Hubiak Corporation produces a single product and has the following cost structure:
Compute the unit product cost under absorption costing. Show your work!
Answer:
When a job has been completed, the goods are transferred from the production
department to the finished goods warehouse and the journal entry would include a
credit to Work in Process.
Answer:
The budget variance represents the difference between the actual fixed manufacturing
overhead cost incurred during a period and the budgeted fixed manufacturing overhead
cost.
Answer:
In responsibility accounting, each segment in an organization should be charged with
the costs for which it is responsible and over which it has control plus its share of
common organizational costs.
Answer:
A company with a degree of operating leverage of 4 would expect net operating income
to increase by 200% if sales increased from $100,000 to $150,000.
Answer:
If two companies have the same total sales and total expenses and make the same
product, the volatility of net operating income with changes in sales will tend to be
greater in the company with a higher proportion of fixed expenses in its cost structure.
Answer:
The weighted-average method of process costing can only be used if materials are
added at the beginning of the production process.
Answer:
If the assets in which borrowed funds are invested are able to earn a rate of return
greater than the interest rate required by the lender, then financial leverage is positive.
Answer:
Horizontal analysis involves comparing two or more years’ financial data for a single
company.
Answer:
Absorption costing is more compatible with cost-volume-profit analysis than is variable
costing.
Answer:
Residual income is the net operating income that an investment center earns above the
minimum required return on the investment in operating assets.
Answer:
When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs deferred in inventory under absorption costing should be
added to variable costing net operating income to arrive at the absorption costing net
operating income.
Answer:
Only those costs that would disappear over time if a segment were eliminated should be
considered traceable costs of the segment.
Answer:
All debt is considered in the computation of the acid-test ratio.
Answer:
Reichelderfer Corporation has provided data concerning the company’s Manufacturing
Overhead account for the month of August. Prior to the closing of the overapplied or
underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing
Overhead account was $50,000 and the total of the credits to the account was $72,000.
Which of the following statements is TRUE?
A. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $72,000.
B. Manufacturing overhead applied to Work in Process for the month was $50,000.
C. Actual manufacturing overhead for the month was $50,000.
D. Manufacturing overhead for the month was underapplied by $22,000.
Answer:
The impact on net operating income of a given dollar change in sales can be computed
by applying the contribution margin ratio to the dollar change in sales.
Answer:
As the inventory turnover increases, the number of days required to sell the inventory
one time also increases.
Answer:
If the actual rate per direct labor-hour exceeds the standard rate per direct labor-hour,
then the journal entry to record the Direct Labor Rate Variance would be a credit.
Answer:
Paying cash to retire bonds payable would be considered a financing activity on the
statement of cash flows.
Answer:
If the actual purchase price for materials exceeds the standard purchase price, then the
journal entry to record the Direct Materials Price Variance would be a debit.
Answer:
In the second-stage allocation in activity-based costing, costs that were not allocated in
the first stage are assigned to the company’s most profitable products.
Answer:
Joint costs are not relevant to the decision to sell a product at the split-off point or to
process the product further.
Answer:
If by dropping a product a firm can avoid more in fixed costs than it loses in
contribution margin, then the firm is better off economically if the product is dropped.
Answer:
A spending variance is the difference between how much a cost should have been,
given the actual level of activity, and the actual amount of the cost for the period.
Answer:
If the actual purchase price for materials exceeds the standard purchase price, then the
journal entry to record the Direct Materials Price Variance would be a debit.
Answer:
If a company has a great deal of product diversity, activity-based costing will generally
yield more accurate product costs than traditional overhead application rates based on
direct labor or machine hours.
Answer:
Committed fixed costs are fixed costs that are not controllable.
Answer:
When computing the acid-test ratio, a short-term note receivable would be included in
the numerator.
Answer:
An unfavorable volume variance means that a firm operated at an activity level that was
above the activity level planned for the period.
Answer:
Avoidable costs are also called relevant costs.
Answer:
A debit balance in the Manufacturing Overhead account at the end of the year means
that manufacturing overhead is overapplied.
Answer:
The actual manufacturing overhead incurred at Hogans Corporation during April was
$59,000, while the manufacturing overhead applied to Work in Process was $74,000.
The company’s Cost of Goods Sold was $289,000 prior to closing out its Manufacturing
Overhead account. The company closes out its Manufacturing Overhead account to
Cost of Goods Sold. Which of the following statements is TRUE?
A. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $274,000
B. Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $274,000
C. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $304,000
D. Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after
closing out the Manufacturing Overhead account is $304,000
Answer:
Residual income should not be used to evaluate a cost center.
Answer:
Period costs are expensed as incurred, rather than going into the Work in Process
account.
Answer:
A volume variance and an efficiency variance are computed for fixed manufacturing
overhead costs.
Answer:
The performance measures on a balanced scorecard tend to fall into four groups:
financial measures, customer measures, internal business process measures, and
external business process measures.
Answer:
An unfavorable volume variance means that a firm operated at an activity level that was
above the activity level planned for the period.
Answer:
The fixed manufacturing overhead budget variance is not controllable by managers
because fixed costs are not controllable.
Answer:
Direct material costs are generally variable costs.
Answer:
The materials price variance is computed by multiplying the difference between the
actual price and the standard price by the actual quantity of materials used in
production.
Answer:
Delreal Corporation has provided the following data concerning its only product:
What is the margin of safety in dollars?
A. $4,532,000
B. $815,760
C. $3,716,240
D. $3,021,333
Answer:
Cung Inc. has some material that originally cost $68,400. The material has a scrap value
of $30,100 as is, but if reworked at a cost of $1,400, it could be sold for $30,800. What
would be the incremental effect on the company’s overall profit of reworking and
selling the material rather than selling it as is as scrap?
A. -$69,100
B. -$700
C. $29,400
D. -$39,000
Answer:
During September, Stutzman Corporation incurred $86,000 of actual Manufacturing
Overhead costs. During the same period, the Manufacturing Overhead applied to Work
in Process was $81,000.
The journal entry to record the incurrence of the actual Manufacturing Overhead costs
would include a:
A. credit to Manufacturing Overhead of $86,000
B. debit to Manufacturing Overhead of $86,000
C. credit to Work in Process of $81,000
D. debit to Work in Process of $81,000
Answer:
Reference: 8-38
The Thompson Company uses standard costing and has established the following direct
material and direct labor standards for each unit of Lept.
Direct materials: 2 gallons at $4 per gallon
Direct labor: 0.5 hours at $8 per hour
During September, the company made 6,000 Lepts and incurred the following costs:
Direct materials purchased: 13,400 gallons at $4.10 per gallon
Direct materials used: 12,600 gallons
Direct labor used: 2,800 hours at $7.65 per hour
The labor rate variance for September was:
A) $1,530 unfavorable
B) $980 favorable
C) $280 favorable
D) $980 unfavorable
Answer:
A tile manufacturer has supplied the following data:
The company’s contribution margin ratio is closest to:
A. 54.3%
B. 8.9%
C. 45.7%
D. 36.6%
Answer:
Hartzog Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on
preferred stock totaled $5 thousand. The market price of common stock at the end of
Year 2 was $7.04 per share.
The dividend payout ratio for Year 2 is closest to:
A. 81.3%
B. 75.0%
C. 70.6%
D. 1250.0%
Answer:
Daguio Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $224,580. At the
end of the year, actual direct labor-hours for the year were 18,200 hours, manufacturing
overhead for the year was underapplied by $12,100, and the actual manufacturing
overhead was $219,580. The predetermined overhead rate for the year must have been
closest to:
A. $11.40 per machine-hour
B. $12.34 per machine-hour
C. $12.06 per machine-hour
D. $10.53 per machine-hour
Answer:
Which of the following is not correct regarding the manufacturing overhead budget?
A. Total budgeted cash disbursements for manufacturing overhead is equal to the total
of budgeted variable and fixed manufacturing overhead.
B. Manufacturing overhead costs should be broken down by cost behavior.
C. The manufacturing overhead budget should provide a schedule of all costs of
production other than direct materials and direct labor.
D. A schedule showing budgeted cash disbursements for manufacturing overhead
should be prepared for use in developing the cash budget.
Answer:
Reference: 8A-7
The Malcolm Company uses a standard cost system in which manufacturing overhead
costs are applied to products on the basis of standard direct labor-hours (DLHs). The
standards call for 3 hours of direct labor per unit produced. The following data pertain
to the companys manufacturing overhead for the month of July:
The volume variance for July is:
A) $1,131 F
B) $900 F
C) $1,131 U
D) $900 U
Answer:
Franklin Glass Works uses a standard cost system in which manufacturing overhead is
applied on the basis of standard direct labor-hours. Each unit requires two standard
hours of direct labor for completion. The denominator activity for the year was based
on budgeted production of 200,000 units. Total overhead was budgeted at $900,000 for
the year, and the fixed manufacturing overhead rate was $1.50 per direct labor-hour.
The actual data pertaining to the manufacturing overhead for the year are presented
below:
Franklin’s variable overhead rate variance for the year is:
A. $20,000 unfavorable
B. $22,000 favorable
C. $22,000 unfavorable
D. $20,000 favorable
Answer:
Brarin Corporation is a small wholesaler of gourmet food products. Data regarding the
store’s operations follow:
o Sales are budgeted at $340,000 for November, $360,000 for December, and $350,000
for January.
o Collections are expected to be 55% in the month of sale, 44% in the month following
the sale, and 1% uncollectible.
o The cost of goods sold is 80% of sales.
o The company would like to maintain ending merchandise inventories equal to 70% of
the next 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 $23,100.
o Monthly depreciation is $21,000.
o Ignore taxes.
The difference between cash receipts and cash disbursements in December would be:
A. $17,000
B. $24,300
C. $41,300
D. $65,600
Answer:
Addy Company has two products: A and B. The annual production and sales of Product
A is 1,700 units and of Product B is 1,100 units. The company has traditionally used
direct labor-hours as the basis for applying all manufacturing overhead to products.
Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct
labor-hours per unit. The total estimated overhead for next period is $98,785.
The company is considering switching to an activity-based costing system for the
purpose of computing unit product costs for external reports. The new activity-based
costing system would have three overhead activity cost pools–Activity 1, Activity 2,
and General Factory–with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct
labor-hours.)
The predetermined overhead rate under the traditional costing system is closest to:
A. $9.15
B. $43.48
C. $84.43
D. $19.08
Answer:
Reference: 8-57
Jardell Corporation makes a product with the following standards for labor and variable
overhead:
The company budgeted for production of 6,400 units in June, but actual production was
6,400 units. The company used 3,180 direct labor-hours to produce this output. The
actual variable overhead rate was $4.90 per hour. The company applies variable
overhead on the basis of direct labor-hours.
The variable overhead rate variance for June is:
A) $318 U
B) $320 F
C) $318 F
D) $320 U
Answer:
Austin Wool Products purchases raw wool and processes it into yarn. The spindles of
yarn can then be sold directly to stores or they can be used by Austin Wool Products to
make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data
for the spindles of yarn and for the afghans are as follows:
Each month 4,000 spindles of yarn are produced that can either be sold outright or
processed into afghans.
If Austin chooses to produce 4,000 afghans each month, the change in the monthly net
operating income as compared to selling 4,000 spindles of yarn is:
A. $24,000 decrease
B. $24,000 increase
C. $16,000 decrease
D. $16,000 increase
Answer:
Reference: 8-53
A manufacturing company that has only one product has established the following
standards for its variable manufacturing overhead. The company bases its variable
manufacturing overhead standards on machine-hours.
The following data pertain to operations for the last month:
What is the variable overhead rate variance for the month?
A) $1,220 U
B) $5,885 F
C) $1,220 F
D) $5,885 U
Answer:
Whitney, Inc., produces a single product. The following data pertain to one month’s
operations:
The carrying value on the balance sheet of the ending finished goods inventory under
variable costing would be:
A. $16,000
B. $10,000
C. $19,000
D. $12,000
Answer:
Dullen Corporation has provided the following data concerning its most important raw
material, compound I51D:
The raw material was purchased on account.
Required:
a. Record the purchase of the raw material in a journal entry.
b. Record the use of the raw material in production in a journal entry.
Answer:
Last year Jason Company had a net income of $250,000, income tax expense of
$78,000, and interest expense of $30,000. The company’s times interest earned was
closest to:
A. 4.73
B. 9.33
C. 11.93
D. 8.33
Answer:
During April, Division D of Carney Company had a segment margin ratio of 15%, a
variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000.
Division D’s sales were closest to:
A. $100,000
B. $60,000
C. $33,333
D. $22,500
Answer:
Pedulla Inc, which produces and sells a single product, has provided its contribution
format income statement for February.
If the company sells 2,900 units, its net operating income should be closest to:
A. $35,581
B. $44,800
C. $31,900
D. $58,000
Answer:
Perona Corporation produces and sells a single product. Data concerning that product
appear below:
The unit sales to attain the company’s monthly target profit of $9,000 is closest to:
A. 5,601 units
B. 4,400 units
C. 2,464 units
D. 4,155 units
Answer:
Green Enterprises produces a single product. The following data were provided by the
company for the most recent period:
For the period above, one would expect the net operating income under absorption
costing to be:
A. higher than the net operating income under variable costing.
B. lower than the net operating income under variable costing.
C. the same as the net operating income under variable costing.
D. The relation between absorption costing net operating income and variable costing
net operating income cannot be determined.
Answer:
Financial statements for Narita Company appear below:
Narita Company’s times interest earned for Year 2 was closest to:
A. 14.7
B. 26.0
C. 10.3
D. 15.7
Answer:
Reference: 8-26
Wayland Corporations static planning budget for April appears below. The company
bases its budgets on machine-hours.
In April, the actual number of machine-hours was 6,600, the actual supplies cost was
$64,040, the actual power cost was $7,070, the actual salaries cost was $88,300, and the
actual equipment depreciation was $7,430.
The spending variance for equipment depreciation for the month should be:
A) $280 F
B) $170 U
C) $280 U
D) $170 F
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 labor rate variance for August is:
A) $440 F
B) $440 U
C) $420 U
D) $420 F
Answer:
A soft drink bottler incurred the following plant utility costs: 1,800 units bottled with
utility costs of $5,750, and 1,500 units bottled with utility costs of $5,200. What is the
variable cost per unit bottled (Use the High-low method. Round to the nearest cent.)
A. $3.47
B. $3.19
C. $1.83
D. None of the above is TRUE.
Answer:
Pool Company’s variable expenses are 36% of sales. Pool is contemplating an
advertising campaign that will cost $20,000. If sales increase by $80,000, the
company’s net operating income should increase by:
A. $28,800
B. $64,000
C. $8,800
D. $31,200
Answer:
Cadarette Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $17.73 per share.
The return on total assets for Year 2 is closest to:
A. 7.75%
B. 8.67%
C. 7.69%
D. 8.61%
Answer:
Menlove Company had the following income statement for the most recent year:
Given this data, the unit contribution margin was:
A. $2 per unit
B. $15 per unit
C. $6 per unit
D. $4 per units
Answer:
Knoke Corporation’s contribution margin ratio is 29% and its fixed monthly expenses
are $17,000. If the company’s sales for a month are $98,000, what is the best estimate of
the company’s net operating income? Assume that the fixed monthly expenses do not
change.
A. $81,000
B. $11,420
C. $52,580
D. $28,420
Answer:
Porl Corporation makes and sells a single product called a Yute. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last quarter
of the year. The following budget data are available:
All of these expenses (except depreciation) are paid in cash in the month they are
incurred.
If the total budgeted selling and administrative expense for October is $409,000, then
how many Yutes does the company plan to sell in October?
A. 19,700 units
B. 20,000 units
C. 20,500 units
D. 20,200 units
Answer:
Answer:
Deluz Corporation uses the FIFO method in its process costing. The following data
pertain to its Assembly Department for August.
Compute the equivalent units of production for both materials and conversion costs for
the Assembly Department for August using the FIFO method.
Answer:
During May, Hiles Corporation budgeted for 31,000 customers, but actually served
29,000 customers. The company uses the following revenue and cost formulas in its
budgeting, where q is the number of customers served:
Revenue: $4.40q
Wages and salaries: $35,800 + $1.70q
Supplies: $0.60q
Insurance: $12,300
Miscellaneous: $5,500 + $0.10q
Required:
Prepare the companys flexible budget for May based on the actual level of activity for
the month.
Answer:
During August, Allee Corporation incurred $64,000 of actual Manufacturing Overhead
costs. During the same period, the Manufacturing Overhead applied to Work in Process
was $66,000.
Prepare journal entries to record the incurrence of manufacturing overhead and the
application of manufacturing overhead to Work in Process.
Answer:
Iaukea Company makes two products from a common input. Joint processing costs up
to the split-off point total $49,600 a year. The company allocates these costs to the joint
products on the basis of their total sales values at the split-off point. Each product may
be sold at the split-off point or processed further. Data concerning these products appear
below:
a. What is the net monetary advantage (disadvantage) of processing Product X beyond
the split-off point?
b. What is the net monetary advantage (disadvantage) of processing Product Y beyond
the split-off point?
c. What is the minimum amount the company should accept for Product X if it is to be
sold at the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be
sold at the split-off point?
Answer:
Larney Corporation uses process costing. A number of transactions that occurred in
June are listed below.
(1) Raw materials that cost $38,200 are withdrawn from the storeroom for use in the
Mixing Department. All of these raw materials are classified as direct materials.
(2) Direct labor costs of $36,500 are incurred, but not yet paid, in the Mixing
Department.
(3) Manufacturing overhead of $42,100 is applied in the Mixing Department using the
department’s predetermined overhead rate.
(4) Units with a carrying cost of $112,400 finish processing in the Mixing Department
and are transferred to the Drying Department for further processing.
(5) Units with a carrying cost of $143,800 finish processing in the Drying Department,
the final step in the production process, and are transferred to the finished goods
warehouse.
(6) Finished goods with a carrying cost of $138,500 are sold.
Prepare journal entries for each of the transactions listed above.
Answer:
Answer:
Dubitsky Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $516,000 per month. The company is currently selling 7,000 units
per month.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $9 per unit. In
exchange, the sales staff would accept an overall decrease in their salaries of $55,000
per month. The marketing manager predicts that introducing this sales incentive would
increase monthly sales by 200 units. What should be the overall effect on the company’s
monthly net operating income of this change? Show your work!
Answer:
Shapiro Corporation has provided the following data for the most recent month:
Prepare T-accounts for Raw Materials, Work in Process, Finished Goods,
Manufacturing Overhead, and Cost of Goods Sold. Record the beginning balances and
each of the transactions listed above. Finally, determine the ending balances.
Answer:
Data concerning Tietz Corporation’s single product appear below:
Fixed expenses are $1,044,000 per month. The company is currently selling 9,000 units
per month.
The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $14 per unit. In
exchange, the sales staff would accept an overall decrease in their salaries of $110,000
per month. The marketing manager predicts that introducing this sales incentive would
increase monthly sales by 400 units. What should be the overall effect on the company’s
monthly net operating income of this change? Show your work!
Answer:
The following data have been provided by Fattig Corporation, which uses the
weighted-average method in its process costing. The data are for the company’s Shaping
Department for October.
Compute the equivalent units of production for both materials and conversion costs for
the Shaping Department for October using the weighted-average method.
Answer:
Debutiaco Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of
Year 2 was $12.00 per share.
Compute the following for Year 2:
a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders’ equity.
g. Book value per share.
Answer:
Data from Paynter Corporation’s most recent balance sheet appear below:
A total of 100,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year.
Compute the book value per share. Show your work!
Answer:
Bahr Corporation has provided the following data for February.
a. Compute the budget variance for February. Show your work!
b. Compute the volume variance for February. Show your work!
Answer:
Clines Corporation bases its budgets on machine-hours. The companys static planning
budget for November appears below:
Required:
Prepare a flexible budget for 9,800 machine-hours per month.
Answer:
Tubergen Corporation’s most recent income statement appears below:
Compute the gross margin percentage.
Answer:
Nowlan Co. manufactures and sells trophies for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 11,000 trophies each month; current
monthly production is 8,800 trophies. The company normally charges $87 per trophy.
Cost data for the current level of production are shown below:
The company has just received a special one-time order for 500 trophies at $50 each.
For this particular order, no variable selling and administrative costs would be incurred.
This order would also have no effect on fixed costs.
Should the company accept this special order? Why?
Answer:
Jerston Company has an annual plant capacity of 3,000 units. Data concerning this
product are given below:
The company has received a special order for 500 units at a selling price of $45 each.
Regular sales would not be affected, and sales commissions on the 500 units would be
reduced by one-third. This special order would have no impact on total fixed costs.
Determine whether the company should accept the special order. Show all
computations.
Answer: