Managment acc

True

False

4. At the end of the year, actual manufacturing overhead costs were

$

210,000 and applied manufacturing overhead costs were $146,400. If the denominator activity for the year was 20,000 machine-hours, and if 24,000 standard machine-hours were allowed for the year’s production, the predetermined overhead rate per machine-hour was: (Round your answer to 2 decimal places.)

$6.65

$6.10

$9.00

$9.50

5. Tidd Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in November.

  Originally budgeted output

9,600  

 units

Actual

output

9,700  

  Raw materials used in production

44,800  

  grams

  Purchases of raw materials

47,290  

  Actual direct labor-hours

7,860  

  hours

  Actual cost of raw materials purchases

$132,430  

  Actual direct labor cost

$125,123  

  Actual variable overhead cost

$29,896  

The company applies variable overhead on the basis of direct labor-hours. The direct materials price variance is computed when the materials are purchase

d.

The variable overhead efficiency variance for November is:

$5,350 U

$5,350 F

$6,099 F

$6,099 U

6. Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied on the basis of standard direct labor-hours. Each unit requires three standard hours of direct labor for completion. The denominator activity for the year was based on budgeted production of 230,000 units.

Total

overhead was budgeted at $930,000 for the year, and the fixed manufacturing overhead rate was $1.20 per direct labor-hour. The actual data pertaining to the manufacturing overhead for the year are presented below:

  Actual production

228,000  

470,000  

 direct labor-hours

  Actual variable manufacturing overhead

$382,000  

  Actual fixed manufacturing overhead

$578,000  

684,000

224,100

495,000

690,000

  Actual quantity of direct materials purchased

60,000  

 pounds

  Standard price of direct materials

$      8  

 per pound

  Material price variance

$6,000  

 unfavorable

The actual price per pound of direct materials purchased in September is: (Round your answer to 2 decimal places.)

$

8.00

$7.88

$8.12

$8.10

8. Hurren Corporation makes a product with the following standard costs:

  Inputs

  Direct materials

  3.5 grams

$7.00 per gram

$24.50        

  0.7 hours

$10.00 per hour

$

7.00  

$7.00 per hour

$4.90        

The company reported the following results concerning this product in June.

8,400  

8,300  

28,290  

5,500  

30,900  

  Actual price of raw materials purchased

$7.10  

  per gram

  Actual direct labor rate

$10.90  

 per hour

  Actual variable overhead rate

$6.70  

The labor rate variance for June is: (Round your intermediate calculations to 2 decimal places.)

$5,229 F

$5,229 U

$4,950 U

$4,950 F

9. The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:

•

Actual cost of direct material purchased and used: $151,040

Material price variance: $9,440 unfavorable

Total materials variance: $36,440 unfavorable

Standard cost per pound of material: $6

Standard cost per direct labor-hour: $6

Actual direct labor-hours: 14,580 hours

Labor efficiency variance: $4,

200

favorable

Standard number of direct labor-hours per unit of Roff: 4 hours

Total labor variance: $1,632 unfavorable

The actual direct labor rate per hour was: 

$6.40

$24.00

$6.00

10. Nutall Corporation is considering dropping product N28X. Data from the company’s accounting system appear below:

  Sales

760,000    

  Variable expense

351,000    

  Fixed manufacturing expenses

259,000    

  Fixed selling and administrative expense

207,000    

All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $200,500 of the fixed manufacturing expenses and $115,500 of the fixed selling and administrative expenses are avoidable if product N28X is discontinued.

Required:

a.

According to the company’s accounting system, what is the net operating income earned by product N28X? (Input the amount as a positive value. Omit the “$” sign in your response.)

 Net operating income/Net operating loss

$

b-1.

What would be the effect on the company’s overall net operating income of dropping product N28X? (Input the amount as a positive value. Omit the “$” sign in your response.)

  Net operating income would be by (increase/ decrease)$ .

b-2.

Should the product be dropped?

11. Costs associated with two alternatives, code-named Q and R, being considered by Corniel Corporation are listed below:

Alternative Q

Alternative R

  Supplies costs

61,000      

47,000      

  Power costs

28,000      

  Inspection costs

12,000      

22,000      

  Assembly costs

21,000      

a.

Which costs are relevant and which are not relevant in the choice between these two alternatives?

(relevant/not relevant) 

(relevant/not relevant)  

b.

What is the differential cost of Alternative R over Alternative Q? (Negative amount should be indicated by a minus sign. Omit the “$” signs in your response.)

  Differential cost

12. Block Corporation makes three products that use the current constraint, which is a particular type of machine. Data concerning those products appear below:

FX

JR

ZZ

  Selling price per unit

326.23

543.49

503.00

  Variable cost per unit

251.99

420.80

397.65

  Time on the constraint (minutes)

3.40

7.40

Rank the products in order of their current profitability from the most profitable to the least profitable (Most profitable = 1, Least profitable = 3) (Round your intermediate calculations to 2 decimal places.)

Ranking

    FX

(1/2/3) 

    JR

    ZZ

b.

Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your intermediate calculations and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Maximum amount

13. Silmon Corporation makes a product with the following standard costs:

Standard Price
or Rate

6.

1  

0.

4  

14.00  

2.00  

In June the company produced 5,400 units using 34,190 grams of the direct material and 2,700 direct labor-hours. During the month the company purchased 25,300 grams of the direct material at a price of $6.80 per gram. The actual direct labor rate was $14.60 per hour and the actual variable overhead rate was $1.90 per hour. The materials price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

 a.

 Direct materials quantity variance

(F/U/None)

 b.

 Direct materials price variance

c.

 Direct labor efficiency variance

 e.

 Direct labor rate variance

 d.

 Variable overhead efficiency variance

 f.

 Variable overhead rate variance

14. Portland Company’s Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant’s contribution format income statement for October. The statement is shown below:

Budgeted

  Sales (7,000 ingots)

310,000   

  Variable expenses:

     Variable cost of goods sold*

110

,810   

131,685   

  Variable selling expense

s

25,000   

25,000   

  Total variable expenses

135,810   

156,685   

  Contribution margin

174,190   

153,315   

  Fixed expenses:

     Manufacturing overhead

66,000   

     Selling and administrative

91,000   

91,000   

  Total fixed expenses

157,000   

157,000   

  Net operating income (loss)   

17,190   

(3,685)  

*Contains direct materials, direct labor, and variable manufacturing overhead.

     Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, “I sure hope the plant has a standard cost system in operation. If it doesn’t, I won’t have the slightest idea of where to start looking for the problem.”

     The plant does use a standard cost system, with the following standard variable cost per ingot:

   4.1 pounds

2.70 per pound

11.07   

   0.4 hours

8.20 per hour

3.28   

  Variable manufacturing overhead

   0.4 hours*

3.70 per hour

1.48   

  Total standard variable cost

15.83   

*Based on machine-hours.

During October the plant produced 7,000 ingots and incurred the following costs:

Purchased 33,700 pounds of materials at a cost of $3.15 per pound. There were no raw materials in inventory at the beginning of the month.

Used 28,500 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

c.

Worked 3,400 direct labor-hours at a cost of $7.90 per hour.

Incurred a total variable manufacturing overhead cost of $12,710 for the month. A total of 3,100 machine-hours was recorded.

It is the company’s policy to close all variances to cost of goods sold on a monthly basis.

1.

Compute the following variances for October:

Direct materials price and quantity variances. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

Direct labor rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Labor rate variance

  Labor efficiency variance

Variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round your intermediate calculations. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Variable overhead rate variance

   (U/F/None)

  Variable overhead efficiency variance

2a.

Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. (Input the amount as a positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Net variance

   (U/F/None)

3.

Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

Materials price variance

Labor efficiency variance

Variable overhead efficiency variance

Labor rate variance

Variable overhead rate variance

Materials quantity variance

15. Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta:

   1.

6 pounds

5.60

8.96     

   0.5 hours

11.70

5.85     

2.40

1.20     

16.01     

During June, the company recorded this activity related to production of Fruta:

The company produced 4,700 units during June.

A total of 12,640 pounds of material were purchased at a cost of $66,992.

There was no beginning inventory of materials; however, at the end of the month, 2,300 pounds of material remained in ending inventory.

The company employs 10 persons to work on the production of Fruta. During June, they worked an average of 185 hours at an average rate of $12.30 per hour.

Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $3,700.

The company’s management is anxious to determine the efficiency of Fruta production activities.

For direct materials:

Compute the price and quantity variances. (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

The materials were purchased from a new supplier who is anxious to enter into a long term purchase contract. Would you recommend that the company sign the contract?

Yes

No

2.

For labor employed in the production of Fruta:

Compute the rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

In the past, the 10 persons employed in the production of Fruta consisted of 4 senior workers and 6 assistants. During June, the company experimented with 5 senior workers and 5 assistants. Would you recommend that the new labor mix be continued?

3a.

Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

16. “It certainly is nice to see that small variance on the income statement after all the trouble we’ve had lately in controlling manufacturing costs,” said Linda White, vice president of Molina Company. “The $36,150 overall manufacturing variance reported last period is well below the 4% limit we have set for variances. We need to congratulate everybody on a job well done.”

The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card—Per Unit

  Direct materials, 3.50 yards at $3.20 per yard

11.20  

  Direct labor, 2.7 direct labor-hours at $10.00 per direct labor-hour

27.00  

  Variable overhead, 2.7 direct labor-hours at $2.60 per direct labor-hour

7.02  

  Fixed overhead, 2.7 direct-labor hours at $5.00 per direct labor-hour

13.50  

  Standard cost per unit

58.72  

The following additional information is available for the year just completed:

The company manufactured 30,000   units of product during the year.

A total of 103,000 yards of material was purchased during the year at a cost of $3.45 per yard. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.

The company worked 83,000 direct labor-hours during the year at a cost of $9.90 per hour.

Overhead cost is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:

  Denominator activity level (direct labor-hours)

80,000  

  Budgeted fixed overhead costs

400,000  

  Actual fixed overhead costs

396,600  

  Actual variable overhead costs

224,100  

Compute the direct materials price and quantity variances for the year. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Direct materials quantity variance

  Direct materials price variance

Compute the direct labor rate and efficiency variances for the year. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Direct labor efficiency variance

   (U/F/None)

  Direct labor rate variance

For manufacturing overhead, compute the following:

The variable overhead rate and efficiency variances for the year. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Efficiency variance

  Rate variance

The fixed overhead budget and volume variances for the year. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

  Volume variance

  Budget variance

17. Sport Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the company’s most popular models appear below.

Ski
Vault

Golf
Caddy

Fishing
Quiver

250

320

235  

135  

  Plastic injection molding machine processing    time required to produce one unit

13 minutes

11 minutes

5 minutes

  Pounds of plastic pellets per unit

14 pounds

7 pounds

1a.

The total time available on the plastic injection molding machine is the constraint in the production process. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and Fishing Quiver? (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

Ski Vault    

Golf Caddy       

Fishing Quiver          

 per minute

 per minute  

1b.

Which product would be the most profitable use of this constraint?

Fishing Quiver

Ski Vault

Golf Caddy

1c.

Which product would be the least profitable use of this constraint?

A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and Fishing Quiver? (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

Golf Caddy     

Fishing Quiver         

 per pound  

2b.

Golf Caddy

Ski Vault

Fishing Quiver

2c.

Which product has the largest unit contribution margin?

Ski Vault

Fishing Quiver

Golf Caddy

18. Georgian Ambience Ltd. makes fine colonial reproduction furniture. Upholstered furniture is one of its major product lines and the bottleneck on this production line is time in the upholstery shop. Upholstering is a craft that takes years of experience to master and the demand for upholstered furniture far exceeds the company’s capacity in the upholstering shop. Information concerning three of the company’s upholstered chairs appears below:

Gainsborough Armchair

Leather Library Chair

Chippendale Fabric Armchair

$ 1,328   

 $ 1,915   

$ 1,550   

$ 800   

$ 1,200   

$ 1,100   

  Upholstery shop time required to produce one unit

8 hours   

13 hours   

5 hours   

More time could be made available in the upholstery shop by asking the employees who work in this shop to work overtime. Assuming that this extra time would be used to produce Leather Library Chairs, up to how much should the company be willing to pay per hour to keep the upholstery shop open after normal working hours? (Omit the “$” sign in your response.)

  Maximum amount payable per hour

A small nearby upholstering company has offered to upholster furniture for Georgian Ambience at a fixed charge of $52 per hour. The management of Georgian Ambience is confident that this upholstering company’s work is high quality and their craftsmen should be able to work about as quickly as Georgian Ambience’s own craftsmen on the simpler upholstering jobs such as the Chippendale Fabric Armchair.

Should management accept this offer?

19. Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company’s current activity level of 8,400 units per month are:

1.90  

3.00  

.80  

  Fixed manufacturing overhead

4.35  

  Variable selling and administrative expenses

1.00  

  Fixed selling and administrative expenses

The normal selling price is $21 per unit. The company’s capacity is 11,100 units per month. An order has been received from a potential customer overseas for 2,700 units at a price of $18.00 per unit. This order would not affect regular sales.

If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company’s total fixed costs.) (Input the amount as a positive value. Omit the “$” sign in your response.)

  Monthly profits would (increase or decrease) by

Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

  Relevant cost per unit

20. Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for

€

34 a pair. (The Finnish unit of currency, the euro, is denoted by €.) Operating at capacity, the company can produce 51,000 pairs of ski poles a year. Costs associated with this level of production and sales are given below:

Per Pair

12  

612,000  

204,000  

51,000  

  Fixed selling expense

  Total cost

26  

1,326,000  

The Finnish army would like to make a one-time-only purchase of 9,200 pairs of ski poles for its mountain troops. The army would pay a fixed fee of €5 per pair, and in addition it would reimburse the Pietarsaari Oy company for its unit manufacturing costs (both fixed and variable). Due to a recession, the company would otherwise produce and sell only 41,800 pairs of ski poles this year. (Total fixed manufacturing overhead cost would be the same whether 41,800 pairs or 51,000 pairs of ski poles were produced.) The company would not incur its usual variable selling expenses with this special order.
      If the Pietarsaari Oy company accepts the army’s offer, by how much would net operating income increase or decrease from what it would be if only 41,800 pairs of ski poles were produced and sold during the year? (Input the amount as a positive value. Omit the “€” sign in your response.)

  (Decrease or increase) in net operating income

€  

Assume the same situation as described in (1) above, except that the company is already operating at capacity and could sell 51,000 pairs of ski poles through regular channels. Thus, accepting the army’s offer would require giving up sales of 9,200 pairs at the normal price of €34 a pair. If the army’s offer is accepted, by how much will net operating income increase or decrease from what it would be if the 9,200 pairs were sold through regular channels? (Input the amount as a positive value. Omit the “€” sign in your response.)

  (Decrease or increase)  in net operating income

21. Barker Company has a single product called a Zet. The company normally produces and sells 84,000 Zets each year at a selling price of $42 per unit. The company’s unit costs at this level of activity are given below:

8.50  

9.00  

4.80  

($756,000 total)  

  Variable selling expenses

3.70  

  Fixed selling expenses

5.50  

($462,000 total)  

  Total cost per unit

40.50  

A number of questions relating to the production and sale of Zets are given below. Each question is
independent.

Assume that Barker Company has sufficient capacity to produce 117,600 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 40% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $120,000.

Calculate the incremental net operating income  (Negative amount should be indicated with a minus sign. Do not round intermediate calculations. Omit the “$” sign in your response.)

  Incremental net operating income

Would the increased fixed selling expenses be justified?

No

Yes

Assume again that Barker Company has sufficient capacity to produce 117,600 Zets each year. The company has an opportunity to sell 33,600 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $20,160. The only selling costs that would be associated with the order would be $1.50 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

  Break-even price per unit

One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the supplier’s country has caused a cutoff in material shipments that is expected to last for three months. Barker Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce fixed manufacturing overhead costs by 35% during the three-month period and the fixed selling expenses would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the three-month period? (Input the amount as a positive value. Round your intermediate calculations of units produced and sold to the nearest whole number. Do not round your other intermediate calculations. Omit the “$” sign in your response.)

  Net (advantage/disadvantage) of closing the plant

4.

The company has 500 Zets on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

  Relevant unit cost

5.

An outside manufacturer has offered to produce Zets and ship them directly to Barker’s customers. If Barker Company accepts this offer, the facilities that it uses to produce Zets would be idle; however, fixed manufacturing overhead costs would continue at 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

  Total avoidable unit cost