Reference no: EM13544933

Question 1:

Red Company produces 1,000 units of a necessary component with the following costs:

Direct Materials $ 34,000

Direct Labor 15,000

Variable Overhead 8,000

Fixed Overhead 10,000

None of Red fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $12,000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Red Company would be willing to accept to acquire the 1,000 units externally?

$69,000
$79,000
$55,000
$46,000

Question 2:

Renee Company has old inventory on hand that cost $12,000. Its scrap value is $16,000. The inventory could be sold for $40,000 if manufactured further at an additional cost of $12,000. What should Renee do?

Sell the inventory for $16,000 scrap value

Dispose of the inventory to avoid any further decline in value

Hold the inventory at its $12,000 cost

Manufacture further and sell it for $40,000

Question 3:

Sardine Kitchen Company produces three versions of crock pots: small, medium, and large. A condensed segmented income statement for a recent period follows:

		Large			Medium			Small				Total
Sales		$	200,000		$	200,000		$	105,000			$	505,000
Variable expenses			125,000			110,000			65,000				300,000
Contribution margin			75,000			90,000			40,000				205,000
Fixed expenses			55,000			55,000			47,000				157,000
Net income (loss)			$20,000			$35,000			$(7,000	)			$48,000

Assume all of the fixed expenses for the small size crock pot are avoidable. What will be total net income if the line is dropped?

$10,000
$55,000
$47,000
$95,000

Question 4:

Ellen Company manufactures kitchen utensils. Bolla Company has approached Ellen with a proposal to sell the company spatulas at a price of $100,000 for 100,000 units. Elllen is currently making the spatulas in its own factory. The following costs are associated with this part of the process when 100,000 spatulas are produced:

Direct Materials		$	41,000
Direct Labor			19,000
Manufacturing overhead			50,000
Total			110,000

The manufacturing overhead consists of $36,000 of costs that will be eliminated if the components are no longer produced by Ellen. From Ellen's point of view, how much is the incremental cost or savings if the spatulas are bought instead of made?

$4,000 incremental savings
$10,000 incremental savings
$10,000 incremental cost
$4,000 incremental cost

Question 5:

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be

$2,000 more if Product A is made.
$2,000 less if Product B is made.
$2,000 less if Product A is made.
the same if either product is made.

Question 6:

A company is considering purchasing factory equipment that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $90,000 and annual operating expenses exclusive of depreciation expense are expected to be $40,000. The straight-line method of depreciation would be used.

If the equipment is purchased, the annual rate of return expected on this equipment is

3.125%.
15.6%.
6.25%.
31.3%.

Question 7:

If an asset cost $270,000 and is expected to have a $60,000 salvage value at the end of its twelve-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is

2.7 years.
5.25 years.
8.25 years.
6.75 years.

Question 8:

		Present Value of an Annuity of 1
Periods		8%		9%		10%
1		.926		.917		.909
2		1.783		1.759		1.736
3		2.577		2.531		2.487

A company has a minimum required rate of return of 8% and is considering investing in a project that costs $68,337 and is expected to generate cash inflows of $27,000 each year for three years. The approximate internal rate of return on this project is

less than the required 8%.

8%.
9%.
10%.

Question 9:

Mezzita Inc. is considering purchasing equipment costing $12,000 with a 6-year useful life. The equipment will provide cost savings of $3,100 and will be depreciated straight-line over its useful life with no salvage value. Mezzita requires a 10% rate of return.

		Present Value of an Annuity of 1
Period		8%		9%		10%		11%		12%		15%
6		4.623		4.486		4.355		4.231		4.111		3.784

What is the approximate net present value of this investment?

$13,501
$13,116
$1,501
$2,116

Question 10:

Sales are $500,000 and variable costs are $200,000. What is the contribution margin ratio?

40%
Cannot be determined because amounts are not expressed per unit
60%
50%

Question 11:

ISSAC Company has a contribution margin per unit of $21 and a contribution margin ratio of 60%. How much is the selling price of each unit?

$35.00
$52.50
$12.60

Cannot be determined without more information

Question 12:

Fixed costs are $750,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?

$187,500
$562,500
$1,000,000
$3,000,000

Question 13:

Blake Company is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Blake will break even at this level of sales, what are the fixed costs?

$800,000.
$240,000.
$960,000.
$560,000.

Question 14:

A company desires to sell a sufficient quantity of products to earn a profit of $300,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $500,000, how many units must be sold to earn net income of $300,000?

100,000 units
66,666 units
40,000 units
62,500 units

Question 15:

A company budgeted unit sales of 204,000 units for January, 2014 and 240,000 units for February, 2014. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 62,200 units of inventory on hand on December 31, 2013, how many units should be produced in January, 2014 in order for the company to meet its goals?

193,200 units
276,000 units
213,800 units
204,000 units

Question 16:

Brusl Co. is planning to sell 400 hair dryers and produce 380 hair dryers during March. Each hair dryer requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $14.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Brusl Co. has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March?

$2,660
$5,600
$2,800
$5,320

Question 17:

Jacob Manufacturing is planning to sell 1,200 boxes of ceramic tile, with production estimated at 1,120 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Jacob has 5,200 pounds of clay mix in beginning inventory and wants to have 6,000 pounds in ending inventory.

What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?

49,280
50,080
53,600
48,480

Question 18:

A company determined that the budgeted cost of producing a product is $32 per unit. On June 1, there were 80,000 units on hand, the sales department budgeted sales of 300,000 units in June, and the company desires to have 120,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be

$8,320,000.
$9,600,000.
$12,160,000.
$10,880,000.

Question 19:

Berkley Co. has the following budgeted sales: January $160,000, February $230,000, and March $200,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during March are:

$200,000.
$215,000.
$209,000.
$249,000.

Question 20:

Raymond Industries expects to purchase $180,000 of materials in July and $215,000 of materials in August. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be?

$206,250
$161,250
$135,000
$215,000

Question 21:

In the Palm Company, indirect labor is budgeted for $108,000 and factory supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is:

$148,500.
$162,000.
$144,000.
$157,500.

Question 22:

Thomas Company recorded operating data for its shoe division for the year.

Sales revenue		$1,500,000
Contribution margin		300,000
Controllable fixed costs		160,000
Average total operating assets		600,000

How much is controllable margin for the year?

$300,000
20%
50%
$140,000

Question 23:

Which of the following is not a true statement?

Responsibility accounting applies to both profit and not-for-profit entities.
Fewer costs are controllable as one moves up to each higher level of managerial responsibility.
The term segment is sometimes used to identify areas of responsibility in decentralized operations.
All costs are controllable at some level within a company.

Question 24:

Given below is an excerpt from a management performance report:

		Budget		Actual		Difference
Contribution margin		$2,000,000		$2,100,000		$100,000
Controllable fixed costs		$1,000,000		$  900,000		$100,000

The manager's overall performance

is equal to expectations.
is 20% above expectations.
cannot be determined from information given.
is 20% below expectations.

Question 25:

Right Industries had average operating assets of $4,000,000 and sales of $2,000,000 in 2014. If the controllable margin was $500,000, the ROI was

50%
12.5%
8%
25%

Question 26:

Watson Industries uses flexible budgets. At normal capacity of 18,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Watson had actual overhead costs of $498,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

$16,000 favorable
$4,000 unfavorable
$4,000 favorable
$10,000 unfavorable

Question 27:

Messler Industries is evaluating its Mountain division, an investment center. The division has a $99,000 controllable margin and $600,000 of sales. How much will Messler's average operating assets be when its return on investment is 10%?

$891,000
$501,000
$990,000
$600,000

Question 28:

Information on Francesca direct labor costs for the month of July is as follows:

Actual rate	$12
Standard hours	11,000
Actual hours	10,000
Direct labor price variance-unfavorable	$4,000

What was the standard rate for July?

$11.60
$12.40
$11.63
$12.36

Question 29:

Casey Company has a materials price standard of $2.10 per pound. Six thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.

Casey Company's materials price variance is

$600 U.
$60 U.
$540 U.
$600 F.

Question 30:

Casey Company has a materials price standard of $2.10 per pound. Six thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.

Casey Company's materials quantity variance is

$1,260 U.
$1,320 U.
$1,320 F.
$1,260 F.

Question 31:

Kitzman Inc. produces a product requiring 3 direct labor hours at $15 per hour. During January, 2,000 products are produced using 6,300 direct labor hours. Kitzman actual payroll during January was $98,280. What is the labor quantity variance?

$4,680 F
$4,680 U
$4,500 U
$4,500 F

Question 32:

The standard rate of pay is $11.90 per direct labor hour. If the actual direct labor payroll was $47,040 for 4,000 direct labor hours worked, the direct labor price (rate) variance is

1,190 unfavorable.
$560 favorable.
$1,190 favorable.
$540 unfavorable.

Question 33:

Which of the following statements is false?

The overhead volume variance relates solely to fixed costs.
The costs that cause the overhead volume variance are usually controllable costs.
The overhead volume variance is favorable if standard hours allowed for output are greater than the standard hours at normal capacity.
The overhead volume variance indicates whether plant facilities were used efficiently during the period.

Question 34:

Cotton Company issued $500,000 of 7%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 9%. The effective-interest method of amortization is to be used. Interest is paid annually.
The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

credit to Cash for $38,867.
debit to Interest Expense for $35,000.
credit to Discount on Bonds Payable for $3,867.
debit to Interest Expense for $45,000.

Question 35:

Presented here is a partial amortization schedule for Graceland Company who sold $100,000, five year 10% bonds on January 1, 2014 for $108,000 and uses annual straight-line amortization.

BOND AMORTIZATION SCHEDULE
Interest Period	Interest Paid	Interest Expense	Premium Amortization	Unamortized Premium	Bond Carrying Value
January 1, 2014				$8,000	$108,000
January 1, 2015	(i)	(ii)	(iii)	(iv)	(v)

Which of the following amounts should be shown in cell (i)?

$11,600
$10,000
$2,000
$10,800

Question 36:

On January 1, 2014, Dumas Industries acquired a 18% interest in Arlongton Corporation through the purchase of 12,000 shares of Arlongton Corporation common stock for $250,000. During 2014, Arlongton Corp. paid $60,000 in dividends and reported a net loss of $90,000. Dumas is able to exert significant influence on Arlongton. However, Dumas mistakenly records these transactions using the cost method rather than the equity method of accounting. Which of the following would show the correct presentation for Dumas's investment using the equity method?
Investment Net
Account Earnings (loss)

$ 90,000 ($30,000)

$233,800 ($ 5,400)

$233,800 ($16,200)

$223,000 ($16,200)

Question 37:

Brandy Corporation's trading portfolio at the end of the year is as follows:

Security		Cost		Fair Value
Common Stock C		$10,000		$12,000
Common Stock D		9,000		5,000
		$19,000		$17,000

At the end of the year, Brandy Corporation should

set up a Fair Value Adjustment account for the portfolio.
recognize an Unrealized Gain or Loss-Income for $4,000.
report a loss on the income statement for $4,000 under "Other expenses and losses."
set up a Fair Value Adjustment account for Stock D.

Question 38:

The following data are available for Sampson Corporation.

Net income	$200,000
Depreciation expense	60,000
Dividends paid	90,000
Loss on sale of land	15,000
Decrease in accounts receivable	30,000
Decrease in accounts payable	45,000

Net cash provided by operating activities is:

$240,000.
$160,000.
$140,000.
$260,000.

Question 39:

Gonzo Company reports a $25,000 increase in inventory and a $12,000 decrease in accounts payable during the year. Cost of Goods Sold for the year was $185,000. Using the direct method of reporting cash flows from operating activities, cash payments made to suppliers were

$148,000.
$197,000.
$185,000.
$222,000.

Question 40:

Using the following information, compute the cost of direct materials used.

Raw materials inventory, January 1	$    35,000
Raw materials inventory, December 31	50,000
Work in process, January 1	18,000
Work in process, December 31	27,000
Finished goods, January 1	48,000
Finished goods, December 31	60,000
Raw materials purchases	1,100,000
Direct labor	700,000
Factory utilities	225,000
Indirect labor	105,000
Factory depreciation	500,000
Operating expenses	630,000

$1,115,000.
$1,135,000.
$1,085,000.
$1,100,000.

Question 41:

Assuming the cost of direct materials used is $1,170,000, compute the total manufacturing costs using the information below.

Raw materials inventory, January 1	$    35,000
Raw materials inventory, December 31	50,000
Work in process, January 1	18,000
Work in process, December 31	27,000
Finished goods, January 1	48,000
Finished goods, December 31	60,000
Raw materials purchases	1,100,000
Direct labor	700,000
Factory utilities	225,000
Indirect labor	105,000
Factory depreciation	500,000
Operating expenses	630,000

$2,300,000.
$2,700,000.
$3,330,000.
$2,500,000.

Question 42:

Tracey Inc. applies overhead to production at a predetermined rate of 90% based on direct labor cost. Job No. 130, the only job still in process at the end of August, has been charged with manufacturing overhead of $5,400. What was the amount of direct materials charged to Job 130 assuming the balance in Work in Process inventory is $21,000?

$10,740.
$6,000.
$4,860.
$9,600.

Question 42:

Stanfield Company applies overhead on the basis of 160% of direct labor cost. Job No. 305 is charged with $140,000 of direct materials costs and $240,000 of manufacturing overhead. The total manufacturing costs for Job No. 305 is:

$764,000
$780,000
$380,000
$530,000

Question 43:

At the beginning of the year, Franklen Company estimates annual overhead costs to be $1,050,000 and that 200,000 machine hours will be operated. Using machine hours as a base, the amount of overhead applied during the year if actual machine hours for the year was 205,000 hours is

$1,050,320.
$1,050,000.
$1,076,250.
$1,024,390.

Question 44:

Cooney Inc. reported net income of $540,000 during 2014 and paid dividends of $52,000 on common stock. It also has 20,000 shares of 6%, $100 par value preferred stock outstanding. Common stockholders' equity was $2,400,000 on January 1, 2014, and $3,200,000 on December 31, 2014. The company's return on common stockholders' equity for 2014 is:

15.0%
19.3%
17.4%
13.1%

Question 45:

The following data is available for Santos Service Corporation at December 31, 2014:

Common stock, par $10 (authorized 100,000 shares)  $400,000

Treasury Stock (at cost $15 per share) $27,000

Based on the data, how many shares of common stock have been issued?

38,200
49,880
50,000
40,000

Question 46:

Under IFRS, the term reserves relates to each of the following except

retained earnings.
asset revaluations.
contributed (paid-in) capital.
fair value differences.

Thorpe Manufacturing Inc.'s accounting records reflect the following inventories:

	Dec. 31, 2013	Dec. 31, 2014
Raw materials inventory	$180,000	$145,000
Work in process inventory	260,000	235,000
Finished goods inventory	225,000	207,000

During 2014, Thorpe purchased $1,400,000 of raw materials, incurred direct labor costs of $230,000, and incurred manufacturing overhead totaling $290,000.

How much is total manufacturing costs incurred during 2014 for Thorpe?

$1,885,000
$1,980,000
$1,955,000
$1,910,000

Question 47:

Era Company has 6,000 shares of 5%, $100 par non-cumulative preferred stock outstanding at December 31, 2014. No dividends have been paid on this stock for 2013 or 2014. Dividends in arrears at December 31, 2014 total

$60,000.
$0.
$30,000.
$3,000.

Question 48:

Kramer Co. had retained earnings of $30,000 on the balance sheet but disclosed in the footnotes that $6,000 of retained earnings was restricted for building expansion and $2,000 was restricted for bond repayments. Cash of $4,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends?

$18,000
$24,000
$30,000
$22,000