1) Selling costs can be either direct or indirect costs.
2) The contribution format is widely used for preparing external financial statements.
3) A transaction driver provides a measure of the amount of time required to perform an
activity.
4) In target costing, the selling price is the starting point and the cost follows from the
selling price.
5) If a project does not have constant incremental revenues and expenses over its useful
life, the simple rate of return will fluctuate from year to year.
6) Koogle Corporation uses residual income to evaluate the performance of its
divisions. The company’s minimum required rate of return is 13%. In August, the
Commercial Products Division had average operating assets of $530,000 and net
operating income of $76,700. What was the Commercial Products Division’s residual
income in August?
A.-$9,971
B.-$7,800
C.$7,800
D.$9,971
7) When production exceeds sales and the company uses the LIFO inventory flow
assumption, the net operating income reported under absorption costing generally will
be:
A.less than net operating income reported under variable costing.
B.greater than net operating income reported under variable costing.
C.equal to net operating income reported under variable costing.
D.higher or lower because no generalization can be made.
8) A manufacturing company that produces a single product has provided the following
data concerning its most recent month of operations:
What is the net operating income for the month under variable costing?
A.$15,000
B.$12,100
C.$2,900
D.$5,300
9) Weston Corporation is considering eliminating a department that has a contribution
margin of $70,000 and $140,000 in fixed costs. Of the fixed costs, $100,000 cannot be
avoided. The effect of eliminating this department on Weston’s overall net operating
income would be:
A) an increase of $70,000.
B) a decrease of $70,000.
C) an increase of $30,000.
D) a decrease of $30,000.
10) Juenemann 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 December, the kennel
budgeted for 3,800 tenant-days, but its actual level of activity was 3,770 tenant-days.
The kennel has provided the following data concerning the formulas used in its
budgeting and its actual results for December:
Data used in budgeting:
Actual results for December:
The activity variance for administrative expenses in December would be closest to:
A.$291 U
B.$291 F
C.$9 F
D.$9 U
11) Data from Keniston Corporation’s most recent balance sheet and income statement
appear below:
The average collection period for this year is closest to:
A.39.1 days
B.45.1 days
C.54.3 days
D.57.5 days
12) The income tax expense in year 2 is:
A.$24,000
B.$6,000
C.$48,000
D.$30,000
13) Longview Hospital performs blood tests in its laboratory. The following standards
have been set for each blood test performed:
During May, the laboratory performed 1,500 blood tests. On May 1 there were no direct
materials (plates) on hand; after a plate is used for a blood test it is discarded. Variable
overhead is assigned to blood tests on the basis of standard direct labor-hours. The
following events occurred during May:
3,600 plates were purchased for $9,540
3,200 plates were used for blood tests
340 actual direct labor-hours were worked at a cost of $5,550
The direct materials purchases variance is computed when the materials are purchased.
The labor efficiency variance for May is:
A.$600 F
B.$600 U
C.$515 U
D.$515 F
14) The average collection period for Year 2 is closest to:
A.1.1 days
B.0.9 days
C.84.3 days
D.87.3 days
15) To the nearest whole cent, what should be the average lease cost per unit at a sales
volume of 34,400 units in a month? (Assume that this sales volume is within the
relevant range.)
A) $23.20
B) $21.62
C) $20.84
D) $22.40
16) Rintharamy Corporation’s management reports that its average delivery cycle time
is 25.2 days, its average throughput time is 7.6 days, its manufacturing cycle efficiency
(MCE) is 0.25, its average move time is 0.9 day, and its average queue time is 4.0 days.
Required:
a. What is the wait time?
b. What is the process time?
c. What is the inspection time?
17) Are the materials costs and processing costs relevant in the choice between
alternatives A and B? (Ignore the equipment rental and occupancy costs in this
question.)
A.Both materials costs and processing costs are relevant
B.Only materials costs are relevant
C.Neither materials costs nor processing costs are relevant
D.Only processing costs are relevant
18) Maddaloni International, Inc., produces and sells a single product. The product sells
for $160.00 per unit and its variable expense is $46.40 per unit. The company’s monthly
fixed expense is $219,248.
Required:
Determine the monthly break-even in total dollar sales. Show your work!
19) ( The management of Kleppe Corporation is investigating automating a process by
replacing old equipment by a new machine. The old equipment would be sold for scrap
now for $19,000. The new machine would cost $180,000, would have a 9 year useful
life, and would have no salvage value. By automating the process, the company would
save $30,000 per year in cash operating costs.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.
Show your work!
20) ( The management of an amusement park is considering purchasing a new ride for
$400,000 that would have a useful life of 5 years and a salvage value of $40,000. The
ride would require annual operating costs of $190,000 throughout its useful life. The
company’s discount rate is 12%. Management is unsure about how much additional
ticket revenue the new ride would generate-particularly because customers pay a flat
fee when they enter the park that entitles them to unlimited rides. Hopefully, the
presence of the ride would attract new customers.
Required:
How much additional revenue would the ride have to generate per year to make it an
attractive investment?
21) The following data have been provided by Leason Corporation:
Required:
Compute the variable overhead rate variances for lubricants and for supplies. Indicate
whether each of the variances is favorable (F) or unfavorable (U). Show your work!
22) Paye Clinic uses patient-visits as its measure of activity. The following report
compares the planning budget to the actual operating results for the month of January:
Required:
Prepare the clinic’s flexible budget performance report for January. Label each variance
as favorable (F) or unfavorable (U).
23) Hepler Corporation would like to use target costing for a new product that is under
consideration. At a selling price of $76 per unit, management projects sales of 50,000
units. The new product would require an investment of $400,000. The desired return on
investment is 12%.
Required:
Determine the target cost per unit for the new product.