MGMT-027 FINAL

1. Selling and administrative expenses are considered to be:

D. a period cost under variable costing.

2. A common cost that should not be assigned to a particular product on a segmented income

statement is:

B. the salary of the corporation president.

3. Gangwer Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is:

A. $95

4. Olds Inc., which produces a single product, has provided the following data for its most recent

month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was:

B. $130

MGMT-027 FINAL

5. A manufacturing company that produces a single product has provided the following data

concerning its most recent month of operations:

What is the absorption costing unit product cost for the month?

D. $125

6. Gaucher Corporation has provided the following data from its activity-based costing

accounting system:

The activity rate for the "designing products" activity cost pool is closest to:

A. $78 per product design hour

B. $582,016 per product design hour

C. $128 per product design hour

D. $89 per product design hour

Designing products: $582,016 4,547 product design hours = $128 per product design hour

7. Data concerning three of the activity cost pools of Burlingame LLC, a legal firm, have been

provided below:

The activity rate for the "meeting with clients" activity cost pool is closest to:

A. $1,102,050 per meeting hour

B. $63 per meeting hour

C. $116 per meeting hour

D. $158 per meeting hour

Meeting with clients: $1,102,050 6,975 meeting hours = $158 per meeting hour

MGMT-027 FINAL

8. Wecker Corporation uses the following activity rates from its activity-based costing to assign

overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product V09X using the activity-based costing

system?

A. $157.87

B. $91,722.47

C. $10,385.22

D. $5,485.50

The overhead cost charged to Product V09X is:

9. Ekmark Corporation uses the following activity rates from its activity-based costing to assign

overhead costs to products:

Data for one of the company's products follow:

How much overhead cost would be assigned to Product P59G using the activity-based costing

system?

A. $54,482.56

B. $5,301.76

C. $10,014.40

D. $154.78

MGMT-027 FINAL

The overhead cost charged to Product P59G is:

Lehner Corporation has provided the following data from its activity-based costing accounting

system:

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining

costs that are not assigned to products.

10. How much indirect factory wages and factory equipment depreciation cost would be assigned

to the Customer Orders activity cost pool?

A. $247,000

B. $390,000

C. $214,500

D. $780,000

Allocations to the Customer Orders activity cost pool:

11. How much indirect factory wages and factory equipment depreciation cost would NOT be

assigned to products using the activity-based costing system?

A. $260,000

B. $520,000

C. $0

D. $104,000

Allocations to the Other activity cost pool:

MGMT-027 FINAL

12. Veltri Corporation is working on its direct labor budget for the next two months. Each unit of

output requires 0.77 direct labor-hours. The direct labor rate is $11.20 per direct labor-hour. The

production budget calls for producing 7,100 units in October and 6,900 units in November. The

company guarantees its direct labor workers a 40-hour paid work week. With the number of

workers currently employed, that means that the company is committed to paying its direct labor

work force for at least 5,480 hours in total each month even if there is not enough work to keep

them busy. What would be the total combined direct labor cost for the two months?

A. $122,752.00

B. $120,736.00

C. $120,881.60

D. $122,606.40

Direct Labor Budget

13. Hagos Corporation is working on its direct labor budget for the next two months. Each unit

of output requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct labor-hour.

The production budget calls for producing 2,100 units in June and 1,900 units in July. If the

direct labor work force is fully adjusted to the total direct labor-hours needed each month, what

would be the total combined direct labor cost for the two months?

A. $15,792.00

B. $15,002.40

C. $16,581.60

D. $31,584.00

Direct Labor Budget

MGMT-027 FINAL

14. The purpose of a flexible budget is to:

A. remove items from performance reports that are not controllable by managers.

B. permit managers to reduce the number of unfavorable variances that are reported.

C. update the static planning budget to reflect the actual level of activity of the period.

D. reduce the amount of conflict between departments when the master budget is prepared.

15. Salyers Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion.

The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's

overhead budget for the most recent month appears below:

The Inn's variable overhead costs are driven by the number of guests.

What would be the total budgeted overhead cost for a month if the activity level is 53 guests?

A. $7,159.20

B. $6,680.60

C. $7,184.80

D. $26,154.40

Variable cost per guest for supplies = $148.20 57 guests = $2.60 per guest

Variable cost per guest for laundry = $216.60 57 guests = $3.80 per guest

MGMT-027 FINAL

16. Stock Manufacturing Corporation has prepared the following overhead budget for next

month.

The company's variable overhead costs are driven by machine-hours.

What would be the total budgeted overhead cost for next month if the activity level is 6,600

machine-hours rather than 6,900 machine-hours?

A. $84,321.00

B. $87,590.00

C. $84,860.00

D. $83,781.74

Variable cost per MH for supplies = $21,390 6,900 MHs = $3.10 per MH

Variable cost per MH for indirect labor = $41,400 6,900 MHs = $6.00 per MH

17. Clovis Midwifery's cost formula for its wages and salaries is $2,680 per month plus $245 per

birth. For the month of September, the company planned for activity of 118 births, but the actual

level of activity was 121 births. The actual wages and salaries for the month was $33,290. The

wages and salaries in the flexible budget for September would be closest to:

A. $32,393

B. $31,590

C. $32,325

D. $33,290

Cost = Fixed cost + Variable cost per unit q

= $2,680 + $245 121 = $32,325

MGMT-027 FINAL

18. Bargas Framing's cost formula for its supplies cost is $2,240 per month plus $6 per frame.

For the month of May, the company planned for activity of 808 frames, but the actual level of

activity was 810 frames. The actual supplies cost for the month was $7,090. The supplies cost in

the flexible budget for May would be closest to:

A. $7,088

B. $7,090

C. $7,106

D. $7,100

Cost = Fixed cost + Variable cost per unit q

= $2,240 + $6 810 = $7,100

19. Kara Catering uses two measures of activity, jobs and meals, in the cost formulas in its

budgets and performance reports. The cost formula for catering supplies is $310 per month plus

$84 per job plus $17 per meal. A typical job involves serving a number of meals to guests at a

corporate function or at a host's home. The company expected its activity in July to be 15 jobs

and 127 meals, but the actual activity was 14 jobs and 126 meals. The actual cost for catering

supplies in July was $3,620. The activity variance for catering supplies in July would be closest

to:

A. $109 F

B. $109 U

C. $101 F

D. $101 U

Because the flexible budget is less than the planning budget, the variance is favorable (F).

20. Orscheln Snow Removal's cost formula for its vehicle operating cost is $2,800 per month

plus $381 per snow-day. For the month of February, the company planned for activity of 17

snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost

for the month was $7,920. The activity variance for vehicle operating cost in February would be

closest to:

A. $1,357 F

B. $1,357 U

C. $1,143 F

D. $1,143 U

Because the flexible budget is less than the planning budget, the variance is favorable (F).

MGMT-027 FINAL

21. When computing standard cost variances, the difference between actual and standard price

multiplied by actual quantity yields a(n):

A. combined price and quantity variance.

B. efficiency variance.

C. price variance.

D. quantity variance.

22. If the labor efficiency variance is unfavorable, then

A. actual hours exceeded standard hours allowed for the actual output.

B. standard hours allowed for the actual output exceeded actual hours.

C. the standard rate exceeded the actual rate.

D. the actual rate exceeded the standard rate.

23. Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used.

If the actual purchase price per pound was $0.50 more than the standard purchase price per

pound, then the materials price variance was:

A. $2,000 F

B. $37,500 F

C. $37,500 U

D. $35,500 U

The Litton Company has established standards as follows:

Direct material: 3 pounds per unit @ $4 per pound = $12 per unit

Direct labor: 2 hours per unit @ $8 per hour = $16 per unit

Variable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit

Actual production figures for the past year are given below. The company records the materials

price variance when materials are purchased.

The company applies variable manufacturing overhead to products on the basis of standard direct

labor-hours.

MGMT-027 FINAL

24. The materials price variance is:

A. $400 U

B. $400 F

C. $600 F

D. $600 U

Materials price variance = (AQ AP) - (AQ SP)

$11,400 - (3,000 pounds $4 per pound)

$11,400 - $12,000 = $600 F

25. The materials quantity variance is:

A. $800 U

B. $4,000 U

C. $760 U

D. $760 F

SQ = 3 pounds per unit 600 units = 1,800 pounds

Materials quantity variance = (AQ - SQ) SP

= (2,000 pounds - 1,800 pounds) $4 per pound

= (200 pounds) $4 per pound = $800 U

26. The labor rate variance is:

A. $480 F

B. $480 U

C. $440 F

D. $440 U

Labor rate variance = AH (AR - SR) = AH AR - AH SR

= $9,240 - (1,100 hours $8 per hour)

= $9,240 - $8,800 = $440 U

27. Turnover is computed by dividing average operating assets into:

A. invested capital.

B. total assets.

C. net operating income.

D. sales.

28. Which of the following is not an operating asset?

A. Cash

B. Inventory

C. Plant equipment

D. Common stock

MGMT-027 FINAL

29. The purpose of the Data Processing Department of Falena Corporation is to assist the various

departments of the corporation with their information needs free of charge. The Data Processing

Department would best be evaluated as a:

A. cost center.

B. revenue center.

C. profit center.

D. investment center.

MGMT-027 FINAL

30. A company's current net operating income is $16,800 and its average operating assets are

$80,000. The company's required rate of return is 18%. A new project being considered would

require an investment of $15,000 and would generate annual net operating income of $3,000.

What is the residual income of the new project?

A. 20.8%

B. 20%

C. ($150)

D. $300

31. Soderquist Corporation uses residual income to evaluate the performance of its divisions.

The company's minimum required rate of return is 11%. In April, the Commercial Products

Division had average operating assets of $100,000 and net operating income of $9,400. What

was the Commercial Products Division's residual income in April?

A. -$1,600

B. $1,600

C. $1,034

D. -$1,034

32. Costs which are always relevant in decision making are those costs which are:

A. variable.

B. avoidable.

C. sunk.

D. fixed.

33. A general rule in relevant cost analysis is:

A. variable costs are always relevant.

B. fixed costs are always irrelevant.

C. differential future costs and revenues are always relevant.

D. depreciation is always irrelevant.

34. Freestone Company is considering renting Machine Y to replace Machine X. It is expected

that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open

market. For this decision, which of the following factors is (are) relevant?

I. Cost of direct materials used

II. Resale value of Machine X

A. Only I

B. Only II

C. Both I and II

D. Neither I nor II

MGMT-027 FINAL

35. A study has been conducted to determine if Product A should be dropped. Sales of the

product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses

charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed

expenses will continue even if the product is dropped. These data indicate that if Product A is

dropped, the company's overall net operating income would:

A. decrease by $20,000 per year

B. increase by $20,000 per year

C. decrease by $10,000 per year

D. increase by $30,000 per year

36. The capital budgeting method that recognizes the time value of money by discounting cash

flows over the life of the project, using the company's required rate of return as the discount rate

is called the:

A. simple rate of return method.

B. the net present value method.

C. the internal rate of return method.

D. the payback method.

37. The internal rate of return of an investment project is the:

A. discount rate that results in a zero net present value for the project.

B. minimum acceptable rate of return.

C. weighted average rate of return generated by internal funds.

D. company's cost of capital.

38. The length of time required to recover the initial cash outlay for a project is determined by

using the:

A. discounted cash flow method.

B. the payback method.

C. the net present value method.

D. the simple rate of return method.

39. (Ignore income taxes in this problem) The management of Serpas Corporation is considering

the purchase of a machine that would cost $180,000, would last for 5 years, and would have no

salvage value. The machine would reduce labor and other costs by $46,000 per year. The

company requires a minimum pretax return of 13% on all investment projects. The net present

value of the proposed project is closest to:

A. $27,138

B. $50,000

C. -$18,218

D. -$33,565

MGMT-027 FINAL

40. (Ignore income taxes in this problem.) Mcclam, Inc., is considering the purchase of a

machine that would cost $100,000 and would last for 9 years. At the end of 9 years, the machine

would have a salvage value of $23,000. The machine would reduce labor and other costs by

$19,000 per year. Additional working capital of $2,000 would be needed immediately. All of this

working capital would be recovered at the end of the life of the machine. The company requires a

minimum pretax return of 13% on all investment projects. The net present value of the proposed

project is closest to:

A. $3,833

B. $5,167

C. -$2,492

D. $11,514