ACC 221 - Midterm 3

Financial measures tend to be lag indicators that report on the results of past actions. a. True b. False

a. True

Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $96 Units in beginning inventory 0 Units produced 8,750 Units sold 8,350 Units in ending inventory 400 Variable costs per unit: Direct materials $ 14 Direct labor $ 56 Variable manufacturing overhead $ 2 Variable selling and administrative expense $ 6 Fixed costs: Fixed manufacturing overhead $131,250 Fixed selling and administrative expense $ 8,400 What is the net operating income (loss) for the month under variable costing? a. $10,650 b. $(18,150) c. $16,650 d. $6,000

a. $10,650

Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the most recent operating period: Total Southern Northern Company Division Division Sales $ 418,000 $ 193,000 $ 225,000 Variable expenses $ 130,880 $ 79,130 $ 51,750 Traceable FCs $ 186,000 $ 77,000 $ 109,000 Common FC $ 79,420 $ 36,670 $ 42,750 The common fixed expenses have been allocated to the divisions on the basis of sales. What is the company's overall net operating income if it operates at the break-even points for its two divisions? a. $(79,420) b. $21,700 c. $(265,420) $0

a. $(79,420)

A small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria's owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. The pizzeria's cost formulas appear below: Fixed Cost Cost per Cost per per Month Pizza Delivery Pizza ingredients $3.80 Kitchen staff $5,220 Utilities $630 $0.05 Delivery person $3.50 Delivery vehicle $540 $1.50 Equipment depreciation $275 Rent $1,830 Miscellaneous $820 $0.15 In November, the pizzeria budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Data concerning the pizzeria's actual results in November were as follows: Actual Results Pizzas 1,240 Deliveries 174 Revenue $17,420 Pizza ingredients $4,985 Kitchen staff $5,281 Utilities $984 Delivery person $609 Delivery vehicle $655 Equipment depreciation $275 Rent $1,830 Miscellaneous $954 What is net operating income in the flexible budget? a. $1,595 b. $1,185 c. $1,847 d. $15,145

a. $1,595

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company's operations in July appear below: Actual Flexible Planning Results Budget Budget Flights (q) 48 48 50 Revenue ($320.00q) $13,650 $15,360 $16,000 Expenses: Wages & salaries ($4,000 + $82.00q) 8,430 7,936 8,100 Fuel ($23.00q) 1,260 1,104 1,150 Airport fees ($650 + $38.00q) 2,350 2,474 2,550 Aircraft depreciation ($7.00q) 336 336 350 Office expenses ($190 + $2.00q) 460 286 290 Total expense 12,836 12,136 12,440 Net operating income $814 $3,224 $3,560 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. What is the revenue and spending variance for revenue? a. $1,710 U b. $1,710 F c. $640 U d. $640 F

a. $1,710 U

A company's Minneapolis' sales by product line are: Market Minneapolis Medical Dental Sales $300,000 $200,000 $100,000 Variable expenses 180,000 128,000 52,000 CM 120,000 72,000 48,000 Traceable FCs 33,000 12,000 21,000 Market SM 87,000 $60,000 $27,000 Common FCs not traceable to markets 15,000 Office SM $72,000 The company is considering an advertising campaign in the Dental segment, which would cost $5,000 and should increase sales by $35,000. How much would the company's profits increase (decrease) if it implemented the advertising campaign and realized the desired sales increase? a. $11,800 increase b. $11,800 decrease c. $7,600 increase d. $7,600 decrease

a. $11,800 increase CM Ratio = 48,000/100,000 = .48 $35,000 x .48 = $16,800 - 5,000 = $11,800

Fackler Company's quality cost report is to be based on the following data: Quality circles $ 12,000 Product recalls $ 24,000 Supplies used in testing and inspection $ 87,000 Net cost of scrap $ 59,000 Liability arising from defective products $ 38,000 Re-entering data because of keying errors $ 65,000 Debugging software errors $ 19,000 Test and inspection of incoming materials $ 65,000 Quality data gathering, analysis, and reporting $ 55,000 What would be the total internal failure cost appearing on the quality cost report? a. $143,000 b. $146,000 c. $97,000 d. $43,000

a. $143,000

A company offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company's operations in July appear below: Actual Flexible Planning Results Budget Budget Flights (q) 48 48 50 Revenue ($320.00q) $13,650 $15,360 $16,000 Expenses: Wages & salaries ($4,000 + $82.00q) 8,430 7,936 8,100 Fuel ($23.00q) 1,260 1,104 1,150 Airport fees ($650 + $38.00q) 2,350 2,474 2,550 Aircraft depreciation ($7.00q) 336 336 350 Office expenses ($190 + $2.00q) 460 286 290 Total expense 12,836 12,136 12,440 Net operating income $814 $3,224 $3,560 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. What is the spending variance for office expenses? a. $174 U b. $174 F c. $4 U d. $4 F

a. $174 U

Eaglin Company's quality cost report is to be based on the following data: Disposal of defective products $ 74,000 Liability arising from defective products $ 66,000 Test and inspection of in-process goods $ 82,000 Systems development $ 11,000 Net cost of spoilage $ 75,000 Supervision of testing and inspection activities $ 93,000 Lost sales due to poor quality $ 44,000 Maintenance of test equipment $ 19,000 Quality data gathering, analysis, and reporting $ 51,000 What would be the total appraisal cost appearing on the quality cost report? a. $194,000 b. $175,000 c. $112,000 d. $167,000

a. $194,000

A company's contribution format income statement for June is as follows: Sales $750,000 Variable expenses 336,000 Contribution margin 414,000 Fixed expenses 378,000 Net operating income $36,000 Management is disappointed with the company's performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined that the company is divided into two sales territories—Northern and Southern. The Northern territory recorded $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 are traceable to the Northern and Southern territories, respectively. The rest of the fixed expenses are common to the two territories. What is the Northern territory's segment margin? a. $24,000 b. $162,000 c. $186,000 d. $36,000

a. $24,000 North Sales 300,000 VC 156,000 CM 144,000 TFC 120,000 Seg Margin 24,000

A small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria's owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. The pizzeria's cost formulas appear below: Fixed Cost Cost per Cost per per Month Pizza Delivery Pizza ingredients $3.80 Kitchen staff $5,220 Utilities $630 $0.05 Delivery person $3.50 Delivery vehicle $540 $1.50 Equipment depreciation $275 Rent $1,830 Miscellaneous $820 $0.15 In November, the pizzeria budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Data concerning the pizzeria's actual results in November were as follows: Actual Results Pizzas 1,240 Deliveries 174 Revenue $17,420 Pizza ingredients $4,985 Kitchen staff $5,281 Utilities $984 Delivery person $609 Delivery vehicle $655 Equipment depreciation $275 Rent $1,830 Miscellaneous $954 What is the revenue and spending variance for net operating income? a. $252 F b. $252 U c. $410 F d. $410 U

a. $252 F

A company produces and sells two packaged products—Weedban and Greengrow. Revenue and cost information relating to the products follow: Product Weedban Greengrow Selling price per unit $6.00 $7.50 Variable expenses per unit $2.40 $5.25 Traceable fixed expenses per year $45,000 $21,000 Last year the company produced and sold 15,000 units of Weedban and 28,000 units of Greengrow. Its annual common fixed expenses are $33,000. What is break-even revenue for Royal Lawncare Company? a. $253,847 b. $282,000 c. $169,231 d. $84,616

a. $253,847 Total Sales = (6 x 15,000) + (7.50 x 28,000) = $300,000 Total CM = ((6 - 2.40) x 15,000) + ((7.50 - 5.25) x 28,000) = 117,000 CM Ratio = 117,000/300,000 = .39 BE $ = (45,000 + 21,000 + 33,000)/.39 = $253,846.15 therefore $253,847

A corporation has two divisions, J and K. During March, the contribution margin in Division J was $30,000. The contribution margin ratio in Division K was 40%, its sales were $125,000, and its segment margin was $32,000. The common fixed expenses in the company were $40,000, and the company's net operating income was $18,000. The segment margin for Division J was: a. $26,000 b. $32,000 c. $8,000 d. $58,000

a. $26,000 Total J K Sales VC CM TFC Seg Margin 58,000 26,000 32,000 CFC 40,000 NOI 18,000

A company cost formula for its materials and supplies is $2,070 per month plus $13 per vehicle. For the month of August, the company planned for activity of 87 vehicles, but the actual level of activity was 47 vehicles. The actual materials and supplies for the month was $2,430. The materials and supplies in the planning budget for August would be closest to: a. $3,201 b. $2,681 c. $4,792 d. $2,430

a. $3,201

A consulting firm specializing in information systems for medical and dental clinics. The firm has two offices—Chicago and Minneapolis and classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company's most recent year is given: Office Total Chicago Minneapolis Company Sales $450,000 $150,000 $300,000 Variable expenses 225,000 45,000 180,000 Contribution margin 225,000 105,000 120,000 Traceable fixed costs 126,000 78,000 48,000 Segment margin 99,000 $27,000 $72,000 Common fixed costs 63,000 Net operating income $36,000 What is the company's break-even revenue? a. $378,000 b. $126,000 c. $111,429 d. $120,000

a. $378,000 BE $ = ($63,000 + $126,000)/($225,000/$450,000) = $189,000/.5 = $378,000

A small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria's owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. The pizzeria's cost formulas appear below: Fixed Cost Cost per Cost per per Month Pizza Delivery Pizza ingredients $3.80 Kitchen staff $5,220 Utilities $630 $0.05 Delivery person $3.50 Delivery vehicle $540 $1.50 Equipment depreciation $275 Rent $1,830 Miscellaneous $820 $0.15 In November, the pizzeria budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Data concerning the pizzeria's actual results in November were as follows: Actual Results Pizzas 1,240 Deliveries 174 Revenue $17,420 Pizza ingredients $4,985 Kitchen staff $5,281 Utilities $984 Delivery person $609 Delivery vehicle $655 Equipment depreciation $275 Rent $1,830 Miscellaneous $954 What is the cost of pizza ingredients in the flexible budget? a. $4,712 b. $4,560 c. $4,985 d. $4,439

a. $4,712

Fabrick Company's quality cost report is to be based on the following data: Lost sales due to poor quality $22,400 Quality data gathering, analysis, and reporting $ 66,600 Net cost of spoilage $ 62,400 Re-entering data because of keying errors $ 19,900 Test and inspection of in-process goods $ 17,500 Final product testing and inspection $ 48,100 Statistical process control activities $ 40,200 Returns arising from quality problems $ 39,300 Downtime caused by quality problems $ 64,800 What would be the total external failure cost appearing on the quality cost report? a. $61,700 b. $381,200 c. $87,200 d. $208,800

a. $61,700

A company uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $48,840 per month plus $2,381 per flight plus $7 per passenger. The company expected its activity in October to be 63 flights and 293 passengers, but the actual activity was 61 flights and 298 passengers. The actual cost for plane operating costs in October was $199,070. The activity variance for plane operating costs in October would be closest to: a. $4,727 F b. $4,727 U c. $1,824 F d. $1,824 U

a. $4,727 F

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company's planning budget? a. $49,000 b. $62,000 c. $125,000 d. $72,000

a. $49,000 Net operating income on the planning budget for 5,000 units would be $49,000.$49,000 = $13 contribution margin × 5,000 units − fixed expenses of $16,000.

A small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria's owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. The pizzeria's cost formulas appear below: Fixed Cost Cost per Cost per per Month Pizza Delivery Pizza ingredients $3.80 Kitchen staff $5,220 Utilities $630 $0.05 Delivery person $3.50 Delivery vehicle $540 $1.50 Equipment depreciation $275 Rent $1,830 Miscellaneous $820 $0.15 In November, the pizzeria budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Data concerning the pizzeria's actual results in November were as follows: Actual Results Pizzas 1,240 Deliveries 174 Revenue $17,420 Pizza ingredients $4,985 Kitchen staff $5,281 Utilities $984 Delivery person $609 Delivery vehicle $655 Equipment depreciation $275 Rent $1,830 Miscellaneous $954 What is the activity variance for revenue? a. $540 F b. $540 U c. $680 F d. $680 U

a. $540 F

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $ 133 Units in beginning inventory 0 Units produced 7,000 Units sold 6,800 Units in ending inventory 200 Variable costs per unit: Direct materials $ 41 Direct labor $ 57 Variable manufacturing overhead $ 5 Variable selling and administrative expense $ 4 Fixed costs: Fixed manufacturing overhead $133,000 Fixed selling and administrative expense $ 34,000 What is the total period cost for the month under absorption costing? a. $61,200 b. $133,000 c. $34,000 d. $194,200

a. $61,200

Petrus Framing's cost formula for its supplies cost is $1,820 per month plus $9 per For the month of March, the company planned for activity of 622 frames, but the actual level of activity was 629 frames. The actual supplies cost for the month was $7,890. The activity variance for supplies cost in March would be closest to: a. $63 U b. $472 U c. $63 F d. $472 F

a. $63 U

A company offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company's operations in July appear below: Actual Flexible Planning Results Budget Budget Flights (q) 48 48 50 Revenue ($320.00q) $13,650 $15,360 $16,000 Expenses: Wages & salaries ($4,000 + $82.00q) 8,430 7,936 8,100 Fuel ($23.00q) 1,260 1,104 1,150 Airport fees ($650 + $38.00q) 2,350 2,474 2,550 Aircraft depreciation ($7.00q) 336 336 350 Office expenses ($190 + $2.00q) 460 286 290 Total expense 12,836 12,136 12,440 Net operating income $814 $3,224 $3,560 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. What is the activity variance for revenue? a. $640 U b. $640 F c. $1,710 U d. $1,710 F

a. $640 U

A company's Snow Removal's cost formula for its vehicle operating cost is $2,510 per month plus $371 per snow-day. For the month of March, the company planned for activity of 18 snow-days, but the actual level of activity was 17 snow-days. The actual vehicle operating cost for the month was $8,460. The vehicle operating cost in the flexible budget for March would be closest to: a. $8,817 b. $9,188 c. $8,460 d. $8,678

a. $8,817

Janos Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 111 Units in beginning inventory 300 Units produced 2,000 Units sold 2,200 Units in ending inventory 100 Variable costs per unit: Direct materials $ 29 Direct labor $ 30 Variable manufacturing overhead $ 4 Variable selling and administrative expense $ 9 Fixed costs: Fixed manufacturing overhead $34,000 Fixed selling and administrative expense $39,600 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. What is the unit product cost for the month under absorption costing? a. $80 per unit b. $72 per unit c. $63 per unit d. $89 per unit

a. $80 per unit

Chao, Incorporated, a service provider, has two divisions. The firm's most recent annual contribution format segmented income statement appears below. Total Eastern Western Company Division Division Sales $450,000 $90,000 $360,000 Variable expense 243,000 27,000 216,000 Contribution margin 207,000 63,000 144,000 Traceable FCs 100,800 46,800 54,000 Division SM 106,200 16,200 90,000 Common FCs 72,000 NOI 37,200 If the company eliminates the Western Division and the Eastern Division sales increase by 10% as a result, how much will the company's net operating income decrease? a. $83,700 b. $88,380 c. $90,000 d. $137,000 e. $144,000

a. $83,700 Eastern Division contribution margin ratio = $63,000 ÷ $900,000 = 70% Increase in Eastern Division contribution margin = Increase in sales of ($90,000 × Increase of 10%) × CM ratioof 70% Increase in Eastern Division contribution margin = $9,000 × 0.70 = $6,300 Because the fixed costs will not change, the entire $6,300 would result in increased net operating income for thecompany. Change in company's net operating income = Increase in Western Division CM of $6,300 − Decrease of EasternDivision segment margin of $90,000 = $(83,700)

A company produces and sells two packaged products—Weedban and Greengrow. Revenue and cost information relating to the products follow: Product Weedban Greengrow Selling price per unit $6.00 $7.50 Variable expenses per unit $2.40 $5.25 Traceable fixed expenses per year $45,000 $21,000 Last year the company produced and sold 15,000 units of Weedban and 28,000 units of Greengrow. Its annual common fixed expenses are $33,000. What is the segment margin for the Weedban segment? a. $9,000 b. $42,000 c. $51,000 d. $45,000

a. $9,000 CM = (6-2.40) x 15,000 = $54,000 - 45,000 = $9,000

A company's Minneapolis' sales by product line are: Market Minneapolis Medical Dental Sales $300,000 $200,000 $100,000 Variable expenses 180,000 128,000 52,000 Contribution margin 120,000 72,000 48,000 Traceable fixed expenses 33,000 12,000 21,000 Market segment margin 87,000 $60,000 $27,000 Common fixed expenses not traceable to markets 15,000 Office segment margin $72,000 The company is considering an advertising campaign in the Medical segment, which would cost $5,000 and should increase sales by $40,000. How much would the company's profits increase (decrease) if it implemented the advertising campaign and realized the desired sales increase? a. $9,400 increase b. $9,400 decrease c. $7,000 increase d. $7,000 decrease

a. $9,400 increase CM Ratio = 72,000/200,000 = .36 $40,000 x .36 = $14,400 - 5,000 = $9,400

A company produces and sells two packaged products—Weedban and Greengrow. Revenue and cost information relating to the products follow: Product Weedban Greengrow Selling price per unit $6.00 $7.50 Variable expenses per unit $2.40 $5.25 Traceable fixed expenses per year $45,000 $21,000 Last year the company produced and sold 15,000 units of Weedban and 28,000 units of Greengrow. Its annual common fixed expenses are $33,000. What is the break-even number of units for the Greengrow segment? a. 9,334 b. 9,333 c. 9,000 d. 18,666

a. 9,334 BE = 21,000/(7.50 - 5.25) = 9,333.33 since we do not break-even at 9,333, we need to go up to 9,334.

Kern Corporation produces a single product. Selected information concerning the operations of the company follow: Units in beginning inventory 0 Units produced 10,000 Units sold 9,000 Direct materials $40,000 Direct labor $20,000 Variable manufacturing overhead $12,000 Fixed manufacturing overhead $25,000 Variable selling and administrative expenses $ 4,500 Fixed selling and administrative expenses $30,000 Assume that direct labor is a variable cost. Which costing method, absorption or variable costing, would show a higher operating income for the year and by what amount? a. Absorption costing net operating income would be higher than variable costing net operating income by $2,500 b. Variable costing net operating income would be higher than absorption costing net operating income by $2,500 c. Absorption costing net operating income would be higher than variable costing net operating income by $5,500 d. Variable costing net operating income would be higher than absorption costing net operating income by $5,500

a. Absorption costing net operating income would be higher than variable costing net operating income by $2,500

Adolphson Corporation has provided the following summary of its quality cost report for the last two years: Summary of Quality Cost Report (in thousands) This Year Last Year % Change Prevention costs $300 $200 +50 Appraisal costs 315 210 +50 Internal failure costs 114 190 -40 External failure costs 621 1,200 -48 Total quality costs $1,350 $1,800 -25 On the basis of this report, which one of the following statements is most likely correct? a. An increase in prevention and appraisal costs resulted in fewer defects, and therefore, resulted in a decrease in internal and external failure costs. b. A decrease in internal and external failure costs resulted in less need for prevention and appraisal costs. c. Quality costs such as scrap and rework decreased by 48%. d. Quality costs such as returns and repairs under warranty decreased by 40%.

a. An increase in prevention and appraisal costs resulted in fewer defects, and therefore, resulted in a decrease in internal and external failure costs.

Eaglin Company's quality cost report is to be based on the following data: Disposal of defective products $ 74,000 Liability arising from defective products $ 66,000 Test and inspection of in-process goods $ 82,000 Systems development $ 11,000 Net cost of spoilage $ 75,000 Supervision of testing and inspection activities $ 93,000 Lost sales due to poor quality $ 44,000 Maintenance of test equipment $ 19,000 Quality data gathering, analysis, and reporting $ 51,000 What would be the total external failure cost appearing on the quality cost report? a. $259,000 b. $110,000 c. $119,000 d. $515,000

b. $110,000

In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be: a. Classified as a common fixed expense and not allocated. b. Classified as a traceable fixed expense and not allocated. c. Allocated to the product lines on the basis of sales dollars. d. Allocated to the product lines on the basis of segment margin.

a. Classified as a common fixed expense and not allocated.

Financial measures such as ROI and residual income as well as operating measures may be included in a balanced scorecard. a. True b. False

a. True

An unfavorable variance of $5,000 in sales is determined by comparing the flexible budget (9,000 units) and the planning budget (10,000 units). What type of variance is described? a. activity variance b. spending variance c. revenue variance

a. activity variance What revenues should have been at the actual level of activity are compared with planned activity revenues. This variance is called the activity variance.

Delivery cycle time is an example of which performance measure category? a. internal business processes b. customer c. financial d. learning and growth

a. internal business processes

Customer value propositions typically fall into three broad categories, which include all of the following except: a. market share b. product leadership c. operational excellence d. customer intimacy

a. market share

Which of the following would be classified as an internal failure cost on a quality cost report? a. rework labor and overhead b. cost of field servicing and handling complaints c. technical support provided to suppliers d. lost sales arising from a reputation for poor quality

a. rework labor and overhead

A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur? a. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement. b. some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement. c. the sum total of the individual stores' segment margins in each sales territory will not be equal to the segment margin for the sales territory. d. the sum total of the sales territory segment margins will equal the total net operating income for the entire company.

a. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement.

The difference between the actual cost and budgeted cost at the actual level of activity is called a(n) ________. a. spending variance b. activity variance c. unfavorable variance d. revenue variance

a. spending variance A spending variance is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity. An activity variance is the difference between a revenue or cost item in the flexible budget and the same item in the static planning budget. A revenue variance is the difference between actual total revenue and what the revenue should have been, given the actual level of activity for the period. In general, a variance is described as favorable or unfavorable when actual and budgeted amounts are being compared.

Which of the following would be classified as an appraisal cost on a quality cost report? a. test and inspection of in-process goods b. technical support provided to suppliers c. debugging software suppliers d. audits of the effectiveness of the quality system

a. test and inspection of in-process goods

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What would be the utility expenses on the company's flexible budget if actual unit sales for April were 6,000 units? a. $12,000 b. $14,000 c. $2,000 d. $26,000

b. $14,000 The amount of utility expenses on the flexible budget for 6,000 units would be $14,000. $14,000 = $2,000 + ($2× 6,000 units).

Eagleson Company's quality cost report is to be based on the following data: Net cost of scrap $ 75,000 Liability arising from defective products $ 32,000 Warranty repairs and replacements $ 80,000 Re-entering data because of keying errors $ 75,000 Supplies used in testing and inspection $ 18,000 Quality data gathering, analysis, and reporting $ 62,000 Final product testing and inspection $ 21,000 Test and inspection of in-process goods $ 44,000 Systems development $ 45,000 What would be the total internal failure cost appearing on the quality cost report? a. $155,000 b. $150,000 c. $96,000 d. $107,000

b. $150,000

Fackler Company's quality cost report is to be based on the following data: Quality circles $ 12,000 Product recalls $ 24,000 Supplies used in testing and inspection $ 87,000 Net cost of scrap $ 59,000 Liability arising from defective products $ 38,000 Re-entering data because of keying errors $ 65,000 Debugging software errors $ 19,000 Test and inspection of incoming materials $ 65,000 Quality data gathering, analysis, and reporting $ 55,000 What would be the total appraisal cost appearing on the quality cost report? a. $130,000 b. $152,000 c. $146,000 d. $219,000

b. $152,000

Pinnacle Corporation is a manufacturing company operating numerous machines, which require regular maintenance to keep them operational. The fixed portion of maintenance expense is $3,000 per month. Maintenance costs are also incurred at the rate of $5 per batch and $0.50 per unit produced. The company produced 23,000 units in 800 batches during a particular month. What budgeted maintenance expense for this month? a. $3,000 b. $18,500 c. $7,000 d. $11,500

b. $18,500 Budgeted maintenance expense = $3,000 fixed portion + ($5 per batch × 800 batches) + ($0.50 per unit produced × 23,000 units produced) = $18,500

Max, Incorporated, has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South Division? a. $100,000 b. $200,000 c. $300,000 d. $400,000

b. $200,000 Contribution margin = Sales of $500,000 × 60% contribution margin = $300,000 Segment margin = Contribution margin of $300,000 − Traceable fixed expenses of $100,000 = $200,000

Circle K Toys, Incorporated manufactures toys and children's clothing and sells these products to retail outlets. The following costs were incurred in performing quality activities at Circle K during the year: Product recall activities $ 370,000 Quality training activities $ 240,000 Quality improvement activities $ 154,000 Warranty claim activities $ 109,000 Quality inspection and testing activities $ 61,000 Rework activities $ 38,000 Quality data collection and reporting activities $ 15,000 What is the total of the prevention costs for Circle K? a. $394,000 b. $409,000 c. $455,000 d. $470,000

b. $409,000

Parcel Corporation Segment Income Statement Total American International Company Division Division Sales $ 1,520,000 $ 720,000 $ 800,000 Variable expenses 448,000 288,000 160,000 Contribution margin 1,072,000 432,000 640,000 Traceable FCs 712,000 360,000 352,000 Division seg margin 360,000 $ 72,000 $ 288,000 Common FCs 141,800 NOI $ 218,200 What is the break-even point for the International Division? a. $352,000 b. $440,000 c. $600,000 d. $1,210,549

b. $440,000 Segment contribution margin ratio = $640,000 ÷ $800,000 = 80% Segment break-even point = Traceable fixed expenses of $352,000 ÷ Segment contribution margin ratio of 80%= $440,000

Kekiwi Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During January, the company budgeted for 6,900 units, but its actual level of activity was 6,910 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for January: Fixed/month Variable/unit Revenue $0 $39.30 DL $0 $3.10 DM 0 18.90 MOH 45,900 1.70 S&A 27,000 0.30 Total exps $72,900 $24.00 Actual results for January: Revenue $281,473 DL $20,591 DM $134,889 MOH $57,087 S&A $28,063 The manufacturing overhead in the flexible budget for January would be closest to: a. $57,004 b. $57,647 c. $57,630 d. $57,170

b. $57,647

Fackler Company's quality cost report is to be based on the following data: Quality circles $ 12,000 Product recalls $ 24,000 Supplies used in testing and inspection $ 87,000 Net cost of scrap $ 59,000 Liability arising from defective products $ 38,000 Re-entering data because of keying errors $ 65,000 Debugging software errors $ 19,000 Test and inspection of incoming materials $ 65,000 Quality data gathering, analysis, and reporting $ 55,000 What would be the total prevention cost appearing on the quality cost report? a. $99,000 b. $67,000 c. $120,000 d. $79,000

b. $67,000

Bellue Incorporated manufactures a single product. Variable costing net operating income was $96,300 last year and its inventory decreased by 2,600 units. Fixed manufacturing overhead cost was $1 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year? a. $2,600 b. $93,700 c. $96,300 d. $98,900

b. $93,700

Which of the following is true when a company determines that its costs should be explained by more than one cost driver? a. The flexible budget performance report should be prepared using only a single cost driver. b. A flexible budget performance report that is based on more than one cost driver will be more accurate than a flexible budget performance report that is based on just one cost driver. c. A flexible budget performance report that is based on just one cost driver will be more accurate than a flexible budget performance report that is based on more than one cost driver. d. A flexible budget performance report cannot be prepared.

b. A flexible budget performance report that is based on more than one cost driver will be more accurate than a flexible budget performance report that is based on just one cost driver.

If improvement in a performance measure on a balanced scorecard should lead to improvement in another performance measure, but does not, then employees must work harder. a. True b. False

b. False

The costs of lost sales arising from poor quality are always included in quality cost reports. a. True b. False

b. False

Which of the following statements about the segment margin is not true? a. In preparing a segmented income statement, the variable expenses are deducted from sales to yield the contribution margin for each segment. b. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin. c. The segment margin represents the margin available after a segment has covered all of its own costs. d. The segment margin is the best gauge of the long-run profitability of a segment because it includes only those costs that are caused by the segment.

b. The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin. The segment margin is obtained by deducting the traceable fixed costs of a segment from the segment's contribution margin.

All of the following are reasons for revenue variances EXCEPT ________. a. a change in discount structure b. a change in input prices c. a change in product mix d. a change in selling price

b. a change in input prices Possible reasons for revenue variances can be changes in selling price, product mix, discount structure, poor accounting controls, and so on. Possible explanations for such spending variances can be changes in input prices, changes in usage, a change in technology, and so on.

Paradise Company's planning budget for 10,000 units showed sales of $500,000. The flexible budget for 12,000units showed sales of $600,000. What is the variance of $100,000 called if this variance was due only to an increase in unit sales? a. spending variance b. activity variance c. unfavorable variance d. revenue variance

b. activity variance Variances caused solely because of the differences in the level of activity are called activity variances.

Market share percentage is an example of which performance measure category? a. internal business processes b. customer c. financial d. learning and growth

b. customer

Which of the following would be classified as an external failure cost on a quality cost report? a. depreciation of test equipment b. repairs and replacements beyond the warranty period c. supplies used in testing and inspection d. re-entering data because of keying errors

b. repairs and replacements beyond the warranty period

An unfavorable variance of $5,000 in cost of goods sold is determined by comparing the actual results (10,000units) and the flexible budget (10,000 units). What type of variance is described? a. activity variance b. spending variance c. revenue variance

b. spending variance Since actual costs are being compared with the costs that should have been ideally incurred at the actual level of activity. This is a spending variance.

Which of the following would be classified as an appraisal cost on a quality cost report? a. quality improvement projects b. supplies used in testing and inspection c. audits of the effectiveness of the quality system d. quality data gathering, analysis, and reporting

b. supplies used in testing and inspection

In classifying the costs of quality at a company that manufactures sonar equipment, which of the following is considered an external failure cost? a. the net cost of scrap and spoilage incurred during production. b. the cost of repairs and replacements made during the warranty period. c. the cost of debugging software errors found in the sonar equipment during inspection at the plant. d. both the cost of repairs and replacements made during the warranty period and the cost of debugging software errors found in the sonar equipment during inspection at the plant. e. none of the above

b. the cost of repairs and replacements made during the warranty period.

A reason why absorption costing income statements are sometimes difficult to interpret is that: a. they omit variable expenses entirely in computing net operating income b. they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories c. they include all fixed manufacturing overhead on the income statement each year as a period cost d. they ignore inventory levels in determining cost of goods sold

b. they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories

Speyer Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,090 patient-visits and the actual level of activity was 1,080 patient-visits. The cost formula for administrative expenses is $3.30 per patient-visit plus $18,500 per month. The actual administrative expense was $20,200. In the clinic's flexible budget performance report for last month, the spending variance for administrative expenses was: a. $33 F b. $1,897 F c. $1,864 F d. $670 F

c. $1,864 F

Younie Corporation has two divisions: the South Division and the West Division. The corporation's net operating income is $89,000. The South Division's divisional segment margin is $39,500 and the West Division's divisional segment margin is $171,900. What is the amount of the common fixed expense not traceable to the individual divisions? a. $260,900 b. $211,400 c. $122,400 d. $128,500

c. $122,400

Parcel Corporation Segment Income Statement Total American International Company Division Division Sales $ 1,520,000 $ 720,000 $ 800,000 Variable expenses 448,000 288,000 160,000 Contribution margin 1,072,000 432,000 640,000 Traceable FCs 712,000 360,000 352,000 Division SM 360,000 $ 72,000 $ 288,000 Common FCs 141,800 NOI $ 218,200 What is the break-even point for the American Division? a. $360,000 b. $440,000 c. $600,000 d. $1,210,549

c. $600,000 Segment contribution margin ratio = $432,000 ÷ $720,000 = 60% Segment break-even point = Traceable fixed expenses of $360,000 ÷ Segment contribution margin ratio of 60%= $600,000

Kerekes Manufacturing Corporation has prepared the following overhead budget for next month. Activity level 3,000 machine-hours Variable overhead costs: Supplies $ 15,000 Indirect labor 26,700 Fixed overhead costs: Supervision 16,500 Utilities 6,400 Depreciation 7,400 Total overhead cost $72,000 The company's variable overhead costs are driven by machine-hours. What would be the total budgeted overhead cost for next month if the activity level is 2,900 machine-hours rather than 3,000 machine-hours? a. $69,600 b. $69,970 c. $70,610 d. $72,000

c. $70,610

Bartosiewicz Clinic uses client-visits as its measure of activity. During January, the clinic budgeted for 3,800 client- visits, but its actual level of activity was 3,780 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January: Data used in budgeting: Fixed element Variable element per month per client-visit Revenue - $35.80 Personnel expenses $27,800 $ 11.80 Medical supplies 1,800 5.80 Occupancy expenses 10,800 1.00 Administrative expenses 6,800 0.40 Total expenses $47,200 $ 19.00 Actual results for January: Revenue $124,730 Personnel expenses $ 71,000 Medical supplies $ 22,716 Occupancy expenses $ 14,680 Administrative expenses $ 8,185 The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for January would be closest to: a. $8,491 F b. $8,491 U c. $8,155 U d. $8,155 F

c. $8,155 U

Which of the following is a common mistake made by companies when assigning costs to segments? a. They use allocation bases that drive the costs when assigning costs to segments. b. They trace fixed expenses to segments when it is feasible to do so. c. They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs. d. They include "upstream" and "downstream" costs when preparing profitability analyses that relate to individual product costs.

c. They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs. Assigning common costs, such as the cost of the corporate headquarters buildings to segments is inherently arbitrary. It overstates the amount of cost that would disappear if any given segment were discontinued.

Net profit margin percentage is an example of which performance measure category? a. internal business processes b. customer c. financial d. learning and growth

c. financial

Which of the following is not typically a performance measure category on a balanced scorecard? a. financial b. customer c. innovation d. learning and growth

c. innovation

Which of the following is NOT a column on a flexible budget performance report? a. actual results b. planning budget c. net operating income d. activity variances

c. net operating income The flexible budget performance report has the following columns; actual results, revenue and spending variances, flexible budgets, activity variances, and planning budget.

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores? a. store manager salaries b. store building depreciation expense c. the cost of corporate advertising aired during the Super Bowl d. cost of goods sold at each store

c. the cost of corporate advertising aired during the Super Bowl

A cost that would be included in product costs under both absorption costing and variable costing is: a. supervisory salaries b. factory rent c. variable manufacturing costs d. variable selling expenses

c. variable manufacturing costs

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) a. Variable Costing Absorption Costing No effect Increase b. Variable Costing Absorption Costing Decrease Increase c. Variable Costing Absorption Costing Decrease Decrease d. Variable Costing Absorption Costing No effect Decrease

d. Variable Costing Absorption Costing No effect Decrease

Schoening Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for January. Fixed/ Variable/ Actual Total Jan Month Container Revenue $4,100 $158,600 Employee S&W $50,600 $1,100 $92,700 Refurbishing materials $700 $27,000 Other expenses $41,200 $40,800 When the company prepared its planning budget at the beginning of January, it assumed that 40 containers would have been refurbished. However, 38 containers were actually refurbished during January. The activity variance for "Refurbishing materials" for January would have been closest to: a. $1,400 U b. $1,000 F c. $1,000 F d. $1,400 F

d. $1,400 F

Kawamura 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 December, the kennel budgeted for 2,300 tenant-days, but its actual level of activity was 2,320 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting: Fixed/ Variable/ Month Tenant-day Revenue $0 $37.70 S&W $3,000 $6.10 Food & supplies $800 $13.40 Facility expenses 9,800 4.70 Admin expenses $7,100 $0.20 Facility expenses $20,700 $24.40 The wages and salaries in the planning budget for December would be closest to: a. $17,787 b. $17,942 c. $17,152 d. $17,030

d. $17,030

Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 90 Units in beginning inventory 0 Units produced 3,400 Units sold 3,000 Units in ending inventory 400 Variable costs per unit: Direct materials $ 21 Direct labor $ 38 Variable manufacturing overhead $ 6 Variable selling and administrative expense $ 4 Fixed costs: Fixed manufacturing overhead $54,400 Fixed selling and administrative expense $ 3,000 The total gross margin for the month under the absorption costing approach is: a. $12,000 b. $59,400 c. $63,000 d. $27,000

d. $27,000

Budget Solutions has determined from its flexible budget that selling costs for actual level activity for a period should have been $25,000. Actual selling costs incurred during the period were $28,000. What is the amount and direction of variance in selling costs? a. $3,000 favorable b. $28,000 unfavorable c. $0 d. $3,000 unfavorable

d. $3,000 unfavorable The amount of variance in selling costs is $3,000 ($28,000 − $25,000). Because the actual costs are higher, the variance is unfavorable.

Hadley Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 126 Units in beginning inventory 0 Units produced 1,900 Units sold 1,800 Units in ending inventory 100 Variable costs per unit: Direct materials $ 49 Direct labor $ 28 Variable manufacturing overhead $ 5 Variable selling and administrative expense $ 11 Fixed costs: Fixed manufacturing overhead $32,300 Fixed selling and administrative expense $23,400 What is the net operating income for the month under variable costing? a. $5,400 b. $1,700 c. $(4,500) d. $3,700

d. $3,700

All of the following are reasons for preparing a flexible budget with multiple cost drivers EXCEPT ________. a. multiple cost drivers can lead to more accurate variances b. cost formulas are likely to be more accurate c. an expense may be expected to vary for more than one reason d. it eliminates the need for performing variance analysis

d. it eliminates the need for performing variance analysis The use of multiple cost drivers does not eliminate the need for performing variance analysis. It does lead to more accurate variances, cost formulas are likely to be more accurate, and an expense may be expected to vary for more than one reason.

Malander 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 November, the kennel budgeted for 3,400 tenant-days, but its actual level of activity was 3,390 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for November: Data used in budgeting: Fixed/ Variable/ Month Tenant-day Revenue $0 $28.00 S&W $2,700 $5.40 Food & supplies $500 $10.20 Facility expenses 9,600 3.30 Admin expenses $6,600 $0.20 Facility expenses $19,400 $19.10 Actual results for November Revenue $90,470 S&W $20,606 Food & supplies $35,838 Facility expenses $20,857 Admin expenses $7,518 The revenue variance for November would be closest to: a. $4,450 F b. $4,730 U c. $4,730 F d. $4,450 U

d. $4,450 U

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are$100,000 and $500,000 respectively. Assuming the traceable fixed costs of the television division are $300,000, what is the segment margin of the mobile phone division? a. $100,000 b. $200,000 c. $300,000 d. $400,000

d. $400,000 Traceable fixed costs of the mobile phone division = Total traceable fixed costs of $500,000 − Traceable fixed costs of the television division of $300,000 = $200,000. Mobile phone segment margin = Contribution margin of $600,000 − Traceable fixed costs of $200,000 =$400,000.

Trevorrow Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During June, the company budgeted for 6,000 units, but its actual level of activity was 5,960 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for June: Data used in budgeting: Fixed/month Variable/unit Revenue $0 $28.10 DL $0 $3.20 DM 0 10.10 MOH 39,100 1.30 S&A 24,700 0.20 Total exps $63,800 $14.80 Actual results for June: Revenue $174,032 DL $18,525 DM $57,921 MOH $46,728 S&A $25,942 The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for June would be closest to: a. $8,916 U b. $8,916 F c. $9,448 U d. $9,448 F

d. $9,448 F

Kern Corporation produces a single product. Selected information concerning the operations of the company follow: Units in beginning inventory 0 Units produced 10,000 Units sold 9,000 Direct materials $40,000 Direct labor $20,000 Variable manufacturing overhead $12,000 Fixed manufacturing overhead $25,000 Variable selling and administrative expenses $ 4,500 Fixed selling and administrative expenses $30,000 Assume that direct labor is a variable cost. Under absorption costing, the value of the ending finished goods inventory would be: a. $7,200 b. $7,650 c. $8,000 d. $9,700

d. $9,700

Which of the following may appear on a flexible budget performance report? a. an unfavorable activity variance b. a favorable revenue variance c. an unfavorable spending variance d. all of the above may appear on a flexible budget performance report

d. all of the above may appear on a flexible budget performance report

Which of the following would be classified as an internal failure cost on a quality cost report? a. audits of the effectiveness of the quality system b. systems development c. quality improvement projects d. debugging software errors

d. debugging software errors

Which of the following would be classified as an internal failure cost on a quality cost report? a. final product testing and inspection b. warranty repairs and replacements c. depreciation of test equipment d. debugging software errors

d. debugging software errors

When tying compensation to the balanced scorecard, management must ensure that the performance measures have all the following characteristics except: a. reliable b. sensible c. understood by those who are being evaluated d. easily manipulated

d. easily manipulated

Employee turnover percentage is an example of which performance measure category? a. internal business processes b. customer c. financial d. learning and growth

d. learning and growth

The difference between the actual total revenue and budgeted total revenue at the actual level of activity is called a(n) ________. a. spending variance b. activity variance c. unfavorable variance d. revenue variance

d. revenue variance A revenue variance is the difference between actual total revenue and what the revenue should have been, given the actual level of activity for the period. A spending variance is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity. An activity variance is the difference between a revenue or cost item in the flexible budget and the same item in the static planning budget. In general, a variance is described as favorable or unfavorable when actual and budgeted amounts are being compared.

Which of the following would be classified as a prevention cost on a quality cost report? a. disposal of defective products b. net cost of spoilage c. depreciation of test equipment d. technical support provided to suppliers

d. technical support provided to suppliers