Prepare a report showing the company’s activity variances for July. Label each variance
as favorable (F) or unfavorable (U).
39) ( Hinck Corporation is investigating automating a process by purchasing a new
machine for $520,000 that would have a 8 year useful life and no salvage value. By
automating the process, the company would save $134,000 per year in cash operating
costs. The company’s current equipment would be sold for scrap now, yielding $22,000.
The annual depreciation on the new machine would be $65,000.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
Show your work!
40) Tammo Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The
company bases its budgets on two measures of activity (i.e., cost drivers), namely
guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep
has one tour guide. The company uses the following data in its budgeting:
In June, the company budgeted for 430 guests and 172 jeeps. The actual activity for the
month was 440 guests and 171 jeeps.
Required:
Prepare the company’s planning budget for June.
41) Kestner Clinic uses patient-visits as its measure of activity. During September, the
clinic budgeted for 3,000 patient-visits, but its actual level of activity was 2,900
patient-visits. The clinic has provided the following data concerning the formulas used
in its budgeting and its actual results for September:
Data used in budgeting:
Actual results for September:
Required:
Prepare the clinic’s flexible budget performance report for September. Label each
variance as favorable (F) or unfavorable (U).
42) A customer has asked Goes Corporation to supply 6,000 units of product Y19, with
some modifications, for $31.30 each. The normal selling price of this product is $46.50
each. The normal unit product cost of product Y19 is computed as follows:
Direct labor is a variable cost. The special order would have no effect on the company’s
total fixed manufacturing overhead costs. The customer would like some modifications
made to product Y19 that would increase the variable costs by $8.90 per unit and that
would require a one-time investment of $20,000 in special molds that would have no
salvage value. This special order would have no effect on the company’s other sales.
The company has ample spare capacity for producing the special order.
Required:
Determine the effect on the company’s total net operating income of accepting the
special order. Show your work!