1) A company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. A fixed
manufacturing overhead volume variance will NOT necessarily occur in a month in
which the fixed manufacturing overhead applied to units of product on the basis of
standard hours allowed differs from the budgeted fixed manufacturing overhead.
2) In order to equitably allocate costs in a process costing system, dissimilar products
are restated in terms of equivalent units by weighting the number of units produced by
their market values.
3) In target costing, effort is concentrated on effectively marketing the product to
maximize its selling price.
4) One way to increase the effective utilization of a bottleneck is to put less emphasis
on preventing defects and simply discard defective units at final inspection before
sending them to customers.
5) The formula for the net profit margin percentage is: Net profit margin percentage =
Net income Sales.
6) The formula for the return on equity is: Return on equity = Net income Average total
stockholders’ equity.
7) A company whose inventory turnover ratio is much slower than the average for its
industry may have too much inventory or the wrong sorts of inventory.
8) Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in accounts receivable would be added to
sales revenue to convert revenue to a cash basis.
9) Ideally, the base selected for charging a service department’s costs to operating
departments should be whatever drives those costs.
10) Fixed costs may or may not be relevant in decisions about whether a product should
be dropped.
11) As the accounts receivable turnover ratio decreases, the average collection period
increases.
12) Opportunity costs are not usually recorded in the accounts of a business.
13) In a job-order cost system, direct labor is assigned to a job using information from
the employee time ticket.
14) The gross margin percentage is computed by dividing sales by the gross margin.
15) The costs of activities that are classified as unit-level should be fixed respect to the
number of units produced.
16) Nicolaysen Corporation manufactures and sells a single product. The company uses
units as the measure of activity in its budgets and performance reports. During
February, the company budgeted for 5,700 units, but its actual level of activity was
5,690 units. The company has provided the following data concerning the formulas
used in its budgeting and its actual results for February:
Data used in budgeting:
Actual results for February:
The direct labor in the planning budget for February would be closest to:
A.$21,093
B.$21,090
C.$21,130
D.$21,053
17) The company’s dividend payout ratio for Year 2 is closest to:
A.1.6%
B.21.1%
C.2.6%
D.14.7%
18) For May, Young Corporation has budgeted its cash receipts at $125,000 and its cash
disbursements at $138,000. The company’s cash balance on May 1 is $17,000. If the
desired May 31 cash balance is $20,000, then how much cash must the company
borrow during the month (before considering any interest payments)?
A.$4,000
B.$8,000
C.$12,000
D.$16,000
19) Narstad Corporation’s times interest earned for Year 2 was closest to:
A.11.0
B.10.0
C.18.0
D.7.0
20) Valotta Corporation has provided the following data concerning an investment
project that it is considering:
The working capital would be released for use elsewhere at the end of the project. The
net present value of the project is closest to:
A.$178,118
B.$201,988
C.$463,000
D.$131,988
21) Assume Melrose expects to sell 60,000 units of Product C to regular customers next
year. If Moore company offers to buy the 7,000 special units at $90 per unit, the effect
of accepting the special order on Melrose’s net operating income for next year will be:
A) $42,000 increase
B) $54,000 decrease
C) $105,000 increase
D) $248,500 increase
22) The management of Bercegeay Corporation is considering dropping product Y25C.
Data from the company’s accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s
accounting system. Further investigation has revealed that $117,000 of the fixed
manufacturing expenses and $78,000 of the fixed selling and administrative expenses
are avoidable if product Y25C is discontinued.
Required:
a. What is the net operating income earned by product Y25C according to the
company’s accounting system? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping
product Y25C? Should the product be dropped? Show your work!
23) Silcott Corporation, a manufacturer, uses the step-down method to allocate service
department costs to operating departments. The company has two service departments,
Administration and Facilities, and two operating departments, Assembly and Finishing.
Data concerning those departments follow:
Administration Department costs are allocated first on the basis of labor hours and
Facilities Department costs are allocated second on the basis of space occupied.
In the first step of the allocation, the amount of Administration Department cost
allocated to the Assembly Department is closest to:
A.$19,823
B.$17,214
C.$18,690
D.$12,384
24) The following data have been provided by Petri Corporation:
Indirect labor and power are both elements of variable manufacturing overhead.
The variable overhead rate variance for power is closest to:
A.$1,380 F
B.$862 F
C.$2,242 F
D.$2,242 U
25) Two or more products produced from a common input are called:
A) common costs.
B) joint products.
C) joint costs.
D) sunk costs.
26) What would be the total internal failure cost appearing on the quality cost report?
A.$124,000
B.$113,000
C.$121,000
D.$64,000
27) Maack Corporation’s contribution margin ratio is 16% and its fixed monthly
expenses are $44,000. If the company’s sales for a month are $299,000, what is the best
estimate of the company’s net operating income? Assume that the fixed monthly
expenses do not change.
A.$207,160
B.$3,840
C.$255,000
D.$47,840
28) Costs associated with two alternatives, code-named Q and R, being considered by
Hunnicutt Corporation are listed below:
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
29) Erastic Corporation has $14,000 in cash, $8,000 in marketable securities, $34,000
in account receivable, $40,000 in inventories, and $42,000 in current liabilities. The
corporation’s current assets consist of cash, marketable securities, accounts receivable,
and inventory. The corporation’s acid-test ratio is closest to:
A.1.33
B.0.81
C.2.29
D.1.14
30) The company has received a special, one-time-only order for 300 units of
component D53. There would be no variable selling expense on this special order and
the total fixed manufacturing overhead and fixed selling and administrative expenses of
the company would not be affected by the order. However, assume that Dockwiller has
no excess capacity and this special order would require 30 minutes of the constraining
resource, which could be used instead to produce products with a total contribution
margin of $1,800. What is the minimum price per unit on the special order below which
the company should not go?
A.$73 per unit
B.$36 per unit
C.$53 per unit
D.$6 per unit
31) Mormino Corporation’s income statement appears below:
The company’s gross margin percentage is closest to:
A.1888.9%
B.5.3%
C.41.1%
D.69.9%
32) Pardun Corporation’s management keeps track of the time it takes to process orders.
During the most recent month, the following average times were recorded per order:
33) Handle Fabrication is a division of a major corporation. Last year the division had
total sales of $36,160,000, net operating income of $2,892,800, and average operating
assets of $8,000,000. The company’s minimum required rate of return is 12%.
Required:
What is the division’s return on investment (ROI)?
34) Cacioppo Corporation bases its predetermined overhead rate on the estimated
labor-hours for the upcoming year. At the beginning of the most recently completed
year, the company estimated the labor-hours for the upcoming year at 66,000
labor-hours. The estimated variable manufacturing overhead was $7.45 per labor-hour
and the estimated total fixed manufacturing overhead was $1,760,220. The actual
labor-hours for the year turned out to be 63,800 labor-hours.
Required:
Compute the company’s predetermined overhead rate for the recently completed year.
35) Toefield Corporation uses the FIFO method in its process costing. The following
data pertain to its Assembly Department for June.
Required:
Determine the equivalent units of production for the Assembly Department for June
using the FIFO method.
36) Job 397 was recently completed. The following data have been recorded on its job
cost sheet:
The company applies manufacturing overhead on the basis of direct labor-hours. The
predetermined overhead rate is $37 per direct labor-hour.
Required:
Compute the unit product cost that would appear on the job cost sheet for this job.
