Accounting 102

Test No. 3

Name:_____________________________

1. Product costs consist of direct labor, direct materials and overhead. True False 2. Manufacturing overhead are those which can be traced directly to the product. True False 3. Absorption costing is not permitted under GAAP. True False 4. Assume a company had the following production costs.

Under absorption costing, the total production cost per unit when 4,000 units are produced would be $22.50. True False 5. Given the following data, total product cost per unit under absorption costing is $9.14.

True

False

6. Given the following data, total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing.

True

False

7. A budget can be an effective means of communicating management's plans to the employees of a business. True False 8. A budget is a formal statement of future plans, usually expressed in monetary terms. True False

9. Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business. True False 10. Standard costs can serve as a basis for evaluating actual performance. True False 11. Standard material, labor, and overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants. True False 12. A cost variance is the difference between actual cost and standard cost. True False 13. Within the same budget performance report, it is impossible to have both favorable and unfavorable variances. True False 14. Which of the following is not a product cost? A. Direct labor. B. Indirect manufacturing costs. C. Direct materials. D. Manufacturing overhead. E. All of the items listed above are product costs. 15. Which of the following costs cannot be directly traced to the product? A. Fixed manufacturing overhead. B. Direct labor. C. Variable manufacturing overhead. D. Neither A nor B can be directly traced to the product. E. Neither A nor C can be directly traced to the product. 16. Which of the following statements is(are) true? A. Variable costing treats fixed overhead as a period cost. B. Absorption costing treats fixed overhead as a period cost. C. Absorption costing treats fixed overhead as an expense in the period it is incurred. D. Only B and C are true statements. E. A, B and C are all true statements.

17. A company is currently operating at 80% capacity producing and 5,000 units. Current cost information relating to this production is shown in the table below.

The company has been approached by a customer with a request for a 100 unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits? A. Any amount over $34 per unit. B. Any amount over $20 per unit. C. Any amount over $14 per unit. D. Any amount over $9 per unit. E. Any amount over $5 per unit. 18. For budgets to be effective: A. Goals should be attainable. B. Employees affected by a budget should be consulted when it is prepared. C. Evaluations should be made carefully with opportunities to explain any failures. D. They should be properly applied to avoid negative effects. E. All of these. 19. Which of the following is not a benefit of following a well-designed budgeting process? A. Improved decision-making processes. B. Improved performance evaluations. C. Improved coordination of business activities. D. Assurance of future profits. E. All of these are benefits of effective budgeting. 20. The usual starting point for preparing a master budget is forecasting or estimating: A. Expenditures. B. Sales. C. Production. D. Income. E. Cash payments. 21. Bentels Co. desires a December 31 ending inventory of 2,840 units. Budgeted sales for December are 4,000 units. The November 30 inventory was 1,800 units. Budgeted purchases are: A. 5,040 units. B. 1,240 units. C. 6,840 units. D. 4,000 units. E. 5,800 units.

22. Fairway's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted purchases of units in April would be: A. 6,000 units. B. 7,000 units. C. 6,300 units. D. 7,300 units. E. Some other amount. 23. When preparing the cash budget, all the following should be considered except: A. Cash receipts from customers. B. Cash payments for merchandise. C. Depreciation expense. D. Cash payments for income taxes. E. Cash payments for capital expenditures. 24. A report based on predicted amounts of revenues and expenses corresponding to the actual level of output is called a: A. Rolling budget. B. Production budget. C. Flexible budget. D. Merchandise purchases budget. E. Fixed budget. 25. Static budget is another name for: A. Standard budget. B. Flexible budget. C. Variable budget. D. Fixed budget. E. Master budget. 26. Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are: A. $125,000 fixed and $102,500 variable. B. $125,000 fixed and $123,000 variable. C. $102,500 fixed and $150,000 variable. D. $150,000 fixed and $123,000 variable. E. $150,000 fixed and $102,500 variable. 27. The direct materials price variance is: A. $13,750 unfavorable. B. $16,250 unfavorable. C. $16,250 favorable. D. $30,000 unfavorable. E. $33,000 favorable.

28. Bartels Corp. produces woodcarvings. It takes 2 hours of direct labor to produce a carving. Bartels' standard labor cost is $12 per hour. During August, Bartels produced 10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376. What is Bartels' labor rate variance for August? A. $2,000 favorable. B. $2,104 unfavorable. C. $2,104 favorable. D. $4,160 favorable. E. $2,000 unfavorable. 29. Overhead cost variance is: A. The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level. B. The difference between the actual overhead incurred during a period and the standard overhead applied. C. The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit. D. The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service. E. The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate. 30. Actual fixed overhead for Kapok Company during March was $92,780. The flexible budget for fixed overhead this period is $89,000 based on a production level of 5,000 units. If the company actually produced 4,200 units what is the fixed overhead volume variance for March? A. $ 3,780 favorable. B. $18,020 unfavorable. C. $14,240 unfavorable. D. $ 3,780 unfavorable. E. $14,240 favorable. 31. Actual fixed overhead for Kapok Company during March was $92,780. The flexible budget for fixed overhead this period is $89,000 based on a production level of 5,000 units. If the company actually produced 4,200 units, what is the fixed overhead spending variance for March? A. $ 3,780 favorable. B. $ 800 unfavorable. C. $14,240 unfavorable. D. $ 3,780 unfavorable. E. $14,240 favorable. 32. Price Company's flexible budget shows $10,710 of overhead at 75% of capacity, which was the operating level achieved during May. However, the company applied overhead to production during May at a rate of $2.00 per direct labor hour based on a budgeted operating level of 6,120 direct labor hours (90% of capacity). If overhead actually incurred was $11,183 during May, the controllable variance for the month was: A. $ 473 unfavorable. B. $ 473 favorable. C. $1,530 favorable. D. $1,530 unfavorable. E. $1,057 favorable.

Kyle, Inc., has collected the following data on one of its products:

33. The direct materials quantity variance is: A. $30,000 favorable. B. $13,750 unfavorable. C. $16,250 favorable. D. $30,000 unfavorable. E. $13,750 favorable. The following information describes a company's usage of direct labor in a recent period:

34. The direct labor efficiency variance is: A. $28,000 unfavorable. B. $28,000 favorable. C. $45,000 unfavorable. D. $45,000 favorable. E. $17,000 unfavorable. 35. (10 points)Stonehenge Inc., a manufacturer of landscaping blocks, began operations on April 1 of the current year. During this time, the company produced 750,000 units and sold 720,000 units at a sales price of $9 per unit. Cost information for this period is shown below Show all work and calculation in an easy to follow, neat format. If you just put answer, youll lose 5 points.

(a.) Prepare Stonehenge's December 31st income statement for the current year under absorption costing. (b.) Prepare Stonehenge's December 31st income statement for the current year under variable costing.

36.( 5 points) Miles Company is preparing a cash budget for February. The company has $30,000 cash at the beginning of February and anticipates $75,000 in cash receipts and $96,250 in cash disbursements during February. Miles Company has an agreement with its bank to maintain a cash balance of $10,000. What amount, if any, must the company borrow during February to maintain a $10,000 cash balance? Show all work and calculation in an easy to follow, neat format. If you just put answer, youll lose 5 points. 37. (7 points) Use the following data to determine the company's cash disbursements for each month of August and September Show all work and calculation in an easy to follow, neat format. If you just put answer, youll lose 5 points:

102 Test No. 3 Key

1. Product costs consist of direct labor, direct materials and overhead. TRUE 2. Manufacturing overhead are those which can be traced directly to the product. FALSE 3. Absorption costing is not permitted under GAAP. FALSE 4. Assume a company had the following production costs.

Under absorption costing, the total production cost per unit when 4,000 units are produced would be $22.50. FALSE ($20,000 + $30,000 + $40,000 + $50,000)/4,000 = $35 per unit 5. Given the following data, total product cost per unit under absorption costing is $9.14.

TRUE $0.72 DL + $0.80 DM + (($202,500 + 140,400)/45,000 units) MOH = $9.14 6. Given the following data, total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing.

TRUE Variable Costing: $9 DL + $7 DM + ($45,000/9,000 units) VOH = $21 Absorption Costing: $9 DL + $7 DM + ($45,000/9,000 units) VOH + ($27,000/9,000 units) FOH = $24

7. A budget can be an effective means of communicating management's plans to the employees of a business. TRUE 8. A budget is a formal statement of future plans, usually expressed in monetary terms. TRUE 9. Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business. TRUE 10. Standard costs can serve as a basis for evaluating actual performance. TRUE 11. Standard material, labor, and overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants. FALSE 12. A cost variance is the difference between actual cost and standard cost. TRUE 13. Within the same budget performance report, it is impossible to have both favorable and unfavorable variances. FALSE 14. Which of the following is not a product cost? A. Direct labor. B. Indirect manufacturing costs. C. Direct materials. D. Manufacturing overhead. E. All of the items listed above are product costs. 15. Which of the following costs cannot be directly traced to the product? A. Fixed manufacturing overhead. B. Direct labor. C. Variable manufacturing overhead. D. Neither A nor B can be directly traced to the product. E. Neither A nor C can be directly traced to the product. 16. Which of the following statements is(are) true? A. Variable costing treats fixed overhead as a period cost. B. Absorption costing treats fixed overhead as a period cost. C. Absorption costing treats fixed overhead as an expense in the period it is incurred. D. Only B and C are true statements. E. A, B and C are all true statements.

17. A company is currently operating at 80% capacity producing and 5,000 units. Current cost information relating to this production is shown in the table below.

The company has been approached by a customer with a request for a 100 unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits? A. Any amount over $34 per unit. B. Any amount over $20 per unit. C. Any amount over $14 per unit. D. Any amount over $9 per unit. E. Any amount over $5 per unit. 5,000/.80 - 5,000 = 1,250 unit capacity available $2 + $3 + $4 = $9 incremental costs 18. For budgets to be effective: A. Goals should be attainable. B. Employees affected by a budget should be consulted when it is prepared. C. Evaluations should be made carefully with opportunities to explain any failures. D. They should be properly applied to avoid negative effects. E. All of these. 19. Which of the following is not a benefit of following a well-designed budgeting process? A. Improved decision-making processes. B. Improved performance evaluations. C. Improved coordination of business activities. D. Assurance of future profits. E. All of these are benefits of effective budgeting. 20. The usual starting point for preparing a master budget is forecasting or estimating: A. Expenditures. B. Sales. C. Production. D. Income. E. Cash payments.

21. Bentels Co. desires a December 31 ending inventory of 2,840 units. Budgeted sales for December are 4,000 units. The November 30 inventory was 1,800 units. Budgeted purchases are: A. 5,040 units. B. 1,240 units. C. 6,840 units. D. 4,000 units. E. 5,800 units. 2,840 units + 4,000 units - 1,800 units = 5,040 units 22. Fairway's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted purchases of units in April would be: A. 6,000 units. B. 7,000 units. C. 6,300 units. D. 7,300 units. E. Some other amount. April purchases = 6,000 + (1,000 x 1.30) - 1,000 = 6,300 units 23. When preparing the cash budget, all the following should be considered except: A. Cash receipts from customers. B. Cash payments for merchandise. C. Depreciation expense. D. Cash payments for income taxes. E. Cash payments for capital expenditures. 24. A report based on predicted amounts of revenues and expenses corresponding to the actual level of output is called a: A. Rolling budget. B. Production budget. C. Flexible budget. D. Merchandise purchases budget. E. Fixed budget. 25. Static budget is another name for: A. Standard budget. B. Flexible budget. C. Variable budget. D. Fixed budget. E. Master budget.

26. Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are: A. $125,000 fixed and $102,500 variable. B. $125,000 fixed and $123,000 variable. C. $102,500 fixed and $150,000 variable. D. $150,000 fixed and $123,000 variable. E. $150,000 fixed and $102,500 variable. Fixed costs remain at $150,000 Variable costs = ($123,000/12,000) x 10,000 units = $102,500

27. The direct materials price variance is: A. $13,750 unfavorable. B. $16,250 unfavorable. C. $16,250 favorable. D. $30,000 unfavorable. E. $33,000 favorable. Price variance = $30,000 (quantity variance) - $13,750 (cost variance given) = $16,250 favorable 28. Bartels Corp. produces woodcarvings. It takes 2 hours of direct labor to produce a carving. Bartels' standard labor cost is $12 per hour. During August, Bartels produced 10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376. What is Bartels' labor rate variance for August? A. $2,000 favorable. B. $2,104 unfavorable. C. $2,104 favorable. D. $4,160 favorable. E. $2,000 unfavorable. Labor rate variance = $250,376 - ($12 x 21,040 hours) = $2,104 favorable 29. Overhead cost variance is: A. The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level. B. The difference between the actual overhead incurred during a period and the standard overhead applied. C. The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit. D. The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service. E. The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate.

30. Actual fixed overhead for Kapok Company during March was $92,780. The flexible budget for fixed overhead this period is $89,000 based on a production level of 5,000 units. If the company actually produced 4,200 units what is the fixed overhead volume variance for March? A. $ 3,780 favorable. B. $18,020 unfavorable. C. $14,240 unfavorable. D. $ 3,780 unfavorable. E. $14,240 favorable. Unit variance = 5,000 - 4,200 = 800 units Fixed overhead volume variance = 800($89,000/5,000) 800 x $17.80 = $14,240 unfavorable

31. Actual fixed overhead for Kapok Company during March was $92,780. The flexible budget for fixed overhead this period is $89,000 based on a production level of 5,000 units. If the company actually produced 4,200 units, what is the fixed overhead spending variance for March? A. $ 3,780 favorable. B. $ 800 unfavorable. C. $14,240 unfavorable. D. $ 3,780 unfavorable. E. $14,240 favorable. Fixed overhead spending variance (actual - flexible) = $92,780 - $89,000 = $3,780 unfavorable 32. Price Company's flexible budget shows $10,710 of overhead at 75% of capacity, which was the operating level achieved during May. However, the company applied overhead to production during May at a rate of $2.00 per direct labor hour based on a budgeted operating level of 6,120 direct labor hours (90% of capacity). If overhead actually incurred was $11,183 during May, the controllable variance for the month was: A. $ 473 unfavorable. B. $ 473 favorable. C. $1,530 favorable. D. $1,530 unfavorable. E. $1,057 favorable. Controllable variance = $11,183 - $10,710 = $473 unfavorable Kyle, Inc., has collected the following data on one of its products:

33. The direct materials quantity variance is: A. $30,000 favorable. B. $13,750 unfavorable. C. $16,250 favorable. D. $30,000 unfavorable. E. $13,750 favorable. Quantity used = 150,000/30,000 = 5 pounds per units Quantity unit variance = 5 - 4 = 1 pound per unit (unfavorable) Direct materials quantity variance = (30,000 units x 1 pound x $1 per pound ) = $30,000 unfavorable The following information describes a company's usage of direct labor in a recent period:

34. The direct labor efficiency variance is: A. $28,000 unfavorable. B. $28,000 favorable. C. $45,000 unfavorable. D. $45,000 favorable. E. $17,000 unfavorable. Direct labor efficiency variance = $14 (47,000 - 45,000) = $28,000 favorable 35. Stonehenge Inc., a manufacturer of landscaping blocks, began operations on April 1 of the current year. During this time, the company produced 750,000 units and sold 720,000 units at a sales price of $9 per unit. Cost information for this period is shown below.

(a.) Prepare Stonehenge's December 31st income statement for the current year under absorption costing. (b.) Prepare Stonehenge's December 31st income statement for the current year under variable costing.

36. Miles Company is preparing a cash budget for February. The company has $30,000 cash at the beginning of February and anticipates $75,000 in cash receipts and $96,250 in cash disbursements during February. Miles Company has an agreement with its bank to maintain a cash balance of $10,000. What amount, if any, must the company borrow during February to maintain a $10,000 cash balance?

37. Use the following data to determine the company's cash disbursements for each month of August and September:

102 Test No. 3 Summary

Category AACSB: Analytic AACSB: Communications AICPA BB: Industry AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: A1 Learning Objective: C1 Learning Objective: C2 Learning Objective: C3 Learning Objective: P1 Learning Objective: P2 Learning Objective: P3 Wild - Chapter 019 Wild - Chapter 020 Wild - Chapter 021 # of Questions 31 6 26 11 28 9 16 4 17 2 12 4 2 5 8 4 11 11 17