Final Exam: Chapters 14-24 Name _________________________
Kimmel Accounting, 5e Instructor ______________________
Section # _______ Date _________
Part
I
II
III
IV
Total
Points
54
18
19
14
105
Score
PART I — MULTIPLE CHOICE (54 points)
Instructions: Designate the best answer for each of the following questions.
____ 1. Which of the following is a responsibility center that incurs expenses, generates
revenues, and is responsible for generating a return on assets?
a. Cost center
b. Revenue center
c. Profit center
d. Investment center
____ 2. Which one of the following is the most useful measure for evaluating a manager‘s
performance in controlling revenues and costs in a profit center?
a. Contribution margin
b. Contribution net income
c. Contribution gross profit
d. Controllable margin
____ 3. Hanover Corporation desires to earn target net income of $42,000. The selling price
per unit is $18, unit variable cost is $5.60, and total fixed costs are $123,912. How
many units must the company sell to earn its target net income?
a. 13,380
b. 9,993
c. 3,387
d. 9,217
____ 4. Remark Enterprises uses a process cost accounting system.
Beginning Work in Process 3,000 units (50% complete)
Ending Work in Process 2,000 units (30% complete)
Started into Production 56,000 units
How many units were completed and transferred out during the current period?
a. 56,000
b. 58,000
c. 59,000
d. 57,000
Test Bank for Kimmel Accounting, Vol. 2, Fifth Edition
FE– 2
____ 5. Ralston Gifts applies overhead on the basis of machine hours. The following data
were provided by Ralston:
Estimated annual overhead cost $516,600
Actual annual overhead cost $537,500
Estimated machine hours 126,000
Actual machine hours 125,000
How much overhead was applied?
a. $512,500
b. $520,380
c. $516,600
d. $541,800
____ 6. The following data has been collected for use in analyzing Marshall’s behavior of
maintenance costs:
Month Maintenance Costs Machine Hours
January $20,000 1,600
February 25,000 2,100
March 27,200 2,600
April 19,600 1,700
May 21,400 2,400
June 28,400 2,500
July 23,600 2,300
Using the high-low method to separate the maintenance costs into their variable and
fixed cost components, these components are
a. $7.20 per hour plus $7,200
b. $11.00 per hour plus $8,800
c. $7.20 per hour plus $8,480
d. $11.00 per hour plus $900
____ 7. Given the following information for Janaro Products, compute the company’s ROI:
Sales — $800,000; Controllable Margin — $120,000; Average Operating Assets —
$400,000.
a. 30%
b. 50%
c. 15%
d. Some other answer.
____ 8. Given the following data for Harvard Publishing, determine the amount of cost of
goods manufactured.
Direct materials used $65,000 Beginning work in process $12,000
Direct labor 41,000 Ending work in process 8,000
Manufacturing overhead 63,000 Beginning finished goods 14,000
Operating expenses 88,000 Ending finished goods 12,000
a. $169,000
b. $173,000
c. $175,000
d. $165,000
Final Exam
FE– 3
____ 9. Select the correct order of the following components of the production cost report
(1) costs accounted for
(2) unit costs
(3) costs charged to a department
a. (1), (2), (3)
b. (1), (3), (2)
c. (2), (1), (3)
d. (2), (3), (1)
____ 10. Which is the starting point of a master budget?
a. Cash budget
b. Sales budget
c. Production budget
d. Budgeted balance sheet
____ 11. The most useful measure for evaluating the performance of the manager of an
investment center is
a. contribution margin.
b. controllable margin.
c. return on investment.
d. income from operations.
____ 12. Which of the following capital budgeting techniques takes the time value of money into
consideration?
a. Annual rate of return
b. Internal rate of return
c. Net present value
d. Both (b) and (c) above
____ 13. The cost classification scheme most relevant to responsibility accounting is
a. controllable vs. uncontrollable.
b. fixed vs. variable.
c. semivariable vs. mixed.
d. direct vs. indirect.
____ 14. Kona Manufacturing incurred fixed overhead costs of $24,000 and variable overhead
costs of $13,800 to produce 3,000 gallons of liquid cholorine. It takes 2 hours of direct
labor to produce 1 gallon of chlorine. The standard hours allowed to produce 1,000
gallons of chlorine is 2,000 hours. Predetermined overhead rate is $5/direct labor
hour. What is the total overhead variance?
a. $31,800U
b. $16,200U
c. $7,800U
d. $6,000U
____ 15. A flexible budget
a. is also called a static budget.
b. can be considered a series of related static budgets.
c. can be prepared for sales or production budgets, but not for an operating expense
budget.
d. typically uses an activity index different from that used in developing the
predetermined overhead rate.
Test Bank for Kimmel Accounting, Vol. 2, Fifth Edition
FE– 4
Use the following information for questions 16 and 17.
DyanChrome estimates its sales at 12,000 units in the first quarter with an increase by
600 units each quarter over the year. It desires an ending inventory of finished goods
equal to 20% of the next quarter’s sales. Each unit sells for $30. Forty percent of sales
are on account, with the remainder being cash sales. Credit customers pay 90%
during the quarter the sale was made and the balance during the following quarter.
____ 16. How much are budgeted cash collections for the third quarter?
a. $395,280
b. $380,160
c. $356,400
d. $396,000
____ 17. Production in units for the third quarter should be budgeted at
a. 13,080
b. 13,320
c. 15,760
d. 12,600
____ 18. Shari Company incurs the following costs in producing 5,000 units of product:
Direct materials $30,000
Direct labor 22,000
Variable manufacturing overhead 17,000
Fixed manufacturing overhead 12,000
An outside supplier has offered to supply the 5,000 units at $14.00 each. Of the fixed
costs, $4,000 of the fixed costs would be eliminated if the offer is accepted.
Acceptance will result in a
a. savings of $3,000.
b. loss of $11,000.
c. savings of $7,000.
d. loss of $1,000.
____ 19. Vandergrass Company has a production process where two products result from a
joint processing procedure; both can be sold immediately or processed further. Which
of the products should be processed further?
Allocated Additional New
Product Joint Cost Selling Price Processing Cost Selling Price
A $70 $80 $12 $95
B 40 56 8 62
a. A
b. B
c. Both
d. Neither
Final Exam
FE– 5
____ 20. A company’s planned activity level for next year is expected to be 8,000 machine
hours. At this level of activity, the company budgeted the following manufacturing
overhead costs:
Variable Fixed
Indirect materials $16,000 Depreciation $7,000
Indirect labor 8,000 Taxes 2,000
Factory supplies 4,000 Supervision 9,000
A flexible budget prepared at the 9,200 machine hours level of activity would allow
total manufacturing overhead costs of
a. $52,900
b. $32,200
c. $50,200
d. Some other answer
____ 21. Wrangler Inc. sells towels with a contribution margin rate of 35% and a unit
contribution margin of $7 per unit. Which statement is true?
a. Each dollar of sales revenue generates 35 cents to go towards covering operating
costs and towards profit.
b. Each towel sold generates 35 cents to go towards covering fixed costs and
towards profit.
c. Each towel sold generates $7 to go towards covering operating expenses and
towards profit.
d. Each dollar of sales revenue generates 35 cents to go towards covering fixed
costs and towards profit.
____ 22. Which one of the following would most likely be allocated to products using ABC by
McDonald’s?
a. Cost of employees who chop lettuce
b. Cost of tomatoes added to burgers
c. Cost of plastic gloves worn by the burger cooks
d. Costs of the paper in which an Egg McMuffin is wrapped
____ 23. Company 3M and Company 4P have similar levels of production and sales. Company
4P has a larger proportion of fixed costs than those that are variable costs. Company
3M has a larger proportion of variable costs, than those that are fixed costs. Sales are
expected to increase by 30% for both companies during 2014. During 2014, Company
4P will experience
a. a smaller increase in income than Company 3M.
b. a larger decrease in per unit variable costs than Company 3M.
c. a larger proportional fluctuation in income than Company 3M.
d. less operating leverage than Company 3M.
Test Bank for Kimmel Accounting, Vol. 2, Fifth Edition
FE– 6
Use the following information for questions 24 and 25.
Outdoor Play manufactures two products: Swing Along and Ride Away. The company’s overhead
costs consist of setting up machines, $24,000; machining, $36,000; and inspecting, $18,000.
During the year, 5,000 Swing Alongs were produced and 20,000 Ride Aways. Additional
information on the two products is:
Swing Along Ride Away
Direct labor hours 8,000 12,000
Machine setups 20 40
Machine hours 2,000 6,000
Inspections 20 30
____ 24. How much overhead will be applied to Swing Along using traditional costing using
direct labor hours as the basis for allocation?
a. $31,200
b. $39,000
c. $24,200
d. $15,600
____ 25. How much overhead was applied to Swing Along using activity-based costing?
a. $764.50
b. $24,200
c. $31,200
d. $39,000
____ 26. An appropriate cost driver for an assembling cost pool is the number of
a. purchase orders.
b. setups.
c. parts.
d. direct labor hours.
____ 27. Which of the following is included in cost of goods manufactured under absorption
costing but not under variable costing?
a. Direct materials
b. Variable factory overhead
c. Fixed factory overhead
d. Direct labor
Final Exam
FE– 7
PART II — MATCHING (18 points)
Instructions: Designate the terminology that best represents the definition or statement given
below by placing the identifying letter(s) in the space provided. No term should be used more
than once.
A. Activity-based costing N. Job cost sheet
B. Annual rate of return O. Noncontrollable costs
C. Budgetary control P. Non-value-added activity
D. Contribution margin Q. Operating budgets
E. Contribution margin ratio *R. Overhead controllable variance
F. Controllable costs *S. Overhead volume variance
G. Absorption costing T. Physical units
H. Cost accounting U. Process cost systems
I. Cost centers V. Product costs
J. Cost of capital W. Profit center
K. Equivalent units of production X. Value-added activity
L. Fixed costs Y. Variable costs
M. Free cash flow Z. Variances
____ 1. Costs that a manager has the authority to incur within a given period of time.
____ 2. A form used to record the costs chargeable to a job.
____ 3. A responsibility center that incurs costs and also generates revenues.
____ 4. The difference between overhead budgeted for standard hours allowed and overhead
incurred.
____ 5. The amount of revenue remaining after deducting variable costs.
____ 6. Used to apply costs to similar products that are mass produced in a continuous
fashion.
____ 7. Costs that vary in total directly and proportionately with changes in the activity level.
____ 8. The differences between actual costs and standard costs.
____ 9. Determines profitability of a capital expenditure by dividing expected net income by
the average investment.
____ 10. The rate a company must pay to obtain funds from creditors and stockholders.
____ 11. Costs that are an integral part of producing the finished product.
____ 12. Allocates overhead to multiple cost pools and assigns the cost pools to products by
means of cost drivers.
____ 13. Involves the measuring, recording, and reporting of product costs.
____ 14. A measure of the work done during the period, expressed in fully completed units.
____ 15. A costing approach in which all manufacturing costs are charged to the product.
____ 16. Increases the worth of a product or service to customers.
____ 17. (Sales – Variable expenses)/Sales.
____ 18. Individual budgets that culminate in a budgeted income statement.
Test Bank for Kimmel Accounting, Vol. 2, Fifth Edition
FE– 8
PART III — VARIANCE ANALYSIS (19 points)
Medex Pharmaceutical developed the following standard costs for its product in 2014:
Standard Cost Card Unit Standard Cost
Direct materials 1.2 pounds @ $2 per pound $ 2.40
Direct labor 0.25 hour @ $12 per hour 3.00
Manufacturing overhead
Variable 0.4 hours @ $3 per hour 1.20
Fixed 0.5 hours @ $4 per hour 2.00
$8.60
The company planned to work 2,725 direct labor hours and planned to produce 10,900 units of
product in 2014. Actual results for 2014 are as follows:
• 11,000 units of product were produced.
• Actual direct materials purchased and used during the year amounted to 13,750 pounds at a
cost of $28,875.
• Actual direct labor costs were $33,320 for 2,800 direct labor hours worked.
• Total actual manufacturing overhead incurred amounted to $35,740.
Instructions
Calculate the following variances showing all computations supporting your answers. Indicate if
the variances are favorable (F) or unfavorable (U).
(a) Direct materials price and direct materials quantity variances.
(b) Direct labor price and direct labor quantity variances.
(c) Total overhead variance
Final Exam
FE– 9
PART IV — MISCELLANEOUS MANAGERIAL MINI-PROBLEMS (14 points)
Handley Documents manufactures paper shredding equipment. You are requested to “audit” a
sampling of computations made by Handley’s internal accountants via your independent
recalculation of the information.
Instructions: Compute the requested information for each of the following independent situations
(present supporting calculations).
(a) Handley uses a process costing system. 900 units were in process at the beginning of the
period, 60% complete. 16,400 units were started into production during the period; 700 were
in process at the end of the period, 30% complete. Compute equivalent units for conversion
costs.
(b) Handley sells each unit for $45. Variable costs per unit equal $20. Total fixed costs equal
$230,000. Handley is currently selling 12,000 units per period and would like to earn net
income of $40,000. Compute: (1) break-even point in dollars; (2) sales units necessary to
attain desired income; and (3) margin of safety ratio for current operations.
(1) Break-even point = $________________________________________________
(2) Desired sales = ___________________________________________ units
(3) Margin of safety = _____________________________________________%
Test Bank for Kimmel Accounting, Vol. 2, Fifth Edition
FE– 10
Solutions — Final Exam: Chapters 1-14
Final Exam
FE– 11