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:
If Thomson Company did not issue any bonds payable during the year and its bonds
payable account decreased by $200,000 over the course of a year, then this amount
would be shown on the company’s statement of cash flows prepared under the indirect
method as:
A. a cash inflow of $200,000 under investing activities.
B. a cash outflow of $200,000 under investing activities.
C. a cash inflow of $200,000 under financing activities.
D. a cash outflow of $200,000 under financing activities.
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 denominator activity level in direct labor-hours used by Hawkins in setting the
predetermined overhead rate for February is:
A. 9,300 hours
B. 8,400 hours
C. 9,000 hours
D. 8,700 hours
Answer:
Reference: 8-31
Kibodeaux Corporation makes a product with the following standard costs:
The company budgeted for production of 3,300 units in June, but actual production was
3,400 units. The company used 33,240 liters of direct material and 320 direct
labor-hours to produce this output. The company purchased 35,900 liters of the direct
material at $4.90 per liter. The actual direct labor rate was $22.70 per hour and the
actual variable overhead rate was $2.70 per hour.
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 June is:
A) $238 U
B) $238 F
C) $224 U
D) $224 F
Answer:
The Materials Price Variance for May would be recorded as a:
A) Credit of $2,056
B) Debit of $2,640
C) Debit of $2,056
D) Credit of $2,640
Answer:
Reference: 8-6
Mock Clinic uses client-visits as its measure of activity. During August, the clinic
budgeted for 3,100 client-visits, but its actual level of activity was 3,150 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 personnel expenses in the planning budget for August would be closest to:
A) $81,155
B) $80,989
C) $82,295
D) $80,370
Answer:
Laro Corporation produces and sells a single product with the following characteristics:
The company is currently selling 5,000 units per month. Fixed expenses are $302,000
per month.
This question is to be considered independently of all other questions relating to Laro
Corporation. Refer to the original data when answering this question.
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 a decrease in their salaries of $40,000 per month.
(This is the company’s savings for the entire sales staff.) The marketing manager
predicts that introducing this sales incentive would increase monthly sales by 100 units.
What should be the overall effect on the company’s monthly net operating income of
this change?
A. increase of $376,600
B. increase of $1,600
C. decrease of $78,400
D. increase of $39,100
Answer:
Grosseiller Corporation uses the weighted-average method in its process costing
system. This month, the beginning inventory in the first processing department
consisted of 900 units. The costs and percentage completion of these units in beginning
inventory were:
A total of 6,400 units were started and 5,200 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 65% complete with respect to materials and 15% 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 total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $270,600
B. $238,935
C. $335,428
D. $242,700
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 working capital at the end of Year 2 is:
A. $630
B. $810
C. $680
D. $420
Answer:
Balbuena Corporation produces and sells two products. Data concerning those products
for the most recent month appear below:
The fixed expenses of the entire company were $15,630. If the sales mix were to shift
toward Product K87W with total sales dollars remaining constant, the overall
break-even point for the entire company:
A. would not change.
B. would increase.
C. would decrease.
D. could increase or decrease.
Answer:
Dieringer Corporation’s most recent balance sheet and income statement appear below:
The working capital at the end of Year 2 is:
A. $970 thousand
B. $570 thousand
C. $280 thousand
D. $810 thousand
Answer:
Payne Company makes two products, M and N, in a joint process. At the split-off point,
40,000 units of M and 50,000 units of N are available each month. Monthly joint
production costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be
sold at the split-off point for $3.20 per unit or it can be processed further and sold for
$6.30 per unit. If N is processed further, additional processing costs of $2.50 per unit
will be incurred.
What would the selling price per unit of product N need to be after further processing in
order for Payne Company to be economically indifferent between selling N at the
split-off point or processing N further?
A. $8.70
B. $6.70
C. $7.20
D. $5.70
Answer:
Talboe Company makes wheels which it uses in the production of children’s wagons.
Talboe’s costs to produce 200,000 wheels annually are as follows:
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the
wheels are purchased from the outside supplier, $25,000 of annual fixed manufacturing
overhead would be avoided and the facilities now being used to make the wheels would
be rented to another company for $55,000 per year.
If Talboe chooses to buy the wheel from the outside supplier, then the change in annual
net operating income is a:
A. $5,000 decrease
B. $50,000 increase
C. $70,000 increase
D. $40,000 increase
Answer:
Data concerning Homme Corporation’s single product appear below:
The company is currently selling 2,000 units per month. Fixed expenses are $130,000
per month.
This question is to be considered independently of all other questions relating to
Homme Corporation. Refer to the original data when answering this question.
Management is considering using a new component that would increase the unit
variable cost by $16. Since the new component would increase the features of the
company’s product, the marketing manager predicts that monthly sales would increase
by 500 units. What should be the overall effect on the company’s monthly net operating
income of this change?
A. increase of $2,000
B. decrease of $2,000
C. decrease of $30,000
D. increase of $30,000
Answer:
Fahey Company manufactures a single product that it sells for $25 per unit. The
company has the following cost structure:
There were no units in beginning inventory. During the year, 18,000 units were
produced and 15,000 units were sold.
The company’s net operating income for the year under variable costing is:
A. $60,000
B. $81,000
C. $57,000
D. $69,000
Answer:
Financial statements for Orange Company appear below:
Dividends during Year 2 totaled $156 thousand, of which $18 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $
Orange Company’s earnings per share of common stock for Year 2 was closest to:
A. $7.23
B. $2.27
C. $10.91
D. $7.64
Answer:
Eagle Corporation manufactures a picnic table. Shown below is Eagle’s cost structure:
In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for
$120 each.
How would Eagle’s variable costing net operating income have been affected in its first
year if only 9,000 tables were sold instead of 10,000?
A. net operating income would have been $37,100 lower
B. net operating income would have been $45,800 lower
C. net operating income would have been $56,000 lower
D. net operating income would have been $62,000 lower
Answer:
Able Control Company, which manufactures electrical switches, uses a standard cost
system in which manufacturing overhead costs are applied to units of product on the
basis of standard direct labor-hours (DLHs). The standard overhead costs are shown
below:
*Based on 300,000 DLHs per month.
The following information is available for the month of October:
– Plans called for the production of 60,000 switches.
– 56,000 switches were actually produced.
– 275,000 direct labor-hours were worked at a total cost of $2,550,000.
– Actual variable manufacturing overhead costs were $2,340,000.
– Actual fixed manufacturing overhead costs were $3,750,000.
The fixed manufacturing overhead budget variance for October was:
A. $48,000 Unfavorable
B. $150,000 Unfavorable
C. $300,000 Favorable
D. $390,000 Unfavorable
Answer:
Reference: 8-39
The Geurtz Company uses standard costing. The company makes and sells a single
product called a Roff. The following data are for the month of August:
– Actual cost of direct material purchased and used: $65,560
– Material price variance: $5,960 unfavorable
– Total materials variance: $22,360 unfavorable
– Standard cost per pound of material: $4
– Standard cost per direct labor-hour: $5
– Actual direct labor-hours: 6,500 hours
– Labor efficiency variance: $3,500 favorable
– Standard number of direct labor-hours per unit of Roff: 2 hours
– Total labor variance: $400 unfavorable
The standard material allowed to produce one unit of Roff was:
A) 1 pound
B) 4 pounds
C) 3 pounds
D) 2 pounds
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.
How many units are in ending work in process inventory in the first processing
department at the end of the month?
A. 500
B. 900
C. 300
D. 6,800
Answer:
Delatrinidad Corporation’s net income last year was $7,736,000. The dividend on
common stock was $12.60 per share and the dividend on preferred stock was $2.80 per
share. The market price of common stock at the end of the year was $53.30 per share.
Throughout the year, 400,000 shares of common stock and 200,000 shares of preferred
stock were outstanding. The dividend payout ratio is closest to:
A. 0.70
B. 0.65
C. 2.36
D. 1.87
Answer:
The following cost data pertain to the operations of Swestka Department Stores, Inc.,
for the month of July.
The Northridge Store is just one of many stores owned and operated by the company.
The Cosmetics Department is one of many departments at the Northridge Store. The
central warehouse serves all of the company’s stores.
What is the total amount of the costs listed above that are NOT direct costs of the
Northridge Store?
A. $40,000
B. $34,000
C. $141,000
D. $78,000
Answer:
Reference: 8A-10
A furniture manufacturer has a standard costing system based on standard direct
labor-hours (DLHs) as the measure of activity. Data from the companys flexible budget
for manufacturing overhead are given below:
The following data pertain to operations for the most recent period:
What was the fixed manufacturing overhead budget variance for the period to the
nearest dollar?
A) $4,286 F
B) $1,800 U
C) $2,775 F
D) $1,575 F
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:
Temblador Corporation purchased a machine 7 years ago for $319,000 when it
launched product E26T. Unfortunately, this machine has broken down and cannot be
repaired. The machine could be replaced by a new model 330 machine costing
$323,000 or by a new model 230 machine costing $285,000. Management has decided
to buy the model 230 machine. It has less capacity than the model 330 machine, but its
capacity is sufficient to continue making product E26T. Management also considered,
but rejected, the alternative of dropping product E26T and not replacing the old
machine. If that were done, the $285,000 invested in the new machine could instead
have been invested in a project that would have returned a total of $386,000.
In making the decision to buy the model 230 machine rather than the model 330
machine, the sunk cost was:
A. $319,000
B. $386,000
C. $285,000
D. $323,000
Answer:
Boggs Company has 40,000 shares of common stock outstanding. The book value per
share of this stock was $60.00 and the market value per share was $75.00 at the end of
the year. Net income for the year was $400,000. Interest on long term debt was
$40,000. Dividends paid to common stockholders were $3.00 per share. The tax rate
was 30%. The company’s price-earnings ratio at the end of the year was:
A. 25
B. 20
C. 7.50
D. 6.00
Answer:
Broze Company makes four products in a single facility. These products have the
following unit product costs:
Additional data concerning these products are listed below.
The grinding machines are potentially the constraint in the production facility. A total of
53,600 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Which product makes the LEAST profitable use of the grinding machines?
A. Product A
B. Product B
C. Product C
D. Product D
Answer:
At the end of the year, a companys Manufacturing Overhead account contained the
following data:
If the denominator activity for the year was 40,000 machine-hours, and if 36,400
machine-hours were allowed for the years production, then the predetermined overhead
rate per machine-hour was:
A) $2.15
B) $1.96
C) $2.26
D) $2.05
Answer:
Wecker Corporation uses the following activity rates from its activity-based costing to
assign overhead costs to products:
Data concerning two products appear below:
How much overhead cost would be assigned to Product V09X using the activity-based
costing system?
A. $157.87
B. $91,722.47
C. $10,385.22
D. $5,485.50
Answer:
Division B had an ROI last year of 15%. The division’s minimum required rate of return
is 10%. If the division’s average operating assets last year were $450,000, then the
division’s residual income for last year was:
A. $67,500
B. $22,500
C. $37,500
D. $45,000
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 payout ratio for Year 2 was closest to:
A. 75.8%
B. 28.5%
C. 76.7%
D. 47.4%
Answer:
Which of the following costs is an example of a period rather than a product cost?
A. Depreciation on production equipment.
B. Wages of salespersons.
C. Wages of production machine operators.
D. Insurance on production equipment.
Answer: