ACCT 101B FINAL REVIEW – KEY| VERIFIED SOLUTION

ACCT 101B FINAL REVIEW – KEY ACCT 101B FINAL REVIEW – KEY   ACCT 101B FINAL REVIEW – KEY CH. 17 An example of a cost which would not be assigned to an overhead cost pool is b. freight-out. A variable cost is a cost that c. varies in total in proportion to changes in the level of activity. A cost which remains constant per unit at various levels of activity is a a. variable cost. A company has total fixed costs of $160,000 and a contribution margin ratio of 20%. The total sales necessary to break even are b. $800,000. A division sold 200,000 calculators during 2012: Sales Variable costs: $2,000,000 Materials $380,000 Order processing 250,000 Billing labor 110,000 Selling expenses 60,000 Total variable costs 800,000 Fixed costs 1,000,000 How much is the contribution margin per unit? c. $6 Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $700,000 and to earn net income of $200,000. What percent are variable costs of sales? B. 55% A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 2,000 machine hours available to manufacture a product, income will be c. $4,000 less if Product A is made. A company budgeted unit sales of 136,000 units for January, 2012 and 160,000 units for February, 2012. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 40,800 units of inventory on hand on December 31, 2011, how many units should be produced in January, 2012 in order for the company to meet its goals? a. 143,200 units At January 1, 2012, Deer Corp. has beginning inventory of 2,000 surfboards. Deer estimates it will sell 5,000 units during the first quarter of 2012 with a 12% increase in sales each quarter. Deer’s policy is to maintain an ending inventory equal to 25% of the next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2012? d. $940,800 A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 60,000 units on hand, the sales department budgeted sales of 225,000 units in June, and the company desires to have 90,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be d. $7,650,000. A company has budgeted direct materials purchases of $200,000 in July and $320,000 in August. 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 August, the following items were budgeted: Wages Expense $100,000 Purchase of office equipment 48,000 Selling and Administrative Expenses 32,000 Depreciation Expense 24,000 The budgeted cash disbursements for August are c. $464,000. A department has budgeted monthly manufacturing overhead cost of $180,000 plus $3 per direct labor hour. If a flexible budget report reflects $348,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was b. 56,000 direct labor hours. At 9,000 direct labor hours, the flexible budget for indirect materials is $18,000. If $18,700 are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials: d. $300 unfavorable. A cost center a. only incurs costs and does not directly generate revenues. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for $3,800. The direct materials price variance for last month was b. $200 favorable. A company is considering the following alternatives: Revenues Alternative 1 $240,000 Alternative 2 $240,000 Variable costs 120,000 140,000 Fixed costs 70,000 70,000 Which of the following are relevant in choosing between the alternatives? a. Variable costs An opportunity cost b. is the potential benefit that may be obtained by following an alternative course of action. Ashley Industries can make 1,000 units of a necessary component with the following costs: Direct Materials $144,000 Direct Labor 36,000 Variable Overhead 18,000 Fixed Overhead ? The company can purchase the 1,000 units externally for $234,000. The avoidable fixed costs are $12,000 if the units are purchased externally. An analysis shows that at this external price, the company is indifferent between making or buying the part. What are the fixed overhead costs of making the component? a. $48,000 A company has a process that results in 15,000 pounds of Product A that can be sold for $16 per pound. An alternative would be to process Product A further at a cost of $200,000 and then sell it for $28 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action? b. Sell now, the company will be better off by $20,000. Ayla Co. spent $8,000 to produce Product XJ, which can be sold as is for $10,000, or processed further incurring additional costs of $3,000 and then be sold for $14,000. Which amounts are relevant to the decision about Product XJ? c. $10,000, $3,000, and $14,000 A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $32 and takes two machine hours to make and Product B has a unit contribution margin of $60 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be d. $4,000 less if Product A is made. A company is considering purchasing factory equipment which costs $960,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $450,000 and annual operating expenses exclusive of depreciation expense are expected to be $190,000. The straight-line method of depreciation would be used. If the equipment is purchased, the annual rate of return expected on this project is c. 29.2%. Daffodil Company produces two products, Flower and Planter. Flower is a high-volume item totaling 20,000 units annually. Planter is a low-volume item totaling only 6,000 units per year. Flower requires one hour of direct labor for completion, while each unit of Planter requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Sphere uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of Planter would be assigned overhead of c. $40.00. Sanborn Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders $ 120,000 500 orders Machine Setup Setups 297,000 450 setups Machining Machine hours 1,500,000 125,000 MH Assembly Parts 1,200,000 1,000,000 parts Inspection Inspections 300,000 500 inspections If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is b. $240 per order. For its inspecting cost pool, Davidson, Inc. expected overhead cost of $200,000 and 4,000 inspections. The actual overhead cost for that cost pool was $240,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is c. $50 per inspection. Ben Gordon, Inc. manufactures 2 products, wheels and seats. The company has estimated its overhead in the assembling department to be $165,000. The company produces 300,000 wheels and 600,000 seats each year. Each wheel uses 2 parts, and each seat uses 3 parts. How much of the assembly overhead should be allocated to wheels? a. $41,250. Clemson Co. incurs $350,000 of overhead costs each year in its three main departments, machining ($200,000), inspections ($100,000) and packing ($50,000). The machining department works 4,000 hours per year, there are 500 inspections per year, and the packing department packs 500 orders per year. Information about Clemson’s two products is as follows: Machining hours Product X 1,000 Product Y 3,000 Inspections 100 500 Orders packed 350 650 Direct labor hours 1,700 1,800 If traditional costing based on direct labor hours is used, how much overhead is assigned to Product X this year? c. $170,000 Johnstone Company manufactures two products, Board 12 and Case 165. Johnstone's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Case 165 using activity-based costing is b. $2,304,000. Which of the following is a value-added activity? b. Machining Two costs at Bradshaw Company appear below for specific months of operation. Month Amount Units Produced Delivery costs September $ 40,000 40,000 October 55,000 60,000 Utilities September $ 84,000 40,000 October 126,000 60,000 Which type of costs are these? d. Delivery costs are mixed and utilities are variable. In applying the high-low method, what is the unit variable cost? Month Miles Total Cost January 80,000 $ 96,000 February 50,000 80,000 March 70,000 94,000 April 90,000 140,000 b. $1.50 In applying the high-low method, what is the fixed cost? Month January Miles 80,000 Total Cost $144,000 February 50,000 120,000 March 70,000 141,000 April 90,000 195,000 a. $26,250 Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $14 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio? b. 30% Dunbar Manufacturing’s variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $33,000. If sales are expected to increase $60,000, by how much will the company's net income increase? d. $9,000 Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $110, and the total monthly fixed costs are $300,000. How much is Weatherspoon’s contribution margin ratio? a. 45% Zehms, Inc. has a contribution margin per unit of $30 and a contribution margin ratio of 60%. How much is the selling price of each unit. $50 The following information is available for Wade Corp.: Sales $800,000 Total fixed expenses $200,000 Cost of goods sold 520,000 Total variable expenses 480,000 A CVP income statement would report d. contribution margin of $320,000. O’Malley Company sells 100,000 units for $18 a unit. Fixed costs are $420,000 and net income is $300,000. What should be reported as variable expenses in the CVP income statement? b. $1,080,000. Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $60,000. What sales are needed by Cunningham to break even? c. $180,000. Gall Manufacturing sells a product for $50 per unit. The fixed costs are $525,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price. The new break-even point in units is: b. 26,000. Montoya Manufacturing has fixed costs of $1,800,000 and variable costs are 40% of sales. What are the required sales if Montoya desires net income of $180,000? a. $3,300,000 Danny’s Lawn Equipment has actual sales of $400,000 and a break-even point of $280,000. How much is its margin of safety ratio? a. 30% The following monthly data are available for Seasons Company which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $70,000; Actual sales for the month of June, 3,000 units. How much is the margin of safety for the company for June? b. $21,000 Problem 1 Sandburg Manufacturing manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for the production of 2,000 units. The Utilities and Maintenance are mixed costs. The fixed portions of these costs are $200 and $300, respectively. Costs Incurred Production in Units 2,000 3,000 Production Costs a. Direct Materials $ 4,000 ? b. Direct Labor 16,000 ? c. Utilities 1,200 ? d. Rent 3,000 ? e. Indirect Labor 4,600 ? f. Supervisory Salaries 1,500 ? g. Maintenance 900 ? h. Depreciation 2,500 ? Instructions Calculate the expected costs to be incurred when production is 3,000 units. Use your knowledge of cost behavior to determine which of the other costs are fixed or variable. Costs Incurred Production in Units Production Costs 2,000 3,000 a. Direct Materials $ 4,000 $ 6,000 b. Direct Labor 16,000 24,000 c. Utilities 1,200 1,700 d. Rent 3,000 3,000 e. Indirect Labor 4,600 6,900 f. Supervisory Salaries 1,500 1,500 g. Maintenance 900 1,200 h. Depreciation 2,500 2,500 a. Variable $4,000 ÷ 2,000 = $2.00 per unit; 3,000 × $2.00 = $6,000 b. Variable $16,000 ÷ 2,000 = $8.00 per unit; 3,000 × $8.00 = $24,000 c. Mixed $1,200 – $200 = $1,000; $1,000 ÷ 2,000 = $.50 per unit of variable costs; 3,000 × $.50 = $1,500 + $200 (fixed) = $1,700 d. Fixed $3,000 e. Variable $4,600 ÷ 2,000 = $2.30 per unit; 3,000 × $2.30 = $6,900 f. Fixed $1,500 g. Mixed $900 – $300 = $600 variable portion; $600 ÷ 2,000 = $.30 3,000 × $.30 = $900 + $300 (fixed portion) = $1,200 h. Fixed $2,500 Problem 2 Corris Co. accumulates the following data concerning a mixed cost, using miles as the activity level. Miles Driven Total Cost January 10,000 $15,000 February 8,000 13,500 March 9,000 14,400 April 7,500 12,000 Instructions Compute the variable and fixed cost elements using the high-low method. Solution (5 min.) $15,000 – $12,000 10,000 – 7,500 ($1.20 x 10,000) + fixed cost = $15,000 Fixed cost = $3,000 = $1.20 = variable cost per mile Problem 3 In the month of September, Matlock Industries sold 800 units of product. The average sales price was $30. During the month, fixed costs were $7,200 and variable costs were 70% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units. (a) Contribution margin (in dollars) Sales (800 × $30) $24,000 Less: Variable costs ($24,000 × 70%) 16,800 Contribution margin $ 7,200 Contribution margin per unit Unit sales price $30 Less: Variable cost per unit ($30 × 70%) 21 Contribution margin per unit $ 9 Contribution margin ratio $9 ÷ $30 = 30% (b) Break-even sales (in dollars) Fixed costs ÷ Contribution margin ratio $7,200 ÷ 30% = $24,000 Break-even sales (in units) Fixed costs ÷ Contribution margin per unit $7,200 ÷ $9 = 800 units Woolford’s CVP income statement included sales of 3,000 units, a selling price of $50, variable expenses of $30 per unit, and net income of $25,000. Fixed expenses are a. $35,000. In 2011, Hagar Corp. sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $390,000. The same variable expenses per unit and fixed expenses are expected for 2012. If Hagar cuts selling price by 4%, what is Hagar’s break-even point in units for 2012? d. 3,000 In 2011, Carow sold 3,000 units at $500 each. Variable expenses were $250 per unit, and fixed expenses were $200,000. The same selling price is expected for 2012. Carow is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Carow’s break-even point in units for 2012? a. 800 Capitol Manufacturing sells 2,000 units of Product A annually, and 3,000 units of Product B annually. The sales mix for Product A is a. 40%. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $36 and a selling price of $60. Q-Chip Plus has variable costs per unit of $42 and a selling price of $78. Ramirez’s fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point? a. 5,063 Greg’s Breads can produce and sell only one of the following two products: Oven Hours Required Contribution Margin Per Unit Muffins 0.2 $3 Coffee Cakes 0.3 $4 The company has oven capacity of 900 hours. How much will contribution margin be if it produces only the most profitable product? c. $13,500 Use the following information for questions 8 and 9. Mercantile Corporation has sales of $1,250,000, variable costs of $650,000, and fixed costs of $480,000. Mercantile’s degree of operating leverage is d. 5.00. Mercantile’s margin of safety ratio is b. .20. When production exceeds sales, a. some fixed manufacturing overhead costs are deferred until a future period under Problem 1 Qwik Service has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change-related services represent 70% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 30% of its sales and provides a 60% contribution margin ratio. The company's fixed costs are $12,000,000 (that is, $60,000 per service outlet). Instructions (a) Calculate the dollar amount of each type of service that the company must provide in order to break even. (b) The company has a desired net income of $40,000 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet? Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics Solution (12–15 min.) (a) Weighted-Average Sales Mix Contribution Contribution Percentage Margin Ratio Margin Ratio Oil changes 70% × 20% .14 Brake repair 30% × 60% . 18 . 32 Total break-even sales in dollars = $12,000,000  .32 = $37,500,000 Sales Mix Percentage Total Break-even Sales in Dollars Sales Dollars Needed Per Product Oil changes 70% × $37,500,000 Brake repair 30% × $37,500,000 Total sales $37,500,000 (b) Sales to achieve target net income = ($60,000 + $40,000)  .32 = $312,500 Sales Dollars Sales Mix Total Needed Per Product Percentage Sales Needed Per Store Oil changes 70% × $312,500 Brake repair 30% × $312,500 Total sales $312,500 If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 360,000 pounds are required for January production, how many pounds of raw materials should be purchased in January? d. 420,000 pounds The following information is taken from the production budget for the first quarter: Beginning inventory in units 1,200 Sales budgeted for the quarter 456,000 Capacity in units of production facility 472,000 How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter? a. 458,000 The production budget shows expected unit sales are 50,000. The required production units are 52,000. What are the beginning and desired ending finished goods units, respectively? Beginning Units Ending Units b. 3,000 5,000 The direct materials budget shows: Units to be produced 3,000 Total pounds needed for production 12,000 Total materials required 13,200 What are the direct materials per unit? b. 4.0 pounds If the required direct materials purchases are 18,000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? c. 27,000 Strand Company is planning to sell 200 buckets and produce 190 buckets during March. Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Strand has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March? c. $1,425 Teller Co. is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory. What is the total amount to be budgeted for direct labor for the month? a. $1,740 Teller Co. is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory. What is the total amount to be budgeted in pounds for direct materials to be purchased for the month? c. 25,920 Comma Co. makes and sells widgets. The company is in the process of preparing its Selling and Administrative Expense Budget for the month. The following budget data are available: Item Variable Cost Per Unit Sold Monthly Fixed Cost Sales commissions $1 $7,500 Shipping $3 Advertising $4 Executive salaries $90,000 Depreciation on office equipment $3,000 Other $2 $4,500 Expenses are paid in the month incurred. If the company has budgeted to sell 60,000 widgets in October, how much is the total budgeted selling and administrative expenses for October? a. $705,000 Bear, Inc. estimates its sales at 100,000 units in the first quarter and that sales will increase by 10,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Cash collections for the third quarter are budgeted at c. $4,137,000. Garnett Co. expects to purchase $90,000 of materials in July and $105,000 of materials in August. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be? c. $101,250 What is the proper preparation sequencing of the following budgets? 1. Budgeted Balance Sheet 2. Sales Budget 3. Selling and Administrative Budget 4. Budgeted Income Statement c. 2, 3, 4, 1 Kam Department Store reported the following information for 2012: October November December Budgeted sales $930,000 $870,000 $1,080,000 • All sales are on credit. • Customer amounts on account are collected 50% in the month of sale and 50% in the following month. How much cash will Kam receive in November? c. $900,000 The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected: Indirect labor $480,000 Machine supplies 120,000 Indirect materials 140,000 Depreciation on factory building 100,000 Total manufacturing overhead $840,000 A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of a. $988,000. Boland Manufacturing prepared a 2012 budget for 60,000 units of product. Actual production in 2012 was 65,000 units. To be most useful, what amounts should a performance report for this company compare? b. The actual results for 65,000 units with a new budget for 65,000 units. If a company plans to sell 24,000 units of product but sells 30,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on c. 30,000 units of activity. Best Shingle's budgeted manufacturing costs for 25,000 squares of shingles are: Fixed manufacturing costs $12,000 Variable manufacturing costs $16.00 per square Best produced 20,000 squares of shingles during March. How much are budgeted total manufacturing costs in March? d. $332,000 Chambers, Inc. uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is: $32,000 variable and $90,000 fixed. If Chambers had actual overhead costs of $125,000 for 9,000 units produced, what is the difference between actual and budgeted costs? b. $1,000 favorable. Grown Industries reported the following items for 2012: Income tax expense $ 45,000 Contribution margin 150,000 Controllable fixed costs 60,000 Interest expense 30,000 Total operating assets 325,000 How much is controllable margin? b. $90,000 Lew Co. had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company’s operating assets total $800,000, and its required return is 10%. How much is the residual income? b. $20,000 Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $3 per pound, but a 2% discount is usually taken. Freight costs are $.15 per pound, and receiving and handling costs are $.10 per pound. The hourly wage rate is $10.00 per hour, but a raise which will average $.25 will go into effect soon. Payroll taxes are $1.00 per hour, and fringe benefits average $2.00 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. 1. The standard direct materials price per pound is c. $3.19 2. The standard direct materials quantity per unit is d. 3.0 pounds. 3. The standard direct labor rate per hour is d. $13.25. 4. The standard direct labor hours per unit is d. 1.3 hours. 5. Scorpion Production Company planned to use 1 yard of plastic per unit budgeted at $81 a yard. However, the plastic actually cost $80 per yard. The company actually made 1,300 units, although it had planned to make only 1,100 units. Total yards used for production were 1,320. How much is the total materials variance? d. $300 U 7. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 5,600 gallons of direct materials that actually cost $21,200 were used to produce 3,000 units of product. The direct materials quantity variance for last month was a. $1,600 favorable. 8. The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in producing 1,200 units, the actual direct labor cost was $25,600 for 2,000 direct labor hours worked, the total direct labor variance is b. $3,200 favorable. 9. The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was $58,800 for 6,000 direct labor hours worked, the direct labor price (rate) variance is b. $1,200 favorable. The standard number of hours that should have been worked for the output attained is 6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If the direct labor price variance was $3,150 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the actual rate of pay for direct labor? c. $9.50 per direct labor hour The total variance is $30,000. The total materials variance is $12,000. The total labor variance is twice the total overhead variance. What is the total overhead variance? b. $6,000 Monster Company produces a product requiring 3 direct labor hours at $20.00 per hour. During January, 2,000 products are produced using 6,300 direct labor hours. Monster’s actual payroll during January was $122,850. What is the labor quantity variance? d. $6,000 U If a company purchases raw materials on account for $13,220 when the standard cost is $12,600, it will a. debit Materials Price Variance for $620. If a company incurs direct labor cost of $41,000 when the standard cost is $42,000, it will b. credit Labor Price Variance for $1,000. It costs Ross Co. $24 of variable and $10 of fixed costs to produce one bathroom scale which normally sells for $70. A foreign wholesaler offers to purchase 2,000 scales at $30 each. Ross would incur special shipping costs of $2 per scale if the order were accepted. Ross has sufficient unused capacity to produce the 2,000 scales. If the special order is accepted, what will be the effect on net income? a. $8,000 increase Seasons Manufacturing manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: d. Income would increase by $40,000. In incremental analysis, b. all costs are relevant if they change between alternatives. Carter, Inc. can make 100 units of a necessary component part with the following costs: Direct Materials $120,000 Direct Labor 20,000 Variable Overhead 60,000 Fixed Overhead 40,000 If Carter purchases the component externally, $30,000 of the fixed costs can be avoided. At what external price for the 100 units is the company indifferent between making or buying? c. $230,000 Carter, Inc. can make 100 units of a necessary component part with the following costs: Direct Materials $120,000 Direct Labor 20,000 Variable Overhead 60,000 Fixed Overhead 40,000 If Carter can purchase the component externally for $220,000 and only $10,000 of the fixed costs can be avoided, what is the correct make-or-buy decision? a. Make and save $10,000 Mink Manufacturing is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $60 and Mink would sell it for $130. The cost to assemble the product is estimated at $42 per unit and the company believes the market would support a price of $170 on the assembled unit. What decision should Mink make? a. Sell before assembly, the company will be better off by $2 per unit. Maynard, Inc. has old inventory on hand that cost $24,000. Its scrap value is $32,000. The inventory could be sold for $80,000 if manufactured further at an additional cost of $24,000. What should Maynard do? d. Manufacture further and sell it for $80,000 Begley, Inc. is contemplating the replacement of an old machine with a new one. The following information has been gathered: If the old machine is replaced, it can be sold for $20,000. Which of the following amounts is a sunk cost? d. $175,000 Justin Industries produces three versions of tires: Supreme, Advanced, and Basic. A condensed segmented income statement for a recent period follows: Supreme Advanced Basic Total Sales $1,000,000 $400,000 $130,000 $1,530,000 Variable expenses 650,000 280,000 116,000 1,046,000 Contribution margin 350,000 120,000 14,000 484,000 Fixed expenses 150,000 70,000 44,000 264,000 Net income (loss) $200,000 $ 50,000 $(30,000) $220,000 Assume none of the fixed expenses for the Basic line are avoidable. What will be total net income if the line is dropped? b. $206,000 Justin Industries produces three versions of tires: Supreme, Advanced, and Basic. A condensed segmented income statement for a recent period follows: Supreme Advanced Basic Total Sales $1,000,000 $400,000 $130,000 $1,530,000 Variable expenses 650,000 280,000 116,000 1,046,000 Contribution margin 350,000 120,000 14,000 484,000 Fixed expenses 150,000 70,000 44,000 264,000 Net income (loss) $200,000 $ 50,000 $(30,000) $220,000 Assume all of the fixed expenses for the Basic line are avoidable. What will be total net income if the line is dropped? a. $250,000 Parker Company’s contribution margin is $8 per unit for Product A and $10 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product? A B b. $4.00 $2.50 If an asset cost $420,000 and is expected to have a $60,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $60,000 each year, the cash payback period is b. 7 years. Use the following table, Present Value of an Annuity of 1 Period 8% 9% 10% 1 .926 .917 .909 2 1.783 1.759 1.736 3 2.577 2.531 2.487 A company has a minimum required rate of return of 8% and is considering investing in a project that costs $136,674 and is expected to generate cash inflows of $54,000 each year for three years. The approximate internal rate of return on this project is b. 9%. Taffy Industries is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Taffy Industries requires a 10% rate of return. Present Value of an Annuity of 1 Period 8% 9% 10% 11% 12% 15% 6 4.623 4.486 4.355 4.231 4.111 3.784 What is the approximate net present value of this investment? b. $3,584