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ACG 2071 Comprehensive Review Spring 2018 Note that quantitative multiple choice questions on the actual final exam will have multiple choices from which to select the correct answer.
1. Which is not a way that managerial accounting supports the management cycle?A. evaluating performanceB. reporting the results of activitiesC. providing GAAP statementsD. developing plans and analyzing alternatives
2. Mako produces bins and has traditionally allocated overhead on the basis of direct labor hours. The budgeted cost of direct labor is $14.50 per labor hour, and the budgeted material cost is $4.80 per pound. Actual material cost per pound is $4.50, and actual labor cost per hour is $14.80. Mako recently sat up 3 activity centers to implement ABC costing. Information concerning this follows:
Estimated Activity EstimatedCost
Actual Cost
Actual ActivityPlastic Bins Acrylic Bins
Direct labor 7,600 hours $110,200 $111,000 0.6 hours per bin 1.2 hours per binDirect materials 10,460 pound $50,208 $47,070 0.8 pounds per bin 1.7 pounds per binMaterials handling 3,100 requisitions $16,120 $16,600 1,250 requisitions 1,900 requisitionsQuality control 450 inspections $20,520 $21,000 260 inspections 220 inspectionsFactory maintenance 4,200 machine hours $52,500 $51,600 900 machine hours 3,180 machine hoursEstimated production 8,000 units 3,300 units 4,600
How much is the overhead rate using the traditional method?
Use the following information for questions 3 through 4:Saradyne makes a single product, punch bowls. During October, 40,000 bowls were produced and sold. At October 1, there were 150 bowls in stock. Information for 2017 appears below:
Variable production cost per unit $3.20Variable selling cost per unit $1.40Fixed production cost per year $88,000Fixed selling and administrative cost per year $26,000Selling price per unit $11.00
3. How much is the contribution margin for October on the company’s income statement? Display your answer with two decimals and the proper label ($, %, etc.)
4. How much is reported as inventory on Saradyne’s balance sheet at December 31, 2017 using absorption costing?
Page 2 of 245. Why are accounting distortions removed when evaluating performance using EVA?
A. They are a free source of financing. B. There is no way to control those amounts. C. To remove the costs of assets that must be capitalized under GAAP D. To encourage managers to spend money on elements that will benefit the company in the long term
6. Why is an adjustment made to net income when calculating NOPAT? A. It is not an amount on which income taxes must be considered. B. This adjustment amount has no cost of capital associated with it. C. Only assets which incur no interest costs are included with NOPAT. D. Divisional managers have no ability to control the costs that are being removed.
7. Saradyne, Inc. has total costs of $28,000 when 2,650 units are produced and $36,000 when 3,650 units are produced. During March, 2,700 units were produced and sold for $11.25 each. How much is the contribution margin cost per unit?
8. A significant weakness of the high-low method is thatA. a significant amount of management expertise is necessary to break out the variable and fixed costs.B. the two data points that are used may not be representative of the general relation between cost and
activity.C. the calculations are so complex that a computer is usually necessary in order to get accurate results.D. monthly data must be collected for at least three years before the method can be used.
9. Sonal Co. compiled the following information for its East Division for 2017: Sales revenue $22,600,000 R&D costs $876,000Total assets 12,900,000 Current liabilities-interest bearing 300,000NOPAT 1,600,000 Current liabilities-non-interest bearing 240,000
East Division’s R&D costs incurred during 2016 totaled $660,000, with $696,000 incurred during 2016. Sonals amortization policy is 6 years. Sonal has a 7.4% cost of capital, a 8.8% required rate of return, and a 31% income tax rate. How much is residual income for 2017?
10. Soft Soles is an established shoe maker with 3 Divisions: North, South, and West. The CEO believes that these division managers should have full discretion as to decisions they make and be accountable for those decisions, including replacement or upgrading the facilities used for operations. What best describes the organization of Jasper and the North Division?A. Decentralized cost centers B. Centralized investment centersC. Decentralized investment centersD. Centralized profit centers
Page 3 of 2411. What is a cost pool?
A. A group of overhead costs that are assigned to a company’s cost objectsB. The activity that causes a cost driver to change in amountC. The activity basis on which material, labor and manufacturing overhead are allocatedD. The products, services, or jobs for which a company wants to know their cost
12. Saradyne, Inc. wants to purchase a new ice cream truck with a cost of $58,000. The company has a cost of capital of 8.4% and a required rate of return of 12.4%. Its income tax rate is 30%. The acquisition is proposed for January 1, 2018. Saradyne expects it can sell the truck for $10,000 at end of its useful life of 4 years. Saradyne predicts the new truck will generate net income of $5,500 and operating cash flows of $17,500 during 2018. How much is ARR? Express with 2 decimals and display with the proper label ($, %, etc)
13. Water Works is evaluating the cost of its three plumbing trucks acquired two years ago that had a total cost of $110,000. Which statement is true concerning these trucks?
A. The cost is avoidable since it is a sunk cost.B. The cost is irrelevant since it is a sunk cost.C. The cost is relevant since it was incurred in the past.D. The cost is avoidable and therefore considered to be differential.
14, Pink Egg is a successful manufacturer of BBQ grills. In estimating the total budgeted direct labor for the next year, the Controller assembled the following data:
Standard average wage rate = $16 per hourFringe benefits = $2.80 per hour Budgeted direct labor per grill 2 hours and 21 minutesNumber of grills budgeted = 12,240
What amount will the company budget as direct labor?
15. The manager of Best Diet indicated he needed the assistance of the controller to determine if additional dog food should be produced since the company was operating at 70% of capacity. Which of the following is not incremental to the decision?A. The cost of the bagger currently used to fill bags with dog foodB. The maintenance cost of running the dog food mixerC. The cost of labor involved in running the dog food mixerD. The cost of vitamins added to the dog food
16. Magic Sweep is budgeting its sales for 2017. The controller estimates the budgeted sales price for one of its products, the electric broom, to be $26 during the first quarter and increase by 4% each quarter. Annual unit sales are estimated as 8,000. If unit variable costs are estimated at $10.92, what is the amount of budgeted sales revenue for the fourth quarter of 2017? Use 5 decimals in interim calculations and express the answer with 2 decimals and display with the proper label ($, %, etc.)
Page 4 of 2417.Which statement is true concerning an income statement in the absorption costing format?
A. The amount of operating income will differ from that on the traditional income statement format. B. Costs are classified based on behavior.C. Cost of goods sold is subtracted from sales revenue to arrive at gross profit.D. Fixed costs vary with the amount of revenue.
18. Calcadyne sold 5,000 calculators during May for a total profit of $5,200. Its contribution margin per unit was $16 and its contribution margin ratio was 42%. If sales revenue increases by $1,600 above the breakeven point, by how much will operating income increase?
19. DynaCraft is distinguishing between management and financial accounting for the current year. Which of the following qualify as financial accounting information?A. A metric used to measure the number of craft pieces produced dailyB. Profitability report of the least popular craft itemC. A set of financial statements audited by a CPAD. A financial ratio measuring the company’s average gross margins
20. A manager of Concrete Supply Company was involved in capital budgeting. Which of the following is an activity in which this manager might engage?A. Making an edit to the current year budgetB. Adjusting the compensation for a proven high performing employeeC. Considering the addition of a new product outside of the concrete supply areaD. Considering the acquisition of a new concrete supply plant
21. Deck Products wants to buy bolts for its lawn furniture from its foreign subsidiary. It currently produces custom made bolts packaged in boxes of 25. Deck Products’ cost information for each bolt is:
Variable product costs $1.00Variable administrative costs 0.10Fixed cost per unit allocated on units produced 0.60
The supplier has offered to produce the bolts for $30.50 per box. If 85% of the fixed costs are unavoidable, how much is the minimum price at which Deck products should be willing to pay per box of bolts to purchase from the supplier?
22. Saradyne is deciding whether to purchase equipment with a cost of $49,000, an estimated residual value of $4,000, and an estimated life of 6 years. Saradyne predicts the equipment will reduce annual payroll costs to $470,000 from the current level of $514,000. Cash operating expenses related to the new equipment are expected to be $26,000 per year. Saradyne’s cost of capital is 7.5%, its required rate of return is 9.3%, and its income tax rate is 34%. How much are annual incremental operating cash flows?
Page 5 of 2423. Which of the following statements regarding fixed costs is true?
A. When production increases, fixed cost per unit increases.B. When production decreases, total fixed costs decrease.C. When production increases, fixed cost per unit decreases.D. When production decreases, total fixed costs increase.
24. Cayden has 3 divisions, a 5.9% required rate of return, has a 4.3% cost of capital, and has invested capital in East Division amounting to $942,000. Its East Division reported profits of $121,000 during the current year. The East Division manager is considering whether expanding the shipping docks at an estimated cost of $179,000 will enhance the division. Sales revenue from the shipping dock expansion is expected to be $345,000. The expansion is expected to increase annual income by an estimated $18,200. How much is the East Division’s ROI if the docks are expanded? Express with 2 decimals and the proper label ($, %, etc.)
25. Big Wing’s operates sports bars and has established a required rate of return of 6.5%, its cost of capital is 4.2%, and its tax rate is 32%. The operating data for BW3’s Sports division for the year follow:
Sales $960,000 Total assets $1,850,000Interest expense 30,000 Net income 190,000Current liabilities (40% interest-bearing) 100,000
Calculate Big Wing’s residual income. Express with 2 decimals and the proper label ($, %, etc.)
26. Which components are evaluated when using the balanced scorecard approach? A. Innovation, financial, expansion, and internal business processes B. Value added, innovation/growth, expansion, and customer C. Financial, development, expansion and research D. Value added, learning and growth, customer, and internal business processes E. Learning and growth, financial, customer, and internal business processes
27. Sayco is a console manufacturer. Information about the company’s two products follows:Dynamic Basic
Units produced 10,000 5,000Direct labor hours required for productionNumber of parts per console
12,00025
8,00040
Consoles per batch 2,000 100Shipping weight per unit 4 lbs. 5 lbs.
The company estimates it will incur $276,000 in overhead during 2017 and uses the traditional method to apply overhead based on direct labor hours. How much overhead will be allocated to each basic console?
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28. Activity-based costingA. calculates a more accurate product cost and is less expensive than the traditional method of costing.B. categorizes direct costs by activity and traces the direct costs to those activities using a cost driver.C. is used to allocate indirect and direct costs to products.D. allocates indirect costs based on the activity that causes costs to increase.
29. Follett has three product lines in its retail stores: books, videos, and music. Results of the 4th quarter are presented below:
Books Music Videos TotalUnits sold 1,000 2,000 2,000 5,000Revenue $23,000 $40,000 $23,000 $86,000Variable departmental costs 16,000 22,000 12,000 49,000Direct fixed costs 1,000 3,000 2,000 6,000Allocated fixed costs 7,000 7,000 7,000 22,000Net income ($1,000) $ 8,000 $ 2,000 $ 9,000
The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines. If Follett discontinues the books product line, and demand of music is expected to increase by 10%, what is the effect on profit? Indicate amount and if an increase or decrease.
30. If the anticipated contribution margin on a new product line is $16 per unit, fixed costs are $150,000, and the total market for the product is 9,200 units, then the CVP analysis would recommend that the companyA. abandon the potential new product line.B. decrease the sales price per unit.C. lower fixed costs (such as advertising) to increase the breakeven units.D. adopt the new product line.
31. Sebring, Inc. produces chairs and sells 1,050 per year. The unit costs follow at this level of activity. Direct materials $ 18Direct labor 24Variable overhead 16Fixed overhead (25% avoidable) 40
An outside supplier has offered to produce and sell the chairs to Sebring for $73. What is the effect on operating income if the offer is accepted? Indicate the amount and the effect.
32. Which of the costs below are added directly to product costs by increasing the Work in Process account when they are incurred?
A. The purchase of raw materialsB. The completion of product or jobs C. The incurrence of manufacturing overhead costs D. The allocation of manufacturing overhead costs
Page 7 of 2433. Mud Trucks budgeted September sales to be $520,000, October sales to be $480,000, November sales
to be $620,000, and $870,000 for December for its model 22 dirt bike. The company collects 42% of its sales in the month of sale and 56% in the month that follows. If two percent of credit sales is considered to be uncollectible, how much does Mud Trucks expect to collect in November?
34. Which of the following statements are false?A. When a company has limited resources, management must decide which products to make and sell in
order to maximize sales. B. When there is a constraint, the focus is on the contribution margin per unit of the constraint. C. In order to maximize profits, a company must produce the products with the highest profit margin per
unit of constrained resource.D. When there is a constraint, the focus shifts to the contribution margin ratio.
35. Diego Fabricators provided the following budgeted information: January February March April MaySales $170,000 $183,000 $180,000 $172,000 $171,000Merchandise purchases 98,000 62,000 80,000 84,000 92,000Operating expenses 38,000 40,000 53,000 44,000 46,000Income tax expense 27,000 25,000 22,000 25,000 21,000
Diego estimates that it will collect 32% of its sales in the month of sale, 53% in the month after the sale, and 14% in the second month following the sale, with the remainder being uncollectible Write-offs occur at 80 days after the last day of the month during which the sale occurred.
Diego pays 35% of merchandise purchases in the month purchased and 65% in the following month. Accounts payable is used only for merchandise purchases.
General operating expenses include depreciation of $2,800. Diego pays operating expenses 20% in the month incurred and 80% in the following month.
Net income for March is $33,000. Diego pays income taxes the month after accrual. The cash balance on March 1 is budgeted at $29,100.
Calculate budgeted cash disbursements during March.
36. Haywood began the month of July with jobs 80 and 83 completed and waiting to be shipped to customers. At the end of June, jobs 81, 84, and 85 were in production. During July, jobs 86, 87, 88, 89 and 90 were begun. The company completed Jobs 81, 85, 86, 88, and 87 during July. Jobs 80, 81, 83, and 86 were shipped to customers during July. Which jobs are in finished goods at July 31?
Page 8 of 2437. Which of the following statements about job costing is not true?
A. Materials are assigned to jobs using materials requisition forms.B. Indirect labor is traced to jobs using time tickets.C. Manufacturing overhead cannot be traced directly to jobs, so it is assigned using an overhead rate.D. A job cost system has a single work in process control account in the general ledger.
38. Seeco, Inc. uses a job costing system. It reported the following amounts for March:Work in process, March 1 $35,000 Finished goods, March 1 $12,800Work in process, March 31 30,000 Finished goods, March 31 15,200Cost of goods manufactured 182,000 Raw materials, March 1 15,300Direct labor used 56,000 Raw materials, March 31 17,200Selling costs incurred 33,000 Direct materials used in production 66,000
How much will Seeco report on its income statement as product costs for the month of March?
39. Use the information in the previous question. How much are total manufacturing costs for March?
40. Sonal Co. compiled the following information for its East Division for 2017: Sales revenue $22,600,000 R&D costs $876,000Invested capital 12,900,000 Current liabilities-interest bearing 300,000NOPAT 1,600,000 Current liabilities-non-interest bearing 240,000
East Division’s R&D costs incurred during 2016 totaled $660,000. Sonal’s amortization policy is 6 years. Sonal has a 7.4% cost of capital, a 8.8% required rate of return, and a 31% income tax rate. By how much is invested capital adjusted as it relates to computing EVA for 2017?
41. The overhead volume variance is favorable whenA. more units are produced than were originally planned.B. actual overhead costs are less than the flexible budget.C. the predetermined overhead rate was set too low.D. there are units remaining in ending inventory.
42. The difference between standard costs and budgeted costs is that standard costs A. refer to a single unit while budgeted costs refer to the cost, at standard, for the total number of
budgeted units.B. are calculated under ideal conditions, while budgeted costs are calculated for attainable conditions.C. are calculated at the beginning of the period while budgeted costs are calculated at the end of the
period.D. are part of the management accounting system, while budgets are part of the financial accounting
system.
Page 9 of 2443.Yummy Bakery makes a variety of brownies for upscale restaurants in the Jacksonville area. The
company’s best-selling brownie is the fudge deluxe. The company’s recipe requires 12 ounces of flour, 8 ounces of fudge, and 1 ounce of walnuts per batch. The standard direct materials costs are $0.80 per pound of flour, $6.00 per pound of chocolate, and $7.60 per pound of walnuts. The brownies require 6 minutes of direct labor for mixing and 3 minutes of direct labor for baking. The standard labor rates in those departments are $12.00 per DLH and $13.00 per DLH, respectively. Variable overhead is applied at a rate of $0.30 per brownie. Fixed overhead is applied at a rate of $0.23 per brownie. How much is the standard direct material cost of the fudge deluxe?
44. The standard price for materials is often determined byA. the quantity of materials to be used for each unit of product.B. a union labor contract.C. price lists provided by suppliers.D. multiplying the number of units of materials allowed times the actual cost.
45. Which of the following best describes one impact of undercosting?A. It is a common goal of all companies that allows a company to show larger profit margins.B. Undercosting some products will lead to overcosting other products, which is acceptable because total
costs and profits are the same.C. Undercosting may cause a company to price it products less than what is necessary to make a profit.D. Market share may be lost due to customers lost to competitors.
46. The delivery trucks of Ace Transport incurred $5,600 of maintenance costs during the busiest month of 2017, in which 10,000 miles were driven collectively. During the slowest month, $4,800 in maintenance costs were incurred, and 8,400 miles were driven. Using the high-low method, what maintenance cost would the company expect to incur if 8,900 miles were driven?
47. Head Gear produces bicycle helmets and sells them each for $56 each. During the year, the company produced and sold 28,600 helmets. Costs involved in production are:
Direct material per helmet $13.50 Direct labor per helmet 8.25 Variable manufacturing overhead per helmet 3.00 Fixed manufacturing overhead $128,700 per year
How much is the product cost per unit under full costing?
Page 10 of 24Use the following information for questions 48-53.
Ballpark Products produces baseball equipment. The standard cost of producing one unit of the grand slammer bat is: Material (3.50 ounces at $1.30 per ounce) $4.55 Labor (0.30 hour at $12.00 per hour) 3.60 Overhead 2.20 Total $10.35At the start of 2017, Ballpark planned to produce 80,000 bats during the year. Annual fixed overhead is budgeted at $56,000 and the standard for variable overhead is $1.50 per unit.The following information summarizes the results for 2017:
Actual production was 79,000 bats.Purchased 275,000 ounces of material at a total cost of $343,750.Used 266,000 ounces of material in production.Employees worked 22,000 hours and were paid $275,000.Actual overhead incurred was $174,000.
48. What is the material price variance?
49. What is the total material variance?
50. What is the labor rate variance?
51. What is the labor efficiency variance?
52. What is the controllable overhead variance?
53. What is the overhead volume variance?
Page 11 of 2454. As volume decreases,
A. variable cost per unit decreases.B. fixed cost in total decreases.C. variable cost in total remains the same.D. fixed cost per unit increases.
55. Walsham Company makes 2 products, buckets and shovels. Additional information follows: Buckets ShovelsUnits 1,000 1,500Sales $60,000 $25,000 Variable costs 24,000 13,750Fixed costs 10,000 5,250Net income $26,000 $6,000 Pounds of plastic per unit 1.50 0.40Contribution margin per unit $36.00 $11.25
The company can sell as many buckets and shovels as it can manufacture and can eliminate one or the other without an effect on demand of the other. Suppose that plastic is in limited supply and only 1,900 pounds are available of plastic. How many shovels should the company manufacture?
56. Activity-based costing information cannot be used by managerial decision-makers to evaluate the A. profitability of a customer.B. market potential of a product.C. cost of using a particular supplier.D. whether to continue providing a service.
57. On January 1, 2017, Reco, Inc. plans to purchase a machine for $42,000 that has an estimated salvage value of $16,000, and an estimated life of 4 years. The machine is expected to generate the following cash flows and income over the next 3 years:
2017 2018 2019 2020Net income $12,500 $8,300 $7,000 $1,500Operating cash flows 19,000 14,800 13,500 8,000
Reco’s required rate of return is 6%. Determine the investment's payback period. Express with 2 decimals and the correct label ($, %, etc.)
58. At what point does fixed manufacturing overhead become an expense when variable costing is used?A. In the period the product is soldB. In the period the cost is incurredC. In the period that cost of goods sold is determinedD. It is never a product cost so it is never expensed.
59. Which of the following is correct when applying overhead to products?A. Increase Work in Process using the predetermined overhead rate times the actual activity levelB. Increase Manufacturing Overhead using the predetermined overhead rate times the budgeted activity
levelC. Increase cost of goods sold using the predetermined overhead rate times the budgeted activity levelD. Increase Manufacturing Overhead using the predetermined overhead rate times the actual activity level
Page 12 of 2460. Kay Manufacturing produces toy water guns. Direct materials and direct labor costs per unit are $0.25 and
$0.45 per gun, respectively. Kay’s three activity cost pool rates are: setups, $9.60 per setup; molding, $8.00 per rotation; and finishing, $7.00 per case. The total overhead cost is estimated at $100,000. During the year, a batch of 215,000 water guns was produced using 1,000 setups, 7,800 rotations, and 2,000 cases. How much is the unit product cost using ABC?
61. Which of the following is accounted for in a different manner in full costing as compared to variable costing?A. Direct materialsB. Direct laborC. Fixed manufacturing overhead D. Variable manufacturing overhead
62. The following information was taken from the cost records of RT Corporation:Estimated manufacturing overhead $79,200Actual manufacturing overhead $81,500Estimated direct labor hours 12,000Actual direct labor hours 12,400
The budgeted labor rate is $12 per hour, though during the year, employees were paid an average of $12.20 per hour. The company applies manufacturing overhead based on direct labor cost. How much is overapplied or underapplied manufacturing overhead?
63. Which one of the following is an appropriate cost driver?A. A product such as Monopoly gamesB. The dollar amount of delivery costs incurred in shipping goods to customersC. The number of purchase orders prepared by an ordering departmentD. A production department
64. Which one of the following statements most accurately explains the behavior of costs?A. The majority of costs are variable per unit of production.B. The majority of costs are fixed per unit of production.C. Costs can be fixed or variable but usually not a combination of both.D. There is no norm; rather, costs can be fixed, variable, or a combination of both.
65. Jax Company is currently operating under capacity. The contribution margin for a special order is $4.00 for each of 1,500 handles, while for other customers, it is $6.00 per handle. What will be the effect on operating income if accepting the special order adds $5,600 to fixed costs?
Page 13 of 2466. Lander Clothing is evaluating a special order from its largest customer, Kidco, who is asking for a special
uniform for its delivery workers. The relevant unit cost of the special uniform is $14.00 compared to $12.50 for normal uniforms. Lander has an offer from Kidco to buy the uniforms for $14.50 each. The regular selling price of normal uniforms is $20 each. Which of the following is a valid reason why Lander should accept this order?A. The management team believes it should accept all special orders to maximize volume.B. Fixed costs are usually not relevant in special order decisions if the company is operating less than
capacity.C. New customer expect special prices to recur on a long-term basis.D. The contribution margin per unit will be higher than normal orders.
67. Siding Co. produces computers, which sell for $400 each. A foreign distribution wants to order 1,000 computers at $295 each. Production costs per unit at capacity of 30,000 units are:
Direct materials $90Direct labor 130Variable overhead 50Fixed overhead 70
What is the effect on operating income of accepting the special order?
68. What cost(s) will be considered differential as part of the unit cost for a make or buy decision assuming no additional fixed costs are to be incurred if the order is accepted?A. Avoidable fixed costsB. Plant manager salaryC. Equipment rental costsD. Factory depreciation
69. Which of the following is a valid reason that the Vice President of Round Manufacturing would accept a special order?A. To lower fixed costsB. To keep his labor costs low C. To improve the contribution margin per unit D. To improve the customer relationship with a large prior customer
70. On January 1, 2018, Milford plans to purchase a machine for $77,000 that has an estimated salvage value of $21,000. The machine is expected to generate the following cash flows and income over the next 4 years:
2018 2019 2020 2120 Net income $12,500 $10,300 $3,000 $2,000Operating cash flows 26,500 24,300 17,000 16,000Milford’s required rate of return is 6.5%, and the cost of capital is 4.4%. Show the calculation of the NPV of
the investment. Display the answer using 2 decimal places with the proper label (%, $, etc.)
71. Which of the following is a valid qualitative issue for management to evaluate related to the potential acquisition of a large machine press for a manufacturer?A. The return of investment on the machineB. The amount of depreciation each yearC. The machine’s environmental impact D. The machine’s estimated salvage value
Page 14 of 2472. Beta Company is evaluating a make-or-buy decision. The unit material costs for circuit boards are $1.00
and the unit labor and allocated monthly fixed costs are $2.50 and $4,000, respectively, for a production run of 2,000 units. If Alpha Supply offers to sell completed circuit boards to Beta Company for $4.50 each, and is able to supply all it needs, what is the most profitable decision for Beta?A. Buy from Omega for $4.50B. Continue to make at a relevant cost of $5.00 per unitC. Continue to make and save $1.50 per unitD. Outsource and save $1.00 per unitE. Some other answer
73. The manager of a convenience store had a banner year during 2016 with $3,200,000 of revenue and $120,000 of selling and administrative expenses. The manager determined that selling and administrative expenses were expected to grow by 5% per year. The manager listed all the selling and administrative costs he expected to be incurred for 2017 which totaled to $108,000. The manager was informed by his supervisor that zero-based budgeting had been implemented. What is an appropriate submission by the manager for selling and administrative expenses for the 2017 budget?
74. Seeco Company is evaluating its product lines. The production process has one key constraint in its product sorting area, the number of hours the sorter can operate per day. For product A, the contribution margin per unit is $2.00 and each product unit uses 0.10 machine hours. For product B, the contribution margin is $8.00 per unit and each unit uses 0.25 machine hours. There are 8,200 hours available each month on the sorting machine. How much is the contribution margin per limited resource unit of the most profitable product?
75. Which amount is never included as an operating cash flows in a capital budgeting decision?A. The original purchase price of the new assetB. Cost savings due to reduced labor with the new assetC. Expected maintenance costs of the new asset D. Additional variable overhead costs for the new machine
76. Haven produces two varieties of massage oil—lavender and spice, and has experienced a stable sales mix in the past. July information follows:
Lavender Spice TotalsBottles of oil sold 120,000 80,000 200,000Sales revenue $240,000 $160,000 $400,000Variable costs 136,200 88,800 225,000Fixed costs 43,800 28,000 71,800 Net operating income $ 60,000 $ 43,200 $103,200
How many bottles of lavender oil will Haven sell at breakeven assuming there is no change in sales mix?
Page 15 of 2477. What is the nature of the amount in the Work in Process account at year end?
A. The cost of all units completed during the period B. The cost of all units still in production at year end C. The cost of all units started and finished during the yearD. The total cost incurred to manufacture goods during the period
78. Kyle Industries is considering the purchase of new equipment costing $110,000 to replace existing equipment. The new equipment is expected to have a $30,000 salvage value at the end of its five-year life. The new equipment will allow the company to produce and sell an additional 8,000 units annually at a sales price of $11 per unit, a variable cost of $4.5 per unit, and an additional $31,000 in annual fixed costs. The income tax rate is 32%, the required rate of return is 6% and the cost of capital is 5.3%. How much is annual operating cash flows?
79. Use the information in the previous question . How much is IRR?
80. Which statement comparing ABC and traditional systems is true?A. Traditional ABC systems are more expensive than ABC systems.B. Traditional systems generally give more accurate product cost information than ABC.C. GAAP requires companies to use ABC for external reporting purposes. D. Traditional systems utilize fewer cost drivers than ABC systems
81.Which of the following describes the behavior of fixed costs?A. The unit cost increases when the activity level decreases.B. The total cost changes with the activity level.C. The unit cost stays the same over changing levels of activity.D. The total cost declines when activity declines.
82. Santos, Inc.’s accountant determined the cost of weekly lunch catering provided to department managers during the weekly meetings totaled $860 when 100 managers attended, and $960 when 120 managers attended. What type of cost are the catering costs?A. Committed fixed costB. Discretionary fixed costC. Mixed costD. Variable cost
83. The shipping costs for West Company for the months of March and April totaled $1,650 and $1,300, respectively. During March, the company shipped 350 packages and during April, there were 225 packages shipped. How much will be estimated as total fixed costs?
Page 16 of 2484. Which one of the following would most likely be allocated to products using ABC by a Pizza Hut?
A. Cost of pouring sauce on the pizza dough B. Cost of pepperoni toppings C. Cost of plastic gloves worn by pizza makers D. Costs of the cardboard box in which the pizza is placed for delivery
85. What is ABC? A. A method that allocates manufacturing costs to cost poolsB. A method of allocating direct and indirect product costs to products C. A method of reducing total manufacturing overhead costs for a companyD. A method of determining the amount of product costs incurred by a companyE. A method of allocating indirect costs to products or services rendered
Use the following for questions 86 and 87. For each capital budgeting project below, indicate whether management should Accept or Reject by printing an A or R, respectively, in the space provided next to each project. Select the best reason for the respective action from the list of Reasons by printing a legible, CAPITAL uppercase letter in the space provided.
Possible ReasonsA. because the investment’s return is less than the cost of capitalB. because the investment earns a rate equal to the company’s hurdle rateC. because the investment’s return is larger than the cost of capitalD. because profit is less than zeroE. because the investment’s rate of return is less than the required rate of returnG .because the investment’s rate of return is greater than the required rate of returnH. because the hurdle rate is less than the required rate of returnJ. because the company will never recover its entire investmentK. because not enough profit will be generated for each dollar of salesX. Not enough information to make a decision
Capital budgeting projects A or R? Reason86. An investment project for which management expects to receive economic
benefits for 6 years costing $80,000 is expected to generate an IRR of 4.5%. The hurdle rate is 4.2%.
87. Ace Inc. evaluated a potential investment and determined the net present value of the expected cash flows to be $0, Ace’s cost of capital is 3.8% and its required rate of return is 5.5%.
88. The Controller of Grass Corporation is analyzing breakeven for the current month. Which assumption is correct about his breakeven point?
a. The contribution margin per unit can include fixed costs.b. The profit can be less or greater than zero.c. The breakeven point can be expressed in dollars or units.d. The breakeven point must have contribution margin greater than fixed costs.
89. In which situation is margin of safety most important to managers?a. When managers need to know the volume of sales that can decline before the company begins to incur
a lossb. When managers need to know the amount that profit can decline before a loss occursc. When managers need to know the volume of sales to breakevend. When managers need to know the amount of contribution margin required to break even
90. Marsh Company has current sales of 6,000 units. The company determined that unit sales could drop by 1,000 units before the company experiences a loss. Which statement is true? a. The contribution margin in units is 1,000.b. The breakeven point is 0.c. The breakeven point is 5,000 units.d. Unit sales are less than the breakeven sales.
Page 17 of 2491. Tack-it sells one finger staplers for $24. The contribution margin per stapler is $9.60 and total fixed costs
are $23,550 per month. What is the breakeven point in sales revenue?
92. Use the information in question 91. What is the contribution margin ratio?
93. Use the information in question 91. If an increase in aluminum causes the variable cost per unit to increase by 10%, how many additional units must be sold to breakeven?
94. Why is an adjustment made to total assets when calculating invested capital?A. The company incurs financing cost on these amounts which is not within a divisional managers’
control. B. This amount is not controllable by the managers being evaluated.C. The amounts are considered to be assets. D. The assets have no financing costs related to them.
95. Which one of the following is not a disadvantage of outsourcing? A. Quality control specifications may not be met. B. Goods may not be delivered on a timely basis. C. Profitable product lines may be dropped. D. Employee morale may suffer.
96. Rayco sells beach buckets for $5.00 each. The results of last month’s operations follow:Sales $5,400Variable costs 2,376Contribution margin 3,024Fixed costs 1,596Operating income $1,428
What is Rayco’s breakeven point in units?
Page 18 of 2497. If the contribution margin per unit is $5, the contribution margin ratio is 40%, and fixed costs are $5,500
and target operating income is $2,200, how many units will the company need to sell to meet target operating income?
98. Seeco Products produces buckets that its sells for $15 each. Its variable costs are $6.60 per unit. During May, the company sold 3,500 buckets with a total fixed cost of $10,500. How much is the degree of operating leverage for Seeco in May?
99. Which of the following will be considered to be an ‘activity’ under activity-based costing? A. Cost of suppliesB. Setting up machinesC. Processing purchase ordersD. B and C
100.Which costs below are most likely assigned to products of a manufacturing company?A. Shipping, commissions, and direct laborB. Factory rent, production manager salaries, and machine maintenance costsC. Packaging costs, property insurance, and sales commissionsD. Conveyer belt electricity, tooling costs, and corporate depreciation
101. Seeco determined the rate to apply overhead based on machine hours would be $3.40, and based on direct labor cost would be $3.20. Job 88 used 24 pounds of direct materials costing $3.60 per pound, $12 of indirect materials, 46.5 machine hours, and 8 hours and 21 minutes of direct labor at a rate of $16 per hour. Fringe benefits totaled an additional $1.30 per hour. Calculate the cost of job 88 if Seeco applies overhead based on machine hours.
102. In graph form, the breakeven point is at the intersection of theA. total-revenue and variable-cost lines.B. total-cost line and vertical axis.C. variable-cost and fixed-cost lines.D. total-cost and total-revenue lines.
Page 19 of 24103.Seeco's Work in Process account showed a balance of $10,400 on July 1, 2017. During July, direct
materials costing $41,300 were requested for production and 6,700 direct labor hours were used at a rate of $13 per hour. Seeco applies manufacturing overhead at a rate of $1.20 per direct labor dollar. Costs of $237,000 were transferred to the Finished Goods Inventory account during July. How much should Seeco report as its July 31, 2017 balance in Work in Process Inventory?
104. Why is factory overhead ‘applied’ to products and jobs by manufacturing companies? A. Managers need timely product cost information during production. B. Estimated overhead costs are more accurate than other amounts. C. It is a direct job cost that must be distributed to the respective cost object. D. To avoid overcosting products
105.Which of the following units of activity are most appropriate for the cost of changing linens at Hyatt Resorts?
A. The number of guests that made reservations for a stay at the resortB. The number of rooms in the resortC. The number of rooms used by guests at the resort D. The number of guests in each room at the resort
106.The following budget data are available for Ace Corporation:Estimated direct labor hours 9,000Estimated direct labor dollars $85,500Actual direct labor hours 8,900Actual manufacturing overhead costs $114,800Estimated manufacturing overhead costs $115,650
Ace applies manufacturing overhead based on direct labor hours. How much is the predetermined overhead rate?
107. Ace’s factory overhead account showed a $1,700 overapplied balance at year end. Based on Ace’s policy, this amount is assumed to be immaterial. Other accounts showed the following balances at year end:
Raw materials $36,000 Sales $967,000Work in process 44,000 Selling expenses 120,000Cost of goods sold 690,000 Finished goods 31,000
How much is gross profit after disposing of the overapplied overhead amount?
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108. At 2,400 units of activity, a company’s total cost was $3,000, while at 2,800 units, the total cost was $3,500. Why is this cost considered to be a variable cost?A. The total cost is the same at both activity levels. B. The total cost does not vary at the two activity levels.C. The unit cost at each activity level varies indirectly with the total cost.D. The unit cost is the same at both activity levels.
109. Why will the cost equation determined using the high low method differ from the cost equation determined using regression analysis?
A. The cost equation using the high-low method is based on a different activity level than using regression.
B. More data points are used for the regression method.C. The high-low method uses data outside the relevant range.D. The regression method uses data that may not be representative of the cost relationship.
110.Java Jaba Coffee provided the following number of cups of coffee sold and the total cost data concerning its coffee sales for the past 12 years:
Year Units Cost Year Units Cost2007 3,200 $5,060 2013 3,490 $5,4002008 3,450 5,420 2014 3,180 5,0302009 3,320 5,200 2015 3,040 4,9502010 3,180 4,980 2016 3,340 5,2402011 3,090 4,900 2017 3,010 4,8002012 3,040 4,700 2018 3,150 5,100
How much is the variable cost per unit?
111. What is unique about the flow of costs in a job order cost system?A. The cost of each job is tracked separately in a subsidiary ledger.B. It involves accumulating actual material, labor, and manufacturing overhead costs as they are
incurred in order to determine the job costs.C. Job costs cannot be measured until all overhead costs are determined.D. There are no costs remaining in the Work in Process account at year end.E. Both A and B
112. A regression analysis of a car wash representing total costs and number of cars washed appears below. .SUMMARY OUTPUT
Statistics
Multiple R0.89390726
9
R Square0.79907020
5
Adjusted R20.74883775
6
Standard Error10744.5163
9Observations 6
ANOVA df SS MS F Significance FRegression 1 1836429804 1836429804 15.90745075 0.016286429Residual 4 461778529.4 115444632.4Total 5 2298208333
Coefficients Std Error t Stat P-value Lower 95% Upper 95% Lower 95% Upper 95%Intercept 17757.05 34958.30797 1.366114712 0.243667124 -49302.76423 144816.8819 -49302.76 144816.88X Variable 1 6.364 1.595798475 3.988414566 0.016286429 1.934059018 10.79535275 1.934059 10.795353
How much is the total cost to wash 1,450 cars in one month? Use three decimals in interim calculations.
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113. Which of the following is a limitation of the high-low method?A. It uses data points outside of the relevant range.B. The data points on which the cost equation is based may not be representative of the cost
relationship.C. It assumes multiple drivers are used.D. The selection of a line used to compute the cost components is subjective.
114. Which of the following is one reason that manufacturing overhead is applied to jobs by manufacturing companies?
A. Total actual overhead costs can never be accurately determined for production. B. Indirect costs are easy to trace to products and jobs. C. It allows managers more timely determination of product costs during the manufacturing process.D. It provides a more accurate cost of the job or products being processed.
115. A proposed acquisition of packaging equipment will cost $52,500 and have an estimated residual value of $12,000 at the end of its five year estimated life. It is estimated that net income will be $5,100 per year. The company’s cost of capital is 4.85% and its required rate of return is 6.1%. Calculate IRR. Display the answer with a % sign and 2 decimals.
116. An predetermined overhead rate isA. used to allocate material, labor and manufacturing overhead in job costing systems.B. used to distribute the overhead costs among the various jobs.C. the total amount of overhead assigned to a particular job.D. based on direct labor hours for companies that incur direct labor costs in their production
processes.
117. Seeco makes 2 products, buckets and shovels. Additional information follows: Buckets ShovelsUnits 1,000 1,500Sales $60,000 $25,000 Variable costs 24,000 13,000Fixed costs 10,000 6,000Net income $26,000 $6,000
The company can sell as many buckets and shovels as it can manufacture and can eliminate one or the other without an effect on demand of the other. How much is the breakeven point in units for Seeco?
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118. Why is underapplied or overapplied overhead never charged to Raw Materials Inventory? A. Because overhead costs are expensed immediately in the Manufacturing Overhead control accountB. Because no overhead costs are accounted for in this accountC. Because the balance in raw materials inventory at the end of the year is relatively small compared to
total overhead for the yearD. Because the amount of overhead costs in the Raw Materials account cannot be determined in a
feasible manner
119. Seeco, Inc. estimated a proposed machine acquisition has an original cost of $86,000, a salvage value of $12,000, and a useful life of 5 years. The company owns a patent and recognizes $2,200 of annual amortization on it. During the year, the company sold machinery for $7,500 at a loss of $1,500. Annual cash basis net income is estimated at $18,400. Seeco’s income tax rate is 28%. How much are annual incremental operating cash flows?
120. When using Excel to calculate NPV, which one of the items below is entered into the wizard?A. The initial cash flowB. The annual operating cash flowsC. The cost of capitalD. Net income
121. If overapplied overhead is considered to be relatively large in amount, to where is it prorated upon disposal? A. As an increase to Work in ProcessB. Only as a decrease to Cost of Goods SoldC. To the Work in Process, Cost of Goods Manufactured, and Cost of Goods Sold accounts
proportionallyD. To the Raw Materials, Work in Process and Finished Goods accounts proportionallyE. To Work in Process, Finished Goods, and Cost of Goods Sold proportionally
122. Chee King manufactures cheese. The company maintains both direct and indirect materials in its Raw Materials account. At the beginning of June, Raw Materials totaled $5,400. During June, Chee King’s transactions included the following:
Raw materials purchased and received on account $90,100Costs incurred to ship products to customers 1,400Indirect materials requisitioned for production 2,100Direct materials requisitioned for production 95,600Raw materials acquired for cash 7,400Cash paid for materials previously acquired 87,500
Calculate the June 30 Raw Materials balance to be reported on Chee King’s balance sheet.
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123. At the end of the year, Manufacturing Overhead is underapplied for Marsh Company. What occurred to create this situation? A. The company incurred less total job costs than the amount budgeted for the jobs.B. The actual manufacturing overhead costs were less than the manufacturing overhead assigned to
jobs.C. The company incurred more manufacturing overhead costs than the manufacturing overhead
assigned to the jobs.D. Estimated manufacturing overhead was less than actual manufacturing overhead costs.
124.Why must underapplied or overapplied overhead be prorated in situations of which the amount is material?A. The accounts to which the amount is prorated are the accounts that would contain more or less
manufacturing overhead had the applied amount equaled the actual overhead cost for the period. B. By the end of the period, most of the inventory that was incorrectly costed will have been sold.
C. The adjustment amount is small compared to the total inventory value.D. Both B and C
125. Wise Company used an NPV analysis and determined that the cost of the investment is greater than the present value of the future cash flows. Which statement is true?A. The NPV must be positive.B. The investment should be made.C. The investment's expected return is less than the company's required rate of return.D. The company’s cost of capital is less than the return on the investment.
126. The primary negative effect that may result if a company undercosts one of its products is thatA. Customers will be lost to competitors.B. Products will be of lesser quality. C. Operating losses may result.D. Manufacturing overhead costs will be greater than expected.E. Estimated overhead costs will be less than actual overhead.
127. Raydone, Inc. reported the following amounts for the month of March:Cost of goods manufactured $229,000 Raw materials, beginning $6,800Finished goods, beginning 9,200 Work in process, beginning 21,500Finished goods, ending 9,900 Work in process, ending 19,600Direct labor incurred 88,000 Raw materials, ending 11,500Selling costs incurred 67,000 Direct materials used 58,000
How much is cost of goods sold for the year?
128. Which of the following are direct labor costs for McDonald’s?A. Wages paid to the managerB. Wages paid to the janitor that cleans the lobby and tablesC. Wages paid to cashiers who fill ordersD. Wages paid to the cook who prepares the burgers
129. How do direct materials and indirect materials differ?A. Direct materials can be easily identified with a particular product, while indirect materials can be easily
identified with a service.
Page 24 of 24B. Direct materials are used for manufacturing products, while indirect materials are used for
merchandising.C. Direct materials are product costs. Indirect materials are period costs.D. Direct materials can be easily identified with a particular product, while indirect materials are those used
in supporting the production process.
130. When a company calculates the NPV of an investment, what is occurring?A. Interest is added to the expected future cash flows to reflect the rate the company wishes to earn. B. Interest is removed from future expected cash flows. C. Inflation and risk are added to future expected cash flows.D. The company’s required rate of return is added into the expected cash flows.
131. Which statement describes the schedule of cost of goods manufactured?A. It summarizes the activity in the Work in Process account.B. It is another name for Cost of Goods Sold.C. It is the total of the costs added to Work in Process during the period.D. It is the total cost of goods started but not completed during the period.
132. Denali incurred the following costs to produce and sell 500 toy race cars during May: Total fixed production costs $2,125 Variable factory costs per car $5.20 Total fixed operating costs 425 Variable operating costs per car 1.40
Denali sells the cars to retailers for $18.50 each. On May 1, 2017, Denali had 45 cars in stock. How much out of each sales dollar is available to cover operating costs and to contribute to profit for May? Display answer as a percentage with two decimals.
133. Hayday compiled the following for its North Division for 2017:Sales $3,250,000 Non-interest-bearing current liabilities $51,000Total assets 1,430,000 Interest expense 38,000Net income 80,000 Interest-bearing current liabilities 56,000
Hayday’s income tax rate is 31%. Its cost of capital is 4.2% and its required rate of return is 7.2%. How much is investment turnover? Display answer as a percentage with two decimals.
134. Use the information in question 133. How much is profit margin?
