PRACTICE FINAL
1. Use the following information to determine the gross margin for Pacific States
Manufacturing for the year just ended (all amounts are in thousands of dollars).
Sales
Purchases of direct materials
Direct labor
Work in process inventory, 1/1
Work in process inventory, 12/31
Finished goods inventory, 1/1
Finished goods inventory, 12/31
Accounts payable, 1/1
Accounts payable, 12/31
Direct materials inventory, 1/1
Direct materials inventory, 12/31
Indirect labor
Indirect materials used
Utilities expense, factory
Depreciation on factory equipment $31,800
7,000
5,000
800
3,000
4,000
5,300
1,700
1,500
6,000
1,000
600
500
1,900
3,500 A)
B)
C)
D) $21,300
$25,300
$10,500
$11,800 2.
A)
B)
C)
D) Which costs will change with a decrease in activity within the relevant range?
Total fixed costs and total variable cost
Unit fixed costs and total variable cost
Unit variable cost and unit fixed cost
Unit fixed cost and total fixed cost 3.
A)
B)
C)
D) An increase in the activity level within the relevant range results in
an increase in fixed cost per unit.
a proportionate increase in total fixed costs.
an unchanged fixed cost per unit.
a decrease in fixed cost per unit. Page 1 Use the following to answer Questions 4–5.
The following information has been provided by Evans Retail Stores Inc. for the first quarter of
the year.
Sales
Variable selling expenses
Fixed selling expenses
Cost of goods sold (variable)
Fixed administrative expenses
Variable administrative expenses $350,000
35,000
25,000
160,000
55,000
15,000 4.
A)
B)
C)
D) The gross margin of Evans Retail Stores Inc. for the first quarter is
$210,000.
$140,000.
$220,000.
$190,000. 5.
A)
B)
C)
D) The contribution margin of Evans Retail Stores Inc. for the first quarter is
$300,000.
$140,000.
$210,000.
$190,000. 6.
A)
B)
C)
D) The total contribution margin decreases if sales volume remains the same and
fixed expenses increase.
fixed expenses decrease.
variable expense per unit increases.
variable expense per unit decreases. 7. A company has provided the following data:
Sales
3,000 units
Sales price
$70 per unit
Variable cost
$50 per unit
Fixed cost
$25,000 A)
B)
C)
D) If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all
other factors remain the same, then net operating income will
decrease by $31,875.
decrease by $15,000.
increase by $20,625.
decrease by $3,125. 8. Wallace Inc. prepared the following budgeted data based on a sales forecast of
Page 2 $6,000,000.
Variable
Direct materials
$1,600,000
Direct labor
1,400,000
Factory overhead
600,000
Selling expenses
240,000
Administrative expenses
60,000
Total
$3,900,000
A)
B)
C)
D) Fixed
$ 900,000
360,000
140,000
$1,400,000 What would be the amount of sales dollars at the break-even point?
$2,250,000
$3,500,000
$4,000,000
$5,300,000 9. The following information pertains to Rica Company.
Sales (50,000 units)
Manufacturing costs:
Variable
Fixed
Selling and admin. expenses:
Variable
Fixed
A)
B)
C)
D) $1,000,000
340,000
70,000
10,000
60,000 How much is Rica's break-even point in number of units?
9,848
10,000
18,571
26,000 Use the following to answer Questions 10–11.
Dorian Company produces and sells a single product. The product sells for $60 per unit and has a
contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.
10.
A)
B)
C)
D) The variable expense per unit is
$31.20.
$24.00.
$36.00.
$28.80. 11. The break-even point in sales dollars is
A) $48,000. Page 3 B) $72,000.
C) $28,800.
D) $0.
12. An allocated portion of fixed manufacturing overhead is included in product costs under
which of the following?
Absorption
Variable
Costing
costing
A)
No
No
B)
No
Yes
C)
Yes
No
D)
Yes
Yes
Use the following to answer Questions 13–16.
Farron Company, which has only one product, has provided the following data concerning its
most recent month of operations.
Selling price
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
13.
A)
B)
C)
D) $92
0
8,700
8,300
400
$13
55
1
5
$130,500
8,300 What is the unit product cost for the month under variable costing?
$69
$84
$89
$74 14. What is the unit product cost for the month under absorption costing?
A) $74 Page 4 B) $89
C) $69
D) $84
15.
A)
B)
C)
D) What is the net income for the month under variable costing?
$10,600
($17,000)
$16,600
$6,000 16.
A)
B)
C)
D) What is the net income for the month under absorption costing?
($17,000)
$16,600
$6,000
$10,600 17. Orion Corporation is preparing a cash budget for the 6 months beginning January 1.
Shown below are the company's expected collection pattern and the budgeted sales for
the period. All sales are deemed to be collectible.
Expected collection pattern:
65% collected in the month of sale
20% collected in the month after sale
10% collected in the second month after sale
4% collected in the third month after sale
.
Budgeted sales:
January
$160,000
February
185,000
March
190,000
April
170,000
May
200,000
June
180,000
The estimated total cash collections during April from sales and accounts receivables
would be
A)
B)
C)
D) $155,900.
$167,000.
$171,666.
$173,400. Page 5 18. Avril Company makes collections on sales according to the following schedule.
30% in the month of sale
60% in the month following sale
8% in the second month following sale
All sales are deemed to be collectible
The following sales are expected.
January
February
March
A)
B)
C)
D) Expected Sales
$100,000
120,000
110,000 Cash collections in March should be budgeted to be
$110,000.
$110,800.
$105,000.
$113,000. 19. A labor efficiency variance resulting from the use of poor-quality materials should be
charged to
A) the production manager.
B) the purchasing agent.
C) manufacturing overhead.
D) the marketing department.
20.
A)
B)
C) An unfavorable labor efficiency variance indicates that
the actual labor rate was higher than the standard labor rate.
the labor rate variance must also be unfavorable.
actual labor hours worked exceeded standard labor hours for the production level
achieved.
D) overtime labor was used during the period. 21.
A)
B)
C)
D) A favorable labor rate variance indicates that
actual hours exceed standard hours.
standard hours exceed actual hours.
the actual rate exceeds the standard rate.
the standard rate exceeds the actual rate. Use the following to answer Questions 22-23.
The following selected data pertain to Beck Co.'s Beam Division for last year. Page 6 Sales
Variable expenses
Traceable fixed expenses
Average operating assets
Minimum required rate of return $400,000
$100,000
$250,000
$200,000
20% 22.
A)
B)
C)
D) How much is the residual income?
$40,000
$50,000
$10,000
$80,000 23.
A)
B)
C)
D) How much is the return on investment?
25%
20%
12.5%
40% 24. One of the dangers of allocating common fixed costs to a product line is that such allocations
can make the line appear less profitable than it really is.
A) True
B) False
25. In responsibility accounting, each segment in an organization should be charged with the
costs for which it is responsible and over which it has control, plus its share of common
organizational costs.
A) True
B) False
26. Some managers believe that residual income is superior to return on investment as a
means of measuring performance, because it encourages the manager to make investment
decisions that are more consistent with the interests of the company as a whole.
A)
B) True
False 27. The performance of the manager of Division A is measured by residual income. Which of the
following would increase the manager's performance measure?
A)
B)
C) Increase in average operating assets
Decrease in average operating assets
Increase in minimum required return Page 7 D) Decrease in net operating income 28. The Northern Division of the Smith Company had average operating assets totaling $150,000
last year. If the minimum required rate of return is 12% and last year's net operating
income at Northern was $20,000, then the residual income for Northern last year was
A)
B)
C)
D) $20,000.
$l8,000.
$5,000.
$2,000. Use the following to answer Questions 29–30.
The following information is available on Company A.
Sales
Net operating income
Stockholders' equity
Average operating assets
Minimum required rate of return $900,000
36,000
100,000
180,000
15% 29. Company A's residual income is
A)
B)
C)
D) $9,000.
$21,000.
$45,000.
$24,000. 30. Company A's return on investment (ROI) is
A)
B)
C)
D) 4%.
15%.
20%.
36%. 31. Gata Co. plans to discontinue a department that has a $48,000 contribution margin and
$96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be
the effect of this discontinuance on Gata's overall net operating income?
A)
Increase of $48,000
B)
Decrease of $48,000
C)
Increase of $6,000 Page 8 D) Decrease of $6,000 32. Pitkin Company produces a part used in the manufacture of one of its products. The unit
product cost of the part is $33, computed as follows.
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit product cost $12
8
3
. 10
$33 An outside supplier has offered to provide the annual requirement of 10,000 of the parts
for only $27 each. The company estimates that 30% of the fixed manufacturing overhead
costs above will continue if the parts are purchased from the outside supplier. Assume
that direct labor is an avoidable cost in this decision. Based on these data, the per-unit
dollar advantage or disadvantage of purchasing the parts from the outside supplier would
be a
A)
B)
C)
D) $3 advantage.
$1 advantage.
$1 disadvantage.
$4 disadvantage. 33. Some investment projects require that a company expand its working capital to service
the greater volume of business that will be generated. Under the net present value
method, the investment of working capital should be treated as
A) an initial cash outflow for which no discounting is necessary.
B) a future cash inflow for which discounting is necessary.
C) both an initial cash outflow for which no discounting is necessary and a future cash
inflow for which discounting is necessary.
D) irrelevant to the net present value analysis.
34. Which of the following capital budgeting techniques consider(s) cash flow over the entire
life of the project?
A)
B)
C)
D) Internal rate of return
Yes
Yes
No
No Payback
Yes
No
Yes
No Use the following to answer Question 35
(Ignore income taxes in this problem.) Treads Corporation is considering the replacement of an
old machine that is currently being used. The old machine is fully depreciated but can be used by
the corporation for five more years. If Treads decides to replace the old machine, Picco Company Page 9 has offered to purchase the old machine for $60,000. The old machine would have no salvage
value in 5 years.
The new machine would be acquired from Hillcrest Industries for $1,000,000 in cash. The new
machine has an expected useful life of 5 years with no salvage value. Due to the increased
efficiency of the new machine, estimated annual cash savings of $300,000 would be generated.
Treads Corporation uses a discount rate of 12%.
35.
A)
B)
C)
D) The net present value of the project is closest to
$171,000.
$136,400.
$141,500.
$560,000. Use the following to answer Questions 36–37.
(Ignore income taxes in this problem.) Oriental Company has gathered the following data on a
proposed investment project.
Investment in depreciable equipment
Annual net cash flows
Life of the equipment
Salvage value
Discount rate $200,000
$ 50,000
10 years
0
10% The company uses straight-line depreciation on all equipment.
36. The payback period for the investment would be
A)
B)
C)
D) 2.41 years.
0.25 years.
10 years.
4 years. 37. The net present value of this investment would be
A)
B)
C)
D) ($14,350).
$107,250.
$77,200.
$200,000. Page 10 38. The Tse Manufacturing Company uses a job-order costing system and applies overhead to
jobs using a predetermined overhead rate. The company closes any balance in the
Manufacturing Overhead account to Cost of Goods Sold. During the year, the company's
Finished Goods inventory account was debited for $125,000 and credited for $110,000.
The ending balance in the Finished Goods inventory account was $28,000. At the end of
the year, manufacturing overhead was overapplied by $4,500. The balance in the Finished
Goods inventory account at the beginning of the year was
A. $28,000.
B. $13,000.
C. $17,500.
D. $8,500.
39. Matthias Corporation has provided data concerning the company's Manufacturing Overhead
account for the month of May. Prior to the closing of the overapplied or underapplied
balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead
account was $53,000 and the total of the credits to the account was $69,000. Which of the
following statements is true?
A. Manufacturing overhead applied to Work in Process for the month was $69,000.
B. Manufacturing overhead for the month was underapplied by $16,000.
C. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold
during the month was $53,000.
D. Actual manufacturing overhead incurred during the month was $69,000. 40. Yoder Company uses the weighted-average method in its process costing system. The
following data pertain to operations in the first processing department for a recent month. Page 11 40. What was the cost per equivalent unit for materials during the month?
A. $0.30
B. $0.25
C. $0.20
D. $0.15 Page 12

 

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