Chapter 9

Question 1 of 13
2.0 Points
Orscheln Snow Removal's cost formula for its vehicle operating cost is
$2,800 per month plus $381 per snow-day. For the month of February,
the company planned for activity of 17 snow-days, but the actual level
of activity was 14 snow-days. The actual vehicle operating cost for the
month was $7,920. The activity variance for vehicle operating cost in
February would be closest to:
A. $1,357 F
B. $1,357 U
C. $1,143 F
Incorrect
D. $1,143 U
Answer Key: C
Feedback: What you chose was incorrect.
Question 2 of 13
2.0 Points
Farver Air uses two measures of activity, flights and passengers, in the
cost formulas in its budgets and performance reports. The cost formula
for plane operating costs is $44,420 per month plus $2,008 per flight
plus $1 per passenger. The company expected its activity in May to be
80 flights and 281 passengers, but the actual activity was 81 flights
and 277 passengers. The actual cost for plane operating costs in May
was $199,650. The spending variance for plane operating costs in May
would be closest to:
A. $5,691 F
B. $7,695 U
Correct
C. $7,695 F
D. $5,691 U
Answer Key: C
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Question 3 of 13
2.0 Points
Salyers Family Inn is a bed and breakfast establishment in a converted
100-year-old mansion. The Inn's guests appreciate its gourmet
breakfasts and individually decorated rooms. The Inn's overhead
budget for the most recent month appears below

Picture

The Inn's variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the
activity level is 53 guests?
Correct
A. $7,159.20
B. $6,680.60
C. $7,184.80
D. $26,154.40
Answer Key: A
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Question 4 of 13
2.0 Points
Bamba Corporation's cost formula for its selling and administrative
expense is $47,900 per month plus $52 per unit. For the month of
April, the company planned for activity of 6,000 units, but the actual
level of activity was 5,960 units. The actual selling and administrative
expense for the month was $364,490.

The spending variance for selling and administrative expense in April

would be closest to:
Incorrect
A. $4,590 F
B. $6,670 F
C. $6,670 U
D. $4,590 U
Answer Key: C
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Question 5 of 13
2.0 Points
Gradert Framing's cost formula for its supplies cost is $1,540 per
month plus $12 per frame. For the month of September, the company
planned for activity of 668 frames, but the actual level of activity was

666 frames. The actual supplies cost for the month was $9,980. The
supplies cost in the planning budget for September would be closest to:
A. $10,010
B. $9,532
Correct
D. $9,980

C. $9,556

Answer Key: C
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Question 6 of 13
2.0 Points
Lantto Air uses two measures of activity, flights and passengers, in the
cost formulas in its budgets and performance reports. The cost formula
for plane operating costs is $34,810 per month plus $2,850 per flight
plus $12 per passenger. The company expected its activity in June to
be 70 flights and 292 passengers, but the actual activity was 69 flights
and 291 passengers. The actual cost for plane operating costs in June
was $236,550. The plane operating costs in the flexible budget for June
would be closest to:
A. $237,814
Correct
B. $234,952
C. $236,550
D. $234,417
Answer Key: B
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Question 7 of 13
2.0 Points
Wadhams Snow Removal's cost formula for its vehicle operating cost is
$1,900 per month plus $430 per snow-day. For the month of
December, the company planned for activity of 16 snow-days, but the
actual level of activity was 21 snow-days. The actual vehicle operating
cost for the month was $11,470. The vehicle operating cost in the planning
budget for December would be closest to:
A. $10,930
B. $11,470
C. $8,739
Correct
D. $8,780
Answer Key: D
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Question 8 of 13
2.0 Points
Bamba Corporation's cost formula for its selling and administrative
expense is $47,900 per month plus $52 per unit. For the month of
April, the company planned for activity of 6,000 units, but the actual
level of activity was 5,960 units. The actual selling and administrative
expense for the month was $364,490.

The activity variance for selling and administrative expense in April would be
closest to:
A. $4,590 F
Correct
B. $2,080 F
C. $2,080 U
D. $4,590 U
Answer Key: B
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Question 9 of 13
2.0 Points
At Jacobson Company, indirect labor is a variable cost that varies with
direct labor-hours. Last month's performance report showed that
actual indirect labor cost totaled $5,780 for the month and that the
associated spending variance was $245 F. If 24,100 direct labor-hours
were actually worked last month, then the flexible budget cost formula for
indirect labor must be (per direct labor-hour):
A. $0.20
Correct
C. $0.30
D. $0.35

B. $0.25

Answer Key: B
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Question 10 of 13
2.0 Points
Bamba Corporation's cost formula for its selling and administrative
expense is $47,900 per month plus $52 per unit. For the month of
April, the company planned for activity of 6,000 units, but the actual
level of activity was 5,960 units. The actual selling and administrative
expense for the month was $364,490.

The selling and administrative expense in the planning budget for April
would be closest to:
Incorrect
A. $357,820
B. $359,900
C. $364,490
D. $366,936
Answer Key: B
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Question 11 of 13
2.0 Points
Stuchlik Catering uses two measures of activity, jobs and meals, in the
cost formulas in its budgets and performance reports. The cost formula
for catering supplies is $430 per month plus $80 per job plus $14 per
meal. A typical job involves serving a number of meals to guests at a
corporate function or at a host's home. The company expected its
activity in January to be 20 jobs and 190 meals, but the actual activity
was 21 jobs and 194 meals. The actual cost for catering supplies in
January was $4,850. The catering supplies in the planning budget for
January would be closest to:
A. $4,850
B. $4,619
Correct
D. $4,826

C. $4,690

Answer Key: C
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Question 12 of 13
2.0 Points
Bamba Corporation's cost formula for its selling and administrative
expense is $47,900 per month plus $52 per unit. For the month of
April, the company planned for activity of 6,000 units, but the actual
level of activity was 5,960 units. The actual selling and administrative
expense for the month was $364,490.

The selling and administrative expense in the flexible budget for April
would be closest to:

A. $357,501
Incorrect
B. $359,900
C. $357,820
D. $364,490
Answer Key: C
Feedback: What you chose was incorrect.
Question 13 of 13
2.0 Points
Soehl Natural Dying Corporation measures its activity in terms of
skeins of yarn dyed. Last month, the budgeted level of activity was
14,100 skeins and the actual level of activity was 13,700 skeins. The
company's owner budgets for dye costs, a variable cost, at $0.40 per
skein. The actual dye cost last month was $4,510. In the company's flexible
budget performance report for last month, what would have been the
spending variance for dye costs?
Correct
A. $970 F
B. $132 F
C. $160 F
D. $1,130 F
Answer Key: A
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Chapter 10
Part 1 of 1 - 26.0 Points
Question 1 of 13
2.0 Points
Lafountaine Manufacturing Corporation has a standard cost system in
which it applies manufacturing overhead to products on the basis of
standard machine-hours (MHs). The company's cost formula for
variable manufacturing overhead is $4.70 per MH. During the month,
the actual total variable manufacturing overhead was $20,210 and the
actual level of activity for the period was 4,700 MHs. What was the
variable overhead rate variance for the month?
A. $400 unfavorable
Correct
B. $1,880 favorable
C. $1,880 unfavorable

D. $400 favorable
Answer Key: B
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Question 2 of 13
2.0 Points
An unfavorable direct labor efficiency variance could be caused by:
Correct
A. an unfavorable materials quantity variance.
B. an unfavorable variable overhead rate variance.
C. a favorable materials quantity variance.
D. a favorable variable overhead rate variance.
Answer Key: A
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Question 3 of 13
2.0 Points
The following standards for variable manufacturing overhead have
been established for a company that makes only one product:

Picture

The following data pertain to operations for the last month:

Picture

What is the variable overhead efficiency variance for the month?

A. $3,192 U
B. $6,913 F
Correct
C. $7,161 U
D. $6,913 U
Answer Key: C
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Question 4 of 13

2.0 Points
The standard cost card for a product shows that the product should
use 4 kilograms of material B per finished unit and that the standard
price of material B is $4.50 per kilogram. During April, when the
budgeted production level was 1,000 units, 1,040 units were actually
made. A total of 4,100 kilograms of material B were used in production
and the inventories of material B were reduced by 300 kilograms
during April. The total cost of material B purchased during April was
$14,400. The material variances for material B during April were:

Picture
A. Option A
Correct
B. Option B
C. Option C
D. Option D
Answer Key: B
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Question 5 of 13
2.0 Points
The standards for direct labor for a product are 2.5 hours at $8 per
hour. Last month, 9,000 units of the product were made and the labor
efficiency variance was $8,000 F. The actual number of hours worked
during the past period was:
A. 23,500
B. 22,500
C. 20,500
Correct

D. 21,500

Answer Key: D
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Question 6 of 13
2.0 Points
Ruston Corporation applies manufacturing overhead to products on the
basis of standard machine-hours. Budgeted and actual overhead costs
for the most recent month appear below:

Picture

The original budget was based on 4,500 machine-hours. The company

actually worked 4,590 machine-hours during the month and the
standard hours allowed for the actual output were 4,700 machine-hours.
What was the overall variable overhead efficiency variance for the month?
A. $50 unfavorable
Correct
B. $869 favorable
C. $969 unfavorable
D. $100 unfavorable
Answer Key: B
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Question 7 of 13
2.0 Points
The following labor standards have been established for a particular
product:

Picture

The following data pertain to operations concerning the product for the last
month:

Picture

What is the labor rate variance for the month?

A. $400 F
B. $80 U
C. $80 F
Correct

D. $400 U

Answer Key: D
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Question 8 of 13
2.0 Points
Variable manufacturing overhead is applied to products on the basis of
standard direct labor-hours. If the direct labor efficiency variance is
unfavorable, the variable overhead efficiency variance will be:
A. favorable.
Correct
B. unfavorable.
C. either favorable or unfavorable.
D. zero.
Answer Key: B
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Question 9 of 13
2.0 Points
The Porter Company has a standard cost system. In July the company
purchased and used 22,500 pounds of direct material at an actual cost
of $53,000; the materials quantity variance was $1,875 Unfavorable;
and the standard quantity of materials allowed for July production was
21,750 pounds. The materials price variance for July was:
A. $2,725 F
B. $2,725 U
Correct
C. $3,250 F
D. $3,250 U
Answer Key: C
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Question 10 of 13
2.0 Points
Which department should usually be held responsible for an unfavorable
materials price variance?
A. Production.
B. Materials Handling.
C. Engineering.
Correct
D. Purchasing.
Answer Key: D
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Question 11 of 13
2.0 Points
When computing standard cost variances, the difference between actual and
standard price multiplied by actual quantity yields a(n):

A. combined price and quantity variance.

B. efficiency variance.
Correct
C. price variance.
D. quantity variance.
Answer Key: C
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Question 12 of 13
2.0 Points
The following materials standards have been established for a particular
product:

Picture

The following data pertain to operations concerning the product for the
last month:

Picture

What is the materials quantity variance for the month?

A. $19,460 F
B. $9,730 U
C. $10,115 U
Correct
D. $20,230 F
Answer Key: D
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Question 13 of 13
2.0 Points
Kornfeld Corporation produces metal telephone poles. In the most
recent month, the company budgeted production of 2,800 poles.
Actual production was 3,200 poles. According to standards, each pole
requires 2.2 machine-hours. The actual machine-hours for the month
were 6,890 machine-hours. The standard variable manufacturing overhead

rate is $9.20 per machine-hour. The actual variable manufacturing cost

for the month was $67,020. The variable overhead efficiency variance
is:
A. $1,380 U
Correct
B. $1,380 F
C. $2,252 F
D. $2,252 U
Answer Key: B
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Chapter 12
Part 1 of 1 - 22.0 Points
Question 1 of 11
2.0 Points
Costs which are always relevant in decision making are those costs
which are:
A. variable.
Correct
B. avoidable.
C. sunk.
D. fixed.
Answer Key: B
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Question 2 of 11
2.0 Points
Product R19N has been considered a drag on profits at Buzzeo
Corporation for some time and management is considering
discontinuing the product altogether. Data from the company's
accounting system appear below:

Picture

In the company's accounting system all fixed expenses of the company

are fully allocated to products. Further investigation has revealed that
$49,000 of the fixed manufacturing expenses and $30,000 of the fixed
selling and administrative expenses are avoidable if product R19N is

discontinued. What would be the effect on the company's overall net

operating income if product R19N were dropped?
Correct
A. Overall net operating income would decrease by $59,000.
B. Overall net operating income would decrease by $22,000.
C. Overall net operating income would increase by $59,000.
D. Overall net operating income would increase by $22,000.
Answer Key: A
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Question 3 of 11
2.0 Points
Schemm Inc. regularly uses material F04E and currently has in stock
460 liters of the material for which it paid $2,622 several weeks ago. If
this were to be sold as is on the open market as surplus material, it
would fetch $5.25 per liter. New stocks of the material can be
purchased on the open market for $5.85 per liter, but it must be
purchased in lots of 1,000 liters. You have been asked to determine
the relevant cost of 800 liters of the material to be used in a job for a
customer. The relevant cost of the 800 liters of material F04E is:
A. $5,850
B. $4,200
C. $4,404
Correct

D. $4,680

Answer Key: D
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Question 4 of 11
2.0 Points
Peluso Company, a manufacturer of snowmobiles, is operating at 70%
of plant capacity. Peluso's plant manager is considering making the
headlights now being purchased from an outside supplier for $11 each.
The Peluso plant has idle equipment that could be used to manufacture
the headlights. The design engineer estimates that each headlight
requires $4 of direct materials, $3 of direct labor, and $6.00 of
manufacturing overhead. Forty percent of the manufacturing overhead
is a fixed cost that would be unaffected by this decision. A decision by
Peluso Company to manufacture the headlights should result in a net
gain (loss) for each headlight of:
A. $(2.00)
B. $1.60
Correct

C. $0.40

D. $2.80
Answer Key: C
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Question 5 of 11
2.0 Points
Fillip Corporation makes 4,000 units of part U13 each year. This part is
used in one of the company's products. The company's Accounting
Department reports the following costs of producing the part at this
level of activity:

Picture

An outside supplier has offered to make and sell the part to the
company for $21.60 each. If this offer is accepted, the supervisor's
salary and all of the variable costs, including direct labor, can be
avoided. The special equipment used to make the part was purchased
many years ago and has no salvage value or other use. The allocated
general overhead represents fixed costs of the entire company. If the
outside supplier's offer were accepted, only $3,000 of these allocated
general overhead costs would be avoided. In addition, the space used
to produce part U13 would be used to make more of one of the
company's other products, generating an additional segment margin of
$13,000 per year for that product.
What would be the impact on the company's overall net operating
income of buying part U13 from the outside supplier?
A. Net operating income would increase by $13,000 per year.
B. Net operating income would decline by $42,600 per year.
C. Net operating income would decline by $68,600 per year.
Correct
D. Net operating income would increase by $9,200 per year.
Answer Key: D
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Question 6 of 11
2.0 Points
Coakley Beet Processors, Inc., processes sugar beets in batches. A
batch of sugar beets costs $48 to buy from farmers and $10 to crush

in the company's plant. Two intermediate products, beet fiber and beet
juice, emerge from the crushing process. The beet fiber can be sold as
is for $24 or processed further for $16 to make the end product
industrial fiber that is sold for $36. The beet juice can be sold as is for
$44 or processed further for $28 to make the end product refined
sugar that is sold for $70. How much profit (loss) does the company
make by processing the intermediate product beet juice into refined sugar
rather than selling it as is?
A. $(31)
B. $(60)
Correct
D. $(12)

C. $(2)

Answer Key: C
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Question 7 of 11
2.0 Points
Liffick Corporation is a specialty component manufacturer with idle
capacity. Management would like to use its extra capacity to generate
additional profits. A potential customer has offered to buy 6,200 units
of component VFG. Each unit of VFG requires 8 units of material C79
and 6 units of material X70. Data concerning these two materials
follow:

Picture

Material C79 is in use in many of the company's products and is

routinely replenished. Material X70 is no longer used by the company
in any of its normal products and existing stocks would not be
replenished once they are used up.

What would be the relevant cost of the materials, in total, for purposes of
determining a minimum acceptable price for the order for product VFG?
A. $528,551
B. $523,280
C. $476,350

Correct

D. $484,455

Answer Key: D
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Question 8 of 11
2.0 Points
Iwasaki Inc. is considering whether to continue to make a component
or to buy it from an outside supplier. The company uses 13,000 of the
components each year. The unit product cost of the component
according to the company's cost accounting system is given as follows:

Picture

Assume that direct labor is a variable cost. Of the fixed manufacturing

overhead, 30% is avoidable if the component were bought from the
outside supplier. In addition, making the component uses 1 minute on
the machine that is the company's current constraint. If the
component were bought, this machine time would be freed up for use
on another product that requires 2 minutes on this machine and that
has a contribution margin of $5.20 per unit.
When deciding whether to make or buy the component, what cost of
making the component should be compared to the price of buying the
component?
A. $22.40
B. $19.80
C. $17.28
Correct

D. $19.88

Answer Key: D
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Question 9 of 11
2.0 Points
A customer has requested that Inga Corporation fill a special order for
2,000 units of product K81 for $25.00 a unit. While the product would
be modified slightly for the special order, product K81's normal unit
product cost is $19.90:

Picture

Direct labor is a variable cost. The special order would have no effect
on the company's total fixed manufacturing overhead costs. The
customer would like modifications made to product K81 that would
increase the variable costs by $1.20 per unit and that would require an
investment of $10,000 in special molds that would have no salvage
value.
This special order would have no effect on the company's other sales.
The company has ample spare capacity for producing the special order. If
the special order is accepted, the company's overall net operating income
would increase (decrease) by:
Correct
A. $13,000
B. $(9,700)
C. $10,200
D. $(2,200)
Answer Key: A
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Question 10 of 11
2.0 Points
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:

Picture

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:

Correct
A. $3 advantage
B. $1 advantage
C. $1 disadvantage
D. $4 disadvantage
Answer Key: A
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Question 11 of 11
2.0 Points
Which of the following are valid reasons for eliminating a product line?

I. The product line's contribution margin is negative.

II. The product line's traceable fixed costs plus its allocated common
corporate costs are less than its contribution margin.
Correct
A. Only I
B. Only II
C. Both I and II
D. Neither I nor II
Answer Key: A
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Chapter 13
Question 1 of 12
2.0 Points
(Ignore income taxes in this problem.) Cottrell, Inc., is investigating an
investment in equipment that would have a useful life of 9 years. The
company uses a discount rate of 15% in its capital budgeting. The net
present value of the investment, excluding the salvage value, is $230,392. To the nearest whole dollar how large would the salvage
value of the equipment have to be to make the investment in the
equipment financially attractive?
A. $1,535,947
B. $34,559
C. $811,239
Incorrect
D. $230,392

Answer Key: C
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Question 2 of 12
2.0 Points
(Ignore income taxes in this problem.) Stutz Company purchased a
machine with an estimated useful life of seven years. The machine will
generate cash inflows of $8,000 each year over the next seven years.
If the machine has no salvage value at the end of seven years, if
Stutz's discount rate is 12%, and if the net present value of this
investment is $15,000, then the purchase price of the machine was:
A. $17,888
B. $36,512
C. $15,000
Correct
D. $21,512
Answer Key: D
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Question 3 of 12
2.0 Points
(Ignore income taxes in this problem.) An investment of P dollars now
will yield cash inflows of $3,000 at the end of the first year and $2,000
at the end of the fourth year. If the internal rate of return for this
investment is 20%, then the value of P is:
Correct
A. $3,463
B. $2,499
C. $964
D. $4,185
Answer Key: A
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Question 4 of 12
2.0 Points
If the internal rate of return is used as the discount rate in computing
net present value, the net present value will be:
A. positive.
B. negative.
Correct
C. zero.
D. unknown.
Answer Key: C
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Question 5 of 12
2.0 Points
Which one of the following statements about the payback method of
capital budgeting is correct?
Correct
A. The payback method does not consider the time value of
money.
B. The payback method considers cash flows after the payback has been
reached.
C. The payback method uses discounted cash flow techniques.
D. The payback method will lead to the same decision as other methods
of capital budgeting.
Answer Key: A
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Question 6 of 12
2.0 Points
(Ignore income taxes in this problem.) Benz Company is considering
the purchase of a machine that costs $100,000, has a useful life of 18
years, and no salvage value. The company's discount rate is 12%. If
the machine's net present value is $5,850, then the annual cash
inflows associated with the machine must be (round to the nearest whole
dollar):
A. $42,413
Correct
B. $14,600
C. $13,760
D. It is impossible to determine from the data given.
Answer Key: B
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Question 7 of 12
2.0 Points
(Ignore income taxes in this problem.) A piece of new equipment will
cost $70,000. The equipment will provide a cost savings of $15,000
per year for ten years, after which it will have a $3,000 salvage value.
If the required rate of return is 14%, the equipment's net present value is:
A. $8,240
B. $(8,240)
C. $23,888
Correct
D. $9,050
Answer Key: D

Feedback: What you chose is correct.

Question 8 of 12
2.0 Points
(Ignore income taxes in this problem.) Mongon Roofing is considering
the purchase of a crane that would cost $40,224, would have a useful
life of 5 years, and would have no salvage value. The use of the crane
would result in labor savings of $12,000 per year. The internal rate of
return on the investment in the crane is closest to:
Incorrect
B. 14%
C. 15%
D. 18%

A. 17%

Answer Key: C
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Question 9 of 12
2.0 Points
(Ignore income taxes in this problem.) The following data pertain to an
investment proposal:

Picture

The net present value of the proposed investment is:

A. $1,720
B. $6,064
C. $2,154
Correct

D. $2,025

Answer Key: D
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Question 10 of 12
2.0 Points
(Ignore income taxes in this problem.) The management of Burney
Corporation is investigating purchasing equipment that would increase
sales revenues by $74,000 per year and cash operating expenses by
$32,000 per year. The equipment would cost $115,000 and have a 5 year
life with no salvage value. The simple rate of return on the investment is
closest to:

A. 36.5%
Incorrect
C. 20.0%
D. 16.5%

B. 25.7%

Answer Key: D
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Question 11 of 12
2.0 Points
(Ignore income taxes in this problem.) The following data pertain to an
investment proposal:

Picture

The working capital would be released for use elsewhere when the project
is completed. What is the net present value of the project, using a
discount rate of 8 percent?
Correct
B. $(251)
C. $251
D. $5,251

A. $2,566

Answer Key: A
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Question 12 of 12
2.0 Points
(Ignore income taxes in this problem.) Buy-Rite Pharmacy has
purchased a small auto for delivering prescriptions. The auto was
purchased for $9,000 and will have a 6-year useful life and a $3,000
salvage value. Delivering prescriptions (which the pharmacy has never
done before) should increase gross revenues by at least $5,000 per
year. The cost of these prescriptions to the pharmacy will be about $2,000
per year. The pharmacy depreciates all assets using the straight-line
method. The payback period for the auto is:
Correct
A. 3.0 years
B. 1.8 years
C. 2.0 years

D. 1.2 years
Answer Key: A
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