Managerial Accounting Final Review

In a sell or process further decision, consider the following costs: I. A variable production cost incurred prior to split-off. II. A variable production cost incurred after split-off. III. An avoidable fixed production cost incurred after split-off. Which of the above costs is (are) not relevant in a decision regarding whether the product should be processed further? A. Only I B. Only III C. Only I and II D. Only I and III

A. Only I

Which of the following statements is true? Sunk costs are never relevant in decision making. Sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision. Fixed costs are sunk costs. A. Only statement I is true. B. Only statement III is true. C. All of the statements are true. D. None of the statements are true.

A. Only statement I is true.

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

Companies prepare direct labor budgets to ________. A. avoid labor shortages B. determine the direct labor-hours per unit C. ensure timely supply of raw materials D. reduce inventories

A. avoid labor shortages

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________. A. unit product cost B. variable overhead cost per unit C. total overhead cost per unit D. the sum of the direct materials and direct labor cost per unit

A. unit product cost.

A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each of the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 1. Wages paid to the Orange County division employees who work directly for this division and will be discharged if the division is dropped

Avoidable

A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each of the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 4. Rent paid for the building that houses only the Orange County division

Avoidable

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales? A. Make or buy B. Special order C. Sell or process further D. Keep or drop

B. Special order

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________. A. beginning balance of accounts payable B. desired ending raw materials inventory for the last period C. total merchandise purchased during the year D. value of raw material used during the year

B. desired ending raw materials inventory for the last period

Accepting a special order will improve overall net operating income if the revenue from the special order exceeds: A. the contribution margin on the order. B. the incremental costs associated with the order. C. the variable costs associated with the order. D. the sunk costs associated with the order.

B. the incremental costs associated with the order.

When computing variable manufacturing overhead variances, the standard rate represents the ________. A. predetermined overhead rate. B. variable portion of the predetermined overhead rate. C. standard hourly pay rate for direct laborers D. .the amount of hours allowed for the actual output.

B. variable portion of the predetermined overhead rate

Which of the following is not a benefit of self-imposed budgets? A. A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. B. Budget estimates prepared by front-line managers are often more accurate and reliable. C. Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. D. Motivation is generally higher.

C. Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

Costs that can be eliminated in whole or in part if a particular business segment is discontinued are called: A. sunk costs. B. opportunity costs. C. avoidable costs. D. irrelevant costs.

C. avoidable costs.

The purpose of preparing a direct materials budget is to ________. A. allocate the cost of raw materials to production departments B. estimate the manufacturing overhead C. estimate the quantity of raw materials to be purchased D. estimate the unit cost of direct materials to be purchased

C. estimate the quantity of raw materials to be purchased.

All of the following are relevant to the sell or process further decision except _______. A. costs incurred beyond the split-off point B. revenues at the split-off point C. joint costs incurred before the split-off point D. revenues beyond the split-off point

C. joint costs incurred before the split-off point

Which of the following statements is true? In a special order situation that involves using capacity that is not idle, opportunity costs are zero. In a special order situation, any fixed cost associated with the order would be irrelevant. A. Only statement I is true. B. Only statement II is true. C. Both statements are true. D. Neither statement is true.

D. Neither statement is true.

The budgeting process begins with the preparation of the ______ budget. A. cash B. direct materials C. production D. sales

D. Sales

A joint product is: A. any product which consists of several parts. B. any product produced by a company with more than one product line. C. any product involved in a make or buy decision. D. one of several products produced from a common input.

D. one of several products produced from a common input.

The potential benefit that is given up when one alternative is selected over another is called ________. A. relevant cost B. avoidable cost C. differential cost D. opportunity cost

D. opportunity cost

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

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: A. the variable manufacturing cost of the component. B. the total manufacturing cost of the component. C. the fixed manufacturing cost of the component. D. zero.

D. zero.

XXX Company Actual Hours of Input at Actual Rate (AH × AR)Actual Hours of Input at Standard Rate (AH × SR)Standard Hours of Input at Standard Rate (SH × SR)= (2,200 hours × $1.90)= (2,200 hours × $2.00)= (2,000 hours × $2.00) What is the labor rate variance? A. $180 F B. $220 F C. $220 U D. $400 U

Labor rate variance = AH × (AR − SR) Labor rate variance = 2,200 × ($1.90 − $2.00) = $220 F The actual labor rate is less than the standard labor rate; therefore, the labor rate variance is favorable.

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter Year First Second Third Fourth Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% What is the total amount of expected cash collections for the third quarter? A. $33,125 B. $33,750 C. $34,375 D. $38,125

Second quarter sales = 1,300 units × $25 per unit = $32,500 Third quarter sales = 1,400 units × $25 per unit = $35,000 Total expected cash collections during the third quarter = Amount collected from second quarter sales of $8,125 (or $32,500 × 25%) + Amount collected from third quarter sales of $26,250 (or $35,000 × 75%) = $34,375

XXX Company Actual Hours of Input at Actual Rate (AH × AR)Actual Hours of Input at Standard Rate (AH × SR)Standard Hours of Input at Standard Rate (SH × SR)= (2,200 hours × $1.90)= (2,200 hours × $2.00)= (2,000 hours × $2.00) What is the spending variance? A. $180 F B. $180 U C. $4,000 F D. $4,000 U

Spending variance = (AH × AR) − (SH × SR) Spending variance = (2,200 hours × $1.90) − (2,000 hours × $2.00) = $180 U The actual amount spent (AH × AR), $4,180, is greater than the standard amount allowed (SH × SR), $4,000, therefore the variance is unfavorable.

Zeta Corporation is a manufacturer of sports caps, which require soft fabric. The standards for each cap allow 2.00 yards of soft fabric, at a cost of $2.00 per yard. During the month of January, the company purchased 25,000 yards of soft fabric at $2.10 per yard, to produce 12,000 caps. What is Zeta Corporation's materials price variance for the month of January? A. $2,000 F B. $2,000 U C. $2,500 F D. $2,500 U

The actual price paid for the soft fabric is $2.10 per yard, which is $0.10 more than the budgeted price of $2.00 per yard. The total quantity of soft fabric purchased during the month is 25,000 yards, which is equal to the quantity of soft fabric used for the production of 12,000 caps. Hence, there is no materials quantity variance. Therefore, the materials price variance can be calculated as follows: Materials price variance = (Actual price - Budgeted price) × Actual quantity = ($2.10 - $2.00) × 25,000 = $2,500 U Therefore, the materials price variance for the month of January is $2,500 U (Option D).

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter Year First Second Third Fourth Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter? A. $8,125 B. $8,750 C. $9,375 D. $28,125

The amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter can be calculated as follows: Sales made in Q1 = Budgeted unit sales for Q1 x Sales price per unit Sales made in Q1 = 1,500 x $25 = $37,500 Since the percentage of sales collected in the quarter of the sale is 75%, the amount of cash that the company will collect in Q1 is: Cash collected in Q1 = 75% of sales made in Q1 Cash collected in Q1 = 75% x $37,500 = $28,125 Since the percentage of sales collected in the quarter after the sale is 25%, the amount of cash that the company will collect in Q2 from Q1 sales is: Cash collected in Q2 from Q1 sales = 25% of sales made in Q1 Cash collected in Q2 from Q1 sales = 25% x $37,500 = $9,375 Therefore, the correct answer is C. $9,375.

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter Year First Second Third Fourth Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% Knowledge Check 01 What is the amount of budgeted sales revenue for the fourth quarter? multiple choice 1 A. $32,500 B. $33,750 C. $35,000 D. $37,500

The budgeted sales revenue for the fourth quarter can be calculated as follows: Budgeted sales revenue for Q4 = Budgeted unit sales for Q4 x Sales price per unit Budgeted sales revenue for Q4 = 1,300 x $25 = $32,500 Since the percentage of sales collected in the quarter after the sale is 25%, only 25% of the sales made in Q4 will be collected in Q4. Therefore, the amount of cash that the company will receive in Q4 is: Cash collected in Q4 = 25% of sales made in Q4 Cash collected in Q4 = 25% x $32,500 = $8,125 The company will also collect 75% of the sales made in Q3, which is the percentage of sales collected in the quarter of the sale. The amount of cash collected from Q3 sales is: Cash collected in Q4 from Q3 sales = 75% of sales made in Q3 Cash collected in Q4 from Q3 sales = 75% x (1,400 x $25) = $26,250 Therefore, the total cash collected in Q4 is: Total cash collected in Q4 = Cash collected in Q4 + Cash collected in Q4 from Q3 sales Total cash collected in Q4 = $8,125 + $26,250 = $34,375 Therefore, the correct answer is $32,500 for budgeted sales revenue, and $34,375 for total cash collected in Q4.

Superware, Incorporated produces multiple products out of a common input. Geratin is one such product, which has a sales value of $15,000 at the split-off point. Joint costs allocated to Geratin are $12,000. Sales value of Geratin increases to $25,000 after further processing, and this processing will cost $7,000. What is the net profit or loss if Superware processes the product further? A. ($3,000) loss B. $3,000 profit C. $20,000 profit D. $18,000 profit

The relevant revenue for the sell or process further decision is the incremental revenue, which is the additional revenue generated by processing further minus the revenue that could be earned by selling the product at the split-off point. The incremental revenue from processing Geratin further is: $25,000 - $15,000 = $10,000 The incremental cost of processing Geratin further is: $7,000 Therefore, the incremental profit from processing Geratin further is: $10,000 - $7,000 = $3,000 Since the incremental profit is positive, Superware should process Geratin further. Thus, the net profit from processing Geratin further is $3,000. Therefore, the correct answer is B. $3,000 profit.

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter? A. $432,000 B. $468,000 C. $480,000 D. $540,000

The total direct labor-hours required to produce 13,000 units of finished goods is: 13,000 units × 3 DLHs per unit = 39,000 DLHs Since the labor union contract guarantees pay for at least 40,000 hours every quarter, the company will need to pay for 40,000 DLHs. If the cost of direct labor per hour is $12, the total direct labor cost for the fourth quarter would be: 40,000 DLHs × $12 per DLH = $480,000 Therefore, the correct answer is option C, $480,000.

Prairie, Incorporated produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit? A. $30 B. $42 C. $35 D. $45

The total incremental cost to produce each unit can be calculated as follows: Direct material cost + Direct labor cost + Variable manufacturing overhead cost per unit = $30 + $5 + (70% x $10) = $30 + $5 + $7 = $42 Therefore, the correct answer is B. $42.

Standard rate per direct labor-hour$ 2Standard direct labor-hours for each unit produced3Units manufactured1,000Actual direct labor-hours worked during the month3,300Total actual variable manufacturing overhead$ 6,600 Assume that direct labor-hours is used as the overhead allocation base. What is the variable overhead efficiency variance? A. $300 F B. $300 U C. $600 F D. $600 U

The variable overhead efficiency variance is calculated as follows: Actual hours - Standard hours allowed × Standard rate per hour = Variance In this case, the actual hours worked are 3,300, and the standard hours allowed for the 1,000 units produced would be 3,000 (1,000 units × 3 hours per unit). The standard rate per hour is given as $2. Variance = (3,300 - 3,000) × $2 Variance = $600 U Therefore, the variable overhead efficiency variance is $600 U. The correct option is D.

Wallen Corporation is considering eliminating a department that has an annual contribution margin of $80,000 and $160,000 in annual fixed costs. Of the fixed costs, $90,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be: A. $10,000 B. ($10,000) C. $80,000 D. ($80,000)

To calculate the annual financial advantage or disadvantage, we need to compare the contribution margin that the department is generating with the fixed costs that can be avoided by eliminating the department. Contribution margin = $80,000 Fixed costs that can be avoided = $160,000 - $90,000 = $70,000 If the department is eliminated, the company would save $70,000 in fixed costs, but it would also lose $80,000 in contribution margin. Therefore, the annual financial disadvantage of eliminating the department would be: $70,000 - $80,000 = ($10,000) So the answer is (B) ($10,000).

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense. What is the budgeted variable manufacturing overhead for the year? A. $200,000 B. $260,000 C. $280,000 D. $400,000

To calculate the budgeted variable manufacturing overhead for the year, we need to first calculate the total machine-hours required for the year: Total machine-hours = 35,000 + 20,000 + 15,000 + 30,000 = 100,000 Then, we can calculate the budgeted variable manufacturing overhead for the year: Budgeted variable manufacturing overhead = Variable manufacturing overhead rate x Total machine-hours Budgeted variable manufacturing overhead = $4 x 100,000 Budgeted variable manufacturing overhead = $400,000 Therefore, the answer is (D) $400,000.

Selected information from the direct materials budget of Perry Incorporated is provided here: First Second Third Fourth Required production in units of finished goods 15,000 12,500 7,500 15,000 Units of raw materials needed per unit of finished goods 4 4 4 4 Units of raw materials needed to meet production 60,000 50,000 30,000 60,000 Desired units of ending raw materials inventory ? ? ? 24,000 Total units of raw materials needed Units of beginning raw materials inventory 16,000 ? ? ? Units of raw materials to be purchased ? ? ? ? Unit cost of raw materials $ 5 $ 5 $ 5 $ 5 Cost of raw materials to be purchased ? ? ? ? Perry, Incorporated desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter? multiple choice A. $300,000 B. $320,000 C. $380,000 D. $400,000

To calculate the number of units of ending raw materials inventory for the first quarter, we need to multiply the units of raw materials needed to meet production in the second quarter by the desired percent of ending raw materials inventory, which is 40% or 0.4. Desired units of ending raw materials inventory for the first quarter = 50,000 x 0.4 = 20,000 To calculate the total units of raw materials needed for the first quarter, we need to add the units of raw materials needed to meet production in the first quarter and the desired units of ending raw materials inventory for the first quarter. Total units of raw materials needed for the first quarter = 60,000 + 20,000 = 80,000 To calculate the units of raw materials to be purchased in the first quarter, we need to subtract the units of beginning raw materials inventory from the total units of raw materials needed for the first quarter. Units of raw materials to be purchased in the first quarter = 80,000 - 16,000 = 64,000 The unit cost of raw materials is $5, so the cost of raw materials to be purchased in the first quarter is: Cost of raw materials to be purchased in the first quarter = 64,000 x $5 = $320,000 Therefore, the correct answer is $320,000. Option B.

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense. What is the predetermined overhead rate for the year? A. $2 per machine hour B. $4 per machine hour C. $5 per machine hour D. $6 per machine hour

To calculate the predetermined overhead rate, we need to divide the total estimated manufacturing overhead costs by the total estimated machine-hours for the year. Total estimated manufacturing overhead costs = Fixed manufacturing overhead costs + Variable manufacturing overhead costs Fixed manufacturing overhead costs = $50,000 per quarter x 4 quarters = $200,000 Variable manufacturing overhead costs = $4 per machine-hour x (35,000 + 20,000 + 15,000 + 30,000) = $400,000 Total estimated manufacturing overhead costs = $200,000 + $400,000 = $600,000 Total estimated machine-hours for the year = 35,000 + 20,000 + 15,000 + 30,000 = 100,000 Predetermined overhead rate = Total estimated manufacturing overhead costs / Total estimated machine-hours for the year = $600,000 / 100,000 machine-hours = $6 per machine hour Therefore, the predetermined overhead rate for the year is $6 per machine hour. The answer is option D.

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter? A. $355,000 B. $360,000 C. $300,000 D. $315,000

To calculate the total direct labor cost for the fourth quarter, we need to first determine the total direct labor-hours required in the fourth quarter: 35,000 units × 0.50 DLHs per unit = 17,500 DLHs Next, we can multiply the total direct labor-hours by the cost of direct labor per hour: 17,500 DLHs × $18 per DLH = $315,000 Therefore, the total direct labor cost for the fourth quarter is $315,000. Answer choice D is correct.

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow? A. $15,000 B. $25,000 C. $30,000 D. $40,000

To determine the amount of cash that the company needs to borrow, we need to calculate the ending cash balance: Beginning cash balance + Cash receipts - Cash disbursements = Ending cash balance $5,000 + $80,000 - $70,000 = $15,000 Since the management wants to maintain a minimum cash balance of $40,000, the company needs to borrow: Minimum cash balance - Ending cash balance = Amount to borrow $40,000 - $15,000 = $25,000 Therefore, the company needs to borrow $25,000. The answer is B. $25,000.

A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each of the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 2. General administrative expenses allocated to the Orange County division on the basis of sales dollars

Unavoidable

A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each of the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 3. Depreciation expense on previously purchased machinery that is used in the Orange County division; the machinery will have no other use or resale value if the division is dropped.

Unavoidable

A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each of the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 5. The amount of rent paid to lease a private jet for use by the company's management that is allocated to the Orange County division

Unavoidable

Sharp Corporation produces 8,000 parts each year, which are used in the production of one of its products. The unit product cost of a part is $36, computed as follows: Variable production cost$ 16Fixed production cost20Unit product cost$ 36 The parts can be purchased from an outside supplier for only $28 each. The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth. Based on these data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be: A. $24,000 B. ($24,000) C. $56,000 D. ($56,000)

Variable production cost (8,000 units × $16 per unit)$ 128,000 Avoidable fixed production cost (8,000 units × 25% × $20 per unit)40,000 Relevant cost to make$ 168,000 Cost to buy (8,000 units × $28 per unit)224,000 Increase in cost if the parts are purchased$ (56,000)

The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier? Fixed overhead cost that can be eliminated if the bowls are purchased from the outside supplier The variable selling cost of the Snack Buster A)Yes Yes B)Yes No C)No Yes D)No No A. Choice A B. Choice B C. Choice C D. Choice D

b. Choice B