1) People’s Public Power is an electric utility company. The new CEO is interested in
implementing new projects that will not only benefit the environment, but will also
benefit the company through cost savings. One of the proposed projects is to offer a
paperless, online billing solution for its customers in Green Township. Preliminary
market research indicates that participation in the paperless option will be between 20
-30% of customers.
Total costs for the paperless system are projected to be $100,000 per quarter, which are
comprised solely of fixed costs for IT personnel and computer hardware. The CEO has
asked you to perform an analysis of the proposed paperless billing system.
Historical costs for the current paper-based system are as follows:
Requirements:
a.Using the historical costs calculate the variable costs per bill under the current system.
b.The company projects that next quarter 650,000 bills will be mailed to customers.
What is the projected cost savings if the maximum number, 30%, of customers choose
the paperless system?
c.What is the projected cost savings if the minimum number, 20%, of customers choose
the paperless system?
2) DJ’s T-Shirt Factory Contribution Margin
The managerial accountant at DJ’s T-Shirt Factory reported the price per shirt is $24.
The only variable cost is $15 per shirt. The managerial accountant also reported that the
sales goals were increased to 1,000 shirts during the next quarter. First, compute the
unit contribution margin per shirt. If fixed expenses are $8,000, what is the forecasted
operating income if 1,000 shirts are sold in the next quarter?
A) 6; $700
B) 7; $800
C) 8; $900
D) 9; $1,000
3) Paula Corporation is trying to predict its manufacturing overhead costs for the
upcoming year; they are debating the use of the high-low method versus the use of
regression analysis. They have gathered information about their manufacturing
overhead costs in each of the past six months. A table containing their cost data and the
associated machine hours in each month (the cost driver) follows.
The company performed a regression analysis using the above data and had the
following results. (Note: the results are excerpts so not all of the regression analysis
results are presented.)
Required:
a.What is the cost equation if the high-low method is used to estimate costs?
b.Using the high-low method, predict total manufacturing overhead costs if Paula
Corporation uses 12,000 hours.
c.What is the cost equation if regression analysis is used to estimate costs (use the
results from the regression analysis provided)?
d.Using the results from the regression analysis provided, predict total manufacturing
overhead costs if Paula Corporation uses 12,000 hours.
e.Which method (high-low or regression analysis) is a better predictor of total
manufacturing overhead costs? Why?
4) The Hummel Corporation reported the following income statement and balance sheet
amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $28,000 of the current year’s current assets.
Average inventory for the current year is $12,000.
Average net accounts receivable for the current year is $32,000.
There are 40,000 shares of common stock outstanding.
Total dividends paid during the current year were $60,000.
The market price per share of common stock is $25.
What is the company’s inventory turnover for the current year?
A) 15.75 times
B) 42.00 times
C) 25.00 times
D) 24.67 times
5) A company uses the indirect method to prepare the statement of cash flows. It
presents the following data on its financial statements:
*Relates solely to the acquisition of inventory
What will appear in the operating activities section related to accounts payable?
A) The increase of $10,000 will be subtracted from net income.
B) The increase of $10,000 will be added to net income.
C) The increase of $10,000 will be subtracted from cost of goods sold.
D) The increase of $10,000 will be added to cost of goods sold.
6) Maintenance costs at Wilmington Manufacturing over the past six months are listed
in the following table.
Using the high-low method, what would the variable maintenance cost per machine
hour be?
A) $1.25
B) $0.80
C) $0.87
D) $0.88
7) A company uses the indirect method to prepare the statement of cash flows. The
board of directors declared $165,000 in common stock dividends during the year. At the
beginning of the year, there were $48,000 in dividends payable on common stock; and,
$44,000 dividends payable at the end of the year.
Answer the following questions:
(a) What was the amount of cash paid for dividends during the year?
(b) Where will this amount appear on the statement of cash flows?
(c) How would the amount appear if the company uses the direct method to prepare the
statement?
8) Moe’s Garage management has budgeted the following amounts for its next fiscal
year:
If Moe’s can reduce fixed expenses by $20,000, by how much can variable expenses per
unit increase and still allow the company to maintain the original breakeven sales in
units?
A) $19.20
B) $25.80
C) $0.80
D) $20.00
9) Sea Escape Company sells condominiums in Florida. During the recession, the
company moved its sales operations to an older building near the beach. The new sales
office does not attract new clients and the company cannot retain its employees
because the employees resign and they pursue employment at other organizations that
offer professional, newer, office facilities. The sales manager conducted a meeting to
discuss the business reasons for adopting sustainable business practices. The sales
manager asked the operations manager for approval to update the old facilities. The
sales manager estimates that the cost to update the building is $150,000. The sales
manager estimates that if the proposal to update the old building is approved, the
company can generate at least $80,000 in additional sales.
Compute the payback period, in years, to recover from the cost of renovations. List and
discuss at least three business reasons for adopting sustainable business practices.
10) Smithson Corporation had the following selected balance sheet changes for the past
year:
The company’s operating income during the year was $35,000. What is the net cash
provided by operating activities during last year on the statement of cash flows for
Smithson Corporation (using the indirect method)?
A) $25,000
B) $45,000
C) $92,000
D) $10,000
11) The managerial accountant at the Holiday Musical Academy is required to complete
the statement of cash flows. The managerial accountant is required to determine the
amount of money the company used to purchase property, plant, and equipment (PP&E)
during the year. The balance of PP&E at the beginning of the year is $1,850,000 and the
balance of PP&E at the end of the year is $2,950,000. The managerial accountant
reviewed the general journal and noticed that the original cost of equipment sold during
the year was $20,000.
Using the following information, calculate the amount of cash the company paid in cash
to purchase new property, plant, and equipment during the year:
A) $20,000
B) $1,850,000
C) $1,120,250
D) $2,950,250
12) Use the following information to do a horizontal analysis of Marcus Corporation’s
income statement for the current year and prior year
What is the percentage change in cost of goods sold?
A) -22.00%
B) 27.00%
C) 127.00%
D) 33.59%
13) Fiesta Supply Company compiled the following data in order to assess the weighted
average contribution margin per unit of two of the company’s best-selling party items;
the dome tent and the portable gazebo.
1.What is the contribution margin of the dome tent?
2.What is the weighted-average contribution margin per unit?
A) $880; $221.67
B) $530; $1,330
C) $775; $220
D) $389; $6
14) To follow is information about the units produced and total manufacturing costs for
Pine Enterprises for the past six months.
Using the high-low method, what will the total monthly manufacturing costs be if the
company produces 9,000 units?
A) $8,750
B) $4,500
C) $8,400
D) $4,250
15) The Bedford Corporation reported the following income statement and balance
sheet amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $30,000 of the current year’s current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the inventory turnover for the current year?
A) 27.11 times
B) 13.66 times
C) 20 times
D) 16 times
16) In a company that uses the direct method to prepare the statement of cash flows, the
amount of cash it uses to purchase inventory is computed as
A) cost of goods sold plus ending inventory.
B) cost of goods sold plus ending inventory, plus beginning inventory.
C) beginning inventory minus ending inventory, minus cost of goods sold.
D) cost of goods sold plus ending inventory, minus beginning inventory.
17) The McCumber Corporation data for the current year:
With respect to common stock, what would a horizontal analysis report?
A) Stockholder’s equity as 7.75% of total capital
B) Sales return of $11.17
C) 87.72% increase from prior to current year of cost of goods sold
D) Increase of $5,880 in common stock
18) The managerial accountant at Sailboat World compiles a monthly overhead variance
report. The company produced 30,584 sailboats in the past month at 0.28 machine hours
per unit. The budgeted fixed overhead cost was $95,000 whereas actual fixed overhead
cost was $96,400. Calculate the standard fixed overhead cost allocated to production at
$11 per machine-hour. Compute the fixed overhead volume variance and the fixed
overhead budget variance.
19) The managerial accountant at Megaton Company reported no preferred dividends
paid in 2013 and 2014; and, there were 20,000 shares of outstanding stock at the end of
2013 and 2014. The managerial accountant reported that net income in 2014 was
$95,000 and the value of common stock at the end of the year was $28.85 per share.
The managerial accountant reported that net income in 2013 was $65,000 and the value
of common stock at the end of the year was $12.95 per share.
Compute the earnings per share (EPS) at Megaton Company in 2013 and in 2014. Did
the EPS increase or decrease in 2014? Should a managerial accountant strive to achieve
an increase in EPS or a decrease in EPS? What can a decrease in EPS indicate?
20) The following information is available for three companies. The information relates
to the companies’ plant assets. For each of the companies, determine the unknown
amounts.
21) (Present value of annuity table required) The Cookies Bakery Company managerial
accountant considers the purchase of a new convection oven system. A preferred vendor
offers two plausible options, the Tech-Smart convection system (TSCS) and the
Perfection Convection Solution Series 3 (PCS3). Both convection systems have a useful
life of 12 years. The TSCS requires an initial investment of $250,000 whereas the PCS3
requires an initial investment of $330,000. The energy efficient technology of the TSCS
is projected to increase total revenue $38,000 annually while the precise production
capability of the PCS3 is projected to increase revenue $52,000 annually. The
Managerial accountant plans to invest the cash inflow in an annuity yielding 8%.
Compare the net present value of each new system and state which investment is more
beneficial to Cookies Bakery Company.
22) Use the indirect method of preparing a statement of cash flows to answer the
question.
Ending balances for Sunday Hut are listed below:
Net income for this year was $97,000 and dividends of $24,000 were declared and paid
this year.
What was the net cash used for investing activities?
23) Standard Products Company recognizes variances from standards at the earliest
opportunity, and the quantity of direct materials purchased is equal to the quantity used.
The following information is available for the most recent month. Assume the
allocation base for fixed overhead costs is the number of units.
Journalize the purchase and usage of direct materials including the related variances.
24) Standard Products Company recognizes variances from standards at the earliest
opportunity, and the quantity of direct materials purchased is equal to the quantity used.
The following information is available for the most recent month. Assume the
allocation base for fixed overhead costs is the number of units.
Journalize the direct labor costs incurred and the assignment of direct labor to Work in
Process Inventory, including the related variances.
25) For each of the following independent transactions, indicate the type of activity
(operating, investing or financing) and the effect on cash (amount and increase or
decrease).
26) The managerial accountant at the Clothing Factory is required to determine the
amount of cash received from consumers during the year. The managerial accountant
reported that the beginning balance in accounts receivable on January 1, 20X2 was
$600,000. There were $10,200,000 in sales revenue recorded on the income statement,
and the ending balance in accounts receivable on December 31, 20X2 was $420,000.
Calculate the amount of cash collections at the Clothing Factory during 20X2 and
discuss how the managerial accountant can ensure that all cash transactions from
operating activities are recorded during the year. What occurs when accounts receivable
increases? What occurs when accounts receivable decreases?