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Week 6 Lecture

Revision

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1. Which of the following represents the normal sequence in which the indicated budgets are prepared?

A. Direct Materials, Cash, Sales

B. Production, Cash, Income Statement

C. Sales, Balance Sheet, Direct Labour

D. Production, Production Overhead, Sales

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2. Budgeted production needs are determined by:

A. adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total.

B. adding budgeted sales in units to the beginning inventory in units and deducting the desired ending inventory in units from this total.

C. adding budgeted sales in units to the desired ending inventory in units.

D. deducting the beginning inventory in units from budgeted sales in units.

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3. Zero-based budgeting:

A. does not adjust costs for the expected level of activity.

B. is used when no increases in budgets are allowed.

C. requires that all programs be justified and prioritized.

D. assumes that departments are entitled to at least the current level of spending.

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4. Shocker Company’s sales budget shows quarterly sales for the next year as follows:

Unit Sales

Quarter 1..... 10,000 units

Quarter 2..... 8,000 units

Quarter 3..... 12,000 units

Quarter 4..... 14,000 units

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 of the next year would be:

A. 7,200 units B. 8,000 units

C.8,800 units D. 8,400 units

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5. Prestwich Company has budgeted production for the next year as follows:

Production in units

Quarter 1..... 60,000

Quarter 2..... 80,000

Quarter 3..... 90,000

Quarter 4..... 70,000

Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter’s production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

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5.

A. 82,500 pounds.

B. 165,000 pounds

C. 200,000 pounds

D. 205,000 pounds

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Use the following to answer questions 6 - 7

The regular pattern of collection of credit sales is 30% in the month of sale, 60% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts.

April May June July

Credit Sales.... $320,000 $300,000 $350,000 $400,000

Cash Sales..... $70,000 $80,000 $90,000 $70,000

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6. The budgeted cash receipts for July would be:

A. $400,000.

B. $430,000

C. $435,000

D. $390,000

7. The budgeted accounts receivable balance on May 31 would be:

A. $210,000.

B. $212,000

C. $180,000

D. $242,000

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8. During the budget period, opening debtors are $15,200, credit sales total $95,000 and closing debtors are $16,000. The amounts received from customers included in the cash budget are:

A. $63,800

B. $94,200

C. $95,800

D. $110,200

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9. If investment A has a payback period of 3 years and investment B has a payback period of 4 years, then:

A. A is more profitable than B.

B. A is less profitable than B

C. A and B are equally profitable.

D. The relative profitability of A and B cannot be determined using only the payback periods.

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10. A decrease in the discount rate:

A. will increase present values of future cash flows

B. is one way to compensate for greater risk in a project.

C. will reduce present values of future cash flows.

D. responses A and B are both correct.

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RatePeriods 10% 12% 14%

1 0.909 0.893 0.877 2 0.826 0.797 0.769 3 0.751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.567 0.519

RatePeriods 10% 12% 14%

1 0.909 0.893 0.877 2 0.826 0.797 0.769 3 0.751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.567 0.519

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11. A company is planning to invest in a machine with a useful life of five years and no salvage value. The machine is expected to produce cash flow from operations of $20,000 in each of the five years. The company’s required rate of return is 10%. The maximum price that the company would pay for the machine would be:

A. $32,220

B. $62,100

C. $75,800

D. $122,100

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Use the following data pertain to an investment proposal to answer questions 12 - 14

Cost of machinery $35,000

Additional working capital $10,000

Accounting profit $8,000

Estimated salvage value $7,000

Life of the project 4 years

Discount rate 14%

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12. The accounting rate of return is:

A. 25.8% B. 38.1% C. 48.4% D. 71.4%

13. The payback period is:

A. 1 year B. 2 years C. 3 years D. 4 years

14. The net present value is:

A. $2,524 B. $17,639 C. $21,286 D. $31,000

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15. Which of the following would probably be the least appropriate absorption base for absorbing overhead in a highly automated manufacturer of specialty valves?

A. machine-hours

B. power consumption

C. direct labour-hours

D. machine setups

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16. Malcolm Company uses an overhead absorption rate based on direct labor hours to apply production overhead to jobs.

On September 1, the estimates for the month were:

Production overhead............ $17,000

Direct labour hours............... 13,600

During September, the actual results were:

Production overhead............ $18,500

Direct labour hours............... 12,000

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16.

The cost records for September will show:

A. Over-absorbed overhead of $1,500.

B. Under-absorbed overhead of $1,500.

C. Over-absorbed overhead of $3,500.

D. Under-absorbed overhead of $3,500.

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17. Nil Co. uses an overhead absorption rate based on direct labour cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil’s estimated manufacturing overhead was $600,000, based on an eatimated volume of 50,000 direct labour hours, at a direct labour rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000, with actual direct labour cost of $325,000. For the year, manufacturing overhead was:

A. Over-absorbed by $20,000

B. Under-absorbed by $22,000

C. Over-absorbed by $30,000

D. Under-absorbed by $30,000

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18. Pinnini Co. uses an overhead absorption rate based on direct labour hours to apply manufacturing overhead to jobs. Last year, Pinnini Company incurred $225,000 in actual manufacturing overhead cost. The manufacturing Overhead account showed that overhead was over-absorbed $14,500 for the year. If the overhead absorption rate was $5.00 per direct labour hour, how many hours did the company work during the year?

A. 45,000 hours

B. 47,900 hours

C. 42,100 hours

D. 44,000 hours

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Use the following to answer questions 19 - 22

A2 Company Limited is a diversified manufacturer of industrial goods. The company’s activity-based costing system has the following three activity cost pools and activity rates:

Activity Cost Pool Expected Overhead Cost Expected Activity

Labor related $14,000 2,000 direct labor-hours

Machine related $12,000 4,000 machine-hours

Machine setups $400 10 machine setups

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Use the following to answer questions 19 - 22

Cost and activity data for Job J1 have been supplied as follows:

J1

Direct materials cost per unit $6.00

Direct labor cost per unit $3.00

Number of units produced per year 4,000

J1 Actual Activity

Direct labor-hours 1,000

Machine-hours 3,200

Machine setups 5

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19. The cost driver rate (predetermined overhead rate) for the labor related cost pool was:

A. $8.00

B. $7.00

C. $6.00

D. $5.00

20. The amount of machine related overhead applied to Job J1 was:

A. $3,000

B. $7,000

C. $9,600D. $22,400

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21. Total overhead applied to Job J1 was:

A. $14,800

B. $15,800

C. $16,800D. $17,800

22. The unit product cost of Job J1 was:

A. $12.45

B. $13.20

C. $13.45D. $14.20

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Use the following to answer questions 23 - 25

Monrovia Bike Corporation manufactures two models of bicycles: the “Runner” and the “Jumper.” In the past, Monrovia had been using a traditional overhead absorption system based on machine hours. Monrovia has decided to switch to an activity-based costing system using two activity cost pools. Information related to the new system is as follows:

Activity Estimated Overhead

Cost

Estimated Activity

Automated assembly $189,000 7,000 machine hours

Parts management $63,000 100 part numbers

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Use the following to answer questions 23 - 25

Actual activity for the year for the two models of bicycles were as follows:

Bicycles

Produced

Machine

Hours Used

Part

Number Used

Jumper 300 2,400 70

Runner 960 4,800 30

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23. Under the new activity-based costing system, what amount of overhead cost would Monrovia assign to each Jumper bicycle?

A. $357.00

B. $363.00

C. $656.25

D. $657.00

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24. If Monrovia was still using its traditional system, how much overhead cost would have been assigned to each Runner bicycle?

A. $135.00

B. $175.00

C. $180.00

D. $200.00

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25. If Monrovia’s actual overhead cost was $257,600, what would total under- or over-absorbed overhead be for the year under the new activity-based costing system?

A. $200 over-absorbed

B. $3,800 over-absorbed

C. $3,800 under-absorbed

D. $200 under-absorbed

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26. A company’s total costs and associated output levels for the last four accounting periods have been:

What are the estimated fixed costs per period?

A. $38,000

B. $48,000

C. $56,000

D. $66,000

Total costs Output

Period 1 $120,000 6,000 units

2 $160,000 10,000 units

3 $180,000 11,000 units

4 $130,000 7,000 units

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Use the following to answer questions 27 - 28

B2 employs a standard cost system and sells a single product. Each product has a standard cost of 0.8 kilograms of materials at $2.00 per kilogram.

During a recent month, the company manufactured 10,000 units of products using 8,200 kilograms of materials at a total cost of $14,760.

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27. The direct materials price variance is:

A. $1,240 Favourable

B. $1,240 Unfavourable

C. $1,640 Favourable

D. $1,640 Unfavourable

28. The direct materials quantity variance is:

A. $400 Favourable

B. $400 Unfavourable

C. $600 Favourable

D. $600 Unfavourable

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29. A company produced 12,000 units of product and the labour rate variance for the month was $2,000 favourable. The actual wages amounted to $124,000 and the actual hours worked were 10,000.

What was the standard hourly rate of pay?

A. $10.50

B. $11.60

C. $12.20

D. $12.60

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30. An unfavourable labor rate variance can possibly be explained by which of the following factors?

A. Better negotiation skill with labor union.

B. Less overtime works which were paid at premium rates.

C. Employed more skilled workers.

D. More supply of labors.