Managerial Accounting Final ORION review

Calvin's annual cash inflows are expected to be $32,000 for the next 8 years. Assuming a discount rate of 10%, the present value of cash flows for Calvin is

$170,718

JT Engineering usually pays $21 per pound of copper and uses 300 pounds of copper per 1,000 widgets. Due to the current high demand for copper, JT is currently paying $32 per pound of copper. What will JT's materials price variance be for this purchase?

$3,300

In the McCaffee Company, each unit of finished goods requires one pound of direct materials at $2 per pound. In producing 50,000 units, 45,000 pounds of materials are used at $2.10 per pound. The materials price variance is

$4,500 unfavorable

In the Pretzel Company 20,000 direct labor hours were worked when standard hours were 21,000 and the actual pay rate was $6.30 when the standard rate was $6.50. The labor quantity variance is

$6,500 favorable

Jensen Automotive produces alternators for American-made cars. They generally use a static budget with the following costs based on 8,000 units per month: Indirect materials, $22,000; Indirect labor, $25,000; Utilities, $12,000; Supervision, $4,000; Depreciation, $18,000. If Jensen wanted to create a flexible budget for 9,000 units, what value would they record for variable costs?

$66,375

Information on Smith's direct labor costs for the month of August is as follows: No alt text provided for this image What was the standard rate for August?

$7.00

Chris Lawrence is contemplating a project with an initial investment of $50,000. Chris also has a discount rate of 8%. If the project has estimated net annual cash flows of $12,000 for the next six years, what is the profitability index for the project?

1.11

Poorman Company is contemplating a project with an initial capital investment of $40,000. The expected future annual cash inflows from the project are estimated to be $7,500 for the next 8 years. What is the estimated internal rate of return for the project?

10%

Katie's Cleaning Service has cleaning contracts for 15 apartments, 45 family homes, and 25 office buildings. She estimates that an apartment takes 4 hours to clean, a home takes 6 hours to clean, and an office building takes 10 hours to clean. Katie pays her cleaning staff $12.50/hour. If each location is cleaned once per week, how much does Katie need to budget for direct labor each month? Assume there are four weeks per month.

29,000

What is the return on investment if controllable margin is $300,000 and the average investment center operating assets are $1,000,000?

30%

Dobbins Resources pays sales commissions of $2 per unit and shipping costs of $0.75 per unit. If Dobbins expects to sell 12,000 units in the third quarter, what will their total variable expenses be?

33,000

When they made their master budget, Vann Enterprises had direct material per unit costs of $12.43, direct labor per unit costs of $8.46, and manufacturing overhead per unit costs of $14.29. They planned to sell 16,000 units in the first quarter. However, in the first week of the first quarter, the direct material per unit costs rose to $16.12, which increased the selling price of the finished product. Therefore, Vann Enterprises only sold 15,500 units. What would the difference in cost of goods sold be between the budgeted income statement and the actual income statement?

39,605 increase

The Burlington Company has 12,000 units in beginning finished goods. If sales are expected to be 60,000 units for the year and Burlington desires ending finished goods of 15,000 units, how many units must Burlington produce?

63,000

Controllable costs for responsibility accounting purposes are those costs that are directly influenced by which of the following?

A given manager within a given period of time

An unfavorable labor quantity variance means that

Actual hours exceed standard hours

Which of the following best represents the cash payback formula?

Cost of capital investment/Net annual cash flow

Which of the following represents the flow of budget data under participative budgeting?

Department manager to plant manager to vice president of production

What is the formula for the annual rate of return?

Expected Annual Net Income/ Average Investment

Toledo Manufacturing has the following variable overhead costs: Indirect materials: $2.18/hour Indirect labor: $3.26/hour Utilities: $0.90/hour Maintenance: $0.33/hour Direct labor hours: 14,500 If Toledo decides that they need to increase their indirect materials to $2.25 per hour, how much will this increase their total variable costs?

$1,015

The Brenneman Company's direct materials budget shows total cost of direct materials purchases for January $125,000, February $150,000 and March $175,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for March are

$165,000

Windell Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Windell had actual overhead costs of $250,000 for 9,000 units produced, what is the difference between actual and budgeted costs?

$2,000 favorable

JT Engineering's normal capacity is 20,000 direct labor hours. If JT's variable costs are $26,400 and its fixed costs are $14,900 when the company runs at normal capacity, what is its standard manufacturing overhead rate per unit?

$2.07

According to standard production costs, it should cost JT Engineering $14,000 in direct materials, $12,600 in direct labor, and $6,200 in total overhead to produce 1,000 widgets. During the most recent period, JT actually spent $13,860 in direct materials, $12,420 in direct labor, and $6,500 in total overhead. What is JT's total variance? Is it favorable or unfavorable?

$20 favorable

Rose Company is preparing its direct labor budget for May. Projections for the month are that 8,350 units are to be produced and that direct labor time is three hours per unit. If the labor cost per hour is $9, what is the total budgeted direct labor cost for May?

$225,450

Fisher Steel produces steel plates for manufacturing and construction. They generally use a static budget with the following costs based on 50,000 units per month: Indirect materials, $105,000; Indirect labor, $98,000; Utilities, $14,000; Supervision, $5,000; Depreciation, $22,000. If Fisher wanted to create a flexible budget for 60,000 units, what value would they record for fixed costs?

$27,000

In the Haden Company, the standard material cost for the silk used in making a dress is $27.00 based on three square feet of silk at a cost of $9.00 per square foot. The production of 1,000 dresses resulted in the use of 3,400 square feet of silk at a cost of $9.20 per square foot. The materials quantity variance is

$3,600 unfavorable

The salvage value on a piece of equipment for Excavators, Inc. is expected to be $10,000 in 12 years. If the discount rate is 8%, what is the present value of the equipment's salvage value?

$3,971

In the Proctor Company, indirect labor is budgeted for $24,000 and factory supervision is budgeted for $8,000 at normal capacity of 80,000 direct labor hours. If 90,000 direct labor hours are worked, flexible budget total for these costs is

$35,000

When they produce 20,000 units per month, Sanders Incorporated has variable costs of $392,000 and fixed costs of $242,000. If Sanders increases their production to 25,000 units, by how much will they have to increase their budget?

$98,000

In the Progressa Company required production for June is 44,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 100,000 and 110,000 pounds, respectively. How many pounds of direct material Z must be purchased?

142,000

Elm Company had an investment which cost $260,000 and had no salvage value at the end of its useful life of 5 years. If Elm's expected annual net income is $20,000, the annual rate of return is

15.4%

Which of the following will cause the ROI to increase?

An increase in sales

City Mission is a not-for-profit organization that provides hot meals, living quarters, and showers for homeless people. Based on their yearly budget, they expect to spend $450,000 on food expenses, $350,000 on housing expenses, $280,000 on staff salaries, $90,000 on utilities, and $118,000 on other expenses. How much will City Mission need to raise in donations?

At least 1,288,000

Responsibility accounting cannot be used effectively

For costs allocated to the responsibility level

Of the following, which is not a direct fixed cost of a profit center?

General office administrative costs

A standard that represents the optimum level of performance under perfect operating conditions is called a(n)

Ideal standard

Which of the following statements is correct?

In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses.

A manager at which of the following centers will have the highest number of assets to manage in order to have a positive performance evaluation?

Investment center

Which of the following most accurately describes the relationship between favorable variances and cost of goods sold?

It is an inverse relationship: as the favorable variance increases, the cost of goods sold increases

Which of the following is a characteristic of long-range planning?

It is used to review progress rather than as a basis for control.

Of the following, which would not be considered an aspect of budgetary control?

It provides a guarantee for favorable results

Garrett and Liam manage two different divisions of the same company. Garrett uses ideal standards to gauge his employees' performance, while Liam uses normal standards to gauge his employees' performance. Whose employees are likely to perform better? Why?

Liam's employees, because normal standards are better for morale, as they are rigorous but attainable.

A purchases budget is used instead of a production budget by

Merchandising companies

Home Safety Appliances is considering a project that would increase the efficiency and safety of their assembly line. The initial investment will be $350,000. They believe annual cash inflows will be $67,000 and annual cash outflows will be $32,000. The project will last 15 years with a discount factor of 8%. They also believe that intangible benefits will effectively increase cash inflows by $12,000 annually and decrease cash outflows by $3,000 annually. What is the difference in net present value (NPV) of the project when intangible benefits are or are not included?

NPV is $128,392.20 higher when intangibles are included.

Of the following, which is considered in the net present value method?

Present value of liquidation proceeds

Which of the following is usually responsible for a labor price variance attributable to misallocation of workers?

Production

A negative net present value means that the

Project's rate of return is less than the required rate of return

Which of the following departments is generally responsible for an unfavorable material price variance?

Purchasing

The following explanations appeared on last week's variance report for JT Engineering's purchasing department. Which of these explanations could reflect negatively on the purchasing department?

Rush order

Of the following, which is typically considered a cash inflow?

Sale of old equipment

Of the following, which is not part of a formalized reporting system?

State the corrective action that should be taken

All but which one of the following is involved in budgetary control?

Take disciplinary action

Of the following, which is incorrect about average operating assets?

The assets are valued at fair market values

Which of the following statements is correct?

The board of directors approves the capital budget

Which of the following most accurately describes the relationship between a direct materials price standard and a direct materials quantity standard?

The standards are multiplicative; the price standard is multiplied by the materials standard to determine the standard cost per unit.

Of the following, which is correct about the annual rate of return method?

The timing of the cash inflows is not considered

Palmer Soaps is considering a project to expand their line of hand soaps for mechanics and hard laborers. The project has an initial investment of $187,000. Annual cash flows are expected to be $52,000 for five years. Based on the internal rate of return (IRR) of the project, should the company accept the project if their required rate of return is 11%?

Yes, because the IRR is greater than 11%

JT Engineering uses copper in its widgets. Demand for copper in the widget industry is greater than the available supply. As a result, JT is unable to secure its typical discount with suppliers. Assuming that JT orders the same quantity as usual and that no changes are made to any of JT's materials standards, what is the most likely end-of-quarter result?

an unfavorable materials prices variance

When using the return on investment (ROI) formula,

controllable margin is divided by average investment center operating assets

How is the profitability index calculated?

dividing the present value of cash flows by the initial investment

Which line items of the budgeted balance sheet are calculated based on operating budgets?

finished goods inventory, raw materials inventory, and retained earnings

A responsibility reporting system

involves the preparation of a report for each level of responsibility shown in the company's organization chart.

The minimum required rate of return

is compared to the annual rate of return to decide if a project is acceptable

When a potential investment has a negative net present value,

its internal rate of return is less than the required rate of return

In order to assure better management acceptance, the flow of input data for budgeting should begin with the

lower levels of management

Identifying an exception under management by exception uses these criteria

materiality and controllability

The labor price variance is the difference between the

standard and actual rate multiplied by actual hours

When using a static budget,

the actual results are always compared with budget data at the original budgeted activity level.

When reporting variances

the reports should facilitate management by exception

Which of the following is the difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours?

total labor variance

On January 1, Scarlett Company has a beginning cash balance of $21,000. During the year, the company expects cash disbursements of $170,000 and cash receipts of $145,000. If Scarlett requires an ending cash balance of $20,000, the Scarlett Company must borrow:

24,000

Coordinating the preparation of the budget is the responsibility assigned to the

Budget committee

James Company determines that 13,500 pounds of direct materials are needed for production in July. There are 800 pounds of direct materials on hand at July 1 and the desired ending inventory is 700 pounds. If the cost per pound of direct materials is $3, what is the budgeted total cost of direct materials purchases?

$40,200

The Crawford Company has 3,000 units in beginning finished goods. The sales budget shows expected sales to be 12,000 units. If the production budget shows that 14,000 units are required for production, what was the desired ending finished goods?

$5,000

JT Engineering spends $1.30 per pound purchasing raw materials, $0.30 per pound to ship the raw materials, and $0.13 per pound receiving the materials. JT then uses 2.75 pounds of raw materials making widgets, allowing 0.25 pounds of waste per widget. What is JT's standard direct materials cost per widget?

$5.19

Bumbo Corporation estimates that it will have the following future cash inflows over the next three years: 20x3¾$18,000 20x4¾$19,000 20x5¾$20,000 If the discount rate is 6%, what is the present value of the future cash inflows?

$50,683

The Eccleston Company has the following budgeted sales: January $40,000, February $60,000, and March $50,000. 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

$53,000

Chaz Denver Company has identified that the cost of a new computer will be $40,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is

5 years

Terraform Company is contemplating purchasing equipment for $60,000 with expected future annual cash inflows of $18,100 for the next 4 years. What is the estimated internal rate of return?

8%