Accounting Final

Gerberal Company charges cost plus 40%. What is the price of an item with cost equal to $100?

$140 100 x 1.4 = 140

A manual process takes 20 minutes of direct labor time and 8 pounds of material to produce a product. Automating the process requires 16 minutes of machine time and 6 pounds of material. The cost per labor hour is $10, the cost per machine hour is $8, and the cost per pound of materials is $12. Find the nonvalue-added cost for the given situation. (Note: Round all calculations and the answer to two decimal places.)

$25.20 (20/60)(10) - (16/60)(8) + (8-6)(12) = 25.2

Memuru Company has the following information pertaining to its two divisions for last year: Division X Division Y Variable selling and admin. expenses $ 90,000 $ 100,000 Direct fixed expenses 40,000 75,000 Sales 500,000 600,000 Direct fixed selling and admin. expenses 45,000 80,000 Variable expenses 66,000 85,000 Common expenses are $30,000 for the year. What is the segment margin for Division Y?

$260,000 Segment margin = Sales − Variable expenses − Variable selling and admin. expenses − Direct fixed expenses − Direct fixed selling and admin. expenses Segment margin for Division Y = $600,000 − $85,000 − $100,000 − $75,000 − $80,000 = $260,000

Roman Knoze is considering two investments. Each will cost $20,000 initially. Project 1 will return annual cash flows of $10,000 in each of three years. Project 2 will return $5,000 in year 1, $10,000 in year 2, and $15,000 in year 3. Roman requires a minimum rate of return of 10%. What is the net present value of Project 2?

$4070 -20000 + (5000x.909) + (10000x.826) + (15000x.751) = 4070

The following information relates to a product produced by Marigold Company: Direct materials $20 Direct labor 10 Variable overhead 20 Fixed overhead 15 Unit cost $65 Fixed selling costs are $650,000 per year, and variable selling costs are $10 per unit sold. Although production capacity is 400,000 units per year, the company expects to produce only 250,000 units next year. The product normally sells for $100 each. A customer has offered to buy 40,000 units for $80 each. The incremental cost per unit associated with the special order is:

$60 20 + 10 + 20 + 10 = 60

Sully Company provided the following information for last month. Production in units 3,000 Direct materials cost $7,000 Direct labor cost $10,000 Overhead cost $9,600 Sales commission per unit sold $4 Price per unit sold $29 Fixed selling and administrative expense $7,000 There were no beginning and ending inventories. What is gross margin for Sully Company last month?

$60,400 gross margin = sales - cogs = (3000 x 29) - 7000 - 10000 - 9600 = 87000 - 7000 - 10000 - 9600 = 60400

labor efficiency variance

(Actual Hours × Standard Rate) - (Standard Hours × Standard Rate)

What formula computes usage (efficiency) variance?

(Actual Quantity - Standard Quantity) × Standard Price per Unit

average operating assets

(beginning assets + ending assets) / 2

Product costs

- are costs that are included in the determining the value of the inventory. - include direct materials, direct labor, and overhead. - are manufacturing costs.

Which of the following can be found on the income statements of both a manufacturing and service organization?

- operating income - revenues - administrative expenses

if the NPV is positive, it signals:

- that the initial investment has been recovered - that the required rate of return has been earned - that the value of the firm has increased

the four perspectives of the balanced scorecard

-financial - customer - internal (business processes) - learning and growth

Osler Company is considering an investment with the following data: Initial cost $200,000 Annual net cash inflows $25,000 Expected life 10 years Salvage value none Depreciation will be taken on a straight-line basis over the expected life of the investment. What is the accounting rate of return for the investment?

.25% 200,000 / 10 = 20,000 (annual depreciation) 25,000 - 20,000 = 5000 (avg cash flow) 5000 / 20,000 = .025

Alpha Technology produces two products: a high end laptop under the label Excellent Laptops and an inexpensive desktop under the label Outstanding Computers. The two products use two overhead activities, with the following costs: Setting up equipment $3,000 Machining $15,000 The controller has collected the expected annual prime costs for each product, the machine hours, the setup hours, and the expected production. Excellent Laptops Outstanding Computers Direct Labor $25,000 $10,000 Direct Materials $20,000 $5,000 Expected Production in Units 3,000 3,000 Machine Hours 850 2,000 Setup Hours 80 75 Calculate Outstanding Computer's consumption ratio for setup hours. (Note: Round answer to two decimal places.)

.48 consumption ratio = amount of activity driver per product / total driver quantity outstanding set up hours/total set up hours 75/(80+75) = .48

During the month of March, Rexelegg purchased 25,000 pounds of flour at $2 per pound. At the end of March, Rexelegg found that it had an unfavorable materials price variance of $750. The standard cost per pound must be:

1.97 Materials Price Variance= AQ(SP-AP) -750=25000(SP-2) -750=25000SP-50000 49250=25000SP SP= 49250/25000 SP= 1.97

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Cash Cash Revenues Expenses Year 1 $ 8,000 $ 8,000 Year 2 $12,000 $ 8,000 Year 3 $15,000 $ 9,000 Year 4 $20,000 $10,000 Year 5 $20,000 $10,000 Depreciation will be $4,000 per year. What is the accounting rate of return on the investment?

12.5% Cash Cash Net Cash Flow Revenues Expenses Year 1 $ 8,000 $ 8,000 0 Year 2 $12,000 $ 8,000 4000 Year 3 $15,000 $ 9,000 6000 Year 4 $20,000 $10,000 10000 Year 5 $20,000 $10,000 10000 Net Cash Flow - Depreciation Expense then find the average -4000 + 0 + 2000 + 6000 + 6000 = 10000 /4 = 2500 accounting rate of return = avg cash flow / initial investment 2500 / 20000 = .125

Fixed cost per unit is $10 when 12,000 units are produced and $3 when 40,000 units are produced. What is the total fixed cost when nothing is produced?

120,000 10x12,000 = 120,000 3x40,000 = 120,000

Mark is considering investing $90,000 in a project with the following cash revenues and expenses: Year Revenues Cash Expenses & Depreciation Year 1 $20,000 $15,000 Year 2 $25,000 $20,000 Year 3 $18,000 $15,000 Year 4 $30,000 $10,000 Year 5 $40,000 $10,000 What is the accounting rate of return for the project?

14% revenues - cash expense & depreciation find the average of these avg net income / initial investment

Planet Company sells a product for $16 per unit, variable cost is $12 per unit, and the total fixed cost is $6,000. What is the break-even point in units?

1500 breakeven in units = total fixed costs/ unit CM unit CM = price - variable cost 16-12 =4 6,000/4= 1500

Quinn Inc. has a number of divisions. One division, Style, makes zippers that are used in the manufacture of boots. Another division, LeatherStuff, makes boots that use the zippers and needs 90,000 zippers per year. Style incurs the following costs for one zipper: Direct materials $0.23 Direct labor $0.20 Variable overhead $0.95 Fixed overhead $1.32 Total $2.70 Quinn has capacity to make 950,000 zippers per year, but due to a soft market, only plans to produce and sell 620,000 zippers next year. LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives). Assume that Style and LeatherStuff have agreed on a transfer price of $3.25. What is the total benefit for Style?

168,300 transfer price = 3.25 DM + DL + VOH = .23 + .20 + .95 = 1.38 3.25-1.38 = 1.87 90,000 x 1.87 = 168300

Highland Company's standard cost is $250,000. The allowable deviation is ±10%. Its actual costs for six months are as follows January $235,000 February 220,000 March 245,000 April 265,000 May 270,000 June 280,000 The actual cost which is lower than the lower control limit is _____.

220,000 (February) 250,000 - (250,000x.1) = 225,000

A company is considering two projects. Project I Project II Initial investment $200,000 $200,000 Cash inflow Year 1 50,000 60,000 Cash inflow Year 2 50,000 60,000 Cash inflow Year 3 50,000 80,000 Cash inflow Year 4 50,000 10,000 Cash inflow Year 5 50,000 50000 What is the payback period for Project II?

3 years 200,000 -60,000 -60,000 -80,000 = 0

Rollo Company has developed cost formulas for the drivers of the following production activities: Driver Activity Fixed Variable Labor hours Materials -0- 20 Labor hours Labor -0- 10 Machine hours Maintenance 10,000 8 Machine hours Machining 50,000 2 Number of setups Inspections 30,000 200 Number of setups Setups -0- 300 Number of purchase orders Purchasing 75,000 3 The budgeted inspection cost for 20 setups is

34000 20(200)= 4,000 variable 4,000 + 30,000 (fixed) = 34,000

Information from the records of Place, Inc., for December is as follows: Sales $820,000 Selling and administrative expenses 140,000 Direct materials purchases 176,000 Direct labor 200,000 Factory overhead 270,000 Direct materials, December 1 24,000 Work in process, December 1 50,000 Finished goods, December 1 46,000 Direct materials, December 31 28,000 Work in process, December 31 56,000 Finished goods, December 31 38,000 Net income for the month of December is:

36,000 Sales -S&A -DM -DL -FOH -Beginning Inventory +Ending Inventory = Net Income

A company is considering two projects. Project A Project B Initial investment $300,000 $300,000 Cash inflow Year 1 $60,000 $90,000 Cash inflow Year 2 $60,000 $80,000 Cash inflow Year 3 $60,000 $80,000 Cash inflow Year 4 $60,000 $50,000 Cash inflow Year 5 $60,000 $70,000 What is the payback period for Project B?

4 years 300000 -90,000 -80,000 -80,000 -50,000 =0

Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. What is the amount of machine time for model P-4 in terms of percent of a machine hour?

50% 30/60

Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model K-3 should be produced?

5000 units K3 requires (15/60) = .25 machine hours P4 requires (30/60) = .5 machine hours Contribution Margin per machine hours = CM/machine hour K3 = 6/.25 = 24 P4 = 14/.5 = 28 because P4 has a higher contribution margin, you should produce as many as you can (in this case 5,500) 5,500 x .5 = 2750 4000 - 2750 = 1250 1250/.25 = 5000

Jan Rigby is considering an investment that will cost $20,000 initially, and return annual cash flows of $10,000 in each of three years. Jan requires a minimum rate of return of 8%. What is the present value of the cash inflows? (Note: there may be a rounding error depending on the table you use to compute your answer. Choose the answer closest to the one you calculate.)

5770 present value of an annuity 0 (20,000) 1 (20,000) 1-3 10,000 2.577 25770

Kate is considering an investment in a retail shopping mall. The initial investment is $630,000. She expects to receive cash income of $90,000 a year. What is the payback period?

7 years 630,000/90,000 = 7

Tina invested in a project with a payback period of 4 years. The project brings $20,000 per year for a period of 10 years. What was the initial investment?

80,000 4 x 20,000 = 80,000

Fixed overhead was budgeted at $84,000 and 10,000 direct labor hours were budgeted. If the fixed overhead volume variance was $3,200 unfavorable and the fixed overhead spending variance was $1,200 favorable, applied fixed overhead must be

80,000 84,000 - 3,200

Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are $21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is the budgeted operating income?

90,000 operating income = (price x units) - (variable cost x units) - total fixed expenses = (35x12000) - (21x12000) - 78000 = 90,000

Botana Company constructed the following formula for monthly utility cost. Total utility cost = $1,200 + ($8.10 × labor hours) Assume that 775 labor hours are budgeted for the month of April. f Botana Company incurs 9,600 labor hours for the year, what would be the estimate of total utility cost?

92,160 it gives you the monthly utility costs but the labor hours for the year: 1200x12 = 14400 14400 + 8.10(9600) = 92160

Kris Company calculates its predetermined rates using practical volume, which is 325,000 units. The standard cost system allows 3 direct labor hours per unit produced. Overhead is applied using direct labor hours. The total budgeted overhead is $4,260,000, of which $994,000 is fixed overhead. The actual results for the year are as follows: Units produced: 318,000 Direct labor: 965,000 hours @ $12.00/hour Variable overhead: $3,302,000 Fixed overhead: $998,000 Calculate the applied fixed overhead.

973,080 Predetermined Fixed Overhead Rate= Budgeted Fixed Overhead/Budgeted Hours = 994000/(325000*3) = 1.02 Applied Fixed Overhead = Actual Units Produced*Standard Hours Per Unit*Predetermined Fixed Overhead = 318000*3*1.02 = 973080

Mitchell's Softball Gloves Company estimated the following at the beginning of the year: Assembly Department Testing Department Total Overhead $570,000 $130,000 $700,000 Direct Labor Hours 142,500 hrs. 32,500 hrs. 175,000 hrs. Machine Hours 32,000 hrs. 65,000 hrs. 97,000 hrs. Mitchell uses departmental overhead rates. In the assembly department, direct labor hours are used to apply overhead. Machine hours are used to apply overhead in the testing department. Actual data for August is as follows: Assembly Department Testing Department Total Overhead $42,000 $12,000 $54,000 Direct Labor Hours 13,500 hrs. 2,430 hrs. 15,930 hrs. Machine Hours 4,020 hrs. 11,000 hrs. 15,020 hrs. Using departmental overhead rates, which of the following is correct?

Applied overhead for the assembly department is $54,000. predetermined rates: assembly: 570000/142500 = 4 testing: 130,000/65,000 = 2 actual rates = assembly: 13500(4) = 54,000 testing: 11,000(2) = 22,000

What relationship is valid concerning fixed overhead budgeted at the beginning of the year?

BFOH = SFOR x SH for planned production

EVA

If EVA is positive, then the company has increased its wealth during the period. If EVA is negative, and then the company has decreased its wealth during the period.

what is a disadvantage of a focus on return on investment?

It can produce a narrow focus on divisional profitability at the expense of profitability for the overall firm.

Which of the following is not a disadvantage of the ROI performance measure? a. It encourages managers to focus on the long run rather than the short run. b. It encourages myopic behavior. c. It discourages managers from investing in projects that would decrease divisional ROI but increase the profitability of the company as a whole. d. All of these are disadvantages of the ROI measure.

It encourages managers to focus on the long run rather than the short run.

what is a result of decentralization?

It results in the usage of a firm's resources to maximize firm value by the lower-level managers.

Autry Company manufactures veterinary products. One joint process involves refining a chemical (dactylyte) into two chemicals − dac and tyl. One batch of 5,000 gallons of dactylyte can be converted to 2,000 gallons of dac and 3,000 gallons of tyl at a total joint processing cost of $12,000. At the split-off point, dac can be sold for $3 per gallon and tyl can be sold for $4 per gallon. Autry has just learned of a new process to convert dac into prodac. The new process costs $4,000 and yields 1,700 gallons of prodac for every 2,000 gallons of dac. Prodac sells for $5 per gallon. Should Autry process dac further?

No, income will be 1,500 lower Sales Revenue from further processing = 1700 x 5 = 8500 sales revenue at split off = 2000 x 3 = 6000 incremental revenue = 8500 - 6000 = 2500 incremental cost = 4000 income = 2500 - 4000 = -1500

What is true about price?

Price must be greater than cost for a firm to earn income.

What is true if net present value (NPV) is negative?

The return on investment is less than the discount rate.

What is the formula used to compute the units to be produced?

Units to Be Produced = Expected Unit Sales + Units in Desired Ending Inventory - Units in Beginning Inventory

When a job is completed but not sold, the accounts affected are

Work-In-Process and Finished Goods

A division manager was considering a project that required a significant initial investment. If accepted, the project could have a negative impact on certain financial ratios that the firm was required to maintain to satisfy debt contracts. To ensure that the ratios would not be adversely affected by the investment, the manager would use which of the following capital investment models?

accounting rate of return

EVA

after-tax operating income - (actual % cost of capital x total capital employed)

economic value added (EVA)

after-tax operating income - the dollar cost of capital employed

a series of equal future cash flows

annuity

What accounts will increase when purchasing raw materials on account?

assets and liabilities

Sony Lavery is considering investing $45,000 in a project with the following cash revenues and expenses: Year Revenues Cash Expenses & Depreciation Year 1 $18,000 $8,000 Year 2 $22,000 $10,000 Year 3 $22,000 $9,000 Year 4 $24,000 $9,000 Year 5 $26,000 $9,000 Year 6 $28,000 $12,000 Year 7 $28,000 $11,000 Year 8 $28,000 $12,000 Assuming straight-line depreciation over 8 years, what is the payback period for the project?

between 2 and 3 years asks about straight line depreciation 45,000 - 18,000 - 22,000 - 22,000 = -17,000

Which of the following is true about normal costing? a. Normal costing uses only the indirect costs of direct materials. b. Normal costing does not solve the problems associated with actual costing. c. Actual overhead costs are not assigned directly to jobs in normal costing. d. The applied overhead is not calculated on a job specific basis in normal costing. e. All of these choices are correct.

c. actual overhead costs are NOT assigned directly to jobs in normal costing

a responsibility center in which a manager is responsible only for costs is a(n)

cost center

The ending finished goods inventory budget supplies information needed for the

cost of goods sold budget

The Balanced Scorecard perspective that defines the customer and market segments in which the business unit will compete is the ____ perspective.

customer

Which of the following is not an advantage of ROI? a. It discourages excessive investment in operating assets. b. It encourages managers to pay careful attention to the relationships among sales, expenses, and investment. c. It encourages cost efficiency. d. It encourages managers of departments with high ROIs to invest in average ROI projects.

d. It encourages managers of departments with high ROIs to invest in average ROI projects.

The standard cost system differs from the actual cost system in the assignment of a. direct materials. b. overhead. c. direct labor. d. All of these choices are manufacturing inputs.

d. all these choices are manufacturing inputs

ideal standards

demand maximum efficiency and no slack is allowed

Product costs consist of

direct materials, direct labor, manufacturing overhead

Cost of advertising is an example of a _____.

discretionary fixed cost

Managers may use the accounting rate of return to evaluate potential investment projects because a. debt contracts require that a firm maintain certain ratios that are affected by income and long-term asset levels. b. bonuses to managers may be based on accounting income and/or return on assets. c. it serves as a screening measure to insure that new investments do not affect key financial ratios. d. it can be tied to the manager's personal income. e. All of these choices are correct.

e. all of these are correct

variances produced whenever the actual amounts are less than the budgeted or standard allowances

favorable variances

The Balanced Scorecard perspective that describes the economic consequences of actions taken in the other three perspectives is the ____ perspective.

financial

All completed job-order cost sheets of a firm can serve as a subsidiary ledger for the:

finished goods inventory

The disadvantage of a payback period is that it:

ignores the project's total profitability

variable cost

in total changes in direct proportion to changes in output within the relevant range

If fixed costs increase, the break-even point in units will

increase

If the margin of 0.30 stayed the same and the turnover ratio of 5.0 increased by 10%, the ROI would

increase by 10% .3 x 5 = 1.5 5 x 1.1 = 5.5 .5x5.5 = 1.65 1.5x1.1= 1.65

If the operating asset turnover ratio increased by 30% and the margin increased by 20%, the divisional ROI

increase by 56% guess and check example : margin = 1 and turnover = 1 ROI = margin x turnover (1x1.3) x (1x1.2) = 1.56

the interest rate that sets the present value of a project's cash inflows equal to the present value of a project's cost

internal rate of return (IRR)

A responsibility center in which a manager is responsible for revenues, cost, and investment is a(n)

investment center

Return on Investment (ROI)

margin (operating income/sales) x turnover (sales/average operating assets)

Direct materials needed for production is calculated by

multiplying units to be produced by direct materials per unit.

What method helps in choosing the project that maximizes the wealth of shareholders?

net present value

Setups, material handling, and inspection are all possible examples of

nonunit-level overhead activities

residual income

operating income - (minimum rate of return x average operating assets)

margin

operating income/sales

capital investment decision models is based on the time required for a firm to recover its original investment

payback period

A segment of Mega Inc., manufactures and sells blankets. The various models of blankets are produced in a single factory using stable technology. They are sold by the sales department, also located in the factory. The segment is most probably accounted for as a(n)

profit center

The _____ limits the cost relationship to the range of operations that the firm normally expects to occur.

relevant range

A testable strategy is defined as a

set of linked objectives aimed at an overall goal

Assume that the expectations on the static budget were met. We can conclude that

the effectiveness of the manager is not in question

An unfavorable variable overhead spending variance may be caused by

the use of excessive quantities of variable overhead items

The master budget is

typically for a 1-year period corresponding to the fiscal year of the company

Lassiter Toys, Inc. Cost of Materials No. of toys produced Total cost of materials 100,000 $20,000 200,000 40,000 300,000 60,000 The cost behavior of the materials cost is

variable because the total cost is different at each amount of toys being produced

If the selling division is operating at less than full capacity, the floor of the bargaining range would most probably be set at....

variable cost of manufacturing

The manager of Stock Division projects the following for next year: Sales $185,000 Operating income $60,000 Operating assets $375,000 The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%. Which of the following statements is true?

with the project, residual income will increase residual income = operating income - (min. ror x average operating assets) without project: RI = 60,000 - (.14 x 375,000) = 7500 with project: RI = 66,000 - (.14 x 415,000) = 7900

Jackson Company invests in a new piece of equipment costing $40,000. The equipment is expected to yield the following amounts per year for the equipment's four-year useful life: Cash revenues $ 60,000 Cash expenses (32,000) Depreciation expenses (straight-line) (10,000) Income provided from equipment $ 18,000 Cost of capital 14% What is the net present value of this investment in equipment?

41,592 cash revenues - cash expenses = cash inflow 0 (40,000) 1 (40,000) 1-4 28,000 2.914 81,592 = 41592 14% of year 4 on present value annuity

turnover

sales / average operating assets

The first step in creating the master budget is the creation of the

sales budget

if sales and average operating assets for year 2 are identical for their values in Year 1, yet operating income is higher, year 2 turnover (compared with year 1 turnover) will:

stay the same

Total variable costs

- decreases as output decreases. - increases as output increases. - equal a variable rate × amount of output.

Elite Company had originally expected to earn operating income of $140,000 in the coming year. Elite's degree of operating leverage is 2.6. Recently, Elite revised its plans and now expects to increase sales by 25% next year. What is the percent change in operating income expected by Elite in the coming year?

65% operating leverage x increase in sales 2.6 x .25 = .65

The following information pertains to the three divisions of Yang Company: Division A Division B Division C Sales ? ? $1,345,000 Net operating income $48,000 $18,000 $82,000 Average operating assets $420,000 ? ? Return on investment ? 15% 20% Margin 0.2 0.015 ? Turnover 2.1 ? ? Target ROI 17% 14% 8% What are the average operating assets for Division B?

$120,000 average operating assets = net operating income / ROI = 18,000/.15 = 120000

Elite Inc. has many divisions that are evaluated on the basis of return on investment (ROI). One division, Beta, makes boxes. A second division, Lambda, makes chocolates and needs 90,000 boxes per year. Beta incurs the following costs for one box: Direct materials $0.40 Direct labor 0.70 Variable overhead 0.50 Fixed overhead 0.16 Total $1.76 Beta has the capacity to make 720,000 boxes per year. Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta receives). Assume that Elite Inc. mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Beta transferred boxes to Lambda?

$1.76 "transfers take place at FULL MANUFACTORING COST"

Rizzo Manufacturing produces two types of cameras: 35mm and digital. The cameras are produced using one continuous process. Four activities have been identified: machining, setups, receiving, and packing. Resource drivers have been used to assign costs to each activity. The overhead activities, their costs, and the other related data are as follows: Product Machine Hours Setups Receiving Orders Packing Orders 35mm 10,000 100 200 400 Digital 10,000 250 800 2,000 Costs $60,000 $40,000 $8,000 $24,000 Calculate an activity rate for packing based on packing orders.

$10.00 per packing order total packing costs/total packing orders 24,000/2,400

The manager of Synergy Company's Stock Division projects the following for next year: Sales $195,000 Operating income 70,000 Operating assets 385,000 The manager can invest in an additional project that would require $50,000 investment in additional assets and would generate $9,000 of additional income. The company's minimum rate of return is 15%. What is the residual income for the Stock Division without the additional investment?

$12250 residual income = operating income - (operating assets x minimum ROR) = 70,000 - (385,000 x .15) = 12250

Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are $21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is the contribution margin per hour?

$14 unit contribution margin = sales - variable cost 35-21=14

Workshape Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer activities and costs for the previous quarter are as follows: Activity JIT distributors Non-JIT distributors Sales Orders 500 30 Sales Calls 30 30 Service Calls 200 90 Average Order Size 90 1,400 Manufacturing Cost/Unit $50 $50 Customer Costs: Processing Sales Orders $160,000 Selling Goods $155,000 Servicing Goods $195,000 Total $500,000 Calculate the total customer cost for the non-JIT distributors. (Note: Round the activity rates and activity costs to the nearest dollar.)

$147,030 activity rates: 160000/530 = 302 155000/60 = 2583 195000/290 = 672 30(302) + 30(2583) + 90(672) = 147030

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for the Engine Division are: Direct materials $700 Direct labor 1,300 Variable overhead 400 Fixed overhead 200 Market price per unit 3,200 The Engine Division has excess capacity. What is the best transfer price to avoid transfer price problems?

$2,400 DM + DL + VOH 700 + 1,300 + 400

In July, Greenwood Company purchased materials costing $23,100 and incurred direct labor cost of $19,800. Manufacturing overhead totaled $35,200 for the month. Information on inventories was as follows: July 1 July 31 Materials $6,820 $7,810 Work in process 770 1,320 Finished goods 3,630 2,970 What was the cost of direct materials used in production for the month of July?

$22110 7,810 - 6,820 = 990 23100-990 = 22110

A company provided the following data: Sales $540,000 Variable costs 378,000 Fixed costs 120,000 Expected production and sales in units 40,000 units What is the break-even point in sales dollars?

$400,000 breakeven in sales = total fixed cost / CM ratio CM ratio = total CM / sales CM = sales - variable costs CM= 540000-378000=162000 CM ratio = 162000/540000 = .3 breakeven = 120000/.3 = 400,000

Following is the departmental data of Omega Solution Company. If calculated using the sequential method, the cost of power department allocated to the Assembly department is _____. Support Department Producing Departments Power Maintenance Grinding Assembly Direct overhead costs $300,000 $120,000 $250,000 $100,000 Expected activity: Kilowatt-hours ___ 100,000 300,000 100,000 Maintenance hours ___ ___

$60,000 (assembly KW hours / total kw hours) x power (100,000 / 500,000) x 300,000 = 60,000

A firm is considering a project with an annual cash flow of $100,000. The project would have an 8-year life, and the company uses a discount rate of 5%. What is the maximum amount the company could invest in the project and have the project still be acceptable?

$646,320 Present Value Table 100000 x (5% discount per year)

Wilson Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%. Recently, Wilson finished a job and billed the customer $560. If direct materials for the job cost $130, and direct labor cost $180, what was the applied overhead for the job?

$90 computation of cost = billed amount/(1+profit) =560/1.40 =400 applied OH = cost - materials - labor = 400 - 130 - 180 = 90

Tyler Company has the following information pertaining to its two product lines for last year: Product A Product B Variable selling and admin. expenses $38,000 $31,000 Direct fixed expenses 19,500 34,500 Sales 250,000 210,000 Direct fixed selling and admin. expenses 38,000 22,000 Variable expenses 42,000 31,000 Operating income $112,500 $91,500 Common expenses are $105,000 for the year. What is the segment margin for Product B?

$91,500 segment margin = operating income for that segment

Which of the following is true concerning control limits?

- The lower control limit is the standard minus the allowable deviation. - The upper control limit is the standard plus the allowable deviation. - Control limits are the top and bottom measures of the allowable range. - Variances that fall outside the control limits are investigated.

what is true about concerning control limits?

- control limits are the top and bottom measures of the allowable range - the lower control limit is the standard minus the allowable deviation - the upper control limit is the standard plue the allowable deviation

Activity-based management attempts to

- identify and eliminate all unnecessary activities. - add new activities that increase value. - increase the efficiency of necessary activities.

The following information pertains to the three divisions of Yang Company: Division A Division B Division C Sales ? ? $1,345,000 Net operating income $48,000 $18,000 $82,000 Average operating assets $420,000 ? ? Return on investment ? 15% 20% Margin 0.2 0.015 ? Turnover 2.1 ? ? Target ROI 17% 14% 8% What are the sales for Division B?

1200000 margin = operating income / sales .015 = 18,000 / x 18,000/.015 . = 1200000

Aqua Shop is considering the purchase of a used printing press costing $15,000. The printing press would generate a net cash inflow of $6,000 per year for four years. At the end of four years, the press would have no salvage value. The company's cost of capital is 12%. The company uses straight-line depreciation with no mid-year convention. What is the accounting rate of return on the original investment in the press to the nearest percent, assuming no taxes are paid?

15% yearly depreciation expense = (15,000-0)/4 = 3750 annual net income = net cash flow - yearly depreciation 6,000 - 3,750 = 2250 average net income = 2250 accounting rate of return = average income/initial investment 2250/15000 = 15%

Alpha Division had the following information: Average operating asset base in Alpha Division $500,000 Operating income in Alpha Division $60,000 Cost of capital 14% Target return on investment (ROI) 16% Margin for Alpha Division 21% If the asset base is decreased by $120,000, with no other changes, what will Alpha Division's return on investment be? (Note: Round answer to two decimal places.)

15.79% ROI = operating income/avg operating assets 500,000 -120,000 = 380,000 60,000 / 380,000 = .1579

Forward Company had operating income of $75,000, sales of $220,000, and a turnover ratio of 0.55. What is Forward's return on investment (ROI)? (Note: Round answer to two decimal places.)

18.75% margin = operating income/sales turnover = sales/average operating assets ROI = (margin x turnover) x 100 =(75,000/220,000)(.55) x 100 = 18.75

Bortello Corporation produces high-quality leather boots. The company has a standard cost system and has set the following standards for materials and labor: Leather (12 strips @ $20) $240 Direct labor (10 hours @ $12) $120 Total prime cost $360 During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 1,500 hours at $15 per hour. Compute the total budget variances for materials and labor, respectively.

2,800 F and 7,500 U standard cost of material = actual units produced x standard cost = 125 x 240 = 3000 actual cost of material = actual leather strips x actual rate per leather strip = 1,700 x 16 =27,200 budget variance for material = actual cost of material - standard cost of material = 27,200 - 30,000 = 2,800 F standard estimate of direct labor = actual units produced x standard cost of direct labor =125x120 =15,000 actual cost of direct labor = actual direct labor hours x actual rate per direct labor =1500 x 15 = 7,500 U

Rexeleg Company manufactures a product with the following costs per unit at the expected production of 40,000 units: Direct materials $5 Direct labor 10 Variable overhead 7 Fixed overhead 9 The company has the capacity to produce 50,000 units. The product regularly sells for $50. A wholesaler has offered to pay $43 per unit for 3,000 units. If the firm chooses to accept the special order and reject some regular sales, the effect on operating income would be a:

21,000 decrease 50-43 = 7 7 * 3000 = 21,000

Marigold Company has developed the following standards for one of its products. Direct materials: 10 pounds × $12 per pound Direct labor: 4 hours × $20 per hour Variable overhead: 5 hours × $10 per hour The following activity occurred during the month of October: Materials purchased: 10,000 pounds costing $150,000 Materials used: 6,000 pounds Units produced: 500 units Direct labor: 2,300 hours at $23.60/hour The company records materials price variances at the time of purchase. The direct materials price variance is:

30,000 U 150,000/10,000 = 15 12-15 = -3 -3(10,000) = 30,000 U

Workshape Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer activities and costs for the previous quarter are as follows: Activity JIT distributors Non-JIT distributors Sales Orders 500 30 Sales Calls 30 30 Service Calls 200 90 Average Order Size 90 1,400 Manufacturing Cost/Unit $50 $50 Customer Costs: Processing Sales Orders $160,000 Selling Goods $155,000 Servicing Goods $195,000 Total $500,000 Calculate the activity rate for processing sales orders. (Note: Round answer to two decimal places.)

301.89 total processing sales order cost/ total sales orders 160,000/530

Bronzit Company estimated the following at the beginning of the year: Assembly Department Testing Department Total Overhead $700,000 $100,000 $800,000 Direct Labor Hours 150,500 hrs. 40,500 hrs. 191,000 hrs. Machine Hours 37,000 hrs. 72,000 hrs. 109,000 hrs. Bronzit uses departmental overhead rates. In the assembly department, direct labor hours are used to apply overhead. Machine hours are used to apply overhead in the testing department. Actual data for the month of May is as follows: Assembly Department Testing Department Total Overhead $50,000 $11,000 $61,000 Direct Labor Hours 20,000 hrs. 2,500 hrs. 22,500 hrs. Machine Hours 3,500 hrs. 14,000 hrs. 17,500 hrs. If Bronzit uses a plant wide overhead rate based on direct labor hours, instead of departmental rates, what is the predetermined overhead rate rounded to the nearest cent?

4.19 800,000/191,000 = 4.188

Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The glass and ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?

410 total hours = 4050 sinks = 2x1000 = 2000 hours 4050-2000= 2050 2050/5 = 410

Omega Company makes and sells jungle gyms and tree houses for children. For jungle gyms, the price is $150 and variable expenses are $100 per unit. For tree houses, the price is $180 and variable expenses are $120. Total fixed expenses are $215,250. Last year, Omega sold 10,000 gyms and 6,000 tree houses. Using the lowest whole numbers, what is the sales mix of gyms and tree houses?

5:3 10,000 : 6,000

Davis Company is considering the purchase of a new piece of equipment that will cost $1,600,000 and have a life of five years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses & Depreciation 1 $1,500,000 $900,000 2 $1,500,000 $900,000 3 $1,500,000 $900,000 4 $1,500,000 $900,000 5 $1,500,000 $900,000 What is the average annual income for this project?

600,000 1,500,000 - 900,000 = 600,000 (because all inflows and depreciations are the same)

The following information pertains to Mayberry Corporation: Beginning inventory 1,000 units Ending inventory 6,000 units Direct labor per unit $40 Direct materials per unit 20 Variable overhead per unit 10 Fixed overhead per unit 30 Variable selling and admin. costs per unit 6 Fixed selling and admin. costs per unit 14 What is the value of the ending inventory using the absorption costing method?

600,000 value of ending inv using absorption cost: ending inv x absorption unit cost (DM + DL + VOH + FOH) 6,000 x (40+20+10+30) = 600,000

Marigold Company makes furniture. The company controller wanted to calculate the fixed and variable costs associated with electricity use in the factory. Data for the past four months were collected as follows: Electricity Machine Month cost hours January $8,000 600 February 7,200 650 March 7,500 580 April 8,200 690 Coefficients shown by a regression program are as follows: Intercept 5,937 X Variable 1 2.8 Using the results of regression, what would be the total budgeted cost for electricity next month assuming that 620 machine hours are budgeted? (Round to the nearest dollar.)

7673 2.8(620) + 5937

Which of the following is true of budgetary slack?

Budgetary slack occurs when a manager deliberately underestimates revenues or overestimates costs in order to make budgeted expectations more easily achievable in the future.

Wealth Company has the following transactions for the month of November: Purchased materials on account for $300,000 Materials requisitioned for $75,000 Direct labor for the month was incurred (but not yet paid) of $50,000. Actual overhead for the month was $30,000. It has not been paid yet. (Charge to various payables.) Overhead is applied to production at the rate of 50% of direct labor. Jobs totaling $50,000 were transferred from Work-in-Process to Finished Goods. Jobs costing $34,000 were sold. Balances at the beginning of the month were: Materials 34,240 Work-in-Process 0 Finished Goods 12,000 What is the correct journal entry to record actual overhead for the month?

Dr. Overhead Control 30,000 Cr. Various Payable 30,000

what is true of revenue centers?

These are responsibility centers wherein managers are responsible for price and quantity sold.

Which of the following is NOT true about job-order costing? a. It is used in firms that produce homogeneous products. b. The cost of each job is accumulated on the job-order cost sheet. c. The key document for accumulating manufacturing costs is the job-order cost sheet. d. All of these choices are correct.

a. it is used in firms that produce homogeneous products

Which of the following costs is not included on a job-order cost sheet? a. applied plantwide overhead costs b. direct material costs c. actual plantwide overhead costs d. direct labor costs

actual plantwide overhead costs

Which of the following budgets can be used for control? a. Selling and administrative expense budget b. Cash budget c. Production budget d. Budgeted income statement

all of these: a. Selling and administrative expense budget b. Cash budget c. Production budget d. Budgeted income statement

internal rate of return

assumes that each cash inflow is reinvested at the rate at which the present value of a project's cash inflows equal the present value of its cash outflows

The predetermined overhead rate is usually calculated

at the beginning of the YEAR

In general terms, a sound capital investment will earn

back its original capital outlay and provide a reasonable return on the original investment.

A company's planned borrowings and repayments appear on the

cash budget

Olson Corporation constructs new homes. Assume that Olson uses a job costing system. During May of the current year, the following transactions occurred: Olson purchased $4,500 of lumber on account. Olson used $3,750 of lumber in production and incurred 50 hours of direct labor hours at $15 per hour. Depreciation of $1,500 on equipment used to build new houses was recorded. A house that was completed last period at a cost of $150,000 was sold for $180,000 in cash. The journal entry to record labor for Olson would include a

debit to Work-In-Process of $750 purchased - used product 4,500-3,750 = 750

The decision-making approach that allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility is

decentralization

Which of the following would be found on the balance sheet of a manufacturer? a. factory equipment b. sales revenue c. selling expenses d. All of these choices are correct.

factory equipment

decentralization

it is usually achieved by creating units called divisions

What decision determines whether a product line or segment should be continued or eliminated?

keep-or-drop

revenue center

manager responsibility only for revenue

profit center

manager responsible for both revenues and costs

investment center

manager responsible for revenues, costs, and investments

A firm is evaluating a project that has a net present value of $0 when a discount rate of 10% is used. A discount rate of 7% will result in a:

positive net present value

The difference between operating income and the minimum dollar return required on a company's operating assets is:

residual income

what shows how far a company's actual sales and/or units are above the break-even point?

the margin of safety

the degree of operating leverage is calculated as:

total contribution margin/net income

Cost of goods manufactured equals

total product costs incurred during the current period + beginning work in process − ending work in process.

A price charged for a component by the selling division to the buying division of the same company is called a(n)

transfer price

variances produced whenever the actual input amounts are greater than the budgeted or standard allowances

unfavorable variances