Chpt.

Exam 3 Review Problems

1.

MedSupplies Company has budgeted purchases of inventory for December of $140,000. Expected
beginning inventory on December 1 and ending inventory on December 31 are $90,000 and $120,000,
respectively. If cost of goods sold averages 80% of sales, what are budgeted sales for December?

2.

Kaylas Toys budgeted sales of $300,000 for the month of November and cost of goods sold equal to
70% of sales. Beginning inventory for November was $50,000 and ending inventory for November is
estimated at $55,000. How much are the budgeted purchases for November?

3.

SuperOffice Company expects its November sales to be 20% higher than its October sales of $180,000.
Purchases were $110,000 in October and are expected to be $160,000 in November. All sales are on
credit and are collected as follows: 30% in the month of the sale and 60% in the following month.
Purchases are paid 40% in the month of purchase and 60% in the following month. The cash balance on
November 1 is $13,500. The cash balance on November 30 will be:

4.

Blaney Lumbers forecasted sales for April; May; June; and July are $200,000; $230,000; $190,000; and
$240,000; respectively. Sales are 60% cash & 40% credit with all accounts receivables collected in month
following the sale. COGS is 75% of sales and ending inventory is maintained at $60,000 plus 10% of the
following months cost of goods sold. All inventory purchases are paid 20% in the month of purchase and
80% in the following month. What are the budgeted cash payments in June for inventory purchases?

5.

Bigelow Company budgets payroll at $4,000 per month plus a percentage of monthly sales. The June
operating expense budget includes total payroll of $12,000 with budgeted sales of $160,000. Sales for July
are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and
insurance for July are estimated at $1,000 and $600, respectively. Office and administrative expenses
related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500
in equipment and $1,500 in furniture is expected in July. The July payroll should be budgeted at:

Chpt 10 Problems
6.

During April, Gator Co. had actual sales of $160,000 compared to budgeted sales of $190,000. Actual cost
of goods sold was $105,000, compared to a budget of $125,500. Monthly operating expenses budgeted at
$28,000, totaled $25,000. Interest revenue of $2,500 was earned during April but had not been included in
the budget. The performance report for April would show a net income variance of how much, and would
it be favorable or unfavorable?

7.

Rockwell Corporation manufactures and sells computer keyboards. The keyboard sells for $55 per unit
and its variable costs per unit are $42. Fixed costs are $80,000 per month for sales volumes up to 40,000
keyboards. If more than 40,000 keyboards are sold, the fixed costs will be $110,000. The flexible budget
would reflect what monthly operating income for a sales volume of 52,000 keyboards?

8.

Scion Corp. provided following partially completed monthly flexible budget. Complete the flexible budget.
Flexible Budget
Flexible Budget for Various levels of Volume
Formula per Unit
Units
8,000
9,000
10,000
Sales Revenue
$20.00
Variable Expenses
$54,000
Fixed Expenses
$75,000
Total expenses
Operating Income
$65,000
1

9. Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year
sales were 55,000 units at $22.00 per unit. Actual variable costs, budgeted at $14.00 per unit, totaled $15.00 per
unit. Budgeted fixed costs totaled $150,000 while actual fixed costs amounted to $170,000.
What is the flexible budget variance? What is the flexible budget variance for total expenses?
10. Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year
sales were 55,000 units at $22.00 per unit. Actual variable costs, budgeted at $15.00 per unit, totaled $14.00 per
unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.
What is the sales volume variance? What is the sales volume variance for total revenue?
11.

Which department listed below would most likely be responsible for a sales volume variance?
A. Production department
B. Marketing department
C. Purchasing department
D. Personnel department

12. Which statement(s) below is(are) False?

1. The type of standard that provides allowances for normal amounts of waste and inefficiency in the
production process is referred to as an ideal standard.
2. Circumstances can occur that would result in a favorable direct material price variance and an
unfavorable direct material quantity variances.
3. If the Standard Quantity Allowed (SQA) for direct materials is greater than the Actual Quantity
(AQ) used, the quantity variance is unfavorable.
4. The direct material quantity (efficiency) variance is the difference between the Actual Price (AP)
and the Standard Price (SP), multiplied by the Actual Quantity Purchased (AQP).
5. Raw material, ruined through mistakes during production, results in a materials price variance.
A. All statements are false except #1.
B. All statements are false except #2.
C. All statements are false except #1 & 2.
D. All statements are false except #3.
E. All statements are false except #4.
F. All statements are false except # 3 & 4.
G. All statements are false except #5
H. All statements are false.
13. Gretzel had the following financial results for last month. Which type of responsibility
center do these financial results reflect?
Gretzel Subunit
Direct materials
Direct labor
Indirect labor
Utilities
Depreciation
Repairs & Maintenance
Total

Actual
$ 30,000
15,000
25,000
12,000
25,000
4,000
$111,000

Flexible Budget
$ 28,000
14,000
22,000
10,000
25,000
5,000
$104,000

Flexible Budget
Variance
(U or F)
$ 2,000 U
1,000 U
3,000 U
2,000 U
0
1,000 F
$ 7,000 U

% of Variance
(U or F)
7.14% U
7.14% U
13.64% U
20.0% U
0
20.00% F
6.73% U

14.

The following data relates to the Miracle Corporation and its Toy Division.
Toy Division sales
Toy Division operating income
Toy Division total assets
Toy Division current liabilities
Corporate target rate of return
Corporate weighted average cost of capital
Corporate effective tax rate

$ 8,000,000
$ 480,000
$ 2,000,000
$ 600,000
14%
10%
30%

Calculate the Toy Divisions Return on Investment (ROI), Residual Income (RI), and Economic Value
15.

Added (EVA)

The Frozen Foods Division of AgraFoods Corporation had sales of $8,400,000 and operating income of
$1,848,000 last year. The total assets of the Frozen Foods Division were $3,500,000 while current
liabilities were $850,000. AgraFoods Corporations target rate of return is 12% while its weighted average cost of
capital is 8%. The effective tax rate for Co. is 40%. Calculate the following for the Frozen Foods Division:
a. Sales Margin
b. Capital turnover
c. ROI
d. Residual Income
e. Economic Value Added

Chpt. 11 Problems

Use the following facts to answer questions 16 -18:

Dazzle Toy Company gathered the following actual results for the current month:
Actual amounts: Units produced
Direct materials purchased and used (5,000 lbs.)
Direct labor cost (4,500 hours)
Manufacturing overhead costs incurred

4,000
$22,500
$51,750
$24,000

Budgeted production and standard costs were:

Budgeted production
3,500 units
Direct materials
2 lbs./unit at $4.25/lb.
Direct labor
1.5 hrs./unit at $12.00/hr.
Variable manufacturing overhead
$5 per unit
Fixed manufacturing overhead
$21,000
16.

What is the direct materials efficiency variance? And what does the variance mean?

17.

What is the direct labor efficiency variance? And what does the variance mean?

18. What is the direct labor price variance? And what does the variance mean?

19. a. Seraphine Corporation manufactures rhinestone-studded jewelry boxes. The following materials
standards have been established for the rhinestones used to decorate the jewelry boxes in April.
Standard quantity per jewelry box (grams)
Standard price per gram of rhinestones

4.0
2.50

The following data relates to the production of the jewelry boxes during April:
Actual rhinestones purchased and used (grams)
Actual cost of rhinestones purchased
Actual number of jewelry boxes produced

1,200
2,350
450

What is the materials price variance for rhinestones in April?

b. Corp. also produces more expensive jewelry boxes with genuine gemstones used to decorate the boxes.
Here is info for its best selling model during month of April.
Standard quantity per jewelry box (grams)
13.0
Standard price per gram of gemstones
$
75.00
Actual gemstones purchased
28,500 grams
Actual cost of gemstones purchased
$2,166,000.00
Actual gemstones used
26,100 grams
Actual jewelry boxes produced
2000 boxes
1. What is the DM price variance?
2. What is the DM quantity variance?
3. What might these variances mean?
20.

Gator Corporation gathered the following information for the month of July:
Overhead flexible budget:
Number of units
9,000
10,000
11,000
Standard machine hours
13,000
14,500
16,000
Budgeted variable overhead costs
$50,000
$56,000
$62,000
Budgeted fixed overhead costs
$35,750
$35,750
$35,750
Gator Corp. actually produced 12,000 units in 16,000 machine hours. Total actual overhead
costs were $67,200 variable overhead costs and $37,000 fixed costs. The standard
variable and fixed overhead rates are based on a master (static) budget of 10,000 units.
Assume the allocation base for overhead costs is machine hours.
A. Compute the variable overhead rate & efficiency variances for month of July
B. Compute the fixed overhead budget and volume variances for the month of July

21.

Gator Company reports the following standards for direct materials for the year:
Standard cost per pound
$2.50
Standard amount per finished good
6 pounds
During the year, 420,000 finished goods were produced. The direct materials price variance was
$13,600 unfavorable. The direct materials flexible budget variance was $1,200 favorable.
Calculate the following items regarding direct materials for Gator Company for the year:
a. DM efficiency variance
b. Standard quantity of direct materials for actual production
c. Actual pounds of direct materials used for actual production
4

22. Gator Co manufactures gator horns. Gator uses standard costs for evaluation purposes. Recently one of
the workers (part-time UF student) threw away some of the records, and Gator has only partial data for April.
Gator knows that the direct labor flexible budget variance for the month was $360 F and the standard labor
price was $9/hour. A recent pay cut caused a favorable labor price variance of $0.70/hr. The standard direct
labor hours for actual April output were 5,850.
What was the actual number of direct labor hours worked during April?
23. The Monroe Corporation manufactures lamps. It determined the following standards for direct materials and
direct manufacturing labor, given the units budgeted for the month:
Direct materials: 100,000 lb at $4.50 per lb
Direct manufacturing labor: 5,000 hours at $30 per hour
The number of finished units budgeted for this month was 10,000 but only 9,850 units were actually
produced. Actual results are as follows: Direct materials used: 98,055 lb; Direct manufacturing labor
hours: 4,900 hours. $154,350 was paid for the direct labor. During the month, 100,000 lb was purchased
at a cost of $465,000.
What is the price, efficiency, flexible, and volume variances for both materials and labor?
24. Meals on Wheels (MOW) operates a meal-home delivery service. It has agreements with 20 restaurants to
pick up and deliver meals to customers who phone or fax orders to MOW. MOW allocates variable and
fixed overhead costs on the basis of delivery time. MOWs owner, Josh Carter, obtains the following
information for May 2012 overhead costs:
Actual
Budgeted
Output units (number of deliveries)
8,800
10,000
Hours per delivery
.7
Hours of delivery time
5,720
Variable overhead costs
$10,296
$10,500
Fixed overhead costs
$38,600
$35,000
What is the spending and efficiency variance for variable MOH? What is the spending and volume
variance for fixed MOH?
25. The Beal Manufacturing Company adopted the following standards for its manufacturing costs:
Direct materials
Direct labor
Manufacturing overhead:
Variable
Fixed

Input
3 lb. at $5 per lb.
5 hrs at $15 per hr.

Cost per Finished Unit

$15.00
$75.00

$6 per DLH
$8 per DLH

$30.00
$40.00

At the beginning of the year, Beal estimates that it will use 40,000 DL hours. The records at the end of
the year show the following:
Direct materials purchased
25,000 lb. at $5.20 per lb.
Direct materials used
23,100 lb.
Direct manufacturing labor
40,100 hrs. at $14.60 per hr
Variable manufacturing overhead
$245,000
Fixed manufacturing overhead
$355,000
Actual production
7,800 finished units
What are the variances for direct materials, direct labor, variable overhead, and fixed overhead?
5

Chpt 12 Problems
26.

Latimer Corporation is considering two alternative investment proposals with the following data:

Investment
Useful life
Estimated annual net
cash inflows for 8 years
Residual value
Depreciation method
Required rate of return

Proposal X
$ 812,500
8 years

Proposal Y
$ 390,000
8 years

$ 125,000
$ 40,000
Straight-line
14%

$ 78,000
$
Straight-line
10%

The accounting rate of return for Proposal X is closest to?

A. 3.50 %
B. 4.22 %
C. 15.38 %
D. 27.27 %
27.

Sierra Discount Drugstore bought a new high-speed photo printer for customers to be able to bring in
their digital pictures to make high-quality prints. Its useful life is 6 years. The printer cost $8,170 and will
generate annual cash inflows of $2,150. The residual value of the printer is $1,320. The payback period
in years is closest to:
A.
B.
C.
D.

2.35.
3.19.
3.80.
4.41.

28.

Salvador Corporation is considering the purchase of a special molding machine that would cost
$64,366 and would have a useful life of 8 years. The machine would generate $11,200 of net annual
cash inflows per year for each of the 8 years of its life. The internal rate of return on the machine would
be closest to:
A. 8%.
B. 10%.
C. 12%.
D. 14%.

29.

Speedy Company has three potential projects from which to choose. Selected information on each of
the three projects follows:
Project A
Project B
Project C
P.V. of net cash inflows
$ 88,200 $141,200
$123,900
Investment required
$ 42,500
$ 65,800
$ 53,700
Net present value of project
$ 45,700
$ 75,400
$ 70,200
a.
b.
c.
d.

Using the profitability index, rank the projects from most attractive to least attractive.
A, B, C
C, B, A
B, A, C
B, C, A

30.

Williams Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores
in Indiana at the cost of $1,800,000. Under the other proposal, the company would focus on Kentucky and open 6
stores at a cost of $2,400,000. The following information is available:
Indiana proposal
Kentucky proposal
Required investment
$1,800,000
$2,400,000
Estimated life
10 years
10 years
Estimated residual value
$50,000
$80,000
Estimated annual cash inflows over $400,000
$500,000
the next 10 years
Required rate of return
10%
10%
The net present value of the Indiana proposal is closest to:
A. $ 461,650.
B. $ 658,000.
C. $ 677,300.
D. $1,291,800.

31.

Sommer Corporation is deciding whether to automate one phase of its production process. The
equipment has a six-year life and will cost $410,000. Projected net cash inflows from the equipment
are as follows:
Year 1
$115,000
Year 2
$100,000
Year 3
$110,000
Year 4
$100,000
Year 5
$95,000
Year 6
$90,000
Sommer Corporations hurdle rate is 12%. Assume the residual value is zero.
What is the net present value of the equipment?
A. $ 15,000
B. $200,000
C. $13,810
D. $423,810

32.

All else being equal, a company would choose to invest in a capital asset if which of the following is TRUE?
A. If the payback period equals the amount invested
B. If the expected accounting rate of return is less than the required rate of return
C. If the average amount invested is equal to the net cash inflows
D. If the expected accounting rate of return is greater than the required rate of return

33.

If you invest $4,000 at the end of every year for nine years at an interest rate of 6%, the balance
of your investment in 5 years will be closest to:
A. $ 5,352.
B. $16,848.
C. $22,548.
D. $36,000.

34.

If the discount rate is increased from 8% to 10%, what happens to the net present value of a
project?
A. NPV will always increase.
B. NPV will always decrease.
C. The discount rate change will not affect NPV.
D. We cannot determine the direction of the effect on NPV from the information provided.

35.

36.

If the discount rate is decreased from 9% to 7%, what will happen to the internal rate of return
(IRR) of a project?
A. IRR will always increase.
B. IRR will always decrease.
C. The discount rate change will not affect IRR.
D. We cannot determine the direction of the effect on IRR from the information provided.
Gator Inc is considering an equipment investment that will cost $965,000. Gators hurdle rate for any
capital investment is 8%. Projected net cash inflows over the equipments 3 year life are as follows:
Year 1: $494,000; Year 2: $382,000; Year 3: $282,000.
Using trial and error, find the IRR within a 2% range.