1) Under variable costing, fixed manufacturing overhead cost is not treated as a product
cost.
2) In companies that do not have “no lay-off” policies, the total direct labor cost for a
budget period is computed by multiplying the total direct labor hours needed to make
the budgeted output of completed units by the direct labor wage rate.
3) An unfavorable volume variance means that a firm operated at an activity level that
was below the activity level planned for the period.
4) An investment project with a project profitability index of less than one should
ordinarily be rejected.
5) A favorable labor efficiency variance is recorded as a debit in the Labor Efficiency
Variance account.
6) Common fixed expenses should be allocated to business segments when performing
break-even calculations and making decisions.
7) If the actual purchase price for materials exceeds the standard purchase price, then
the journal entry to record the Direct Materials Price Variance would be a credit.
8) The planning horizon for a committed fixed cost usually encompasses many years.
9) Target costing is the process of determining the maximum allowable cost for a new
product and then developing a prototype that can be profitably made for that maximum
cost figure.
10) Conversion cost is the sum of direct labor cost and direct materials cost.
11) A planning budget is prepared before the period begins and is valid for whatever the
actual level of activity turns out to be.
12) Under the indirect method of determining the net cash provided by operating
activities on the statement of cash flows, an increase in property, plant, and equipment
is subtracted from net income.
13) The project profitability index is computed by dividing the present value of the cash
inflows of the project by present value of the cash outflows of the project.
14) All other things the same, those who hold the company’s debt (i.e., its creditors)
would like a low debt-to-equity ratio to provide a buffer of protection.
15) Garhart Corporation uses the following activity rates from its activity-based costing
to assign overhead costs to products.
Data concerning two products appear below:
Required:
a. How much overhead cost would be assigned to Product R57J using the company’s
activity-based costing system? Show your work!
b. How much overhead cost would be assigned to Product W17B using the company’s
activity-based costing system? Show your work!
16) In making the decision to buy the model 230 machine rather than the model 380
machine, the differential cost was:
A) $71,000
B) $59,000
C) $12,000
D) $39,000
17) The contribution margin ratio of Baginski Corporation’s only product is 53%. The
company’s monthly fixed expense is $617,980 and the company’s monthly target profit
is $23,000. The dollar sales to attain that target profit is closest to:
A.$1,166,000
B.$1,209,396
C.$339,719
D.$327,529
18) Carter Lumber sells lumber and general building supplies to building contractors in
a medium-sized town in Montana. Data regarding the store’s operations follow:
Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000
for January.
Collections are expected to be 70% in the month of sale, 27% in the month following
the sale, and 3% uncollectible.
The cost of goods sold is 65% of sales.
The company desires to have an ending merchandise inventory equal to 80% of the
following 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 $22,000.
Monthly depreciation is $20,000.
Ignore taxes.
Retained earnings at the end of December would be:
A.$259,600
B.$342,400
C.$422,000
D.$445,100
19) Wesolick Clinic uses client-visits as its measure of activity. During August, the
clinic budgeted for 2,900 client-visits, but its actual level of activity was 2,870
client-visits. The clinic has provided the following data concerning the formulas used in
its budgeting and its actual results for August:
Data used in budgeting:
Actual results for August:
The medical supplies in the flexible budget for August would be closest to:
A.$17,640
B.$17,048
C.$17,472
D.$16,697
20) Klein Corporation has provided the following data:
The company’s equity multiplier is closest to:
A.1.24
B.0.56
C.1.80
D.0.81
21) Using the least-squares regression method, the estimate of the fixed component of
inspection cost per month is closest to:
A.$6,983
B.$10,342
C.$10,527
D.$6,972
22) The following data relate to the Blending Department of Tru-Color Paint
Corporation for a recent month:
All materials are added prior to the beginning of work in the Blending Department.
Assuming that Tru-Color Paint Corporation uses the FIFO method, the equivalent units
for materials would be:
A.42,600
B.45,000
C.53,000
D.46,000
23) The debit to Work in Process for the cost of direct materials used during May was:
A.$63,000
B.$61,000
C.$57,000
D.$67,000
24) Lehnertz Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During
February, the company budgeted for 7,100 units, but its actual level of activity was
7,150 units. The company has provided the following data concerning the formulas
used in its budgeting and its actual results for February:
Data used in budgeting:
Actual results for February:
The net operating income in the flexible budget for February would be closest to:
A.$21,590
B.$30,401
C.$30,831
D.$22,135
25) ( Mark Stevens is considering opening a hobby and craft store. He would invest
$50,000 to purchase equipment and furnishings and another $100,000 for inventories
and other working capital needs. Rent on the building used by the business will be
$25,000 per year. In addition to building rent, other annual cash outflows for operating
costs will amount to $44,000. Mark estimates that the annual cash inflow from the
business will amount to $100,000. Mark plans to operate the business for only six years.
He estimates that the equipment and furnishings could be sold at that time for about
10% of its original cost. Mark’s discount rate is 16%. All cash flows, except for the
initial investment, would occur at the ends of the years.
Required:
Compute the net present value of this investment.
26) Evener Inc. has provided the following data for the month of July. There were no
beginning inventories; consequently, the direct materials, direct labor, and
manufacturing overhead applied listed below are all for the current month.
Manufacturing overhead for the month was overapplied by $3,000.
The company allocates any underapplied or overapplied overhead among work in
process, finished goods, and cost of goods sold at the end of the month on the basis of
the overhead applied during the month in those accounts.
Required:
Determine the cost of work in process, finished goods, and cost of goods sold AFTER
allocation of the underapplied or overapplied overhead for the period.
27) Pilgrim Corporation makes a range of products. The company’s predetermined
overhead rate is $23 per direct labor-hour, which was calculated using the following
budgeted data:
Management is considering a special order for 800 units of product N89E at $69 each.
The normal selling price of product N89E is $88 and the unit product cost is determined
as follows:
If the special order were accepted, normal sales of this and other products would not be
affected. The company has ample excess capacity to produce the additional units.
Assume that direct labor is a variable cost, variable manufacturing overhead is really
driven by direct labor-hours, and total fixed manufacturing overhead would not be
affected by the special order.
Required:
If the special order were accepted, what would be the impact on the company’s overall
profit?
28) The selling price of Roscioli Corporation’s only product is $210.00 per unit and its
variable expense is $75.60 per unit. The company’s monthly fixed expense is $537,600.
Required:
Assume the company’s monthly target profit is $13,440. Determine the unit sales to
attain that target profit. Show your work!
29) Gonyo Inc., which produces and sells a single product, has provided the following
contribution format income statement for December:
Required:
Redo the company’s contribution format income statement assuming that the company
sells 3,400 units.
30) During January, Desousa Clinic plans for an activity level of 3,200 patient-visits.
Revenue is $38.50 per patient-visit. Personnel expenses are $36,700 per month plus
$10.20 per patient-visit. Medical supplies are $1,800 per month plus $6.00 per
patient-visit. Occupancy expenses are $7,600 per month plus $1.50 per patient-visit.
Administrative expenses are $4,600 per month plus $0.20 per patient-visit.
Required:
Prepare the clinic’s planning budget for January.
31) Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected
boomerang sales (in units) for the upcoming months are as follows:
Mate likes to maintain a finished goods inventory equal to 10% of the next month’s
estimated sales. Seven ounces of plastic resin are needed to produce every boomerang.
Mate likes to have enough plastic resin on hand at the end of the month to cover 25% of
the next month’s production requirements.
Required:
How many ounces of plastic resin should Mate plan on purchasing during the month of
October?
32) ( Shiffler Corporation is contemplating purchasing equipment that would increase
sales revenues by $246,000 per year and cash operating expenses by $133,000 per year.
The equipment would cost $275,000 and have a 5 year life with no salvage value. The
annual depreciation would be $55,000.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
Show your work!
33) Ameigh 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 June, the school budgeted for 1,890 students and 146 courses. The actual activity for
the month was 2,290 students and 151 courses.
Required:
Prepare a report showing the school’s activity variances for June. Label each variance as
favorable (F) or unfavorable (U).
34) Camcam Corporation uses customers served as its measure of activity. During July,
the company budgeted for 26,000 customers, but actually served 30,000 customers. The
company uses the following revenue and cost formulas in its budgeting, where q is the
number of customers served:
Revenue: $4.90q
Wages and salaries: $34,400 + $1.60q
Supplies: $1.00q
Insurance: $8,500
Miscellaneous expense: $5,600 + $0.20q
The company reported the following actual results for July:
Required:
Prepare the company’s flexible budget performance report for July. Label each variance
as favorable (F) or unfavorable (U).
