Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar
cane is processed in batches. A batch of sugar cane costs $48 to buy from farmers and
$16 to crush in the company’s plant. Two intermediate products, cane fiber and cane
juice, emerge from the crushing process. The cane fiber can be sold as is for $24 or
processed further for $17 to make the end product industrial fiber that is sold for $38.
The cane juice can be sold as is for $34 or processed further for $23 to make the end
product molasses that is sold for $76.
Which of the intermediate products should be processed further?
A. Cane fiber should NOT be processed into industrial fiber; Cane juice should be
processed into molasses
B. Cane fiber should be processed into industrial fiber; Cane juice should be processed
into molasses
C. Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT
be processed into molasses
D. Cane fiber should be processed into industrial fiber; Cane juice should NOT be
processed into molasses
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:
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 materials price variance for June is:
A) $3,332 F
B) $3,590 U
C) $3,332 U
D) $3,590 F
Answer:
Reference: 8-46
The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the labor efficiency variance for the month?
A) $416 F
B) $416 U
C) $816 F
D) $848 F
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:
A general rule in relevant cost analysis is:
A. variable costs are always relevant.
B. fixed costs are always irrelevant.
C. differential future costs and revenues are always relevant.
D. depreciation is always irrelevant.
Answer:
The Phelps Company applies overhead costs to products on the basis of standard direct
labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit
of product. Phelps Company had the following budgeted and actual data for March:
The budgeted direct labor-hours is used as the denominator activity for the month.
The fixed manufacturing overhead budget variance for March is:
A. $2,000 favorable
B. $500 favorable
C. $2,000 unfavorable
D. $2,500 favorable
Answer:
Kierst Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in
units vary from month to month. The company’s variable costs per unit and total fixed
costs have been constant from month to month.
What is the net operating income for the month under variable costing?
A. $10,600
B. $16,200
C. $6,200
D. $7,500
Answer:
The most recent balance sheet and income statement of Marroquin Corporation appear
below:
The company paid a cash dividend and it did not dispose of any property, plant, and
equipment. The company did not issue any bonds payable or repurchase any of its own
common stock. The following question pertain to the company’s statement of cash
flows.
The net cash provided by (used in) financing activities for the year was:
A. $3
B. $(65)
C. $(24)
D. $(44)
Answer:
Qdynamic Corporation uses the FIFO method in its process costing system. Data
concerning the first processing department for the most recent month are listed below:
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 were started AND completed during the month in the first processing
department?
A. 6,100
B. 5,500
C. 7,600
D. 7,000
Answer:
Which of the following represents the normal sequence in which the indicated budgets
are prepared?
A. Direct Materials, Cash, Sales
B. Production, Cash, Income Statement
C. Sales, Balance Sheet, Direct Labor
D. Production, Manufacturing Overhead, Sales
Answer:
Hagerman Corporation’s most recent income statement appears below:
The beginning balance of total assets was $140,000 and the ending balance was
$90,000. The return on total assets is closest to:
A. 18.3%
B. 24.3%
C. 34.8%
D. 26.1%
Answer:
A manufacturing company uses a standard costing system in which standard
machine-hours (MHs) is the measure of activity. Data from the company’s 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 volume variance for the period to the
nearest dollar?
A. $2,565 F
B. $2,810 F
C. $225 U
D. $2,585 F
Answer:
Excerpts from Tigner Corporation’s most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,230 and the cost of goods sold was $820.
The acid-test ratio at the end of Year 2 is closest to:
A. 1.18
B. 1.55
C. 1.00
D. 0.96
Answer:
Financial statements for Narita Company appear below:
Narita Company’s debt-to-equity ratio at the end of Year 2 was closest to:
A. 0.17
B. 0.58
C. 0.25
D. 0.42
Answer:
An increase in the Prepaid Expenses account of $1,000 over the course of a year would
be shown on the company’s statement of cash flows prepared under the indirect method
as:
A. an addition to net income of $1,000 in order to arrive at net cash provided by
operating activities.
B. a deduction from net income of $1,000 in order to arrive at net cash provided by
operating activities.
C. an addition of $1,000 under financing activities.
D. a deduction of $1,000 under financing activities.
Answer:
(Ignore income taxes in this problem.) Judy Soope just received an annual raise of $500
starting with the current year. If Judy anticipates working for eight more years
(including the current year) and the cash flows are discounted at 8%, what cash award
today would be equivalent to the pay raise?
A. $4,000
B. $2,874
C. $2,160
D. $2,603
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:
The higher the denominator level of activity:
A. the higher the cost per unit of product.
B. the lower the cost per unit of product.
C. the less likely is the occurrence of a volume variance.
D. the more profitable operations likely will be.
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 per equivalent unit for materials for the month in the first processing
department is closest to:
A. $12.93
B. $14.38
C. $16.38
D. $14.73
Answer:
Petersheim Snow Removals cost formula for its vehicle operating cost is $1,750 per
month plus $484 per snow-day. For the month of November, the company planned for
activity of 15 snow-days, but the actual level of activity was 14 snow-days. The actual
vehicle operating cost for the month was $8,360. The vehicle operating cost in the
flexible budget for November would be closest to:
A) $8,526
B) $8,409
C) $9,010
D) $8,360
Answer:
Reference: 8A-14
Favreau Corporation estimates that its variable manufacturing overhead is $6.10 per
machine-hour and its fixed manufacturing overhead is $352,590 per period.
If the denominator level of activity is 7,000 machine-hours, the predetermined overhead
rate would be:
A) $50.37
B) $56.47
C) $610.00
D) $6.10
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 actual material cost per pound was:
A) $4.00
B) $3.67
C) $3.30
D) $4.40
Answer:
In a standard cost system, the volume variance will be unfavorable when:
A) actual hours are greater than the denominator hours.
B) the standard hours allowed for the output of the period are less than the denominator
hours.
C) the standard hours allowed for the output of the period are greater than the actual
hours incurred.
D) actual hours are less than the denominator hours.
Answer:
Schlender Corporation produces and sells two products. In the most recent month,
Product L40O had sales of $22,000 and variable expenses of $8,580. Product Y27L had
sales of $49,000 and variable expenses of $17,690. The fixed expenses of the entire
company were $43,950.
If the sales mix were to shift toward Product L40O with total dollar sales 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:
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 common stockholders’ equity for Year 2 is closest to:
A. 11.43%
B. 11.61%
C. 10.29%
D. 12.90%
Answer:
In a statement of cash flows, all of the following would be classified as financing
activities except:
A. the collection of cash related to a loan made to another entity.
B. the payment of a cash dividend on the company’s own common stock.
C. the cash paid to retire bonds payable.
D. the sale of the company’s own common stock for cash.
Answer:
The Ammon Company uses a standard cost system in which manufacturing overhead is
applied to units on the basis of standard machine-hours. During July, the company
budgeted $350,000 in manufacturing overhead cost at a denominator activity of 25,000
machine-hours. At standard, each unit of finished product requires 5 machine-hours.
The following cost and activity were recorded during July:
The amount of overhead cost that the company applied to work in process for July was:
A. $292,500
B. $315,000
C. $322,000
D. $325,000
Answer:
Gest Inc. has provided the following data for the month of November. The balance in
the Finished Goods inventory account at the beginning of the month was $49,000 and at
the end of the month was $45,000. The cost of goods manufactured for the month was
$226,000. The actual manufacturing overhead cost incurred was $74,000 and the
manufacturing overhead cost applied to Work in Process was $70,000. The adjusted
cost of goods sold that would appear on the income statement for November is:
A. $226,000
B. $230,000
C. $222,000
D. $234,000
Answer:
Butscher Company allocates materials handling cost to the company’s two products
using the below data:
The total materials handling cost for the year is expected to be $9,072.
If the materials handling cost is allocated on the basis of direct labor-hours, how much
of the total materials handling cost should be allocated to the prefab barns? (Round off
your answer to the nearest whole dollar.)
A. $3,187
B. $1,134
C. $9,072
D. $4,536
Answer:
East Company has the following budgeted cost and revenue data:
To reach a target net operating income of $490,000, East Company must sell:
A. 7,000 units
B. 9,000 units
C. 12,250 units
D. 15,750 units
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 book value per share at the end of Year 2 was closest to:
A. $16.11
B. $63.89
C. $70.56
D. $10.00
Answer:
Zollars Cane Products, Inc., processes sugar cane in batches. The company buys a batch
of sugar cane from farmers for $70 which is then crushed in the company’s plant at a
cost of $19. Two intermediate products, cane fiber and cane juice, emerge from the
crushing process. The cane fiber can be sold as is for $21 or processed further for $13 to
make the end product industrial fiber that is sold for $42. The cane juice can be sold as
is for $44 or processed further for $26 to make the end product molasses that is sold for
$88. How much profit (loss) does the company make by processing one batch of sugar
cane into the end products industrial fiber and molasses?
A. $26
B. $2
C. $(24)
D. $(128)
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 believes that a $7,000 increase in the monthly advertising
budget would result in a 110 unit increase in monthly sales. What should be the overall
effect on the company’s monthly net operating income of this change?
A. increase of $1,250
B. decrease of $7,000
C. decrease of $1,250
D. increase of $8,250
Answer: