1) Barrus Corporation makes 30,000 motors to be used in the productions of its power
lawn mowers. The average cost per motor at this level of activity is as follows:
This motor has recently become available from an outside supplier for $25 per motor. If
Barrus decides not to make the motors, none of the fixed manufacturing overhead
would be avoidable and there would be no other use for the facilities. If Barrus decides
to continue making the motor, how much higher or lower will the company’s net
operating income be than if the motors are purchased from the outside supplier?
Assume that direct labor is a variable cost in this company.
A) $36,000 lower
B) $207,000 higher
C) $94,500 higher
D) $130,500 higher
2) Hairston Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During
November, the company budgeted for 7,700 units, but its actual level of activity was
7,720 units. The company has provided the following data concerning the formulas
used in its budgeting and its actual results for November:
Data used in budgeting:
Actual results for November:
The activity variance for direct labor in November would be closest to:
A.$156 F
B.$226 U
C.$226 F
D.$156 U
3) Valley Manufacturing Corporation’s beginning work in process inventory consisted
of 10,000 units, 100% complete with respect to materials cost and 40% complete with
respect to conversion costs. The total cost in the beginning inventory was $30,000.
During the month, 50,000 units were transferred out. The equivalent unit cost was
computed to be $2.00 for materials and $3.70 for conversion costs under the
weighted-average method. Given this information, the total cost of the units completed
and transferred out was:
A.$255,000
B.$270,000
C.$240,000
D.$285,000
4) Which of the following statements about a process costing system is incorrect?
A.In a process costing system, each processing department has a work in process
account.
B.In a process costing system, equivalent units are separately computed for materials
and for conversion costs.
C.In a process costing system, overhead can be underapplied or overapplied just as in
job-order costing.
D.In a process costing system, materials costs are traced to units of products.
5) The cost of direct materials cost is classified as a:
Period cost Product cost
A) Yes Yes
B) No No
C) Yes No
D) No Yes
6) Hien, Inc. uses machine-hours as the base to apply its manufacturing overhead. The
following information relates to variable manufacturing overhead standards at Hien:
Standard rate per machine-hour: $50
Total standard machine-hours allowed for units produced during September: 4,000
Hien’s variable overhead rate variance for September was $800 favorable. Its variable
overhead efficiency variance was $3,600 unfavorable. How many machine-hours did
Hien actually use during September?
A.3,928
B.3,944
C.4,056
D.4,072
7) Division T of Clocker Company makes a timer which it sells for $30 to outside
customers. The division has supplied the following data concerning the timer:
Division S of Clocker Company is currently buying 5,000 similar timers each month
from an overseas supplier at $27 each. Division S would like to acquire its timers from
Division T if the price is right.
Suppose that Division T can sell only 10,000 timers to outside customers. According to
the formula in the text, what is the lowest acceptable transfer price from the viewpoint
of the selling division?
A.$24 per timer
B.$27 per timer
C.$30 per timer
D.$15 per timer
8) (Ignore income taxes in this problem) The management of Enamorado Corporation is
investigating buying a small used aircraft to use in making airborne inspections of its
above-ground pipelines. The aircraft would have a useful life of 5 years. The company
uses a discount rate of 17% in its capital budgeting. The net present value of the
investment, excluding the intangible benefits, is -$160,462. To the nearest whole dollar
how large would the annual intangible benefit have to be to make the investment in the
aircraft financially attractive?
A.$160,462
B.$50,160
C.$32,092
D.$27,279
9) Stoffle Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Data Processing and
Personnel, and two operating departments, Assembly and Finishing.
Data Processing Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees. The total
amount of Data Processing Department cost allocated to the two operating departments
is closest to:
A.$169,600
B.$35,787
C.$29,552
D.$39,402
10) Schaadt Corporation manufactures and sells one product. The following
information pertains to the company’s first year of operations:
The company does not have any variable manufacturing overhead costs or variable
selling and administrative costs. During its first year of operations, the company
produced 23,000 units and sold 16,000 units. The company’s only product is sold for
$243 per unit.
The company is considering using either super-variable costing or a variable costing
system that assigns $22 of direct labor cost to each unit that is produced. Which of the
following statements is true regarding the net operating income in the first year?
A.Variable costing net operating income exceeds super-variable costing net operating
income by $427,000.
B.Variable costing net operating income exceeds super-variable costing net operating
income by $154,000.
C.Super-variable costing net operating income exceeds variable costing net operating
income by $154,000.
D.Super-variable costing net operating income exceeds variable costing net operating
income by $427,000.
Ending inventory = Beginning inventory + Units produced – Units sold = 0 + 23,000
units – 16,000 units = 7,000 units
Direct labor cost deferred in (released from) inventory = Direct labor cost in ending
inventory – Direct labor cost in beginning inventory = ($22 per unit 7,000 units) – $0 =
$154,000
Because inventory increased, direct labor cost is deferred in inventory under the
variable costing system described above. This increases the net operating income under
variable costing by $154,000 relative to the net operating income under super-variable
costing.
11) The company’s times interest earned for Year 2 is closest to:
A.2.74
B.8.02
C.5.21
D.4.21