1) The management of Brockington Corporation is considering introducing a new
product–a compact barbecue. At a selling price of $80 per unit, management projects
sales of 70,000 units. Launching the barbecue as a new product would require an
investment of $400,000. The desired return on investment is 15%. The target cost per
barbecue is closest to:
A.$79.14
B.$92.00
C.$91.01
D.$80.00
2) A company’s current ratio and an acid-test ratio are both greater than 1. Payment of
an account payable would:
A.increase the current ratio but the acid-test ratio would not be affected.
B.increase the acid-test ratio but the current ratio would not be affected.
C.increase both the current and acid-test ratios.
D.decrease both the current and acid-test ratios.
3) Costabile Corporation is considering dropping product G41O. 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 $117,000 of the fixed
manufacturing expenses and $46,000 of the fixed selling and administrative expenses
are avoidable if product G41O is discontinued.
Required:
a. According to the company’s accounting system, what is the net operating income
earned by product G41O? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping
product G41O? Should the product be dropped? Show your work!
4) 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 cost of December merchandise purchases would be:
A.$141,700
B.$169,000
C.$81,900
D.$149,500
5) Grogam Catering uses activity-based costing for its overhead costs. The company
has provided the following data concerning the activity rates in its activity-based
costing system:
The number of meals served is the measure of activity for the Preparing Meals activity
cost pool. The number of functions catered is used as the activity measure for the
Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent
function at which 100 meals were served. The company catered the function for a fixed
price of $21 per meal. The cost of the raw ingredients for the meals was $8.25 per meal.
This cost is in addition to the costs of wages, supplies, and other expenses detailed
above.
For the purposes of preparing action analyses, management has assigned ease of
adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies
and raw ingredients as a Green cost; and other expenses as a Red cost.
Suppose an action analysis report is prepared for the function mentioned above. What
would be the “red margin” in the action analysis report? (Round to the nearest whole
dollar.)
A.$690
B.$440
C.$390
D.$540
6) The company’s net profit margin percentage for Year 2 is closest to:
A.3.9%
B.38.5%
C.2.5%
D.1.6%
7) The debit to Work in Process for direct labor cost during May was:
A.$21,000
B.$26,100
C.$28,800
D.$31,500
8) During the month of April, direct labor cost totaled $15,000 and direct labor cost was
30% of prime cost. If total manufacturing costs during April were $79,000, the
manufacturing overhead was:
A) $35,000
B) $29,000
C) $50,000
D) $129,000
9) Vanderhyde 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 May, the kennel budgeted
for 3,300 tenant-days, but its actual level of activity was 3,340 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for May:
Data used in budgeting:
Actual results for May:
The wages and salaries in the planning budget for May would be closest to:
A.$28,473
B.$27,260
C.$28,818
D.$27,548
10) Surent Corporation has the following information available on Product K:
The company uses the absorption costing approach to cost-plus pricing described in the
text and a 50% markup. Based on these data, the company’s total selling and
administrative expenses associated with Product K each year are:
A.$80,000
B.$200,000
C.$920,000
D.$800,000