Accounting Test 4/Final

The learning and growth perspective answers the question

"Are we developing employees and providing technologies that facilitate change and improvement?"

In April, Graduation Experts plans to produce 8,000 graduation gowns, 8,000 graduation hats and tassels, and 1,500 honor cords. The company expects total manufacturing overhead for the year to be $3,331,125 and total direct labor hours for the year to be 235,000. Actual overhead incurred for April was $1,650,000. Each gown requires 5.75 hours of labor; each hat and tassel, 8.25 hours; and each honor cord, 3 hours. What is the standard overhead cost per hat and tassel?

$116.94 Predetermined overhead rate = ($3,331,125 ÷ 235,000) = $14.175. $14.175 x 8.25 hours per hat and tassel = $116.94.

According to standard production costs, it should cost JT Engineering $14,000 in direct materials, $12,600 in direct labor, and $6,200 in total overhead to produce 1,000 widgets. During the most recent period, JT actually spent $13,860 in direct materials, $12,420 in direct labor, and $6,500 in total overhead. What is JT's total variance? Is it favorable or unfavorable?

$20 favorable First, total standard costs must be determined ($14,000 + $12,600 + $6,200 = $32,800). Then, total actual costs must be determined ($13,860 + $12,420 + $6,500 = $32,780). Finally, the variance must be determined by subtracting the actual total from the standard total ($32,800 - $32,800 = $20).

JT Engineering usually pays $21 per pound of copper and uses 300 pounds of copper per 1,000 widgets. Due to the current high demand for copper, JT is currently paying $32 per pound of copper. What will JT's materials price variance be for this purchase

$3,300 The formula for materials price variance is ([actual quantity * actual price] - [actual quantity * standard price]), or ([300 pounds *$32] - [300 pounds * $21]) = $3,300.

In the Haden Company, the standard material cost for the silk used in making a dress is $27.00 based on three square feet of silk at a cost of $9.00 per square foot. The production of 1,000 dresses resulted in the use of 3,400 square feet of silk at a cost of $9.20 per square foot. The materials quantity variance is

$3,600 unfavorable The materials quantity variance is: (3,400 X $9.00) - (3,000 X $9.00) = $3,600 U.

In the McCaffee Company, each unit of finished goods requires one pound of direct materials at $2 per pound. In producing 50,000 units, 45,000 pounds of materials are used at $2.10 per pound. The materials price variance is

$4,500 unfavorable.

In the Pretzel Company 20,000 direct labor hours were worked when standard hours were 21,000 and the actual pay rate was $6.30 when the standard rate was $6.50. The labor quantity variance is

$6,500 favorable. The labor quantity variance is: (20,000 X $6.50) - (21,000 X $6.50) = $6,500 F.

Information on Smith's direct labor costs for the month of August is as follows: No alt text provided for this image What was the standard rate for August? Act Rate: $7.50 Std Hours 11,000, Actual Hours 10000, Direct Labor Price Var - Unfav

$7.00 (10000hours x $7.50)-(10000 x #)= 5000 Unf

Ramble Wood, Inc. produces a product which requires 6 hours of direct labor at $32 per hour. During February, Ramble Wood's actual payroll was $393,120 and the company used 12,600 direct labor hour to produce 2,000 units of the product. What is Ramble Wood's total direct labor variance?

$9,120 U Direct labor variance = (AH x AR) - (SH x SR) $393,120 - (12,000 x $32) = $9,120 unfavorable.

Century Manufacturing developed the following per-unit standards for its product: 4 pounds of direct materials at $6.40 per pound. Last month, 3,000 pounds of direct materials were purchased for $18,240. The direct materials price variance for last month was

$960 favorable Materials price variance = (AQ x AP) - (AQ x SP) $18,240 - (3,000 x $6.40) = $960 F

Which of the following expresses the materials price variance?

(AQ x AP) - (AQ x SP)

Which of the following expresses the materials quantity variance?

(AQ x SP) - (SQ x SP)

Chris Lawrence is contemplating a project with an initial investment of $50,000. Chris also has a discount rate of 8%. If the project has estimated net annual cash flows of $12,000 for the next six years, what is the profitability index for the project?

1.11 The profitability index is 1.11 [($12,000 X 4.62288) ÷ $50,000].

Windsor Manufacturing is considering a project with an internal rate of return of 12%, an annual rate of return of 18%, and a 5-year useful life. The cost of the project is $150,000 and it has a $6,000 salvage value. Windsor uses straight-line depreciation. What is the annual net income of the project? A $8,640

14,040 Annual return = Expected net income/Average investment .18 = Expected net income/[($150,000 + $6,000)/2]; Expected net income = $14,040

Elm Company had an investment which cost $260,000 and had no salvage value at the end of its useful life of zero. If Elm's expected annual net income is $20,000, the annual rate of return is

15.4% The annual rate of return is expected annual net income, $20,000, divided by average investment of $130,000 [($260,000 + 0)/2].

Which of the following conditions would result in a favorable variance?

Actual costs are less than standard costs.

What is a potential advantage to using the annual rate of return method for determining the desirability of a project rather than using the NPV method

Annual rate of return uses a simpler calculation that does not require the use of annuity tables.

Which of the following methods uses discounted cash flow techniques? 1. The internal rate of return method 2. The net present value method

Both 1 and 2

Which of the following best represents the cash payback formula?

Cost of Capital Investment ÷ Net Annual Cash Flow

Gradebook Publishers produces textbooks for public grade schools and public high schools. The standard direct labor cost per textbook is .5 direct labor hours and the standard direct labor rate is $10 per hour. Last month, 150,000 textbooks were produced and 73,500 actual direct labor hours were worked. The company's payroll for last month was $698,250. What was the direct labor price variance?

Direct labor price variance = (AH x AR) - (AH x SR) $698,250 - (73,500 x $10) = $36,750 favorable

What is the formula for the annual rate of return?

Expected Annual Net Income ÷ Average Investment

JT Engineering's normal capacity is 20,000 direct labor hours. If JT's variable costs are $26,400 and its fixed costs are $14,900 when the company runs at normal capacity, what is its standard manufacturing overhead rate per hour?

First, total overhead costs must be determined by adding the fixed and variable costs ($26,400 + $14,900 = $41,300). Then, the total overhead costs must be divided by the standard direct labor hours ($41,300 / 20,000 hours = $2.07).

When a company uses standard costs and prepares an income statement for management, which of the following amounts is reported both at standard prices and at actual prices?

Gross profit

Which of the following most accurately describes the relationship between favorable variances and cost of goods sold?

It is an inverse relationship: as the favorable variance increases, the cost of goods sold decreases.

How does the annual rate of return method differ from the internal rate of return and NPV methods?

It is based on accrual accounting data rather than on cash flows.

Garrett and Liam manage two different divisions of the same company. Garrett uses ideal standards to gauge his employees' performance, while Liam uses normal standards to gauge his employees' performance. Whose employees are likely to perform better? Why?

Liam's employees, because normal standards are better for morale, as they are rigorous but attainable.

JT Engineering spends $1.30 per pound purchasing raw materials, $0.30 per pound to ship the raw materials, and $0.13 per pound receiving the materials. JT then uses 2.75 pounds of raw materials making widgets, allowing 0.25 pounds of waste per widget. What is JT's standard direct materials cost per widget?

Per pound prices must be added to determine the direct materials price standard ($1.30 + $0.30 + $0.13 = $1.73). Then pounds per widget must be added to determine the direct materials quantity standard (2.75 pounds + 0.25 pounds = 3 pounds). Then, the price and quantity standards must be multiplied to find the cost per unit ($1.73 * 3 pounds = $5.19 per widget).

Of the following, which is considered in the net present value method?

Present value of liquidation proceeds

Which of the following is usually responsible for a labor price variance attributable to misallocation of workers?

Production

Which of the following departments is generally responsible for an unfavorable material price variance?

Purchasing

Of the following, which is typically considered a cash inflow?

Sale of old equipment.

How do the NPV simplifying assumptions about cash flow predictability differ from cash flow predictability in the real world?

Simplifying assumptions assume that future cash flows can be predicted with certainty, when in reality they cannot be.

Which of the following statements is correct?

The board of directors approves the capital budget.

Clarkdale Industries recently purchased a new energy-efficient furnace to melt glass that will be shaped into light bulbs. Before the purchase of the furnace, the total overhead variance was increasingly unfavorable each month. What effect do you expect this to have on their total overhead variance?

The overhead variance will become more favorable

Which of the following must be considered when a capital budgeting decision is being made? 1. The risks associated with a particular project 2. The time value of money

The risks associated with a particular project

Which of the following most accurately describes the relationship between a direct materials price standard and a direct materials quantity standard?

The standards are multiplicative; the price standard is multiplied by the materials standard to determine the standard cost per unit.

Of the following, which is correct about the annual rate of return method?

The timing of the cash inflows is not considered.

The annual rate of return, unlike the internal rate of return and the payback period, does not focus on cash flows.

True

Which of the following statements is an example of a direct materials quantity standard for a company that manufactures chairs?

Twenty nails should be used in each chair.

Palmer Soaps is considering a project to expand their line of hand soaps for mechanics and hard laborers. The project has an initial investment of $187,000. Annual cash flows are expected to be $52,000 for five years. Based on the internal rate of return (IRR) of the project, should the company accept the project if their required rate of return is 11%?

Yes, because the IRR is greater than 11% The internal rate of return factor for this project is $187,000 / $52,000 = 3.59615. For a project with five periods with this IRR factor, this would correspond to an internal rate of return greater than 12%. Therefore, the company should accept the project.

An unfavorable labor quantity variance means that

actual hours exceeded standard hours.

In order to determine the quantity variance, the standard quantity x standard price is subtracted from

actual quantity x standard price.

JT Engineering uses copper in its widgets. Demand for copper in the widget industry is greater than the available supply. As a result, JT is unable to secure its typical discount with suppliers. Assuming that JT orders the same quantity as usual and that no changes are made to any of JT's materials standards, what is the most likely end-of-quarter result?

an unfavorable materials price variance

If a company wants to assess a project quickly with the help of the accrual accounting data it already possesses, it will use the

annual rate of return.

The payback period method utilizes

both even and uneven cash flows.

Standard cost represents

business cost to produce one unit of product

When calculating the annual rate of return,

depreciation on fixed assets is taken into account

A variance is defined as the

difference between total actual costs and total standard costs.

The annual rate of return ________ other methods in that it ________ on cash flows.

differs from; does not focus

How is the profitability index calculated?

dividing the present value of cash flows by the initial investment

The annual rate of return

does not consider time value of money

Identify the measure(s) relating to the learning and growth perspective of the balanced scorecard. Select all that apply

employee turnover rate employee satisfaction training hours per employee

Which balanced scorecard perspective answers the question, "How do our investors see us?"

financial perspective

A standard that represents the optimum level of performance under perfect operating conditions is called a(n)

ideal standard.

Which balanced scorecard perspective focuses on creating products and services that customers' desire and delivering them in a timely manner?

internal processes perspective

The minimum required rate of return

is compared to the annual rate of return to decide if a project is acceptable

When a potential investment has a negative net present value

its internal rate of return is less than the required rate of return.

To be accepted, a project's internal rate of return should

meet or exceed the hurdle rate.

Chaz Denver Company has identified that the cost of a new computer will be $40,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is

net income + depreciation expense), [$40,000 ÷ ($5,000 + $3,000)]. 5 years

Identify the measure(s) relating to the customer perspective of the balanced scorecard. Select all that apply.

number of new customers , number of customer complaints , market share

Components of total variance include ________ variance.

price & quantity

A negative net present value means that the

project's rate of return is less than the required rate of return.

The following explanations appeared on last week's variance report for JT Engineering's purchasing department. Which of these explanations could reflect negatively on the purchasing department?

rush order

The labor price variance is the difference between the

standard and actual rate multiplied by actual hours

Which capital budgeting technique divides expected net annual income by the average investment to determine the profitability of a capital expenditure?

the annual rate of return method

When reporting variances

the reports should facilitate management by exception

Which of the following is the difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours?

total labor variance