Test bank managerial accounting by kieso weygandt 5e comp exams

COMPREHENSIVE EXAMINATION A
(Chapters 1 - 4)

Points

Approximate
Minutes

Multiple Choice..............................................

20

20

A - II

Cost of Goods Manufactured and Sold.........

20

15

A - III

Job Order Cost Accounting............................

20

15

A - IV

Process Cost Accounting...............................

25

20

A-V

Activity-Based Costing...................................

15

15

100

85

Problem

Topic

A-I

Checking Work ..............................................

5
90

A-2

Test Bank for ISV Managerial Accounting, Fourth Edition

Problem A - I — Multiple Choice (20 points)
Circle the one best answer.
1.

Cost of goods manufactured during a period is obtained by taking the total manufacturing
costs incurred during the period and adding and subtracting the following inventories:
a.
b.
c.
d.

Adding
Beginning finished goods inventory
Beginning work in process inventory
Beginning raw materials inventory
Beginning work in process inventory

Subtracting
Ending finished goods inventory
Ending finished goods inventory
Ending work in process inventory
Ending work in process inventory

2.

Cost of goods sold is equal to
a. total manufacturing costs plus beginning work in process less ending work in process.
b. cost of goods sold plus beginning work in process less ending work in process.
c. total manufacturing costs plus ending work in process less beginning work in process.
d. cost of goods manufactured plus beginning finished goods less ending finished goods.

3.

Inventory accounts for a manufacturer consists of
a. direct materials, work in process, and finished goods.
b. direct labor, work in process, and finished goods.
c. manufacturing overhead, direct materials, and direct labor.
d. work in process, direct labor, and manufacturing overhead.

4.

In a process cost system, equivalent units of production are the
a. work done on physical units expressed in fully completed units.
b. units that are transferred to the next processing department.
c. units completed and transferred to finished goods.
d. units that are incomplete at the end of a period.

Use the following information for questions 5 and 6.
In the month of November, a department had 500 units in the beginning work in process inventory
that were 60% complete. These units had $16,000 of materials cost and $12,000 of conversion
costs. Materials are added at the beginning of the process and conversion costs are added
uniformly throughout the process. During November, 10,000 units were completed and
transferred to the finished goods inventory and there were 2,000 units that were 25% complete in
the ending work in process inventory on November 30. During November, manufacturing costs
charged to the department were: Materials $368,000; Conversion costs $408,000.

5.

The cost assigned to the units transferred to finished goods during November was
a. $720,000.
b. $724,000.
c. $752,000.
d. $716,000.

6.

The cost assigned to the units in the ending work in process inventory on November 30
was
a. $144,000.
b. $84,000.
c. $64,000.
d. $116,000.


Comprehensive Examination A

7.

An appropriate cost driver for ordering and receiving materials cost is the
a. direct labor hours.
b. machine hours.
c. number of parts.
d. number of purchase orders.

8.

Benefits of activity-based costing include all of the following except
a. more accurate product costing.
b. fewer cost pools used to assign overhead costs to products.
c. enhanced control over overhead costs.
d. better management decisions.

9.

An example of a value-added activity in a manufacturing operation is
a. machine repair.
b. inventory control.
c. engineering design.
d. building maintenance.

10.

A-3

Assigning manufacturing costs to work in process results in credits to all of the following
accounts except
a. Factory Labor.
b. Manufacturing Overhead.
c. Raw Materials Inventory.
d. Work in Process Inventory.


A-4

Test Bank for ISV Managerial Accounting, Fourth Edition

Problem A - II — Cost of Goods Manufactured and Sold (20 points)
Selected account balances of Heedy Manufacturing Company appear below for 2008:
Finished Goods Inventory
Work In Process Inventory
Raw Materials Inventory
Sales
Direct Labor
Factory Supervisory Salaries
Income Tax Expense
Factory Insurance
Raw Material Purchases
Administrative Expenses
Sales Returns and Allowances
Factory Depreciation
Indirect Labor
Selling Expenses

Beginning of Year
$25,000
30,000
46,000

End of Year
$ 32,000
35,000
26,000
360,000
45,000
18,000
25,000

12,000
75,000
17,000
15,000
22,000
11,000
35,000

Instructions
Using the above information for Heedy Manufacturing Company, answer the following questions.
Support your answers with clearly identified computations.
1. What was the amount of direct materials used in production?
2. What were the total manufacturing costs incurred?
3. What was the cost of goods manufactured?
4. What was the cost of goods sold?
5. What was the amount of net income?


Comprehensive Examination A

A-5

Problem A - III — Job Order Cost Accounting (20 points)
Battle Manufacturing uses a job order cost accounting system. On October 1, the company has a
balance in Work in Process Inventory of $5,500 and two jobs in process: Job No. 429, $3,000 and
Job No. 430, $2,500. During October, a summary of source documents reveals the following:
For
Job No. 429
Job No. 430
Job No. 431

Job No. 432
General Use

Materials Requisition Slips
$ 3,500
2,600
3,400
3,000
1,000
$13,500

Labor Time Tickets
$ 4,400
3,400
4,200
4,000
1,500
$17,500

Battle Manufacturing applies manufacturing overhead to jobs at an overhead rate of 70% of direct
labor cost. Job No. 429 is completed during the month.
Instructions
(a) Prepare summary journal entries to record the requisition slips, time tickets, the assignment
of manufacturing overhead to jobs, and the completion of Job No. 429. Show computations.
(b)

Answer the following questions.
1. What is the balance in Work in Process Inventory at October 31?
2. If Battle Manufacturing incurred $8,000 of manufacturing overhead in addition to indirect
materials and indirect labor, was overhead over- or underapplied in October and by how

much?


A-6

Test Bank for ISV Managerial Accounting, Fourth Edition

Problem A - IV — Process Cost Accounting (25 points)
The Mixing Department of Cherry Manufacturing Company has the following production and
manufacturing cost data for January.
Production: Beginning inventory 8,000 units that are 100% complete as to materials and 40%
complete as to conversion costs; units started into production 27,000; ending inventory of 12,000
units 20% complete as to conversion costs.
Manufacturing Costs: Beginning work in process inventory of $40,000, comprised of $30,000 of
materials and $10,000 of conversion costs. Materials added during the month, $110,000; labor
and overhead applied during the month, $62,000 and $55,000, respectively.
Instructions
(a) Compute the equivalent units of production for materials and conversion costs for the month
of January.
(b)

Compute the unit costs for materials and conversion costs.

(c)

Determine the costs to be assigned to the units transferred out and ending work in process.

Problem A - V — Activity-Based Costing (15 points)
Tuttle Manufacturing Company manufactures two products: radiators and gas tanks. During June,
200 radiators and 400 gas tanks were produced and overhead costs of $66,000 were incurred.

The following information related to overhead costs was available:
Activity
Materials handling
Machine setups
Quality inspections

Cost Driver
Number of requisitions
Number of setups
Number of inspections

Total Cost
$28,000
18,000
20,000

The cost driver volume for each product was as follows:
Cost Driver
Number of requisitions
Number of setups
Number of inspections

Radiators
300
140
200

Gas Tanks
500
220

300

Total
800
360
500

Instructions
(a) Compute the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for June to the two products using activity-based
costing.


Comprehensive Examination A

A-7

Solutions — Comprehensive Examination A
Problem A - I — Solution
1.
2.
3.
4.
5.

d
d
a
a
a

6.
7.
8.
9.
10.

b
d
b
c
d

Problem A - II — Solution
1. Direct materials
Raw materials inventory, Jan. 1...........................................................................
Raw material purchases......................................................................................
Raw materials available for use...........................................................................
Raw materials inventory, Dec. 31........................................................................
Direct materials used...........................................................................................
2. Direct materials used.........................................................................
Direct labor.........................................................................................
Manufacturing overhead
Factory supervisory salaries........................................................
Factory insurance........................................................................
Factory depreciation....................................................................
Indirect labor................................................................................
Total manufacturing costs............................................................
3. Work in process inventory, Jan. 1......................................................
Direct materials used.........................................................................

Direct labor.........................................................................................
Manufacturing overhead....................................................................
Total work in process.........................................................................
Work in process inventory, Dec. 31...................................................
Cost of goods manufactured.............................................................

$ 46,000
75,000
121,000
26,000
$ 95,000
$ 95,000
45,000

$18,000
12,000
22,000
11,000

63,000
$203,000
$ 30,000

$95,000
45,000
63,000

4. Finished goods inventory, Jan. 1.......................................................
Cost of goods manufactured.............................................................
Cost of goods available for sale........................................................

Finished goods inventory, Dec. 31....................................................
Cost of goods sold.............................................................................
5. Sales.................................................................................................. $360,000
Less sales returns and allowances...................................................
15,000
Expenses
Cost of goods sold....................................................................... 191,000
Selling expenses..........................................................................
35,000
Administrative expenses..............................................................
17,000
Income tax expense.....................................................................
25,000
Net income.........................................................................................

203,000
233,000
35,000
$198,000
$ 25,000
198,000
223,000
32,000
$191,000
$345,000

268,000
$ 77,000

A-8

Test Bank for ISV Managerial Accounting, Fourth Edition

Problem A - III — Solution
(a)
Requisition slips
Oct. 31 Work In Process Inventory........................................................
Manufacturing Overhead..........................................................
Raw Materials Inventory..................................................

12,500
1,000

Time tickets
Work in Process Inventory........................................................
Manufacturing Overhead..........................................................
Factory Labor...................................................................

16,000
1,500

Assignment of overhead
Work in Process Inventory ($16,000 × 70%)............................
Manufacturing Overhead.................................................

11,200

Completion of Job 429
Finished Goods Inventory.........................................................

Work in Process Inventory...............................................
($3,000 + $3,500 + $4,400 + $3,080)
(b)

1. Work in Process Inventory balance:
October 1 balance
Costs added in October
Completed jobs
October 31 balance
2. Under- or overapplied overhead:
Overhead incurred ($1,000 + 1,500 + $8,000)
Overhead applied
Overhead overapplied

13,500

17,500

11,200
13,980
13,980

$ 5,500
39,700
45,200
13,980
$31,220
$10,500
11,200
$ 700

Problem A - IV — Solution
(a)
Transferred out
Work in process, January 31
Total
*(8,000 + 27,000) – 12,000
(b)

Physical Units
23,000*
12,000
35,000

Equivalent Units
Materials
Conversion Costs
23,000
23,000
12,000
2,400**
35,000
25,400

**(12,000 × .20)

Materials: [($30,000 + $110,000) ÷ 35,000]..................................................
Conversion Costs: [($10,000 + $62,000 + $55,000) ÷ 25,400] ....................

$4

5
$9


Comprehensive Examination A

(c)

Costs accounted for
Transferred out (23,000 × $9)
Work in process, 1/31
Materials (12,000 × $4)
Conversion costs (2,400 × $5)

A-9

$207,000
48,000
12,000

60,000
$267,000

Problem A - V — Solution
(a) The overhead rates are:
Activity
Materials handling
Machine setups
Quality inspections

Total Cost
$28,000
18,000
20,000

Total Driver Volume
800
360
500

Overhead Rate
$35
50
40

(b) The assignment of the overhead costs to products is as follows:
Cost
Requisitions ($35)
Setups ($50)
Inspections ($40)
Total costs (a)
Total units (b)
Cost per unit (a) ÷ (b)

Radiators
Number
Cost
300
$10,500
140

7,000
200
8,000
$25,500

Gas Tanks
Number
Cost
500
$17,500
220
11,000
300
12,000
$40,500

200

400

$127.50

$101.25

Total Cost
$28,000
18,000
20,000
$66,000

COMPREHENSIVE EXAMINATION B
(Chapters 5 - 9)

Points

Approximate
Minutes

Multiple Choice..............................................

22

22

B - II

Cost-Volume-Profit.........................................

24

16

B - III

Transfer Pricing..............................................

12

12

B - IV

Budgeting.......................................................

18

15

B-V

Contribution Margin........................................

14

10

B - VI

Incremental Analysis......................................

10

10

100

85

Problem

Topic

B-I

Checking Work...............................................

5
90


B-2

Test Bank for Managerial Accounting, Fourth Edition

Problem B - I — Multiple Choice (22 points)
Circle the one best answer.
1.

Juniper, Inc. sells a single product with a contribution margin of $12 per unit, fixed costs of
$74,400, and sales for the current year of $100,000. How much is Juniper’s break-even
point?
a. 4,600 units
b. $25,600
c. 6,200 units
d. 2,133 units

2.

Homer Company’s variable costs are 30% of sales. The company is contemplating an

advertising campaign that will cost $22,000. If sales are expected to increase $40,000, by
how much will the company’s net income increase?
a. $28,000
b. $6,000
c. $12,000
d. $10,000

3.

A company has total fixed costs of $60,000 and a contribution margin ratio of 40%. The
total variable costs incurred at the break-even level of activity would be
a. $60,000.
b. $150,000.
c. $90,000.
d. $24,000.

4.

A company desires to earn target net income of $30,000 from the sale of its product. If the
unit sales price is $15, unit variable cost is $9, and total fixed costs are $90,000, the
number of units that the company must sell to earn its target net income is
a. 8,000 units.
b. 20,000 units.
c. 16,000 units.
d. 12,000 units.

5.

A company has a policy of having sufficient direct materials inventory on hand at the end
of each month equal to 20% of next month's budgeted production needs. The company

has budgeted production of 15,000 units of product in June and 20,000 units in July. It
takes 2 pounds of direct materials to produce one unit of product and 6,000 pounds of
direct materials were on hand on May 31. How many pounds of direct materials should be
purchased in the month of June?
a. 28,000 pounds
b. 30,000 pounds
c. 38,000 pounds
d. 32,000 pounds


Comprehensive Examination B

6.

B-3

A company has budgeted direct materials purchases of $100,000 in March and $160,000
in April. Past experience indicates that the company pays for 70% of its purchases in the
month of purchase and the remaining 30% in the next month. During April, the following
items were budgeted:
Wages Expense
Purchase of office equipment
Selling and Administrative Expenses
Depreciation Expense

$50,000
24,000
16,000
12,000

The budgeted cash disbursements for April are
a. $216,000.
b. $142,000.
c. $232,000.
d. $244,000.
*7.

Dustin Company sells its product for $40 per unit. During 2008, it produced 60,000 units
and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct
materials $10, direct labor $6, and variable overhead $2. Fixed costs are: $480,000
manufacturing overhead, and $60,000 selling and administrative expenses. The per unit
manufacturing cost under absorption costing is
a. $16.
b. $18.
c. $26.
d. $27.

8.

Monroe Company manufactures a product with a unit variable cost of $42 and a unit sales
price of $75. Fixed manufacturing costs were $80,000 when 10,000 units were produced
and sold, equating to $8 per unit. The company has a one-time opportunity to sell an
additional 1,000 units at $55 each in an international market which would not affect its
present sales. The company has sufficient capacity to produce the additional units. How
much is the relevant income effect of accepting the special order?
a. $42,000
b. $5,000
c. $50,000
d. $13,000

9.

Beavers, Inc. is unsure of whether to sell its product assembled or unassembled. The unit
cost of the unassembled product is $16, while the cost of assembling each unit is
estimated at $17. Unassembled units can be sold for $55, while assembled units could be
sold for $71 per unit. What decision should Beavers make?
a. Sell before assembly, the company will save $1 per unit.
b. Sell before assembly, the company will save $15 per unit.
c. Process further, the company will save $1 per unit.
d. Process further, the company will save $16 per unit.

Use the following information for questions 10 and 11.
At January 1, 2008, Smithfield, Inc. has beginning inventory of 3,000 surfboards. Smithfield
estimates it will sell 14,000 units during the first quarter of 2008 with a 10% increase in sales
each quarter. Smithfield’s policy is to maintain an ending inventory equal to 20% of the next
quarter’s sales. Each surfboard costs $140 and is sold for $200.


B-4

Test Bank for Managerial Accounting, Fourth Edition

10.

How many units should Smithfield produce during the first quarter of 2008?
a. 14,080
b. 14,000
c. 16,800
d. 14,200

11.

How much is budgeted sales revenue for the third quarter of 2008?
a. $16,940
b. $3,388,000
c. $3,360,000
d. $3,080,000

Problem B - II — Cost-Volume-Profit (24 points)
Reavis Company prepared the following income statement for 2008:
REAVIS COMPANY
Income Statement
For the Year Ended December 31, 2008
———————————————————————————————————————————
Sales (20,000 units)..........................................................................................
$500,000
Variable expenses.............................................................................................
300,000
Contribution margin...........................................................................................
200,000
Fixed expenses.................................................................................................
120,000
Net income........................................................................................................
$ 80,000
Instructions
Answer the following independent questions and show computations to support your answers.
1. What is the company’s break-even point in units?
2. How many more units would the company have had to sell to earn net income of $100,000 in
2008?
3. If the company expects a 25% increase in sales volume in 2009, what would be the expected

net income in 2009?
4. How much sales (in dollars) would the company have to generate in order to earn a target net
income of $150,000 in 2009?


Comprehensive Examination B

B-5

Problem B - III — Transfer Pricing (12 points)
Taner Company, a division of Douglas Cars, produces automotive batteries. Taner sells the
batteries to its customers for $82 per unit. The variable cost per unit is $38, and fixed costs per
unit are $16. Top management of Douglas Cars would like Taner to transfer 30,000 batteries to
another division within the company at a price of $54. Taner has sufficient excess capacity to
provide the 30,000 batteries to the other division.
Instructions
(a) Compute the minimum transfer price that Taner should accept.
(b) Assume Taner is operating at full capacity. Compute the minimum transfer price that Taner
should accept.

Problem B - IV — Budgeting (18 points)
Grace Company has budgeted the following unit sales for the first quarter of 2009:
January
February
March

Units
36,000
54,000
45,000

It takes two pounds of direct materials, which cost $6 per pound, to manufacture one unit of
product. It is the company’s policy to have a finished goods inventory on hand at the end of each
month equal to 20% of next month’s sales and to maintain a direct materials inventory at the end
of the month equal to 30% of the next month’s production needs. The inventory levels at
December 31, 2008, were in accordance with company policy.
Instructions
Answer the following independent questions and show computations to support your answers.
1. Calculate the number of units that should be scheduled for production in the month of
February.
2. What was the number of units in ending finished goods inventory at December 31, 2008?
3. What was the number of units in ending direct materials inventory at December 31, 2008?
4. What was the number of units and the dollar amount of direct materials purchases budgeted
for the month of January?


B-6

Test Bank for Managerial Accounting, Fourth Edition

Problem B - V — Contribution Margin (14 points)
Sports Company makes two products, footballs and baseballs. Additional information follows:
Units
Sales
Variable costs
Fixed costs
Net income

Footballs
4,000

$60,000
36,000
9,000
$15,000

Baseballs
2,500
$25,000
7,000
9,000
$ 9,000

Profit per unit

$3.75

$3.60

If Sports has unlimited demand for both products, which product should the company emphasize?

Problem B - VI — Incremental Analysis (10 points)
Knox Manufacturing incurs unit costs of $15 ($9 variable and $6 fixed) in making a subassembly
part for its finished product. A supplier offers to make 10,000 of the assembly part at $11 per unit.
If the offer is accepted, all variable costs and $1 of fixed costs per unit will be saved.
Instructions
(a) Prepare an analysis to show whether Knox Manufacturing should make or buy the assembly
part.
(b) Would your answer be different if Knox Manufacturing could earn $25,000 of income with the
facilities currently used to make the part?

Comprehensive Examination B

B-7

Solutions — Comprehensive Examination B
Problem B - I — Solution
1.
2.
3.
4.
5.
6.

c
b
c
b
d
c

7.
8.
9.
10.
11.

c
d
a

a
b

Problem B - II — Solution
1. Unit contribution margin = $10 ($200,000 ÷ 20,000).
Break-even point in units = 12,000 units ($120,000 ÷ $10).
2. Additional units to be sold = 2,000 units ($20,000 ÷ $10).
3. Contribution margin
Fixed expenses
Expected net income

$250,000
120,000
$130,000

($200,000 × 1.25)

OR
Additional units: 20,000 × 25% = 5,000
Additional CM: 5,000 × $10 = $50,000
Additional net income: $80,000 + $50,000 = $130,000
4.

Contribution margin ratio = 40% ($200,000 ÷ $500,000).
Sales dollars necessary = $675,000 [($120,000 + $150,000) ÷ .4].

Problem B - III — Solution
(a) If Taner has excess capacity, then its opportunity cost is zero. In this case, the minimum
transfer price is:
Minimum transfer price = $38 + $0 = $38.

(b) The minimum transfer price is equal to Taner’s variable cost plus its opportunity cost. In this
case, the minimum transfer price is:
Minimum transfer price = $38 + ($82 – $38) = $82.


B-8

Test Bank for Managerial Accounting, Fourth Edition

Problem B - IV — Solution
1.
Budgeted unit sales
Desired ending inventory in units
Total required units
Less beginning inventory in units
Required production units

Production Budget
February
Units
54,000
9,000
(20% × 45,000)
63,000
10,800
(20% × 54,000)
52,200

2. 7,200 units (36,000 × 20%)
3.

Budgeted unit sales
Desired ending inventory in units
Total required units
Less beginning inventory in units
Required production units
Direct materials per unit
Raw materials inventory, Dec. 31
4.
January
Pounds needed for production
Desired ending inventory
(52,200 × 2 = 104,400) × 30%
Total materials required
Less beginning inventory in units
Direct materials purchases
Total cost of direct materials purchases

Production Budget
January
36,000
10,800
(20% × 54,000)
46,800
7,200
(20% × 36,000)
39,600
× 2
79,200
× 30% = 23,760 pounds
Direct Materials

Budget
79,200
31,320
110,520
23,760
86,760
× $6
$520,560

Problem B - V — Solution
Contribution margin per unit:
Footballs = ($60,000 – $36,000) ÷ 4,000 = $6
Baseballs = ($25,000 – $7,000) ÷ 2,500 = $7.20
Sports Company should attempt to sell more baseballs due to the higher contribution margin per
unit.


Comprehensive Examination B

B-9

Problem B - VI — Solution
(a)
Variable costs
Fixed costs
Purchase price
Total cost

Make
$ 90,000

60,000
$150,000

Buy
$ -050,000
110,000
$160,000

Net Income
Increase/(Decrease)
$ 90,000
10,000
(110,000)
$ (10,000)

Knox Manufacturing should continue to make the assembly part because net income will be
$10,000 less if the part is purchased.
(b) Yes, the answer now would be to buy the part. The $25,000 is the opportunity cost. In the
above analysis, it should be added to the Make column. In such case, net income of $15,000
($175,000 – $160,000) would be realized by buying the part.


COMPREHENSIVE EXAMINATION C
(Chapters 10 - 14)

Points

Approximate
Minutes

Multiple Choice..............................................

22

11

C - II

Variance Analysis...........................................

12

12

C - III

Capital Budgeting...........................................

16

16

C - IV

Flexible Overhead Budget.............................

15

15

C-V

Statement of Cash Flows...............................

17

15

C - VI

Ratios.............................................................

18

16

100

85

Problem

Topic

C-I

Checking Work...............................................

5
90

C-2

Test Bank for Managerial Accounting, Fourth Edition

Problem C - I — Multiple Choice (22 points)
Circle the one best answer.
1.

Items from Tedder Company’s budget for March in which 2,100 units were produced and
sold appear below:
Direct materials
Indirect materials—variable
Supervisor salaries
Depreciation on factory equipment
Direct labor
Property taxes on factory
Total

$12,000
2,000
10,000
8,000
7,000
3,000
$42,000

At 2,200 units, how much are budgeted variable manufacturing costs?
a. $22,000

b. $43,000
c. $21,000
d. $19,905
2.

A company developed the following per-unit standards for its product: 2 pounds of direct
materials at $6 per pound. Last month, 2,000 pounds of direct materials were purchased
for $11,400. The direct materials price variance for last month was
a. $11,400 favorable.
b. $600 favorable.
c. $300 favorable.
d. $600 unfavorable.

3.

The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month,
11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000
units of product. The direct materials quantity variance for last month was
a. $3,200 favorable.
b. $2,400 favorable.
c. $3,200 unfavorable.
d. $5,600 unfavorable.

4.

The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in
producing 2,400 units, the actual direct labor cost was $51,200 for 4,000 direct labor
hours worked, the total direct labor variance is
a. $1,920 unfavorable.
b. $6,400 favorable.

c. $4,000 unfavorable.
d. $6,400 unfavorable.

5.

The standard rate of pay is $5 per direct labor hour. If the actual direct labor payroll was
$19,600 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. $800 unfavorable.
b. $800 favorable.
c. $1,000 unfavorable.
d. $400 favorable.


Comprehensive Examination C

C-3

6.

The standard number of hours that should have been worked for output attained is 8,000
direct labor hours, and the actual number of hours worked was 8,400. If the direct labor
price variance was $8,400 unfavorable, and the standard rate of pay was $18 per direct
labor hour, what was the actual rate of pay for direct labor?
a. $17.00 per direct labor hour
b. $15.00 per direct labor hour
c. $19.00 per direct labor hour
d. $18.00 per direct labor hour

7.

Which one of the following does not affect cash?
a. Acquisition and retirement of bonds payable
b. Write-off of an uncollectible accounts receivable
c. Acquisition of treasury stock
d. Payment of cash dividend

8.

Erickson Company reported net income of $140,000 for 2008. The income statement also
indicates that interest expense for 2008 was $50,000. Assuming an income tax rate of
30%, the number of times interest was earned for 2008 was
a. 4 times.
b. 5 times.
c. 3.8 times.
d. 2.8 times.

9.

During 2008, Thomas Company had an asset turnover ratio of 4 times with sales totaling
$1,000,000. If net income was $80,000, Thomas Company's return on assets in 2008 was
a. 8%.
b. 32%.
c. 40%.
d. 80%.

10.

Equipment was purchased for $72,000 and it is estimated to have a $12,000 salvage
value at the end of its estimated 8-year life. The equipment is estimated to generate cash
inflows of $10,000 each year and will be depreciated by using the straight-line method.

The payback period on this investment is
a. 6 years.
b. 7.2 years.
c. 4.8 years.
d. 4.5 years.

11.

Jensen Company purchased a new machine for $200,000 and will use the straight-line
method of depreciation over 4 years with no salvage value. If the company's minimum
annual rate of return is 10%, this investment must generate expected annual income of
a. $3,000.
b. $10,000.
c. $20,000.
d. $50,000.


Test Bank for Managerial Accounting, Fourth Edition

C-4

Problem C - II — Variance Analysis (12 points)
Camping Out Company manufactures down sleeping bags. Each sleeping bag requires 4 pounds
of down and takes .3 hours of direct labor. The standard cost of the down used by Camping Out
is $8 per pound, and the standard labor cost is $10 per hour. In November, Camping Out
purchased 15,000 pounds of down for $120,750. During the year, the company manufactured
4,000 sleeping bags. Payroll reported a total of 1,480 direct labor hours at a cost of $14,060.
Instructions
(a)

Compute the materials price and quantity variances and indicate whether the variances are
favorable or unfavorable.

(b)

Compute the labor price and quantity variances and indicate whether the variances are
favorable or unfavorable.

Problem C - III — Capital Budgeting (16 points)
Easton Company is considering a capital investment of $500,000 in new equipment. It is
expected to have a useful life of 10 years with no salvage value. Depreciation is computed by the
straight-line method. During the life of the investment, annual net income and cash inflows are
expected to be $35,000 and $85,000, respectively. Easton requires either a 10% cost of capital
"hurdle" rate, or a payback period of 7 years.
Instructions
Compute the (a) cash payback period, (b) net present value, (c) internal rate of return (to the
nearest percent), and (d) annual rate of return. Show all computations. State whether the project
should be accepted or rejected for each of the four capital budgeting techniques.
Present Value of an Annuity of 1
(n)
Periods
10

5%
7.72173

6%
7.36009

8%

6.71008

9%
6.41766

10%
6.14457

11%
5.88923

12%
5.65022

15%
5.01877


Comprehensive Examination C

C-5

Problem C - IV — Flexible Overhead Budget (15 points)
Healey Company budgeted a level of activity of 20,000 machine hours to be worked each month
in the Machining Department. At this level of activity, manufacturing overhead costs were
budgeted as follows:
Variable manufacturing overhead
Indirect materials
Indirect labor
Repairs

Utilities
Fixed manufacturing overhead
Supervisory salaries
Property taxes
Depreciation
Total manufacturing overhead

$ 25,000
38,000
4,000
10,000
20,000
1,000
12,000
$110,000

Instructions
The actual manufacturing costs incurred for the month of March, when 24,000 machine hours
were worked, are listed below on a partially completed budget report. Complete the budget report
in a manner that would be most useful for evaluating the performance of the Machining
Department manager for the month of March, 2008.
HEALEY COMPANY
Manufacturing Overhead Budget Report
Machining Department
For the Month Ended March 31, 2008

Variable manufacturing overhead
Indirect materials
Indirect labor
Repairs

Utilities
Total variable
Fixed manufacturing overhead
Supervisory salaries
Property taxes
Depreciation
Total fixed
Total costs

Budget at

Actual at

$

$ 30,800
44,500
7,000
11,000
93,300

$

20,000
1,000
12,000
33,000
$126,300

Difference

Favorable F
Unfavorable U
$

$


C-6

Test Bank for Managerial Accounting, Fourth Edition

Problem C - V — Statement of Cash Flows (17 points)
The comparative balance sheet for Mott Company appears below:
MOTT COMPANY
Comparative Balance Sheet
Dec. 31, 2008
Assets
Cash................................................................................................
$54,000
Accounts receivable........................................................................
6,000
Inventory.........................................................................................
11,000
Prepaid expenses...........................................................................
2,000
Building...........................................................................................
20,000
Accumulated depreciation—building..............................................
(3,000)
Total assets...............................................................................

$90,000

Dec. 31, 2007
$12,000
8,000
7,000
3,000
20,000
(2,000)
$48,000

Liabilities and Stockholders' Equity
Accounts payable............................................................................
Long-term note payable..................................................................
Common stock................................................................................
Retained earnings...........................................................................
Total liabilities and stockholders' equity....................................

$ 1,000
13,000
33,000
43,000
$90,000

$ 4,000
14,000
18,000
12,000
$48,000

The income statement for the year is as follows:
MOTT COMPANY
Income Statement
For the Year Ended December 31, 2008
Sales (all on credit).........................................................................
Expenses and losses
Cost of goods sold....................................................................
Operating expenses, exclusive of depreciation.......................
Depreciation expense...............................................................
Interest expense.......................................................................
Loss on sale of land..................................................................
Income taxes.............................................................................
Total expenses and loss.....................................................
Net income......................................................................................

$280,000
$184,000
42,300
1,000
1,200
2,500
9,000
240,000
$ 40,000

Cash dividends of $9,000 were paid during the year. Land costing $15,000 was acquired by the
issuance of common stock. The property was subsequently sold for $12,500 cash.
Instructions
Prepare a statement of cash flows for the year ended December 31, 2008 using the indirect
method.

Comprehensive Examination C

C-7

Problem C - VI —Ratios (18 points)
The financial information below was taken from the annual financial statements of Falls Company.
Current assets
Current liabilities
Total assets
Sales
Cost of goods sold
Inventory
Receivables (net)
Net income
Common stockholders’ equity
Total liabilities

2008
$280,000
80,000
550,000
760,000
525,000
100,000
100,000
57,000
330,000
220,000

Instructions
Calculate the following ratios for Falls Company for 2008.
1. Current ratio.
2. Average collection period of receivables in days.
3. Return on assets.
4. Debt to total assets ratio.
5. Inventory turnover.
6. Return on common stockholders’ equity.
7. Asset turnover.
8. Profit margin.

2007
$170,000
90,000
450,000
600,000
510,000
110,000
60,000
48,000
270,000
180,000