1) an increase in the number of units sold will decrease the break-even point.
2) the profit in cost-volume-profit equations is the same as the net operating income on
a contribution income statement.
3) if a product is price inelastic, then a small change in selling price will result in a
substantial change in the volume of units sold.
4) a favorable spending variance occurs when the actual cost is less than the amount of
that cost in the flexible budget.
5) when the net present value method is used, the internal rate of return is the discount
rate used to compute the net present value of a project.
6) the sum of all amounts transferred from the work in process account and into the
finished goods account represents the cost of goods manufactured for the period.
7) the higher the discount rate, the higher the present value of a given future cash flow.
8) when preparing a materials purchase budget, desired ending inventory is deducted
from total needs of the period to arrive at materials to be purchased.
9) the fixed manufacturing overhead budget variance is more meaningful than the
volume variance for cost control purposes.
10) the volume variance provides a measure of the utilization of plant facilities.
11) predetermined overhead rates are based on actual cost and activity data.
12) finkel & robbins plc, a consulting firm, uses an activity-based costing in which
there are three activity cost pools. the company has provided the following data
concerning its costs and its activity based costing system:
required:
a. how much cost, in total, would be allocated to the working on engagements activity
cost pool?
b. how much cost, in total, would be allocated to the business development activity cost
pool?
c. how much cost, in total, would be allocated to the other activity cost pool?
13) wryski corporation had net operating income of $150,000 and average operating
assets of $500,000. the company requires a return on investment of 19%.
required:
a. calculate the company’s current return on investment and residual income.
b. the company is investigating an investment of $400,000 in project that will generate
annual net operating income of $78,000. what is the return on investment of the
project? what is the residual income of the project? should the company invest in this
project?
14) legard kennel uses tenant-days as its measure of activity; an animal housed in the
kennel for one day is counted as one tenant-day. during january, the kennel budgeted for
2,600 tenant-days, but its actual level of activity was 2,620 tenant-days. the kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for january:
the expendables in the flexible budget for january would be closest to:
a.$35,946
b.$36,704
c.$35,680
d.$37,271
15) the manufacturing overhead budget at ferrucci corporation is based on budgeted
direct labor-hours. the direct labor budget indicates that 1,600 direct labor-hours will be
required in december. the variable overhead rate is $4.40 per direct labor-hour. the
company’s budgeted fixed manufacturing overhead is $25,120 per month, which
includes depreciation of $5,440. all other fixed manufacturing overhead costs represent
current cash flows. the december cash disbursements for manufacturing overhead on
the manufacturing overhead budget should be:
a.$7,040
b.$19,680
c.$26,720
d.$32,160
16) _________________ is an example of a staff position.
a.sales manager for a manufacturer
b.president of a merchandising company
c.store manager for best buy
d.human resource manager for a community college
17) cole laboratories makes and sells a lawn fertilizer called fastgro. the company has
developed standard costs for one bag of fastgro as follows:
the company had no beginning inventories of any kind on jan. 1. variable overhead is
applied to production on the basis of standard direct labor-hours. during january, the
following activity was recorded by the company:
production of fastgro: 4,000 bags
direct materials purchased: 85,000 pounds at a cost of $32,300
direct labor worked: 390 hours at a cost of $4,875
variable overhead incurred: $1,475
inventory of direct materials on jan. 31: 3,000 pounds
the total variance (both rate and efficiency) for variable overhead for january is:
a.$85 f
b.$40 f
c.$100 u
d.$125 f
18) the tate company uses a standard costing system in which manufacturing overhead
is applied on the basis of standard direct labor-hours (dlhs). the company recorded the
following costs and activity for september:
the amount of fixed manufacturing overhead cost applied to work in process during
september was:
a.$61,400
b.$57,000
c.$54,150
d.$59,850
19) which of the following would cause a corporation’s inventory turnover ratio to
increase?
a.an increase in the accounts receivable turnover
b.an increase in sales price per unit without a reduction in the number of units sold
c.a switch from the immediate cash payment of inventory purchases to the credit
purchase of inventory with payment due in 60 days (sales are unaffected)
d.none of these
20) a disadvantage of the high-low method of cost analysis is that:
a.it cannot be used when there are a very large number of observations
b.it is too time consuming to apply
c.it uses two extreme data points, which may not be representative of normal conditions
d.it relies totally on the judgment of the person performing the cost analysis
21) brink tech is a for-profit vocational school. the school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. the school uses the
following data in its budgeting:
in june, the school budgeted for 1,710 students and 110 courses. the school’s income
statement showing the actual results for the month appears below:
required:
prepare a flexible budget performance report showing both the school’s activity
variances and revenue and spending variances for june. label each variance as favorable
(f) or unfavorable (u).
22) lakey corporation uses customers served as its measure of activity. during july, the
company budgeted for 33,000 customers, but actually served 34,000 customers. the
company has provided the following data concerning the formulas used in its budgeting
and its actual results for july:
required:
prepare a report showing the company’s revenue and spending variances for july. label
each variance as favorable (f) or unfavorable (u).
23) bayona inc., which produces and sells a single product, has provided the following
contribution format income statement for november:
required:
redo the company’s contribution format income statement assuming that the company
sells 8,400 units.
24) braseth clinic uses patient-visits as its measure of activity. the clinic bases its
budgets on the following information: revenue should be $39.90 per patient-visit.
personnel expenses should be $35,400 per month plus $13.00 per patient-visit. medical
supplies should be $1,100 per month plus $4.90 per patient-visit. occupancy expenses
should be $8,400 per month plus $2.00 per patient-visit. administrative expenses should
be $4,700 per month plus $0.20 per patient-visit.
the clinic reported the following actual results for january:
required:
prepare a report showing the clinic’s revenue and spending variances for january. label
each variance as favorable (f) or unfavorable (u).
25) aslanian memorial diner is a charity supported by donations that provides free meals
to the homeless. the diner’s budget for november was based on 2,200 meals, but the
diner actually served 2,700 meals. the diner’s director has provided the following cost
formulas to use in budgets:
required:
prepare a report showing the activity variances for each of the expenses and for total
expenses for november. label each variance as favorable (f) or unfavorable (u). label
each variance as favorable (f) or unfavorable (u).
