ACCT 5302 Exam

1. The materials purchase budget:
A. is the beginning point in the budget process.
B. must provide for desired ending inventory as well as for production.
C. is accompanied by a schedule of cash collections.
D. is completed after the cash budget.

2. Which of the following budgets are prepared before the sales budget?

A. Option A
B. Option B
C. Option C
D. Option D

3. There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?
A. It details the required direct labor hours.
B. It details the required raw materials purchases.
C. It is calculated based on the sales budget and the desired ending inventory.
D. It summarizes the costs of producing units for the budget period.

4. Tolla Company is estimating the following sales for the first six months of next year:

Sales at Tolla are normally collected as 70% in the month of sale, 25% in the month following the sale, and the remaining 5% being uncollectible. Also, those customers paying in the month of sale are given a 2% discount. Based on this information, how much cash should Tolla expect to collect during the month of April?
A. $281,260
B. $361,260
C. $366,010
D. $393,760

5. Golebiewski Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in November. The variable overhead rate is $8.40 per direct labor-hour. The company’s budgeted fixed manufacturing overhead is $78,400 per month, which includes depreciation of $10,290. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for November should be:
A. $22.30
B. $16.00
C. $24.40
D. $8.40

6. 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

Using the following information to answer questions 7-11

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.

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 selling and administrative expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable selling and administrative expenses are made during the month the expenses are incurred.

7. 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

8. In a budgeted balance sheet, the Merchandise Inventory on February 28:
A. $4,800
B. $7,500
C. $9,600
D. $3,200

9. 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

10. In a cash budget for March, the total cash receipts would be:
A. $17,800
B. $8,200
C. $20,200
D. $16,000

11. In a cash budget for March, the total cash disbursements would be:
A. $11,200
B. $13,900
C. $22,300
D. $16,900

Using the following information to answer questions 12-15

Reenu Company manufactures wigs out of used dental floss. The variable cost standards for wig production developed by Reenu are as follows:

Variable overhead at Reenu is based on direct labor-hours. The actual results for the month of October were as follows:

12. What is Reenu’s materials price variance for October?
A. $1,680 favorable
B. $12,760 unfavorable
C. $14,440 unfavorable
D. $15,420 unfavorable

13. What is Reenu’s materials quantity variance for October?
A. $2,660 unfavorable
B. $14,440 unfavorable
C. $17,100 unfavorable
D. $51,300 unfavorable

14. What is Reenu’s labor efficiency variance for October?
A. $2,700 favorable
B. $7,200 unfavorable
C. $9,900 unfavorable
D. $27,600 favorable

15. What is Reenu’s variable overhead rate variance for October?
A. $3,400 favorable
B. $4,850 unfavorable
C. $8,250 unfavorable
D. $26,400 favorable

16. Which of the following represents value-added time in the manufacturing cycle?
A. Inspection time.
B. Queue time.
C. Move time.
D. Process time.

17. 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.

18. 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.

19. The materials price variance should be computed:
A. when materials are purchased.
B. when materials are used in production.
C. based upon the amount of materials used in production when only a portion of materials purchased is actually used.
D. based upon the difference between the actual quantity of inputs and the standard quantity allowed for output times the standard price.

20. Under a standard cost system, the materials price variances are usually the responsibility of the:
A. production manager.
B. sales manager.
C. purchasing manager.
D. engineering manager.

21. Managers sometimes do not act in ways that are in the best interests of the overall company. What is the term for this?
A. Strategic approach
B. Suboptimization
C. Optimal motivation
D. Responsibility accounting

22. Division X of Charter Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers at $24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is $16. Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its products. There would be no cost savings from transferring the units within the company rather than selling them on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X?
A. $24.00
B. $21.40
C. $17.60
D. $16.00

Using the following to answer questions 23-25

The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month the Walsh Division bought all 4,000 of its wheels from the Vega Division for $42 each. The following data are available from last month’s operations for the Vega Company:

If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.

23. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers. What should be the lowest acceptable transfer price from the perspective of the Vega Division?
A. $28
B. $30
C. $42
D. $45

24. What is the maximum price per wheel that Walsh should be willing to pay Vega?
A. $28
B. $41
C. $42
D. $45

25. Suppose that Vega can sell 9,000 wheels each month to outside consumers, so transfers to the Walsh Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the Vega Division?
A. $28.00
B. $31.75
C. $41.00
D. $42.00

26. A company that has a profit can increase its return on investment by:
A. increasing sales revenue and operating expenses by the same dollar amount.
B. increasing average operating assets and operating expenses by the same dollar amount.
C. increasing sales revenue and operating expenses by the same percentage.
D. decreasing average operating assets and sales by the same percentage.

27. Bonniwell Corporation has two divisions: the Delta Division and the Alpha Division. The Delta Division has sales of $620,000, variable expenses of $359,600, and traceable fixed expenses of $229,200. The Alpha Division has sales of $820,000, variable expenses of $541,200, and traceable fixed expenses of $172,900. The total amount of common fixed expenses not traceable to the individual divisions is $122,000. What is the company’s net operating income?
A. $539,200
B. $15,100
C. $137,100
D. $417,200

28. Given the following data:

Return on investment (ROI) would be:
A. 10%
B. 20%
C. 16.7%
D. 80%

Using the following to answer questions 29-30

Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year’s income statement segmented by product line:

Net operating income last year for Licuado Company as a whole was $24,800.

29. If the Carrot product line would have been dropped at the beginning of last year, how would this have changed the net operating income of Licuado Company as a whole?
A. $2,400 increase
B. $3,000 decrease
C. $5,400 increase
D. $12,000 decrease

30 Licuado is considering the implementation of a $5,000 advertising program specifically targeted at one of the four product lines. The program is expected to increase sales for any one of the product lines by $12,000. If the goal is to maximize the company’s net operating income, for which product line should Licuado implement the advertising program?
A. Orange
B. Tomato
C. Carrot
D. Grape
E. any one of the product lines; the effect on net operating income will be identical

Using the following to answer questions 31-33

Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment.

31. The contribution margin of the West business segment is:
A. $108,000
B. $675,000
C. $288,000
D. $216,000

32. A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is:
A. $288,000
B. $279,000
C. $108,000
D. $441,000

33. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is:
A. $138,000
B. $675,000
C. $459,000
D. -$183,000

Using the following to answer questions 34-37

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division’s single product follow:

34. If Axle sells 15,000 units per year, the residual income should be:
A. $30,000
B. $100,000
C. $50,000
D. $10,000

35. If Axle sells 16,000 units per year, the return on investment should be:
A. 12%
B. 15%
C. 16%
D. 18%

36. Suppose the manager of Axle desires a return on investment of 22%. In order to achieve this goal, Axle must sell how many units per year?
A. 14,500
B. 16,750
C. 18,250
D. 19,500

37. Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year?
A. 14,500
B. 16,750
C. 18,250
D. 19,500

38. For which of the following decisions are opportunity costs relevant?

A. Option A
B. Option B
C. Option C
D. Option D

39. Which of the following costs are always irrelevant in decision making?
A. avoidable costs
B. sunk costs
C. opportunity costs
D. fixed costs

40. For which of the following decisions are sunk costs relevant?
A. the decision to keep an old machine or buy a new one.
B. the decision to sell a product at the split-off point or after further processing.
C. the decision to accept or reject a special order offer.
D. all of the above.
E. none of the above.

41. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:
A. the variable manufacturing cost of the component.
B. the total manufacturing cost of the component.
C. the fixed manufacturing cost of the component.
D. zero.

42. Allocated common fixed costs:
A. can make a product line appear to be unprofitable.
B. are always incremental costs.
C. are always relevant in decisions involving dropping a product line.
D. responses A, B, and C are all correct.

43. Curly Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 16,000 of the components each year. The unit product cost of the component according to the company’s cost accounting system is given as follows:

Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 1 minute on the machine that is the company’s current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 2 minutes on the constraining machine and that has a contribution margin of $8.10 per unit.
When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component?
A. $20.60
B. $17.52
C. $24.65
D. $21.57

44. A customer has requested that Daleske Corporation fill a special order for 2,000 units of product D84 for $20.30 a unit. While the product would be modified slightly for the special order, product D84’s normal unit product cost is $18.50:

Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like modifications made to product D84 that would increase the variable costs by $2.50 per unit and that would require an investment of $7,000 in special molds that would have no salvage value.
This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company’s overall net operating income would increase (decrease) by:
A. ($14,900)
B. ($5,800)
C. $3,600
D. ($8,400)

45. Supreme Celery Corporation manufactures four celery based products. Floods and fire on the west coast are going to cause a shortage of celery for Supreme next month. Information related to the four celery products that it produces are shown below. The numbers relate to the cost per case and the amount of celery per case of product:

To maximize profit next month, in what order would it be best for Supreme to schedule production (first to last)?
A. Jelly, Cracker Spread, Soup, Snack Bars
B. Jelly, Snack Bars, Cracker Spread, Soup
C. Cracker Spread, Snack Bars, Jelly, Soup
D. Snack Bars, Jelly, Soup, Cracker Spread

46. (Ignore income taxes in this problem.) The Whitton Company uses a discount rate of 16%. The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years. The machine would have no salvage value. The net present value of this machine to the nearest whole dollar is:
A. $22,460
B. $4,460
C. $(9,980)
D. $12,000

Using the following to answer questions 47-50

(Ignore income taxes in this problem.) Jones and Company has just purchased a new piece of equipment, the cost characteristics of which are given below:

The company uses a required rate of return of 10% and depreciates equipment using the straight-line method.

47. The payback period for the investment is:
A. 5 years
B. 15 years
C. 2 years
D. 7.143 years

48. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:
A. 20.0%
B. 13.3%
C. 18.0%
D. 10.0%

49. The net present value of the investment is:
A. $15,636
B. $24,000
C. $45,636
D. $60,000

50. The internal rate of return of the investment is closest to:
A. 16%
B. 18%
C. 20%
D. 22%

ANSWERS:

1.      B

2.      D

3.      C

4.      B

5.      C

6.      B

7.      D

8.      A

9.      C

10.  A

11.  B

12.  A

13.  A

14.  C

15.  A

16.  D

17.  B

18.  D

19.  A

20.  C

21.  B

22.  C

23.  A

24.  B

25.  B

26.  C

27.  B

28.  B

29.  B

30.  B

31.  D

32.  A

33.  A

34.  D

35.  C

36.  C

37.  B

38.  A

39.  B

40.  E

41.  D

42.  A

43.  D

44.  B

45.  C

46.  B

47.  A

48.  B

49.  A

50.  B