Use the following sales budget information to answer question 1: 
July $100,000 October $ 90,000 
August $ 80,000 November $100,000 
September $110,000 December $ 94,000 
Historically, cash collection of sales has been: 
65% of sales collected in month of sale 
25% of sales collected in month following sale 
10% of sales collected in second month following sale 

1. What are the expected cash collections in September? 
A. $86,000 C. $98,500 
B. $97,100 D. $101,500 

Use the following information to answer question 2: 
Caps, Inc. has the following budget for the production and sale of 1,000 caps: 
Sales revenue $8,500 
Cost of goods sold $5,000 
Fixed expenses $2,500 
Income $1,000 

2. If 900 caps were sold, what would budgeted sales revenue be? 
A. $900 C. $8,500 
B. $7,650 D. $9,250 

Use the following unit cost information to answer question 3: 
Direct materials $2.50 
Direct labor $4.50 
Variable overhead $2.00 
Fixed overhead $0.80 

3. If the product is sold in the external market at full cost plus a 25% markup, and all 
production can be sold, what is the appropriate transfer price? 
A. $9.00 C. $11.25 
B. $9.80 D. $12.25 

4. Lucky Duck, Inc. had sales of $550,000 and net operating income of $275,000. 
Beginning of the year operating assets were $125,000 and end of the year 
operating assets were $175,000. What asset figure is used to compute the return 
on investment? 
A. $125,000 C. $175,000 
B. $150,000 D. $200,000 

Use the following information to answer question 5: 
Warranty claims—$120,000 
Product liability lawsuits—$200,000 
Rework costs—$600,000 
Quality training—$350,000 
Inspection of incoming materials—$900,000 
Total yearly sales—$50,000,000 

5. What are total internal failure costs? 
A. $320,000 C. $600,000 
B. $350,000 D. $900,000 


Use the following purchases budget information to answer question 6: 
July $100,000 October $ 90,000 
August $ 80,000 November $100,000 
September $110,000 December $ 94,000 
Historically, one half is paid at the time of purchase and the remainder in the month 
following purchase. 

6. What are the expected cash disbursements in August? 
A. $80,000 C. $95,000 
B. $90,000 D. $100,000 

7. Which of the following is a drawback of return on investment (ROI)? 
A. Accounts receivable and inventory figures are generally difficult to measure. 
B. ROI ignores the book value of assets. 
C. ROI may discourage managers from replacing old assets like 
manufacturing equipment. 
D. Use of different depreciation methods doesn’t affect the ROI calculation. 

8. If standard direct labor costs for the production of one unit are 2 hours @ $15 per 
hour, and actual direct labor costs for the production of 1,000 units are 1,950 hours @ 
$15.25 per hour, what is the labor rate variance? 
A. $500 F C. $487.50 F 
B. $500 U D. $487.50 U 

Use the following sales forecast information to answer question 9: 
January 15,000 cars 
February 12,000 cars 
March 16,000 cars 
April 15,000 cars 

9. Each car requires four wheels, and 30 minutes of labor time at a rate of $12 per hour. 
January’s beginning balance of wheels is 6,000. What is the direct labor budget for 
March? 
A. $96,000 C. $192,000 
B. $187,200 D. $202,500 

Use the following product unit costs to answer question 10: 
Direct materials—$0.75 
Direct labor—$1.00 
Variable overhead—$0.50 
Fixed overhead—$0.75 

10. If the product can be sold to an external purchaser for full cost plus a 20% markup, 
what is the minimum transfer price, assuming no contribution margin loss on outside 
sales exists? 
A. $1.75 C. $3.00 
B. $2.25 D. $3.60 

11. Nickerson, Inc. has developed a variable-overhead rate of $10 per machine hour and 
estimates fixed overhead at $250,000 for production up to 100,000 units per year. If the 
production manager estimates 9,000 machine hours for the production of 90,000 units 
next year, what are estimated variable-overhead costs? 
A. $90,000 C. $340,000 
B. $250,000 D. $900,000 





Use the following production time estimates to answer questions 12 and 13: 
Wait time—10 hours 
Inspection time—1 hour 
Processing time—36 hours 
Move time—1.5 hours 

12. What is the manufacturing cycle time? 
A. 36 hours C. 47 hours 
B. 46 hours D. 48.5 hours 

13. What is manufacturing cycle efficiency? (Round your answer to the nearest percent.) 
A. 74% C. 84% 
B. 79% D. 86% 

Use the following segment information to prepare an income statement using the 
contribution format and answer question 14: 
Sales Revenue—$350,000 
Variable Costs: 
Production—$175,000 
Selling, General, & Administrative—$75,000 
Traceable Fixed Costs: 
Production—$50,000 
Selling, General, & Administrative—$32,500 
Operating Assets—beginning of the year—$40,000 
Operating Assets—end of the year—$44,000 

14. What is the segment’s return on investment? (Round your answer to two decimals.) 
A. 39.77% C. 119.05% 
B. 41.67% D. 227.27% 

Use the following information to answer question 15: 
Units started into production—1,200,000 
Total good units completed—1,115,000 
Total hours of value-added production time—575,000 
Total production hours—750,000 

15. What is the throughput per hour? (Round your answer to two decimals.) 
A. 1.49 C. 1.94 
B. 1.60 D. 2.09 

16. Actual variable-overhead expenses were $33,750 for production of 6,000 units. Variable 
overhead is applied at a rate of $3.00 per direct labor hour, two direct labor hours are 
budgeted for each unit, and 11,990 direct labor hours were incurred. What is the total 
variable-overhead variance? 
A. $2,250 F C. $2,220 F 
B. $2,250 U D. $2,220 U 

Use the following sales forecast information to answer question 17: 
January 15,000 cars 
February 12,000 cars 
March 16,000 cars 

17. Each car requires four wheels, and requires 30 minutes of labor time at a rate of $12 
per hour. January’s beginning balance of wheels is 6,000. If the company tries to 
maintain 10% of the next month’s forecasted production needs in inventory, what are 
the projected wheel purchases for February? 
A. 12,000 C. 49,600 
B. 13,600 D. 72,300 


Use the following monthly data regarding each division within a company to answer questions 18 and 19: 
Division A Division B Division C 
Revenues $15,000 $15,000 $20,000 
Variable Costs $12,000 $10,000 $8,000 
Contribution Margin $3,000 $5,000 $12,000 
Traceable Fixed Costs $2,000 $2,000 $8,000 
Common fixed costs of $6,000 are divided equally among divisions. 

18. What is the company’s monthly net income? 
A. $12,000 C. $6,000 
B. $8,000 D. $2,000 

19. What is the monthly net income for Division A? 
A. $2,000 C. ($4,000) 
B. $1,000 D. ($1,000) 
12 
Use the following information to answer questions 20 and 21: 
Tie One On budgeted for production and sales of 12,000 silk ties, but actually produced 
11,000 and sold 10,500. Each tie has the following standards: 1 foot of material 
at a budgeted cost of $1.50 per foot and 20 minutes of sewing time at a cost of $0.25 
per minute. The ties sell for $8. Actual material costs for the production of 11,000 ties 
were $1.54 per foot. Actual total sewing time was 242,000 minutes and labor costs 
were $0.24 per minute. 

20. What was the budgeted contribution margin per tie? 
A. $1.18 C. $1.46 
B. $1.22 D. $1.50 

21. What was the actual contribution margin per tie? 
A. $1.18 C. $1.46 
B. $1.22 D. $1.50 

Use the following sales forecast information to answer question 22: 
January 15,000 bags 
February 12,000 bags 
March 16,000 bags 

22. If the company maintains 10% of the next month’s forecasted sales in inventory, what 
is the projected production for January? 
A. 14,700 C. 16,200 
B. 15,000 D. 17,500 

Use the following information to answer questions 23 and 24: 
Budgeted production and sales—5,000 units 
Actual production and sales—6,000 units 
Direct material standards—1.5 pounds of material @ $1.52 per pound 
Direct labor standards—2 hours of assembly time @ $12.50 per hour 
Sales price—$32 
Actual direct material costs—8,600 pounds @ $1.50 per pound 
Actual direct labor costs—13,200 hours @ $12.25 per hour 

23. What is the flexible budget variance? 
A. $9,100 F C. $10,920 F 
B. $9,100 U D. $10,920 U 

24. What is the sales volume variance? 
A. $6,000 C. $4,720 
B. $5,000 D. $2,900 

25. Tea Leaves, Inc. has a policy of maintaining 20% of the next year’s expected sales 
in the ending inventory of any year. During 20x7, they budgeted and sold 120,000 
tea bags. Sales of 125,000 tea bags are budgeted for 20x8. How many bags were 
purchased during 20x7? 
A. 120,000 C. 125,000 
B. 121,000 D. 145,000