Professional Documents
Culture Documents
Summer 2006
Pledge:
On my honor I have neither given or received help on this exam. I understand that any
violation of the University Honor Policy will result in an automatic zero on this exam, and
that I will be subject to all sanctions available under the University's Honor Policy.
1. A segment of a business responsible for both revenues and expenses would be called:
A) a cost center.
B) an investment center.
C) a profit center.
D) residual income.
2. Lanta Restaurant compares monthly operating results with a static budget prepared at the
beginning of the year. When actual sales are less than budget, would the restaurant
usually report favorable variances on variable food costs and fixed supervisory salaries?
3. All other things equal, a company's return on investment (ROI) would generally increase
when:
A) average operating assets increase.
B) sales decrease.
C) operating expenses decrease.
D) operating expenses increase.
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5. Consider the following three statements:
I. A profit center has control over both cost and revenue.
II. An investment center has control over invested funds, but not over costs and
revenue.
III. A cost center has no control over sales
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10. In a job order cost system, the amount of overhead cost that has been applied to a job that
remains incomplete at the end of a period:
A. is deducted on the Income Statement as overapplied overhead.
B) is closed to Cost of Goods Sold.
C) is transferred to Finished Goods at the end of the period.
D) is part of the ending balance of the Work in Process inventory account.
E) none of the above.
11. Which one of the following costs would not be considered an indirect cost of serving a
particular customer at a Pizza Hut franchise?
A) The salary of the franchise's manager.
B) The cost of the tables and chairs used to furnish the restaurant.
C) The cost of the dough used to make the pizza that is ordered.
D) The cost of lighting and heating the restaurant.
12. If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit
balance in the Manufacturing Overhead account at the end of any period means that:
A) more overhead cost has been charged to jobs than has been incurred during the
period.
B) more overhead cost has been incurred during the period than has been charged to
jobs.
C) the amount of overhead cost charged to jobs is greater than the estimated cost for the
period.
D) the amount of overhead cost charged to jobs is less than the estimated overhead cost
for the period.
E) none of the above.
14. The Precision Company used a predetermined overhead rate last year of $3 per direct
labor hour, based on an estimate of 24,000 direct labor hours to be worked during the
year. Actual costs and activity during the year were:
A) $3,000 underapplied.
B) $3,000 overapplied.
C) $12,000 underapplied.
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D) $12,000 overapplied.
15 Variable cost:
A) increases on a per unit basis as the number of units produced increases.
B) remains constant on a per unit basis as the number of units produced increases.
C) remains the same in total as production increases.
D) decreases on a per unit basis as the number of units produced increases.
18. Expense A is a fixed cost; expense B is a variable cost. During the current year the
activity level has increased, but is still within the relevant range. In terms of cost per unit
of activity, we would expect that:
A) expense A has remained unchanged.
B) expense B has decreased.
C) expense A has decreased.
D) expense B has increased.
19. 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.
E) None of the above
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Use the following to answer questions 20-21:
The following is Allison Corporation's contribution format income statement for last month:
Sales $800,000
Less variable expenses 300,000
Contribution margin 500,000
Less fixed expenses 400,000
Net income $100,000
The company has no beginning or ending inventories. The company produced and sold 10,000
units last month.
21. If sales increase by 200 units, by how much should net income increase?
A) $16,000
B) $5,000
C) $2,000
D) $10,000
E) None of the above
22. Beaver Company used a predetermined overhead rate last year of $2 per direct labor
hour, based on an estimate of 25,000 direct labor hours to be worked during the year.
Actual costs and activity during the year were:
23. Under Lamprey Company's job-order costing system, manufacturing overhead is applied
to Work in Process inventory using a predetermined overhead rate. During January,
Lamprey's transactions included the following:
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Lamprey Company had no beginning or ending inventories. What was the cost of goods
manufactured for January?
A) $302,000
B) $310,000
C) $322,000
D) $330,000
E) None of the above
26. If the actual labor hours worked exceed the standard labor hours allowed, what type of
variance will occur?
A) Favorable labor efficiency variance.
B) Favorable labor rate variance.
C) Unfavorable labor efficiency variance.
D) Unfavorable labor rate variance.
E) None of the above.
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28. Which of the following statements is true?
I. A direct material quantity standard generally includes an allowance for waste.
II. An unfavorable labor rate variance can occur if workers with high hourly wage
rates are assigned to work on products whose standards assume workers with low
hourly wage rates.
A) Statement I
B) Statement II
C) Neither statement is true.
D) Both statements are true.
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Part II – Problems (65 points)
1. The Lopez Company uses standard costing its manufacturing plant for auto-parts.
The standard cost of a particular auto-part, based on a denominator level of 4,000
output units per year, budgeted variable overhead of $192,000, and budgeted fixed
overhead of $360,000 is as follows:
There was no beginning or ending raw materials inventory, actual production was
4,400 units, and actual costs were as follows.
Calculate the following variances. Be sure to indicate favorable or unfavorable! (40 points)
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Blank
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2. Seco Corp., a wholesale supply company, uses independent sales agents to market the
company's products. These agents currently receive a commission of 20% of sales, but
are demanding an increase to 25% of sales. Seco had already prepared its budget for next
year before learning of the sales agents' demand for an increase in commissions. That
budgeted income statement appears below:
SECO CORP.
Budgeted Income Statement
Sales $10,000,000
Cost of sales 6,000,000
Gross margin 4,000,000
Selling and administrative expenses:
Commissions $2,000,000
All other expenses (fixed) 100,000 2,100,000
Net income $ 1,900,000
Seco is considering the possibility of employing its own salespersons. Three individuals
would be required, at a salary of $30,000 each, plus commissions of 5% of sales. In
addition, a sales manager would be employed at a fixed annual salary of $160,000.
a. Compute Seco's break-even point in sales dollars based upon the company's budgeted
income statement, assuming that the company continues to use independent sales
agents and that they are paid the old commission rate of 20% of sales.
b. Compute Seco's break-even point in sales dollars, assuming that the company
employs its own salespersons.
Answer:
a. Estimated break-even based on the budgeted income statement.
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Fixed expenses:
Sales manager $ 160,000
3 salespersons @ $30,000 each 90,000
Administrative 100,000
Total $ 350,000
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