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You are on page 1of 6

1) The four typical categories of cash flow for an investment project are: (1) net initial

investment, (2) net income, (3) after tax cash flow from operations, and (4) after tax

cash flow from terminal disposal of an asset.

A. correct B. false

Answer: B

Chapter 7

3-5 based on the following question

Caan Corporation used the following data to evaluate their current operating system.

The company sells items for $20 each and used a budgeted selling price of $20 per

unit.

Actual Budgeted

Units sold 200,000 units 203,000 units

Variable costs $1,250,000 $1,500,000

Fixed costs $ 925,000 $ 900,000

A) $60,000 favorable

B) $60,000 unfavorable

C) $6,000 favorable

D) $6,000 unfavorable

Answer: B

Explanation: B) (200,000 units × $20) - (203,000 units × $20) = $60,000 U

A) $200,000 favorable

B) $50,000 unfavorable

C) $250,000 favorable

D) $250,000 unfavorable

Answer: C

Explanation: C) $1,250,000 - $1,500,000= $250,000 F

1

5 What is the static-budget variance of operating income?

A) $165,000 favorable

B) $190,000 unfavorable

C) $60,000 favorable

D) $60,000 unfavorable

Answer: A

Explanation: A) Actual Static Static-budget

Results Budget Variance

Units sold 200,000 203,000

Revenues $4,000,000 $4,060,000 $(60,000) U

Variable costs 1,250,000 1,500,000 (250,000) F

Contribution margin$2,750,000 $2,560,000 190,000 F

Fixed costs 925,000 900,000 25,000 U

Operating income $1,825,000 $1,660,000 $165,000 F

Chapter 8

6 The major challenge when planning fixed overhead is:

A) calculating total costs

B) calculating the cost-allocation rate

C) choosing the appropriate level of capacity

D) choosing the appropriate planning period

Answer: C

A) reducing the consumption of the cost-allocation base

B) eliminating nonvalue-adding variable costs

C) planning for appropriate capacity levels

D) Both A and B are correct.

Answer: D (page 286)

2

8-12 based on the following question

Russo Corporation manufactured 16,000 air conditioners during November. The

overhead cost-allocation base is $31.50 per machine-hour. The following variable

overhead data pertain to November:

Actual Budgeted

Production 16,000 units 18,000 units

Machine-hours 7,875 hours 9,000 hours

Variable overhead cost per machine-hour: $31.00 $31.50

A) $244,125

B) $ 279,000

C) $248,063

D) $250,000

Answer: A

Explanation: A) 7,875 mh × $31.00 = $244,125

A) $248,033

B) $252,000

C) $248,000

D) $279,000

Answer: B

Explanation: B) 16,000 × (9,000/18,000) × $31.50 = $252,000

A) $4,500 unfavorable

B) $3,937.50 unfavorable

C) $4,500 favorable

D) $3,937.50 favorable

Answer: D

Explanation: D) ($31.00- $31.50) × 7,875 mh = $3,937.50 favorable

3

11) What is the variable overhead efficiency variance? (page 289)

A) $3,937.50 favorable

B) $3,937.50 unfavorable

C) $4,500 favorable

D) $4,500 unfavorable

Answer: A

Explanation: A) [7,875 - (16,000 × 9,000/18,000) mh] × $31.50 = $3,937.50

favorable

A) $7,875 unfavorable

B) $3,937.50 f unfavorable

C) $7,875 favorable

D) $3,937.50 f favorable

Answer: C

Explanation: C) Actual variable overhead - Flexible budgeted variable overhead

(7,875 mh × $31.00) - [16,000 × (9,000/18,000) mh × $31.50]

$244,125 - $252,000 = $7,875 favorable

Chapter 10

13) Which of the following does NOT represent a cause-and-effect relationship?

A) Material costs increase as the number of units produced increases.

B) A company is charged 40 cents for each brochure printed and mailed.

C) Utility costs increase at the same time that insurance costs increase.

D) It makes sense that if a complex product has a large number of parts it will take

longer to assemble than a simple product with fewer parts.

Answer: C

4

Presented below are the production data for the first six months of the year for the

mixed costs incurred by Gallup Company.

January $4,890 4,100

February 4,024 3,200

March 6,480 5,300

April 8,840 7,500

May 5,800 4,800

June 7,336 6,600

14) How would the cost function be stated?

A) y = $440 + $1.12X

B) y = $3,562.30 + $0.144X

C) y = $107.20 + $1.12

D) y = $7,850 + $0.132X

Answer: A

Explanation: A) b = ($8,840 - $4,024) / (7,500 - 3,200) = $1.12

$8,840 = a + $1.12 × 7,500

a = $440

Cost function is Y=$440 + $1.12X

(machine-hours and number of packages) in two different equations to evaluate costs

of the packaging department. The most recent results of the two regressions are as

follows:

Machine-hours:

Variable Coefficient Standard Error t-Value

Constant $748.30 $341.20 2.19

Independent Variable $52.90 $35.20 1.50

r2 = 0.33

Number of packages:

Variable Coefficient Standard Error t-Value

Constant $242.90 $75.04 3.24

Independent Variable $5.60 $2.00 2.80

r2 = 0.73

5

Required:

a. What are the estimating equations for each cost driver?

b. Which cost driver is best and why?

Answer:

a. Machine-hours y = $748.30 + $52.90X

Number of packages y = $242.90 + $5.60X

b. Machine-hours has a low r2 which implies that a small proportion of the variance

is explained by machine-hours, thereby making it less attractive than number of

packages as a cost predictor.

Also, for the independent variable, number of packages, the t-value of 2.80

indicates that a relationship exists between the independent and dependent variables.

For machine-hours, the t-value (1.50) is below 2.00, indicating that the coefficient is

not significantly different from zero and that there may not be a relationship between

the independent and dependent variables.

The t-values of the constant terms (g) for both drivers is greater than 2.00,

therefore, there is no distinguishing characteristic between the constants.

Given the above findings, it appears that number of packages is the best predictor

of costs of the packing department.

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