Accounting Questions

Accounting Questions


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  1. The following information relates to Paternus Company:

Sales Revenue             $10,000,000

Contribution margin   4,000,000
Operating income        1,000,000

If a manager at Paternus desired to determine the percentage impact on income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:
a. 0.25.
b. 0.40.
c. 2.50.
d. 4.00.
e. 10.00.

  1. Which of the following would take place if a company were able to reduce its variable cost per unit?
  2. Choice A
  3. Choice B
  4. Choice C
  5. Choice D
  6. Choice E


  1. The master budget contains the following components, among others: (1) direct-material budget, (2) budgeted balance sheet, (3) production budget, and (4) cash budget. Which of these components would be prepared first and which would be prepared last?

    Choice A
    b. Choice B
    c. Choice C
    d. Choice D
    e.  Choice E

  2. When should variances be investigated?
    1. when they fall out of the accepted range or the control limit
    2. when the variances are unfavorable
    3. when the variances are over $10,000

all variances should be investigated

  1. A company’s plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:
    pro-forma budget.
    B. master budget.
    C. financial budget.
    D. profit plan.
    E. capital budget.
  2. For external-reporting purposes, generally accepted accounting principles require that net income be based on:
    absorption costing.
    B. variable costing.
    C. direct costing.
    D. semivariable costing.
    E. activity-based costing.
  3. Which of the following would take place if a company experienced an increase in fixed costs?
    Net income would increase.
    B. The break-even point would increase.
    C. The contribution margin would increase.
    D. The contribution margin would decrease.
  4. Assuming no change in sales volume, an increase in company’s per-unit contribution margin would:
    increase net income.
    B. decrease net income.
    C. have no effect on net income.
    D. increase fixed costs.
  5. A favorable labor efficiency variance is created when:
    actual labor hours worked exceed standard hours allowed.
    B. actual hours worked are less than standard hours allowed.
    C. actual wages paid are less than amounts that should have been paid.
    D. actual units produced exceed budgeted production levels.
    E. actual units produced exceed standard hours allowed.
  6. Robert Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended:
    Actual units produced: 12,000
    Actual variable overhead incurred: $77,700
    Actual machine hours worked: 18,800
    Standard variable overhead cost per machine hour: $4.50
    If Robert estimates 1.5 hours to manufacture a completed unit, the company’s variable-overhead spending variance is:
    $3,600 favorable.
    b. $3,600 unfavorable.
    c. $6,900 favorable.
    d. $6,900 unfavorable.
    e. some other amount not listed above.
  7. Trois Elles Corporation recently prepared a manufacturing cost budget for an output of 50,000 units, as follows:

    Actual units produced amounted to 60,000. Actual costs incurred were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Trois Elles evaluated performance by the use of a flexible budget, a performance report would reveal a total variance of:
    $3,000 favorable.
    b. $23,000 favorable.
    c. $27,000 unfavorable.
    d. $42,000 unfavorable.
    e. none of these amounts.



Make sure you show your work on the problems, so you can earn partial credit.

Problem 1 Worth 6 pts.

Combs, Inc., reports the following information for April sales:

Sales $50,000
Variable costs 10,000
Fixed costs 7,000
Operating income $33,000



Required: The questions below are independent of each other, so go back to the original information above when you answer the question.  You can use the table below to answer the questions.


  1. If sales volume increases 130% in April what is the projected operating income?



  1. If sales volume decrease by 20%, what is the projected operating income?



   Original Sales increase 130% Decrease of 20% in sales
Sales $50,000    
Variable costs 10,000    
Fixed costs 7,000    
Operating income $33,000    




Problem 2:  The information that follows is the total for the  period when the company sold 300,000 units. Worth 12 pts.

Sales $900,000
Variable costs 600,000
Fixed costs 100,000

A. Compute the company’s per-unit contribution margin.

  1. Compute the company’s break-even point in units.
  2. What is the safety margin in units?

    D. How many total units must company sell to produce a target net profit of $50,000?

    E. Assume that the company was able to reduce the fixed cost from $100,000 to $80,000. What selling price per unit could management charge if it desired to maintain the current break-even point?

    F. Refer back to the original information in the problem, since these questions are independent of “E”.   What if the company would like to invest in an advertising campaign of $20,000, how many more units would have to be sold to justify this advertising campaign?  Why?







Problem 3 Worth 10 pts.


Bruster Company sells its products for $60 each. The current production level for the month is 10,000 units, although only 8,000 units were sold in the current month.


Unit manufacturing costs are:  
Direct materials $10.00
Direct manufacturing labor $8.00
Variable manufacturing overhead costs $6.00
Total fixed manufacturing overhead costs $50,000 per month
Marketing expenses $1.00 per unit, plus $30,000 per month


A. Assuming the use of variable costing, compute the unit inventoriable cost for the month. Hint:  What is the product cost under variable costing?

  1. Determine the fixed manufacturing overhead rate under absorption costing. Hint: I am asking for the predetermined overhead rate per unit.
  2. Compute the unit inventoriable cost by using absorption costing. Hint: What is the product cost under absorption costing?


  1. What is the ending finished goods balance for the month using variable costing? Hint:  I am asking for the ending finished goods balance in dollar terms.



  1. What is the ending finished goods balance for the month using Absorption costing? Hint: I am asking for the ending finished goods balance in dollar terms.




  1. What will be the difference in the dollar amount of income between variable costing and absorption costing for the month? Which one will have the highest income for the month?  Why?

Hint:  You do not need to prepare income statements, since you can reconcile the difference in the change in inventory times the FOH rate.





Problem 4  Budgeted sales for Katie Company for the second quarter of the current year are as follows: Worth 8 pts.


  Budgeted Sales
April $150,000 
May  200,000
June  120,000


The company collects 25 percent in the month of sale, 55 percent in the first month following the sale, and 20 percent in the second month following the sale.


Budgeted purchases for Katie Company for the second quarter of the current year are as follows:


  Budgeted Purchases
April $ 70,000
May    80,000
June   100,000


The company pays for 65 percent of its purchases in the month of purchase and 35 percent in the following month.


Required:  Complete the partial cash budget below. You need to compute the cash receipts from credit sales collected in June and the cash disbursement from payment of purchases in June.  Make sure you show your work and how you determined the cash receipts and payments for June.


  Budgeted Sales April May June
April 150,000      
May 200,000      
June 120,000      
 Total cash receipts from sales received in June  

Disbursements for AP

April 70,000      
May 80,000      
June 100,000      
 Total cash disbursements from payment for Purchases in June  






Problem 5 The following standard costs were developed for one of the products of ABC Company:  Worth 8 pts.

The following standards have been set:

Direct Labor:
Quantity, .75 hour per unit
Rate, $15 per hour


Direct  Material:
Quantity, 2 pounds per unit
Price, $4 per pound


Actual material purchases amounted to 48,000 pounds at $4.50 per pound.  Actual costs incurred in the production of 20,000 units were as follows:

Direct Labor $400,000 for 20,000 hours
Direct Material $112,500 for 45,000 pounds



  1. Calculate the labor rate variance and labor efficiency variance; indicate whether it is favorable or unfavorable.


  1. Calculate the materials price variance and material quantity variance; indicate whether it is favorable or unfavorable. Material price variance is determined at time of purchase and Material quantity variance is determined at production time.
  2. Explain how management can use this information to control costs.


Problem 6  Worth 6 pts.  Alphabet Corporation sells three products: X,Y, and Z. The following information was taken from a recent budget:

  X Y Z
Unit sales 6,000 10,000 4,000
Selling price $7 $7 $7
Variable cost $4 $5 $6

Total fixed costs are anticipated to be $42,000.
A. Determine Alphabet’s sales mix.

  1. Determine the weighted-average contribution margin.
  2. Calculate the number of units of X, Y, and Z that must be sold to break even.(Make sure you have given me the number of units to breakeven for each of the products)