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Reference: 8-22
Friou Corporation manufactures and sells a single product. The company uses units as
the measure of activity in its flexible budgets. During July, the company budgeted for
6,300 units, but its actual level of activity was 6,250 units. The company has provided
the following data concerning the formulas used in its budgeting and its actual results
for July:
Data used in budgeting:
Actual results for July:
The manufacturing overhead in the flexible budget for July would be closest to:
A) $42,500
B) $43,616
C) $42,927
D) $42,580
Answer:
What document is used to determine the actual amount of direct labor to record on a job
cost sheet?
A. time ticket
B. payroll register
C. production order
D. wages payable account
Answer:
Simoneaux Corporation bases its predetermined overhead rate on the estimated
machine-hours for the upcoming year. At the beginning of the most recently completed
year, the company estimated the machine-hours for the upcoming year at 22,000
machine-hours. The estimated variable manufacturing overhead was $8.65 per
machine-hour and the estimated total fixed manufacturing overhead was $609,400. The
predetermined overhead rate for the recently completed year was closest to:
A. $36.35 per machine-hour
B. $27.70 per machine-hour
C. $33.32 per machine-hour
D. $8.65 per machine-hour
Answer:
Robledo Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $625,000 per month. The company is currently selling 9,000 units
per month.
This question is to be considered independently of all other questions relating to
Robledo 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 $8 per unit. In
exchange, the sales staff would accept a decrease in their salaries of $57,000 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 $56,200
B. decrease of $121,800
C. increase of $712,200
D. decrease of $7,800
Answer:
Budgeted production needs are determined by:
A. adding budgeted sales in units to the desired ending inventory in units and
deducting the beginning inventory in units from this total.
B. adding budgeted sales in units to the beginning inventory in units and deducting the
desired ending inventory in units from this total.
C. adding budgeted sales in units to the desired ending inventory in units.
D. deducting the beginning inventory in units from budgeted sales in units.
Answer:
Prestwich Company has budgeted production for next year as follows:
Two pounds of material A are required for each unit produced. The company has a
policy of maintaining a stock of material A on hand at the end of each quarter equal to
25% of the next quarter's production needs for material A. A total of 30,000 pounds of
material A are on hand to start the year. Budgeted purchases of material A for the
second quarter would be:
A. 82,500 pounds
B. 165,000 pounds
C. 200,000 pounds
D. 205,000 pounds
Answer:
At a sales volume of 27,000 units, Danielle Corporation's property taxes (a cost that is
fixed with respect to sales volume) total $207,900.
To the nearest whole dollar, what should be the total property taxes at a sales volume of
30,900 units? (Assume that this sales volume is within the relevant range.)
A. $207,900
B. $181,660
C. $222,915
D. $237,930
Answer:
Financial statements for Harwich Company for the most recent year appear below:
The balances in the Cash, Accounts Receivable, Inventory, Bonds Payable, Common
Stock, and Additional Paid-In Capital accounts are unchanged from the beginning of the
year. A $0.75 per share dividend was declared and paid during the year. On December
31, Harwich Company's common stock was trading at $24.00 per share.
Harwich Company's price-earnings ratio at December 31 was closest to:
A. 3.00
B. 8.25
C. 8.00
D. 7.25
Answer:
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 fixed manufacturing overhead volume variance as:
A. $7,500 F
B. $1,500 F
C. $3,750 U
D. $7,500 U
Answer:
Reference: 8-35
Sande Corporation makes a product with the following standard costs:
In November the companys budgeted production was 2,900 units but the actual
production was 3,000 units. The company used 27,670 grams of the direct material and
1,390 direct labor-hours to produce this output. During the month, the company
purchased 31,700 grams of the direct material at a cost of $196,540. The actual direct
labor cost was $29,607 and the actual variable overhead cost was $2,502.
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 November is:
A) $220 U
B) $198 F
C) $198 U
D) $220 F
Answer:
Costs which are always relevant in decision making are those costs which are:
A. variable.
B. avoidable.
C. sunk.
D. fixed.
Answer:
Routsong Company had the following sales and production data for the past four years:
Selling price per unit, variable cost per unit, and total fixed cost are the same in each
year. Which of the following statements is not correct?
A. Under variable costing, net operating income for Year 1 and Year 2 would be the
same.
B. Because of the changes in production levels, under variable costing the unit product
cost will change each year.
C. The total net operating income for all four years combined would be the same under
variable and absorption costing.
D. Under absorption costing, net operating income in Year 4 would be less than the net
operating income in Year 2.
Answer:
Reference: 8A-15
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 variable element in the
predetermined overhead rate would be:
A) $88.80
B) $82.81
C) $89.71
D) $6.90
Answer:
Gaudy Inc. produces and sells a single product. The company has provided its
contribution format income statement for May.
If the company sells 4,300 units, its net operating income should be closest to:
A. $7,700
B. $25,513
C. $26,700
D. $19,500
Answer:
Financial statements for Marcell Company appear below:
Marcell Company's working capital (in thousands of dollars) at the end of Year 2 was
closest to:
A. $470
B. $20
C. $520
D. $1,240
Answer:
Rameriz Company erred in selecting a denominator activity and chose a much higher
level than was realistic. This error would most likely result in a large:
A) favorable variable overhead efficiency variance.
B) favorable fixed manufacturing overhead budget variance.
C) unfavorable overhead volume variance.
D) unfavorable fixed manufacturing overhead budget variance.
Answer:
Jurper Corporation used $150,000 of direct materials during April. At the end of April,
Jurper's direct materials inventory was $25,000 more than it was at the beginning of the
month. Direct materials purchases during the April amounted to:
A. $0
B. $125,000
C. $150,000
D. $175,000
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 variable overhead rate variance for maintenance cost for November was:
A) $7,420 unfavorable
B) $2,400 favorable
C) $9,820 unfavorable
D) $5,620 unfavorable
Answer:
Jay 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 information
below pertains to a recent months activity:
The volume variance would be:
A) $300 F
B) $300 U
C) $150 F
D) $180 F
Answer:
Babuca Corporation has provided the following production and total cost data for two
levels of monthly production volume. The company produces a single product.
The best estimate of the total cost to manufacture 6,300 units is closest to:
A. $1,425,690
B. $1,355,760
C. $1,495,620
D. $1,449,000
Answer:
Avitia Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 3,700 direct labor-hours will be required in
September. The variable overhead rate is $5.70 per direct labor-hour. The company's
budgeted fixed manufacturing overhead is $48,100 per month, which includes
depreciation of $5,550. All other fixed manufacturing overhead costs represent current
cash flows. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for September should be:
A. $5.70
B. $13.00
C. $18.70
D. $17.20
Answer:
The following information pertains to Yap Company's Grinding Department for the
month of April:
All materials are added at the beginning of the process. Using the weighted-average
method, the cost per equivalent unit for materials is closest to:
A. $0.59
B. $0.55
C. $0.45
D. $0.43
Answer:
A customer has requested that Inga Corporation fill a special order for 2,000 units of
product K81 for $25.00 a unit. While the product would be modified slightly for the
special order, product K81's normal unit product cost is $19.90:
Direct labor is a variable cost. The special order would have no effect on the company's
total fixed manufacturing overhead costs. The customer would like modifications made
to product K81 that would increase the variable costs by $1.20 per unit and that would
require an investment of $10,000 in special molds that would have no salvage value.
This special order would have no effect on the company's other sales. The company has
ample spare capacity for producing the special order. If the special order is accepted,
the company's overall net operating income would increase (decrease) by:
A. $13,000
B. $(9,700)
C. $10,200
D. $(2,200)
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 cost of ending work in process inventory in the first processing department
according to the company's cost system is closest to:
A. $62,720
B. $31,668
C. $14,474
D. $96,493
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 earnings per share of common stock for Year 2 was closest to:
A. $18.39
B. $27.22
C. $19.06
D. $11.03
Answer:
Which of the following is not a benefit of budgeting?
A. It reduces the need for tracking actual cost activity.
B. It sets benchmarks for evaluation performance.
C. It uncovers potential bottlenecks.
D. It formalizes a manager's planning efforts.
Answer:
Rider Company sells a single product. The product has a selling price of $40 per unit
and variable expenses of $15 per unit. The company's fixed expenses total $30,000 per
year. The company's break-even point in terms of total dollar sales is:
A. $100,000
B. $80,000
C. $60,000
D. $48,000
Answer:
Wolbers Company has an acid-test ratio of 1.4. Which of the following events will
cause this ratio to decrease?
A. Selling merchandise on account.
B. Paying a cash dividend already declared.
C. Borrowing using a short-term note.
D. Selling equipment at a loss.
When the acid-test ratio is greater than 1 (e.g., $1,400 ÷ $1,000 = 1.4) then increasing
both portions of the fraction by an equal amount would reduce the current ratio (e.g.,
$1,500 ÷ $1,100 = 1.36.)
Answer:
Data from Concepcion Corporation's most recent balance sheet and income statement
appear below:
The average collection period for this year is closest to:
A. 54.3 days
B. 7.4 days
C. 7.2 days
D. 54.7 days
Answer:
Acri Corporation produces large commercial doors for warehouses and other facilities.
In the most recent month, the company budgeted production of 6,900 doors. Actual
production was 7,300 doors. According to standards, each door requires 5.6
machine-hours. The actual machine-hours for the month were 40,360 machine-hours.
The standard supplies cost, and element of variable manufacturing overhead, is $4.20
per machine-hour. The actual supplies cost for the month was $168,251. The variable
overhead efficiency variance for supplies cost is:
A) $3,445 U
B) $2,184 F
C) $2,184 U
D) $3,445 F
Answer:
Machining a part for a car axle is an example of a:
A. Unit-level activity.
B. Batch-level activity.
C. Product-level activity.
D. Facility-level activity.
Answer:
Balonek Inc.'s contribution margin ratio is 57% and its fixed monthly expenses are
$41,000. Assuming that the fixed monthly expenses do not change, what is the best
estimate of the company's net operating income in a month when sales are $112,000?
A. $63,840
B. $7,160
C. $71,000
D. $22,840
Answer:
Reference: 8-33
Tidd Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in November.
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 November is:
A) $8,460 F
B) $8,460 U
C) $9,460 U
D) $9,460 F
Answer:
Colosi Corporation's comparative balance sheet appears below:
The company's net income (loss) for the year was $3,000 and its cash dividends were
$1,000. It did not sell or retire any property, plant, and equipment during the year.
The company's net cash provided by operating activities is:
A. $27,000
B. $29,000
C. $31,000
D. $6,000
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:
