1) A cost that is traceable to a segment through activity-based costing may or may not
be an avoidable cost for decision making.
2) ISO 9000 certification is relatively easy to achieve because little documentation on
quality control procedures is needed.
3) When computing the return on total assets, the interest expense is added back to net
income to show what earnings would have been if the company had no debt.
4) A revenue variance is favorable if the actual revenue exceeds what the revenue
should have been for the actual level of activity of the period.
5) Return on investment (ROI) equals margin multiplied by turnover.
6) The profitability index is computed by dividing the incremental profit from a
segment by the sales of the segment.
7) Purchasing marketable securities with cash will have no effect on a company’s
acid-test ratio.
8) The high-low method uses cost and activity data from just two periods to establish
the formula for a mixed cost.
9) A favorable materials quantity variance would appear as a credit in a journal entry.
10) Mondo Snow Removal’s cost formula for its vehicle operating cost is $1,060 per
month plus $429 per snow-day. For the month of January, the company planned for
activity of 11 snow-days, but the actual level of activity was 13 snow-days. The actual
vehicle operating cost for the month was $6,310. The activity variance for vehicle
operating cost in January would be closest to:
A.$531 U
B.$531 F
C.$858 U
D.$858 F
11) Using the formula in the text, if the lowest acceptable transfer price from the
viewpoint of the selling division is $90 and the opportunity cost per unit on outside
sales is $40, then the variable cost per unit must be:
A.$90
B.$40
C.$130
D.$50
12) Faessler Corporation applies overhead to products based on machine-hours. The
denominator level of activity is 6,500 machine-hours. The budgeted fixed
manufacturing overhead costs are $242,450. In July, the actual fixed manufacturing
overhead costs were $242,490 and the standard machine-hours allowed for the actual
output were 7,000 machine-hours.
Required:
a. Compute the budget variance for July. Show your work!
b. Compute the volume variance for July. Show your work!
13) Arthur Corporation has a margin of safety percentage of 25% based on its actual
sales. The break-even point is $300,000 and the variable expenses are 45% of sales.
Given this information, the actual profit is:
A.$75,000
B.$55,000
C.$15,000
D.$41,250
14) Escau Corporation is a wholesale distributor that uses activity-based costing for all
of its overhead costs. The company has provided the following data concerning its
annual overhead costs and its activity based costing system:
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
The activity measures for the activity cost pools for the year are as follows:
What would be the total overhead cost per customer according to the activity based
costing system? In other words, what would be the overall activity rate for the customer
support activity cost pool? (Round to the nearest whole dollar.)
A.$13,650
B.$12,600
C.$14,400
D.$10,800
15) Beakins Corporation produces a single product. The standard cost card for the
product follows:
During a recent period the company produced 1,200 units of product. Various costs
associated with the production of these units are given below:
The company records all variances at the earliest possible point in time. Variable
manufacturing overhead costs are applied to products on the basis of standard direct
labor-hours.
The variable overhead rate variance for the period is:
A.$1,680 F
B.$1,440 U
C.$1,440 F
D.$1,680 U
16) The standards for product Q58W specify 8.4 direct labor-hours per unit at $14.00
per direct labor-hour. Last month 400 units of product Q58W were produced using
2,800 direct labor-hours at a total direct labor wage cost of $41,020.
Required:
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
c. Prepare a journal entry to record direct labor costs during the month, including the
direct labor variances.
17) Cartier Inc. bases its manufacturing overhead budget on budgeted direct
labor-hours. The variable overhead rate is $5.80 per direct labor-hour. The company’s
budgeted fixed manufacturing overhead is $39,930 per month, which includes
depreciation of $12,870. All other fixed manufacturing overhead costs represent current
cash flows. The direct labor budget indicates that 3,300 direct labor-hours will be
required in April.
The April cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A.$59,070
B.$46,200
C.$27,060
D.$19,140
18) The Seabury Corporation has a current ratio of 3.5 and an acid-test ratio of 2.8. The
corporation’s current assets consist of cash, marketable securities, accounts receivable,
and inventories. Inventory equals $49,000. Seabury Corporation’s current liabilities
must be:
A.$70,000
B.$100,000
C.$49,000
D.$125,000
19) Aguilera Industries is a division of a major corporation. Data concerning the most
recent year appears below:
The division’s return on investment (ROI) is closest to:
A.2.1%
B.29.2%
C.22.6%
D.5.8%
20) A number of companies in different industries are listed below:
1) Synthetic rubber manufacturer
2) Contract printer that produces posters, books, and pamphlets to order
3) Dress manufacturer that makes clothing on contract for department stores
4) Aluminum refiner that makes aluminum ingots from bauxite ore
5) Asparagus cannery
6) Winery that produces a number of varietal wines
Required:
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
21) Tullius Corporation has received a request for a special order of 8,000 units of
product C64 for $50.00 each. The normal selling price of this product is $53.25 each,
but the units would need to be modified slightly for the customer. The normal unit
product cost of product C64 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 C64 that would increase the variable costs by $5.00 per unit and that
would require a one-time investment of $43,000 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.
Required:
Determine the effect on the company’s total net operating income of accepting the
special order. Show your work!
22) Sizzle Company uses a standard cost system to collect costs related to the
production of its “No-Stick” lawn chairs. The direct material for the chairs is teflon.
Sizzle uses a standard direct material cost of $40.00 per chair (0.8 pounds of teflon
$50.00 per pound). During April, Sizzle purchased 2,100 pounds of teflon for $106,575.
Sizzle used 1,750 pounds of this teflon in April to produce 1,800 lawn chairs.
Required:
Calculate Sizzle’s materials price and materials quantity variances for April.
23) ( Veys Limos, Inc., is considering the purchase of a limousine that would cost
$155,776, would have a useful life of 7 years, and would have no salvage value. The
limousine would bring in cash inflows of $32,000 per year in excess of its cash
operating costs.
Required:
Determine the internal rate of return on the investment in the new limousine. Show your
work!
24) Pratt Corporation has two major business segments-Apparel and Accessories. Data
concerning those segments for October appear below:
Common fixed expenses totaled $153,000 and were allocated as follows: $73,000 to the
Apparel business segment and $80,000 to the Accessories business segment.
Required:
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
25) Galati Company’s quality cost report is to be based on the following data:
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention costs,
appraisal costs, internal failure costs, and external failure costs.
26) A number of costs are listed below.
Required:
For each item above, indicate whether the cost is direct or indirect with respect to the
cost object listed next to it.
27) Hey Clinic bases its budgets on patient-visits. During September, the clinic plans
for a level of activity of 2,500 patient-visits. The clinic has provided the following data
concerning the formulas it uses in its budgeting:
Required:
Prepare the clinic’s planning budget for September.
28) Tomek Corporation’s activity-based costing system has three activity cost
pools-Fabricating, Setting Up, and Other. Costs in the Fabricating cost pool are
assigned to products based on machine-hours (MHs) and costs in the Setting Up cost
pool are assigned to products based on the number of batches. Costs in the Other cost
pool are not assigned to products. The activity rate for Fabricating is $0.82 per MH; the
activity rate for Setting Up is $5.40 per batch. The following table shows the
machine-hours and number of batches associated with each of the company’s two
products:
Required:
Determine the amount of overhead cost that would be assigned to each product using
activity-based costing.