1) One assumption in CVP analysis is that the number of units produced and sold does
not change.
2) Free cash flow will increase if a company increases its accounts payable balance by
delaying payments to suppliers.
3) All other things the same, when a customer purchases an item for cash, the accounts
receivable turnover ratio increases.
4) The book value of a machine, as shown on the balance sheet, is not relevant in a
decision concerning the replacement of that machine by another machine. (Ignore
taxes.)
5) For performance evaluation purposes, any variance over budgeted fixed costs in a
service department should be charged to the departments that use the service.
6) The payback method of making capital budgeting decisions does not give full
consideration to the time value of money.
7) Sales dollars is generally a poor base to use in allocating service department costs.
8) Charges for service department costs to operating departments should be based on
the actual variable costs and the budgeted fixed costs of the service department.
9) Roberts Corporation manufactures home cleaning products. One of the products,
Quickclean, requires 2 pounds of Material A and 5 pounds of Material B per unit
manufactured. Material A is purchased from the supplier for $0.30 per pound and
Material B is purchased for $0.50 per pound. The finished goods inventory on hand at
the end of each month should equal 4,000 units plus 25% of the next month’s sales. The
raw materials inventory on hand at the end of each month (for either Material A or
Material B) should equal 80% of the following month’s production needs.
The production budget calls for 26,000 units of Quickclean to be manufactured in June
and 32,000 units of Quickclean to be manufactured in July. On May 31 there will be
41,600 pounds of Material A and 104,000 pounds of Material B in inventory.
The number of pounds of Material A needed for production during June would be:
A.61,600
B.51,200
C.35,600
D.52,000
10) Using the high-low method of analysis, the estimated monthly fixed component of
the electrical cost is:
A) $1,520
B) $440
C) $260
D) $560
11) Evans 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 8,100 units were started and 6,800 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 60% complete with respect to materials and 10% 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.$342,904
B.$453,843
C.$366,300
D.$327,400
12) The company’s acid-test (quick) ratio is closest to:
A.2.47
B.2.83
C.3.10
D.4.25
Acid-test (quick) ratio = Quick assets* Current liabilities
= $473,000 $167,000 = 2.83 (rounded)
*Quick assets = Cash + Marketable securities + Current receivables
= $188,000 + $0 + $285,000 = $473,000
Macmillan Corporation has provided the following financial data:
13) Using the high-low method of analysis, the estimated variable cost per machine
hour for electricity is closest to:
A) $3.40
B) $2.14
C) $1.00
D) $0.87
14) Data for March for Lazarus Corporation and its two major business segments,
North and South, appear below:
In addition, common fixed expenses totaled $156,000 and were allocated as follows:
$84,000 to the North business segment and $72,000 to the South business segment.
A properly constructed segmented income statement in a contribution format would
show that the net operating income of the company as a whole is:
A.-$109,000
B.$203,000
C.$293,000
D.$47,000
15) The company’s acid-test (quick) ratio is closest to:
A.1.90
B.1.85
C.2.65
D.1.81
16) Throughput Time consists of:
A.Process Time.
B.Inspection Time and Move Time.
C.Process Time, Inspection Time, and Move Time.
D.Process Time, Inspection Time, Move Time, and Queue Time.
17) O’Neill, Incorporated’s segmented income statement for the most recent month is
given below.
For each of the following questions, refer back to the above original data.
Currently the sales clerks receive a salary of $7,000 per month in Store B. A proposal
has been made to change from a fixed salary to a sales commission of 5%. Assume that
this proposal is adopted, and that as a result sales increase by $20,000. The new
segment margin for Store B should be:
A.$29,000
B.$32,000
C.$39,000
D.$45,000
18) Pohl Corporation uses a standard cost system in which manufacturing overhead is
applied on the basis of standard machine-hours. For June, the company’s manufacturing
overhead flexible budget showed the following total budgeted costs at a denominator
activity level of 20,000 machine-hours:
During June, 17,000 machine-hours were used to complete 13,000 units of product, and
the following actual total overhead costs were incurred:
At standard, each unit of finished product requires 1.4 hours of machine time.
The total predetermined overhead rate per machine-hour for June was:
A.$2.57 per machine-hour
B.$1.30 per machine-hour
C.$2.80 per machine-hour
D.$3.15 per machine-hour
19) Stroth Corporation uses activity-based costing to compute product margins.
Overhead costs have already been allocated to the company’s three activity cost
pools-Machining, Order Filling, and Other. The costs in those activity cost pools appear
below:
Machining costs are assigned to products using machine-hours (MHs) and Order Filling
costs are assigned to products using the number of orders. The costs in the Other
activity cost pool are not assigned to products. Activity data appear below:
Finally, sales and direct cost data are combined with Machining and Order Filling costs
to determine product margins.
What is the product margin for Product C4 under activity-based costing?
A.$2,958
B.-$1,000
C.$9,500
D.$4,208
20) Diemert Corporation bases its budgets on machine-hours. The company’s static
planning budget for June appears below:
Actual results for the month were:
The spending variance for power costs in the flexible budget performance report for the
month should be:
A.$6,550 U
B.$6,550 F
C.$3,760 F
D.$3,760 U
21) Which of the following items would not be classified as an operating activity on the
statement of cash flows?
A.Cash received from customers.
B.Dividends paid to the company’s own stockholders.
C.Payments to government agencies for taxes.
D.Cash paid to compensate employees.
22) Digby Corporation’s balance sheet and income statement appear below:
Cash dividends were $29. The company did not dispose of any property, plant, and
equipment during the year.
Required:
Prepare the operating activities section of the statement of cash flows in good form
using the direct method.
23) Gesmondi Corporation bases its budgets on the activity measure customers served.
During October, the company planned to serve 24,000 customers, but actually served
28,000 customers. The company has provided the following data concerning the
formulas it uses in its budgeting:
Required:
Prepare a report showing the company’s activity variances for October. Indicate in each
case whether the variance is favorable (F) or unfavorable (U).
24) ( The management of Sobus Corporation is considering a project that would require
an initial investment of $458,000 and would last for 9 years. The annual net operating
income from the project would be $58,000, including depreciation of $48,000. At the
end of the project, the scrap value of the project’s assets would be $26,000.
Required:
Determine the payback period of the project. Show your work!
25) Adamyan Co. manufactures and sells medals for winners of athletic and other
events. Its manufacturing plant has the capacity to produce 15,000 medals each month;
current monthly production is 12,750 medals. The company normally charges $120 per
medal. Cost data for the current level of production are shown below:
The company has just received a special one-time order for 700 medals at $83 each. For
this particular order, no variable selling and administrative costs would be incurred.
This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
26) Clayborn Corporation’s net cash provided by operating activities was $111,000; its
net income was $101,000; its income taxes were $43,000; its capital expenditures were
$90,000; and its cash dividends were $28,000.
Required:
Determine the company’s free cash flow.
27) Wegener Corporation’s most recent balance sheet and income statement appear
below:
28) Babbitt Corporation has provided the following data from its most recent income
statement:
29) Bianchini Corporation’s contribution margin ratio is 58% and its fixed monthly
expenses are $94,000. Assume that the company’s sales for May are expected to be
$178,000.
Required:
Estimate the company’s net operating income for May, assuming that the fixed monthly
expenses do not change. Show your work!
30) Parliman Corporation is preparing its cash budget for August. The budgeted
beginning cash balance is $12,000. Budgeted cash receipts total $159,000 and budgeted
cash disbursements total $162,000. The desired ending cash balance is $20,000. The
company can borrow up to $160,000 at any time from a local bank, with interest not
due until the following month.
Required:
Prepare the company’s cash budget for August in good form.
31) ( Weilbacher Corporation is considering the purchase of a machine that would cost
$240,000 and would last for 8 years. At the end of 5 years, the machine would have a
salvage value of $50,000. The machine would reduce labor and other costs by $72,000
per year. The company requires a minimum pretax return of 16% on all investment
projects.
Required:
Determine the net present value of the project. Show your work!