New Jersey Company is considering two investments. The relevant data follows:
Project A Project B
Cost $200,000 $300,000
Annual cash savings (end of year) $50,692 $60,995
Terminal salvage value $50,000 $70,000
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignoring taxes, the internal rate of return for Project B is approximately ________.
A) 6%
B) 7%
C) 8%
D) 10%
Carpenter Company uses job-order costing. The following is a summary of factory
operations:
Direct materials purchased on account $125,000
Direct materials requisitioned $110,000
Direct labor costs incurred $256,000
Factory overhead costs incurred (Depreciation Expense only) $150,000
Cost of goods completed $515,000
Cost of goods sold $378,000
Sales on account $430,000
Factory overhead applied ?
Factory overhead costs are applied at 50% of direct labor costs.
Required:
A) Prepare the required journal entries for the above transactions.
B) Prepare the journal entry to dispose of the overhead variance using the immediate
write-off method.
C) Is the factory overhead overapplied or underapplied?
D) What is the actual, correct amount of Cost of Goods Sold?
When a company uses return on investment as a performance metric, managers have an
incentive to invest only in projects ________.
A) that increase the return on investment of the segment or division
B) that decrease the return on investment of the segment or division
C) that have a return on investment that exceeds the cost of capital of the segment or
division
D) that have a return on investment that is less than the cost of capital of the segment or
division
USC Company has the following information available:
Budgeted factory overhead costs $90,000
Actual factory overhead costs $80,000
Budgeted direct labor hours 20,000
Actual direct labor hours 21,000
Assume direct labor hours are the cost driver of factory overhead costs. The budgeted
factory overhead rate is ________.
A) $3.57 per direct labor hour
B) $3.81 per direct labor hour
C) $4.00 per direct labor hour
D) $4.50 per direct labor hour
Decisions made during long-range planning include ________.
A) addition or deletion of product line
B) location of new plant
C) purchase of equipment
D) all of the above
Manufacturers have several inventory accounts that do NOT include ________.
A) Finished Goods Inventory
B) Raw Materials Inventory
C) Work in Process Inventory
D) Construction in Process Inventory
Wininger Incorporated reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units
Under variable costing, the product cost per unit is ________.
A) $160
B) $170
C) $200
D) $240
Goller Company is preparing a cash budget for the month of June. The following
information is available:
Cash Balance, May 31, 2015 $10,000
Cash collections from customers in June 66,000
Cash paid for merchandise in June 42,000
Cash paid for operating expenses in June 12,000
Purchase furniture for cash in June 3,000
Depreciation expense in June 5,000
Amortization expense in June 5,000
The minimum cash balance desired is $10,000. What is the cash balance on June 30,
2015?
A) $9,000
B) $10,000
C) $11,000
D) $19,000
A company is considering the acquisition of new equipment to replace old equipment.
When using the net present value method, which of the following items is NOT
relevant? Ignore taxes.
A) cash outflow for the purchase of new equipment
B) cash installation costs associated with the new equipment
C) disposal value of old equipment replaced with new equipment
D) fixed overhead costs that are the same under both alternatives
Franklin Company uses activity-based costing, and normally produces 1,000,000 units
per month. At this level of production, the costs per unit are as follows:
Direct materials used $14
Direct labor $6
Variable indirect production $1
Setup costs $3
For 1,000,000 units, 500 setups are required at a cost of $6,000 per setup. The company
has received a special order for 100,000 units at $22 per unit. The company has excess
capacity. The company estimates that 5 setups will be required for the special order.
What is the cost of the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000
When calculating diluted earnings per share, which of the following items is NOT
considered?
A) number of common shares outstanding
B) additional common shares from conversion of convertible securities
C) additional common shares from exercise of stock options
D) number of common shares authorized to be issued
Melissa Company produces and sells a product that has variable costs of $8 per unit and
fixed costs of $240,000 per year. If 20,000 units are produced and sold in a year, what is
the total cost per unit?
A) $5
B) $8
C) $12
D) $20
Fahnstock Company has the following information available for the most current year:
Paid-in capital, January 1, 2014 $475,000
Retained earnings, January 1, 2014 $100,000
Total revenues in 2014 $870,000
Total expenses in 2014 $550,000
Dividend declared in 2014 $70,000
Dividend paid in 2014 $0
Investments by owners in 2014 $10,000
What was the total amount of paid-in capital for Fahnstock Company at December 31,
2014?
A) $475,000
B) $485,000
C) $535,000
D) $835,000
Sunbury Company is considering the replacement of a machine that is presently used in
production. The following data are available:
Old Machine New Machine
Original cost $60,000 $35,000
Useful life in years 10 5
Current age in years 5 0
Book value $25,000 –
Disposal value now $8,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $12,000 $4,000
Adding all five years together, the total relevant costs to consider if the old machine is
kept are ________.
A) $30,000
B) $50,000
C) $52,000
D) $60,000
Financial performance of a manager is measured by ________. Financial performance
of a segment is measured by ________.
A) contribution by segment; contribution margin
B) contribution margin; net income of segment
C) contribution controllable by segment manager; contribution by segment
D) contribution margin; contribution controllable by segment manager
Variable costs of service departments are allocated to user departments using ________
cost rates instead of ________ cost rates.
A) actual; budgeted
B) budgeted; actual
C) long-range; short-range
D) short-range; long-range
Only major changes in the scale or scope of operations can change ________ in future
periods. Managers can vary spending levels for ________ in the short run.
A) committed fixed costs; capacity costs
B) committed fixed costs; discretionary fixed costs
C) discretionary fixed costs; capacity costs
D) capacity costs; committed fixed costs
What type of managers supports line managers by providing information and advice?
A) staff managers
B) operating managers
C) assembly room managers
D) welding room managers
In designing an activity-based cost accounting system, what is the first step?
A) Collect data about costs and the physical flow of the cost-driver units.
B) Determine the relationships among cost objects, activities, and resources.
C) Determine the key components of the activity-based cost accounting system.
D) Calculate and interpret the new activity-based cost information.
In the relevant range, the sales-activity variance for fixed costs is always ________.
A) greater than the flexible budget variance
B) less than the flexible budget variance
C) greater than the static budget variance
D) zero
Only major changes in the scale or scope of operations can change ________ in future
periods. Managers can vary spending levels for ________ in the short run.
A) committed fixed costs; capacity costs
B) committed fixed costs; discretionary fixed costs
C) discretionary fixed costs; capacity costs
D) capacity costs; committed fixed costs
Swanson Company has identified the following activities related to indirect production
costs:
Activity Activity Costs Cost Drivers
Machine Setup $180,000 1,500 setup hours
Materials Handling $50,000 12,500 pounds of materials
Electric Power $20,000 20,000 kilowatt hours
Swanson Company has obtained the following data concerning two products:
Product 1 Product 2
Number of units produced 4,000 20,000
Direct materials cost $20,000 $25,000
Direct labor cost $12,000 $20,000
Number of setup hours 100 120
Pounds of materials used 500 1,500
Kilowatt-hours 1,000 2,000
Using activity-based costing, what amount of machine setup cost is assigned to
Products 1 and 2?
Product 1 Product 2
A) $12,000 $14,400
B) $30,000 $150,000
C) $50,000 $130,000
D) $81,818 $98,182
The break-even point on the cost-volume-profit graph is where the ________.
A) total cost line intersects the net profit line
B) total cost line intersects the net loss line
C) revenue line intersects the total cost line
D) revenue line intersects the variable cost line
Janitors clean the factory with scrubbing machines and polishing machines. Scrubbing
machines scrub the factory floor and polishing machines polish the floor. The cost
associated with cleaning the factory is treated as a product cost. What is a good cost
driver for the Depreciation Expense associated with the scrubbing and polishing
machines?
A) number of janitors operating machines
B) number of labor hours put in by janitors
C) number of kilowatt hours used
D) number of machine hours used
Excalibur Company produces calendars in a one-department process. The following
data is available for the past month:
Work-in-process inventory, beginning 0
Units started 15,000
Units completed and transferred 12,000
Work-in-process inventory, ending 3,000
Direct materials added $30,000
Direct labor $20,700
Factory overhead costs $10,350
The units in process at the end of the month are 100 percent complete with respect to
direct materials and 50 percent complete with respect to conversion costs. What are the
equivalent units for materials for the month?
A) 3,000
B) 12,000
C) 13,500
D) 15,000
A budget ________.
A) is a quantitative expression of a plan of action
B) provides feedback by comparing actual results with planned results
C) includes deviations from planned results
D) ignores areas that are presumed to be running smoothly
Vanduser Company is considering the purchase of a labor saving piece of equipment
with the following information:
Purchase cost of equipment $432,000
Annual cost savings, excluding depreciation(end of year) $80,000
Terminal salvage value $10,000
Useful life of equipment 12 years
Required rate of return 10%
Tax rate 30%
Depreciation method for tax purposes Straight-line
Present value of ordinary annuity of one
at 10% for 12 periods 6.8137
Present value of one at 10% for 12 periods 0.3186
What is the net present value of the equipment?
A) $(50,433)
B) $23,155
C) $24,638
D) $124,458
Robert Company has two production departments called Assembly and Finishing. The
maintenance department serves both production departments. Maintenance costs are
allocated based on labor hours. Budgeted fixed costs for the maintenance department
are $30,000. Budgeted variable costs for the maintenance department are $5.00 per
labor hour. Actual maintenance department costs are $36,000 fixed and $100,000
variable. Other relevant data follow:
Assembly Finishing
Capacity available 20,000 labor hours 15,000 labor hours
Capacity used 15,000 labor hours 9,000 labor hours
The amount of variable maintenance department costs allocated to the Assembly
Department should be ________.
A) $48,000
B) $62,500
C) $75,000
D) $100,000
Daisy Company is considering the purchase of equipment for $400,000. The equipment
will have a ten year life with no terminal salvage value. Straight-line depreciation will
be used for tax purposes. It is expected that the equipment will generate annual sales of
$180,000 and annual production costs, exclusive of depreciation, of $120,000. The tax
rate is 40%. What is the net annual after-tax cash flow from the equipment?
A) $16,000 cash inflow
B) $36,000 cash inflow
C) $52,000 cash inflow
D) $60,000 cash inflow
In perfect competition, additional sales will be profitable if ________.
A) the marginal cost is less than marginal revenue
B) sales price exceeds the variable product cost
C) total variable cost is less than sales price
D) the fixed cost equals the contribution margin
Which of the following items is usually NOT important to special order decisions?
A) affect of special order on regular business
B) whether idle capacity is available
C) total fixed costs
D) increase in variable costs per unit due to special order
Price elasticity measures the ________.
A) effect of sales volume changes on prices
B) effect of cost changes on prices
C) effect of price changes on sales volume
D) customers’ attitudes toward price changes
Gonzalez Company produces a part that is used in the manufacture of one of its
products. The annual costs associated with the production of 5,000 units of this part are
as follows:
Direct materials $100,000
Direct labor 56,000
Variable factory overhead 72,000
Fixed factory overhead 168,000
Total costs $396,000
Of the fixed factory overhead costs, $72,000 are avoidable. Another company has
offered to sell 5,000 units of the same part to Gonzalez for $70.00 per unit. The
facilities currently used to make the part can be rented out to another manufacturer for
$72,000 per year. What should Gonzalez Company do?
A) Make the part to save $22,000.
B) Make the part to save $50,000.
C) Buy the part and rent the facilities to save $22,000.
D) Buy the part and rent the facilities to save $72,000.
If the Production Department is the cost object, the salary of the factory supervisor is
a(n) ________ cost for the department. If the product made in the factory is the cost
object, the salary of the factory supervisor is a(n) ________ cost for the product.
A) direct; indirect
B) indirect; direct
C) direct; direct
D) indirect, indirect
When examining the output from regression analysis, with one independent variable,
the variable cost measure is labeled the ________ by most computer programs.
A) coefficient of determination
B) X coefficient
C) standard error of estimate
D) constant or intercept