Professional Documents
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Student: ___________________________________________________________________________
These are additional questions to help you review for the final. Note there are no questions, on this review for
Ch. 16, Financial Statement Analysis, but this chapter will be tested on the final. Use your homework and quiz
questions for a review.
1. The PDQ Company makes collections on credit sales according to the following schedule:
The estimated total cash collections during April from sales and accounts receivables would be:
A. $155,900
B. $167,000
C. $171,666
D. $173,400
LDG Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.0 hours of
direct labor at the rate of $10.50 per direct labor-hour. Management would like you to prepare a Direct Labor
Budget for June.
3. The budgeted direct labor cost per unit of Product WZ would be:
A. $12.50
B. $10.50
C. $21.00
D. $5.25
Detmer Enterprises has budgeted sales for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's
sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of
inventory. The company needs to prepare a Production Budget for the first quarter of the year.
4. If 500,000 finished units were to be manufactured during July, the units of raw material needed to be
purchased would be:
A. 1,000,000 units
B. 1,020,000 units
C. 1,010,000 units
D. 990,000 units
Pardise Company plans the following beginning and ending inventory levels (in units) for July:
Two units of raw material are needed to produce each unit of finished product.
Division A makes a part with the following characteristics:
Division B, another division of the same company, would like to purchase 5,000 units of the part each period
from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.
6. Hirons Corporation keeps careful track of the time required to fill orders. Data concerning a particular order
appear below:
7. Rodenberger Corporation keeps careful track of the time required to fill orders. The times recorded for a
particular order appear below:
Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is
presented in the following table.
Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are
collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are
equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of
inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month
following the purchase.
9. Noskey Corporation's budgeted cash collections in July from June credit sales are:
A. $144,000
B. $136,800
C. $96,000
D. $91,200
10. Hutton Corporation keeps careful track of the time required to fill orders. Data concerning a particular order
appear below:
11. The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
12. Division A of Harkin Company has the capacity for making 3,000 motors per month and regularly sells
1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per
motor is $35.70. Division B of Harkin Company would like to obtain 1,400 motors each month from Division
A. What should be the lowest acceptable transfer price from the perspective of Division A?
A. $26.57
B. $51.20
C. $35.70
D. $62.00
13. The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
14. The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
For January there was a favorable direct materials quantity variance of:
A. $3,360
B. $3,375
C. $3,400
D. $3,800
17. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at
Fab (in units) for the next three months are as follows:
Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many
mugs should Fab plan on producing during the month of November?
A. 23,200 mugs
B. 26,800 mugs
C. 25,900 mugs
D. 34,300 mugs
18. Superior Industries' sales budget shows quarterly sales for the next year as follows:
Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next
quarter's sales. Budgeted production for the second quarter should be:
A. 7,200 units
B. 8,000 units
C. 8,800 units
D. 8,400 units
19. Brummitt Corporation is working on its direct labor budget for the next two months. Each unit of output
requires 0.05 direct labor-hours. The direct labor rate is $7.50 per direct labor-hour. The production budget calls
for producing 9,100 units in May and 8,800 units in June. If the direct labor work force is fully adjusted to the
total direct labor-hours needed each month, what would be the total combined direct labor cost for the two
months?
A. $3,300.00
B. $3,412.50
C. $6,712.50
D. $3,356.25
20. (Ignore income taxes in this problem.) Tighe Corporation is contemplating purchasing equipment that would
increase sales revenues by $420,000 per year and cash operating expenses by $231,000 per year. The equipment
would cost $747,000 and have a 9 year life with no salvage value. The annual depreciation would be $83,000.
The simple rate of return on the investment is closest to:
A. 25.3%
B. 14.2%
C. 11.1%
D. 25.2%
21. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the
purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year.
The payback period for this machine in years is closest to:
A. 0.27 years
B. 10.7 years
C. 3.75 years
D. 40 years
22. Information on four investment proposals is given below:
Rank the proposals in terms of preference according to the project profitability index:
A. 3, 4, 1, 2
B. 1, 2, 3, 4
C. 1, 3, 2, 4
D. 2, 1, 4, 3
23. (Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its
factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage
value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each
of the 6 years. Kumanu's discount rate is 16%. What is the net present value of this equipment?
A. $(2,200)
B. $3,700
C. $20,500
D. $(34,950)
24. The total number of units needed (i.e., unit sales plus desired ending inventory) in March is:
A. 6,120 units
B. 6,080 units
C. 5,400 units
D. 5,940 units
25. The capital budgeting method that divides a project's annual incremental net operating income by the initial
investment is the:
A. internal rate of return method.
B. the simple rate of return method.
C. the payback method.
D. the net present value method.
26. (Ignore income taxes in this problem.) Parks Company is considering an investment proposal in which a
working capital investment of $10,000 would be required. The investment would provide cash inflows of
$2,000 per year for six years. The working capital would be released for use elsewhere when the project is
completed. If the company's discount rate is 10%, the investment's net present value is:
A. $1,290
B. $(1,290)
C. $2,000
D. $4,350
27. (Ignore income taxes in this problem.) Boston Company is contemplating the purchase of a new machine on
which the following information has been gathered:
The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given
these data, the machine has a net present value of:
A. -$26,100
B. -$23,900
C. $0
D. +$26,100
28. What is the maximum price per wheel that Walsh should be willing to pay Vega?
A. $28
B. $41
C. $42
D. $45
29. Suppose that Vega can sell 9,000 wheels each month to outside consumers, so transfers to the Walsh
Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the
Vega Division?
A. $28.00
B. $31.75
C. $41.00
D. $42.00
30. Higado Confectionery Corporation has a number of store locations throughout North America. In income
statements segmented by store, which of the following would be considered a common fixed cost?
A. store manager salaries
B. store building depreciation expense
C. the cost of corporate advertising aired during the Super Bowl
D. all of these
32. The concept of economic value added (EVA) is most similar to:
A. residual income.
B. transfer pricing.
C. segment reporting.
D. return on investment.
33. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of
$50,000 for Division A, and had a contribution margin ratio of 30% in Division B, when sales in Division B
were $200,000. Net operating income for the company was $25,000 and traceable fixed expenses were $40,000.
Lyons Company's common fixed expenses were:
A. $85,000
B. $70,000
C. $45,000
D. $40,000
34. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just
ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin
ratio of 30%. Net operating income for the company was $20,000 and traceable fixed costs for the two plants
totaled $50,000. Johnson Company's common fixed costs for last year were:
A. $50,000
B. $70,000
C. $40,000
D. $90,000
35. Anspach Corporation has two divisions: the Governmental Products Division and the Consumer Products
Division. The Governmental Products Division's divisional segment margin is $11,800 and the Consumer
Products Division's divisional segment margin is $155,500. The total amount of common fixed expenses not
traceable to the individual divisions is $142,200. What is the company's net operating income?
A. ($167,300)
B. $25,100
C. $309,500
D. $167,300
37. Last year the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets
of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover
rounded to the nearest tenth?
A. 9.5
B. 10.2
C. 9.8
D. 9.2
Data for September for Mossman Corporation and its two major business segments, North and South, appear
below:
In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North
business segment and $159,000 to the South business segment.
38. A properly constructed segmented income statement in a contribution format would show that the net
operating income of the company as a whole is:
A. $673,000
B. $523,000
C. -$115,000
D. $204,000
39. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear
below:
Division Y of the same company would like to use the part manufactured by Division X in one of its products.
Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute
the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of
the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the
selling division?
A. $50
B. $49
C. $46
D. $30
40. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its
usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the
company as a whole will be:
A. better off by $5,000 each period.
B. worse off by $15,000 each period.
C. worse off by $5,000 each period.
D. There will be no change in the status of the company as a whole.
The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred
to the Walsh Division of Ace Company. Last month the Walsh Division bought all 4,000 of its wheels from the
Vega Division for $42 each. The following data are available from last month's operations for the Vega
Company:
If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An
outside supplier has offered to supply wheels to the Walsh Division for $41 each.
41. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not
cut into its sales to outside customers. What should be the lowest acceptable transfer price from the perspective
of the Vega Division?
A. $28
B. $30
C. $42
D. $45
42. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit.
Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and
administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold.
The contribution margin per unit is:
A. $3
B. $15
C. $8
D. $12
43. Litke Corporation, a company that produces and sells a single product, has provided its contribution format
income statement for February.
If the company sells 5,100 units, its net operating income should be closest to:
A. $15,600
B. $11,700
C. $8,400
D. $14,733
44. Filson Inc., a company that produces and sells a single product, has provided its contribution format income
statement for February.
If the company sells 9,700 units, its total contribution margin should be closest to:
A. $252,200
B. $74,026
C. $247,000
D. $263,200
45. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of
$40,000. Based on this information, the break-even point was:
A. $640,000
B. $480,000
C. $800,000
D. $960,000
46. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:
47. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a
net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales?
A. $187,500
B. $200,000
C. $225,500
D. $180,000
48. The following is last month's contribution format income statement:
The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Fabrication activity cost pool is closest to:
A. $3.72 per machine-hour
B. $4.44 per machine-hour
C. $7.44 per machine-hour
D. $1.24 per machine-hour
51. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:
The company has an activity-based costing system with the following three activity cost pools and estimated
activity for the coming year:
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity
and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Order Processing activity cost pool is closest to:
A. $905 per order
B. $630 per order
C. $1,080 per order
D. $840 per order
52. Process costing would be appropriate for each of the following except:
A. custom furniture manufacturing.
B. oil refining.
C. grain milling.
D. newsprint production.
53. When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be
true?
A. Work in process will decrease.
B. Cost of goods sold will increase.
C. Net income will decrease.
D. Gross margin will increase.
54. Job 607 was recently completed. The following data have been recorded on its job cost sheet:
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate
is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 607 would be:
A. $4,107
B. $6,319
C. $3,432
D. $4,863
55. The following data have been recorded for recently completed Job 501 on its job cost sheet. Direct
materials cost was $3,067. A total of 30 direct labor-hours and 104 machine-hours were worked on the job. The
direct labor wage rate is $12 per labor-hour. The company applies manufacturing overhead on the basis of
machine-hours. The predetermined overhead rate is $11 per machine-hour. The total cost for the job on its job
cost sheet would be:
A. $4,571
B. $3,757
C. $3,090
D. $3,427
56. Jarratt Inc., a manufacturing company, has provided the following data for the month of September. The
balance in the Work in Process inventory account was $21,000 at the beginning of the month and $24,000 at the
end of the month. During the month, the company incurred direct materials cost of $69,000 and direct labor cost
of $31,000. The actual manufacturing overhead cost incurred was $54,000. The manufacturing overhead cost
applied to Work in Process was $58,000. The cost of goods manufactured for September was:
A. $158,000
B. $154,000
C. $151,000
D. $155,000
57. Erholm Inc. has provided the following data for the month of March. The balance in the Finished Goods
inventory account at the beginning of the month was $43,000 and at the end of the month was $42,000. The cost
of goods manufactured for the month was $221,000. The actual manufacturing overhead cost incurred was
$45,000 and the manufacturing overhead cost applied to Work in Process was $49,000. The adjusted cost of
goods sold that would appear on the income statement for March is:
A. $218,000
B. $220,000
C. $222,000
D. $221,000
58. The linear equation Y = a + bX is often used to express cost formulas. In this equation:
A. the b term represents variable cost per unit of activity.
B. the a term represents variable cost in total.
C. the X term represents total cost.
D. the Y term represents total fixed cost.
60. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost
data for two levels of monthly sales volume. The company sells the product for $172.50 per unit.
The best estimate of the total contribution margin when 4,300 units are sold is:
A. $343,140
B. $65,790
C. $121,260
D. $411,080
61. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-
hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000
machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance
cost if the activity level is 8,700 machine-hours?
A. $2,000
B. $400
C. $2,250
D. $1,740
62. Dabbs Corporation has provided the following production and total cost data for two levels of monthly
production volume. The company produces a single product.
The best estimate of the total monthly fixed manufacturing cost is:
A. $737,950
B. $686,400
C. $274,000
D. $789,500
Review Cumulative Test Key
These are additional questions to help you review for the final. Note there are no questions, on this review for
Ch. 16, Financial Statement Analysis, but this chapter will be tested on the final. Use your homework and quiz
questions for a review.
1. The PDQ Company makes collections on credit sales according to the following schedule:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009 #27
Learning Objective: 2
Level: Medium
2. 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:
The estimated total cash collections during April from sales and accounts receivables would be:
A. $155,900
B. $167,000
C. $171,666
D. $173,400
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009 #29
Learning Objective: 2
Level: Medium
Source: CMA, adapted
LDG Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.0 hours of
direct labor at the rate of $10.50 per direct labor-hour. Management would like you to prepare a Direct Labor
Budget for June.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009
Learning Objective: 3
Level: Medium
3. The budgeted direct labor cost per unit of Product WZ would be:
A. $12.50
B. $10.50
C. $21.00
D. $5.25
Budgeted direct labor cost per unit = Direct labor-hours per unit x Direct labor rate = 2.0 x $10.50 = $21.00
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009 #83
Learning Objective: 3
Level: Medium
Source: CMA, adapted
Detmer Enterprises has budgeted sales for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's
sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of
inventory. The company needs to prepare a Production Budget for the first quarter of the year.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009
Learning Objective: 5
Level: Easy
4. If 500,000 finished units were to be manufactured during July, the units of raw material needed to be
purchased would be:
A. 1,000,000 units
B. 1,020,000 units
C. 1,010,000 units
D. 990,000 units
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009 #52
Learning Objective: 2
Level: Medium
Pardise Company plans the following beginning and ending inventory levels (in units) for July:
Two units of raw material are needed to produce each unit of finished product.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009
Learning Objective: 2
Level: Hard
Division B, another division of the same company, would like to purchase 5,000 units of the part each period
from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.
Throughput time = Process time + Inspection time + Move time + Queue time
= 1.5 hours + 0.4 hours + 3.3 hours + 8.4 hours = 13.6 hours
= 1.5 hours 13.6 hours = 0.11 (rounded)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009
Learning Objective: 4
Level: Easy
7. Rodenberger Corporation keeps careful track of the time required to fill orders. The times recorded for a
particular order appear below:
Throughput time = Process time + Queue time + Move time + Inspection time
= 2.7 hours + 6.1 hours + 1.0 hours + 0.1 hours = 9.9 hours
Delivery cycle time = Wait time + Throughput time
= 22.0 hours + 9.9 hours = 31.9 hours
8. Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are $10, direct labor
is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. The Eastern Division can
sell all of Part WY4 they can make to other companies for $30. The Western Division of Tyble Corporation can
use Part WY4 in one of its products. What is the lowest transfer price at which the Eastern Division would be
willing to sell Part WY4 to the Central Division?
A. $30
B. $26
C. $23
D. $27
(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather
than "greater than or equal to" and "less than or equal to" signs.)
From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost + Opportunity cost
The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:
Opportunity cost = $30 - $10 - $4 - $9 = $7 each
Therefore, Transfer price > $23 + $7 = $30.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009
Learning Objective: 3
Learning Objective: 5
Level: Easy
Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is
presented in the following table.
Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are
collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are
equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of
inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month
following the purchase.
9. Noskey Corporation's budgeted cash collections in July from June credit sales are:
A. $144,000
B. $136,800
C. $96,000
D. $91,200
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 009 #51
Learning Objective: 3
Level: Medium
10. Hutton Corporation keeps careful track of the time required to fill orders. Data concerning a particular order
appear below:
Throughput time = Process time + Inspection time + Move time + Queue time
= 0.7 days + 0.1 days + 3.3 days + 9.4 days = 13.5 days
The following data pertain to operations concerning the product for the last month:
(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather
than "greater than or equal to" and "less than or equal to" signs.)
From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost per unit + Opportunity cost
The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:
Opportunity cost = [$62 x 350*] 1,400 = $15.50
* 1,400 - (3,000 - 1,950) = 350
Therefore, Transfer price > $35.70 + $15.50 = $51.20.
The following data pertain to operations concerning the product for the last month:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 012
Learning Objective: 1
Level: Hard
14. The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 012
Learning Objective: 1
Level: Hard
15. Cox Company's direct material costs for the month of January were as follows:
For January there was a favorable direct materials quantity variance of:
A. $3,360
B. $3,375
C. $3,400
D. $3,800
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 012
Learning Objective: 1
Level: Easy
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 012
Learning Objective: 2
Level: Medium
17. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at
Fab (in units) for the next three months are as follows:
Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many
mugs should Fab plan on producing during the month of November?
A. 23,200 mugs
B. 26,800 mugs
C. 25,900 mugs
D. 34,300 mugs
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 012
Learning Objective: 2
Level: Medium
18. Superior Industries' sales budget shows quarterly sales for the next year as follows:
Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next
quarter's sales. Budgeted production for the second quarter should be:
A. 7,200 units
B. 8,000 units
C. 8,800 units
D. 8,400 units
May: 9,100 units x 0.05 direct labor-hours x $7.50 per direct labor-hour
= $3,412.50
June: 8,800 units x 0.05 direct labor-hours x $7.50 per direct labor-hour
= $3,300.00
Total direct labor cost = $6,712.50
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 012
Learning Objective: 1
Level: Easy
20. (Ignore income taxes in this problem.) Tighe Corporation is contemplating purchasing equipment that would
increase sales revenues by $420,000 per year and cash operating expenses by $231,000 per year. The equipment
would cost $747,000 and have a 9 year life with no salvage value. The annual depreciation would be $83,000.
The simple rate of return on the investment is closest to:
A. 25.3%
B. 14.2%
C. 11.1%
D. 25.2%
The simple rate of return of 14.2% is calculated by dividing $106,000 ($420,000 - $231,000 - $83,000) by
$747,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix...
Learning Objective: 5
Level: Medium
21. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the
purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year.
The payback period for this machine in years is closest to:
A. 0.27 years
B. 10.7 years
C. 3.75 years
D. 40 years
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix...
Learning Objective: 5
Level: Hard
Rank the proposals in terms of preference according to the project profitability index:
A. 3, 4, 1, 2
B. 1, 2, 3, 4
C. 1, 3, 2, 4
D. 2, 1, 4, 3
Proposal 1's profitability index is 0.60 ($30,000 $50,000), project 2's is 0.40 ($24,000 $60,000), project 3's
is 0.50 ($15,000 $30,000) and project 4's is 0.20 ($9,000 45,000). Therefore the projects will be ranked as
follows: 1, 3, 2, and 4.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix...
Learning Objective: 5
Level: Easy
23. (Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its
factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage
value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each
of the 6 years. Kumanu's discount rate is 16%. What is the net present value of this equipment?
A. $(2,200)
B. $3,700
C. $20,500
D. $(34,950)
24. The total number of units needed (i.e., unit sales plus desired ending inventory) in March is:
A. 6,120 units
B. 6,080 units
C. 5,400 units
D. 5,940 units
Total number of units needed = Ending inventory + Units sold = (7,200 x 10%) + 5,400 = 6,120
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix...
Learning Objective: 5
Level: Medium
25. The capital budgeting method that divides a project's annual incremental net operating income by the initial
investment is the:
A. internal rate of return method.
B. the simple rate of return method.
C. the payback method.
D. the net present value method.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix...
Learning Objective: 5
Level: Medium
27. (Ignore income taxes in this problem.) Boston Company is contemplating the purchase of a new machine on
which the following information has been gathered:
The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given
these data, the machine has a net present value of:
A. -$26,100
B. -$23,900
C. $0
D. +$26,100
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix...
Learning Objective: 5
Level: Medium
28. What is the maximum price per wheel that Walsh should be willing to pay Vega?
A. $28
B. $41
C. $42
D. $45
The maximum price is the price at which the purchasing division can purchase the units.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter Appendix... #14
Learning Objective: 5
Level: Hard
29. Suppose that Vega can sell 9,000 wheels each month to outside consumers, so transfers to the Walsh
Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the
Vega Division?
A. $28.00
B. $31.75
C. $41.00
D. $42.00
(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather
than "greater than or equal to" and "less than or equal to" signs.)
From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost + Opportunity cost
The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:
Opportunity cost = [($45 - $30) x 1,000*] 4,000 = $3.75
* 4,000 - (12,000 - 9,000) = 1,000
Therefore, Transfer price > ($30 - $2) + $3.75 = $31.75.
30. Higado Confectionery Corporation has a number of store locations throughout North America. In income
statements segmented by store, which of the following would be considered a common fixed cost?
A. store manager salaries
B. store building depreciation expense
C. the cost of corporate advertising aired during the Super Bowl
D. all of these
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 014
Learning Objective: 1
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 014
Learning Objective: 1
Level: Medium
32. The concept of economic value added (EVA) is most similar to:
A. residual income.
B. transfer pricing.
C. segment reporting.
D. return on investment.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 014
Learning Objective: 1
Level: Medium
33. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of
$50,000 for Division A, and had a contribution margin ratio of 30% in Division B, when sales in Division B
were $200,000. Net operating income for the company was $25,000 and traceable fixed expenses were $40,000.
Lyons Company's common fixed expenses were:
A. $85,000
B. $70,000
C. $45,000
D. $40,000
*Given
Solve in the following steps:
1) $200,000 x 30% = $60,000
2) $50,000 + $60,000 = $110,000
3) $110,000 - $40,000 = $70,000
4) $70,000 - $25,000 = $45,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 014
Learning Objective: 4
Level: Easy
34. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just
ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin
ratio of 30%. Net operating income for the company was $20,000 and traceable fixed costs for the two plants
totaled $50,000. Johnson Company's common fixed costs for last year were:
A. $50,000
B. $70,000
C. $40,000
D. $90,000
*Given
Solve in the following steps:
1) $200,000 x 30% = $60,000
2) $50,000 + $60,000 = $110,000
3) $110,000 - $50,000 = $60,000
4) $60,000 - $20,000 = $40,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 014
Learning Objective: 5
Level: Easy
35. Anspach Corporation has two divisions: the Governmental Products Division and the Consumer Products
Division. The Governmental Products Division's divisional segment margin is $11,800 and the Consumer
Products Division's divisional segment margin is $155,500. The total amount of common fixed expenses not
traceable to the individual divisions is $142,200. What is the company's net operating income?
A. ($167,300)
B. $25,100
C. $309,500
D. $167,300
*Given
Solve in the following steps:
1) $11,800 + $155,500 = $167,300
2) $167,300 - $142,200 = $25,100
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 014
Learning Objective: 6
Level: Easy
36. Given the following data:
ROI = Net operating income Average operating assets = $5,000 $25,000 = 20.0%
37. Last year the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets
of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover
rounded to the nearest tenth?
A. 9.5
B. 10.2
C. 9.8
D. 9.2
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 2
Level: Hard
Data for September for Mossman Corporation and its two major business segments, North and South, appear
below:
In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North
business segment and $159,000 to the South business segment.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 2
Level: Easy
38. A properly constructed segmented income statement in a contribution format would show that the net
operating income of the company as a whole is:
A. $673,000
B. $523,000
C. -$115,000
D. $204,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 3
Level: Easy
39. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear
below:
Division Y of the same company would like to use the part manufactured by Division X in one of its products.
Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute
the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of
the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the
selling division?
A. $50
B. $49
C. $46
D. $30
(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather
than "greater than or equal to" and "less than or equal to" signs.)
From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost + Opportunity cost
The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:
Opportunity cost = [($50 - $30) x 5,000] 5,000 = $20
Therefore, Transfer price > $30 + $20 = $50.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 3
Level: Easy
40. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its
usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the
company as a whole will be:
A. better off by $5,000 each period.
B. worse off by $15,000 each period.
C. worse off by $5,000 each period.
D. There will be no change in the status of the company as a whole.
Since the company's selling the units currently for $25, if they sell internally for $24, they will be worse off by
$1 per unit, or $5,000 in total ($1 x 5,000).
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 5
Level: Easy
The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred
to the Walsh Division of Ace Company. Last month the Walsh Division bought all 4,000 of its wheels from the
Vega Division for $42 each. The following data are available from last month's operations for the Vega
Company:
If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An
outside supplier has offered to supply wheels to the Walsh Division for $41 each.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 5
Level: Easy
41. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not
cut into its sales to outside customers. What should be the lowest acceptable transfer price from the perspective
of the Vega Division?
A. $28
B. $30
C. $42
D. $45
(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather
than "greater than or equal to" and "less than or equal to" signs.)
From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost + Opportunity cost
The opportunity cost zero if there is excess capacity.
Therefore, the minimum acceptable transfer > ($30 - $2) = $28.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 011
Learning Objective: 5
Level: Easy
42. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit.
Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and
administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold.
The contribution margin per unit is:
A. $3
B. $15
C. $8
D. $12
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #32
Learning Objective: 1
Level: Easy
43. Litke Corporation, a company that produces and sells a single product, has provided its contribution format
income statement for February.
If the company sells 5,100 units, its net operating income should be closest to:
A. $15,600
B. $11,700
C. $8,400
D. $14,733
Current sales dollars Current sales in units = Sales price per unit
$129,600 5,400 = $24 sales price per unit
Current variable expenses Current sales in units = Variable expense per unit
$59,400 5,400 = $11 variable expense per unit
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #34
Learning Objective: 1
Level: Easy
44. Filson Inc., a company that produces and sells a single product, has provided its contribution format income
statement for February.
If the company sells 9,700 units, its total contribution margin should be closest to:
A. $252,200
B. $74,026
C. $247,000
D. $263,200
Current contribution margin Current sales in units = Contribution margin per unit
$247,000 9,500 = $26 contribution margin per unit
If 9,700 units are sold, the total contribution margin will be 9,700 x $26, or $252,200.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #35
Learning Objective: 1
Level: Easy
45. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of
$40,000. Based on this information, the break-even point was:
A. $640,000
B. $480,000
C. $800,000
D. $960,000
* Given
Break-even point = Fixed expenses Contribution
= $200,000 25%
= $800,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #37
Learning Objective: 3
Learning Objective: 5
Learning Objective: 6
Level: Hard
46. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #42
Learning Objective: 3
Learning Objective: 6
Level: Medium
47. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a
net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales?
A. $187,500
B. $200,000
C. $225,500
D. $180,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #43
Learning Objective: 3
Learning Objective: 5
Level: Hard
48. The following is last month's contribution format income statement:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 006 #61
Learning Objective: 6
Learning Objective: 7
Level: Medium
The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.
The company has provided the following data concerning its costs:
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Fabrication activity cost pool is closest to:
A. $3.72 per machine-hour
B. $4.44 per machine-hour
C. $7.44 per machine-hour
D. $1.24 per machine-hour
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 008 #21
Learning Objective: 2
Learning Objective: 3
Level: Medium
51. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:
The company has an activity-based costing system with the following three activity cost pools and estimated
activity for the coming year:
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity
and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Order Processing activity cost pool is closest to:
A. $905 per order
B. $630 per order
C. $1,080 per order
D. $840 per order
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 008 #24
Learning Objective: 2
Learning Objective: 3
Level: Medium
52. Process costing would be appropriate for each of the following except:
A. custom furniture manufacturing.
B. oil refining.
C. grain milling.
D. newsprint production.
53. When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be
true?
A. Work in process will decrease.
B. Cost of goods sold will increase.
C. Net income will decrease.
D. Gross margin will increase.
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate
is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 607 would be:
A. $4,107
B. $6,319
C. $3,432
D. $4,863
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 003 #35
Learning Objective: 2
Learning Objective: 5
Level: Easy
55. The following data have been recorded for recently completed Job 501 on its job cost sheet. Direct
materials cost was $3,067. A total of 30 direct labor-hours and 104 machine-hours were worked on the job. The
direct labor wage rate is $12 per labor-hour. The company applies manufacturing overhead on the basis of
machine-hours. The predetermined overhead rate is $11 per machine-hour. The total cost for the job on its job
cost sheet would be:
A. $4,571
B. $3,757
C. $3,090
D. $3,427
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 003 #36
Learning Objective: 2
Learning Objective: 5
Level: Easy
56. Jarratt Inc., a manufacturing company, has provided the following data for the month of September. The
balance in the Work in Process inventory account was $21,000 at the beginning of the month and $24,000 at the
end of the month. During the month, the company incurred direct materials cost of $69,000 and direct labor cost
of $31,000. The actual manufacturing overhead cost incurred was $54,000. The manufacturing overhead cost
applied to Work in Process was $58,000. The cost of goods manufactured for September was:
A. $158,000
B. $154,000
C. $151,000
D. $155,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 003 #67
Learning Objective: 6
Level: Medium
57. Erholm Inc. has provided the following data for the month of March. The balance in the Finished Goods
inventory account at the beginning of the month was $43,000 and at the end of the month was $42,000. The cost
of goods manufactured for the month was $221,000. The actual manufacturing overhead cost incurred was
$45,000 and the manufacturing overhead cost applied to Work in Process was $49,000. The adjusted cost of
goods sold that would appear on the income statement for March is:
A. $218,000
B. $220,000
C. $222,000
D. $221,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 003 #68
Learning Objective: 6
Level: Medium
58. The linear equation Y = a + bX is often used to express cost formulas. In this equation:
A. the b term represents variable cost per unit of activity.
B. the a term represents variable cost in total.
C. the X term represents total cost.
D. the Y term represents total fixed cost.
60. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost
data for two levels of monthly sales volume. The company sells the product for $172.50 per unit.
The best estimate of the total contribution margin when 4,300 units are sold is:
A. $343,140
B. $65,790
C. $121,260
D. $411,080
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 005 #28
Learning Objective: 1
Learning Objective: 3
Learning Objective: 4
Level: Hard
61. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-
hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000
machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance
cost if the activity level is 8,700 machine-hours?
A. $2,000
B. $400
C. $2,250
D. $1,740
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 005 #29
Learning Objective: 1
Learning Objective: 3
Level: Medium
62. Dabbs Corporation has provided the following production and total cost data for two levels of monthly
production volume. The company produces a single product.
The best estimate of the total monthly fixed manufacturing cost is:
A. $737,950
B. $686,400
C. $274,000
D. $789,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Garrison - Chapter 005 #35
Learning Objective: 1
Learning Objective: 3
Level: Medium
Review Cumulative Test Summary
Category # of Questions
AACSB: Analytic 52
AACSB: Reflective Thinking 10
AICPA BB: Critical Thinking 61
AICPA BB: Industry 1
AICPA FN: Measurement 62
Garrison - Chapter 003 5
Garrison - Chapter 004 1
Garrison - Chapter 005 5
Garrison - Chapter 006 7
Garrison - Chapter 008 3
Garrison - Chapter 009 14
Garrison - Chapter 011 8
Garrison - Chapter 012 10
Garrison - Chapter 014 7
Garrison - Chapter Appendix... 9
Learning Objective: 1 18
Learning Objective: 2 14
Learning Objective: 3 15
Learning Objective: 4 3
Learning Objective: 5 17
Learning Objective: 6 7
Learning Objective: 7 1
Learning Objective: 8 1
Level: Easy 25
Level: Hard 9
Level: Medium 28
Source: CMA, adapted 3