ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
1. The materials purchase budget:
A. is the beginning point in the budget process.
B. must provide for desired ending inventory as well as for production.
C. is accompanied by a schedule of cash collections.
D. is completed after the cash budget.
2. Which of the following budgets are prepared before the sales budget?
A. Option A
B. Option B
C. Option C
D. Option D
3. There are various budgets within the master budget. One of these budgets is the production
budget. Which of the following BEST describes the production budget?
A. It details the required direct labor hours.
B. It details the required raw materials purchases.
C. It is calculated based on the sales budget and the desired ending inventory.
D. It summarizes the costs of producing units for the budget period.
4. Tolla Company is estimating the following sales for the first six months of next year:
Sales at Tolla are normally collected as 70% in the month of sale, 25% in the month following
the sale, and the remaining 5% being uncollectible. Also, those customers paying in the month of
sale are given a 2% discount. Based on this information, how much cash should Tolla expect to
collect during the month of April?
A. $281,260
B. $361,260
C. $366,010
D. $393,760
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
5. Golebiewski Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 4,900 direct labor-hours will be required in November. The
variable overhead rate is $8.40 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $78,400 per month, which includes depreciation of $10,290. All other
fixed manufacturing overhead costs represent current cash flows. The company recomputes its
predetermined overhead rate every month. The predetermined overhead rate for November
should be:
A. $22.30
B. $16.00
C. $24.40
D. $8.40
6. The Stacy Company makes and sells a single product, Product R. Budgeted sales for April are
$300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is
budgeted at $40,000, the budgeted selling and administrative expenses are:
A. $133,333
B. $50,000
C. $102,000
D. $78,000
Using the following information to answer questions 7-11
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were
$16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation,
assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four
months appear below.
The company desires that the merchandise inventory on hand at the end of each month be equal
to 50% of the next month's merchandise sales (stated at cost). All purchases of merchandise
inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash;
the balance will be on credit. Seventy-five percent of the credit sales should be collected in the
month following the month of sale, with the balance collected in the following month. Variable
selling and administrative expenses should be 10% of sales and fixed expenses (all depreciation)
should be $3,000 per month. Cash payments for the variable selling and administrative expenses
are made during the month the expenses are incurred.
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
7. In a budgeted income statement for the month of February, net income would be:
A. $9,000
B. $1,800
C. $0
D. $4,200
8. In a budgeted balance sheet, the Merchandise Inventory on February 28:
A. $4,800
B. $7,500
C. $9,600
D. $3,200
9. The Accounts Receivable balance that would appear in the March 31 budgeted balance sheet
would be:
A. $15,000
B. $16,000
C. $8,800
D. $12,400
10. In a cash budget for March, the total cash receipts would be:
A. $17,800
B. $8,200
C. $20,200
D. $16,000
11. In a cash budget for March, the total cash disbursements would be:
A. $11,200
B. $13,900
C. $22,300
D. $16,900
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
Using the following information to answer questions 12-15
Reenu Company manufactures wigs out of used dental floss. The variable cost standards for wig
production developed by Reenu are as follows:
Variable overhead at Reenu is based on direct labor-hours. The actual results for the month of
October were as follows:
12. What is Reenu's materials price variance for October?
A. $1,680 favorable
B. $12,760 unfavorable
C. $14,440 unfavorable
D. $15,420 unfavorable
13. What is Reenu's materials quantity variance for October?
A. $2,660 unfavorable
B. $14,440 unfavorable
C. $17,100 unfavorable
D. $51,300 unfavorable
14. What is Reenu's labor efficiency variance for October?
A. $2,700 favorable
B. $7,200 unfavorable
C. $9,900 unfavorable
D. $27,600 favorable
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
15. What is Reenu's variable overhead rate variance for October?
A. $3,400 favorable
B. $4,850 unfavorable
C. $8,250 unfavorable
D. $26,400 favorable
16. Which of the following represents value-added time in the manufacturing cycle?
A. Inspection time.
B. Queue time.
C. Move time.
D. Process time.
17. A labor efficiency variance resulting from the use of poor quality materials should be
charged to:
A. the production manager.
B. the purchasing agent.
C. manufacturing overhead.
D. the engineering department.
18. A favorable labor rate variance indicates that
A. actual hours exceed standard hours.
B. standard hours exceed actual hours.
C. the actual rate exceeds the standard rate.
D. the standard rate exceeds the actual rate.
19. The materials price variance should be computed:
A. when materials are purchased.
B. when materials are used in production.
C. based upon the amount of materials used in production when only a portion of materials
purchased is actually used.
D. based upon the difference between the actual quantity of inputs and the standard quantity
allowed for output times the standard price.
20. Under a standard cost system, the materials price variances are usually the responsibility of
the:
A. production manager.
B. sales manager.
C. purchasing manager.
D. engineering manager.
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
21. Managers sometimes do not act in ways that are in the best interests of the overall company.
What is the term for this?
A. Strategic approach
B. Suboptimization
C. Optimal motivation
D. Responsibility accounting
22. Division X of Charter Corporation makes and sells a single product which is used by
manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers at
$24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is $16.
Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use
in its products. There would be no cost savings from transferring the units within the company
rather than selling them on the outside market. What should be the lowest acceptable transfer
price from the perspective of Division X?
A. $24.00
B. $21.40
C. $17.60
D. $16.00
Using the following to answer questions 23-25
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.
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
23. 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
24. What is the maximum price per wheel that Walsh should be willing to pay Vega?
A. $28
B. $41
C. $42
D. $45
25. 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
26. A company that has a profit can increase its return on investment by:
A. increasing sales revenue and operating expenses by the same dollar amount.
B. increasing average operating assets and operating expenses by the same dollar amount.
C. increasing sales revenue and operating expenses by the same percentage.
D. decreasing average operating assets and sales by the same percentage.
27. Bonniwell Corporation has two divisions: the Delta Division and the Alpha Division. The
Delta Division has sales of $620,000, variable expenses of $359,600, and traceable fixed
expenses of $229,200. The Alpha Division has sales of $820,000, variable expenses of $541,200,
and traceable fixed expenses of $172,900. The total amount of common fixed expenses not
traceable to the individual divisions is $122,000. What is the company's net operating income?
A. $539,200
B. $15,100
C. $137,100
D. $417,200
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
28. Given the following data:
Return on investment (ROI) would be:
A. 10%
B. 20%
C. 16.7%
D. 80%
Using the following to answer questions 29-30
Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown
below is last year's income statement segmented by product line:
Net operating income last year for Licuado Company as a whole was $24,800.
29. If the Carrot product line would have been dropped at the beginning of last year, how would
this have changed the net operating income of Licuado Company as a whole?
A. $2,400 increase
B. $3,000 decrease
C. $5,400 increase
D. $12,000 decrease
30 Licuado is considering the implementation of a $5,000 advertising program specifically
targeted at one of the four product lines. The program is expected to increase sales for any one of
the product lines by $12,000. If the goal is to maximize the company's net operating income, for
which product line should Licuado implement the advertising program?
A. Orange
B. Tomato
C. Carrot
D. Grape
E. any one of the product lines; the effect on net operating income will be identical
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
Using the following to answer questions 31-33
Kulp Corporation has two major business segments-East and West. In July, the East business
segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed
expenses of $171,000. During the same month, the West business segment had sales revenues of
$450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common
fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business
segment and $141,000 to the West business segment.
31. The contribution margin of the West business segment is:
A. $108,000
B. $675,000
C. $288,000
D. $216,000
32. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the East business segment is:
A. $288,000
B. $279,000
C. $108,000
D. $441,000
33. 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. $138,000
B. $675,000
C. $459,000
D. -$183,000
Using the following to answer questions 34-37
The Axle Division of LaBate Company makes and sells only one product. Annual data on the
Axle Division's single product follow:
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
34. If Axle sells 15,000 units per year, the residual income should be:
A. $30,000
B. $100,000
C. $50,000
D. $10,000
35. If Axle sells 16,000 units per year, the return on investment should be:
A. 12%
B. 15%
C. 16%
D. 18%
36. Suppose the manager of Axle desires a return on investment of 22%. In order to achieve this
goal, Axle must sell how many units per year?
A. 14,500
B. 16,750
C. 18,250
D. 19,500
37. Suppose the manager of Axle desires an annual residual income of $45,000. In order to
achieve this, Axle should sell how many units per year?
A. 14,500
B. 16,750
C. 18,250
D. 19,500
38. For which of the following decisions are opportunity costs relevant?
A. Option A
B. Option B
C. Option C
D. Option D
39. Which of the following costs are always irrelevant in decision making?
A. avoidable costs
B. sunk costs
C. opportunity costs
D. fixed costs
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
40. For which of the following decisions are sunk costs relevant?
A. the decision to keep an old machine or buy a new one.
B. the decision to sell a product at the split-off point or after further processing.
C. the decision to accept or reject a special order offer.
D. all of the above.
E. none of the above.
41. The opportunity cost of making a component part in a factory with excess capacity for which
there is no alternative use is:
A. the variable manufacturing cost of the component.
B. the total manufacturing cost of the component.
C. the fixed manufacturing cost of the component.
D. zero.
42. Allocated common fixed costs:
A. can make a product line appear to be unprofitable.
B. are always incremental costs.
C. are always relevant in decisions involving dropping a product line.
D. responses A, B, and C are all correct.
43. Curly Inc. is considering whether to continue to make a component or to buy it from an
outside supplier. The company uses 16,000 of the components each year. The unit product cost
of the component according to the company's cost accounting system is given as follows:
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 the constraining machine and that has a contribution margin of $8.10 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. $20.60
B. $17.52
C. $24.65
D. $21.57
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
44. A customer has requested that Daleske Corporation fill a special order for 2,000 units of
product D84 for $20.30 a unit. While the product would be modified slightly for the special
order, product D84's normal unit product cost is $18.50:
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
D84 that would increase the variable costs by $2.50 per unit and that would require an
investment of $7,000 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:
A. ($14,900)
B. ($5,800)
C. $3,600
D. ($8,400)
45. Supreme Celery Corporation manufactures four celery based products. Floods and fire on the
west coast are going to cause a shortage of celery for Supreme next month. Information related
to the four celery products that it produces are shown below. The numbers relate to the cost per
case and the amount of celery per case of product:
To maximize profit next month, in what order would it be best for Supreme to schedule
production (first to last)?
A. Jelly, Cracker Spread, Soup, Snack Bars
B. Jelly, Snack Bars, Cracker Spread, Soup
C. Cracker Spread, Snack Bars, Jelly, Soup
D. Snack Bars, Jelly, Soup, Cracker Spread
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
46. (Ignore income taxes in this problem.) The Whitton Company uses a discount rate of 16%.
The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows
of $10,000 per year for each of the next three years. The machine would have no salvage value.
The net present value of this machine to the nearest whole dollar is:
A. $22,460
B. $4,460
C. $(9,980)
D. $12,000
Using the following to answer questions 47-50
(Ignore income taxes in this problem.) Jones and Company has just purchased a new piece of
equipment, the cost characteristics of which are given below:
The company uses a required rate of return of 10% and depreciates equipment using the straightline method.
47. The payback period for the investment is:
A. 5 years
B. 15 years
C. 2 years
D. 7.143 years
48. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:
A. 20.0%
B. 13.3%
C. 18.0%
D. 10.0%
49. The net present value of the investment is:
A. $15,636
B. $24,000
C. $45,636
D. $60,000
50. The internal rate of return of the investment is closest to:
A. 16%
B. 18%
C. 20%
D. 22%
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ACCT 5302
Multiple Choice Review Questions and Answers – Exam 2
ANSWERS:
1. B
2. D
3. C
4. B
5. C
6. B
7. D
8. A
9. C
10. A
11. B
12. A
13. A
14. C
15. A
16. D
17. B
18. D
19. A
20. C
21. B
22. C
23. A
24. B
25. B
26. C
27. B
28. B
29. B
30. B
31. D
32. A
33. A
34. D
35. C
36. C
37. B
38. A
39. B
40. E
41. D
42. A
43. D
44. B
45. C
46. B
47. A
48. B
49. A
50. B
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