Managerial Accounting Ch. 6-9 test

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The difference between actual price per unit of input and the standard price per unit of input results in a:

Price variance.

A unit of a business that generates revenues and incurs costs is called a:

Profit center.

The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

Proportion of sales of each department.

The master budget of a merchandising company includes a:

Purchases budget.

Overhead cost variance is:

The difference between the actual overhead incurred during a period and the standard overhead applied.

A company's flexible budget for 39,000 units of production showed variable overhead costs of $40,950 and fixed overhead costs of $55,000. The company incurred overhead costs of $86,440 while operating at a volume of 31,000 units. The total controllable cost variance is:

$1,110 favorable. Explanation Actual total overhead incurred $86,440 Flexible budget overhead Variable ($1.05/unit* * 31,000 units) $32,550 Fixed (given) 55,000 Total flexible budget overhead 87,550 Total controllable cost variance $1,110 F *$40,950/39,000 units = $1.05/unit variable overhead rate per unit

A department store has budgeted sales of 12,400 men's suits in September. Management wants to have 6,400 suits in inventory at the end of the month to prepare for the winter season. Beginning inventory for September is expected to be 4,400 suits. What is the dollar amount of the purchase of suits if each suit has a cost of $79.

$1,137,600. Explanation Budgeted purchases = Budgeted sales units + ending inventory - beginning inventory Budgeted purchases = 12,400 + 6,400 - 4,400 = 14,400 suits 14,400 suits x $79/suit = $1,137,600

Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year. Units produced this year 27,000 units Units sold this year 16,200 units Direct materials $11 per unit Direct labor $13 per unit Variable overhead $81,000 in total Fixed overhead $135,000 in total Given Advanced Company's data, and the knowledge that the product is sold for $52 per unit and operating expenses are $220,000, compute the net income under absorption costing.

$104,000 Explanation NI = ($52 - $32.00)(16,200 units) - $220,000 = $104,000

ch 8 A company's flexible budget for 15,000 units of production showed sales, $90,000; variable costs, $37,500; and fixed costs, $25,000. The sales expected if the company produces and sells 19,000 units is (Do not round intermediate calculations):

$114,000. Explanation Selling price per unit = $90,000 / 15,000 units = $6.00 per unit Variable costs per unit = $37,500 / 15,000 = $2.50 per unit Contribution margin per unit = $6.00 − $2.50 = $3.50 per unit Expected sales for 19,000 units = $6.00 per unit x 19,000 units = $114,000

Frankie's Chocolate Co. reports the following information from its sales budget: Expected Sales: July$92,000 August 112,000 September 122,000 Cash sales are normally 20% of total sales and all credit sales are expected to be collected in the month following the date of sale. The total amount of cash expected to be received from customers in September is:

$114,000. Explanation September cash sales (20% × $122,000)$24,400 August credit sales (80% × $112,000) 89,600 Cash collected in September$114,000

Fortune Company's direct materials budget shows the following cost of materials to be purchased for the coming three months: January February March Material purchases $ 12,340 14,450 11,270 Payments for purchases are expected to be made 50% in the month of purchase and 50% in the month following purchase. The December Accounts Payable balance is $6,500. The budgeted cash payments for materials in January are:

$12,670. Explanation December Accounts Payable$6,500 Payment for January purchases (12,340 * 50%)$6,170 Cash payment$12,670

A retail store has three departments, S, T, and U, and does general advertising that benefits all departments. Advertising expense totaled $34,000 for the year, and departmental sales were as follows. Allocate advertising expense to Department T based on departmental sales. (Do not round your intermediate calculations.) Department S$108,000 Department T 217,350 Department U 157,650 Total$483,000

$15,300. Explanation ($217,350/$483,000) × $34,000 = $15,300

Ch.6 During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $200,000. The company produced 25,000 units, and sold 17,500 units, leaving 7,500 units in inventory at year-end. What is the value of ending inventory under absorption costing?

$150,000 Explanation $5 + $3 + $4 + ($200,000/25,000 units) = $20 per unit × 7,500 units = $150,000.

Junior Snacks reports the following information from its sales budget: Expected Sales: October$153,000 November 161,000 December 197,000 All sales are on credit and are expected to be collected 45% in the month of sale and 55% in the month following sale. The total amount of cash expected to be received from customers in November is:

$156,600. Explanation October credit sales collected (55% * $153,000)$84,150 November credit sales collected (45% * $161,000) 72,450 Cash collected in November$156,600

Ch. 7 Cameroon Corp. manufactures and sells electric staplers for $15.50 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the dollar amount of electric stapler sales budgeted for February should be:

$167,648 Explanation December sales $15.50 * 10,000 = $155,000 January sales = $155,000 * 1.04 = $161,200 February sales = $161,200 * 1.04 = $167,648

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $7 per unit, Direct labor, $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $279,000. The company produced 31,000 units, and sold 20,500 units, leaving 10,500 units in inventory at year-end. What is the value of ending inventory under variable costing?

$189,000 Explanation $7 + $5 + $6 = $18 per unit × 10,500 units = $189,000.

A company has two departments, Y and Z that incur wage expenses. An analysis of the total wage expense of $44,000 indicates that Dept. Y had a direct wage expense of $7,000 and Dept. Z had a direct wage expense of $11,000. The remaining expenses are indirect and analysis indicates they should be allocated evenly between the two departments. Departmental wage expenses for Dept. Y and Dept. Z, respectively, are:

$20,000; $24,000. Explanation Indirect expenses = $44,000 - $7,000 - $11,000 = $26,000 Y Z Direct $7,000 $11,000 Indirect to Y ($26,000 × 50%) 13,000 0 Indirect to Z ($26,000 × 50%) 0 13,000 Total $20,000 $24,000

A company's flexible budget for 14,000 units of production showed per unit contribution margin of $2.50 and fixed costs, $24,000. The operating income expected if the company produces and sells 18,000 units is:

$21,000. Explanation Contribution margin (18,000 * $2.50) $45,000 Fixed costs(24,000) Operating income $21,000

A company's flexible budget for 22,000 units of production showed sales, $103,400; variable costs, $28,600; and fixed costs, $28,000. The fixed costs expected if the company produces and sells 28,000 units is:

$28,000. Explanation Fixed costs remain constant at all levels within the relevant range.

Riemer, Inc. has four departments. Information about these departments is listed below. Maintenance is a service department. If allocated maintenance cost is based on floor space occupied by each of the other departments, compute the amount of maintenance cost allocated to the Cutting Department. (Do not round your intermediate computations.) Maintenance Cutting Assembly Packaging Direct costs $19,000 $31,000 $71,000 $46,000 Sq. ft. of space 550 1,050 2,050 2,600 No. of employees 3 2 17 5

$3,500. Explanation Department Sq. Ft. Cutting 1,050 Assembly 2,050 Packaging 2,600 Total 5,700 Cutting 1,050/5,700 × $19,000 = $3,500

Accurate Metal Company sold 32,500 units of its product at a price of $260 per unit. Total variable cost per unit is $156, consisting of $148 in variable production cost and $8 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

$3,640,000 Explanation ($260 - $148) × 32,500 units = $3,640,000

Claremont Company specializes in selling refurbished copiers. During the month, the company sold 150 copiers for total sales of $360,000. The budget for the month was to sell 145 copiers at an average price of $2,600. The sales price variance for the month was:

$30,000 unfavorable. Explanation AS * AP Given = $360,000 AS * BP = 150 * $2,600 = $390,000 Sale price variance = $360,000 - $390,000 = $30,000 Unfavorable

Differential Chemical produced 11,250 gallons of Preon and 15,000 gallons of Paron. Joint costs incurred in producing the two products totaled $8,300. At the split-off point, Preon has a market value of $8.00 per gallon and Paron $4.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used.

$4,980. Explanation Product Gallons Market value per Gallon Sales value at split-off Percent of total value at split-off $8,300 Allocated Preon 11,250 $8.00 $90,000 60%* $4,980 Paron 15,000 $4.00 60,000 40%* 3,320 Total $150,000 100% $8,300 *Preon: $90,000/$150,000 = 60%; Paron: $60,000/$150,000 = 40% Preon allocation = 60% × $8,300 = $4,980; Paron allocation = 40% × $8,300 = $3,320

Brownley Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period: Service Depts. Production Depts. Payroll Maintenance Cutting Assembly Direct costs $37,400 $42,500 $93,500 $122,400 No. of personnel 32 32 96 Sq. ft. of space 11,700 16,700 The total cost of operating the Maintenance Department for the current period is:

$49,980. Explanation Step 1: Allocate Payroll costs to Maintenance department: Maintenance $37,400 × (32/160) = $7,480 Step 2: Total Maintenance costs = $42,500 + 7,480 = $49,980

Use the following data to find the total direct labor cost variance if the company produced 3,500 units during the period. Direct labor standard (4.00 hrs. @ $7.05/hr.) $28.20 per unit Actual hours worked 12,300 Actual rate per hour $7.60

$5,220 favorable. Explanation AH * AR (12,300) × $7.60/hr. $93,480 SH * SR (3,500 × 4 hours/unit) × $7.05/hr. 98,700 Total direct labor variance$5,220 F

Geneva Co. reports the following information for July: Sales $771,000 Variable costs 232,000 Fixed costs 107,000 Calculate the contribution margin for July.

$539,000 Explanation Sales $771,000 - VC $232,000 = $539,000

Use the following information to determine the ending cash balance to be reported on the month ended June 30 cash budget. a. Beginning cash balance on June 1, $94,000. b.Cash receipts from sales, $413,000. c.Budgeted cash disbursements for purchases, $268,000. d.Budgeted cash disbursements for salaries, $95,000. e.Other budgeted cash expenses, $57,000. f.Cash repayment of bank loan, $32,000. g.Budgeted depreciation expense, $34,000.

$55,000.

A company rents a building with a total of 100,000 square feet, which are evenly divided between two floors. The company allocates the rent for space on the first floor at twice the rate of space on the second floor. The total monthly rent for the building is $30,000. How much of the monthly rental expense should be allocated to a department that occupies 17,000 square feet on the first floor? (Do not round your intermediate calculations.)

$6,800. Explanation First Floor: ($30,000 × 2/3)/50,000 sq. ft. = $0.40/sq. ft. $0.40/sq. ft. × 17,000 sq. ft. = $6,800

A company's flexible budget for 14,000 units of production showed sales, $57,400; variable costs, $15,400; and fixed costs, $20,000. The contribution margin expected if the company produces and sells 20,000 units is:

$60,000. Explanation Selling price per unit = $57,400 / 14,000 units = $4.10 per unit Variable costs per unit = $15,400 / 14,000 = $1.10 per unit Contribution margin per unit = $4.10 - $1.10 = $3.00 per unit Expected contribution margin for 20,000 units = $3.00 per unit x 20,000 units = $60,000.

Shore Company reports the following information regarding its production cost. Units produced 30,000 units Direct labor $25 per unit Direct materials$26 per unit Variable overhead $282,000 in total Fixed overhead$96,920 in total Compute product cost per unit under absorption costing.

$63.63 Explanation $25 DL + $26 DM + ($282,000/30,000) VOH +($96,920/30,000) FOH = $64

The Gardner Company expects sales for October of $243,000. Experience suggests that 45% of sales are for cash and 55% are on credit. The company collects 50% of its credit sales in the month of sale and 50% in the month following sale. Budgeted Accounts Receivable on September 30 is $64,500. What is the amount of Accounted Receivables on the October 31 budgeted balance sheet?

$66,825. Explanation October credit sales not collected in October (55% * 243,000 * 50%) = 66,825

Memphis Company anticipates total sales for April, May, and June of $920,000, $1,020,000, and $1,070,000 respectively. Cash sales are normally 30% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are not collected. Compute the amount of cash received from credit sales during the month of June.

$688,800. Explanation 30% of June credit sales (30% * 70% * $1,070,000) 224,700 65% of May credit sales (65% * 70% * $1,020,000) 464,100 Total cash receipts$688,800

Use the following data to find the direct labor rate variance if the company produced 3,500 units during the period. Direct labor standard (4 hrs. @ $7.10/hr.) $28.40 per unit Actual hours worked 12,600 Actual rate per hour $7.70

$7,560 unfavorable. Explanation AH * AR (12,600) * $7.70/hr. $97,020 AH * SR(12,600) * $7.10/hr. 89,460 Total direct labor variance$7,560 U

Zhang Industries budgets production of 360 units in June and 370 units in July. Each unit requires 1.5 hours of direct labor. The direct labor rate is $15.20 per hour. The indirect labor rate is $22.20 per hour. Compute the budgeted direct labor cost for July.

$8,436.

Hassock Corp. produces woven wall hangings. It takes 4 hours of direct labor to produce a single wall hanging. Hassock's standard labor cost is $17 per hour. During August, Hassock produced 11,900 units and used 48,180 hours of direct labor at a total cost of $815,860. What is Hassock's labor efficiency variance for August?

$9,860 unfavorable. Explanation AH*SR 48,180*$17 $819,060 SH*SR (4 × 11,900) * $17 809,200 Direct labor efficiency variance $9,860U

Ch.9 A company has two departments, Y and Z that incur delivery expenses. An analysis of the total delivery expense of $18,000 indicates that Dept. Y had a direct expense of $1,900 for deliveries and Dept. Z had no direct expense. The indirect expenses are $16,100. The analysis also indicates that 50% of regular delivery requests originate in Dept. Y and 50% originate in Dept. Z. Departmental delivery expenses for Dept. Y and Dept. Z, respectively, are:

$9,950; $8,050. Explanation Y, Z Direct$1,900, $0 Indirect to Y ($16,100 × 50%) 8,050, 0 Indirect to Z ($16,100 × 50%) 0, 8,050 Total$9,950 $8,050

Zhang Industries sells a product for $700. Unit sales for May were 400 and each month's sales are expected to exceed the prior month's results by 3%. Zhang pays a sales manager a monthly salary of $4,200 and a commission of 2% of sales. Compute the projected selling expense to be reported on the selling expense budget for the manager for month ended June 30.

$9,968.

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: Office Expenses, Total, Allocation Basis Salaries $53,000 Number of employees Depreciation 31,500 Cost of goods sold Advertising 74,500 Net sales Item Drilling, Grinding, Total Number of employees 2,840 4,260 7,100 Net sales$362,375 $529,625 $892,000 Cost of goods sold$109,500 $182,500 $292,000 The amount of the total office expenses that should be allocated to Grinding for the current period is (Do not round your intermediate calculations.)

$95,722. Explanation Salaries: $53,000× 4,260/7,100= $31,800 Depreciation: $31,500×$182,500/$292,000=$19,688 Advertising: $74,500×$529,625/$892,000=$44,234 Total $95,722

Two investment centers at Marshman Corporation have the following current-year income and asset data: Investment Center A Investment Center B Investment center income A $440,000 B $550,000 Investment center average invested assets A $2,900,000 B $2,200,000 The return on investment (ROI) for Investment Center A is:

15.17% Explanation ROI = $440,000/$2,900,000 = 15.17%

Fletcher Company collected the following data regarding production of one of its products. Compute the standard quantity allowed for the actual output. Direct materials standard (7 lbs. @ $5/lb.) $35 per finished unit Actual direct materials used 313,000 lbs. Actual finished units produced 44,000 units Actual cost of direct materials used $1,544,000

308,000 pounds. Explanation Standard units at standard cost = 44,000 * 7 lbs. = 308,000 standard lbs.

Schrank Company is trying to decide how many units of merchandise to order each month. The company's policy is to have 25% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 37,000 units, 27,000 units, and 47,000 units, respectively. How many units must be purchased in September?

32,000 Explanation Purchases = (25% * 47,000) + 27,000 - (25% * 27,000) = 32,000

Bengal Co. provides the following sales forecast for the next three months: July August September Sales units 4,100 4,800 4,660 The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,025 units. The budgeted production units for July are:

4,275 units. Explanation July units + 25% of August units - June ending inventory = July production 4,100 units + (4,800 units * 0.25) - 1,025 units = 4,275 units

A sporting goods manufacturer budgets production of 41,000 pairs of ski boots in the first quarter and 32,000 pairs in the second quarter of the upcoming year. Each pair of boots require 2 kg of a key raw material. The company aims to end each quarter with ending raw materials inventory equal to 15% of the following quarter's material needs. Beginning inventory for this material is 12,300 kg and the cost per kg is $10. What is the budgeted materials need in kg. in the first quarter?

79,300 kg. Explanation Budgeted production units * materials requirement per unit = materials needed Materials needed + ending inventory requirements - beginning inventory available = materials to be purchased 41,000 * 2 kg = 82,000 kg; 82,000 kg + (32,000 * 2 kg * 15%) - 12,300 kg = 79,300 kg

Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be:

A cost center manager.

A budget is best described as:

A formal statement of a company's future plans usually expressed in monetary terms.

Which of the following costing methods charges all manufacturing costs to its products?

Absorption costing

Identify the situation below that will result in a favorable variance.

Actual revenue is higher than budgeted revenue.

Western Company is preparing a cash budget for June. The company has $10,200 cash at the beginning of June and anticipates $31,800 in cash receipts and $38,100 in cash disbursements during June. Western Company has an agreement with its bank to maintain a minimum cash balance of $10,000. As of May 31, the company owes $15,000 to the bank. To maintain the $10,000 required balance, during June the company must:

Borrow $6,100. Explanation Beginning cash balance$10,200 Add cash receipts 31,800 Less cash disbursements (38,100) Cash balance before financing$3,900 Desired cash balance 10,000 Amount to borrow$6,100

The central guidance of the budget process is the responsibility of the:

Budget Committee.

A formal statement of future plans, usually expressed in monetary terms, is a:

Budget.

The master budgeting process typically begins with the sales budget and ends with a cash budget and:

Budgeted financial statements.

Standard costs are used in the calculation of:

Price and quantity variances.

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

Capital expenditures budget.

Operating budgets include all the following budgets except the:

Cash budget.

Costs that the manager has the power to determine or at least significantly affect are called:

Controllable costs.

The difference between actual overhead costs incurred and the budgeted overhead costs based on a flexible budget is the:

Controllable variance.

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

DL, DM, VOH, and FOH.

Which of the following best describes costs assigned to the product under the variable costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

DL, DM, and VOH.

An expense that is readily traced to a department because it is incurred for that department's sole benefit is a(n):

Direct expense.

In this type of control system, the master budget is based on a single prediction for sales volume, and the budgeted amount for each cost essentially assumes that a specific amount of sales will occur:

Fixed budget.

Which of the following is not included in the product cost under variable costing?

Fixed manufacturing overhead.

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity) is called a(n):

Flexible budget performance report.

A budget based on several different levels of activity, often including both a best-case and worst-case scenario, is called a:

Flexible budget.

The most useful budget figures are developed:

From the "bottom-up" following a participatory process.

In the preparation of departmental income statements, the preparer completes the following steps in the following order:

Identify direct expenses; allocate indirect expenses; allocate service department expenses.

Calculating return on investment for an investment center is defined by the following formula:

Income/Average invested assets.

Expenses that are not easily associated with a specific department, and which are incurred for the joint benefit of more than one department, are:

Indirect expenses.

The type of department that generates revenues and incurs costs, and its manager is responsible for the investments made in operating assets is called a(n):

Investment center

A cost incurred to produce or purchase two or more products at the same time is a(n):

Joint cost.

A cost center is a unit of a business that incurs costs without directly generating revenues. All of the following are considered cost centers except:

Juice division at Coca Cola.

An analytical technique used by management to focus attention on the most significant variances and give less attention to the areas where performance is reasonably close to standard is known as:

Management by exception.

When evaluating a special order, management should:

Only accept the order if the incremental revenue exceeds total variable product costs.

Special order decisions should be made using variable costing because:

Only variable costs will increase as a result of the special order.

The difference between actual quantity of input used and the standard quantity of input used results in a:

Quantity variance.

Allocating joint costs to products using a value basis method is based on their relative:

Sales values.

The usual starting point for preparing a master budget is forecasting or estimating:

Sales.

Rent and maintenance expenses would most likely be allocated based on:

Square feet of floor space occupied.

Which department is often responsible for the direct materials price variance?

The purchasing department.

Regarding overhead costs, as volume increases:

Total fixed cost remains constant, total variable cost increases.

Which of the following statements is true?

Variable costing treats fixed overhead as a period cost.

When there is a difference between the actual volume of production and the standard volume of production, which of the following, based solely on fixed overhead, occurs:

Volume variance.

Income __________ when there is zero beginning inventory and all inventory units produced are sold.

Will be the same under both variable and absorption costing


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