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Gordon Company produces a single product that sells for $10 per unit. Last year there
were no beginning inventories, 100,000 units were produced, and 80,000 units were
sold. The company has the following cost structure:
Net operating income under variable costing would be:
A. $114,000
B. $210,000
C. $234,000
D. $330,000
Answer:
Southwest Industries produces a sports glove that sells for $15 per pair. Variable
expenses are $8 per pair and fixed expenses are $35,000 annually.
The contribution margin ratio is closest to:
A. 46.7%
B. 53.3%
C. 33.3%
D. 42.9%
Answer:
The Baily Division recorded operating data as follows for the past two years:
Baily Division's turnover was exactly the same in both Year 1 and Year 2.
Sales in Year 1 amounted to:
A. $400,000
B. $900,000
C. $750,000
D. $1,200,000
Answer:
The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the labor rate variance for the month?
A) $1,325 U
B) $1,780 F
C) $430 F
D) $430 U
Answer:
Heroman Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. The budgeted fixed manufacturing overhead cost for the most
recent month was $26,550 and the actual fixed manufacturing overhead cost for the
month was $26,570. The company based its original budget on 5,900 machine-hours.
The standard hours allowed for the actual output of the month totaled 5,750
machine-hours. What was the overall fixed manufacturing overhead budget variance for
the month?
A. $20 unfavorable
B. $675 favorable
C. $20 favorable
D. $675 unfavorable
Answer:
Jay Company uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of standard direct labor-hours (DLHs). The information
below pertains to a recent month's activity:
The volume variance would be:
A. $300 F
B. $300 U
C. $150 F
D. $180 F
Answer:
Coskey Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the month appear
below:
The company based its original budget on 3,900 machine-hours. The company actually
worked 3,580 machine-hours during the month. The standard hours allowed for the
actual output of the month totaled 3,770 machine-hours. What was the overall fixed
manufacturing overhead budget variance for the month?
A) $1,280 favorable
B) $320 favorable
C) $320 unfavorable
D) $1,280 unfavorable
Answer:
Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the
degree of operating leverage is 5. If sales increase by $30,000, the new degree of
operating leverage will be (rounded):
A. 5.00
B. 3.18
C. 2.91
D. 3.91
Answer:
Reference: 8-55
The following data have been provided by Pollo Corporation:
Lubricants and supplies are both elements of variable manufacturing overhead.
The variable overhead rate variance for supplies is closest to:
A) $2,757 U
B) $2,757 F
C) $2,073 U
D) $684 U
Answer:
The Gasson Company sells three products, Product A, Product B and Product C, and
had sales of $1,000,000 during the month of June. The company's overall contribution
margin ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A,
$500,000; Product B, $300,000; and Product C, $200,000. Traceable fixed costs were:
Product A, $120,000; Product B, $100,000; and Product C, $60,000. The variable
expenses of Product A were $300,000 and the variable expenses of Product B were
$180,000.
The common fixed expense for Gasson Company for the month of June was:
A. $350,000
B. $280,000
C. $70,000
D. $20,000
Answer:
Reference: 8-32
Gentile Corporation makes a product with the following standard costs:
The company produced 6,000 units in May using 36,970 kilos of direct material and
4,340 direct labor-hours. During the month, the company purchased 40,400 kilos of the
direct material at $4.70 per kilo. The actual direct labor rate was $13.70 per hour and
the actual variable overhead rate was $2.70 per hour.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The labor efficiency variance for May is:
A) $6,302 U
B) $6,440 U
C) $6,440 F
D) $6,302 F
Answer:
The Lahn Company produces and sells a single product. Standards have been
established for the product as follows:
Direct materials: 5 pounds @ $3.50 per pound = $17.50
Direct labor: 3 hours @ $5.50 per hour = $16.50
Actual cost and usage figures for the past month follow:
Required:
Prepare journal entries to record:
a. The purchase of raw materials.
b. The usage of raw materials in production.
c. The incurrence of direct labor cost.
Answer:
Heller Corporation uses the weighted-average 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.
The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $246,800
B. $270,979
C. $240,400
D. $231,869
Answer:
Reference: 8-23
Dukeman Corporation manufactures and sells a single product. The company uses units
as the measure of activity in its flexible budgets. During February, the company
budgeted for 7,100 units, but its actual level of activity was 7,060 units. The company
has provided the following data concerning the formulas to be used in its budgeting:
The net operating income in the planning budget for February would be closest to:
A) $16,930
B) $17,350
C) $16,885
D) $16,695
Answer:
A company that makes organic fertilizer has supplied the following data:
The company's margin of safety in units is closest to:
A. 471,429 units
B. 501,563 units
C. 601,524 units
D. 194,043 units
Answer:
Epstein 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 7,000 units were started and 6,500 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 45% 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.
The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $248,529
B. $218,303
C. $236,700
D. $228,800
Answer:
Reference: 8A-7
The Malcolm Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard direct labor-hours (DLHs). The
standards call for 3 hours of direct labor per unit produced. The following data pertain
to the companys manufacturing overhead for the month of July:
The Fixed component of the predetermined overhead rate for June is:
A) $3.11
B) $3.39
C) $3.77
D) $3.00
Answer:
At an activity level of 5,300 machine-hours in a month, Clyburn Corporation's total
variable maintenance cost is $114,268 and its total fixed maintenance cost is $154,336.
What would be the total variable maintenance cost at an activity level of 5,600
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A. $163,072
B. $268,604
C. $114,268
D. $120,736
Answer:
Vessels Corporation's net income for the most recent year was $2,532,000. A total of
200,000 shares of common stock and 200,000 shares of preferred stock were
outstanding throughout the year. Dividends on common stock were $3.80 per share and
dividends on preferred stock were $1.25 per share. The earnings per share of common
stock is closest to:
A. $12.66
B. $8.86
C. $7.61
D. $11.41
Answer:
Mitchell Company had the following budgeted sales for the last half of last year:
The company is in the process of preparing a cash budget and must determine the
expected cash collections by month. To this end, the following information has been
assembled:
Collections on credit sales:
60% in month of sale
30% in month following sale
10% in second month following sale
What is the budgeted accounts receivable balance on December 1?
A. $80,000
B. $140,000
C. $94,500
D. $131,300
Answer:
In August, the Universal Solutions Division of Jugan Corporation had average
operating assets of $670,000 and net operating income of $77,500. The company uses
residual income, with a minimum required rate of return of 12%, to evaluate the
performance of its divisions. What was the Universal Solutions Division's residual
income in August?
A. $2,900
B. -$2,900
C. -$9,300
D. $9,300
Answer:
Jaderston Corporation uses the weighted-average 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.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $19.55
B. $19.20
C. $20.46
D. $20.09
Answer:
Reference: 8-33
Tidd Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in November.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The labor rate variance for November is:
A) $787 U
B) $720 F
C) $787 F
D) $720 U
Answer:
All other things equal, if a division's traceable fixed expenses decrease:
A. the division's segment margin will increase.
B. the overall company net operating income will decrease.
C. the division's contribution margin will increase.
D. the division's sales volume will increase.
Answer:
Park Company purchased $100,000 in inventory from its suppliers, on account. The
company's acid-test ratio would:
A. increase.
B. decrease.
C. remain unchanged.
D. be impossible to determine from the given information.
Answer:
Nilgiri 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.
What are the equivalent units for materials for the month in the first processing
department?
A. 1,680
B. 7,150
C. 8,200
D. 5,200
Answer:
Cadarette Corporation's most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $17.73 per share.
The earnings per share of common stock for Year 2 is closest to:
A. $1.00
B. $1.60
C. $1.43
D. $0.90
Answer:
Wright Corporation's contribution format income statement for last month appears
below.
There were no beginning or ending inventories. The company produced and sold 3,000
units during the month.
The company has an opportunity to secure a special order of 800 units if it is willing to
drop the selling price on these units to $13. Costs of securing the special order would be
$1,000. The special order would not affect the company's regular sales. If the special
order is accepted, the company's overall net operating income will:
A. increase by $3,200
B. increase by $2,200
C. increase by $3,800
D. remain the same
Answer:
Conversion cost consists of which of the following?
A. Manufacturing overhead cost.
B. Direct materials and direct labor cost.
C. Direct labor cost.
D. Direct labor and manufacturing overhead cost.
Answer:
Wilson Company has a process costing system. The Assembly Department had the
following costs for May:
Assume that Wilson uses the weighted-average method and that for May the company
computed 20,000 equivalent units for labor and overhead. The cost per equivalent unit
for labor and overhead for the month would have been:
A. $1.60
B. $10.00
C. $8.40
D. $16.00
Answer:
Stuchlik Catering uses two measures of activity, jobs and meals, in the cost formulas in
its flexible budgets. The cost formula for catering supplies is $430 per month plus $80
per job plus $14 per meal. A typical job involves serving a number of meals to guests at
a corporate function or at a hosts home. The company expected its activity in January to
be 20 jobs and 190 meals, but the actual activity was 21 jobs and 194 meals. The actual
cost for catering supplies in January was $4,850. The catering supplies in the planning
budget for January would be closest to:
A) $4,850
B) $4,619
C) $4,690
D) $4,826
Answer:
In August, one of the processing departments at Knepp Corporation had beginning work
in process inventory of $17,000 and ending work in process inventory of $13,000.
During the month, $178,000 of costs were added to production.
In the department's cost reconciliation report for August, the total cost to be accounted
for would be:
A. $30,000
B. $390,000
C. $195,000
D. $373,000
Answer:
Moralez Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
What was the total of the variable overhead rate and fixed manufacturing overhead
budget variances for the month?
A. $380 unfavorable
B. $1,620 favorable
C. $1,660 unfavorable
D. $3,280 unfavorable
Answer:
Kierst Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
What is the net operating income for the month under variable costing?
A. $10,600
B. $16,200
C. $6,200
D. $7,500
Answer:
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead volume variance for March is:
A. $1,000 favorable
B. $5,000 favorable
C. $2,500 unfavorable
D. $5,000 unfavorable
Answer:
Schmeider Corporation uses the following activity rates from its activity-based costing
system to assign overhead costs to products.
Data concerning two products appear below:
How much overhead cost would be assigned to each of the two products using the
company's activity-based costing system?
Answer:
Carston Company's comparative balance sheet and income statement for last year
appear below:
The company declared and paid $27,000 in cash dividends during the year. It did not
dispose of any property, plant, and equipment during the year.
Construct in good form the operating activities section of the company's statement of
cash flows for the year using the direct method.
Answer:
The manufacturing overhead budget of Lewison Corporation is based on budgeted
direct labor-hours. The June direct labor budget indicates that 5,800 direct labor-hours
will be required in that month. The variable overhead rate is $7.70 per direct labor-hour.
The company's budgeted fixed manufacturing overhead is $111,360 per month, which
includes depreciation of $17,400. All other fixed manufacturing overhead costs
represent current cash flows.
a. Determine the cash disbursement for manufacturing overhead for June. Show your
work!
b. Determine the predetermined overhead rate for June. Show your work!
Answer:
Last year, Bickham Corporation's dividend on common stock was $8.70 per share and
the dividend on preferred stock was $3.80 per share. The market price of common stock
at the end of the year was $66.10 per share.
Compute the dividend yield ratio. Show your work!
Answer:
Leigh Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare a contribution format income statement for the month using variable costing.
d. Prepare an income statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the
month.
Answer:
A customer has asked Twiner Corporation to supply 5,000 units of product D05, with
some modifications, for $40.20 each. The normal selling price of this product is $52.80
each. The normal unit product cost of product D05 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 D05 that would increase the variable costs by $3.50 per unit and that
would require a one-time investment of $23,000 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.
Determine the effect on the company's total net operating income of accepting the
special order. Show your work!
Answer:
The following information summarizes the company's cost structure:
Estimate the following costs at the 40,000 unit level of activity:
a. Total variable cost.
b. Total fixed cost.
c. Variable cost per unit.
d. Fixed cost per unit.
Answer:
Utility costs at one of Helker Corporation's factories are listed below:
Management believes that utility cost is a mixed cost that depends on machine-hours.
Estimate the variable cost per machine-hour and the fixed cost per month using the
high-low method. Show your work! Round off all calculations to the nearest whole
cent.
Answer:
Candice Corporation has decided to introduce a new product. The product can be
manufactured using either a capital-intensive or labor-intensive method. The
manufacturing method will not affect the quality or sales of the product. The estimated
manufacturing costs of the two methods are as follows:
The company's market research department has recommended an introductory selling
price of $30 per unit for the new product. The annual fixed selling and administrative
expenses of the new product are $500,000. The variable selling and administrative
expenses are $2 per unit regardless of how the new product is manufactured.
a. Calculate the break-even point in units if Candice Corporation uses the:
1/ capital-intensive manufacturing method.
2/ labor-intensive manufacturing method.
b. Determine the unit sales volume at which the net operating income is the same for
the two manufacturing methods.
c. Assuming sales of 250,000 units, what is the degree of operating leverage if the
company uses the:
1/ capital-intensive manufacturing method.
2/ labor-intensive manufacturing method.
d. What is your recommendation to management concerning which manufacturing
method should be used?
Answer:
Walkenhorst Corporation's manufacturing overhead includes $7.80 per machine-hour
for supplies; $7.30 per machine-hour for indirect labor; $21,210 per period for salaries;
and $19,950 per period for depreciation.
Determine the predetermined overhead rate if the denominator level of activity is 1,500
machine-hours. Show your work!
Answer:
Rothery Co. manufactures and sells medals for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 18,000 medals each month; current
monthly production is 17,100 medals. The company normally charges $88 per medal.
Cost data for the current level of production are shown below:
The company has just received a special one-time order for 600 medals at $73 each. For
this particular order, no variable selling and administrative costs would be incurred.
This order would also have no effect on fixed costs.
Should the company accept this special order? Why?
Answer:
Randall Company is a merchandising company that sells a single product. The
company's inventories, production, and sales in units for the next three months have
been forecasted as follows:
Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and
the balance are paid for in the following month. Accounts receivable at September 30
totaled $450,000.
Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the
month of the purchase and the remainder are paid for in the month following purchase.
Selling and administrative expenses are expected to total $120,000 each month. One
half of these expenses will be paid in the month in which they are incurred and the
balance will be paid in the following month. There is no depreciation. Accounts payable
at September 30 totaled $290,000.
Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of
equipment is scheduled for November, and a dividend of $200,000 is to be paid in
December.
a. Prepare a schedule of expected cash collections for each of the months of October,
November, and December.
b. Prepare a schedule showing expected cash disbursements for merchandise purchases
and selling and administrative expenses for each of the months October, November, and
December.
c. Prepare a cash budget for each of the months October, November, and December.
There is no minimum required ending cash balance.
Answer:
Larney Corporation uses process costing. A number of transactions that occurred in
June are listed below.
(1) Raw materials that cost $38,200 are withdrawn from the storeroom for use in the
Mixing Department. All of these raw materials are classified as direct materials.
(2) Direct labor costs of $36,500 are incurred, but not yet paid, in the Mixing
Department.
(3) Manufacturing overhead of $42,100 is applied in the Mixing Department using the
department's predetermined overhead rate.
(4) Units with a carrying cost of $112,400 finish processing in the Mixing Department
and are transferred to the Drying Department for further processing.
(5) Units with a carrying cost of $143,800 finish processing in the Drying Department,
the final step in the production process, and are transferred to the finished goods
warehouse.
(6) Finished goods with a carrying cost of $138,500 are sold.
Prepare journal entries for each of the transactions listed above.
Answer:
Waltner Corporation's management reports that its average delivery cycle time is 20.0
days, its average throughput time is 7.5 days, its manufacturing cycle efficiency (MCE)
is 0.32, its average move time is 0.2 day, and its average queue time is 4.0 days.
a. What is the wait time?
b. What is the process time?
c. What is the inspection time?
Answer:
During the most recent month at Coggan Corporation, queue time was 5.3 days,
inspection time was 0.5 day, process time was 1.9 days, wait time was 5 days, and move
time was 0.5 day.
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
Answer:
Hilario Urban Diner is a charity supported by donations that provides free meals to the
homeless. The diners budget for September is to be based on 2,600 meals. The diners
director has provided the following cost data to use in the budget: groceries, $2.10 per
meal; kitchen operations, $5,600 per month plus $1.80 per meal; administrative
expenses, $3,700 per month plus $0.55 per meal; and fundraising expenses, $1,400 per
month.
Required:
Prepare the diners budget for the month of September. The budget will only contain the
costs listed above; no revenues will be on the budget.
Answer:
Stailey Clinic uses patient-visits as its measure of activity. During September, the clinic
budgeted for 3,200 patient-visits, but its actual level of activity was 2,800 patient-visits.
The clinic uses the following revenue and cost formulas in its budgeting, where q is the
number of patient-visits:
Revenue: $34.90q
Personnel expenses: $27,300 + $10.30q
Medical supplies: $1,400 + $6.50q
Occupancy expenses: $6,000 + $1.80q
Administrative expenses: $5,300 + $0.40q
The clinic reported the following actual results for September:
Required:
Prepare a report showing the clinics revenue and spending variances for September.
Label each variance as favorable (F) or unfavorable (U).
Answer:
