1) Under absorption costing, fixed manufacturing overhead is treated as a product cost.
2) A cost that is relevant in one decision may not be relevant in another decision.
3) The contribution margin is the amount remaining from sales revenues after variable
expenses have been deducted.
4) The present value of a cash flow will never be less than the future dollar amount of
the cash flow.
5) A fixed manufacturing overhead volume variance occurs as the result of a difference
between the denominator level of activity (in hours) and the standard hours allowed for
the actual output of the period.
6) When variable costing is used, and if selling prices exceed variable expenses and if
the unit contribution margins, the sales mix, and fixed costs remain the same, profits
move in the same direction as sales.
7) Both job-order and process costing systems use averaging to compute unit product
costs.
8) Buying inventory in large lots to take advantage of quantity discounts can be
responsible for a high inventory turnover ratio.
9) Under the absorption approach to costs-plus pricing described in the text, selling and
administrative costs are included in the cost base when computing a selling price.
10) Land held for possible plant expansion would not be included as an operating asset
when computing return on investment (ROI).
11) Price elasticity measures the degree to which consumers resent an increase in price.
12) When computing the return on equity, retained earnings should be excluded from
the average total stockholders’ equity.
13) A flexible budget can be used to estimate what revenues and costs should have
been, given the actual level of activity for the period.
14) A disadvantage of using ROI to evaluate performance is that it encourages the
manager to reduce the investment in operating assets as well as increase net operating
income.
15) When a company has a production constraint, the opportunity cost of using the
constrained resource can be determined by multiplying the amount of the constrained
resource used by the cost per unit of the most profitable product.
16) Hatfield Corporation, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?
A.$98 per unit
B.$84 per unit
C.$76 per unit
D.$106 per unit
17) The company’s gross margin percentage for Year 2 is closest to:
A.4.9%
B.61.4%
C.38.1%
D.2031.9%
18) The North Division of the Lyman Company reported the following data for last
year:
The residual income for the North Division last year was:
A.$130,000
B.$126,000
C.$90,000
D.$70,000
19) Bretthauer Corporation has provided data concerning the Corporation’s
Manufacturing Overhead account for the month of July. Prior to the closing of the
overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the
Manufacturing Overhead account was $51,000 and the total of the credits to the account
was $64,000. Which of the following statements is true?
A.Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $51,000.
B.Manufacturing overhead applied to Work in Process for the month was $64,000.
C.Manufacturing overhead for the month was underapplied by $13,000.
D.Actual manufacturing overhead incurred during the month was $64,000.
20) If P is processed further and then sold, rather than being sold at the split-off point,
the change in monthly net operating income would be a:
A.$147,000 decrease
B.$147,000 increase
C.$39,000 increase
D.$39,000 decrease
21) The company’s operating cycle for Year 2 is closest to:
A.95.9 days
B.75.3 days
C.162.0 days
D.9.2 days
22) Gandrud 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 June, the kennel budgeted for
2,600 tenant-days, but its actual level of activity was 2,580 tenant-days. The kennel has
provided the following data concerning the formulas to be used in its budgeting:
The net operating income in the flexible budget for June would be closest to:
A.$11,640
B.$14,332
C.$11,382
D.$14,113
23) The free cash flow for the year was:
A.$(8)
B.$14
C.$128
D.$308
24) The company’s total asset turnover for Year 2 is closest to:
A.0.99
B.0.19
C.5.32
D.1.01
25) Aaker Corporation, which has only one product, has provided the following data
concerning its most recent month of operations:
What is the unit product cost for the month under absorption costing?
A.$87 per unit
B.$60 per unit
C.$66 per unit
D.$93 per unit
26) The Assembly Department started the month with 35,000 units in its beginning
work in process inventory. An additional 472,000 units were transferred in from the
prior department during the month to begin processing in the Assembly Department.
There were 34,000 units in the ending work in process inventory of the Assembly
Department. How many units were transferred to the next processing department during
the month?
A.507,000
B.473,000
C.471,000
D.541,000
27) The company’s accounts receivable turnover for Year 2 is closest to:
A.12.95
B.1.02
C.0.98
D.13.06
28) Based solely on the information above, the net cash provided by (used in) financing
activities on the statement of cash flows would be:
A.$(8,000)
B.$(14,000)
C.$104,000
D.$1,286,000
29) Quilling Corporation uses the FIFO method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
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.
How many units were started AND completed during the month in the first processing
department?
A.7,300
B.8,700
C.8,100
D.6,700
30) LFM Corporation reported cost of goods sold on its income statement of $15,000.
The following account balances appeared on the company’s comparative balance sheet
for the same year:
The company uses the direct method to determine the net cash provided by operating
activities. The cost of goods sold, adjusted to a cash basis, on the company’s statement
of cash flows for the year would be:
A.$14,000
B.$16,000
C.$10,000
D.$15,000
31) Assume that dropping Product G will have no effect on other product lines. If the
company drops Product G, the change in annual net operating income due to this
decision will be a:
A) $10,000 decrease
B) $55,000 increase
C) $15,000 decrease
D) $40,000 decrease
32) Two yards of a fabric are required for each blouse produced by Northern Shirt
Corporation. The cost of the fabric is $4 per yard. Budgeted production of blouses is
given below for the fourth quarter and the first month of the following quarter.
To prevent against stock outs of the fabric, the company maintains an ending inventory
each month equal to 10% of the next month’s production needs. The beginning
inventory of the fabric in October will be 3,600 yards.
Required:
Prepare a direct materials budget for the fabric, by month and in total for the fourth
quarter. Be sure to include both the quantity to be purchased and its cost for each
month.
33) Sonner Tech is a for-profit vocational school. The school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. The school uses the
following data in its budgeting:
In September, the school budgeted for 1,760 students and 156 courses. The actual
activity for the month was 1,560 students and 153 courses.
Required:
Prepare the school’s flexible budget for the actual level of activity in September.
34) Two-Rivers Inc. (TRI) manufactures a variety of consumer products. The
company’s founders have run the company for thirty years and are now interested in
retiring. Consequently, they are seeking a purchaser, and a group of investors is looking
into the acquisition of TRI. To evaluate its financial stability, TRI was requested to
provide its latest financial statements and selected financial ratios. Summary
information provided by TRI is presented below.
35) During February, Oshell Clinic budgeted for 3,600 patient-visits, but its actual level
of activity was 3,200 patient-visits. The clinic uses the following revenue and cost
formulas in its budgeting, where q is the number of patient-visits:
Revenue: $28.80q
Personnel expenses: $22,500 + $9.90q
Medical supplies: $1,200 + $4.70q
Occupancy expenses: $6,700 + $1.30q
Administrative expenses: $4,800 + $0.20q
Required:
Prepare the clinic’s flexible budget for February based on the actual level of activity for
the month.
36) During November, Guerreiro Clinic budgeted for 2,200 patient-visits, but its actual
level of activity was 2,500 patient-visits. Revenue should be $49.00 per patient-visit.
Personnel expenses should be $30,700 per month plus $14.70 per patient-visit. Medical
supplies should be $1,800 per month plus $6.50 per patient-visit. Occupancy expenses
should be $7,600 per month plus $1.40 per patient-visit. Administrative expenses
should be $4,700 per month plus $0.10 per patient-visit.
Required:
Prepare the clinic’s flexible budget for November based on the actual level of activity
for the month.
37) Loader Corporation has an activity-based costing system with three activity cost
pools-Processing, Setting Up, and Other. The company’s overhead costs consist of
equipment depreciation and indirect labor and are allocated to the cost pools in
proportion to the activity cost pools’ consumption of resources. Equipment depreciation
totals $88,000 and indirect labor totals $1,000. Data concerning the distribution of
resource consumption across activity cost pools appear below:
Required:
Assign overhead costs to activity cost pools using activity-based costing.
38) Thune Memorial Diner is a charity supported by donations that provides free meals
to the homeless. The diner’s budget for September was based on 3,100 meals, but the
diner actually served 3,500 meals. The diner’s director has provided the following cost
formulas to use in budgets:
Required:
Prepare a report showing the activity variances for each of the expenses and for total
expenses for September. Label each variance as favorable (F) or unfavorable (U).
