Managerial Accounting Wagner (SBU) Final Exam

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume, and can immediately see the effects of each change on the break-even point and profit. This is called

"what if" or sensitivity analysis

The standard costs and actual costs for direct labor in the manufacture of 2,500 units of product are as follows: Standard Costs Direct labor 7,500 hours @ $11.80 Actual Costs Direct labor 7,400 hours @ $11.40 ​ The direct labor time variance is

$1,180 favorable

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%.​The residual income for Mason is

$1,500

In the manufacture of 8,000 units of a product, direct materials cost incurred was $154,600, direct labor cost incurred was $84,000, and applied factory overhead was $45,500. What is the total conversion cost?

$129,500

Aspen Technologies has the following budget data: Estimated direct labor hours 15,000 Estimated direct labor dollars $90,000 Estimated factory overhead costs $198,000 ​ If factory overhead is to be applied based on direct labor hours, the predetermined overhead rate is

$13.20

Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $302,500, and a desired minimum rate of return of 15%.​The residual income for Chicks is

$137,500

Stryker Industries received an offer from an exporter for 15,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available: Domestic unit sales price $20 Unit manufacturing costs: Variable 11 Fixed 1 ​ ​ What is the differential cost from the acceptance of the offer?

$165,000

Using a plantwide factory overhead rate distorts product costs when:

- significant differences exist in the factory overhead rates used across different production departments. - products require different ratios of allocation-base usage in each production department.

If fixed costs are $1,200,000, the unit selling price is $240, and the unit variable costs are $110, what is the amount of sales required to realize an operating income of $200,000?

10,769 units

Production and sales estimates for April are as follows: Estimated inventory (units), April 19,000 Desired inventory (units), April 30 18,000 Expected sales volume (units): Area A 3,000 Area B 4,750 Area C 4,250 Unit sales price $20 ​ ​ The number of units expected to be manufactured in April is

11,000

The expected average rate of return for a proposed investment of $650,000 in a fixed asset, with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is

18.5%

The expected average rate of return for a proposed investment of $6,000,000 in a fixed asset, using straight-line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of $12,000,000 over the 20 years is

20%

The following data is given for the Stringer Company: Budgeted production 26,000 units Actual production 27,500 units Materials: Standard price per ounce $6.50 Standard ounces per completed unit 8 Actual ounces purchased and used in production 228,000 Actual price paid for materials $1,504,800 Labor: Standard hourly labor rate $22 per hour Standard hours allowed per completed unit 6.6 Actual labor hours worked 183,000 Actual total labor costs $4,020,000 Overhead: Actual and budgeted fixed overhead $1,029,600 Standard variable overhead rate $24.50 per standard labor hour Actual variable overhead costs $4,520,000 ​ Overhead is applied on standard labor hours. The direct materials quantity variance is

22,800 unfavorable

Production estimates for July are as follows: Estimated inventory (units), July 1 8,500 Desired inventory (units), July 31 10,500 Expected sales volume (units), July 76,000 For each unit produced, the direct materials requirements are as follows: Direct material A ($5 per lb.) 3 lbs. Direct material B ($18 per lb.) 1/2 lb. ​ ​ The number of pounds of materials A and B required for July production is

234,000 lbs. of A; 39,000 lbs. of B

Production and sales estimates for March for the Robin Co. are as follows: Estimated inventory (units), March 1 18,000 Desired inventory (units), March 31 21,600 Expected sales volume (units): Area M 7,000 Area L 8,000 Area O 9,000 Unit sales price $15 ​ ​ The number of units expected to be manufactured in March is

27,600

Heidi Company is considering the acquisition of a machine that costs $420,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $120,000, and annual operating income of $83,721. What is the estimated cash payback period for the machine?

3.5 years

Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000, and a desired minimum rate of return of 3%. The rate of return on investment for Marshall is

30%

If fixed costs are $300,000, the unit selling price is $31, and the unit variable costs are $22, what is the break-even sales (units) if fixed costs are reduced by $30,000?

30,000 units

Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $150,000, and annual operating income of $87,500. What is the estimated cash payback period for the machine?

4.5 years

Lee Industry sales are $525,000, variable costs are 53% of sales, and operating income is $19,000. What is the contribution margin ratio?

47%

If a company uses a process costing system to account for the costs in its five production departments, how many work in process accounts will it use?

5

In a process cost system, the amount of work in process inventory is valued by

allocating departmental costs between completed and partially completed units

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

an investment center

A series of equal cash flows at fixed intervals is termed a(n)

annuity

In a profit center, the department manager has responsibility for and the authority to make decisions that affect

both costs and revenues for the department or division

Periodic comparisons between planned objectives and actual performance are reported in:

budget performance reports

The recording of the application of factory overhead costs to jobs would include a credit to

Factory Overhead

A process cost accounting system records all actual factory overhead costs directly in the Work in Process account.

False

Product costing consists of only direct materials and direct labor.

False

The sales budget is the starting point for preparation of the direct labor cost budget.

False

When a plantwide factory overhead rate is used, the total overhead costs allocated to all products are the same.

False

Recording jobs shipped and customers billed would include a credit to

Finished Goods

The recording of the jobs completed would include a debit to

Finished Goods

Which of the following is not a characteristic of a job order costing system?

It accumulates cost for each department within the factory.

Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

Number of calls

The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending inventory, less (3) the estimated beginning inventory. True

True

The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the desired ending inventory.

True

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

True

Which of the following is not a reason standard costs are separated into two components?

Variances bring attention to discrepancies in the budget and require managers to revise budgets closer to actual results

During the period, labor costs incurred on account amounted to $175,000, including $150,000 for production orders and $25,000 for general factory use. Factory overhead applied to production was $23,000. The entry to record the factory overhead applied to production is

Work in Process 23,000 Factory Overhead 23,000

Which of the following would be most likely to use process costing?

a lawn fertilizer manufacturer

For which of the following businesses would the process cost system be appropriate?

a paper mill

Horizontal analysis of comparative financial statements includes

calculation of dollar amount changes and percentage changes from the previous to the current year

inventory

calculation of dollar amount changes and percentage changes from the previous to the current year

The budget that summarizes future plans for the acquisition of fixed assets is

capital expenditures budget

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

capital investment analysis

In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are often used?

cash payback method and average rate of return method

Which of the following costs are not included in finished goods inventory?

chief financial officer's salary

Which of the following is the most useful in analyzing companies of different sizes?

common-sized financial statements

Leverage implies that a company

contains debt financing

What term refers to the cost of changing direct materials into a finished manufactured product?

conversion cost

A manager is responsible for costs only in a(n)

cost center

Which of the following will not be found on the balance sheet of a manufacturing company?

cost of goods sold

Which of the following is an example of direct materials cost for an automobile manufacturer?

cost of interior upholstery

Which of the following measures a company's ability to pay its current liabilities?

current ratio

When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n)

present value index

Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

present value index

If the price paid per unit differs from the standard price per unit for direct materials, the variance is a

price variance

The cost of production report reports the cost charged to production and the costs allocated to finished goods and work in process.

process

Direct labor and direct materials are

product costs and expensed when the goods are sold

Which of the following is a cost pool used with the activity-based costing method?

production setups

Which of the following is a measure of a manager's performance working in an investment center?

rate of return on investment residual income divisional income statements

Which of the following costs is a mixed cost?

rental costs of $10,000 per month plus $0.30 per machine hour of use

Which of the following is a period cost?

salary of telephone receptionist in the sales office

The first budget customarily prepared as part of an entity's master budget is the

sales budget

For which of the following businesses would a process cost system be appropriate?

shampoo manufacturer

The ability of a business to pay its debts as they come due and to earn a reasonable net income is

solvency and profitability

The principle of exceptions allows managers to focus on correcting variances between

standard costs and actual costs

Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.

standard costs are more than actual costs

The contribution margin ratio is

the same as profit

All of the following are characteristics of a process cost system except

the system accumulates costs per job

The basis for recording direct and indirect labor costs incurred is a summary of the period's

time tickets

If the actual direct labor hours spent producing a commodity differs from the standard hours, the variance is a

time variance

Which of the following is not a reason a service firm would use a job order costing system?

to determine department costs within the firm

What is the purpose of the statement of cost of goods manufactured?

to determine the amounts transferred to finished goods

Which of the following conditions would cause the break-even point to decrease?

unit variable cost decreases

Jase Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show

variable costs of $52,800 and $24,000 of fixed costs

Chelsa Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show

variable costs of $72,000, and $23,000 of fixed costs

The percent of fixed assets to total assets is an example of

vertical analysis

The amount journalized showing the cost added to finished goods is taken from the cost of production report.

True

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Activity Cost Activity Base Procurement $ 370,000 Number of purchase orders Scheduling 250,000 Number of production orders Materials handling 500,000 Number of moves Product development 730,000 Number of engineering changes Production 1,500,000 Machine hours ​ Number of Purchase Orders Number of Production Orders ​ Number of Moves ​ Number of Engineering Changes ​ Machine Hours ​ Number of Units Disk drives 4,000 300 1,400 10 2,000 2,000 Tape drives 4,000 150 800 10 8,000 4,000 Wire drives 12,000 800 4,000 25 10,000 2,500 ​ ​ Determine the activity rate for procurement per purchase order.

$18.50

Blackwelder Factory produces two similar products - small lamps and desk lamps. The total plant overhead budget is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small lamp production will require 275,000 direct labor hours and desk lamp production will need 125,000 direct labor hours. ​Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Blackwelder Factory allocate to desk lamp production if actual direct hours for the period is 118,000?

$188,800

Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Their current full cost for the product is $44 per unit.​In order to meet the new target cost, how much will the company have to cut costs per unit, if any?

$2

The following data relate to direct labor costs for the current period: Standard costs 9,000 hours at $5.50 Actual costs 8,500 hours at $5.75 What is the direct labor rate variance?

$2,125 unfavorable

The following data is given for the Stringer Company: Budgeted production 26,000 units Actual production 27,500 units Materials: Standard price per ounce $6.50 Standard ounces per completed unit 8 Actual ounces purchased and used in production 228,000 Actual price paid for materials $1,504,800 Labor: Standard hourly labor rate $22 per hour Standard hours allowed per completed unit 6.6 Actual labor hours worked 183,000 Actual total labor costs $4,020,000 Overhead: Actual and budgeted fixed overhead $1,029,600 Standard variable overhead rate $24.50 per standard labor hour Actual variable overhead costs $4,520,000 ​ Overhead is applied on standard labor hours.

$22,800 unfavorable

The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhead information: ​ Setups ​ Inspections ​ Assembly (dlh) Small Lamps - 3,000 units 8,000 9,000 16,000 Desk Lamps - 6,000 units 16,000 15,000 12,000 ​ Activity Pool Activity Base Budgeted Amount Setups 24,000 $60,000 Inspections 24,000 $120,000 Assembly (dlh) 28,000 $280,000 ​ ​ Calculate the total factory overhead to be charged to desk lamps.

$235,000

Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business—September, October, and November—are $260,000, $375,000, and $400,000, respectively. The company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale.​The cash collections expected in November from accounts receivable are projected to be

$276,500

Activity-based costing can be used to allocate period costs to various products that the company sells.

$391,500

The following data relate to direct labor costs for the current period: Standard costs 6,000 hours at $12.00 Actual costs 7,500 hours at $11.40 ​ What is the direct labor rate variance?

$4,500 favorable

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of 4 years, no residual value, and an expected total income yield of $25,300, is

$6,325

Pinacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were $650,000. Pinacle's plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinacle's plantwide factory overhead rate for the current year is:

$7.00 per machine hour

The Ramapo Company uses a single overhead rate to apply all overhead costs. What would the single plantwide rate be if it was based on machine hours instead of labor hours?

$7.43 per machine hour

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Activity Cost Activity Base Procurement $ 370,000 Number of purchase orders Scheduling 250,000 Number of production orders Materials handling 500,000 Number of moves Product development 730,000 Number of engineering changes Production 1,500,000 Machine hours ​ Number of Purchase Orders Number of Production Orders ​ Number of Moves ​ Number of Engineering Changes ​ Machine Hours ​ Number of Units Disk drives 4,000 300 1,400 10 2,000 2,000 Tape drives 4,000 150 800 10 8,000 4,000 Wire drives 12,000 800 4,000 25 10,000 2,500 ​ ​ Determine the activity rate for materials handling per move.

$80.65

Jaxson Corporation has the following data related to direct labor costs for September: actual costs are 10,200 hours at $15.75 per hour and standard costs are 10,800 hours at $15.50 per hour.

$9,300 favorable

The following data is given for the Stringer Company: Budgeted production 26,000 units Actual production 27,500 units Materials: Standard price per ounce $6.50 Standard ounces per completed unit 8 Actual ounces purchased and used in production 228,000 Actual price paid for materials $1,504,800 Labor: Standard hourly labor rate $22 per hour Standard hours allowed per completed unit 6.6 Actual labor hours worked 183,000 Actual total labor costs $4,020,000 Overhead: Actual and budgeted fixed overhead $1,029,600 Standard variable overhead rate $24.50 per standard labor hour Actual variable overhead costs $4,520,000 ​ Overhead is applied on standard labor hours. The direct materials quantity variance is

52,000 unfavorable

Below is a table for the present value of $1 at compound interest. Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567 ​ Below is a table for the present value of an annuity of $1 at compound interest. Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 ​ ​ Using the tables above, what would be the internal rate of return of an investment of $210,600 that would generate an annual cash inflow of $50,000 for the next 5 years?

6%

Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $208,240. Estimated cash flows are expected to be $40,000 annually for 7 years. The present value factors for an annuity of $1 for 7 years at interest of 6%, 8%, 10%, and 12% are 5.582, 5.206, 4.868, and 4.564, respectively. The internal rate of return for this investment is

8%

The formula to compute the direct labor rate variance is to calculate the difference between

Actual costs - (Actual hours × Standard rate)

The formula to compute the direct materials price variance is to calculate the difference between

Actual costs - (Actual quantity × Standard price)

Which of the following conditions normally would not indicate that standard costs should be revised?

Actual costs differed from standard costs for the preceding week.

The period costs of a textbook printer would include

CEO salary expense

What term is used to describe the process of monitoring operating results and comparing actual results with the expected results?

Controlling

The cost of production of completed and transferred goods during the period amounted to $540,000, and the finished products shipped to customers had production costs of $375,000. The entry to record the transfer of costs from finished goods to cost of goods sold is

Cost of Goods Sold 375,000 Finished Goods 375,000

3 Main account types

Direct labor Direct Materials Factory Overhead

In a process costing system, costs flow into finished goods inventory only from the work in process inventory of the last manufacturing process.

True

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company's desired rate of return is $100,000. The IRR on the project is 12%. Which of the following statements is true?

The desired rate of return used to calculate the present value of the future cash flows is equal to 12%.

Which of the following statements is false?

There is no overlap between financial and managerial accounting.

What is the purpose of the statement of cost of goods manufactured?

To Determine the amount transferred to finished goods

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

True

Estimated activity-base usage quantities are the total activity-base quantities related to each product.

True

Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.

True

The entries to record cost and sale of a finished good on account is

debit Cost of Goods Sold, credit Finished Goods, debit Accounts Receivable, credit Sales

In a job order cost accounting system, the entry to record the flow of direct materials into production is to

debit Work in Process, credit Materials

Which of the following describes the behavior of the fixed cost per unit?

decreases with increasing production

What term is used to describe the process of developing the organization's objectives and translating those into courses of action?

direct labor cost

Which of the following costs are conversion costs?

direct labor cost and factory overhead cost

The cost of a manufactured product generally consists of which of the following costs?

direct labor cost, direct materials cost, and factory overhead cost

In process cost accounting, the costs of direct materials and direct labor are charged directly to

direct materials

Which of the following is not included in conversion costs?

direct materials

Which of the following is an example of a cost that varies in total as the number of units produced changes?

direct materials cost

The production budgets are used to prepare which of the following budgets?

direct materials purchases, direct labor cost, and factory overhead cost

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are

direct operating expenses

Budgeting supports the planning process by encouraging all of the following activities except

directing and coordinating operations during the period

Which of the following is a product cost?

drill bits for a drill press used in the plant assembly area

The balanced scorecard measures four areas of financial and nonfinancial performance of a business. Identify one of the following that is not included as a performance measurement.

employees

Which of the following would not be used in preparing a cash budget for October?

estimated depreciation expense for October

Costs other than direct materials cost and direct labor cost incurred in the manufacturing process are classified as

factory overhead cost

What type of analysis is indicated by the following? Increase (Decrease) Current Year Preceding Year Amount Percent Current assets $ 430,000 $ 500,000 $ (70,000) (14%) Fixed assets 1,740,000 1,500,000 240,000 16%

horizontal analysis

Which of the following is not included in the computation of the quick ratio?

inventory

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

investment center

The primary difference between a static budget and a flexible budget is that a static budget

is a plan for a single level of production, whereas a flexible budget can be converted to any level of production

One reason that a common-sized statement is a useful tool in financial analysis is that it enables the user to

make a better comparison of two companies of different sizes in the same industry

Which of the following is not a characteristic evaluated in ratio analysis?

marketability

The source document for the data for debiting Work in Process for direct materials is a

materials requisition

All of the following are factors that may complicate capital investment analysis except

methods that ignore present value

Which of the following are present value methods of analyzing capital investment proposals?

net present value and internal rate of return

T-Bone company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $141,000. Should the company invest in this project?

no, because net present value is -$9,000

Shubelik Company is changing to an activity-based costing method. They have determined that they will use three cost pools: setups, inspections, and assembly. Which of the following would not be used as the activity base for any of these three activities?

number of units to be produced

Horizontal analysis is a technique for evaluating financial statement data

over a period of time

Costs that are incurred in generating revenues during the period, but are not involved in the manufacturing process are referred to as

period costs

Managerial accounting reports are

prepared according to management needs