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Welnor Industrial Gas Corporation supplies acetylene and other compressed gases to
industry. Data regarding the store's operations follow:
o Sales are budgeted at $320,000 for November, $340,000 for December, and $330,000
for January.
o Collections are expected to be 75% in the month of sale, 20% in the month following
the sale, and 5% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires ending merchandise inventory to equal 80% of the following
month's cost of goods sold. Payment for merchandise is made in the month following
the purchase.
o Other monthly expenses to be paid in cash are $21,000.
o Monthly depreciation is $16,000.
o Ignore taxes.
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.
Answer:
Negative free cash flow suggests that the company did not generate enough cash flow
from its operating activities to fund its capital expenditures and dividend payments.
Answer:
Property taxes and insurance premiums paid on a factory building are examples of
manufacturing overhead.
Answer:
The changes in Tener Company's balance sheet account balances for last year appear
below:
The company's income statement for the year appears below:
The company declared and paid $67,000 in cash dividends during the year. It did not
dispose of any property, plant, and equipment during the year. The company uses the
direct method to determine the net cash provided by operating activities.
On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:
A. $518,000
B. $520,000
C. $522,000
D. $516,000
Answer:
Under Lamprey Company's job-order costing system, manufacturing overhead is
applied to Work in Process inventory using a predetermined overhead rate. During
January, Lamprey's transactions included the following:
Lamprey Company had no beginning or ending inventories. What was the cost of goods
manufactured for January?
A. $302,000
B. $310,000
C. $322,000
D. $330,000
Answer:
Odle Company purchased material on account. The entry to record the purchase of
materials will include a:
A) credit to Work in Process.
B) debit to Accounts Receivable.
C) credit to Accounts Payable.
D) credit to Raw Materials Inventory.
Answer:
Vanwagenen Inc. has provided the following data for the month of April:
The cost of goods manufactured for April is:
A. $198,000
B. $201,000
C. $197,000
D. $202,000
Answer:
Carlton Company reported on its income statement sales for the year just ended of
$435,000. Sales during the year adjusted to the cash basis on its statement of cash flows
constructed using the direct method were $460,000. Carlton Company recorded the
following account balances:
Based on this information, the balance in Accounts Receivable at the beginning of the
year was:
A. $60,000
B. $63,000
C. $59,000
D. $10,000
Answer:
Reference: 8-27
The Litton Company has established standards as follows:
Direct material: 3 pounds per unit @ $4 per pound = $12 per unit
Direct labor: 2 hours per unit @ $8 per hour = $16 per unit
Variable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit
Actual production figures for the past year are given below. The company records the
materials price variance when materials are purchased.
The company applies variable manufacturing overhead to products on the basis of
standard direct labor-hours.
The variable overhead efficiency variance is:
A) $520 F
B) $520 U
C) $500 U
D) $500 F
Answer:
The Hawkins Company uses a standard costing system in which manufacturing
overhead is applied on the basis of standard direct labor-hours (DLHs). During
February, the company actually used 9,200 direct labor-hours and made 2,900 units of
finished product. The standard cost card for one unit of product includes the following:
Variable factory overhead: 3 DLHs @ $4.75 per DLH
Fixed factory overhead: 3 DLHs @ $3.00 per DLH
For February, the company incurred $28,450 in fixed manufacturing overhead costs and
recorded a $900 favorable volume variance.
The amount of fixed manufacturing overhead cost contained in the company's budget
for February is:
A. $27,000
B. $27,550
C. $25,200
D. $29,350
Answer:
Evergreen Corp. has provided the following data:
The contribution margin ratio is:
A. 70%
B. 45%
C. 75%
D. 55%
Answer:
The following selected data are for Geneva Company:
Geneva Company's return on common stockholders' equity for Year 2 is closest to:
A. 11%
B. 12%
C. 13%
D. 6%
Answer:
Reference: 8-30
Snuggs Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in October.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for October is:
A) $82 U
B) $80 U
C) $82 F
D) $80 F
Answer:
The manufacturing overhead budget at Mahapatra Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 7,900 direct labor-hours will
be required in May. The variable overhead rate is $9.50 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $112,970 per month, which
includes depreciation of $18,170. All other fixed manufacturing overhead costs
represent current cash flows.
The May cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A. $75,050
B. $188,020
C. $94,800
D. $169,850
Answer:
Sanchez Corporation uses the weighted-average method in its process costing system.
The Fitting Department is the second department in its production process. The data
below summarize the department's operations in March.
The Fitting Department's cost per equivalent unit for conversion cost for March was
$8.66.
How much conversion cost was assigned to the units transferred out of the Fitting
Department during March?
A. $480,630
B. $450,320
C. $444,258
D. $510,940
Answer:
The following data for April has been provided by Mittler Corporation.
The budget variance for April is:
A. $5,660 U
B. $8,120 F
C. $8,120 U
D. $5,660 F
Answer:
Byklea Corporation uses the weighted-average method in its process costing system.
This month, the beginning inventory in the first processing department consisted of 200
units. The costs and percentage completion of these units in beginning inventory were:
A total of 7,000 units were started and 6,700 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
The ending inventory was 90% complete with respect to materials and 45% complete
with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $18.88
B. $18.75
C. $18.33
D. $18.46
Answer:
Ire Corporation uses the weighted-average method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
The cost per equivalent unit for materials for the month in the first processing
department is closest to:
A. $10.50
B. $9.95
C. $10.89
D. $10.32
Answer:
At an activity level of 5,300 machine-hours in a month, Clyburn Corporation's total
variable maintenance cost is $114,268 and its total fixed maintenance cost is $154,336.
What would be the total variable maintenance cost at an activity level of 5,600
machine-hours in a month? Assume that this level of activity is within the relevant
range.
A. $163,072
B. $268,604
C. $114,268
D. $120,736
Answer:
Diorio Corporation keeps careful track of the time required to fill orders. The times
recorded for a particular order appear below:
The throughput time was:
A. 4.2 hours
B. 9.5 hours
C. 30.6 hours
D. 26.4 hours
Answer:
Reference: 8-34
Caquias Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in August.
The company applies variable overhead on the basis of direct labor-hours. The direct
materials purchases variance is computed when the materials are purchased.
The materials price variance for August is:
A) $2,360 U
B) $2,360 F
C) $2,226 U
D) $2,226 F
Answer:
Reference: 8B-1
The Odle Company makes and sells a single product called a Kitt. Odle uses a standard
costing system. Each Kitt has a standard cost of 5 pounds of material at $12 per pound
and 0.9 direct labor-hours at $15 per hour. There were no inventories of any kind on
June 1. During June, the following events occurred:
- Purchased 17,000 pounds of material at a total cost of $190,000.
- Used 15,000 pounds of material to produce 2,400 Kitts.
- Used 1,900 hours of direct labor time at a total cost of $38,000.
To record the incurrence of direct labor cost and its use in production, the general ledger
would include what kind of entry to the Labor Efficiency Variance account?
A) $7,500 credit
B) $5,600 debit
C) $5,600 credit
D) $3,900 credit
Answer:
Reference: 8-58
Schuetz Corporation makes a product whose variable overhead standards are based on
direct labor-hours. The quantity standard is 0.4 hours per unit. The variable overhead
rate standard is $5.00 per hour. In July the company produced 7,500 units using 2,740
direct labor-hours. The actual variable overhead rate was $5.20 per hour.
The variable overhead rate variance for July is:
A) $600 F
B) $600 U
C) $548 F
D) $548 U
Answer:
Financial statements for Larned Company appear below:
Dividends during Year 2 totaled $263 thousand, of which $12 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $160.
Larned Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 8.7%
B. 9.1%
C. 8.3%
D. 5.5%
Answer:
Seroka Corporation estimates that its variable manufacturing overhead is $6.90 per
machine-hour and its fixed manufacturing overhead is $745,290 per period.
If the denominator level of activity is 9,000 machine-hours, the fixed element in the
predetermined overhead rate would be:
A. $6.90
B. $89.71
C. $690.00
D. $82.81
Answer:
Reference: 8A-3
The Chase Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard machine-hours. For November, the
companys flexible budget for manufacturing overhead showed the following total
budgeted costs at the denominator activity level of 40,000 machine-hours:
During November 42,000 machine-hours were used to complete 13,200 units of product
with the following actual overhead costs:
The standard time allowed to complete one unit of product is 3.6 machine-hours.
The total predetermined overhead rate per machine-hour for November was:
A) $1.75
B) $2.40
C) $2.97
D) $1.40
Answer:
The term differential cost refers to:
A. a difference in cost which results from selecting one alternative instead of another.
B. the benefit forgone by selecting one alternative instead of another.
C. a cost which does not involve any dollar outlay but which is relevant to the
decision-making process.
D. a cost which continues to be incurred even though there is no activity.
Answer:
Excerpts from Zorra Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,370 and the cost of goods sold was $850.
The acid-test ratio at the end of Year 2 is closest to:
A. 1.81
B. 2.62
C. 1.69
D. 1.36
Answer:
Jaune Company uses a standard cost system in which it applies manufacturing overhead
to units of product on the basis of standard direct labor-hours (DLHs). The following
data pertain to last months operations:
The fixed manufacturing overhead budget variance is:
A) $500 U
B) $500 F
C) $2,200 U
D) $1,700 U
Answer:
Reference: 8-59
Mazzo Corporation makes a product with the following standards for direct labor and
variable overhead:
In February the companys budgeted production was 5,000 units, but the actual
production was 5,100 units. The company used 2,090 direct labor-hours to produce this
output. The actual variable overhead cost was $6,688. The company applies variable
overhead on the basis of direct labor-hours.
The variable overhead efficiency variance for February is:
A) $150 F
B) $160 F
C) $160 U
D) $150 U
Answer:
Reference: 8A-5
The Dodge Company makes and sells a single product and uses a standard cost system
in which manufacturing overhead costs are applied to units of product on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are
required per unit of product. The Dodge Company had the following budgeted and
actual data for the year:
The budgeted direct labor-hours is used as the denominator activity for the month.
The variable overhead rate variance was:
A) $4,500 U
B) $10,500 U
C) $13,500 U
D) $16,500 U
Answer:
Nilgiri Corporation uses the FIFO method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
Note: Your answers may differ from those offered below due to rounding error. In all
cases, select the answer that is the closest to the answer you computed. To reduce
rounding error, carry out all computations to at least three decimal places.
What are the equivalent units for materials for the month in the first processing
department?
A. 1,680
B. 7,150
C. 8,200
D. 5,200
Answer:
Megna Company's net income last year was $143,000. Changes in the company's
balance sheet accounts for the year appear below:
The company paid a cash dividend and it did not dispose of any long-term investments
or property, plant, and equipment. The company did not issue any bonds payable or
repurchase any of its own common stock. The following question pertain to the
company's statement of cash flows.
The net cash provided by (used in) operating activities last year was:
A. $143,000
B. $201,000
C. $139,000
D. $197,000
Answer:
Threets Corporation's most recent comparative balance sheet appears below:
The company's net income for the year was $109 and it paid a cash dividend. It did not
dispose of any property, plant, and equipment during the year. The company did not
issue any bonds payable or repurchase any of its own common stock.
The net cash provided by (used in) financing activities for the year was:
A. $(37)
B. $5
C. $(15)
D. $(27)
Answer:
Mate Corporation's standard wage rate is $11.90 per direct labor-hour (DLH) and
according to the standards, each unit of output requires 4.5 DLHs. In May, 2,900 units
were produced, the actual wage rate was $11.50 per DLH, and the actual hours were
15,530 DLHs.
The Labor Efficiency Variance for May would be recorded as a:
A. debit of $29,512.
B. credit of $28,520.
C. credit of $29,512.
D. debit of $28,520.
Answer:
Wedd Corporation had $35,000 of raw materials on hand on May 1. During the month,
the company purchased an additional $68,000 of raw materials. During May, $92,000
of raw materials were requisitioned from the storeroom for use in production. These
raw materials included both direct and indirect materials. The indirect materials totaled
$5,000. The debits to the Work in Process account as a consequence of the raw
materials transactions in May total:
A. $92,000
B. $0
C. $68,000
D. $87,000
Answer:
The following data have been provided by Tiano Corporation:
Required:
Compute the variable overhead rate variances for lubricants and for supplies. Indicate
whether each of the variances is favorable (F) or unfavorable (U). Show your work!
Answer:
Renbud Computer Services Co. (RCS) specializes in customized software development
for the broadcast and telecommunications industries. The company was started by three
people in 1973 to develop software primarily for a national network to be used in
broadcasting national election results. After sustained and manageable growth for many
years, the company has grown very fast over the last three years, doubling in size.
This growth has placed the company in a challenging financial position. Within thirty
days, RCS will need to renew its $300,000 loan with the Third State Bank of San
Marcos. This loan is classified as a current liability on RCS's balance sheet. Harvey
Renbud, president of RCS, is concerned about renewing the loan. The bank has
requested RCS's most recent financial statements which appear below, including
balance sheets for this year and last year. The bank has also requested four ratios
relating to operating performance and liquidity.
a. Explain why the Third State Bank of San Marcos would be interested in reviewing
Renbud Computer Services Co.'s comparative financial statements and its financial
ratios before renewing the loan.
b. Calculate the following financial ratios for Renbud Computer Services Co:
1/ The current ratio for both this year and last year.
2/ Accounts receivable turnover for this year.
3/ Return on common stockholders' equity for this year.
4/ The debt-to-equity ratio for both this year and last year.
c. Discuss briefly the limitations and difficulties that can be encountered in using ratio
analysis.
Answer:
During September, Paliotta Corporation recorded the following:
Prepare T-accounts for Raw Materials, Work in Process, Finished Goods, and
Manufacturing Overhead, and Cost of Goods Sold. Record the beginning balances and
each of the transactions listed above. Finally, determine the ending balances.
Answer:
Buis Corporation, which makes landing gears, has provided the following data for a
recent month:
Required:
Determine the rate and efficiency variances for the variable overhead item supplies and
indicate whether those variables are favorable or unfavorable. Show your work!
Answer:
Longiotti Corporation produces and sells a single product. Data concerning that product
appear below:
Determine the monthly break-even in total dollar sales. Show your work!
Answer:
Laco Company acquired its factory building about 20 years ago. For a number of years
the company has rented out a small, unused part of the building. The renter's lease will
expire soon. Rather than renewing the lease, Laco Company is considering using the
space itself to manufacture a new product. Under this option, the unused space will
continue to be depreciated on a straight-line basis, as in past years.
Direct materials and direct labor cost for the new product would be $50 per unit. In
order to have a place to store finished units of the new product, the company would
have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It
would cost the company an additional $4,000 each month to advertise the new product.
A new production supervisor would be hired to oversee production of the new product
who would be paid $3,000 per month. The company would pay a sales commission of
$10 for each unit of product that is sold.
Complete the chart below by placing an "X" under each column heading that helps to
identify the costs listed to the left. There can be "X's" placed under more than one
heading for a single cost. For example, a cost might be a product cost, an opportunity
cost, and a sunk cost; there would be an "X" placed under each of these headings on the
answer sheet opposite the cost.
*Between the alternatives of (1) renting the space out again or (2) using the space to
produce the new product.
Answer:
Schiff Corporation has provided the following data from its most recent balance sheet:
Compute the debt-to-equity ratio. Show your work!
Answer:
Clasby Corporation uses the FIFO method in its process costing. The following data
concern the company's Assembly Department for the month of January.
Compute the costs per equivalent unit for the Assembly Department for January using
the FIFO method.
Answer:
Hannah Corporation's comparative balance sheet appears below:
The company's net income (loss) for the year was $0 and its cash dividends were
$2,000. It did not dispose of any property, plant, and equipment, retire any bonds
payable, or repurchase any of its own common stock during the year.
Compute the change in each balance sheet account denoted with an asterisk (*).
Indicate whether the change in each balance will be recorded in the operating,
investing, or financing activities section of the statement of cash flows. For items
recorded in the operating activities section, also indicate whether the change will be
added to or subtracted from net income. For all other items, indicate whether the change
will be added as a cash inflow or subtracted as a cash outflow.
Answer:
Packer Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
a. What is the unit product cost for the month under variable costing?
b. Prepare a contribution format income statement for the month using variable costing.
c. Without preparing an income statement, determine the absorption costing net
operating income for the month. (Hint: Use the reconciliation method.)
Answer:
Suermann Corporation's only product sells for $140 per unit. Its current sales are 17,500
units and its break-even sales are 14,350 units.
Compute the margin of safety in both dollars and as a percentage of sales.
Answer:
The selling and administrative expense budget of Fenley Corporation is based on the
number of units sold, which are budgeted to be 2,500 units in January. The variable
selling and administrative expense is $4.40 per unit. The budgeted fixed selling and
administrative expense is $35,750 per month, which includes depreciation of $4,000.
The remainder of the fixed selling and administrative expense represents current cash
flows.
Prepare the selling and administrative expense budget for January.
Answer:
Data concerning Lantieri Corporation's single product appear below:
Fixed expenses are $162,000 per month. The company is currently selling 3,000 units
per month.
The marketing manager believes that a $10,000 increase in the monthly advertising
budget would result in a 180 unit increase in monthly sales. What should be the overall
effect on the company's monthly net operating income of this change? Show your
work!
Answer:
Holvey Company makes three products in a single facility. Data concerning these
products follow:
The mixing machines are potentially the constraint in the production facility. A total of
6,300 minutes are available per month on these machines. Direct labor is a variable cost
in this company.
a. How many minutes of mixing machine time would be required to satisfy demand for
all three products?
b. How much of each product should be produced to maximize net operating income?
(Round off to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of
mixing machine time if the company has made the best use of the existing mixing
machine capacity? (Round off to the nearest whole cent.)
Answer:
Dagnan Corporation produces and sells a single product whose contribution margin
ratio is 66%. The company's monthly fixed expense is $667,920 and the company's
monthly target profit is $72,600.
Determine the dollar sales to attain the company's target profit. Show your work!
Answer:
A number of companies in different industries are listed below:
1/ Elevator production and installation company
2/ Cattle feedlot that fattens cattle prior to slaughter
3/ Brick manufacturer
4/ Architectural firm that designs custom homes
5/ Winery that produces a number of varietal wines
6/ Synthetic rubber manufacturer
For each company, indicate whether the company is most likely to use job-order costing
or process costing.
Answer:
Data concerning Maline Corporation's single product appear below:
Fixed expenses are $55,000 per month. The company is currently selling 1,000 units per
month.
The marketing manager would like to cut the selling price by $6 and increase the
advertising budget by $2,700 per month. The marketing manager predicts that these two
changes would increase monthly sales by 100 units. What should be the overall effect
on the company's monthly net operating income of this change? Show your work!
Answer:
Gulick Corporation's most recent income statement appears below:
The beginning balance of total assets was $320,000 and the ending balance was
$280,000.
Compute the return on total assets. Show your work!
Answer:
Walkenhorst Corporations manufacturing overhead includes $7.80 per machine-hour
for supplies; $7.30 per machine-hour for indirect labor; $21,210 per period for salaries;
and $19,950 per period for depreciation.
Required:
Determine the predetermined overhead rate if the denominator level of activity is 1,500
machine-hours. Show your work!
Answer:
