1) Rock Star, Inc., which uses a job-costing system, began business on January 1, 20×3
and applies manufacturing overhead on the basis of direct-labor cost. The following
information relates to 20×3:
Budgeted direct labor and manufacturing overhead were anticipated to be $200,000 and
$250,000, respectively.
Job nos. 1, 2, and 3 were begun during the year and had the following charges for direct
material and direct labor:
Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of
cost. Job no. 3 remained in production.
Actual manufacturing overhead by year-end totaled $233,000. Rock Star adjusts all
under- and overapplied overhead to cost of goods sold.
Required:
A. Compute the company’s predetermined overhead application rate.
B. Compute Rock Star’s ending work-in-process inventory.
C. Determine Rock Star’s sales revenue.
D. Was manufacturing overhead under- or overapplied during 20×3? By how much?
E. Present the necessary journal entry to handle under- or overapplied manufacturing
overhead at year-end.
F. Does the presence of under- or overapplied overhead at year-end indicate that Rock
Star’s accountants made a serious error? Briefly explain.
2) Consider the following statements:
I. Behavioral scientists find that perfection standards often discourage employees and
result in low worker morale.
II. Practical standards are also known as attainable standards.
III. Practical standards incorporate a certain amount of inefficiency such as that caused
by an occasional machine breakdown.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.II and III
E.I, II, and III
3) Which of the following methods of cost estimation relies on only two data points?
A.Least-squares regression
B.The high-low method
C.The visual-fit method
D.Account analysis
E.Multiple regression
4) Aladdin’s customer service department follows up on customer complaints by
telephone inquiry. During a recent period, the department initiated 7,000 calls and
incurred costs of $203,000. If 2,940 of these calls were for the company’s wholesale
operation (the remainder were for the retail division), costs allocated to the wholesale
operation should amount to:
A.$0
B.$29
C.$85,260
D.$117,740
E.$203,000
5) A company’s expected receipts from sales and planned disbursements to pay bills is
commonly called a:
A.pro-forma budget
B.master budget
C.financial budget
D.profit plan
E.cash budget
6) Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, 51,000 units and 50,000
units in July, August, September and October, respectively. Company policy is to
maintain an ending finished-goods inventory equal to 40% of the following month’s
sales. On the basis of this information, how many units would the company plan to
produce in September?
A.46,800
B.49,200
C.49,800
D.50,600
E.None of the other answers are correct
7) Ricardo Corporation has two service departments (Maintenance and Human
Resources) and three production departments (Machining, Assembly, and Finishing).
The two service departments service each other, and studies have shown that
Maintenance provides the greater amount of service. Given the various cost allocation
methods, which of the following choices correctly denotes whether Maintenance cost
would be allocated to Human Resources?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
8) Which of the following occurs if a company was able to reduce its variable cost per
unit?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
9) A company has fixed costs of $900 and a per-unit contribution margin of $3. Which
of the following statements is true?
A.Each unit “contributes” $3 toward covering the fixed costs of $900
B.The situation described is not possible and there must be an error
C.Once the break-even point is reached; the company will increase income at the rate of
$3 per unit
D.The firm will definitely lose money in this situation
E.Each unit “contributes” $3 toward covering the fixed costs of $900 and once the
break-even point is reached, the company will increase income at the rate of $3 per unit
10) For the period just ended, Techno Corporation’s Stocker Division reported profit of
$54 million and invested capital of $450 million. Assuming an imputed interest rate of
10%, which of the following choices correctly denotes Stocker’s return on investment
(ROI) and residual income?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
11) A flexible budget is appropriate for a:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
12) The master budget contains the following components, among others: (1)
direct-material budget, (2) budgeted balance sheet, (3) production budget, and (4) cash
budget. Which of these components would be prepared first and which would be
prepared last?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
13)
A machine costs $25,000; it is expected to generate annual cash revenues of $8,000 and
annual cash expenses of $2,000 for five years. The required rate of return is 12%.
Which of the following statements about the machine’s internal rate of return is true?
A.The internal rate of return is greater than 12%
B.The internal rate of return is between 10% and 12%
C.The internal rate of return is less than 10%
D.The internal rate of return must be greater than 15%
E.There is insufficient information to make any judgment about the internal rate of
return
14) Which of the following would occurs if a company increases its variable cost per
unit?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
15) Portofina Manufacturing uses a weighted-average process-costing system. The
following figures pertain to July:
All materials are introduced at the start of the process, and conversion cost is incurred
evenly throughout production. The company used direct materials that cost $640,000;
conversion amounted to $8 per equivalent unit.
Required:
A. Calculate the direct materials cost per equivalent unit.
B. Calculate the cost of units completed and transferred.
C. What percentage of conversion work will be performed on the 40,000-unit ending
work-in-process inventory during August?
D. In all likelihood, were all of the 120,000 completed units begun in July? Explain.
16) St. James, Inc., currently uses traditional costing procedures, applying $800,000 of
overhead to products Beta and Zeta on the basis of direct labor hours. The company is
considering a shift to activity-based costing and the creation of individual cost pools
that will use direct labor hours (DLH), production setups (SU), and number of parts
components (PC) as cost drivers. Data on the cost pools and respective driver volumes
follow.
The overhead cost allocated to Zeta by using activity-based costing procedures would
be:
A.$240,000
B.$356,000
C.$444,000
D.$560,000
E.None of the other answers is correct
17) Which of the following would be considered a service department for an airline?
A.Maintenance
B.Information Systems
C.Purchasing
D.Flight Catering
E.All of the other answers are correct
18) Franz began business at the start of this year and had the following costs: variable
manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling
and administrative costs per unit, $2; and fixed selling and administrative costs,
$220,000. The company sells its units for $45 each. Additional data follow.
There were no variances.
The income (loss) under absorption costing is:
A.$(7,500)
B.$9,000
C.$15,000
D.$18,000
E.None of the other answers are correct
19) Consider the following information:
Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:
A.$11,400F
B.$11,400U
C.$12,000F
D.$12,000U
E.none of the other answers are correct
20) Green Way Packaging is considering a $600,000 investment in new equipment that
is anticipated to produce the following data over a five-year life:
Ignoring income taxes and assuming that cash flows occur evenly throughout a year, the
equipment’s approximate payback period is:
A.1 year, 7 months
B.2 years, 1 month
C.2 years, 5 months
D.over 5 years
E.some other period of time not noted in the options
21) The following data relate to product no. 89 of Des Moines Corporation:
Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
Manufacturing activity: 9,600 units completed
Assume that the company computes variances at the earliest point in time.
The direct-material price variance is:
A.$2,880U
B.$2,920F
C.$2,920U
D.$3,000F
E.$3,000U
22) Starling Chemical uses a weighted-average process-costing system. The following
data relate to May:
Required:
A. Calculate the number of pounds completed during May.
B. Calculate equivalent units of materials and conversion for May.
C. Does Starling introduce all of its direct materials at the very beginning of
production? Explain your answer.
23) In a typical business, the firm’s overall demand would be influenced by interactions
of pricing policies and:
A.the company’s reputation
B.the quality of goods and services offered
C.competing goods and services
D.advertising and promotional campaigns
E.all of these factors
24) Grey, Inc. sells a single product for $20. Variable costs are $8 per unit and fixed
costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not
change, Green’s break-even sales would be:
A.$160,000
B.$200,000
C.$300,000
D.$480,000
E.None of the other answers is correct
25) Southbend Medical Clinic offers a number of specialized medical services. A
review of data for the year just ended revealed variable costs of $32 per patient day;
annual fixed costs of $480,000, which are incurred evenly throughout the year; and
semivariable costs that displayed the following behavior at the “peak” and “valley” of
activity:
January (2,400 patient days): $258,400
August (2,900 patient days): $278,900
Required:
A. Calculate the total cost for an upcoming month (2,800 patient days) if current cost
behavior patterns continue. Southbend uses the high-low method to analyze cost
behavior.
B. There is a high probability that Southbend’s volume will increase in forthcoming
months as patients take advantage of new scientific advances. Can the data and
methodology used in part (a) for predicting the costs of 2,800 patient days be employed
to estimate the costs for, say, 3,800 patient days? Why or why not?
