ACG2071 Chapter 11, 7, 8

The following information is provided by the Atlas Company: Actual direct material cost$20,000 Standard direct material cost$24,000 Direct material usage variance$3,000favorable What is the direct materials price variance?

$1,000 favorable

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

$6,000 unfavorable.

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

$8,100.

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted)Cost of goods sold$30,000 $60,000 $80,000 $50,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

72,500

Select the correct statement regarding flexible budgets.

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

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

Favorable for price and unfavorable for usage.

Sometimes the sales staff will deliberately underestimate the amount of expected sales. This practice is known as:

lowballing.

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

managers need to use estimated overhead to control earnings.

The sales volume variance is the difference between the:

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

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

(400)+400=NA+NANA−NA=NA

Travis Company had no beginning work in process or finished goods. Its total manufacturing costs for the year were $886,000. If cost of goods manufactured was $680,000 and cost of goods sold was $524,000, the amount of ending work in process would have been:

206,000

Jared expects to charge $60 per hour for his industrial maintenance business during the following year. He expects to reach 50,000 hours at that price. Jared's partner disagrees with the estimate and expects closer to 40,000 hours. What should Jared do when preparing the budget for the year?

Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours.

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

Depreciation Expense

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

Sales Revenue

The inventory purchases budget is based on which budget?

Sales budget

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

Schedule of cash receipts for the projected sales

Select the incorrect statement regarding service companies.

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

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

Static budget.

Select the incorrect statement about the planning process.

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

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

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

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

Volume variance.

When would a cost variance be listed as unfavorable?

When actual costs exceed budgeted costs

When would a sales variance be listed as favorable?

When actual sales exceed budgeted or expected sales

When would a sales price variance be listed as unfavorable?

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

Product costs are expensed as cost of goods sold:

When the related products are sold

Budgeted sales commissions would appear on the:

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

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

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

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

the goods made by the production workers are sold.

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

work in process.

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units. Per unit standards Static Budget Flexible BudgetNumber of units 12,000 13,000 Sales revenue$65.00 $780,000 $845,000 Variable manufacturing costs: Materials$11.00 132,000 143,000 Labor$9.00 108,000 117,000 Overhead$4.20 50,400 54,600 Variable general, selling, and administrative costs$11.00 132,000 143,000 Contribution margin $357,600 $387,400 Fixed costs Manufacturing overhead 100,800 100,800 General, selling, and administrative costs 45,000 45,000 Net income $211,800 $241,600 What was the total variable cost volume variance?

$35,200 unfavorable

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted)Cost of goods sold$46,000 $76,000 $96,000 $66,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

$88,500.

White Company budgeted for $308,200 of fixed overhead cost and volume of 46,000 units. During the year, the company produced and sold 45,000 units and spent $317,400 on fixed overhead.The fixed overhead cost spending variance is:

$9,200 unfavorable.

The standard amount of materials required to make one unit of Product Q is 5 pounds. Tusa's static budget showed a planned production of 4,800 units. During the period, the company actually produced 4,900 units of product. The actual amount of materials used averaged 4.9 pounds per unit. The standard price of material is $2 per pound. Based on this information, the materials usage variance was:

$980 favorable.

Hernandez Company expects credit sales for January to be $58,000. Cash sales are expected to be $38,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

$99,800.

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $2 per gallon)$6.00 Direct labor (2 hours @ $11 per hour)$22.00 During the period, the company produced and sold 23,000 units, incurring the following costs: Direct material72,000gallons@$1.90per gallonDirect labor46,500hours@$10.75per hour The direct labor price variance was:

11,625 favorable.

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

14,280

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

140,000

Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $2,800 of capital from the owners. 2) Purchased $570 of direct raw materials. 3) Used $390 of these direct raw materials in the production process. 4) Paid production workers $580 cash. 5) Paid $380 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 300 units of inventory. 7) Sold 230 units at a price of $6 each. 8) Paid $220 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be:

180

The following budget information is available for Crescent Company for January Year 2: Sales$800,000 Cost of goods sold 540,000 Utilities expense 2,500 Administrative salaries 100,000 Sales commissions 5% of salesAdvertising 20,000 Depreciation on store equipment 50,000 Rent on administration building 60,000 Miscellaneous administrative expenses 10,000 Percentage of sales on credit 80% All operating expenses are paid in cash in the month incurred. The amount of expected cash outflow for selling and administrative expenses would be:

232,500

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: July August SeptemberSalary expense$36,000 $36,000 $36,000 Sales commissions, 5% of sales 30,000 32,000 24,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,000 1,000 1,000 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 1,800 Total operating expenses$78,800 $80,800 $72,800 Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

24,000

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: July August SeptemberSalary expense$36,000 $36,000 $36,000 Sales commissions, 5% of sales 30,000 32,000 24,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,000 1,000 1,000 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 1,800 Total operating expenses$78,800 $80,800 $72,800 Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

24000

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

285,800

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

290

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

29000

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January$25,000 February$31,000 March$40,000 April$43,000 The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

34,600

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

35,000

Benton Company's sales budget shows the following expected total sales: Month Sales January$21,000 February$25,000 March$30,000 April$45,000 The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 25% in the month of sale and 71% in the month following the sale, with the remainder being uncollectible and written off. The total cash receipts during April would be:

35,040

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

40,600

Tucker Company's Work in Process account decreased by $1,000, while its Finished Goods Inventory account increased by $500. Assuming total manufacturing costs were $5,000, what was the company's cost of goods sold amount?

5,500

Fortune Company had beginning raw materials inventory of $8,500. During the period, the company purchased $48,500 of raw materials on account. If the ending balance in raw materials was $5,500, the amount of raw materials transferred to work in process is:

51,500

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January February MarchSalary expense$40,000 $36,000 $36,000 Sales commissions, 5% of sales 24,000 30,000 28,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,800 1,800 1,800 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 1,800 Total operating expenses$77,600 $79,600 $77,600 Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is:

51,800

Compton Company expects the following total sales: Month Sales March$33,000 April$23,000 May$17,000 June$28,000 The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

7140

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted)Cost of goods sold$34,000 $64,000 $84,000 $54,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

76,500

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted)Cost of goods sold$39,000 $69,000 $89,000 $59,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

81,500

Ringgold Company had beginning finished goods of $19,200. During the period, the company produced goods that cost $81,000. If the ending balance in the Finished Goods Inventory account was $13,200, the amount of cost of goods sold was:

87,000

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

97200

What is the result when the quantity of materials used is less than the standard quantity?

A favorable materials usage variance

Which of the following statements is correct?

A favorable variance may indicate the existence of unfavorable conditions.

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

Accounts payable

Select the response that best illustrates the point that product cost flows are cyclical and occur in a specific sequence.

Acquire raw materials, convert raw materials, sell finished goods, collect cash Correct

Select the correct statement regarding the selling and administrative (S&A) expense budget.

All of the answers are correct.

The cash budget is based on which budget?

All of the answers are correct.

With regards to financial statements, "pro forma" means:

All of the answers are correct.

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

All of these answers are correct.

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

All of these answers are correct.

Fortune Company had beginning raw materials inventory of $8,000. During the period, the company purchased $46,000 of raw materials on account. If the ending balance in raw materials was $5,000, the amount of raw materials transferred to work in process is:

$49,000.

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

Sales budget

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

$10,000 unfavorable.

Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $1,000 of capital from the owners. 2) Purchased $300 of direct raw materials. 3) Used $200 of these direct raw materials in the production process. 4) Paid production workers $400 cash. 5) Paid $200 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $6 each. 8) Paid $40 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be:

$100

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

$100 per unit

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $3 per gallon)$9.00 Direct labor (2 hours @ $13 per hour)$26.00 During the period, the company produced and sold 23,000 units, incurring the following costs: Direct material72,000gallons@$2.90per gallonDirect labor46,500hours@$12.75per hour The direct labor price variance was:

$11,625 favorable.

Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $1,200 of capital from the owners. 2) Purchased $330 of direct raw materials. 3) Used $220 of these direct raw materials in the production process. 4) Paid production workers $420 cash. 5) Paid $220 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 250 units of inventory. 7) Sold 70 units at a price of $6 each. 8) Paid $60 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be:

$110.

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

$16,000.

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

$5,250 unfavorable.

White Company budgeted for $259,600 of fixed overhead cost and volume of 44,000 units. During the year, the company produced and sold 43,000 units and spent $268,400 on fixed overhead.The fixed overhead cost spending variance is:

$8,800 unfavorable.

White Company budgeted for $286,000 of fixed overhead cost and volume of 44,000 units. During the year, the company produced and sold 43,000 units and spent $294,800 on fixed overhead.The fixed overhead cost spending variance is:

$8,800 unfavorable.

The following static budget is provided: Units 20,000 UnitsSales$200,000 Less variable costs: Manufacturing costs$70,000 Selling and administrative costs$40,000 Contribution margin$90,000 Less fixed costs: Manufacturing costs$22,000 Selling and administrative costs$17,000 Net Income$51,000 What will budgeted net income equal if 21,000 units are produced and sold? (Do not round intermediate calculations.)

$55,500

The Russell Company provides the following standard cost data per unit of product: Direct material (2 gallons @ $3 per gallon)$6.00 Direct labor (1 hours @ $13 per hour)$13.00 During the period, the company produced and sold 26,000 units, incurring the following costs: Direct material55,000gallons@$2.90per gallonDirect labor26,500hours@$12.75per hour The direct labor price variance was:

$6,625 favorable.

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

Marketing manager

White Company budgeted for $258,000 of fixed overhead cost and volume of 43,000 units. During the year, the company produced and sold 42,000 units and spent $266,600 on fixed overhead.The fixed overhead cost spending variance is:

$8,600 unfavorable.

Which of the following statements is incorrect?

Capital budgeting focuses on short-term planning.

Budgeted depreciation expense would not appear on a:

Cash budget.

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

Cash collections

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

Cash payments schedule

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

Cost of Selling Supplies

Select the correct equation format for the purchases budget.

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

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

Equals 2,000 units unfavorable.

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

Expected credit sales

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

Expected purchase price of each product

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

I and II

Standards that do not allow for normal downtime, waste of materials, or machine breakdowns are known as:

Ideal Standards.

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

Manufacturing Overhead

The cost of direct materials flow through all of the following accounts except:

Manufacturing Overhead

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

Materials price variance.

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

Performance measurement

Which manager is usually held responsible for materials usage variances?

Production supervisor

Select the incorrect statement regarding the cash budget.

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

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

The total direct labor variance is $2,500 favorable.

Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $2,100 and an unfavorable direct materials usage variance of $1,400.

The total direct materials variance is $700 favorable

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

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

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

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

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

available for sale minus ending finished goods.

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

cardboard used in production of the notebooks.

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

overapplied by $10,000.

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

overapplied by $10,000.

A credit to the Raw Materials Inventory account represents:

raw materials added to production.