1.

An allocated portion of fixed manufacturing overhead is included in product costs under: Absorption Variable Costing costing A) No No B) No Yes C) Yes No D) Yes Yes 2. What factor is the cause of the difference between net income as computed under absorption costing and net income as computed under variable cos ting? A) Absorption costing considers all manufacturing costs in the dete rmination of net income, whereas variable costing considers only prime costs. B) Absorption costing allocates fixed manufacturing costs between c ost of goods sold and inventories, and variable costing considers all fixed manu facturing costs as period costs. C) Absorption costing includes all variable manufacturing costs in product costs, but variable costing considers variable manufacturing costs to be period costs. D) Absorption costing includes all fixed manufacturing costs in pro duct costs, but variable costing expenses all fixed manufacturing costs. 3. Cay Company's fixed manufacturing overhead costs totaled $100,00 0, and variable selling costs totaled $80,000. Under variable costing, how shoul d these costs be classified? Period costs Product costs A) $0 $180,000 B) $80,000 $100,000 C) $100,000 $80,000 D) $180,000 $0 4. Which of the following statements is true for a firm that uses v ariable costing? A) The unit product cost changes as a result of changes in the numb er of units manufactured. B) Both variable selling costs and variable production costs are in cluded in the unit product cost. C) Net income moves in the same direction as sales. D) Net income is greatest in periods when production is highest. 5. The term "gross margin" for a manufacturing company refers to th e excess of sales over A) cost of goods sold, excluding fixed manufacturing overhead. B) all variable costs, including variable selling and administrativ e expenses. C) cost of goods sold, including fixed manufacturing overhead. D) variable costs, excluding variable selling and administrative ex penses. 6. Net income determined using full absorption costing can be recon ciled to net income determined using variable costing by computing the differenc e between: A) Fixed manufacturing overhead costs deferred in or released from inventories.

B) Inventoried discretionary costs in the beginning and ending inve ntories. C) Gross margin (absorption costing method) and contribution margin (variable costing method). D) Sales as recorded under the variable costing method and sales as recorded under the absorption costing method. 7. What will be the difference in net income between variable costi ng and absorption costing if the number of units in work in process and finished goods inventories increase? A) There will be no difference in net income. B) Net income computed using variable costing will be higher. C) The difference in net income cannot be determined from the infor mation given. D) Net income computed using variable costing will be lower. 8. For the most recent year, Atlantic Company's net income computed by the absorption costing method was $7,400, and its net income computed by the variable costing method was $10,100. The company's unit product cost was $17 un der variable costing and $22 under absorption costing. If the ending inventory c onsisted of 1,460 units, the beginning inventory must have been: A) 920 units. B) 1,460 units. C) 2,000 units. D) 12,700 units. 9. During the year just ended, Roberts Company' income under absorp tion costing was $3,000 lower than its income under variable costing. The compan y sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, then how many units did the company produce durin g the year? A) 8,000. B) 10,000. C) 9,600. D) 8,400. Use the following to answer questions 10-15: Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Produc tion costs were as follows: Direct material $100,000 Direct labor 75,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 75,000 Sales totaled $440,000, variable selling and administrative expenses were $110,0 00, and fixed selling and administrative expenses were $45,000. There was no beg inning inventory. Assume that direct labor is a variable cost. 10. A) B) C) Under absorption costing, the unit product cost would be: $9.00. $12.00. $13.40.

D) 11. A) B) C) D) 12. A) B) C) D)

$14.00. Under absorption costing, the gross margin would be: $176,000. $242,000. $ 66,000. $ 21,000. The contribution margin per unit would be: $15.00. $11.00. $ 8.00. $ 6.00.

13. Under variable costing, the total amount of fixed manufacturing cost in the ending inventory would be: A) $ 0. B) $ 9,000. C) $14,400. D) $27,000. 14. A) B) C) D) 15. A) B) C) D) 16. ven below: The net income under variable costing would be: $ 2,000. $21,000. $12,000. $ 9,000. The net income under absorption costing would be: $ 9,000. $12,000. $ 2,000. $21,000. Budgeted sales in Allen Company over the next four months are gi September October November Budgeted sales $100,000 $160,000 $120,000 Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as foll ows: 50% of a month's sales are collected in the month of sale, 30% are collecte d in the month following sale, and 15% are collected in the second month followi ng sale. The remainder are uncollectible. Given these data, cash collections for December should be: A) $153,000. B) $138,000. C) $120,000. D) $103,500. 17. The PDQ Company makes collections on credit sales according to t he following schedule: December $180,000

25% in month of sale 70% in month following sale 4% in second month following sale 1% uncollectible The following sales have been budgeted: Month April May June A) B) C) D) Sales $100,000 120,000 110,000

Cash collections in June would be: $113,400. $110,000. $111,000. $115,500.

18. Modesto Company produces and sells Product AlphaB. To guard agai nst stockouts, the company requires that 20% of the next month's sales be on han d at the end of each month. Budgeted sales of Product AlphaB over the next four months are: June July August September Budgeted sales in units 30,000 40,000 60,000 50,000 A) B) C) D) 19. ows: Quarter First Production in units Second Third Fourth 10,000 12,000 16,000 14,000 each unit produced lbs. The raw mater the next quarter's third quarter woul Budgeted production for August would be: 62,000 units. 70,000 units. 58,000 units. 50,000 units. The Tobler Company has budgeted production for next year as foll

Four pounds of raw materials are required for . Raw materials on hand at the start of the year totals 4,000 ials inventory at the end of each quarter should equal 10% of production needs. Budgeted purchases of raw materials in the d be: A) 63,200 lbs. B) 62,400 lbs. C) 56,800 lbs. D) 50,400 lbs.

20. The Willsey Merchandise Company has budgeted $40,000 in sales fo r the month of December. The company's cost of goods sold is 30% of sales. If th e 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.

21. ABC Company has a cash balance of $9,000 on April 1. The company must maintain a minimum cash balance of $6,000. During April expected cash rece ipts are $45,000. Expected cash disbursements during the month total $52,000. Du ring April the company will need to borrow: A) $2,000. B) $4,000. C) $6,000. D) $8,000. 22. ing schedule: Avril Company makes collections on sales according to the follow 30% in the month of sale 60% in the month following sale 8% in the second month following sale The following sales are expected: Expected Sales January $100,000 February 120,000 March 110,000 A) B) C) D) Cash collections in March should be budgeted to be: $110,000. $110,800. $105,000. $113,000.

Use the following to answer question 23: 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 p urposes of budget preparation, assume that the company's cost of goods sold is 6 0% of sales. Expected sales for the first four months appear below. Expected Sales January $10,000 February 24,000 March 16,000 April 25,000 The company desires that the merchandise inventory on hand at the end of each mo nth 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 oper ating expenses should be 10% of sales and fixed expenses (all depreciation) shou ld be $3,000 per month. Cash payments for the variable operating expenses are ma de during the month the expenses are incurred. 23. In a budgeted income statement for the month of February, net in come would be:

A) B) C) D)

$9,000. $1,800. $0. $4,200.

Use the following to answer questions 24-25: The LaGrange Company had the following budgeted sales for the first half of the current year: Cash Sales Credit Sales January $70,000 $340,000 February 50,000 190,000 March 40,000 135,000 April 35,000 120,000 May 45,000 160,000 June 40,000 140,000 The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has b een assembled: Collections on sales: 60% in month of sale 30% in month following sale 10% in second month following sale The accounts receivable balance on January 1 of the current year was $70,000, of which $50,000 represents uncollected December sales and $20,000 represents unco llected November sales. 24. d be: A) B) C) D) 25. e current year? A) B) C) D) $410,000. $254,000. $344,000. $331,500. What is the budgeted accounts receivable balance on June 1 of th $56,000. $64,000. $76,000. $132,000. The total cash collected by LaGrange Company during January woul

Use the following to answer questions 26-27: Barley Enterprises has budgeted unit sales for the next four months as follows: October 4,800 units November 5,800 units December 6,400 units January 5,200 units The ending inventory for each month should be equal to 15% of the next month's s ales in units. The inventory on September 30 was below this level and contained only 600 units.

26. A) B) C) D) 27. A) B) C) D)

The total units to be produced in October is: 4,530. 5,070. 5,670. 5,890. The desired ending inventory for December is: 960. 870. 780. 690.

28. The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as: A) B) C) D) 29. allowed, what A) B) C) D) normal standards. practical standards. ideal standards. budgeted standards. If the actual labor hours worked exceed the standard labor hours type of variance will occur? Favorable labor efficiency variance. Favorable labor rate variance. Unfavorable labor efficiency variance. Unfavorable labor rate variance.

30. Yola Company manufactures a product with standards for direct la bor of 4 direct labor-hours per unit at a cost of $12.00 per direct labor-hour. During June, 1,000 units were produced using 4,100 hours at $12.20 per hour. The direct labor efficiency variance was: A) $1,200 favorable. B) $1,200 unfavorable. C) $2,020 favorable. D) $2,020 unfavorable. 31. For the month of April, Thorp Co.'s records disclosed the follow ing data relating to direct labor: Actual cost $10,000 Rate variance $ 1,000 favorable Efficiency variance $ 1,500 unfavorable 000. In April, A) B) C) D) For the month of April, actual direct labor hours amounted to 2, Thorp's standard direct labor rate per hour was: $5.50. $5.00. $4.75. $4.50.

Use the following to answer questions 32-37:

The Litton Company has established standards as follows: Direct material 3 lbs. @ $4/lb. = $12 per unit Direct labor 2 hrs. @ $8/hr. = $16 per unit Variable manuf. Overhead 2 hrs. @ $5/hr. = $10 per unit Actual production figures for the past year are given below. The company records the materials price variance when materials are purchased. Units produced 600 Direct material used 2,000 lbs. Direct material purchased (3,000 lbs.) $11,400 Direct labor cost (1,100 hrs.) $ 9,240 Variable manuf. overhead cost incurred $ 5,720 The company applies variable manufacturing overhead to products on the basis of direct labor hours. 32. A) B) C) D) 33. A) B) C) D) 34. A) B) C) D) 35. A) B) C) D) 36. A) B) C) D) 37. A) B) C) D) The materials price variance is: $400 U. $400 F. $600 F. $600 U. The materials quantity variance is: $800 U. $4,000 U. $760 U. $760 F. The labor rate variance is: $480 F. $480 U. $440 F. $440 U. The labor efficiency variance is: $800 F. $800 U. $840 F. $840 U. The variable overhead spending variance is: $240 U. $220 U. $220 F. $240 F. The variable overhead efficiency variance is: $520 F. $520 U. $500 U. $500 F.

38. A major weakness of flexible budgets is that: A) they are geared only to a single level of activity. B) they give subordinates too much flexibility. C) they force the manager to compare actual costs at one level of a ctivity to budgeted costs at a different level of activity. D) none of these. 39. A) y is. B) inefficient or efficient use of overhead resources. C) a difference between the denominator activity and the standard h ours allowed for the actual output of the period. D) a shift in the amount of hours required to produce the actual ou tput. 40. Web Company uses a standard cost system in which manufacturing o verhead is applied to units of product on the basis of machine hours. During Feb ruary, the company used a denominator activity of 80,000 machine hours in comput ing its predetermined overhead rate. However, only 75,000 standard machine hours were allowed for the month's actual production. If the fixed overhead volume va riance for February was $6,400 unfavorable, then the total budgeted fixed overhe ad cost for the month was: A) $96,000. B) $102,400. C) $100,000. D) $98,600. 41. Union Company uses a standard cost accounting system. The follow ing overhead costs and production data are available for August: Standard fixed overhead rate $1.00 per hour Standard variable overhead rate $4.00 per hour Denominator activity 40,000 hours Actual hours 39,500 hours Standard hours allowed for output 39,000 hours Overapplied overhead $2,000 The total amount of overhead applied to work in process for Augu st would be: A) B) C) D) $195,000. $197,000. $197,500. $199,500. The fixed overhead volume variance is due to: inefficient or efficient use of whatever the denominator activit

42. Mauve Company uses a standard cost system in which it applies ma nufacturing overhead to units of product on the basis of direct labor hours (DLH s). The following data pertain to last month: Actual hours worked 2,400 DLHs Budgeted fixed overhead costs $10,000 Actual fixed overhead costs $10,400 Standard hours allowed 2,500 DLHs Predetermined overhead rate $5 per DLH

A) B) C) D)

The fixed overhead budget variance is: $400 U. $500 F. $300 F. $300 U.

Use the following to answer questions 43-46: A furniture manufacturer has a standard costing system based on machine-hours (M Hs) as the measure of activity. Data from the company's flexible budget for manu facturing overhead are given below: Denominator level of activity 3,300 MHs Overhead costs at the denominator activity level: Variable overhead cost $31,845 Fixed overhead cost $40,425 The following data pertain to operations for the most recent period: Actual hours 3,400 MHs Standard hours allowed for the actual output 3,078 MHs Actual total variable overhead cost $32,980 Actual total fixed overhead cost $38,975 43. A) B) C) D) What is the predetermined overhead rate to the nearest cent? $21.90 $21.80 $21.16 $21.26

44. How much overhead was applied to products during the period to t he nearest dollar? A) $74,460 B) $72,270 C) $67,408 D) $71,955 45. What was the fixed overhead budget variance for the period to th e nearest dollar? A) $2,675 U B) $1,450 F C) $3,691 F D) $1,270 F 46. What was the fixed overhead volume variance for the period to th e nearest dollar? A) $2,720 U B) $1,225 F C) $2,811 U D) $3,945 U Use the following to answer questions 47-50: A manufacturer of playground equipment has a standard costing system based on ma

chine-hours (MHs) as the measure of activity. Data from the company's flexible b udget for manufacturing overhead are given below: Denominator level of activity 3,000 MHs Fixed overhead cost $40,650 The following data pertain to operations for the most recent period: Actual hours 3,400 MHs Standard hours allowed for the actual output 3,172 MHs Actual total fixed overhead cost $41,600 47. t? A) B) C) D) $12.24 $13.55 $13.87 $11.96 What is the predetermined fixed overhead rate to the nearest cen

48. How much fixed overhead was applied to products during the perio d to the nearest dollar? A) $40,650 B) $42,981 C) $41,600 D) $46,070 49. What was the fixed overhead budget variance for the period to th e nearest dollar? A) $4,470 U B) $950 U C) $2,790 F D) $1,381 U 50. What was the fixed overhead volume variance for the period to th e nearest dollar? A) $2,256 F B) $2,331 F C) $3,089 U D) $5,420 F

Answer Key -- Practice ExamII 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. C Origin: B Origin: D Origin: C Origin: C Origin: A Origin: D Origin: C Origin: D Origin: B Origin: A Origin: D Origin: A Origin: C Origin: D Origin: D Origin: D Origin: C Origin: A Origin: A Origin: B Origin: D Origin: D Origin: D Origin: C Origin: B Origin: C Origin: C Origin: C Origin: Chapter 7, Variable Costing: A Tool .......17 Chapter 7, Variable Costing: A Tool .......21 Chapter 7, Variable Costing: A Tool .......19 Chapter 7, Variable Costing: A Tool .......23 Chapter 7, Variable Costing: A Tool .......25 Chapter 7, Variable Costing: A Tool .......26 Chapter 7, Variable Costing: A Tool .......28 Chapter 7, Variable Costing: A Tool .......30 Chapter 7, Variable Costing: A Tool .......32 Chapter 7, Variable Costing: A Tool .......50 Chapter 7, Variable Costing: A Tool .......51 Chapter 7, Variable Costing: A Tool .......52 Chapter 7, Variable Costing: A Tool .......53 Chapter 7, Variable Costing: A Tool .......54 Chapter 7, Variable Costing: A Tool .......55 Chapter 9, Profit Planning....28 Chapter 9, Profit Planning....29 Chapter 9, Profit Planning....32 Chapter 9, Profit Planning....36 Chapter 9, Profit Planning....39 Chapter 9, Profit Planning....40 Chapter 9, Profit Planning....41 Chapter 9, Profit Planning....52 Chapter 9, Profit Planning....63 Chapter 9, Profit Planning....64 Chapter 9, Profit Planning....67 Chapter 9, Profit Planning....68 Chapter 10, Standard Costs and the .......16 Chapter 10, Standard Costs and the .......23

30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

B Origin: A Origin: C Origin: A Origin: D Origin: A Origin: B Origin: D Origin: D Origin: C Origin: B Origin: A Origin: A Origin: A Origin: C Origin: B Origin: A Origin: B Origin: B Origin: B Origin: B Origin:

Chapter 10, Standard Costs and the .......46 Chapter 10, Standard Costs and the .......53 Chapter 10, Standard Costs and the .......61 Chapter 10, Standard Costs and the .......62 Chapter 10, Standard Costs and the .......63 Chapter 10, Standard Costs and the .......64 Chapter 10, Standard Costs and the .......65 Chapter 10, Standard Costs and the .......66 Chapter 11, Flexible Budgets and .......17 Chapter 11, Flexible Budgets and .......24 Chapter 11, Flexible Budgets and .......32 Chapter 11, Flexible Budgets and .......39 Chapter 11, Flexible Budgets and .......35 Chapter 11, Flexible Budgets and .......71 Chapter 11, Flexible Budgets and .......72 Chapter 11, Flexible Budgets and .......73 Chapter 11, Flexible Budgets and .......74 Chapter 11, Flexible Budgets and .......75 Chapter 11, Flexible Budgets and .......76 Chapter 11, Flexible Budgets and .......77 Chapter 11, Flexible Budgets and .......78