Use the following to answer questions 1-4:
Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year.
Direct materials quantity standard 3 pounds per product
Direct labor time standard 5 hours per product
Direct materials price standard $10 per pound
Direct labor rate standard $ 9 per hour
Standard variable overhead rate $ 5 per labor hour
Standard fixed overhead rate $10 per labor hour
1. The standard unit cost for direct materials is
A) $50.
B) $10.
C) $30.
D) $27.
2. The standard unit cost for direct labor is
A) $45.
B) $27.
C) $135.
D) $9.
3. The standard unit cost for overhead is
A) $15.
B) $25.
C) $75.
D) $50.
4. The total standard unit cost is
A) $105.
B) $150.
C) $260.
D) $34.
5. Lucas Company has set standards for the manufacturing of clay pots to be 2 pounds of direct materials, per pot, at a cost of $3 per pound. During the current period, 600 pounds of direct materials were purchased for $1962. All of the direct materials were used to manufacture 295 pots. Lucas's direct materials price variance was
A) $192 (F).
B) $162 (U).
C) $192 (U).
D) zero.
6. The direct materials standards for the main product of Duchess Company are 8 grams of direct materials per product at a cost of $3 per gram. During April, 974 grams of direct materials were used to produce 120 products at a direct materials cost of $2,900. The direct materials quantity variance for April was
A) $72 (U).
B) $92 (U).
C) $42 (U).
D) $112 (F).
7. Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct labor rate variance.
Direct labor hours used 4,950 hours
Total cost of direct labor $53,460
Number of good units produced 9,000 units
A) $4,500 (F)
B) $4,500 (U)
C) $3,960 (U)
D) $3,960 (F)
8. Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct labor variance.
Direct labor hours used 4,950 hours
Total cost of direct labor $53,460
Number of good units produced 9,000 units
A) $3,960 (U)
B) $8,460 (F)
C) $3,960 (F)
D) $8,460 (U)
9. Harrison, Inc., has computed direct labor standards for the manufacture of its product to be 4 hours of labor per product at a cost of $15 per hour. During March, Harrison produced 45 products in 190 hours and incurred direct labor costs of $2,720. Harrison's direct labor efficiency variance was
A) $20 (U).
B) $130 (U).
C) $150 (U).
D) $130 (F).
10. Underfoot Products uses standard costing. The following information about overhead was generated during May:
Standard variable overhead rate $2 per machine hour
Standard fixed overhead rate $1 per machine hour
Actual variable overhead costs $399,000
Actual fixed overhead costs $175,000
Budgeted fixed overhead costs $190,000
Standard machine hours per unit produced 10
Good units produced 18,000
Actual machine hours 200,000
Compute the variable overhead spending variance.
A) $21,000 (F)
B) $1,000 (U)
C) $1,000 (F)
D) $31,000 (F)
11. Underfoot Products uses standard costing. The following information about overhead was generated during May:
Standard variable overhead rate $2 per machine hour
Standard fixed overhead rate $1 per machine hour
Actual variable overhead costs $390,000
Actual fixed overhead costs $175,000
Budgeted fixed overhead costs $190,000
Standard machine hours per unit produced 10
Good units produced 18,000
Actual machine hours 190000
Compute the variable overhead efficiency variance.
A) $40000 (U)
B) $40000 (F)
C) $30000 (F)
D) $20000 (U)
12. Underfoot Products uses standard costing. The following information about overhead was generated during May:
Standard variable overhead rate $2 per machine hour
Standard fixed overhead rate $1 per machine hour
Actual variable overhead costs $390,000
Actual fixed overhead costs $175,000
Budgeted fixed overhead costs $190,000
Standard machine hours per unit produced 10
Good units produced 18,000
Actual machine hours 200,000
Compute the fixed overhead budget variance.
A) $5,000 (U)
B) $5,000 (F)
C) $15,000 (F)
D) $10,000 (F)
13. Underfoot Products uses standard costing. The following information about overhead was generated during May:
Standard variable overhead rate $2 per machine hour
Standard fixed overhead rate $1 per machine hour
Actual variable overhead costs $390,000
Actual fixed overhead costs $175,000
Budgeted fixed overhead costs $190,000
Standard machine hours per unit produced 10
Good units produced 18,000
Actual machine hours 200,000
Compute the fixed overhead volume variance.
A) $5,000 (U)
B) $10,000 (F)
C) $10,000 (U)
D) $15,000 (F)
14. Point Company uses the standard costing method. The company's main product is a fine-quality audio speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours, and budgeted fixed overhead costs for the year were $6,750. During the year, the company produced and sold 8,000 units. Actual fixed overhead costs were $4,800. Compute the fixed overhead budget variance.
A) $300 (F)
B) $300 (U)
C) $1,950 (U)
D) $1,950 (F)
15. Point Company uses the standard costing method. The company's main product is a fine-quality audio speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours, and budgeted fixed overhead costs for the year were $6,750. During the year, the company produced and sold 8,000 units. Actual fixed overhead costs were $4,800. Compute the fixed overhead volume variance.
A) $300 (U)
B) $300 (F)
C) $1,950 (U)
D) $2,250 (U)
16. The purpose of incremental analysis is to find the alternative
A) with the fewest relevant costs.
B) that brings in the most revenue.
C) that contributes the most to profits.
D) with the lowest fixed costs.
Use the following to answer question 17:
Taylor manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows:
Direct materials, $24,000
Direct labor, $66,000
Variable overhead, $54,000
Fixed overhead, $84,000
Best Guitars, Inc., has offered to sell 12,000 units of the same part to Taylor for $22 per unit. If Taylor were to accept the offer, some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000. Moreover, $5 per unit of the fixed overhead applied to the part would be totally eliminated.
17. What should Taylor's decision be, and what is the total cost savings that would result?
A) Make, $43,800
B) Buy, $43,800
C) Make, $64,000
D) Buy, $61,800
Use the following to answer question 18:
The Norran Company needs 15,000 units of a certain part to use in its production cycle. If Norran buys the part from Waterloo Company instead of making it, Norran could not use the released facilities in another activity; thus, all of the fixed overhead applied will continue regardless of what decision is made. Accounting records provide the following data:
Cost to Norran to make the part:
Direct materials, $3
Direct labor, $12
Variable overhead, $13
Fixed overhead applied, $8
Cost to buy the part from the Waterloo Company, $27
18. What should Norran's decision be, and what is the total cost savings that would result?
A) Buy, $90,000
B) Buy, $15,000
C) Make, $90,000
D) Make, $15,000
19. Products Uno, Dos, Tres, and Quatro have contribution margins of $2, $3, $4, and $5, respectively, and require 1.5, 2, 2.5, and 3 machine hours per unit, respectively. Assuming that all units produced could be sold and that total machine hours per month are limited, on which product should the company concentrate its efforts?
A) Uno
B) Quatro
C) Dos
D) Tres
20. Candidates for outsourcing would include
A) custodial services.
B) payroll processing.
C) information management.
D) all of these.
21. The normal selling price of our product is $42 per unit. The costs of production are direct materials, $8; direct labor, $6; variable overhead, $7; and fixed overhead, $4 (based on normal capacity). The company has received a special order for 11,700 units at a unit sales price of $23. There is ample unused capacity to fill the order and $1 per unit will be incurred for additional freight costs. If the order is accepted, operating income will
A) increase by $11,700.
B) decrease by $35,100.
C) decrease by $23,400.
D) increase by $23,400.
Use the following to answer question 22:
Anderson Co. makes and uses 5,000 components each year in its manufacturing operations. An outside supplier has offered to supply the components to Anderson at $66 per unit. Anderson's production costs are as follows:
Direct materials $ 8
Direct labor 32
Variable overhead 12
Fixed overhead (based on normal capacity) 34
If Anderson accepts the order, $8 of fixed overhead per unit will be eliminated.
22. If the offer is accepted, operating income will
A) increase by $100,000.
B) decrease by $70,000.
C) decrease by $30,000.
D) increase by $60,000.
23. A company is considering a project with annual after-tax cash flows of $3,900.00 per year for six years. The company's cost of capital is 14 percent. Present and future value factors for a 14 percent interest rate for six years are as follows:
Future value of $1 2.195
Present value of $1 0.456
Future value of a series of equal payments 8.536
Present value of a series of equal payments 3.889
Using the net present value method, what is the maximum amount that the company should invest?
A) $1778.40
B) $33,290.40
C) $8,560.50
D) $15,167.10
24. Omaha, Inc., is expected to have the following cash revenues and expenses (other than depreciation) in 20x7:
Sales $88,000 Depreciation expense $ 5,000
Selling, general, and Income tax expense 3,000
administrative expenses Cost of goods sold 45,000
(excluding depreciation) 10,000
Omaha's estimated 20x7 net cash flows are
A) $25,000.
B) $27,000.
C) $20,000.
D) $30,000.
Use the following to answer questions 25-26:
Chicago Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000 and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company's minimum rate of return is 10 percent. The present value of $1 for eight years at 10 percent is 0.467, and the present value of an annuity of $1 at 10 percent and eight years is 5.335.
25. The net present value of the project is
A) $74,520.
B) $120,100.
C) $93,400.
D) $22,740.
26. The project earns a rate of return of
A) Unable to determine from the data given
B) less than 10 percent.
C) greater than 10 percent.
D) 10 percent.
Use the following to answer questions 27-28:
Memphis Co. is going to purchase a machine for $83,200 that will increase cash flows by $40,000 in the first year, $30,000 the second year, and $25,000 the third year. The machine will have no residual value. The minimum rate of return is 10 percent. The present value factors for the three years are 0.909, 0.826, and 0.751, respectively.
27. The machine's net present value is
A) $21,800.
B) ($4,286).
C) $79,915.
D) ($3,285).
28. The machine's actual rate of return is
A) Unable to determine from the data given
B) less than 10 percent.
C) greater than 10 percent.
D) 10 percent.
29. Boston Corp. is evaluating three projects. Each project will return a total of $600,000 to the company in cash flows over a three-year period. The cash flows for the three projects are as follows:
Year 1 Year 2 Year 3 Total
Project A $300,000 $200,000 $100,000 $600,000
Project B 200,000 200,000 200,000 600,000
Project C 100,000 200,000 300,000 600,000
Which project represents the best investment for Boston?
A) Project A
B) Project B
C) Project C
D) All projects are equally good investments.
Use the following to answer questions 30-31:
Seattle, Inc., is contemplating a project that costs $180,000. Expectations are that annual cash revenues will be $70,000 and annual expenses (including depreciation) will total $30,000. The project has a six-year useful life and a residual value of $30,000.
30. The accounting rate of return for the project is
A) 66.7 percent.
B) 38.1 percent.
C) 53.3 percent.
D) 22.2 percent.
31. The project's payback period is
A) 2.31 years.
B) 2.57 years.
C) 2.14 years.
D) 2.77 years.
Use the following to answer questions 32-34:
The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision:
Direct service labor $333,000.00
Variable service overhead costs 270,000.00
Fixed service overhead costs 280,000.00
Marketing expenses 120,000.00
General and administrative expenses 170,000.00
Minimum profit 90,000.00
Cost of assets employed 500,000.00
Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets.
32. The price to be charged for inspecting each automobile using the return on assets pricing method would be calculated as follows:
A) ($883,000.00 ÷ 100,000) + {($883,000.00 ÷ 100,000) × [($90,000 + $290,000) ÷ $883,000.00]}
B) ($1,173,000.00 ÷ 100,000) + [($1,173,000.00 ÷ 100,000) × ($90,000 ÷ $1,173,000.00)]
C) ($1,173,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) × 0.1875]
D) None of these
33. The price to be charged for inspecting each automobile using the time and materials pricing method would be calculated as follows:
A) ($883,000.00 ÷ 100,000) + {($883,000.00 ÷ 100,000) × [($90,000 + $290,000) ÷ $883,000.00]}
B) ($1,173,000.00 ÷ 100,000) + [($1,173,000.00 ÷ 100,000) × ($90,000 ÷ $1,173,000.00)]
C) ($1,173,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) × 0.1875]
D) None of these
34. The price to be charged for inspecting each automobile using the gross margin pricing method would be calculated as follows:
A) ($1,173,000.00 ÷ 100,000) + [($1,173,000.00 ÷ 100,000) × ($90,000 ÷ $1,173,000.00)]
B) ($1,173,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) × 0.1875]
C) ($883,000.00 ÷ 100,000) + {($883,000.00 ÷ 100,000) × [($90,000 + $290,000) ÷ $883,000.00]}
D) None of these
35. The pricing method that establishes selling prices based on a stipulated rate above total production costs is
A) return on assets pricing.
B) target cost pricing.
C) gross margin pricing.
D) time and materials pricing.
36. The pricing method that is used primarily by service businesses is
A) return on assets pricing.
B) gross margin pricing.
C) target cost pricing.
D) time and materials pricing.
37. The pricing method that establishes selling prices based on a specified rate of return on the assets employed in the operation is
A) target cost pricing.
B) return on assets pricing.
C) time and materials pricing.
D) gross margin pricing.
38. Which of the following is not a cost-based pricing method?
A) Target costing
B) Time and materials pricing
C) Return on assets pricing
D) Gross margin pricing
39. Market research shows potential customers will buy a particular product at a selling price of $3,700. If the desired profit is 28 percent of target cost, the company should make the product if the cost does not exceed
A) $3,700.
B) $1,036.
C) $2,664.
D) $2,891.
40. Which of the following is not one of the three commonly used methods for determining transfer prices?
A) Dictated
B) Negotiated
C) Cost-plus
D) Market-based