1) A flexible budget cannot be used to estimate what costs should have been at a given
level of activity.
2) Negative free cash flow suggests that the company generated enough cash flow from
its operating activities to fund its capital expenditures and dividend payments.
3) Under the indirect method of determining the net cash provided by operating
activities on the statement of cash flows, an increase in accounts receivable would be
subtracted from net income.
4) The first budget a company prepares in a master budget is the production budget.
5) One criticism of the payback method is that it ignores cash flows that occur after the
payback point has been reached.
6) Activity rates in activity-based costing are computed by dividing costs from the
second-stage allocations by the activity measure for each activity cost pool.
7) Defective units should be detected and scrapped or reworked before the bottleneck
operation rather than after it.
8) Hairston Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During
November, the company budgeted for 7,700 units, but its actual level of activity was
7,720 units. The company has provided the following data concerning the formulas
used in its budgeting and its actual results for November:
Data used in budgeting:
Actual results for November:
The direct materials in the flexible budget for November would be closest to:
A.$126,681
B.$127,340
C.$127,380
D.$127,050
9) Warila Inc. has provided the following data for the month of September. There were
no beginning inventories; consequently, the direct materials, direct labor, and
manufacturing overhead applied listed below are all for the current month.
Manufacturing overhead for the month was underapplied by $3,000.
The Corporation allocates any underapplied or overapplied manufacturing overhead
among work in process, finished goods, and cost of goods sold at the end of the month
on the basis of the manufacturing overhead applied during the month in those accounts.
The work in process inventory at the end of September after allocation of any
underapplied or overapplied manufacturing overhead for the month is closest to:
A.$23,509
B.$23,111
C.$23,070
D.$23,550
10) Pulkkinen Corporation has provided the following information concerning a capital
budgeting project:
The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 2 is:
A.$70,000
B.$50,000
C.$52,500
D.$39,500
11) Maraby Corporation’s acid-test ratio at the end of Year 2 was closest to:
A.0.51
B.0.47
C.1.14
D.1.95
12) The best estimate of the total cost to manufacture 6,300 units is closest to:
A) $984,060
B) $1,031,310
C) $1,047,060
D) $1,078,560
13) The Forbes Corporation uses a standard cost system in which overhead costs are
applied to products on the basis of standard direct labor-hours (DLHs). The following
data applied to the company’s activities for June:
The fixed component of the predetermined overhead rate for June is:
A.$3.00 per DLH
B.$3.23 per DLH
C.$3.78 per DLH
D.$3.46 per DLH
14) Sikorski Corporation has two service departments, Administrative and Facilities,
and two operating departments, Assembly and Customer Solutions.
The company uses the direct method to allocate service department costs to operating
departments. Administrative costs are allocated on the basis of employee hours and
Facilities costs are allocated on the basis of space occupied.
The total Customer Solutions Department cost after the allocations of service
department costs is closest to:
A.$2,851,990
B.$2,921,486
C.$2,878,917
D.$2,890,630
15) Cafferty Corporation has provided the following data concerning its direct labor
costs for March:
The Labor Efficiency Variance for March would be recorded as a:
A.Debit of $3,200
B.Credit of $3,125
C.Credit of $3,200
D.Debit of $3,125
16) The constraint at Johngrass Corporation is time on a particular machine. The
company makes three products that use this machine. Data concerning those products
appear below:
Assume that sufficient time is available on the constrained machine to satisfy demand
for all but the least profitable product. Up to how much should the company be willing
to pay to acquire more of the constrained resource?
A.$11.60 per minute
B.$14.10 per minute
C.$91.64 per unit
D.$22.24 per unit
17) Buonocore Clinic uses client-visits as its measure of activity. During August, the
clinic budgeted for 2,800 client-visits, but its actual level of activity was 2,770
client-visits. The clinic has provided the following data concerning the formulas used in
its budgeting and its actual results for August:
Data used in budgeting:
Actual results for August:
The spending variance for medical supplies in August would be closest to:
A.$0
B.$183 F
C.$275 U
D.$183 U
18) During its first year of operations, Carlos Manufacturing Corporation incurred the
following costs to produce 8,000 units of its only product:
The company also incurred the following costs in selling 7,500 units of product during
its first year:
Assume that direct labor is a variable cost.
If Carlos’ absorption costing net operating income for this first year is $118,125, what
would its variable costing net operating income be for this first year?
A.$86,000
B.$90,000
C.$104,125
D.$146,250