a. has its primary emphasis on the future.
b. is required by regulatory bodies such as the SEC.
c. focuses on the organization as a whole, rather than on the organization's segments.
d. Responses a, b, and c are all correct.
Which of the following statements are true regarding financial and managerial accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the organization as a whole.
IV. Both are geared to the future, rather than to the past.
a. I, II, III, and IV
b. Only II, III and IV
c. Only II and III
d. Only II
Managerial accounting places considerable weight on:
a. generally accepted accounting principles.
b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. detailed segment reports about departments, products, and customers.
The benefits of a successful Just-In-Time system include all of the following except:
a. funds tied up in inventories are released for use elsewhere.
b. inventory buffers are increased.
c. throughput time is reduced.
d. defect rates are decreased.
A key concept of the JIT inventory system is:
a. the raw materials, work in process, and finished goods inventories of manufacturing companies act as buffers so that operations can proceed smoothly even if suppliers are late with deliveries or a department is unable to operate for a brief period due to breakdowns or other reasons.
b. the use of many suppliers so as to ensure rapid delivery of materials for production.
c. the maintenance of a stock of raw materials so that defective materials can be replaced quickly so as to maintain a high rate of productivity.
d. inventories are costly to carry and can be kept to minimum levels or eliminated completely with careful planning.
The just in time (JIT) concept applies to which of the following:
I. The acquisition of raw materials.
II. The assembly of manufactured parts in products.
III. The shipment of finished products to customers.
b. I, III.
c. I, II, III.
d. II, III.
The flow of goods through a JIT system is based on:
a. a workstation efficiently completing its processing of a batch of units so that the units can proceed forward to the next workstation before the next workstation is ready to receive them.
b. processing goods in large batch sizes rather than less economical small batches.
c. maintaining a stockpile of raw materials in anticipation of materials shortages.
d. producing to meet customer demand with no buildup of inventory at any point in the production process.
A successful JIT system is based upon which of the following concepts?
a. The company must rely upon a large number of suppliers to ensure frequent deliveries of small lots.
b. The company should always choose those suppliers offering the lowest prices.
c. The company should avoid long-term contracts with suppliers so as to exert pressure on suppliers to make prompt and frequent deliveries.
d. A small number of suppliers make frequent deliveries of specific quantities thus avoiding the buildup of large inventories of materials on hand.
A danger in Process Reengineering is that:
a. non-value-added activities may be eliminated.
b. some resources may no longer be required.
c. employee morale may suffer.
d. all of the above.
The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management contains a policy regarding confidentiality that requires that management accountants:
a. refrain from disclosing confidential information acquired in the course of their work except when authorized by management.
b. refrain from disclosing confidential information acquired in the course of their work in all situations.
c. refrain from disclosing confidential information acquired in the course of their work except when authorized by management, unless legally obligated to do so.
d. refrain from disclosing confidential information acquired in the course of their work in all cases since the law requires them to do so.
The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management states that significant ethical issues should be discussed first with an immediate superior unless the superior is involved. If satisfactory resolution cannot be achieved when the problem is initially presented, then the issues should be:
a. submitted to the next higher managerial level.
b. submitted to the chief executive officer of the firm.
c. submitted to the audit committee, executive committee, board of directors, or owners.
d. submitted to outside legal counsel.
The corporate controller's salary would be considered a(n):
a. manufacturing cost.
b. product cost.
c. administrative cost.
d. selling expense.
The cost of fire insurance for a manufacturing plant is generally considered to be a:
a. product cost.
b. period cost.
c. variable cost.
d. all of the above.
Each of the following would be a period cost except:
a. the salary of the company president's secretary.
b. the cost of a general accounting office.
c. depreciation of a machine used in manufacturing.
d. sales commissions.
For a manufacturing company, which of the following is an example of a period rather than a product cost?
a. Depreciation of factory equipment.
b. Wages of salespersons.
c. Wages of machine operators.
d. Insurance on factory equipment.
Which of the following would be considered a product cost for external financial reporting purposes?
a. Cost of a warehouse used to store finished goods.
b. Cost of guided public tours through the company's facilities.
c. Cost of travel necessary to sell the manufactured product.
d. Cost of sand spread on the factory floor to absorb oil from manufacturing machines.
Which of the following would NOT be treated as a product cost for external financial reporting purposes?
a. Depreciation on a factory building.
b. Salaries of factory workers.
c. Indirect labor in the factory.
d. Advertising expenses.
Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following?
a. Product cost
b. Manufacturing overhead
c. Period cost
d. Administrative cost
Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following?
a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost
wages of factory maintenance personnel would usually be considered to be:
Indirect labor; Manufacturing overhead
a. No; Yes
b. Yes; No
c. Yes; Yes
d. No; No
Direct materials are a part of:
Conversion cost; Manufacturing cost; Prime cost
a. Yes; Yes; No
b. Yes; Yes; Yes
c. No; Yes; Yes
d. No; No; No
Manufacturing overhead consists of:
a. all manufacturing costs.
b. all manufacturing costs, except direct materials and direct labor.
c. indirect materials but not indirect labor.
d. indirect labor but not indirect materials.
Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture?
a. sheet steel in a file cabinet made by the company.
b. manufacturing equipment depreciation.
c. idle time for direct labor.
d. taxes on a factory building.
Rossiter Company failed to record a credit sale at the end of the year, although the reduction in finished goods inventories was correctly recorded when the goods were shipped to the customer. Which one of the following statements is correct?
a. Accounts receivable was not affected, inventory was not affected, sales were understated, and cost of goods sold was understated.
b. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated.
c. Accounts receivable was not affected, inventory was understated, sales were understated, and cost of goods sold was understated.
d. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was not affected.
If the cost of goods sold is greater than the cost of goods manufactured, then:
a. work in process inventory has decreased during the period.
b. finished goods inventory has increased during the period.
c. total manufacturing costs must be greater than cost of goods manufactured.
d. finished goods inventory has decreased during the period.
Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the:
a. total variable cost will remain unchanged.
b. fixed costs will increase in total.
c. variable cost per unit will increase.
d. total cost per unit will decrease.
a. increases on a per unit basis as the number of units produced increases.
b. remains constant on a per unit basis as the number of units produced increases.
c. remains the same in total as production increases.
d. decreases on a per unit basis as the number of units produced increases.
Within the relevant range, the difference between variable costs and fixed costs is:
a. variable costs per unit fluctuate and fixed costs per unit remain constant.
b. variable costs per unit are constant and fixed costs per unit fluctuate.
c. both total variable costs and total fixed costs are constant.
d. both total variable costs and total fixed costs fluctuate.
Which of the following statements regarding fixed costs is incorrect?
a. Expressing fixed costs on a per unit basis usually is the best approach for decision making.
b. Fixed costs expressed on a per unit basis will react inversely with changes in activity.
c. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of the relevant range.
d. Fixed costs frequently represent long-term investments in property, plant, and equipment.
An opportunity cost is:
a. the difference in total costs which results from selecting one alternative instead of another.
b. the benefit forgone by selecting one alternative instead of another.
c. a cost which may be saved by not adopting an alternative.
d. a cost which may be shifted to the future with little or no effect on current operations.
Which of the following costs is often important in decision making, but is omitted from conventional accounting records?
a. Fixed cost.
b. Sunk cost.
c. Opportunity cost.
d. Indirect cost.
When a decision is made among a number of alternatives, the benefit that is lost by choosing one alternative over another is the:
a. realized cost.
b. opportunity cost.
c. conversion cost.
d. accrued cost.
Conversion cost consists of which of the following?
a. Manufacturing overhead cost.
b. Direct materials and direct labor cost.
c. Direct labor cost.
d. Direct labor and manufacturing overhead cost.
Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet?
a. the cost of the hamburger patty in the burger they ordered.
b. the wages of the employee who takes the customer's order.
c. the cost of heating and lighting the kitchen.
d. the salary of the outlet's manager.
Green Company's costs for the month of August were as follows: direct materials, $27,000; direct labor, $34,000; sales salaries, $14,000; indirect labor, $10,000; indirect materials, $15,000; general corporate administrative cost, $12,000; taxes on manufacturing facility, $2,000; and rent on factory, $17,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month?
A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,700 and is paid at the beginning of the first year. Eighty percent of the premium applies to manufacturing operations and 20% applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?
a. $2,700; $0
b. $2,160; $ 540
c. $1,440; $360
d. $720; $180
Using the following data, calculate the beginning work in process inventory.
Cost of goods sold: $70
Direct labor: $20
Direct materials: $15
Cost of goods manufactured: $80
Work in process ending: $10
Finished goods ending: $15
Manufacturing overhead: $30
The beginning work in process inventory is:
During the month of May, Bennett Manufacturing Company purchased $43,000 of raw materials. The manufacturing overhead totaled $27,000 and the total manufacturing costs were $106,000. Assuming a beginning inventory of raw materials of $8,000 and an ending inventory of raw materials of $6,000, direct labor must have totaled:
Using the following data for January, calculate the cost of goods manufactured:
Direct materials: $38,000
Direct labor: $24,000
Manufacturing overhead: $17,000
Beginning work in process inventory: $10,000
Ending work in process inventory: $11,000
The cost of goods manufactured was:
During the month of June, Reardon Company incurred $17,000 of direct labor, $8,500 of manufacturing overhead and purchased $15,000 of raw materials. Between the beginning and the end of the month, the raw materials inventory increased by $2,000, the finished goods inventory increased by $1,500, and the work in process inventory decreased by $3,000. The cost of goods manufactured would be:
Williams Company's direct labor cost is 25% of its conversion cost. If the Manufacturing overhead cost for the last period was $45,000 and the direct materials cost was $25,000, the direct labor cost was:
The Lyons Company's cost of goods manufactured was $120,000 when its sales were $360,000 and its gross margin was $220,000. If the ending inventory of finished goods was $30,000, the beginning inventory of finished goods must have been:
The gross margin for Cushing Company for the first quarter of last year was $325,000 when sales were $700,000. The beginning inventory of finished goods was $60,000 and the ending inventory of finished goods was $85,000. The cost of goods manufactured for the first quarter would have been:
Last month a manufacturing company had the following operating results:
Beginning finished goods inventory: $74,000
Ending finished goods inventory: $73,000
Gross margin: $52,000
What was the cost of goods manufactured for the month?
The following information was provided by Grand Company for the year just ended:
Beginning finished goods inventory: $130,425
Ending finished goods inventory: $125,770
Gross margin: $100,000
The cost of goods manufactured for the year was:
Delta Merchandising, Inc., has provided the following information for the year just ended:
Net sales: $128,500
Beginning inventory: $24,000
Gross margin: $38,550
The ending inventory for the company at year end was:
The beginning balance of the Raw Materials inventory account for May was $27,500. The ending balance for May was $28,750 and $128,900 of raw materials were used during the month. The materials purchased during the month cost:
Haack Inc. is a merchandising company. Last month the company's cost of goods sold was $84,000. The company's beginning merchandise inventory was $20,000 and its ending merchandise inventory was $18,000. What was the total amount of the company's merchandise purchases for the month?
Use the following to answer questions 49-52:
The following data (in thousands of dollars) have been taken from the accounting records of Karling Corporation for the just completed year.
Raw materials inventory, beginning: $40
Raw materials inventory, ending: $70
Purchases of raw materials: $120
Direct labor: $200
Manufacturing overhead: $230
Administrative expenses: $150
Selling expenses: $140
Work in process inventory, beginning: $70
Work in process inventory, ending: $50
Finished goods inventory, beginning: $120
Finished goods inventory, ending: $160
The cost of the raw materials used in production during the year (in thousands of dollars) was:
The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
The cost of goods sold for the year (in thousands of dollars) was:
The net income for the year (in thousands of dollars) was:
Use the following to answer questions 53-54:
At a sales volume of 32,000 units, CD Company's total fixed costs are $64,000 and total variable costs are $60,000. The relevant range is 30,000 to 55,000 units.
If CD Company were to sell 43,000 units, the total expected cost would be:
If CD Company were to sell 50,000 units, the total expected cost per unit (rounded to the nearest cent) would be:
Which of the following companies would be most likely to use a job-order costing system rather than a process costing system?
a. fast food restaurant
c. crude oil refining
d. candy making
The computation of unit product costs involves an averaging process in:
Job-order costing; Process costing
a. Yes; No
b. Yes; Yes
c. No; Yes
d. No; No
Work in Process is a control account supported by detailed cost data contained in:
a. job cost sheets.
b. the Manufacturing Overhead account.
c. the Finished Goods inventory account.
d. purchase requisitions.
In a job order cost system, the journal entry to record the application of overhead cost to jobs would include:
a. a credit to the Manufacturing Overhead account.
b. a credit to the Work in Process inventory account.
c. a debit to Cost of Goods Sold.
d. a debit to the Manufacturing Overhead account.
In a job-order cost system, the use of indirect materials would usually be recorded as a debit to:
a. Raw Materials.
b. Work in Process.
c. Manufacturing Overhead.
d. Finished Goods.
In a job order cost system, the use of direct materials previously purchased usually is recorded as a debit to:
a. Work in Process inventory.
b. Finished Goods inventory.
c. Manufacturing Overhead.
d. Raw Materials inventory.
In a job-order cost system, direct labor costs usually are recorded initially with a debit to:
a. Manufacturing Overhead.
b. Finished Goods inventory.
c. Direct Labor Expense.
d. Work in Process.
If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit balance in the Manufacturing Overhead account at the end of any period means that:
a. more overhead cost has been charged to jobs than has been incurred during the period.
b. more overhead cost has been incurred during the period than has been charged to jobs.
c. the amount of overhead cost charged to jobs is greater than the estimated cost for the period.
d. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the period.
The Work in Process inventory account of a manufacturing company shows a balance of $2,400 at the end of an accounting period. The job cost sheets of the two uncompleted jobs show charges of $400 and $200 for direct materials, and charges of $300 and $500 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of:
Freeman Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor hours. The cost records for the year will show:
a. overapplied overhead of $30,000.
b. underapplied overhead of $30,000.
c. underapplied overhead of $6,000.
d. overapplied overhead of $6,000.
For the current year, Paxman Company incurred $150,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied in the amount of $6,000 for the year. If the predetermined overhead rate was $8.00 per direct labor hour, how many hours were worked during the year?
a. 19,500 hours
b. 18,000 hours
c. 18,750 hours
d. 17,750 hours
Carlo Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. The company estimated manufacturing overhead at $255,000 for the year and direct labor-hours at 100,000 hours. Actual manufacturing overhead costs incurred during the year totaled $270,000. Actual direct labor hours were 105,000. What was the overapplied or underapplied overhead for the year?
a. $2,250 overapplied.
b. $2,250 underapplied.
c. $15,000 overapplied.
d. $15,000 underapplied.
The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine hours in Dept. B. At the beginning of the year, the company made the following estimates:
Dept. A = first figure; Dept. B = second figure
Direct labor cost: $30,000; $40,000
Manufacturing overhead: 60,000; 50,000
Direct labor hours: 6,000; 8,000
Machine hours: 2,000; 10,000
What predetermined overhead rates would be used in Dept A and Dept B, respectively?
a. 50% and $8.00
b. 50% and $5.00
c. $15 and 110%
d. 200% and $5.00
Kelsh Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year:
Direct materials: $10,000
Direct labor: 30,000
Sales commissions: 40,000
Salary of production supervisor: 20,000
Indirect materials: 4,000
Advertising expense: 8,000
Rent on factory equipment: 10,000
Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours will be worked during the year. The predetermined overhead rate per hour will be:
Lucy Sportswear manufactures a specialty line of T-shirts. The company uses a job-order costing system. During March, the following costs were incurred on Job ICU2: direct materials $13,700 and direct labor $4,800. In addition, selling and shipping costs of $7,000 were incurred on the job. Manufacturing overhead was applied a the rate of $25 per machine-hour and Job ICU2 required 800 machine-hours. If Job ICU2 consisted of 7,000 shirts, the Cost of Goods Sold per shirt was:
Beaver Company used a predetermined overhead rate last year of $2 per direct labor hour, based on an estimate of 25,000 direct labor hours to be worked during the year. Actual costs and activity during the year were:
Actual manufacturing overhead cost incurred: $47,000
Actual direct labor hours worked: 24,000
The under- or overapplied overhead last year was:
a. $1,000 underapplied.
b. $1,000 overapplied.
c. $3,000 overapplied.
d. $2,000 underapplied.
Use the following to answer questions 71-76:
The following T accounts are for Stanford Company:
The indirect labor cost is:
The cost of goods manufactured is:
The cost of goods sold (after adjustment for under- or overapplied overhead) is:
The manufacturing overhead applied is:
The cost of direct materials used is:
The ending Work in Process account balance would be:
Process costing would be appropriate for each of the following except:
a. custom furniture.
b. oil refining.
c. grain milling.
d. newsprint production.
An operation costing system is:
a. identical to a process costing system except that actual manufacturing overhead costs are traced to units of product.
b. the same as a process costing system except that direct materials costs are accounted for in the same way as in job order costing.
c. the same as a job order system except that direct materials costs are accounted for in the same way as in process costing.
d. identical to a job order costing system except that actual manufacturing overhead costs are traced to units of product.
David Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 20,000 units that were 80% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $123,200. An additional 65,000 units were started into production during the month. There were 19,000 units in the ending work in process inventory of the Welding Department that were 10% complete with respect to conversion costs. A total of $389,250 in conversion costs were incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.)
Larner Company uses the weighted-average method in its process costing system. Operating data for the first processing department for the month of June appear below:
Units = first figure; Percentage complete = second figure
Beginning work in process inventory: 24,000; 40%
Started into production during June: 86,000
Ending work in process inventory: 19,000; 20%
According to the company's records, the conversion cost in beginning work in process inventory was $68,064 at the beginning of June. Additional conversion costs of $585,324 were incurred in the department during the month.
What was the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.)
The Morgan Company uses the weighted-average method in its process costing system. For a particular department, the company had 54,000 equivalent units of production with respect to conversion costs in March. There were 7,500 units in the department's beginning work in process inventory, two thirds complete with respect to conversion costs. During March, 52,500 units were started and 50,000 were completed and transferred out of the department. The ending work in process inventory in the department:
a. consisted of 5,000 units.
b. consisted of 2,500 units.
c. was 65% complete with respect to conversion costs.
d. was 40% complete with respect to conversion costs.
Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:
a. expense A has remained unchanged.
b. expense B has decreased.
c. expense A has decreased.
d. expense B has increased.
Within the relevant range of activity, variable cost per unit will:
a. increase in proportion with the level of activity.
b. remain constant.
c. vary inversely with the level of activity.
d. none of these.
The ratio of fixed expenses to the unit contribution margin is the:
a. break-even point in unit sales.
b. profit margin.
c. contribution margin ratio.
d. margin of safety.
The margin of safety percentage is computed as:
a. Break-even sales/Total sales.
b. Total sales - Break-even sales.
c. (Total sales - Break-even sales)/Break-even sales.
d. (Total sales - Break-even sales)/ Total sales.
The degree of operating leverage can be calculated as:
a. contribution margin divided by sales.
b. gross margin divided by net income.
c. net income divided by sales.
d. contribution margin divided by net income.
A company has provided the following data:
Sales: 3,000 units
Sales price: $70 per unit
Variable cost: $50 per unit
Fixed cost: $25,000
If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will:
a. increase by $61,000.
b. increase by $20,000.
c. increase by $3,500.
d. increase by $11,000.
Last year, Twins Company reported $750,000 in sales (25,000 units) and a net income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's:
a. contribution margin ratio is 40%.
b. break-even point is 24,000 units.
c. variable expense per unit is $9.
d. variable expenses are 60% of sales.
The break-even point in sales for Rice Company is $360,000 and the company's contribution margin ratio is 30%. If Rice Company desires an income of $84,000, sales would have to total
Marling Corporation has budgeted the following data:
Expected sales: $600,000
Variable expenses: 420,000
Fixed expenses: 120,000
What is the break-even in sales dollars?
Last year, Perry Company reported profits of $4,200. It's variable expenses totaled $66,000 or $6 per unit. The unit contribution margin was $3.00. The break-even point in units for Perry Company is:
The following information pertains to Rica Company:
Sales (50,000 units) $1,000,000
Selling and admin. expenses:
How much is Rica's break-even point in number of units?
Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is:
At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit?
The following data pertain to Wistron Company's two products:
Sales in dollars
Contribution margin ratio
If fixed expenses for the company as a whole are $60,000 and the product mix is constant, the overall break-even point for the company would be:
The following monthly data are available for the Phelps Company:
The break-even sales for the month for the company are:
The following data pertain to last month's operations:
Selling price: $20 per unit
Variable production cost: $12 per unit
Fixed production cost: $3,000
Variable selling & admin. expense: $3 per unit
Fixed selling & admin. expenses: $1,500
The break-even point in dollars is:
Roberts Company sells a single product at a selling price of $55 per unit. Variable costs are $30.25 per unit and fixed costs are $113,850.
Roberts Company's break-even point is:
b. 3,764 units.
d. 2,070 units.
A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same net income as was earned last year?
Wilson Company prepared the following preliminary budget assuming no advertising expenditures:
Selling price: $10 per unit
Unit sales: 100,000
Variable expenses: $600,000
Fixed expenses: $300,000
Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net income?
The cash budget must be prepared before you can complete the:
a. production budget.
b. budgeted balance sheet.
c. raw materials purchases budget.
d. schedule of cash disbursements.
Which of the following is not a benefit of budgeting?
a. It uncovers potential bottlenecks before they occur.
b. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.
c. It ensures that accounting records comply with generally accepted accounting principles.
d. It provides benchmarks for evaluating subsequent performance.
The master budget process usually begins with the:
a. production budget.
b. operating budget.
c. sales budget.
d. cash budget.
A method of budgeting in which the cost of each program must be justified every year is called:
a. operational budgeting.
b. zero-based budgeting.
c. continuous budgeting.
d. responsibility accounting.
Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:
a. responsibility accounting.
b. contribution accounting.
c. absorption accounting.
d. operational budgeting.
Budgeted sales in Allen Company over the next four months are given below:
September October November December
Budgeted sales $100,000 $160,000 $180,000 $120,000
Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder are uncollectible. Given these data, cash collections for December should be:
The PDQ Company makes collections on credit sales according to the following schedule:
25% in month of sale
70% in month following sale
4% in second month following sale
The following sales have been budgeted:
Cash collections in June would be:
Pardee Company plans to sell 12,000 units during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units must be produced during the month?
Superior Industries' sales budget shows quarterly sales for the next year as follows:
Quarter Sales (units)
Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales. Budgeted production for the second quarter should be:
a. 7,200 units.
b. 8,000 units.
c. 8,800 units.
d. 8,400 units.
The Willsey Merchandise Company has budgeted $40,000 in sales for the month of December. The company's cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is:
a. $6,000 increase.
b. $10,000 decrease.
c. $22,000 decrease.
d. $15,000 increase.
ABC Company has a cash balance of $9,000 on April 1. The company must maintain a minimum cash balance of $6,000. During April expected cash receipts are $45,000. Expected cash disbursements during the month total $52,000. During April the company will need to borrow:
Avril Company makes collections on sales according to the following schedule:
30% in the month of sale
60% in the month following sale
8% in the second month following sale
The following sales are expected:
Cash collections in March should be budgeted to be:
The Stacy Company makes and sells a single product, Product R. Budgeted sales for April are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is budgeted at $40,000, the budgeted selling and administrative expenses are:
Use the following to answer questions 14-15:
KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.
May June July
(actual) (budget) (budget)
Sales $42,000 $40,000 $45,000
Cost of sales 21,000 20,000 22,500
Gross margin 21,000 20,000 22,500
Operating expenses 20,000 20,000 20,000
Operating income $ 1,000 $ 0 $ 2,500
Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "operating expenses" are paid in the month of the sale. The amount of cash collected during the month of June should be:
The cash disbursements during the month of June for goods purchased for resale and for operating expenses should be:
Use the following to answer questions 16-20:
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below.
The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.
In a budgeted income statement for the month of February, net income would be:
In a budgeted balance sheet, the Merchandise Inventory on February 28 would be:
The Accounts Receivable balance that would appear in the March 31 budgeted balance sheet would be:
In a budget of cash receipts for March, the total cash receipts would be:
In a budget of cash disbursements for March, the total cash disbursements would be:
Use the following to answer questions 21-24:
Information on the actual sales and inventory purchases of the Law Company for the first quarter follow:
January $120,000 $60,000
February $100,000 $78,000
March $130,000 $90,000
Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of $100,000. Operating expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining operating expenses are variable with respect to the amount of sales in dollars. Those operating expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March 1 was $43,000, and on April 1 was $35,000.
The expected cash collections from customers during April would be:
The expected cash disbursements during April for inventory purchases would be:
The expected cash disbursements during April for operating expenses would be:
The expected cash balance on April 30 would be:
Which department is usually held responsible for an unfavorable materials quantity variance?
Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?
a. The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid, experienced individuals.
b. The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid, unskilled workers.
c. Because of the production schedule, workers from other production areas were assigned to assist this particular process.
d. Defective materials caused more labor to be used in order to produce a standard unit.
If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur?
a. Favorable labor efficiency variance.
b. Favorable labor rate variance.
c. Unfavorable labor efficiency variance.
d. Unfavorable labor rate variance.
(Appendix) What does a credit balance in a direct labor efficiency variance account indicate?
a. the average wage rate paid to direct labor employees was less than the standard rate.
b. the standard hours allowed for the units produced were greater than actual direct labor hours used.
c. actual total direct labor costs incurred were less than standard direct labor costs allowed for the units produced.
d. the number of units produced was less than the number of units budgeted for the period.
A favorable labor rate variance indicates that
a. actual hours exceed standard hours.
b. standard hours exceed actual hours.
c. the actual rate exceeds the standard rate.
d. the standard rate exceeds the actual rate.
An unfavorable labor efficiency variance indicates that:
a. The actual labor rate was higher than the standard labor rate.
b. The labor rate variance must also be unfavorable.
c. Actual labor hours worked exceeded standard labor hours for the production level achieved.
d. Overtime labor was used during the period.
If a company follows a practice of isolating variances at the earliest point in time, what would be the appropriate time to isolate and recognize a direct material price variance?
a. When material is issued.
b. When material is purchased.
c. When material is used in production.
d. When production is completed.
A favorable material price variance coupled with an unfavorable material usage variance would MOST likely result from:
a. problems with processing machines.
b. the purchase of low quality materials.
c. problems with labor efficiency.
d. changes in the product mix.
Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standards for one unit of Titactium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Titactium. There was a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:
a. more materials were purchased than were used.
b. more materials were used than were purchased.
c. the actual cost per pound for materials was less than the standard cost per pound.
d. the actual usage of materials was less than the standard allowed.
A labor efficiency variance resulting from the use of poor quality materials should be charged to:
a. the production manager.
b. the purchasing agent.
c. manufacturing overhead.
d. the engineering department.
Throughput time consists of:
a. Process time.
b. Inspection time and move time.
c. Process time, inspection time, and move time.
d. Process time, inspection time, move time, and queue time.
Manufacturing Cycle Efficiency (MCE) is computed as:
a. Throughput Time ÷ Delivery Cycle Time
b. Process Time ÷ Delivery Cycle Time
c. Value-Added Time ÷ Throughput Time
d. Value-Added Time ÷ Delivery-Cycle Time
(Appendix) Drake Company purchased materials on account. The entry to record the purchase of materials having a standard cost of $1.50 per pound from a supplier at $1.60 per pound would include a:
a. credit to Raw Materials Inventory.
b. debit to Work in Process.
c. credit to Materials Price Variance.
d. debit to Materials Price Variance.
(Appendix) Which of the following entries would correctly record the charging of direct labor costs to Work in Process given an unfavorable labor efficiency variance and a favorable labor rate variance?
a. Work in Process
Labor Efficiency Variance
Labor Rate Variance
b. Work in Process
c. Work in Process
Labor Efficiency Variance
Labor Rate Variance
d. Work in Process
Labor Rate Variance
Labor Efficiency Variance
Under a standard cost system, the material price variances are usually the responsibility of the:
a. production manager.
b. sales manager.
c. purchasing manager.
d. engineering manager.
The terms "standard quantity allowed" or "standard hours allowed" mean:
a. the actual output in units multiplied by the standard output allowed.
b. the actual input in units multiplied by the standard output allowed.
c. the actual output in units multiplied by the standard input allowed.
d. the standard output in units multiplied by the standard input allowed.
Dahl Company, a clothing manufacturer, uses a standard costing system. Each unit of a finished product contains 2 yards of cloth. However, there is unavoidable waste of 20%, calculated on input quantities, when the cloth is cut for assembly. The cost of the cloth is $3 per yard. The standard direct material cost for cloth per unit of finished product is:
Cox Company's direct material costs for the month of January were as follows:
Actual quantity purchased 18,000 kilograms
Actual unit purchase price $ 3.60 per kilogram
Materials price variance--
unfavorable (based on purchases) $ 3,600
Standard quantity allowed
for actual production 16,000 kilograms
Actual quantity used 15,000 kilograms
For January there was a favorable direct material quantity variance of:
The Porter Company has a standard cost system. In July the company purchased and used 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance was $1,875 Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds. The materials price variance for July was:
a. $2,725 F.
b. $2,725 U.
c. $3,250 F.
d. $3,250 U.
Information on Fleming Company's direct material costs follows:
Actual amount of direct materials used 20,000 pounds
Actual direct material costs $40,000
Standard price of direct materials $2.10 per pound
Direct material efficiency variance--favorable $3,000
What was the company's direct material price variance?
a. $1,000 favorable.
b. $1,000 unfavorable.
c. $2,000 favorable.
d. $2,000 unfavorable.
During March, Younger Company's direct material costs for product T were as follows:
Actual unit purchase price $6.50 per meter
Standard quantity allowed for actual
production 2,100 meters
Quantity purchased and used for actual
production 2,300 meters
Standard unit price $6.25 per meter
Younger's material quantity variance for March was:
a. $1,250 unfavorable.
b. $1,250 favorable.
c. $1,300 unfavorable.
d. $1,300 favorable.
Yola Company manufactures a product with standards for direct labor of 4 direct labor-hours per unit at a cost of $12.00 per direct labor-hour. During June, 1,000 units were produced using 4,100 hours at $12.20 per hour. The direct labor efficiency variance was:
a. $1,200 favorable.
b. $1,200 unfavorable.
c. $2,020 favorable.
d. $2,020 unfavorable.
The following labor standards have been established for a particular product:
Standard labor hours per unit of output 8.3 hours
Standard labor rate $12.10 per hour
The following data pertain to operations concerning the product for the last month:
Actual hours worked 6,100 hours
Actual total labor cost $71,370
Actual output 900 units
What is the labor efficiency variance for the month?
a. $19,017 F
b. $19,017 U
c. $16,029 F
d. $16,577 F
Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October follows:
Standard direct labor rate $6.00 per hour
Actual direct labor rate paid $6.10 per hour
Standard hours allowed for actual production 1,500 hours
Labor efficiency variance--unfavorable $600
What are the actual hours worked?
The Reedy Company uses a standard costing system. The following data are available for November:
Actual direct labor hours worked 5,800 hours
Standard direct labor rate $9 per hour
Labor rate variance $1,160 favorable
The actual direct labor rate for November is:
For the month of April, Thorp Co.'s records disclosed the following data relating to direct labor:
Actual cost $10,000
Rate variance $ 1,000 favorable
Efficiency variance $ 1,500 unfavorable
For the month of April, actual direct labor hours amounted to 2,000. In April, Thorp's standard direct labor rate per hour was:
The following standards for variable manufacturing overhead have been established for a company that makes only one product:
Standard hours per unit of output 7.8 hours
Standard variable overhead rate $12.55 per hour
The following data pertain to operations for the last month:
Actual hours 2,900 hours
Actual total variable overhead cost $36,975
Actual output 200 units
What is the variable overhead efficiency variance for the month?
a. $17,397 U
b. $16,817 U
c. $312 F
d. $17,085 U
The following standards for variable manufacturing overhead have been established for a company that makes only one product:
Standard hours per unit of output 5.6 hours
Standard variable overhead rate $12.00 per hour
The following data pertain to operations for the last month:
Actual hours 2,600 hours
Actual total variable overhead cost $31,330
Actual output 400 units
What is the variable overhead spending variance for the month?
a. $112 F
b. $130 U
c. $4,450 U
d. $4,338 U
Use the following to answer questions 53-56:
Appendix) The Dexon Company makes and sells a single product called a Mip and employs a standard costing system. The following standards have been established for one unit of Mip:
or Hours Standard Cost
Direct materials 6 board feet $9.00
Direct labor 0.8 hours $9.60
There were no inventories of any kind on August 1. During August, the following events occurred:
Purchased 15,000 board feet at the total cost of $24,000.
Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labor time at a total cost of $20,060.
To record the purchase of direct materials, the general ledger would include what entry to the Materials Price Variance Account?
a. $1,500 credit
b. $1,500 debit
c. $6,000 credit
d. $6,000 debit
To record the use of direct materials in production, the general ledger would include what entry to the Materials Quantity Variance account?
a. $3,600 debit
b. $3,600 credit.
c. $900 debit
d. $900 credit
To record the incurrence of direct labor cost and its use in production, the general ledger would include what entry to the Labor Rate Variance account?
a. $240 credit
b. $240 debit
c. $340 debit
d. $340 credit
To record the incurrence of direct labor costs and its use in production, the general ledger would include what entry to the Labor Efficiency Variance account?
a. $480 credit
b. $240 debit
c. $1,200 debit
d. $1,200 credit
A major weakness of flexible budgets is that:
a. they are geared only to a single level of activity.
b. they give subordinates too much flexibility.
c. they force the manager to compare actual costs at one level of activity to budgeted costs at a different level of activity.
d. none of these.
Lanta Restaurant compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, would the restaurant usually report favorable variances on variable food costs and fixed supervisory salaries?
Food Costs Supervisory Salaries
a. Yes Yes
b. Yes No
c. No Yes
d. No No
Overhead cost is applied to units based on direct labor hours. For April, total overhead cost was budgeted at $80,000 based on a denominator activity level of 20,000 direct labor hours for the month. The standard cost card indicates that each unit of finished product requires 2 direct labor-hours. The following data are available for April's activity:
Number of units produced 9,500
Direct labor hours worked 19,500
Actual total overhead cost incurred $79,500
What amount of total overhead cost would have been applied to production for the month of April?
Hart Company's labor standards call for 500 direct labor hours to produce 250 units of product. During October the company worked 625 direct labor hours and produced 300 units. The standard hours allowed for October would be:
a. 625 hours.
b. 500 hours.
c. 600 hours.
d. 250 hours.
The Adlake Company makes and sells a single product and uses a standard cost system. During October, the company budgeted $300,000 in manufacturing overhead cost at a denominator activity of 20,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The following cost and activity were recorded during October:
Total actual manufacturing overhead cost incurred $294,000
Units of product completed 3,800
Actual machine-hours worked 19,422
The amount of overhead cost that the company applied to work in process for October was:
Union Company uses a standard cost accounting system. The following overhead costs and production data are available for August:
Standard fixed overhead rate $1.00 per hour
Standard variable overhead rate $4.00 per hour
Denominator activity 40,000 hours
Actual hours 39,500 hours
Standard hours allowed for output 39,000 hours
Overapplied overhead $2,000
The total amount of overhead applied to work in process for August would be:
Use the following to answer questions 63-66:
The Alpha Company produces toys for national distribution. Standards for a particular toy are:
Materials: 12 ounces per unit at 56¢ per ounce.
Labor: 2 hours per unit at $2.75 per hour.
During the month of December, the company produced 1,000 units. Information for the month follows:
Materials: 14,000 ounces were purchased and used at a total cost of $7,140.
Labor: 2,500 hours worked at a total cost of $8,000.
The materials price variance is:
a. $700 U.
b. $420 U.
c. $420 F.
d. $700 F.
The materials quantity variance is:
a. $1,120 U.
b. $1,820 F.
c. $1,820 U.
d. $1,120 F.
The labor rate variance is:
a. $2,500 F.
Recently Asked Questions
- On December 5, 2007, the common stock of Google, Inc. (GOOG) was trading at $698.51. One year later, the shares sold for $301.99. Google has never paid a
- Syntex is considering an investment in one of two stocks. Given the information that follows, which investment is better based on the risk (the standard
- I need help brainstorming a company name and decide what real business world industry it operates in? What is a new and unique (not already offered) product or