1
Question 1 (20 marks: 30 minutes)
Questions with an “*” are worth 2 marks, all others are worth 1 mark.
1.
*McGraw Company’s 2005 flexible budget for manufacturing overhead indicates that fixed
overhead should be $60,000 at the denominator level of 4,000 machine hours. In 2005, the
actual fixed overhead cost incurred was $66,000. McGraw uses a standard costing system
with 1 machine hour allowed per unit of good output. In 2005 the company produced 3,800
units using 3,900 machine hours. The fixed overhead volume variance for 2005 is:
a.
$6,000 unfavourable
b.
$6,000 favourable
c.
$3,000 favourable
d.
$3,000 unfavourable:
($60,000/4,000)(4,000 – 3,800)
2.
*Lessing Company used 2.0 square meters of material for each wetsuit they produced in
April 2005. Data from the past 36 months indicates average actual usage of 1.8 square
meters of material per wetsuit with a standard deviation of .20. How many standard
deviations apart is 2.0 square metres from the average usage of 1.8 square metres, and
should a variance investigation be conducted?
a.
1 and no
(2-1.8)/.2; since 1 < 2 (cut-off for z-scores), don’t investigate
b.
1 and yes
c.
.2 and no
d.
.2 and yes
3.
Which of the following statements is (are) true?
i.
If a division’s net operating income is positive, it’s residual income will also be positive.
ii.
Residual income should be used to evaluate profit center managers.
iii.
ROI can be used to compare divisions of different sizes.
a.
i an ii only
b.
iii only
c.
i and iii only
d.
i, ii and iii
4.
*Vision Inc. reported actual return on investment of 24% and average operating assets of
$1,500,000 for the month of September. If the required rate of return is 20%, what was
Vision’s residual income in September?
a.
$360,000
b.
$300,000
c.
$60,000 ($1,500,000 x .24) – ($1,500,000 x .20)
d.
$0