# AC505 Week 8 Final Exam

AC505 Week 8 Final Exam

1. Problem:

Sales

\$31,800

Purchases of direct materials

7,000

Direct labor

5,000

Work in process inventory, 1/1

800

Work in process inventory, 12/31

3,000

Finished goods inventory, 1/1

4,000

Finished goods inventory, 12/31

5,300

Accounts payable, 1/1

1,700

Accounts payable, 12/31

1,500

Direct materials inventory, 1/1

6,000

Direct materials inventory, 12/31

1,000

Indirect labor

600

Indirect materials used

500

Utilities expense, factory

1,900

Depreciation on factory equipment

3,500

Gross Margin  _________________

1. Which costs will change with a decrease in activity within the relevant range?

1. A) Total fixed costs and total variable cost.

1. B) Unit fixed costs and total variable cost.

1. C) Unit variable cost and unit fixed cost.

1. D) Unit fixed cost and total fixed cost

1. An increase in the activity level within the relevant range results in:

1. A) an increase in fixed cost per unit.

1. B) a proportionate increase in total fixed costs.

1. C) an unchanged fixed cost per unit.

1. D) a decrease in fixed cost per unit.

1. The gross margin of Evans Retail Stores, Inc. for the first quarter is:

1. A) \$210,000.

1. B) \$140,000.

1. C) \$220,000.

1. D) \$190,000

1. The contribution margin of Evans Retail Stores, Inc. for the first quarter is:

1. A) \$300,000.

1. B) \$140,000.

1. C) \$210,000.

1. D) \$190,000

1. The total contribution margin decreases if sales volume remains the same and:

1. A) fixed expenses increase.

1. B) fixed expenses decrease.

1. C) variable expense per unit increases.

1. D) variable expense per unit decreases.

1. A company has provided the following data:

Sales 3,000 units

Sales price \$70 per unit

Variable cost \$50 per unit

Fixed cost \$25,000

If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net income will:

1. A) decrease by \$31,875.

1. B) decrease by \$15,000.

1. C) increase by \$20,625.

1. D) decrease by \$3,125

1. Wallace, Inc., prepared the following budgeted data based on a sales forecast of \$6,000,000:

Variable Fixed

Direct materials \$1,600,000

Direct labor 1,400,000

Factory overhead 600,000 \$ 900,000

Selling expenses 240,000 360,000

Administrative expenses 60,000 140,000

Total \$3,900,000 \$1,400,000

What would be the amount of sales dollars at the break-even point?

1. A) \$2,250,000

1. B) \$3,500,000

1. C) \$4,000,000

1. D) \$5,300,000

1. The following information pertains to Rica Company:

Sales (50,000 units) \$1,000,000

Manufacturing costs:

Variable 340,000

Fixed 70,000

Selling and admin. expenses:

Variable 10,000

Fixed 60,000

How much is Rica’s break-even point in number of units?

1. A) 9,848

1. B) 10,000

1. C) 18,571

1. D) 26,000

1. The variable expense per unit is:

1. A) \$31.20.

1. B) \$24.00.

1. C) \$36.00.

1. D) \$28.80

1. The break-even point in sales dollars is:

1. A) \$48,000.

1. B) \$72,000.

1. C) \$28,800.

1. D) \$0.

1. An allocated portion of fixed manufacturing overhead is included in product costs under:

Absorption Variable

Costing costing

1. A) No No

1. B) No Yes

1. C) Yes No

1. D) Yes Yes

1. What is the unit product cost for the month under variable costing?

1. A) \$69

1. B) \$84

1. C) \$89

1. D) \$74

1. What is the unit product cost for the month under absorption costing?

1. A) \$74

1. B) \$89

1. C) \$69

1. D) \$84

1. What is the net income for the month under variable costing?

1. A) \$10,600

1. B) (\$17,000)

1. C) \$16,600

1. D) \$6,000

1. What is the net income for the month under absorption costing?

1. A) (\$17,000)

1. B) \$16,600

1. C) \$6,000

1. D) \$10,600

1. Orion Corporation is preparing a cash budget for the six months beginning January 1. Shown below are the company’s expected collection pattern and the budgeted sales for the period.

Expected collection pattern:

65% collected in the month of sale

20% collected in the month after sale

10% collected in the second month after sale

4% collected in the third month after sale

1% uncollectible

Budgeted sales:

January \$160,000

February 185,000

March 190,000

April 170,000

May 200,000

June 180,000

The estimated total cash collections during April from sales and accounts receivables would be:

1. A) \$155,900.

1. B) \$167,000.

1. C) \$171,666.

1. D) \$173,400.

1. Avril Company makes collections on sales according to the following schedule:

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

Cash collections in March should be budgeted to be:

1. A) \$110,000.

1. B) \$110,800.

1. C) \$105,000.

1. D) \$113,000.

1. A labor efficiency variance resulting from the use of poor quality materials should be charged to:

1. A) the production manager.

1. B) the purchasing agent.

1. C) manufacturing overhead.

1. D) the engineering department

1. An unfavorable labor efficiency variance indicates that:

1. A) The actual labor rate was higher than thBe standard labor rate.

1. B) The labor rate variance must also be unfavorable.

1. C) Actual labor hours worked exceeded standard labor hours for the production level achieved.

1. D) Overtime labor was used during the period.

1. A favorable labor rate variance indicates that

1. A) actual hours exceed standard hours.

1. B) standard hours exceed actual hours.

1. C) the actual rate exceeds the standard rate.

1. D) the standard rate exceeds the actual rate.

1. The materials price variance for January is:

1. A) \$1,640 F.

1. B) \$1,640 U.

1. C) \$1,700 F.

1. D) \$1,300 U.

1. The materials quantity variance for January is:

1. A) \$800 U.

1. B) \$300 U.

1. C) \$300 F.

1. D) \$750 F.

1. The labor rate variance for January is:

1. A) \$475 F.

1. B) \$475 U.

1. C) \$585 F.

1. D) \$585 U.

1. The labor efficiency variance for January is:

1. A) \$475 F.

1. B) \$350 U.

1. C) \$130 U.

1. D) \$110 F.

1. How much is the residual income?

1. A) \$40,000

1. B) \$50,000

1. C) \$10,000

1. D) \$80,000

1. How much is the return on the investment?

1. A) 25%

1. B) 20%

1. C) 5%

1. D) 40%

1. One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.

1. A) True

1. B) False

1. In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.

1. A) True

1. B) False

1. Some managers believe that residual income is superior to return on investment as a means of measuring performance, since it encourages the manager to make investment decisions that are more consistent with the interests of the company as a whole.

1. A) True

1. B) False

1. The performance of the manager of Division A is measured by residual income. Which of the following would increase the manager’s performance measure?

1. A) Increase in average operating assets.

1. B) Decrease in average operating assets.

1. C) Increase in minimum required return.

1. D) Decrease in net operating income.

1. A segment of a business responsible for both revenues and expenses would be called:

1. A) a cost center.

1. B) an investment center.

1. C) a profit center.

1. D) residual income.

1. The Northern Division of the Smith Company had average operating assets totaling \$150,000 last year. If the minimum required rate of return is 12%, and if last year’s net operating income at Northern was \$20,000, then the residual income for Northern last year was:

1. A) \$20,000.

1. B) \$l8,000.

1. C) \$5,000.

1. D) \$2,000.

1. Company A’s residual income is:

1. A) \$9,000.

1. B) \$21,000.

1. C) \$45,000.

1. D) \$24,000.

1. Gata Co. plans to discontinue a department that has a \$48,000 contribution margin and \$96,000 of fixed costs. Of these fixed costs, \$42,000 cannot be avoided. What would be the effect of this discontinuance on Gata’s overall net operating income?

1. A) Increase of \$48,000

1. B) Decrease of \$48,000

1. C) Increase of \$6,000

1. D) Decrease of \$6,000

1. Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is \$33, computed as follows:

Direct materials  \$12

Direct labor  8

Variable manufacturing overhead  3

Fixed manufacturing overhead  .  10

Unit product cost  \$33

An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only \$27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

1. A) \$3 advantage.

1. B) \$1 advantage.

1. C) \$1 disadvantage.

1. D) \$4 disadvantage.

1. Some investment projects require that a company expand its working capital to service the greater volume of business that will be generated. Under the net present value method, the investment of working capital should be treated as:

1. A) an initial cash outflow for which no discounting is necessary.

1. B) a future cash inflow for which discounting is necessary.

1. C) both an initial cash outflow for which no discounting is necessary and a future cash inflow for which discounting is necessary.

1. D) irrelevant to the net present value analysis.

1. Which of the following capital budgeting techniques consider(s) cash flow over the entire life of the project?

Internal rate of return  Payback

1. A) Yes Yes

1. B) Yes  No

1. C) No Yes

1. D) No No

1. The net present value of the project is closest to:

1. A) \$171,000.

1. B) \$136,400.

1. C) \$141,500.

1. D) \$560,000.

1. The payback period for the investment would be:

1. A) 41 years.

1. B) 25 years.

1. C) 10 years.

1. D) 4 years.

1. The net present value of this investment would be:

1. A) (\$14,350).

1. B) \$107,250.

1. C) \$77,200.

1. D) \$200,000.

Answer:  B  Initial investment of (200,000) + 50,000 X ,250

1. The Tse Manufacturing Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company’s Finished Goods inventory account was debited for \$125,000 and credited for \$110,000. The ending balance in the Finished Goods inventory account was \$28,000. At the end of the year, manufacturing overhead was overapplied by \$4,500. The balance in the Finished Goods inventory account at the beginning of the year was:

1. \$28,000

1. \$13,000

1. \$17,500

1. \$8,500

1. Matthias Corporation has provided data concerning the company’s Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was \$53,000 and the total of the credits to the account was \$69,000. Which of the following statements is true?

1. Manufacturing overhead applied to Work in Process for the month was \$69,000.

1. Manufacturing overhead for the month was underapplied by \$16,000.

1. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was \$53,000.

1. Actual manufacturing overhead incurred during the month was \$69,000.

1. Yoder Company uses the weighted-average method in its process costing system. The following data pertain to operations in the first processing department for a recent month:

What was the cost per equivalent unit for materials during the month?

1. \$0.30

1. \$0.25

1. \$0.20

1. \$0.15

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