Merchandise Company

Merchandise Company


1.     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

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2.     Sam’s Toys budgeted sales of $300,000 for the month of November and cost of goods sold equal to 80% of sales. Beginning inventory for November was $50,000 and ending inventory for November is estimated at $55,000. How much are the budgeted purchases for November?

A) $245,000

B) $65,000

C) $235,000

D) $135,000



3.     BusyBody Company expects its November sales to be 20% higher than its October sales of $180,000. Purchases were $110,000 in October and are expected to be $160,000 in November. All sales are on credit and are collected as follows: 35% in the month of the sale and 60% in the following month. Purchases are paid 40% in the month of purchase and 60% in the following month. The cash balance on November 1 is $13,500. The cash balance on November 30 will be

A) $4,100.

B) $53,600.

C) $67,100.

D) $40,100.





Cave Hardware’s forecasted sales for April, May, June, and July are $200,000, $230,000, $190,000, and $240,000, respectively. Sales are 65% cash and 35% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 75% of sales and ending inventory is maintained at $60,000 plus 10% of the following month’s cost of goods sold. All inventory purchases are paid 22% in the month of purchase and 78% in the following month.


4.     What are the cash collections budgeted for June?

A) $150,500

B) $193,500

C) $123,500

D) $204,000



5.     What are the budgeted cash payments in June for inventory purchases?

A) $495,000

B) $315,750

C) $164,385

D) $167,415



6.     What is the balance of accounts payable on the June 30 budgeted balance sheet?

A) $32,175

B) $108,225

C) $146,250

D) $114,075










7.     Friden Company has budgeted sales and production over the next quarter as follows:

The company has 20,000 units of product on hand at April 1. A minimum of 20% of the next month’s sales needs in units must be on hand at the end of each month. July sales are expected to be 140,000 units. Budgeted sales for June would be (in units):
A. 188,000
B. 160,000
C. 128,000
D. 184,000


Nittany Company sells three products with the following seasonal sales pattern:



Quarter                 A       B       C

1        40%  30%  10%

2        30%  20%  40%

3        20%  20%  40%

4        10%  30%  10%


The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:


Product       Units Selling Price

A       50,000        $ 8

B       125,000      20

C       62,500        12


8.     A sales budget for the First quarter will show total revenue of

A) $ 400,000

B) $985,000

C) $3650,000

D) None of the above.


9.     A sales budget for the year will show total revenue of

A) $ 4000,000

B) $237,500

C) $3650,000

D) None of the above.




10.            Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period. Currently, Shamokin has 800 units of Bigger on hand. Bigger requires two labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct labor rate for molding is $20 per molding hour and the direct labor rate for polishing is $25 per polishing hour. The expected number of hours of direct labor for Bigger is:

A) 8,800 hours of molding; 17,600 hours of polishing

B) 11,200 hours of molding; 22,400 hours of polishing

C) 17,600 hours of molding; 8,800 hours of polishing

D) 22,400 hours of molding; 11,200 hours of polishing



11.                        Newsom Footwear Corporation’s flexible budget cost formula for raw material is $2.61 per unit of output. The company’s performance report for last month showed a $6,840 unfavorable Flexible Budget variance for raw material. During that month, 17,100 units were produced. Budgeted activity for the month had been 16,700 units. The actual cost per unit for raw materials must have been closest to:

A. $3.01
B. $3.49
C. $3.41
D. $2.61



12.  What is the actual sales revenue?
A. $156,000.
B. $169,000.
C. $180,000.
D. $191,000.

13.            What is the sales revenue in the flexible budget?
A. $139,000.
B. $156,000.
C. $169,000.
D. $180,000.


14.             What is the flexible budget contribution margin?
A. $39,000.
B. $45,000.
C. $52,000.
D. $58,000.


15.            What is the master budget sales revenue?
A. $124,000.
B. $148,000.
C. $156,000.
D. $180,000.


16.            What is the master budget contribution margin?
A. $52,000.
B. $47,500.
C. $45,000.
D. $39,000.


17.            Tommy’s Toys produces two types of toys: trains and dolls. Tommy’s uses stainless steel to manufacture the trains and plastic to manufacture the dolls. Information regarding the usage of steel and plastic for the past year follows:

Product Names Steel Plastic
Direct materials information    
Standard pounds per unit 1 lb. 0.5 lb.
Standard price per pound $1.50 ?
Actual quantity used per unit 1.5 lbs. 0.75 lbs.
Actual price paid for material $1.25 $2.00
Actual quantity purchased and used 2,500 lbs. 1,200 lbs.
Price variance ? $900 F
Quantity variance $206 U ?
Flexible budgent variance ? $522 F
Number of units produced 275 550


What is the direct materials flexible budget variance for steel used to manufacture the trains?

A) $419 unfavorable

B) $419 favorable

C) $831 unfavorable

D) $831 favorable


18.            The standard cost card for a product shows that the product should use 4 kilograms of material B per finished unit and that the standard price of material B is $4.50 per kilogram. During April, when the budgeted production level was 1,000 units, 1,040 units were actually made. A total of 4,100 kilograms of material B were used in production and the inventories of material B were reduced by 300 kilograms during April. The total cost of material B purchased during April was $14,400. The material variances for material B during April were:

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


19.            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


20.             Cox Company uses standard costing. The following data are available for April:

The standard quantity of material allowed for April production is:
A. 14,200 gallons
B. 12,700 gallons
C. 11,700 gallons
D. 10,200 gallons



21.            The Reedy Company uses a standard costing system. The following data are available for November:

The actual direct labor rate for November is:
A. $8.80
B. $8.90
C. $9.00
D. $9.20








Answer the following questions using the information below:


Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:


Actual    Budgeted

Production                                   16,000 units 18,000 units

Machine-hours                             7,875 hours 9,000 hours

Variable overhead cost per machine-hour: $31.00   $31.50



22.            What is the variable overhead spending variance?

A) $4,500 unfavorable

B) $3,937.50 unfavorable

C) $4,500 favorable

D) $3,937.50 favorable




23.            What is the total variable overhead variance?

A) $7,875 unfavorable

B) $3,937.50 f unfavorable

C) $7,875 favorable

D) $3,937.50 f favorable

24.            Dosier Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:

What was the fixed manufacturing overhead spending variance for the month?
A. $2,000 unfavorable
B. $2,000 favorable
C. $610 unfavorable
D. $610 favorable




25.            Crown Industries has the following information about its standards and production activity for December:

Actual manufacturing overhead cost incurred, $92,500

Variable manufacturing overhead cost @ $3.25 per unit produced

Fixed manufacturing overhead cost @ $1.50 per unit produced

($22,500/15,000 budgeted units)

Actual units produced, 5,400


Assume the allocation base for fixed overhead costs is the number of units to be produced.


How much are the total applied  overhead for the month?

A) $48,750

B) $92,500

C) $71,250

D) $25,650




Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied on the basis of standard direct labor-hours. Each unit requires two standard hours of direct labor for completion. The denominator activity for the year was based on budgeted production of 200,000 units. Total overhead was budgeted at $900,000 for the year, and the fixed manufacturing overhead rate was $1.50 per direct labor-hour. The actual data pertaining to the manufacturing overhead for the year are presented below:


26.            The standard hours allowed for actual production for the year total:
A. 247,500
B. 396,000
C. 400,000
D. 495,000



27.            Franklin’s variable overhead efficiency variance for the year is:
A. $33,000 unfavorable
B. $35,200 favorable
C. $35,200 unfavorable
D. $33,000 favorable




28.            Franklin’s variable overhead rate variance for the year is:
A. $20,000 unfavorable
B. $22,000 favorable
C. $22,000 unfavorable
D. $20,000 favorable





29.            The fixed manufacturing overhead applied to Franklin’s production for the year is:
A. $484,200
B. $575,000
C. $594,000
D. $600,000




30.            Franklin’s Production volume variance for the year is:
A. $6,000 unfavorable
B. $19,000 favorable
C. $25,000 favorable
D. $55,000 unfavorable




Hadlock Company, which has only one product, has provided the following data concerning its most recent month of operations:

31. What is the total period cost for the month under the variable costing approach?
A. $125,600
B. $108,800
C. $176,800
D. $68,000





32. What is the net operating income for the month under variable costing?
A. $15,200
B. $4,000
C. $(9,200)
D. $19,200

DeAnne Company produces a single product. The company’s variable costing income statement for August appears below:

The company produced 35,000 units in August and the beginning inventory consisted of 8,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

33.  The value of the company’s inventory on August 31 under the absorption costing method is:
A. $27,000
B. $42,000
C. $36,000
D. $47,000

34. Under absorption costing, for the month ended August 31, the company would report a:
A. $20,000 profit
B. $5,000 loss
C. $35,000 profit
D. $5,000 profit

35.                        Dull Corporation has been producing and selling electric razors for the past ten years. Shown below are the actual net operating incomes for the last three years of operations at Dull:

Dull Corporation’s cost structure and selling price has not changed during its ten years of operations. Based on the information presented above, which of the following statements is true?
A. Dull Corporation operated above the breakeven point in each of the three years presented.
B. For the three years presented in total, Dull Corporation sold more units than it produced.
C. In Year 10, Dull Corporation produced fewer units than it sold.
D. In Year 9, Dull Corporation produced more units than it sold.




36.                        Roberts Company produces a single product. This year, the company’s net operating income under absorption costing was $2,000 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $2 was variable selling and administrative expense. If production cost was $10 per unit under absorption costing, then how many units did the company produce during the year? (The company produced the same number of units last year.)
A. 7,500 units
B. 7,000 units
C. 9,000 units
D. 8,500 units

37.                        Craft Company produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74,500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were:
A. 16,000 units
B. 20,400 units
C. 22,600 units
D. 27,000 units





38.                        Stephen Company produces a single product. Last year, the company had 20,000 units in its ending inventory. During the year, Stephen’s variable production costs were $12 per unit. The fixed manufacturing overhead cost was $8 per unit in the beginning inventory. The company’s net operating income for the year was $9,600 higher under variable costing than it was under absorption costing. The company uses a last-in-first-out (LIFO) inventory flow assumption. Given these facts, the number of units of product in the beginning inventory last year must have been:
A. 21,200
B. 19,200
C. 18,800
D. 19,520

Eagle Corporation manufactures a picnic table. Shown below is Eagle’s cost structure:

In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.

39.                        How would Eagle’s variable costing net operating income have been affected in its first year if only 9,000 tables were sold instead of 10,000?
A. net operating income would have been $37,100 lower
B. net operating income would have been $45,800 lower
C. net operating income would have been $56,000 lower
D. net operating income would have been $62,000 lower





40.                        How would Eagle’s absorption costing net operating income have been affected in its first year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables?
A. net operating income would not have been affected
B. net operating income would have been $27,000 higher
C. net operating income would have been $31,500 higher
D. net operating income would have been $116,000 lower



41.            Iadanza Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $195.70 per unit.

The best estimate of the total contribution margin when 6,300 units are sold is:
A. $752,220
B. $638,190
C. $100,170
D. $177,030



42.            Bakker Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total variable manufacturing cost per unit is:
A. $89.70
B. $131.80
C. $19.50
D. $112.30


43.              Anderwald Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total monthly fixed manufacturing cost is:
A. $360,800
B. $136,800
C. $196,800
D. $176,800


Each time Mayberry Nursery hires a new employee, it must wait for some period of time before the employee can meet production standards. Management is unsure of the learning curve in its operations but it knows the first job by a new employee averages 30 hours and the second job averages 24 hours. Assume all jobs to be equal in size.


44.            What is the learning-curve percentage, assuming the incremental unit-time method?

A) 80%

B) 85%

C) 90%

D) 100%




45.            What is the time for a new employee to build 16 units with this learning curve using the cumulative average-time method? You may use an index of -0.1520.


A) 3.65 hours

B) 2.048 hours

C) 29.2 hours

D) 32.76 hours


Harry’s Picture manufactures various picture frames. He spends $ 20 on raw material for each frame. Each new employee takes 5 hours to make the first picture frame and 4 hours to make the second. He pays $20 per hour to his employee. The manufacturing overhead charge per hour is $10.


46.            What is the total cost of building 8 picture frames by a new employee using the cumulative average-time method? You may use an index of -0.1520.

A) $876

B) $1,036

C) $129.50

D) $400












47.            Craig’s Cola was to manufacture 1,000 cases of cola next week. The accountant provided the following analysis of total manufacturing costs.


Variable              Coefficient Standard Error t-Value

Constant                  100          71.94            1.39

Independent variable 200          91.74            2.18


r2 = 0.82


What is the estimated cost of producing the 1,000 cases of cola?

A) $200,100

B) $142,071

C) $100,200

D) $9,000