Chapter 9
Chapter 10
Chapter 11
Chapter 12
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100
Which of the following best describes the order in which these budgets would be prepared?
A.Direct Materials Budget, Budgeted Income Statement, Capital Expenditures Budget.
B.Budgeted Income Statement, Cash Collections Budget, Sales Budget.
C.Production Budget, Sales Budget, Cash Disbursements Budget.
D.Direct Materials Budget, Cash Collections Budget, Budgeted Income Statement.
A.Direct Materials Budget, Budgeted Income Statement, Capital Expenditures Budget.
100
Patrick Star Tech Inc. manufactures high quality and high capacity USB flash drives. They have the following information available to prepare their master budget
Month Units to be produced
October 4,560
November 4,750
December 5,150
Patrick Star Tech Inc. sells each flash drive for $12. It takes 3 ounces of metal to produce each flash drive at a cost of $0.50 per ounce. They prefer to have 10% of direct materials required for the following month's production in ending inventory as well. What is the total cost of direct materials for October to meet production needs?
A.$13,737
B.$6,869
C.$13,623
D.$6,812
B)
October November
Units to be produced (from Production Budget)
4,560 4,750
Multiply by: Quantity of DM/unit 3 3
Quantity needed for production 13,680 14,250
Plus: Desired ending inventory of DM (10%)
1,425
Total quantity needed 15,105
Less: Beginning inventory of DM (10%)
1,368
Quantity to purchase 13,737
Multiply by: Cost of DM per pound
$0.50
Total cost of DM purchase $6,869
100
The actual cost of direct materials is $47.50 per pound. The standard cost per pound is $51.75. During the current period, 7,200 pounds were used in production. The standard quantity for actual units produced is 7,100 pounds. What is the direct materials price variance?
A.$30,175 Favorable
B.$30,175 Unfavorable
C.$30,600 Favorable
D.$30,600 Unfavorable
C. $30,600 Favorable
DM Price Variance = 7,200 pounds * ($47.50 - $51.75)
DM Price Variance = $30,600 Favorable
*Favorable because actual price < standard price, meaning you paid less than expected.
100
Bunny, Inc. is considering two alternative investment proposals. The following data is for Proposal A.
Proposal A
Investment $550,000
Useful life (years) 12
Estimated annual net cash inflows for 12 years
$120,000
Residual value $20,000
Internal rate of return 16%
Bunny Inc. uses the straight-line depreciation method. What is the accounting rate of return for Proposal A? (Round to two decimal places).
A. 16.00% B. 27.86% C. 13.79% D. 21.86%
C. 13.79%
ARR = (Average annual net cash inflow – Annual depreciation expense)/ initial investment
Annual straight-line depreciation expense = (initial cost of asset – residual value)/useful life
Annual depreciation expense = ($550,000 - $20,000)/12 = 44,166.67
ARR = (120,000 – 44,166.67)/ 550,000 = 13.79%
100
Home & Body Co. manufactures handmade soap bars. They have the following information available to prepare their master budget:
Home & Body sells each soap bar for $12. They have a desired ending inventory equal to 20% of the next month's budgeted sales in units. How many units does Home & Body need to produce in November?
A. 46,800 units B. 3,840 units C. 3,660 units D. 3,890 units
3,840 units
200
The following selected data relates to Max Co.'s budgeted sales of bicycles for the upcoming quarter:
January expected unit sales 2,200
February expected unit sales 3,000
March expected unit sales 2,900
Management desires that finished goods inventory is 75% of the following month's sales. How many bicycles should Max Co. produce in February?
A.3,075
B.5,250
C.5,175
D. 2,925
Unit sales 3,000
Plus: Desired ending inventory 2,175
Total needed 5,175
Less: Beginning inventory 2,250
Number of units to produce 2,925
200
The entire Corn Flakes cereal product line at Kellogg may be classified as a(n):
A. Cost center
B. Investment center
C. Profit center
D. Revenue center
C. Profit center
“In a profit center, managers are responsible for both revenuesand costs, and therefore, profits…
The manager is accountable for increasing revenues andcontrolling costs to achieve profit goals for the entire brand or product line.”
200
Which variance is directly impacted if a worker drops a piece of the direct material during production and the direct material must then be discarded?
A.Direct materials price variance
B.Direct materials quantity variance
C.Direct labor rate variance
D.Direct labor efficiency variance
B. Direct materials quantity variance
If a unit of direct material must be discarded, we must use an extra/new unit of direct material. This causes the actual quantity of direct materials used to increase.
200
Elf Company is analyzing an investment project. The project will require the purchase of two machines for $28,000 and $7,000 (both machines are required). The total residual value at the end of the project is $1,700. The project will generate cash inflows of $11,000 and outflows of $2,000 per year over its 8 year life. If Elf Company requires 6% return, what is the net present value (NPV) of this project? (at a 6% discount rate, the present value of an annuity of $1 is 6.210, and the present value of $1 is 0.627). Round to the nearest dollar.
A.$27,890 B. $31,447 C. $21,956 D. $28,956
C. $21,956
200
Hill Manufacturing produces a part that inserts into diesel engines. The part is currently produced in the assembly department, with the following variable selling expenses and manufacturing costs related to the part:
Direct Materials $875
Direct Labor $125
Variable MOH $140
Fixed MOH $200
Variable Selling Expense $130
Another internal department within Hill also has the capacity to produce the part. The current market price for the part is $1,500. Calculate the lowestacceptable transfer price for the part if it’s produced by the other internal department at Hill:
A. $1,470 B. $1,500 C. $1,140 D. $1,270
C. $1,140
The lowest acceptable transfer price is calculated as the sum of variable manufacturing costs required to produce the product internally in its current department.
Variable Manufacturing Costs = 875 + 125 + 140 = $1,140
300
Which of the following is true regarding the accrual and cash basis of accounting?
A. Accrual accounting records sales when earned, while cash accounting records sales when cash is received.
B. Accrual accounting records sales when cash is received, while cash accounting records sales when earned.
C. There are no differences between the two methods.
D. Accrual accounting records expenses when cash is paid, while cash accounting records sales when incurred.
A)
Accrual accounting records sales when earned, while cash accounting records sales when cash is received.
300
The Top Hat division of Blandon's Fine Menswear had the following results last year (in thousands).
Management's target rate of return is 29%. What is the Top Hat division’s capital turnover?
C. 2.3
Capital turnover = Sales ÷ Total Assets
300
The following information describes a company’s usage of direct labor in a recent period:
Actual direct labor hours used 30,000
Actual rate per hour $20.00
Standard rate per hour $11.50
Standard hours for units produced 26,500
How much is the direct labor efficiency variance?
Favorable or unfavorable?
$40,250 Unfavorable
DL Efficiency Variance = $11.50 * (30,000 – 26,500)
DL Efficiency Variance = $40,250 Unfavorable
300
Daffodil Corporation is considering investing in two alternative projects:
Red Project Green Project
Investment $410,000 $220,000
Useful life 8 years 8 years
Estimated annual net cash inflows over the useful life
$90,000 $75,000
Residual value $25,000 $15,000
Required rate of return12% 8%
A)Red & Green payback period is the same
B)Red payback period is longer than Green
C) Green payback period is longer than Red
D) Cannot be determined
Which of the following statements is true when comparing the payback period of both projects??
B. Red payback period is longer than Green
Payback period = $410,000/$90,000 = 4.56
Payback period = $220,000/$75,000 = 2.93
Red > Green
300
The ___________ is the optimum budget to managers who plan revenues and expenses at different sales volumes.
Flexible Budget
A flexible budget is a budget prepared for a different level of volume than the one originally anticipated.
Managers can often gain better insights by comparing actual results against a flexible budget.
400
The Porch Cushion Company manufactures foam cushions. The number of cushions to be produced in the upcoming three months follows:
Each cushion requires 2 pounds of the foam used as stuffing. The company has a policy that the ending inventory of foam each month must be equal to 30% of the following month's expected production needs. How many pounds of foam does The Porch Cushion Company need to purchase in August?
33,800
400
Camping World Corporation has operating income of $78,000, a sales margin of 15%, and capital turnover of 2.6. The return on investment (ROI) for Camping World Corporation may be closest to:
A. 63%
B. 39%
C. 25%
D. 44%
B. 39%
ROI = Operating income ÷Total Assets
OR
Sales Margin x Capital Turnover
400
The standard cost of direct labor per hour is $18.50. One and one half standard direct labor hours are allowed per unit of finished goods. During the current period, 754 units were produced using 1,950 direct labor hours. The direct labor rate variance is $850 unfavorable. The actual cost of direct labor per hour would be closest to:
A.$18.94
B.$15.24
C.$19.63
D.$17.37
A. $18.94
DL rate variance = Actual hours X (Actual rate – Standard rate)
850 = 1,950 X (actual rate - $18.50)
Actual rate = (850/1,950) + $18.50 = $18.94
400
Which of the following statements is false?
A.The net present value of a project is most often an accurate method of evaluating a project’s value
B.One dollar to be received in the future is worth less than one dollar today
C.The accounting rate of return (ARR) uses the accrual method of accounting
D.The payback period considers the time value of money
D. The payback period considers the time value of money
Payback period is the length of time it takes to recover, in net cash inflows, the cost of capital outlay. The payback period measures how quickly managers expect to recover their investment dollars.
500
Which of the following is notincluded in the operating budget category?
A. Budgeted income statement
B. Sales budget
C. Direct labor budget
D. Budgeted balance sheet
Budgeted balance sheet
500
Assume the Boat division of the Roman Corporation had the following results last year. Management's target rate of return is 20% and the capital turnover is 4.24.
What is the division's residual income (RI)?
$804,000
Residual income = Operating income – (Target rate of return x Total assets)
500
Net present value measures?
A.The amount of time it will take to recover the cost of an investment
B.The difference between the present value of cash inflows and cash outflows
C.The rate of return promised by an investment over its useful life
D.Accrual-based information rather than cash flows
B. The difference between the present value of cash inflows and cash outflows
To determine how attractive each investment is, we find its NPV. The NPV is the difference between the present value of the investment’s net cash inflows and the cost of the initial investment.