Managerial Accounting Exam 2 (ACG 2071)

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January$31,000 February$37,000 March$46,000 April$49,000 The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$40,600

White Company budgeted for $221,000 of fixed overhead cost and volume of 42,500 units. During the year, the company produced and sold 41,500 units and spent $229,500 on fixed overhead. The fixed overhead cost spending variance is:

$8,500 unfavorable

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $92,000. Ending inventory at the end of January was $27,000. Based on this information, purchases for February would be:

$92,600

Global Company makes a product that is expected to use 2.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Global actually used 2.3 pounds of material per unit of product made in January. The actual cost of material was $1.95 per pound. Based on this information alone, the materials variances for the January production would be:

Favorable for price and unfavorable for usage

Which of the following statement(s) is/are correct? 1. A predetermined overhead rate is used to assign estimated overhead costs to work in process inventory. 2. The predetermined overhead rate is calculated by dividing estimated overhead cost by the estimated volume or level of activity. 3. The most common means of allocating overhead costs is to calculate a predetermined overhead rate at the end of the period.

I and II

Which of the following is generally included in a sales budget?

Schedule of cash receipts for the projected sales

Budgeted cash payments for inventory would appear on the:

inventory purchases budget and pro forma statement of cash flows.

All of the following are reasons to assign estimated overhead to inventory except:

managers need to use estimated overhead to control earnings.

Herald Company paid $2,800 cash for production supplies. The recognition of this event will:

not impact total assets.

Budgeting that involves the development of a master budget to direct the firm's activities over the short term is referred to as:

operations budgeting.

Furst Company pays production workers' salaries on account. The cost will be recognized as an expense when:

the goods made by the production workers are sold.

Ringgold Company had beginning finished goods of $18,700. During the period, the company produced goods that cost $78,500. If the ending balance in the Finished Goods Inventory account was $12,700, the amount of cost of goods sold was:

$84,500.

Which of the following costs would not increase the work in process inventory account?

Cost of selling supplies

Which of the following would not be included in a selling and administrative expenses budget?

Budgeted interest expense

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

Depreciation expense

Which of the following is not considered a pro forma financial statement?

Sales budget

Which of the following accounts would appear on the sales budget and the pro forma income statement?

Sales revenue

Select the incorrect statement regarding service companies.

Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers.

A budget prepared at a single volume of activity is referred to as a:

Static budget.

Which of the following is a difference between a static and a flexible budget?

Static budgets are based on a single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels.

Select the incorrect statement about the planning process.

The longer the time period, the more specific the plans.

Which of the following statements regarding the schedule of cost of goods manufactured and sold is correct?

The schedule is an internal document that is not presented with the company's financial statements, and, in addition, the schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period.

A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a:

Volume variance

When would a variance be labeled as favorable?

When actual costs are less than standard costs

When would a sales variance be listed as favorable?

When actual sales exceed budgeted or expected sales

When would a sales price variance be listed as unfavorable?

When the actual sales price is less than the standard sales price

Abbot Company spent less than expected for materials and more than expected for labor. Select the incorrect statement from the following.

You can always expect unfavorable labor variances if you have favorable material variances

Budgeted sales commissions would appear on the:

selling, general, and administrative budget and pro forma income statement

The sales volume variance is the difference between the:

static budget (based on planned volume) and the flexible budget (based on actual volume)

Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month. As a result of this transaction the:

temporary account manufacturing overhead decreases and the work in process account increases.

Virginia Company paid $7,500 cash for various manufacturing overhead costs. As a result of this transaction:

total assets, total equity, and net income are not affected.

Hughes Company paid production workers $25,550 cash. These wages will be classified as:

work in process.

Cheyenne Company has budgeted the following information for June: Cash receipts $271,000 Beginning cash balance 5,000 Cash payments 280,000 Desired ending cash balance 25,000 If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1. The amount of interest paid on July 1 would be:

$290

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units, and average selling price was $5.95. The sales volume variance was:

$30,000 favorable Sales volume variance = (100,000 units × $6.00 per unit) − (105,000 units × $6.00 per unit) Sales volume variance = $600,000 − $630,000 = $30,000 favorable

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January$21,000 February$27,000 March$36,000 April$39,000 The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$30,600

Washington Company made the following estimates for the current accounting period: Overhead costs: $250,000 Direct labor hours: 50,000 If 7,000 hours of labor are actually used in February, how much overhead cost would be allocated to work in process during the month? Assume overhead to be allocated on the basis of direct labor hours.

$35,000 (250,000/50,000 * 7,000)

Ringgold Company had beginning finished goods of $18,000. During the period, the company produced goods that cost $75,000. If the ending balance in the Finished Goods Inventory account was $12,000, the amount of cost of goods sold was:

$81,000 (18,000+75,000-12,000)

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $90,000. Ending inventory at the end of January was $29,000. Based on this information, purchases for February would be:

$88,000

White Company budgeted for $288,000 of fixed overhead cost and volume of 45,000 units. During the year, the company produced and sold 44,000 units and spent $297,000 on fixed overhead. The fixed overhead cost spending variance is:

$9,000 unfavorable

White Company budgeted for $309,400 of fixed overhead cost and volume of 45,500 units. During the year, the company produced and sold 44,500 units and spent $318,500 on fixed overhead. The fixed overhead cost spending variance is:

$9,100 unfavorable

Hernandez Company expects credit sales for January to be $48,000. Cash sales are expected to be $40,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

$92,000

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $91,000. Ending inventory at the end of January was $23,000. Based on this information, purchases for February would be:

$95,300

Hernandez Company expects credit sales for January to be $56,000. Cash sales are expected to be $36,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

$95,600

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $94,000. Ending inventory at the end of January was $25,000. Based on this information, purchases for February would be:

$97,200

Ferguson Company recognized $400 of estimated manufacturing overhead costs at the end of the month. How does this transaction affect the financial statements? Assets=Liabilities+EquityRevenue−Expenses=Net IncomeManufacturing Overhead+Work in Process Inventory

(400)+400=NA+NANA−NA=NA

What is the result when the actual rate paid for labor is less than the standard rate?

A favorable labor price variance

Which of the following statements is correct?

A favorable variance may indicate the existence of unfavorable conditions

Select the correct statement regarding flexible budgets.

A flexible budget shows expected revenues and costs at a variety of activity levels.

Which of the following accounts would appear on the inventory purchases budget and pro forma balance sheet?

Accounts payable

The cash budget is based on which budget?

All of the answers are correct.

Which of the following factors should be considered in establishing standards for use with a standard costing system?

All of these answers are correct

Cost information for services or products produced by a company is needed for:

All of these answers are correct.

Which of the following correctly computes cost of goods manufactured?

Beginning work in process + Direct materials used + Direct labor + Overhead − Ending work in process

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

Both administrative salaries and advertising expense are correct

One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program?

Performance measurement

The Juarez Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash). 1) Acquired $1,700 of capital from the owners. 2) Purchased $370 of direct raw materials. 3) Used $270 of these direct raw materials in the production process. 4) Paid production workers $470 cash. 5) Paid $270 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 250 units of inventory. 7) Sold 120 units at a price of $6 each. 8) Paid $110 for selling and administrative expenses. The amount of cost of goods manufactured would be:

$1,010 (3+4+5)

The Landrum Company provides the following standard cost data per unit of product: Variable overhead $8.00 Landrum anticipated that they would produce and sell 24,000 units. During the period, the company produced and sold 25,000 units, incurring $210,000 of variable overhead costs. The variable overhead flexible budget variance was:

$10,000 unfavorable $210,000 − ($8.00 per unit × 25,000 units)=10,000

Johnson Company estimates that its production workers will work 88,000 direct labor hours to produce 8,800 units during the upcoming period and that overhead costs will amount to $880,000. During the year, its manufacturing employees actually worked 100,000 direct labor hours to produce 10,000 units and incurred $1,100,000 of overhead costs. Because the goods made by Johnson are homogeneous (that is, they are identical), the company has decided it makes sense to use number of units as the allocation base for overhead. Based on this information the predetermined overhead rate is:

$100.00 per unit $880,000 ÷ 8,800 units = $100.00 per unit

Compton Company expects the following total sales: March$26,000 April$16,000 May$28,000 June$21,000 The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

$11,760

Compton Company expects the following total sales: March$20,000 April$10,000 May$34,000 June$15,000 The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

$14,280

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January were expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

$140,000 Ending cash balance = $80,000 + $350,000 - $290,000 = $140,000

Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $1,900 of capital from the owners. 2) Purchased $435 of direct raw materials. 3) Used $290 of these direct raw materials in the production process. 4) Paid production workers $490 cash. 5) Paid $290 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 250 units of inventory. 7) Sold 140 units at a price of $6 each. 8) Paid $130 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be:

$145.

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $5 per gallon) $15.00 Direct labor (2 hours @ $12 per hour) $24.00 During the period, the company produced and sold 24,000 units, incurring the following costs: Direct material 75,000gallons @$4.90 per gallon Direct labor 48,500hours @$11.75 per hour The direct material usage variance was:

$15,000 unfavorable

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: (per unit) Revenue$4.00 Variable costs 1.50 Contribution margin$2.50 Fixed costs 2.00 Net income$0.50 If actual production totals 10,000 units, which is within the relevant range, the flexible budget would show fixed costs of:

$16,000

Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $2,200 of capital from the owners. 2) Purchased $480 of direct raw materials. 3) Used $320 of these direct raw materials in the production process. 4) Paid production workers $520 cash. 5) Paid $320 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 250 units of inventory. 7) Sold 170 units at a price of $6 each. 8) Paid $160 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be:

$160 (2-3)

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales revenue flexible budget variance was:

$17,880 favorable Sales revenue flexible budget variance = (149,000 units × $6.12 per unit) − (149,000 units × $6.00 per unit) Sales revenue flexible budget variance = $911,880 − $894,000 = $17,880 favorable

Which manager is generally held responsible for the sales volume variance?

Marketing manager

Travis Company had no beginning work in process or finished goods. Its total manufacturing costs for the year were $882,000. If cost of goods manufactured was $678,000 and cost of goods sold was $521,000, the amount of ending work in process would have been:

$204,000 ($882,000 − $678,000 = $204,000)

Travis Company had no beginning work in process or finished goods. Its total manufacturing costs for the year were $892,000. If cost of goods manufactured was $683,000 and cost of goods sold was $528,500, the amount of ending work in process would have been:

$209,000 (892,000-683,000=209,000)

The following budget information is available for the Arch Company for January Year 2: Sales$860,000 Cost of goods sold 540,000 Utilities expense 2,800 Administrative salaries 100,000 Sales commissions 5% of sales Advertising 20,000 Depreciation on store equipment 50,000 Rent on administration building 60,000 Miscellaneous administrative expenses 10,000 All operating expenses are paid in cash in the month incurred. Compute the total budgeted selling and administrative expenses (excluding interest) amount for January Year 2.

$285,800 Budgeted selling and administrative expenses = Utilities expense + Administrative salaries + Sales commissions + Advertising + Depreciation on store equipment + Rent on administrative building + Miscellaneous expenses

Bantam Industries has budgeted the following information for March: Cash receipts $271,000 Beginning cash balance 5,000 Cash payments 280,000 Desired ending cash balance 25,000 If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1. How much cash will the company need to borrow in March?

$29,000

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January$38,000 February$44,000 March$53,000 April$56,000 The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$47,600

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units, and the average selling price was $5.95. The sales revenue flexible budget variance was:

$5,250 unfavorable (105,000 units × $5.95 per unit) − (105,000 units × $6.00 per unit)=$5,250 unfavorable

The Russell Company provides the following standard cost data per unit of product: Direct material (2 gallons @ $5 per gallon) $10.00 Direct labor (1 hours @ $11 per hour) $11.00 During the period, the company produced and sold 23,000 units, incurring the following costs: Direct material 49,000gallons @ $4.90per gallon Direct labor 23,500hours @ $10.75per hour The direct labor price variance was:

$5,875 favorable Price variance = ($10.75 per hour - $11 per hour) × 23,500 hours = $5,875

The following static budget is provided: Units 20,000 UnitsSales$200,000 Less variable costs: Manufacturing costs$70,000 Selling and administrative costs$40,000 Contribution margin$90,000 Less fixed costs: Manufacturing costs$22,000 Selling and administrative costs$17,000 Net Income$51,000 What will budgeted net income equal if 21,000 units are produced and sold?

$55,500

Fortune Company had beginning raw materials inventory of $9,400. During the period, the company purchased $53,000 of raw materials on account. If the ending balance in raw materials was $6,400, the amount of raw materials transferred to work in process is:

$56,000 (9,400+53,000-6400)

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales volume variance was:

$6,000 unfavorable

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $3 per gallon) $9.00 Direct labor (2 hours @ $12 per hour) $24.00 During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material 68,000 gallons @ $2.90 per gallon Direct labor 44,500 hours @ $11.75 per hour The direct material usage variance was:

$6,000 unfavorable Usage variance = [68,000 gallons - (22,000 units × 3 gallons per unit)] × $3 per gallon Usage variance = (68,000 gallons - 66,000 gallons) × $3 per hour = $6,000 Since the actual quantity is greater than the standard quantity, the variance is unfavorable.

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $85,000. Ending inventory at the end of January was $34,000. Based on this information, purchases for February would be:

$76,500 Budgeted purchases of inventory in February = $85,000 + ($85,000 × 30%) - $34,000 = $85,000 + $25,500 - $34,000 = $76,500

White Company budgeted for $244,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $252,000 on fixed overhead. The fixed overhead cost spending variance is:

$8,000 unfavorable

Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (8,000 units)$16,000 Variable costs 4,000 Contribution margin$12,000 Fixed costs 4,000 Net income$8,000 If actual production totals 8,200 units, the flexible budget would show total costs of:

$8,100

White Company budgeted for $238,000 of fixed overhead cost and volume of 42,500 units. During the year, the company produced and sold 41,500 units and spent $246,500 on fixed overhead. The fixed overhead cost spending variance is:

$8,500 unfavorable

Budgeted depreciation expense would not appear on a:

Cash budget

Which of the following would not be included in the inventory purchases budget?

Cash collections

Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?

Cash payments schedule

Select the correct equation format for the purchases budget.

Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases.

The cost of indirect labor will initially be charged to:

Manufacturing Overhead.

Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units:

Equals 2,000 units unfavorable

Which of the following items will not appear on a cash budget?

Expected credit sales

Which of the following items is not needed to prepare a sales budget by product line?

Expected purchase price of each product

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?

Expected unit selling price

Standard cost systems facilitate the management practice known as:

Management by exception

In which account is the actual amount of costs such as factory utilities and maintenance initially recorded?

Manufacturing Overhead

Multiplying the difference between actual materials price per unit and the standard materials price per unit by actual quantity of materials used is known as the:

Materials price variance

Which of the following is not an inventory account maintained by a manufacturing company?

Merchandise inventory

NEW CHAPTER

NEW CHAPTER

Which of the following items would be least useful in preparing a schedule of cash receipts?

Number of units expected to be purchased.

Which manager is usually held responsible for materials usage variances?

Production supervisor

Which of the following is not an advantage of budgeting?

Provides assurance that accounting records are in accordance with generally accepted accounting principles

For a manufacturing business, cost of indirect materials is first recorded in the:

Raw Materials Inventory account

Select the response that indicates the correct sequence of product cost flows from production to sale

Raw materials, work in process, finished goods, and cost of goods sold

Select the incorrect statement regarding the cash budget.

The total cash available is calculated by adding cash receipts and the ending cash balance.

Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following.

The total direct labor variance is $2,500 favorable $4,000 favorable + $1,500 unfavorable = $2,500 favorable

Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $2,300 and an unfavorable direct materials usage variance of $1,500.

The total direct materials variance is $800 favorable

Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $2,500 and an unfavorable direct materials usage variance of $1,700.

The total direct materials variance is $800 favorable

Static and flexible budgets are similar in that:

They both are based on the same per unit variable amounts and the same fixed costs.

What information does the sales budget provide for pro forma financial statements?

Total budgeted sales to be used on the pro forma income statement

Jones Manufacturing Company experienced an accounting event that affected its financial statements as indicated below: Assets=Liabilities+EquityRevenue−Expenses=Net Income+− NA NANA NA NA Which of the following accounting events could have caused the indicated effects on the firm's accounting equation?

Transferred cost of goods manufactured from the Work in Process Inventory to the Finished Goods Inventory account.

Cost of goods sold is equal to the cost of goods:

available for sale minus ending finished goods.

Company X manufactures 3-ring notebooks. All of the following are considered indirect costs except:

cardboard used in production of the notebooks.

All of the following costs are accumulated in the Work in Process Inventory account except:

depreciation on factory equipment.

The cost of direct materials purchased on account is expensed at the time the:

goods made in the manufacturing process are sold.

The Winchester Company estimates that its overhead costs will amount to $595,000 and the company's manufacturing employees will work 85,000 direct labor hours during the current year. If actual overhead costs for the year amounted to $599,000 and actual labor hours amounted to 87,000, then overhead would be:

overapplied by $10,000 Step 1: $595,000 ÷ 85,000 direct labor hours = $7.00 per direct labor hour Step 2: 87,000 direct labor hours × $7.00 per direct labor hour = $609,000 Step 3: $609,000 − $599,000 = $10,000

A credit to the Raw Materials Inventory account represents:

raw materials added to production.