ACCOUNTING QUESTIONS

2. Which of the following is not a benefit of budgeting?
a. It uncovers potential bottlenecks before they occur.
b. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.
c. It ensures that accounting records comply with generally accepted accounting principles.
d. It provides benchmarks for evaluating subsequent performance.

3. The master budget process usually begins with the:
a. production budget.
b. operating budget.
c. sales budget.
d. cash budget.

4. A method of budgeting in which the cost of each program must be justified every year is called:
a. operational budgeting.
b. zero-based budgeting.
c. continuous budgeting.
d. responsibility accounting.

5.Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:
a. responsibility accounting.
b. contribution accounting.
c. absorption accounting.
d. operational budgeting.

6. Budgeted sales in Allen Company over the next four months are given below:

September October November December
Budgeted sales $100,000 $160,000 $180,000 $120,000
Twenty-five percent of the company’s sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month’s sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder are uncollectible. Given these data, cash collections for December should be:
a. $153,000.
b. $138,000.
c. $120,000.
d. $103,500.

7. The PDQ Company makes collections on credit sales according to the following schedule:
25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible

The following sales have been budgeted:
Month Sales
April $100,000
May 120,000
June 110,000

Cash collections in June would be:
a. $113,400.
b. $110,000.
c. $111,000.
d. $115,500.

8. Pardee Company plans to sell 12,000 units during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units must be produced during the month?
a. 11,500.
b. 12,500.
c. 12,000.
d. 14,000.

9.Superior Industries’ sales budget shows quarterly sales for the next year as follows:
Quarter Sales (units)
First 10,000
Second 8,000
Third 12,000
Fourth 14,000

Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter’s sales. Budgeted production for the second quarter should be:
a. 7,200 units.
b. 8,000 units.
c. 8,800 units.
d. 8,400 units.

10. The Willsey Merchandise Company has budgeted $40,000 in sales for the month of December. The company’s cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is:
a. $6,000 increase.
b. $10,000 decrease.
c. $22,000 decrease.
d. $15,000 increase.

11. ABC Company has a cash balance of $9,000 on April 1. The company must maintain a minimum cash balance of $6,000. During April expected cash receipts are $45,000. Expected cash disbursements during the month total $52,000. During April the company will need to borrow:
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
12. 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
The following sales are expected:

Expected Sales
January $100,000
February 120,000
March 110,000

Cash collections in March should be budgeted to be:
a. $110,000.
b. $110,800.
c. $105,000.
d. $113,000.

13. The Stacy Company makes and sells a single product, Product R. Budgeted sales for April are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is budgeted at $40,000, the budgeted selling and administrative expenses are:
a. $133,333.
b. $50,000.
c. $102,000.
d. $78,000.
14. Use the following to answer questions 14-15:
KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.
May June July
(actual) (budget) (budget)
Sales $42,000 $40,000 $45,000
Cost of sales 21,000 20,000 22,500
Gross margin 21,000 20,000 22,500
Operating expenses 20,000 20,000 20,000
Operating income $1,000 $0 $2,500

Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The “operating expenses” are paid in the month of the sale. The amount of cash collected during the month of June should be:
a. $32,000.
b. $40,000.
c. $40,400.
d. $41,000.
15. The cash disbursements during the month of June for goods purchased for resale and for operating expenses should be:
a. $40,000.
b. $41,000.
c. $42,500.
d. $43,500.

16. Use the following to answer questions 16-20: Justin’s Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company’s cost of goods sold is 60% of sales. Expected sales for the first four months appear below.
Expected
Sales
January $10,000
February 24,000
March 16,000
April 25,000
The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month’s merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.
In a budgeted income statement for the month of February, net income would be:
a. $9,000.
b. $1,800.
c. $0.
d. $4,200.

17. In a budgeted balance sheet, the Merchandise Inventory on February 28 would be:
a. $4,800.
b. $7,500.
c. $9,600.
d. $3,200.

18. The Accounts Receivable balance that would appear in the March 31 budgeted balance sheet would be:

a. $15,000.
b. $16,000.
c. $8,800.
d. $12,400.

19. In a budget of cash receipts for March, the total cash receipts would be:
a. $17,800.
b. $8,200.
c. $20,200.
d. $16,000.

20. In a budget of cash disbursements for March, the total cash disbursements would be:
a. $11,200.
b. $13,900.
c. $22,300.
d. $16,900.

21. Use the following to answer questions 21-24: Information on the actual sales and inventory purchases of the Law Company for the first quarter follow:
Inventory
Sales Purchases
January $120,000 $60,000
February $100,000 $78,000
March $130,000 $90,000
Collections from Law Company’s customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of $100,000. Operating expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining operating expenses are variable with respect to the amount of sales in dollars. Those operating expenses requiring a cash outlay are paid for during the month incurred. Law Company’s cash balance on March 1 was $43,000, and on April 1 was $35,000.
The expected cash collections from customers during April would be:
.$150,000.
b. $137,000.
c. $139,000.
d. $117,600.

22. The expected cash disbursements during April for inventory purchases would be:
a. $100,000.
b. $97,000.
c. $90,000.
d. $87,300.

23. The expected cash disbursements during April for operating expenses would be:
a. $38,000.
b. $30,000.
c. $23,000.
d. $15,000.

24. The expected cash balance on April 30 would be:
a. $54,700.
b. $62,700.
c. $19,700.
d. $28,700.

25. Which department is usually held responsible for an unfavorable materials quantity variance?
a. Marketing
b. Purchasing
c. Engineering
d. Production

26. Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?
a. The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid, experienced individuals.
b. The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid, unskilled workers.
c. Because of the production schedule, workers from other production areas were assigned to assist this particular process.
d. Defective materials caused more labor to be used in order to produce a standard unit.

27. If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur?
a. Favorable labor efficiency variance.
b. Favorable labor rate variance.
c. Unfavorable labor efficiency variance.
d. Unfavorable labor rate variance.

28. (Appendix) What does a credit balance in a direct labor efficiency variance account indicate?
a. the average wage rate paid to direct labor employees was less than the standard rate.
b. the standard hours allowed for the units produced were greater than actual direct labor hours used.
c. actual total direct labor costs incurred were less than standard direct labor costs allowed for the units produced.
d. the number of units produced was less than the number of units budgeted for the period.

29. A favorable labor rate variance indicates that
a. actual hours exceed standard hours.
b. standard hours exceed actual hours.
c. the actual rate exceeds the standard rate.
d. the standard rate exceeds the actual rate.

30. An unfavorable labor efficiency variance indicates that:
a. The actual labor rate was higher than the standard labor rate.
b. The labor rate variance must also be unfavorable.
c. Actual labor hours worked exceeded standard labor hours for the production level achieved.
d. Overtime labor was used during the period.

31. If a company follows a practice of isolating variances at the earliest point in time, what would be the appropriate time to isolate and recognize a direct material price variance?
a. When material is issued.
b. When material is purchased.
c. When material is used in production.
d. When production is completed.

32. A favorable material price variance coupled with an unfavorable material usage variance would MOST likely result from:
a. problems with processing machines.
b. the purchase of low quality materials.
c. problems with labor efficiency.
d. changes in the product mix.

33.
Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standards for one unit of Titactium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Titactium. There was a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:
a. more materials were purchased than were used.
b. more materials were used than were purchased.
c. the actual cost per pound for materials was less than the standard cost per pound.
d. the actual usage of materials was less than the standard allowed.

34. 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 engineering department.
35. Throughput time consists of:
a. Process time.
b. Inspection time and move time.
c. Process time, inspection time, and move time.
d. Process time, inspection time, move time, and queue time.

36. Manufacturing Cycle Efficiency (MCE) is computed as:
a. Throughput Time ÷ Delivery Cycle Time
b. Process Time ÷ Delivery Cycle Time
c. Value-Added Time ÷ Throughput Time
d. Value-Added Time ÷ Delivery-Cycle Time

37. (Appendix) Drake Company purchased materials on account. The entry to record the purchase of materials having a standard cost of $1.50 per pound from a supplier at $1.60 per pound would include a:
a. credit to Raw Materials Inventory.
b. debit to Work in Process.
c. credit to Materials Price Variance.
d. debit to Materials Price Variance.

38. (Appendix) Which of the following entries would correctly record the charging of direct labor costs to Work in Process given an unfavorable labor efficiency variance and a favorable labor rate variance?
a. Work in Process
Labor Efficiency Variance
Labor Rate Variance
Wages Payable
b. Work in Process
Wages Payable
c. Work in Process
Labor Efficiency Variance
Labor Rate Variance
Wages Payable
d. Work in Process
Labor Rate Variance
Labor Efficiency Variance
Wages Payable

39. Under a standard cost system, the material price variances are usually the responsibility of the:
a. production manager.
b. sales manager.
c. purchasing manager.
d. engineering manager.

40.
The terms “standard quantity allowed” or “standard hours allowed” mean:
a. the actual output in units multiplied by the standard output allowed.
b. the actual input in units multiplied by the standard output allowed.
c. the actual output in units multiplied by the standard input allowed.
d. the standard output in units multiplied by the standard input allowed.

41. Dahl Company, a clothing manufacturer, uses a standard costing system. Each unit of a finished product contains 2 yards of cloth. However, there is unavoidable waste of 20%, calculated on input quantities, when the cloth is cut for assembly. The cost of the cloth is $3 per yard. The standard direct material cost for cloth per unit of finished product is:
a. $4.80.
b. $6.00.
c. $7.00.
d. $7.50.

42. Cox Company’s direct material costs for the month of January were as follows:

Actual quantity purchased 18,000 kilograms
Actual unit purchase price $3.60 per kilogram
Materials price variance–
unfavorable (based on purchases) $3,600
Standard quantity allowed
for actual production 16,000 kilograms
Actual quantity used 15,000 kilograms

For January there was a favorable direct material quantity variance of:
a. $3,360.
b. $3,375.
c. $3,400.
d. $3,800.

43. The Porter Company has a standard cost system. In July the company purchased and used 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance was $1,875 Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds. The materials price variance for July was:
a. $2,725 F.
b. $2,725 U.
c. $3,250 F.
d. $3,250 U.

44. Information on Fleming Company’s direct material costs follows:
Actual amount of direct materials used 20,000 pounds
Actual direct material costs $40,000
Standard price of direct materials $2.10 per pound
Direct material efficiency variance–favorable $3,000

What was the company’s direct material price variance?
a. $1,000 favorable.
b. $1,000 unfavorable.
c. $2,000 favorable.
d. $2,000 unfavorable.

45. During March, Younger Company’s direct material costs for product T were as follows:
Actual unit purchase price $6.50 per meter
Standard quantity allowed for actual
production 2,100 meters
Quantity purchased and used for actual
production 2,300 meters
Standard unit price $6.25 per meter

Younger’s material quantity variance for March was:
a. $1,250 unfavorable.
b. $1,250 favorable.
c. $1,300 unfavorable.
d. $1,300 favorable.

46. Yola Company manufactures a product with standards for direct labor of 4 direct labor-hours per unit at a cost of $12.00 per direct labor-hour. During June, 1,000 units were produced using 4,100 hours at $12.20 per hour. The direct labor efficiency variance was:
a. $1,200 favorable.
b. $1,200 unfavorable.
c. $2,020 favorable.
d. $2,020 unfavorable.

47. The following labor standards have been established for a particular product:
Standard labor hours per unit of output 8.3 hours
Standard labor rate $12.10 per hour
The following data pertain to operations concerning the product for the last month:
Actual hours worked 6,100 hours
Actual total labor cost $71,370
Actual output 900 units
What is the labor efficiency variance for the month?
a. $19,017 F
b. $19,017 U
c. $16,029 F
d. $16,577 F

48. Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October follows:
Standard direct labor rate $6.00 per hour
Actual direct labor rate paid $6.10 per hour
Standard hours allowed for actual production 1,500 hours
Labor efficiency variance–unfavorable $600
What are the actual hours worked?
a. 1,400.
b. 1,402.
c. 1,598.
d. 1,600.

49. The Reedy Company uses a standard costing system. The following data are available for November:
Actual direct labor hours worked 5,800 hours
Standard direct labor rate $9 per hour
Labor rate variance $1,160 favorable
The actual direct labor rate for November is:

a. $8.80.
b. $8.90.
c. $9.00
d. $9.20.

50. For the month of April, Thorp Co.’s records disclosed the following data relating to direct labor:
Actual cost $10,000
Rate variance $ 1,000 favorable
Efficiency variance $ 1,500 unfavorable
For the month of April, actual direct labor hours amounted to 2,000. In April, Thorp’s standard direct labor rate per hour was:
a. $5.50.
b. $5.00.
c. $4.75.
d. $4.50.

51. The following standards for variable manufacturing overhead have been established for a company that makes only one product:
Standard hours per unit of output 7.8 hours
Standard variable overhead rate $12.55 per hour
The following data pertain to operations for the last month:
Actual hours 2,900 hours
Actual total variable overhead cost $36,975
Actual output 200 units
What is the variable overhead efficiency variance for the month?
a. $17,397 U
b. $16,817 U
c. $312 F
d. $17,085 U

52. The following standards for variable manufacturing overhead have been established for a company that makes only one product:
Standard hours per unit of output 5.6 hours
Standard variable overhead rate $12.00 per hour
The following data pertain to operations for the last month:
Actual hours 2,600 hours
Actual total variable overhead cost $31,330
Actual output 400 units
What is the variable overhead spending variance for the month?
a. $112 F
b. $130 U
c. $4,450 U
d. $4,338 U

53. Use the following to answer questions 53-56:
Appendix) The Dexon Company makes and sells a single product called a Mip and employs a standard costing system. The following standards have been established for one unit of Mip:
Standard Quantity or Hours Standard Cost per Mip
Direct materials 6 board feet $9.00
Direct labor 0.8 hours $9.60
There were no inventories of any kind on August 1. During August, the following events occurred:
Purchased 15,000 board feet at the total cost of $24,000.
Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labor time at a total cost of $20,060.
To record the purchase of direct materials, the general ledger would include what entry to the Materials Price Variance Account?
a. $1,500 credit
b. $1,500 debit
c. $6,000 credit
d. $6,000 debit

54. To record the use of direct materials in production, the general ledger would include what entry to the Materials Quantity Variance account?
a. $3,600 debit
b. $3,600 credit.
c. $900 debit
d. $900 credit

55. To record the incurrence of direct labor cost and its use in production, the general ledger would include what entry to the Labor Rate Variance account?
a. $240 credit
b. $240 debit
c. $340 debit
d. $340 credit
56. To record the incurrence of direct labor costs and its use in production, the general ledger would include what entry to the Labor Efficiency Variance account?
a. $480 credit
b. $240 debit
c. $1,200 debit
d. $1,200 credit

57. A major weakness of flexible budgets is that:
a. they are geared only to a single level of activity.
b. they give subordinates too much flexibility.
c. they force the manager to compare actual costs at one level of activity to budgeted costs at a different level of activity.
d. none of these.

58. Lanta Restaurant compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, would the restaurant usually report favorable variances on variable food costs and fixed supervisory salaries?
Food Costs Supervisory Salaries
Yes Yes
Yes No
No Yes
No No

a. Yes Yes
b. Yes No
c. No Yes
d. No No

59. Overhead cost is applied to units based on direct labor hours. For April, total overhead cost was budgeted at $80,000 based on a denominator activity level of 20,000 direct labor hours for the month. The standard cost card indicates that each unit of finished product requires 2 direct labor-hours. The following data are available for April’s activity:
Number of units produced 9,500
Direct labor hours worked 19,500
Actual total overhead cost incurred $79,500
What amount of total overhead cost would have been applied to production for the month of April?
a. $76,000.
b. $78,000.
c. $79,500.
d. $80,000.

60. Hart Company’s labor standards call for 500 direct labor hours to produce 250 units of product. During October the company worked 625 direct labor hours and produced 300 units. The standard hours allowed for October would be:
a. 625 hours.
b. 500 hours.
c. 600 hours.
d. 250 hours.

61. The Adlake Company makes and sells a single product and uses a standard cost system. During October, the company budgeted $300,000 in manufacturing overhead cost at a denominator activity of 20,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The following cost and activity were recorded during October:
Total actual manufacturing overhead cost incurred $294,000
Units of product completed 3,800
Actual machine-hours worked 19,422
The amount of overhead cost that the company applied to work in process for October was:
a. $279,300.
b. $291,330.
c. $294,000.
d. $285,000.

62. Union Company uses a standard cost accounting system. The following overhead costs and production data are available for August:
Standard fixed overhead rate $1.00 per hour
Standard variable overhead rate $4.00 per hour
Denominator activity 40,000 hours
Actual hours 39,500 hours
Standard hours allowed for output 39,000 hours
Overapplied overhead $2,000
The total amount of overhead applied to work in process for August would be:
a. $195,000.
b. $197,000.
c. $197,500.
d. $199,500.

63. Use the following to answer questions 63-66:
The Alpha Company produces toys for national distribution. Standards for a particular toy are:
Materials: 12 ounces per unit at 56¢ per ounce.
Labor: 2 hours per unit at $2.75 per hour.
During the month of December, the company produced 1,000 units. Information for the month follows:
Materials: 14,000 ounces were purchased and used at a total cost of $7,140.
Labor: 2,500 hours worked at a total cost of $8,000.
The materials price variance is:
a. $700 U.
b. $420 U.
c. $420 F.
d. $700 F.

64. The materials quantity variance is:

a. $1,120 U.
b. $1,820 F.
c. $1,820 U.
d. $1,120 F.

65. The labor rate variance is:
a. $2,500 F.
b. $1,125 F.
c. $1,125 U.
d. $2,500 U.

66. The labor efficiency variance is:

a. $1,600 U.
b. $1,375 U.
c. $1,375 F.
d. $1,600 F.

67. Use the following to answer questions 67-70:
The Clark Company makes a single product and uses standard costing. Some data concerning this product for the month of May follow:
Labor rate variance: $ 7,000 F
Labor efficiency variance: $12,000 F
Variable overhead efficiency variance: $ 4,000 F
Number of units produced: 10,000
Standard labor rate per direct labor hour: $ 12
Standard variable overhead rate per direct labor hour: $ 4
Actual labor hours used: 14,000
Actual variable manufacturing overhead costs: $58,290
The standard hours allowed to make one unit of finished product are:

a. 1.0.
b. 1.2.
c. 1.5.
d. 2.0.

68. The total standard cost for variable overhead for May was:
a. $56,000.
b. $40,000.
c. $60,000.
d. $50,000.

69. The total standard cost for direct labor for May was:
a. $168,000.
b. $180,000.
c. $120,000.
d. $161,000.