000102 Test 3 FALL 2011 acct

Test No. 3 Accounting 102 Moloney Name:___________________________

True/False and Multiple Choice: 3 points each1. Preparing a budget should be the sole task of the most important department in an organization (True/False).

2. Product costs consist of direct labor, direct materials and overhead (True or False?).

3. Standard costs are: A. Actual costs incurred to produce a specific product or perform a service.B. Preset costs for delivering a product or service under normal conditions.C. Established by the IMA.D. Rarely achieved.E. Uniform among companies within an industry.

4. A process of examining the differences between actual and budgeted costs and describing them in terms of the amounts that resulted from price and quantity differences is called: A. Cost analysis.B. Flexible budgeting.C. Variable analysis.D. Cost variable analysis.E. Cost variance analysis.

5. A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is: A. $ 2,667.B. $14,000.C. $18,667.D. $24,000.E. $35,000.

6. A formal statement of future plans, usually expressed in monetary terms, is a: A. Variance report.B. Position statement.C. Budget.D. Prospectus.E. Variance analysis.

7. For budgets to be effective: A. Goals should be attainable.B. Employees affected by a budget should be consulted when it is prepared.C. Evaluations should be made carefully with opportunities to explain any failures.D. They should be properly applied to avoid negative effects.E. All of these.

8. The most useful budget figures are developed: A. From the "top-down."B. From the "bottom-up" following a participatory process.C. Solely by the budget committee.D. By the CEO.E. After the accounting period has begun.


9. The usual starting point for preparing a master budget is forecasting or estimating: A. Expenditures.B. Sales.C. Production.D. Income.E. Cash payments.

10. A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units. Total June sales are anticipated to be: A. $63,000.B. $67,500.C. $61,250.D. $74,250.E. $60,000.

11. In preparing financial budgets: A. The budgeted balance sheet is usually prepared last.B. The cash budget is usually not prepared.C. The budgeted income statement is usually not prepared.D. The capital expenditures budget is usually prepared last.E. The merchandise purchases budget is key.

12. Which of the following budgets must be completed before a cash budget can be prepared? A. Capital expenditures budget.B. Sales budget.C. Merchandise purchases budget.D. General and administrative expense budget.E. All of these.

13. An analytical technique used by management to focus on the most significant variances and give less attention to the areas where performance is satisfactory is known as: A. Controllable management.B. Management by variance.C. Performance management.D. Management by objectives.E. Management by exception.

14. Which of the following costs cannot be directly traced to the product? A. Fixed manufacturing overhead.B. Direct labor.C. Variable manufacturing overhead.D. Neither A nor B can be directly traced to the product.E. Neither A nor C can be directly traced to the product.


15. Which of the following statements is(are) true regarding variable costing? A. It is a traditional costing approach.B. Only manufacturing costs that change in total with changes in production level are included in product costs.C. It is not permitted to be used for managerial reporting.D. It treats overhead in the same manner as absorption costing.E. B and D are both true statements regarding variable costing.

16. Under absorption costing, a company had the following unit costs when 8,000 units were produced.

Compute the total production cost per unit under absorption costing if 30,000 units had been produced. A. $31.65.B. $26.15.C. $24.15.D. $17.40.E. $ 8.40.

17. When evaluating a special order, management should A. Only accept the order if the incremental revenue exceeds all product costs.B. Only accept the order if the incremental revenue exceeds fixed product costs.C. Only accept the order if the incremental revenue exceeds total variable product costs.D. Only accept the order if the incremental revenue exceeds full absorption product costs.E. Only accept the order if the incremental revenue exceeds regular sales revenue.

18. Assume a company sells a given product for $75 per unit. How many units must be sold to break-even if variable selling costs are $12 per unit, variable production costs are $23 per unit, and total fixed costs are $700,000? A. 11,112 units.B. 13,462 units.C. 9,334 units.D. 17,500 units.E. 6,363 units.

19. Which of the following best describes costs assigned to the product under the variable costing method?

Direct labor Direct materials Variable selling and administrativeVariable manufacturing overhead Fixed selling and administrative Fixed manufacturing overhead


A. All of these costs.B. Direct labor, direct materials, and variable manufacturing overhead.C. Direct labor, direct materials, variable manufacturing overhead, and fixed manufacturing overhead.D. Direct labor and direct materials.E. Direct labor, direct materials, fixed selling and administrative, and fixed manufacturing overhead.

20. Which of the following best describes costs assigned to the product under the absorption costing method?

Direct labor Direct materials Variable selling and administrativeVariable manufacturing overhead Fixed selling and administrative Fixed manufacturing overhead A. All of these costs.B. Direct labor, direct materials, and variable manufacturing overhead.C. Direct labor, direct materials, variable manufacturing overhead, and fixed manufacturing overhead.D. Direct labor and direct materials.E. Direct labor, direct materials, fixed selling and administrative, and fixed manufacturing overhead.

21. (10 points) Show all work and calculation in an easy to follow, neat format. If you just put an answer, you’ll lose 5 points. 32 Degrees, Inc., a manufacturer of frozen food, began operations on July 1 of the current year. During this time, the company produced 140,000 units and sold 140,000 units at a sales price of $125 per unit. Cost information for this period is shown below.

(a.) Prepare 32 Degree's December 31st income statement for the current year under absorption costing.(b.) Prepare 32 Degree's December 31st income statement for the current year under variable costing.

22. (10 points) Show all work and calculation in an easy to follow, neat format. If you just put an answer, you’ll lose 5 points Del Carpio, Inc. sells two products, Widgets and Gadgets. The sales forecast in units for the first quarter of the coming year is:

Cash sales are 30% of each product's monthly sales. The remaining sales are credit sales which are collected as follows: 70% in the month of sale, 20% the next month, and 10% in the following month. Unit sale prices are $30 and $20 for Widgets and Gadgets, respectively.Determine the company's cash receipts for March from its current and past sales.


23. (10 points) Show all work and calculation in an easy to follow, neat format. If you just put an answer, you’ll lose 5 points Big Bend Co. fixed budget for the year is shown below:

Prepare a flexible budget for Big Bend Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format.

24. (10 points) Show all work and calculation in an easy to follow, neat format. If you just put an answer, you’ll lose 5 points Woods, Inc.'s budget included the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units:

The standard cost per unit when operating at this same 80% capacity level is:

The actual production achieved in the current year was 60% of capacity, or 30,000 units. The actual costs were:

Calculate the following variances and indicate whether each is favorable or unfavorable.A) Direct materials price variance.B) Direct materials quantity variance.C) Direct labor rate variance.D) Direct labor efficiency variance.E) Variable overhead spending varianceF) Variable overhead efficiency varianceG) Fixed overhead spending varianceH) Fixed overhead volume variance



102 Test 3 FALL 2011 Key1. The task of preparing a budget should be the sole task of the most important department in an organization. FALSE


2. Product costs consist of direct labor, direct materials and overhead. TRUE

3. Standard costs are: A. Actual costs incurred to produce a specific product or perform a service.B. Preset costs for delivering a product or service under normal conditions.C. Established by the IMA.D. Rarely achieved.E. Uniform among companies within an industry.

4. A process of examining the differences between actual and budgeted costs and describing them in terms of the amounts that resulted from price and quantity differences is called: A. Cost analysis.B. Flexible budgeting.C. Variable analysis.D. Cost variable analysis.E. Cost variance analysis.5. A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is: A. $ 2,667.B. $14,000.C. $18,667.D. $24,000.E. $35,000.Selling price per unit = $48,000/12,000 units = $4 per unitTotal Sales = $4 x 16,000 units = $64,000Variable costs = $18,000/12,000 = $1.50(16,000) = $24,000Total costs = $24,000 (variable) + $16,000 (fixed) = $40,000Operating income = $64,000 (sales) - $40,000 (total costs) = $24,000

6. A formal statement of future plans, usually expressed in monetary terms, is a: A. Variance report.B. Position statement.C. Budget.D. Prospectus.E. Variance analysis.

7. For budgets to be effective: A. Goals should be attainable.B. Employees affected by a budget should be consulted when it is prepared.C. Evaluations should be made carefully with opportunities to explain any failures.D. They should be properly applied to avoid negative effects.E. All of these.

8. The most useful budget figures are developed: A. From the "top-down."B. From the "bottom-up" following a participatory process.C. Solely by the budget committee.D. By the CEO.E. After the accounting period has begun.


9. The usual starting point for preparing a master budget is forecasting or estimating: A. Expenditures.B. Sales.C. Production.D. Income.E. Cash payments.

10. A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units. Total June sales are anticipated to be: A. $63,000.B. $67,500.C. $61,250.D. $74,250.E. $60,000.6,000 x $10.50 = $63,00011. In preparing financial budgets: A. The budgeted balance sheet is usually prepared last.B. The cash budget is usually not prepared.C. The budgeted income statement is usually not prepared.D. The capital expenditures budget is usually prepared last.E. The merchandise purchases budget is key.12. Which of the following budgets must be completed before a cash budget can be prepared? A. Capital expenditures budget.B. Sales budget.C. Merchandise purchases budget.D. General and administrative expense budget.E. All of these.

13. An analytical technique used by management to focus on the most significant variances and give less attention to the areas where performance is satisfactory is known as: A. Controllable management.B. Management by variance.C. Performance management.D. Management by objectives.E. Management by exception.

14. Which of the following costs cannot be directly traced to the product? A. Fixed manufacturing overhead.B. Direct labor.C. Variable manufacturing overhead.D. Neither A nor B can be directly traced to the product.E. Neither A nor C can be directly traced to the product.

15. Which of the following statements is(are) true regarding variable costing? A. It is a traditional costing approach.B. Only manufacturing costs that change in total with changes in production level are included in product costs.C. It is not permitted to be used for managerial reporting.D. It treats overhead in the same manner as absorption costing.E. B and D are both true statements regarding variable costing.


16. Under absorption costing, a company had the following unit costs when 8,000 units were produced.

Compute the total production cost per unit under absorption costing if 30,000 units had been produced. A. $31.65.B. $26.15.C. $24.15.D. $17.40.E. $ 8.40.$8.40 DL + $9 DM + $6.75 VOH + ($60,000/30,000) FOH = $26.1517. When evaluating a special order, management should A. Only accept the order if the incremental revenue exceeds all product costs.B. Only accept the order if the incremental revenue exceeds fixed product costs.C. Only accept the order if the incremental revenue exceeds total variable product costs.D. Only accept the order if the incremental revenue exceeds full absorption product costs.E. Only accept the order if the incremental revenue exceeds regular sales revenue.18. Assume a company sells a given product for $75 per unit. How many units must be sold to break-even if variable selling costs are $12 per unit, variable production costs are $23 per unit, and total fixed costs are $700,000? A. 11,112 units.B. 13,462 units.C. 9,334 units.D. 17,500 units.E. 6,363 units.$700,000/($75 - $12 - $23) = 17,500 units

19. Which of the following best describes costs assigned to the product under the variable costing method?




20. Which of the following best describes costs assigned to the product under the absorption costing method?




21. 32 Degrees, Inc., a manufacturer of frozen food, began operations on July 1 of the current year. During this time, the company produced 140,000 units and sold 140,000 units at a sales price of $125 per unit. Cost information for this period is shown below.

(a.) Prepare 32 Degree's December 31st income statement for the current year under absorption costing.(b.) Prepare 32 Degree's December 31st income statement for the current year under variable costing.


22. Del Carpio, Inc. sells two products, Widgets and Gadgets. The sales forecast in units for the first quarter of the coming year is:

Cash sales are 30% of each product's monthly sales. The remaining sales are credit sales which are collected as follows: 70% in the month of sale, 20% the next month, and 10% in the following month. Unit sale prices are $30 and $20 for Widgets and Gadgets, respectively.Determine the company's cash receipts for March from its current and past sales.


Sales in dollars per month:

23. Big Bend Co. fixed budget for the year is shown below:

Prepare a flexible budget for Big Bend Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format.


24. Woods, Inc.'s budget included the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units:

The standard cost per unit when operating at this same 80% capacity level is:

The actual production achieved in the current year was 60% of capacity, or 30,000 units. The actual costs were:

Calculate the following variances and indicate whether each is favorable or unfavorable.


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000102 Test 3 FALL 2011 acct