ACC 220 Ch8-10
Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of: A) return on investment. B) residual income. C) contribution margin. D) segment margin.
Answer: A
Which of the following performance measures will increase if inventory decreases and all else remains the same? Return on Investment Residual Income A) Yes Yes B) No Yes C) Yes No D) No No A) Choice A B) Choice B C) Choice C D) Choice D
Answer: A
The Puyer Corporation makes and sells only one product called a Deb. The company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available: Monthly Fixed Cost Variable Cost Per Deb Sold Sales commissions $ 0.90 Shipping $ 1.40 Advertising $ 50,000 $ 0.20 Executive salaries $ 60,000 Depreciation on office equipment $ 20,000 Other $ 40,000 All of these expenses (except depreciation) are paid in cash in the month they are incurred. If the company has budgeted to sell 17,000 Debs in March, then the average budgeted selling and administrative expenses per unit sold for March is closest to: (Round your intermediate calculations to 2 decimal places.) A) $12.50 per unit B) $2.50 per unit C) $10.00 per unit D) $17.00 per unit
Answer: A Explanation: Monthly Fixed Cost Variable Cost Per Deb Sold Sales commissions $ 0.90 Shipping 1.40 Advertising $ 50,000 0.20 Executive salaries 60,000 Depreciation on office equipment 20,000 Other 40,000 Total $ 170,000 $ 2.50 Budgeted selling and administrative expenses = $170,000 + ($2.50 per unit × 17,000 units) = $170,000 + $42,500 = $212,500 Average selling and administrative expense per unit = $212,500 ÷ 17,000 units = $12.50 per unit
The Charade Corporation is preparing its Manufacturing Overhead budget for the fourth quarter of the year. The budgeted variable manufacturing overhead is $5.00 per direct labor-hour; the budgeted fixed manufacturing overhead is $75,000 per month, of which $15,000 is factory depreciation. If the budgeted direct labor time for December is 8,000 hours, then average budgeted manufacturing overhead per direct labor-hour is closest to: A) $14.38 per direct labor-hour B) $9.38 per direct labor-hour C) $12.50 per direct labor-hour D) $16.25 per direct labor-hour
Answer: A Explanation: Budgeted manufacturing overhead = $75,000 + ($5.00 per direct labor-hour × 8,000 direct labor-hours) = $75,000 + $40,000 = $115,000 Average budgeted manufacturing overhead per unit = $115,000 ÷ 8,000 per direct labor-hour = $14.375 per direct labor-hour
BR Company has a contribution margin of 40%. Sales are $312,500, net operating income is $25,000, and average operating assets are $200,000. What is the company's return on investment (ROI)? A) 12.5% B) 62.5% C) 8.0% D) 64.0%
Answer: A Explanation: ROI = Net operating income ÷ Average operating assets = $25,000 ÷ $200,000 = 12.5%
Miguez Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 2.3 liters $ 7.00 per liter $ 16.10 Direct labor 0.7 hours $ 22.00 per hour $ 15.40 Variable overhead 0.7 hours $ 2.00 per hour $ 1.40 The company budgeted for production of 2,600 units in September, but actual production was 2,500 units. The company used 5,440 liters of direct material and 1,680 direct labor-hours to produce this output. The company purchased 5,800 liters of the direct material at $7.20 per liter. The actual direct labor rate was $24.10 per hour and the actual variable overhead rate was $1.90 per hour. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for September is: A) $1,540 F B) $1,687 U C) $1,687 F D) $1,540 U
Answer: A Explanation: SH = 2,500 units × 0.7 hours per unit = 1,750 hours Labor efficiency variance = (AH - SH) × SR = (1,680 hours − 1,750 hours) × $22.00 per hour = (−70 hours) × $22.00 per hour = $1,540 F
The Millard Division's operating data for the past two years are provided below: Year 1 Year 2 Return on investment 12 % 36 % Net operating income ? $ 360,000 Turnover ? 3 Margin ? ? Sales $ 3,200,000 ? Millard Division's margin in Year 2 was 150% of the margin in Year 1. The average operating assets for Year 2 were: A) $1,000,000 B) $1,080,000 C) $1,200,000 D) $1,388,889
Answer: A Explanation: Year 2 ROI = Year 2 Net operating income ÷ Year 2 Average operating assets 36% = $360,000 ÷ Year 2 Average operating assets Year 2 Average operating assets = $360,000 ÷ 36% = $1,000,000
Neubert Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 5,300 units, but its actual level of activity was 5,340 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for December: Data used in budgeting: Fixed element per month Variable element per unit Revenue - $ 30.00 Direct labor $ 0 $ 3.50 Direct materials 0 10.40 Manufacturing overhead 33,300 1.50 Selling and administrative expenses 25,000 0.50 Total expenses $ 58,300 $ 15.90 Actual results for December: Revenue $ 156,340 Direct labor $ 17,980 Direct materials $ 56,566 Manufacturing overhead $ 41,040 Selling and administrative expenses $ 28,870 The direct labor in the planning budget for December would be closest to: A) $18,550 B) $17,980 C) $18,690 D) $17,845
Answer: A Explanation: Cost = Fixed cost + (Variable cost per unit × q) = $0 + ($3.50 × 5,300) = $18,550
Turrubiates Corporation makes a product that uses a material with the following standards: Standard quantity 6.5 liters per unit Standard price $ 1.00 per liter Standard cost $ 6.50 per unit The company budgeted for production of 2,300 units in April, but actual production was 2,400 units. The company used 16,410 liters of direct material to produce this output. The company purchased 18,600 liters of the direct material at $1.10 per liter. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for April is: A) $1,860 U B) $1,860 F C) $1,560 U D) $1,560 F
Answer: A Explanation: Materials price variance = AQ × (AP − SP) = 18,600 liters × ($1.10 per liter − $1.00 per liter) = 18,600 liters × ($0.10 per liter) = $1,860 U
BW Department Store expects to generate the following sales for the next three months: July August September Expected sales $490,000 $540,000 $580,000 BW's cost of goods sold is 60% of sales dollars. At the end of each month, BW wants a merchandise inventory balance equal to 25% of the following month's expected cost of goods sold. What dollar amount of merchandise inventory should BW plan to purchase in August? A) $330,000 B) $314,600 C) $352,800 D) $327,800
Answer: A Explanation: Merchandise Purchases Budget August Budgeted cost of goods sold ($540,000 × 60%) $ 324,000 Add desired ending merchandise inventory ($580,000 × 60% × 25%) 87,000 Total needs 411,000 Less beginning merchandise inventory ($324,000 × 25%) 81,000 Required purchases $ 330,000
The following data pertain to Turk Company's operations last year: Sales $ 900,000 Net operating income $ 36,000 Contribution margin $ 150,000 Average operating assets $ 180,000 Stockholders' equity $ 100,000 Plant, property, & equipment $ 120,000 If the residual income for the year was $9,000, the minimum required rate of return must have been: A) 15% B) 4% C) 20% D) 36%
Answer: A Explanation: Residual income = Net operating income - (Average operating assets × Minimum required rate of return) $9,000 = $36,000 - ($180,000 × Minimum required rate of return) $180,000 × Minimum required rate of return = $36,000 - $9,000 = $27,000 $180,000 × Minimum required rate of return = $27,000 Minimum required rate of return = $27,000 ÷ $180,000 = 15%
Rokosz Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations: a. The budgeted selling price per unit is $104. Budgeted unit sales for October, November, December, and January are 6,900, 7,100, 11,300, and 15,300 units, respectively. All sales are on credit. b. Regarding credit sales, 30% are collected in the month of the sale and 70% in the following month. c. The ending finished goods inventory equals 20% of the following month's sales. d. The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.00 per pound. e. The direct labor wage rate is $23.00 per hour. Each unit of finished goods requires 2.5 direct labor-hours. The budgeted required production for November is closest to: A) 7,940 units B) 10,780 units C) 9,360 units D) 7,100 units
Answer: A Explanation: The budgeted required production for November is computed as follows: Budgeted sales in units 7,100 Add desired ending inventory* 2,260 Total needs 9,360 Less beginning inventory** 1,420 Required production 7,940
Fredericksen Corporation makes one product and has provided the following information: Budgeted sales, February 8,700 units Raw materials requirement per unit of output 6 pounds Raw materials cost $ 2.00 per pound Direct labor requirement per unit of output 2.9 direct labor-hours Direct labor wage rate $ 21.00 per direct labor-hour Predetermined overhead rate (all variable) $ 10.00 per direct labor-hour Variable selling and administrative expense $ 1.10 per unit sold Fixed selling and administrative expense $ 80,000 per month The estimated cost of goods sold for February is closest to: (Round your intermediate calculations to 2 decimal places.) A) $886,530 B) $634,230 C) $252,300 D) $721,230
Answer: A Explanation: The estimated unit product cost is computed as follows: Direct materials 6 pounds $ 2.00 per pound $ 12.00 Direct labor 2.9 hours $ 21.00 per hour 60.90 Manufacturing overhead 2.9 hours $ 10.00 per hour 29.00 Unit product cost $ 101.90 The estimated cost of goods sold for February is computed as follows: Unit sales (a) 8,700 Unit product cost (b) $ 101.90 Estimated cost of goods sold (a) × (b) $ 886,530
Sevenbergen Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations: Budgeted selling price per unit $ 92 Budgeted unit sales (all on credit): July 9,000 August 11,300 September 10,400 October 10,800 Raw materials requirement per unit of output 4 pounds Raw materials cost $ 1.00 per pound Direct labor requirement per unit of output 2.8 direct labor-hours Direct labor wage rate $ 22.00 per direct labor-hour Variable selling and administrative expense $ 1.50 per unit sold Fixed selling and administrative expense $ 70,000 per month Credit sales are collected: 40% in the month of the sale 60% in the following month Raw materials purchases are paid: 30% in the month of purchase 70% in the following month The ending finished goods inventory should equal 20% of the following month's sales. The ending raw materials inventory should equal 30% of the following month's raw materials production needs. The expected cash collections for August is closest to: A) $912,640 B) $415,840 C) $496,800 D) $828,000
Answer: A Explanation: The expected cash collections for August are computed as follows: July sales: 9,000 units × $92 per unit = $828,000; $828,000 × 60% = $ 496,800 August sales: 11,300 units × $92 per unit = $1,039,600; $1,039,600 × 40% = 415,840 Total cash collections $ 912,640
) Lenci Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During May, the company budgeted for 5,100 units, but its actual level of activity was 5,050 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for May: Data used in budgeting: Fixed element per month Variable element per unit Revenue - $ 39.60 Direct labor $ 0 $ 5.50 Direct materials 0 15.70 Manufacturing overhead 41,500 1.30 Selling and administrative expenses 22,700 0.20 Total expenses $ 64,200 $ 22.70 Actual results for May: Revenue $ 197,810 Direct labor $ 28,565 Direct materials $ 80,265 Manufacturing overhead $ 47,905 Selling and administrative expenses $ 22,680 The spending variance for direct materials in May would be closest to: A) $195 U B) $980 U C) $980 F D) $195 F
Answer: B Explanation: Actual results $ 80,265 Flexible budget [$0 + ($15.70 × 5,050)] 79,285 Spending variance $ 980
The Tipton Division of Dudley Company reported the following data last year: Return on investment 20 % Minimum required rate of return 12 % Residual income $ 50,000 The division's net operating income last year was: A) $250,000 B) $125,000 C) $100,000 D) $75,000
Answer: B Explanation: ROI = Net operating income ÷ Average operating assets 20% = Net operating income ÷ Average operating assets Average operating assets = Net operating income ÷ 20% Residual income = Net operating income - (Average operating assets × Minimum required rate of return) $50,000 = Net operating income - (Average operating assets × 12%) $50,000 = Net operating income - ((Net operating income ÷ 20%) × 12%) $50,000 = Net operating income - 0.6 × Net operating income $50,000 = 0.4 × Net operating income Net operating income = $50,000 ÷ 0.4 = $125,000
The Millard Division's operating data for the past two years are provided below: Year 1 Year 2 Return on investment 12 % 36 % Net operating income ? $ 360,000 Turnover ? 3 Margin ? ? Sales $ 3,200,000 ? Millard Division's margin in Year 2 was 150% of the margin in Year 1. The turnover for Year 1 was: A) 1.2 B) 1.5 C) 3.0 D) 4.0
Answer: B Explanation: Year 2 ROI = Year 2 Margin × Year 2 Turnover 36% = Year 2 Margin × 3 Year 2 Margin = 36% ÷ 3 = 12% Year 2 Margin = 150% × Year 1 Margin 12% = 150% × Year 1 Margin Year 1 Margin = 12% ÷ 150% = 8% Year 1 ROI = Year 1 Margin × Year 1 Turnover 12% = 8% × Year 1 Turnover Year 1 Turnover = 12% ÷ 8% = 1.5
Tessmer Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During January, the kennel budgeted for 3,100 tenant-days, but its actual level of activity was 3,090 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for January: Data used in budgeting: Fixed element per month Variable element per tenant-day Revenue - $ 33.60 Wages and salaries $ 3,500 $ 7.40 Food and supplies 500 10.50 Facility expenses 9,500 4.70 Administrative expenses 6,600 0.30 Total expenses $ 20,100 $ 22.90 Actual results for January: Revenue $ 105,934 Wages and salaries $ 27,186 Food and supplies $ 32,485 Facility expenses $ 24,873 Administrative expenses $ 7,557 The facility expenses in the flexible budget for January would be closest to: A) $24,793 B) $24,023 C) $24,070 D) $24,953
Answer: B Explanation: Cost = Fixed cost + (Variable cost per unit × q) = $9,500 + ($4.70 × 3,090) = $24,023
) Hesterman Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations: Budgeted selling price per unit $ 118 Budgeted unit sales (all on credit): April 7,800 May 9,400 June 14,000 July 12,100 Raw materials requirement per unit of output 3 pounds Raw materials cost $ 3.00 per pound Direct labor requirement per unit of output 2.8 direct labor-hours Direct labor wage rate $ 25.00 per direct labor-hour Credit sales are collected: 40% in the month of the sale 60% in the following month The ending finished goods inventory should equal 40% of the following month's sales. The ending raw materials inventory should equal 20% of the following month's raw materials production needs. The expected cash collections for May is closest to: A) $920,400 B) $995,920 C) $552,240 D) $443,680
Answer: B Explanation: The expected cash collections for May are computed as follows: April sales: 7,800 units × $118 per unit = $920,400; $920,400 × 60% = $ 552,240 May sales: 9,400 units × $118 per unit = $1,109,200; $1,109,200 × 40% = 443,680 Total cash collections $ 995,920
Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations? A) It is consistent with the computation of net operating income, which includes depreciation as an operating expense. B) It is consistent with the balance sheet presentation of plant and equipment. C) It eliminates the age of equipment as a factor in ROI computations. D) It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI.
Answer: C
The LaPann Corporation has obtained the following sales forecast data: July August September October Cash sales $ 80,000 $ 70,000 $ 50,000 $ 60,000 Credit sales $ 240,000 $ 220,000 $ 180,000 $ 200,000 The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts. The budgeted accounts receivable balance on September 30 would be: A) $126,000 B) $148,000 C) $166,000 D) $190,000
Answer: C Explanation: Uncollected August credit sales (10% × $220,000) $ 22,000 Uncollected September credit sales (80% × $180,000) 144,000 Accounts receivable at the end of September $ 166,000
) Lenci Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During May, the company budgeted for 5,100 units, but its actual level of activity was 5,050 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for May: Data used in budgeting: Fixed element per month Variable element per unit Revenue - $ 39.60 Direct labor $ 0 $ 5.50 Direct materials 0 15.70 Manufacturing overhead 41,500 1.30 Selling and administrative expenses 22,700 0.20 Total expenses $ 64,200 $ 22.70 Actual results for May: Revenue $ 197,810 Direct labor $ 28,565 Direct materials $ 80,265 Manufacturing overhead $ 47,905 Selling and administrative expenses $ 22,680 The revenue variance for May would be closest to: A) $4,150 F B) $2,170 F C) $2,170 U D) $4,150 U
Answer: C Explanation: Actual results $ 197,810 Flexible budget ($39.60 × 5,050) 199,980 Revenue variance $ 2,170
Bracken Clinic uses client-visits as its measure of activity. During September, the clinic budgeted for 2,100 client-visits, but its actual level of activity was 2,140 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for September: Data used in budgeting: Fixed element per month Variable element per client-visit Revenue $ 44.50 Personnel expenses $ 26,100 $ 12.60 Medical supplies 600 7.20 Occupancy expenses 6,500 2.40 Administrative expenses 3,100 0.10 Total expenses $ 36,300 $ 22.30 Actual results for September: Revenue $ 93,240 Personnel expenses $ 50,754 Medical supplies $ 15,328 Occupancy expenses $ 11,646 Administrative expenses $ 3,394 The revenue variance for September would be closest to: A) $210 U B) $1,990 F C) $1,990 U D) $210 F
Answer: C Explanation: Actual results $ 93,240 Flexible budget ($44.50 × 2,140) 95,230 Revenue variance $ 1,990
Casivant Corporation makes a product that uses a material with the following direct material standards: Standard quantity 3.8 pounds per unit Standard price $ 4.00 per pound The company produced 7,300 units in November using 28,710 pounds of the material. During the month, the company purchased 30,800 pounds of the direct material at a total cost of $117,040. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for November is: A) $5,548 U B) $6,160 U C) $6,160 F D) $5,548 F
Answer: C Explanation: AQ × AP = $117,040 Materials price variance = (AQ × AP) − (AQ × SP) = ($117,040) − (30,800 pounds × $4.00 per pound) = $117,040 − $123,200 = $6,160 F
The following data has been provided for a company's most recent year of operations: Return on investment 20 % Average operating assets $ 100,000 Minimum required rate of return 15 % The residual income for the year was closest to: A) $20,000 B) $3,000 C) $5,000 D) $15,000
Answer: C Explanation: ROI = Net operating income ÷ Average operating assets 0.20 = Net operating income ÷ $100,000 Net operating income = 0.20 × $100,000 = $20,000
Hubbard Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During January, the kennel budgeted for 2,100 tenant-days, but its actual level of activity was 2,060 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for January: Data used in budgeting: Fixed Element per Month Variable Element per Tenant-Day Revenue - $ 31.10 Wages and salaries $ 2,300 $ 7.20 Food and supplies 1,000 8.10 Facility expenses 9,500 2.70 Administrative expenses 7,000 0.30 Total expenses $ 19,800 $ 18.30 Actual results for January: Revenue $ 63,606 Wages and salaries $ 17,282 Food and supplies $ 18,346 Facility expenses $ 14,432 Administrative expenses $ 7,408 The wages and salaries in the planning budget for January would be closest to: A) $17,282 B) $17,618 C) $17,420 D) $17,132
Answer: C Explanation: Cost = Fixed cost + (Variable cost per unit × q) = $2,300 + ($7.20 × 2,100) = $17,420
Tracie Corporation manufactures and sells women's skirts. Each skirt (unit) requires 2.2 yards of cloth. Selected data from Tracie's master budget for next quarter are shown below: July August September Budgeted sales (in units) 7,000 9,000 11,000 Budgeted production (in units) 8,000 10,500 13,000 Each unit requires 0.8 hours of direct labor, and the average hourly cost of Tracie's direct labor is $18. What is the cost of Tracie Corporation's direct labor in September? A) $198,000 B) $158,400 C) $187,200 D) $234,000
Answer: C Explanation: Direct Labor Budget September Required production in units 13,000 Direct labor-hours per unit 0.8 Total direct labor-hours needed 10,400 Direct labor cost per hour $ 18 Total direct labor cost $ 187,200
The following are budgeted data: January February March Sales in units 15,000 20,000 18,000 Production in units 18,000 19,000 16,000 One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for February would be budgeted to be: A) 19,600 pounds B) 20,400 pounds C) 18,400 pounds D) 18,600 pounds
Answer: C Explanation: Direct Materials Budget February Required production in units 19,000 Raw materials required per unit 1 Raw materials needed to meet the production 19,000 Add desired ending raw materials inventory (16,000 × 1 × 20%) 3,200 Total raw materials needs 22,200 Less beginning raw materials inventory (19,000 × 1 × 20%) 3,800 Raw materials to be purchased 18,400
Saxena Corporation makes a product that has the following direct labor standards: Standard direct labor-hours 0.1 hours per unit Standard direct labor rate $ 15.00 per hour Standard cost $ 1.50 per unit The company budgeted for production of 2,900 units in July, but actual production was 2,800 units. The company used 250 direct labor-hours to produce this output. The actual direct labor rate was $14.10 per hour. The labor rate variance for July is: (Round your intermediate calculations to 2 decimal places.) A) $252 U B) $225 U C) $225 F D) $252 F
Answer: C Explanation: Labor rate variance = AH × (AR − SR) = 250 hours × ($14.10 per hour − $15.00 per hour) = 250 hours × (-$0.90 per hour) = $225 F
Tharaldson Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6.5 ounces $ 2.00 per ounce $ 13.00 Direct labor 0.2 hours $ 23.00 per hour $ 4.60 Variable overhead 0.2 hours $ 6.00 per hour $ 1.20 The company reported the following results concerning this product in June. Originally budgeted output 2,700 units Actual output 2,800 units Raw materials used in production 19,380 ounces Purchases of raw materials 21,400 ounces Actual direct labor-hours 500 hours Actual cost of raw materials purchases $ 40,660 Actual direct labor cost $ 12,050 Actual variable overhead cost $ 3,100 The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The variable overhead efficiency variance for June is: A) $372 F B) $372 U C) $360 F D) $360 U
Answer: C Explanation: SH = 2,800 units × 0.2 hours per unit = 560 hours Variable overhead efficiency variance = (AH - SH) × SR = (500 hours − 560 hours) × $6.00 per hour = (−60 hours) × $6.00 per hour = $360 F
Majer Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6.4 ounces $ 3.00 per ounce $ 19.20 Direct labor 0.4 hours $ 13.00 per hour $ 5.20 Variable overhead 0.4 hours $ 5.00 per hour $ 2.00 The company reported the following results concerning this product in February. Originally budgeted output 4,800 units Actual output 4,900 units Raw materials used in production 30,230 ounces Actual direct labor-hours 1,910 hours Purchases of raw materials 32,600 ounces Actual price of raw materials $ 2.90 per ounce Actual direct labor rate $ 12.40 per hour Actual variable overhead rate $ 4.90 per hour The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The materials quantity variance for February is: A) $3,277 F B) $3,390 U C) $3,390 F D) $3,277 U
Answer: C Explanation: SQ = 4,900 units × 6.4 ounces per unit = 31,360 ounces Materials quantity variance = (AQ - SQ) × SP = (30,230 ounces − 31,360 ounces) × $3.00 per ounce = (−1,130 ounces) × $3.00 per ounce = $3,390 F
Dinham Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During March, the kennel budgeted for 2,000 tenant-days, but its actual level of activity was 2,040 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March: Data used in budgeting: Fixed element per month Variable element per tenant-day Revenue - $ 35.40 Wages and salaries $ 3,000 $ 6.60 Food and supplies 400 12.20 Facility expenses 9,600 2.30 Administrative expenses 7,800 0.20 Total expenses $ 20,800 $ 21.30 Actual results for March: Revenue $ 69,576 Wages and salaries $ 16,204 Food and supplies $ 25,008 Facility expenses $ 14,122 Administrative expenses $ 8,238 The spending variance for food and supplies in March would be closest to: A) $208 F B) $280 U C) $208 U D) $280 F
Answer: D Explanation: Actual results $ 25,008 Flexible budget [$400 + ($12.20 × 2,040)] 25,288 Spending variance $ 280
Kartman Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6.5 pounds $ 7.00 per pound $ 45.50 Direct labor 0.6 hours $ 24.00 per hour $ 14.40 Variable overhead 0.6 hours $ 4.00 per hour $ 2.40 In June the company's budgeted production was 3,400 units but the actual production was 3,500 units. The company used 22,150 pounds of the direct material and 2,290 direct labor-hours to produce this output. During the month, the company purchased 25,400 pounds of the direct material at a cost of $170,180. The actual direct labor cost was $57,021 and the actual variable overhead cost was $8,931. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for June is: A) $7,620 U B) $6,825 U C) $6,825 F D) $7,620 F
Answer: D Explanation: Materials price variance = (AQ × AP) − (AQ × SP) = ($170,180) − (25,400 pounds × $7.00 per pound) = $170,180 − $177,800 = $7,620 F
Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%? A) 2.00% B) 15.00% C) 9.99% D) 7.50%
Answer: D Explanation: Turnover = Sales ÷ Average operating assets = $750,000 ÷ $375,000 = 2 ROI = Margin × Turnover 15% = Margin × 2 Margin = 15% ÷ 2 = 7.5%
Juhasz Corporation makes a product with the following standards for direct labor and variable overhead: Standard Quantity or Hours Standard Price or Rate Direct labor 0.5 hours $ 20.00 per hour Variable overhead 0.5 hours $ 4.00 per hour In August the company produced 7,900 units using 4,080 direct labor-hours. The actual variable overhead cost was $15,096. The company applies variable overhead on the basis of direct labor-hours. The variable overhead rate variance for August is: A) $1,185 F B) $1,224 U C) $1,185 U D) $1,224 F
Answer: D Explanation: AH × AR = $15,096 Variable overhead rate variance = (AH × AR) − (AH × SR) = ($15,096) − (4,080 hours × $4.00 per hour) = $15,096 − $16,320 = $1,224 F
Smith Corporation makes and sells a single product called a Pod. Each Pod requires 1.4 direct labor-hours at $9.60 per direct labor-hour. The direct labor workforce is fully adjusted each month to the required workload. Smith Corporation is preparing a Direct Labor Budget for the second quarter of the year. If the budgeted direct labor cost for April is $201,600, then the budgeted production of Pods for April would be: (Round your intermediate calculations to 2 decimal places.) A) 21,000 units B) 29,400 units C) 18,273 units D) 15,000 units
Answer: D Explanation: Budgeted direct labor cost = Budgeted production × 1.4 direct labor-hours per unit × $9.60 per direct labor-hour $201,600 = Budgeted production × 1.4 direct labor-hours per unit × $9.60 per direct labor-hour $201,600 = Budgeted production × $13.44 per unit Budgeted production = $201,600 ÷ $13.44 per unit = 15,000 units
Dustman Manufacturing Corporation's most recent production budget indicates the following required production: January February March April Required production (units) 4,000 6,000 5,500 5,000 Each unit of finished product requires 3 feet of raw materials. The company maintains raw materials inventory equal to 2,000 feet plus 10% of the next month's expected production needs. The raw material used in Dustman Manufacturing Corporation's product costs $4.50 per foot. What is the value of raw material that Dustman Manufacturing should plan on purchasing for the month of February? A) $73,575 B) $74,250 C) $81,000 D) $80,325
Answer: D Explanation: Direct Materials Budget February Required production in units 6,000 Raw materials required per unit 3 Raw materials needed to meet the production 18,000 Add desired ending raw materials inventory [2,000 feet + (5,500 units × 3 feet per unit × 10%)] 3,650 Total raw materials needs 21,650 Less beginning raw materials inventory [2,000 feet + (6,000 units × 3 feet per unit × 10%)] 3,800 Raw materials to be purchased 17,850 Cost of raw materials per unit $ 4.50 Cost of raw materials to be purchased $ 80,325
The following information relates to last year's operations at the Legumes Division of Gervani Corporation: Minimum required rate of return 12 % Return on investment (ROI) 15 % Sales $ 900,000 Turnover (on operating assets) 3 times What was the Legume Division's net operating income last year? A) $108,000 B) $135,000 C) $36,000 D) $45,000
Answer: D Explanation: ROI = Margin × Turnover 15% = Margin × 3 Margin = 15% ÷ 3 = 5% Margin = Net operating income ÷ Sales 5% = Net operating income ÷ $900,000 Net operating income = 5% × $900,000 = $45,000
Doogan Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 7.4 grams $ 2.00 per gram Direct labor 0.5 hours $ 20.00 per hour Variable overhead 0.5 hours $ 7.00 per hour The company produced 5,200 units in January using 39,310 grams of direct material and 2,380 direct labor-hours. During the month, the company purchased 44,400 grams of the direct material at $1.70 per gram. The actual direct labor rate was $19.30 per hour and the actual variable overhead rate was $6.80 per hour. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for January is: A) $4,246 U B) $4,246 F C) $4,400 U D) $4,400 F
Answer: D Explanation: SH = 5,200 units × 0.5 hours per unit = 2,600 hours Labor efficiency variance = (AH - SH) × SR = (2,380 hours − 2,600 hours) × $20.00 per hour = (-220 hours) × $20.00 per hour = $4,400 F
Hermansen Corporation produces large commercial doors for warehouses and other facilities. In the most recent month, the company budgeted production of 5,100 doors. Actual production was 5,400 doors. According to standards, each door requires 3.8 machine-hours. The actual machine-hours for the month were 20,880 machine-hours. The standard supplies cost is $7.90 per machine-hour. The actual supplies cost for the month was $152,063. Supplies cost is an element of variable manufacturing overhead. The variable overhead efficiency variance for supplies cost is: A) $10,045 F B) $10,045 U C) $2,844 F D) $2,844 U
Answer: D Explanation: SH = 5,400 doors × 3.8 hours per door = 20,520 hours Variable overhead efficiency variance = (AH - SH) × SR = (20,880 hours - 20,520 hours) × $7.90 per hour = (360 hours) × $7.90 per hour = $2,844 U
Kesselring Corporation makes one product and has provided the following information to help prepare the master budget for the next three months of operations: Budgeted unit sales (all on credit): July 8,400 August 8,800 September 12,200 Raw materials requirement per unit of output 4 pounds Raw materials cost $ 3.00 per pound Direct labor requirement per unit of output 2.8 direct labor-hours Direct labor wage rate $ 18.00 per direct labor-hour Predetermined overhead rate (all variable) $ 11.00 per direct labor-hour The ending finished goods inventory should equal 40% of the following month's sales. The budgeted finished goods inventory balance at the end of August is closest to: (Round your intermediate calculations to 2 decimal places.) A) $358,192 B) $150,304 C) $304,512 D) $454,816
Answer: D Explanation: The estimated unit product cost is computed as follows: Direct materials 4 pounds $ 3.00 per pound $ 12.00 Direct labor 2.8 hours $ 18.00 per hour 50.40 Manufacturing overhead 2.8 hours $ 11.00 per hour 30.80 Unit product cost $ 93.20 The estimated finished goods inventory balance at the end of August is computed as follows: Ending finished goods inventory in units (a)* 4,880 Unit product cost (b) $ 93.20 Ending finished goods inventory (a) × (b) $ 454,816 *September sales of 12,200 units × 40% = 4,880 units
The following data are for the Akron Division of Consolidated Rubber, Inc.: Sales $ 750,000 Net operating income $ 45,000 Average operating assets $ 250,000 Stockholders' equity $ 75,000 Residual income $ 15,000 For the past year, the turnover used in ROI calculations was: A) 1.4 B) 3.3 C) 10.0 D) 3.0
Answer: D Explanation: Turnover = Sales ÷ Average operating assets = $750,000 ÷ $250,000 = 3