1) The times interest earned ratio is based on net income because that is the amount of
earnings that is available for making interest payments. Interest expense is deducted
before taxes are determined; creditors have first claim on the earnings before taxes are
paid.
2) When computing the return on total assets, the interest expense is added back to net
income to show what earnings would have been if the company had no debt.
3) An unfavorable materials quantity variance is recorded as a debit in the Materials
Quantity Variance account.
4) In two companies making the same product and with the same total sales and total
expenses, the contribution margin ratio will be higher in the company with a higher
proportion of fixed expenses in its cost structure.
5) Earnings per share is computed by multiplying net income by the average number of
common shares outstanding.
6) Depreciation expense on existing factory equipment is usually irrelevant in a
decision of whether to accept or reject a special offer for a company’s product.
7) Directly comparing a static planning budget to actual costs helps to distinguish
between differences in costs that are due to changes in activity and differences that are
due to how well costs were controlled.
8) A favorable materials quantity variance occurs when the actual quantity used in
production is less than the standard quantity allowed for the actual output of the period.
9) Joint products are products that are sold to customers as a set or as part of a group of
products.
10) Wright, Inc. produces three products. Data concerning the selling prices and unit
costs of the three products appear below:
Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company’s productive capacity. The tapping
machine is the constraint, with only 2,400 minutes of tapping machine time available
this week.
Required:
a. Given the tapping machine constraint, which product should be emphasized? Support
your answer with appropriate calculations.
b. Assuming that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to pay for
an additional hour of tapping machine time?
11) The credits to the Manufacturing Overhead account as a consequence of the raw
materials transactions in August total:
A.$0
B.$63,000
C.$69,000
D.$6,000
12) In September, the Universal Solutions Division of Mcallister Corporation had
average operating assets of $120,000 and net operating income of $12,800. The
company uses residual income, with a minimum required rate of return of 12%, to
evaluate the performance of its divisions. What was the Universal Solutions Division’s
residual income in September?
A.-$1,600
B.$1,600
C.-$1,536
D.$1,536
13) Marten Corporation uses the FIFO method in its process costing system. Operating
data for the Casting Department for the month of September appear below:
According to the company’s records, the conversion cost in beginning work in process
inventory was $83,600 at the beginning of September. Additional conversion costs of
$427,682 were incurred in the department during the month.
The cost per equivalent unit for conversion costs for September is closest to: (Round off
to three decimal places.)
A.$5.498
B.$5.779
C.$5.620
D.$5.500
14) Hal currently works as the fry guy at Burger Haven but is thinking of quitting his
job to attend college full time next semester. Which of the following would be
considered an opportunity cost of attending college?
A) the cost of the textbooks
B) the cost of the cola that Hal will consume during class
C) Hal’s lost wages at Burger Haven
D) the cost of commuting to the Burger Haven job
15) The company’s debt-to-equity ratio at the end of Year 2 is closest to:
A.0.22
B.0.27
C.0.45
D.0.19
16) ( Bonamo Corporation uses a discount rate of 15% in its capital budgeting. Partial
analysis of an investment in automated equipment with a useful life of 6 years has thus
far yielded a net present value of -$196,163. This analysis did not include any estimates
of the intangible benefits of automating this process nor did it include any estimate of
the salvage value of the equipment.
Required:
a. Ignoring any salvage value, how large would the additional cash flow per year from
the intangible benefits have to be to make the investment in the automated equipment
financially attractive?
b. Ignoring any cash flows from intangible benefits, how large would the salvage value
of the automated equipment have to be to make the investment in the automated
equipment financially attractive?
17) Routsong Corporation had the following sales and production for the past four
years:
Selling price per unit, variable cost per unit, and total fixed cost are the same each year.
There were no beginning inventories in Year 1. Which of the following statements is
NOT correct?
A.Under variable costing, net operating income for Year 1 and Year 2 would be the
same.
B.Because of the changes in production levels, under variable costing the unit product
cost will change each year.
C.The total net operating income for all four years combined would be the same under
variable and absorption costing.
D.Under absorption costing, net operating income in Year 4 would be less than the net
operating income in Year 2.
18) Bronfenbrenner Co. uses a standard cost system for its single product in which
variable overhead is applied on the basis of direct labor hours. The following
information is given:
Standard costs per unit:
Actual experience for current year:
Required:
Compute the following variances for raw materials, direct labor, and variable overhead,
assuming that the price variance for materials is recognized at point of purchase:
a. Direct materials price variance.
b. Direct materials quantity variance.
c. Labor rate variance.
d. Labor efficiency variance.
e. Variable overhead rate variance.
f. Variable overhead efficiency variance.
19) Moyle Corporation has provided the following data from its activity-based costing
accounting system:
The activity rate for the “designing products” activity cost pool is closest to:
A.$396,900 per product design hour
B.$62 per product design hour
C.$162 per product design hour
D.$52 per product design hour
20) ( The management of Grayer Corporation is considering the following three
investment projects:
The only cash outflows are the initial investments in the projects.
Required:
Rank the investment projects using the project profitability index. Show your work
21) Rauls Corporation uses the FIFO method in its process costing. The following data
concern the company’s Assembly Department for the month of January.
Required:
Compute the costs per equivalent unit for the Assembly Department for January using
the FIFO method.
22) Bowen Corporation produces products P, Q, and R from a joint production process.
Each product may be sold at the split-off point or processed further. Joint production
costs of $80,000 per year are allocated to the products based on the relative number of
units produced. Data for Bowen’s operations for last year follow:
Required:
Which products should be processed beyond the split-off point?
23) Buccheri Corporation produces and sells a single product. Data concerning that
product appear below:
Required:
Determine the monthly break-even in unit sales. Show your work!
24) Poljak Tech is a for-profit vocational school. The school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. The school uses the
following data in its budgeting:
In February, the school budgeted for 1,970 students and 137 courses. The school’s
income statement showing the actual results for the month appears below:
Required:
Prepare a report showing the school’s revenue and spending variances for February.
Label each variance as favorable (F) or unfavorable (U).
25) ( Dimpson Corporation is considering the following three investment projects:
The only cash outflows are the initial investments in the projects.
Required:
Rank the investment projects using the project profitability index. Show your work