Mini Exam Review
Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit. During May 20X1, Blaster experienced the following with respect to part XBEZ52. Units Purchases($18,000) 12,000 Consumed in manufacturing 10,000 Radios manufactured 3,000 During May 20X1, Blaster Inc. incurred a material efficiency variance of:
$1,450 unfavorable.
A bond with face value of $10,000 maturing in two years pays annual interest of 6 percent. The market interest rate at the time of issuance is 5%. The bond's price at the time if issuance is closest to:
$10,186 (Because the bond pays a higher coupon rate than market rate, it will be issued at a premium to par. The bond's price can be calculated as follows: Year 1 payment: 600/1.05 = $571.43 Year 2 payment: (600 + 10,000)/1.052 = $9,614.51 Total value: $571.43 + $9,614.51 = $10,185.94)
Barclay Corporation invested $600,000 in a capital project, including $40,000 in installation charges. The project had a useful life of 12 years with no salvage value and generated cash flows of $150,000 each year. Assuming a 30% tax rate and straight-line depreciation for tax purposes, Barclay's after-tax cash flows per year would have been equal to:
$120,000
To meet its monthly budgeted production goals, Acme Mfg. Co. planned c need for 10,000 widgets at a price of $20 per widget. Acme's actual units were 11,200 at a price of $18.50 per widget. What amount reflected Acme's price variance?
$16,800 favorable. Price variance = (Standard price - Actual price) x Actual units Price variance = ($20 - $18.50) x 11,200 Price variance = $1.50 x 11,200 = $16,800 favorable The price variance is favorable because the actual price is less than the standard price.
Raven Corporation has sales of $1,500,000, an asset turnover of 3.0, and residual income of $10,000, with a hurdle rate of 8% What is Raven's return on investment?
10% (The return on investment is derived from the computation of assets from the asset turnover ratio and the computation of net income from the residual income computation as follows (numbers given in the fact pattern are shown in bold):
Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The following cost information relates to the product. Unit Costs Direct materials $3.25 Direct labor 4.00 Distribution .75 The company will also be absorbing $120,000 of additional fixed-costs associated with this new product. A corporate fixed charge of $20,000 currently absorbed by other products Will be allocated to this new product. If the selling price is $14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge protectors is:
20,000 units.
Cable Corporation computed its days in inventory at 35 days, its days sales in accounts receivable at 20 days, and its days of payables outstanding period at 30 days. How long is Cable's cash conversion cycle?
25 days
Garter Company anticipates buying a $250,000 piece of equipment that will cost $20,000 to install, have a nine-year useful life, and generate $90,000 per year in pre tax cash flows. Assuming a 30 percent tax rate, what is the payback period for this investment in years?
3.75 (Payback period is computed as the net initial investment divided by the increase in annual net after-tax cash flows. The schedule below computes the net investment, after-tax cash flows and the payback period in years.)
Jordan Auto has developed the following production plan. January 10,000 February 8,000 March 9,000 April 12,000 Each unit contains three pounds of raw material. The desired raw material ending inventory each month is 120 percent of the next month's production, plus 500 pounds. (The beginning inventory meets this requirement) Jordan has developed the following direct labor standards for production of these units. Department 1 Department 2 Hours per unit 20 0.5 Hourly rate $6.75 $12.00 How much raw material should Jordan Auto purchase in March?
37,800 pounds.
Almo Company developed its business plan based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy were projected at $200, and the annual fixed-costs were budgeted at $100,000. Alamo's after-tax profit objective was $240,000; the company's effective tax rate is 40 percent. If no changes are made to the selling price or cost structure, determine the number of units that Almo Company must sell in order to break even.
500 units. (500 units must be sold to break even. [Total fixed cost $100,000/contribution margin per unit of $200 (selling price of $400 minus variable costs of $200) = 500 units to break even.] Note that target profit objectives in the fact pattern are irrelevant to the break even computation required by the call of the question.
Evermore Corporation is computing its cost of using retained earnings for long-term financing under the CAPM model. The risk-free rate of return is 2%, and the market rate of return is 9%. Evermore's stock fluctuated 3% at the same time the market fluctuated 5%. The cost of retained earnings computed using the CAPM is:
6.2%. The CAPM is used to compute the cost of retained earnings (kre) using the following formula: kre = Risk-free rate + Risk premium kre = krf + [beta x (km - krf)] krf = the risk-free rate of return beta = a measure of volatility equal to the change in market values to individual stock value km = the market rate of return required for investments of similar risk The facts of the problem, placed in the formula in columnar format, are as follows:
Corbin, Inc. can issue three-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs would be $1,200. The effective annualized percentage cost of the financing, based on a 360-day year, would be: A. B. c. 8.00%
8.65% (The cost to issue the commercial paper is the $20,000 original issue discount ($1 million - $980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to borrow 980,000 for 3 months. The 3-month quarterly interest cost is 2.16% (21,200 / 980,000). The annual interest cost is 8.65% (2.16% x 4).
Custom Manufacturers uses a job cost system to value its inventory. The company pays its workers $30 per hour and applies overhead at $20 per direct labor hour. The company began the month of May with $5,000 in direct materials inventory and $15,000 in work-in-process inventory. The company purchased $30,000 in direct materials and recorded 7,000 direct service hours in the month of May. The company ended the month with $7,000 in direct materials inventory and $17,000 in work- in-process inventory. What were Custom Manufacturer's current manufacturing costs for the month of May?
$378,000 (The current manufacturing cost for the month of May is equal to the combined cost of direct materials, direct labor incurred, and overhead applied, which is computed as follows:
Carla Mason, CFO for Antione Corp., is frustrated by the quality of budgets prepared by her budget coordinator. She has asked for the production figures for the past four months and the cost of supplies used each month. The information is shown below: Number of Units Cost of supplies Month Produced and materials January 167,000 320,000 February 182,000 340,000 March 114,000 267,000 April 196,000 368,000 Average 164,750 323,750 Mason uses the high-low method to estimate the fixed and variable cost of supplies. What is the budget estimate for the month of July for fixed and variable supplies, assuming that production increases 10% per month from April'S production level?
$447,908 (Using the high-low method of budgeting fixed and variable costs, we would compare the costs and production for the highest production month (April) and the lowest production month (March). The variable costs would equal the difference in the costs of supplies and materials for the two months, divided by the difference in the number of units produced. These figures can then be extended to future months based on expected production as follows:
Jade Imports, a United States company, owes significant payables denominated in Mexican pesos. Jade has noted that the interest rates in Mexico are increasing and is fearful that investment in Mexico will increase the value of the peso and reduce the value of the dollar. Jade owes 300,000 pesos in 90 days, the spot rate is $0.11 to 1 peso, the yield on Mexican investments for 90 days is 12.5 percent, and domestic U.S. financing is available for 90 days at 5 percent. If Jade uses a money market hedge to capitalize on foreign and domestic rate differentials, what would be the present value of the savings on the transaction assuming a 360-day year?
$600 (Jade Imports is able to capitalize on savings equal to the difference between the net amount of its foreign investment and the cost of domestic borrowings, which is computed as follows: In order to have $32,000 to invest, the company can borrow in the US at 5% for 90 days (1.25%); this will cost Jade $400 ($32,000 x 1.25%). The total investment including financing costs will be $32,400. Compared to the settlement of $33,000, the net savings will be equal to $600 ($83,000 - $32,400).
Old Kentucky Distillery produces and bottles bourbon whiskey based on a 100-year-old reipe. Old Kentucky uses process cost accounting. On the first day of the current period, the beginning work-in-process value was $2.18 Million. During the period, 100,000 cases of bourbon were shipped, while another 10,000 cases estimated to be 50% complete remained in the distillery. During the period, Old Kentucky recorded the following costs: Distillery and Warehouse overhead: $1.21 million Materials purchased and used: 1.0 million Payroll and associated costs: 4.2 million using the process cost accounting method, what is the cost of goods sold for this period?
$8.181 Million. (Cost of goods sold is $8.181 million. Under the process cost accounting method, all costs are summed, and the average cost per unit is determined as follows:.)
Harken Corporation's price earnings ratio is 10 and its earnings in the current year is $5 per share but the earnings expected in the coming year is $8 per share. What is the anticipated price of Harken?
$80 (The price earnings ratio is 10, therefore, the price is equal to the price divided by earning anticipated for the coming year. The P/d = 10, therefore, p = $80.)
Water Control, Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per water pump are based on direct labor hours and are shown below. Variable overhead (4 hours at $8/hour) 32 Fixed overhead (4 hours at $5*/hour) 20 Total overhead cost per unit $52 *Based on a capacity of 100,000 direct labor hours per month. The following additional information is available for the month of November. • 22,000 pumps were produced although 25,000 had been scheduled for production. • 94,000 direct labor hours were worked at a total cost of $940,000. • The standard direct labor rate is $9 per hour. • The standard direct labor time per unit is four hours. • Variable overhead costs were $740,000. • Fixed overhead costs were $540,000. The direct labor price variance for November was:
$94,000 unfavorable.
One short-term financing technique that effectively guarantees to creditors and is available to entities trying to access trade credit is:
A letter of credit. (Letters of credit represent a third party guarantee of obligations incurred by a company. Letters of credit may be used by the company issuing debt (debt that would otherwise be unsecured) to ensure payment to creditors.)
Which one of the following statements best reflects an executive information system (EIS)?
An EIS helps executives monitor business conditions in general and assists in strategic planning to control and operate the company. (An EIS helps executives monitor business conditions in general and assists in strategic planning to control and operate the company.)
Cost measurement concepts include the isolation of cost objectives. Each of the items in the following list represents a cost objective, except:
Classification of transactions. (Account classification is not a cost objective. Account classification is a bookkeeping mechanism used to accomplish cost measurement and assignment of costs to cost objectives. A cost objective can be most anything but, if effective, Will always represent the most relevant components of a particular business' decision-making requirements.)
Eco Corporation wants to use the Economic Order Quantity to determine its optimal inventory order amount. To compute this measure, Eco will need to know each of the following, except:
Annual sales revenue. (To compute the economic order quantity, take the square root of two times the annual sales (in units) times the cost per purchase order divided by the carrying cost per unit (an amount that frequently includes insurance costs). There is no need to know the annual sales revenue.)
Dolly Corporation has identified critical success factors and strategic goals that specifically relate to each dimension of its operations. The company has also determined measures that quantify the achievement of the strategic goals that it Villl capture and report monthly. This form of regular reporting and evaluation of performance is referred to as:
Balanced scorecard. (A balanced scorecard normally classifies activities of an organization into major headings and identifies the critical success factors and related strategic goals whose achievement will ensure meeting the requirements of those factors. Typically, there are both financial and non-financial measures that are evaluated regularly in a format that shows the dimensions of the business. The dimensions of the business are frequently human capital, customer service, internal business processes, and finance.)
Which of the following are not considered in the group of internal factors of strengths and weaknesses of a firm?
Bargaining power of the suppliers (Bargaining power of suppliers is considered in the group of external factors or "opportunities and threats" facing the firm and/or industry, not in the group of internal factors of strengths and weaknesses of the firm. The following are internal factors of strengths and weaknesses of the firm:)
Which of the following situations illustrates a potential vertical merger between Companies X and Y?
Company X supplies raw materials to the production processes for Company Y. (A company merging with one of its suppliers represents a vertical merger.)
Which of the following steps in the development of a business continuity plan should a company initiate first?
Conduct a business-impact analysis. (The appropriate order for developing a business continuity plan for disaster recovery is as follows: Assess the key risks, identify mission-critical applications and data, develop a plan for handling these applications, determine responsibilities for parties involved in disaster recovery, and test the recovery plan. Of the choices given above, the business-impact analysis has to happen before identifying critical and emergency personnel and preparing recovery procedures themselves.)
Osteen Industries has experienced a significant drop in its cash reserves. The company is attempting to secure a line of credit from its bank as a precaution. Osteen's most effective argument on its own behalf would be:
Declining cash balances result from aggressive liquidation of accounts payable to capitalize on discounts, as evidenced by an increase in the current ratio. (The deterioration of a cash position that increases the current ratio indicates that Osteen is aggressively managing payables and actually improving its liquid position.)
A retail store Uses batch processing to process sales transactions. The store has batch control total and other control checks embedded in the information processing system ofthe sales subsystem. While comparing reports, an employee notices that information sent to the subsystem was not fully processed. Which of the following types of controls is being exercised by the employee?
Detective. (The employee noticed when looking at reports that information was not fully processed. Because the reports reflect issues which already occurred, the type of control exercised in this case was detective.)
In using a process cost system, a production report is usually generated that fully accounts for all units and costs. The physical flow of units is fully accounted for by:
Determining that the units in process at the beginning of the period plus the units transferred in are equal to the units transferred out plus ending inventory. (A production report is normally formatted to prove units at the beginning of the period plus units transferred in are equal to the units transferred out plus ending inventory as follows:
Karen Parker wants to establish an environmental testing company that would specialize in evaluating the quality of water found in rivers and streams. However, Parker has discovered that she needs either certification or approval from five separate local and state government agencies before she can commence business. Also, the necessary equipment to begin would cost several million dollars. However, Parker believes that if she is able to obtain capital resources, she can gain market share from the two major competitors. The large capital outlay necessary for the equipment is an example of a(n): Minimum efficiency scale.
Entry barrier. (Large capital (money) requirements are the basic example of barriers to entry. A barrier to entry effectively prevents firms from entering the market to compete against existing firms.)
Consider the market for sport utility vehicles. Suppose there is a large increase in the price of gasoline as well as an increase in the price of steel (an input in the production of sports utility vehicles). What is the predicted effect of these events on the equilibrium quantity and price of sport utility vehicles?
Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same. (To answer this question, examine how each of the events affects the demand for and supply of sport utility vehicles. Gasoline is a complement (they go together) to sport utility vehicles. As a result, a large increase in the price of gasoline would cause the demand curve for sport utility vehicles to shift left, leading to a decrease in both the quantity and price of sport utility vehicles. Steel is an input in the production of sport utility vehicles. An increase in input costs would cause the supply curve for sport utility vehicles to shift left, leading to a decrease in quantity and an increase in price. Thus, combined, the two events have an unambiguous effect on the equilibrium quantity of sport utility vehicles. Both events cause equilibrium quantity to fall. However, the two events have an ambiguous effect on price. The first causes price to fall, and the second causes price to rise.)
A firm with a higher degree of operating leverage when compared to the industry average implies that the:
Firm's profits are more sensitive to changes in sales volume. (Rule: Operating leverage is the presence of fixed costs in operations, which allows a small change in sales to produce a larger relative change in profits. Choice 'A" is correct. A firm with a higher degree of operating leverage when compared to the industry average implies that the firm's profits are more sensitive to changes in sales volume.)
Ruby Exports, a United States company, has a significant amount and number of accounts receivable denominated in foreign currencies. Ruby wants to mitigate its exchange risk and will likely use which of the following instruments to hedge its exposure?
Forward contract to sell the foreign currency at a specific rate. (A forward contract to sell a foreign currency at a specific price will hedge the risk that the currency collected in satisfaction of a receivable may have weakened in relation to the dollar at the settlement date. Forward contracts tend to be used for larger groups of transactions (such as a large volume of accounts receivable), while futures contracts hedge a specific transaction.)
Which ofthe following statements is (are) correct? I. Supply chain management is the close linkage and coordination ofthe activities involved in buying, making, and moving a product. II. Supply chain management is involved with the what, when, where, and how much of product manufacturing and sale. III. Once stable supply chains are set up, they can remain unchanged for considerable periods of time.
I and II only are correct. - Supply chain management is the close linkage and coordination of the activities involved in buying, making, and moving a product. - Supply chain management is involved with the what, when, where, and how much of product manufacturing and sale. - Supply chains have to be constantly reengineered as products change and to increase efficiency and reduce costs.
Which of the following statements is (are) correct? I. Disaster recovery consists of plans for continuing operations in the event of destruction of not only program and data files but also processing capability. II. A warm site is an off-site location that has all of the electrical connections and other physical requirements for data processing but that does not have the actual equipment. Warm sites are used when the possibility of a disaster occurring is remote. III. A hot site is an off-site location that is completely equipped to takeover an organization's data processing.
I and II only are correct. (Disaster recovery consists of plans for continuing operations in the event of destruction of not only program and data files but also processing capability. A hot site is an off-site location that is completely equipped to take over an organization's data processing. A cold site is an off-site location that has all of the electrical connections and other physical requirements for data processing but that does not have the actual equipment. A warm site is a facility already equipment with the necessary hardware that creates a replication of the primary data center.)
Which of the following statements is (are) correct with respect to reporting risks? I. strategic risk includes the risk of choosing inappropriate technology. II. Information risk includes the risk of loss of data integrity but not that of incomplete transactions. III. Financial risk includes the risk of having financial resources lost, wasted, or stolen.
I and III only are correct. (statement II is incorrect Information risk (II) includes the risk of loss of data integrity and that of incomplete transactions.)
Which of the following statements is (are) correct? I. segregation of duties in a computerized environment is not important because the controls in the application systems provide a sufficient control environment when the application systems are purchased from a vendor. II. segregation of duties in a computerized environment is important because controls can be overridden if duties are not appropriately segregated. III. System programmers are responsible for maintaining operating systems and application programmers are responsible for writing and maintaining application systems. since these are different skills, the same person would seldom if ever do both.
II only is correct. (segregation of duties in a computerized environment is important because controls can be overridden if duties are not appropriately segregated (II). Segregation of duties in a computerized environment is important for application systems because the controls in the application systems may not provide a sufficient control environment (l), even if the application systems are purchased from a vendor. The skills of system programmers and application programmers are different, and it is highly unusual, but not impossible, for the same person to perform both functions, especially in small organizations (III). However, there is no choice that combines both statements II and III or provides for only statement III.)
A firm earning a profit can increase its return on investment by:
Increasing sales revenues and operating expenses by the same percentage. (For a firm earning a profit, increasing sales revenue and operating expenses by the same percentage will increase profits. This is because expenses will go up less in dollars than sales will. Increased profit with no change in the investment means a higher return on investment.)
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's control over information systems?
Information, communication, and reporting (The information, communication, and reporting component of the enterprise risk management framework includes principles associated with leveraging information and technology, which cover modern issues of data overload and, by extension, controls over information systems.)
The Sarbanes-Oxley Act of 2002 requires that the officers of a corporation make any number of representations that will accompany their quarterly and annual financial statements including:
Internal control is the responsibility of the signing officers. (Officers signing the representations that accompany quarterly and annual financial statements acknowledge that internal control is their responsibility as part of the representation in compliance with the Sarbanes-Oxley Act of 2002 (The Act).
The following information was taken from the income statement of Hadley Co.: Beginning inventory $17,000 Purchases 56,000 Ending inventory 13,000 What is Hadley Co.'s inventory turnover?
Inventory turnover is 4x. The fact pattern requires:
Green, lnc„ a financial investment-consulting firm, was engaged by Maple Corp. to provide technical support for making investment decisions. Maple, a manufacturer of ceramic tiles, was in the process of buying Bay, Inc., its prime corn#titor. Green's financial analyst made an independent detailed analysis of Bay's average collection period to determine which of the following?
Liquidity. (A company's average collection period is used to evaluate the liquidity of the firm through the calculation of the cash conversion cycle. Liquidity measurements focus on the ability of the company to meet obligations as they come due.)
To address the problem of a recession, the Federal Reserve Bank most likely would take which of the following actions?
Lower the discount rate it charges to banks for loans. (During a recession, GDP has fallen and unemployment has risen. To stimulate the economy, the Federal Reserve can lower the discount rate. This causes the money supply to increase, which, in turn, causes GDP to increase and unemployment to decrease.)
Quality programs normally include a number of techniques to find and analyze problems. The technique commonly used to rank and analyze the individual and cumulative causes of defects is called a:
Pareto diagram.(A Pareto diagram represents an individual and cumulative graphical analysis of errors by type. Individual error types are represented on a histogram (bar graph), while the cumulative number of errors is presented on a line graph. The Pareto diagram is used to prioritize process improvement efforts.)
A U.S. parent company is reviewing the cash flows from its international subsidiaries. In addition to exchange rate risk, which of the following items would be a primary consideration in the company's cash flow analysis?
Repatriation restrictions. (Repatriation restrictions exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country. These restrictions would affect the cash inflows expected from the investment.)
According to the Committee of sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management address an entity's risk appetite?
Strategy and objective-setting (An entity identifies its risk appetite as part of the strategy and objective-setting component of the enterprise risk management structure.)
In an effort to encourage the employment of summer teens, the federal government lowered the minimum wage from $7 per hour to $6 per hour. The equilibrium wage for such employees is $8 per hour. What effect should this change in the minimum wage have on teen employment?
The change should have no effect on teen employment because the minimum wage is set below the equilibrium wage. (A price floor is only effective when it is set above the equilibrium price. In this case, the $8 market price is already higher than both the $7 and the $6 price floors.)
The Carters signed an agreement with an effective annual interest rate of 7.74%. Interest is payable semi-annually. What was the stated rate?
The effective annual interest rate = 1+ the stated interest rate divided by the interest periods raised the power of the compounding periods. For semi-annual interest, divide the stated interest rate expression by 2 and square it. Subtract 1 and arrive at the effective annual rate. To work backwards, in this instance, odd one to the effective annual rate (arrive at 1.0774), take the square root to arrive at 1.038, subtract one to arrive at the semi- annual rate and multiply by 2 to arrive at the stated rate as follows: Effective annual interest rate = [1 + (i/P)]p -1 i = Stated interest rate p = Compounding periods per year
Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs: Fixed costs $21,000 Variable costs 33,000 The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?
The minimum acceptable selling price should include only the incremental costs associated with the order: $33,000 variable costs $7,750 external designers costs = $40,750. Note that this is a special order (won't affect regular sales) and there is idle capacity.
Heartland Farms is using the internal rate of return method as part of its consideration of the purchase of a new piece of equipment. Heartland has a 7% hurdle rate and a net capital investment of $250,000. After-tax cash flows are uneven and will materialize in the first year immediately upon making the investment and then only at the end of year two and year three. The after tax cash flows at the end of year two and three are $108,900 and $93,900 respectively. Present value factors at 7% are as follows: Present Value Present Value of $1 of an Annuity Year 1 .9346 0.9346 Year 2 .8734 1.8080 Year 3 .8163 2.6243 What is the necessary after-tax cash flow in Year 1 to achieve a 7% IRR?
The question requires that you derive the present value of the cash flows from the net present value. With a net present value of $0 (by definition for internal rate of return), present value of cash flows must be $250,000 based on an initial investment of $250,000. Cash flows at the end of Years 2 and 3 are provided, and they are discounted to $175,845. The problem tells you that the initial cash receipt comes at the beginning of the first period, so the discount factor is 1.000 in the first year, and the initial year's cash flow is $74,155, the difference between $250,000 and S175,845.
Citizen's Hospital runs a small hospital and several outpatient clinics. The hospital has three major support areas whose expenses have been traditionally allocated to program areas based on direct services hours. The Director of Outpatient Services has been told his division is losing $192,500, even though the entire hospital system (inpatient and outpatient) is making $230,000. The Outpatient Director has asked the hospital to investigate the impact of activity based costing on the allocation of the following costs using the statistics below: Using Activity Based Costing, net income in the outpatient division improves by:
The question requires you to back into the operating income by division based on the facts presented and, based on the statistics, reallocate the support costs, derive new net income amounts and compute the improvement. • Total net income is $230,000. • Total operating income is $500,000 ($4,770,000 + $230,000). Operating income is, therefore, $1,000,000 for outpatient ($4.770M x 150/600 = $1,192,500 - 192,500), and inpatient is $4,000,000. • New allocations of expenses are derived as follows based on new cost drivers: (Accounting = $3M x 150/600 = 750,000), (Billing = $1.5M x 30/360 = $125,000) and (Facilities = $270K x 10/270 = $10,000). Total new allocation = $750,000 + $125,000 + $10,000 = $885,000. • New net income for the outpatient division is $115,000 (1,000,000 - 885,000). The improvement is $192,500 loss plus $115,000 income = $307,500.)
The inflation rate measures:
The rate at which the overall price level increases. (The inflation rate measures the rate of increase in the overall price level in the economy.)
Alex Company had the following inventories at the beginning and end of the month of January. Jan 1 Jan 31 Finished Goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Purchase returns and allowances 1,000 Transportation in 3,000 Direct labor 300,000 Actual factory overhead 175,000 Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's cost of goods manufactured for January was:
Total Manufacturing Cost $665,000
Which one of the following is correct regarding a relevant range?
Total fixed costs will not change. (The relevant range is the range within which the relationship between a cost and its cost driver remains valid. Within this range the fixed cost will remain fixed and the cost per unit will not change.)
Bendernet Corporation budgeted production at 6,000 units and charged $42,000 to its factory overhead account. Bendernet applies variable overhead at $3.00 per direct labor hour and assumes that each unit takes one direct labor hour to produce. The company applied $40,000 of its overhead to work-in-process based on 5,000 hours. If the company actually required 5,500 hours to produce 5,000 units, what was the total overhead variance and to what extent did volume variances contribute to or offset that variance
Total overhead variance unfavorable ($2,000 debit balance) Volume variance unfavorable ($5,000) Note that the volume variance is entirely comprised of differences between budgeted and applied fixed overhead.
An investor with risk-averse behavior will seek to reduce risk by mixing investments in a portfolio with different or offsetting risks. This technique is most effective to reduce:
Unsystematic risk. (Unsystematic risk is also referred to as firm-specific or non-market risk. Unsystematic risk can be reduced by diversification, investing in other companies.)
Zootown manufacturing produces two products, Walrus and Zebra. Zootown produced 300 units of Walrus and 600 units of Zebra with joint costs of $18,000. The selling price of the two products is unknown at split off. Walrus has a final selling price of $50.00 while Zebra has a final selling price of $25.00 after incurring additional separable costs related to the further processing of Walrus and Zebra of $5,000 and $10,000 respectively. What is the amount of joint costs allocated to Walrus and Zebra using the net realizable value approach?
Walrus $12,000 Zebra $6,000 Joint costs are allocated to benefiting products using the net realizable value approach by first computing the net realizable value of the products at split off, then computing their relative value, and finally applying the percentages associated with each product to the total joint costs to arrive at the allocation as follows:
Corporate officers of issuers make a number of assertions regarding internal controls under the provisions of the Sarbanes-Oxley Act of 2002. Among those assertions is that internal controls are evaluated:
Within 90 days prior to the report. (Under the Sarbanes-Oxley Act of 2002, internal controls must be evaluated within 90 days prior to the issuer's report.)
All of the following actions are valid tools that the Federal Reserve Bank uses to control the supply of money, except:
printing money when the money supply appears low. (The Treasury prints money. The Federal Reserve must increase the money supply through: 1. Federal open market committee (FOMC) purchasing or selling government securities, 2. Raising or lowering the discount rate, or 3. Changing the reserve ratio.)
