Accounting102

TestNo.3

Name:_____________________________

1.Productcostsconsistofdirectlabor,directmaterialsandoverhead.
TrueFalse
2.Manufacturingoverheadarethosewhichcanbetraceddirectlytotheproduct.
TrueFalse
3.AbsorptioncostingisnotpermittedunderGAAP.
TrueFalse
4.Assumeacompanyhadthefollowingproductioncosts.

Underabsorptioncosting,thetotalproductioncostperunitwhen4,000unitsareproducedwouldbe$22.50.
TrueFalse
5.Giventhefollowingdata,totalproductcostperunitunderabsorptioncostingis$9.14.

TrueFalse

6.Giventhefollowingdata,totalproductcostperunitunderabsorptioncostingwillbegreaterthantotal
productcostperunitundervariablecosting.

TrueFalse

7.Abudgetcanbeaneffectivemeansofcommunicatingmanagement'splanstotheemployeesofabusiness.
TrueFalse
8.Abudgetisaformalstatementoffutureplans,usuallyexpressedinmonetaryterms.
TrueFalse

9.Larger,morecomplexorganizationsusuallyrequirealongertimetopreparetheirbudgetsthansmaller
organizationsbecauseoftheconsiderableefforttocoordinatethedifferentunitswithinthebusiness.
TrueFalse
10.Standardcostscanserveasabasisforevaluatingactualperformance.
TrueFalse
11.Standardmaterial,labor,andoverheadcostscanbeobtainedfromstandardcosttablespublishedbythe
InstituteofManagementAccountants.
TrueFalse
12.Acostvarianceisthedifferencebetweenactualcostandstandardcost.
TrueFalse
13.Withinthesamebudgetperformancereport,itisimpossibletohavebothfavorableandunfavorable
variances.
TrueFalse
14.Whichofthefollowingisnotaproductcost?
A.Directlabor.
B.Indirectmanufacturingcosts.
C.Directmaterials.
D.Manufacturingoverhead.
E.Alloftheitemslistedaboveareproductcosts.
15.Whichofthefollowingcostscannotbedirectlytracedtotheproduct?
A.Fixedmanufacturingoverhead.
B.Directlabor.
C.Variablemanufacturingoverhead.
D.NeitherAnorBcanbedirectlytracedtotheproduct.
E.NeitherAnorCcanbedirectlytracedtotheproduct.
16.Whichofthefollowingstatementsis(are)true?
A.Variablecostingtreatsfixedoverheadasaperiodcost.
B.Absorptioncostingtreatsfixedoverheadasaperiodcost.
C.Absorptioncostingtreatsfixedoverheadasanexpenseintheperioditisincurred.
D.OnlyBandCaretruestatements.
E.A,BandCarealltruestatements.

17.Acompanyiscurrentlyoperatingat80%capacityproducingand5,000units.Currentcostinformation
relatingtothisproductionisshowninthetablebelow.

Thecompanyhasbeenapproachedbyacustomerwitharequestfora100unitspecialorder.Whatisthe
minimumperunitsalespricethatmanagementwouldacceptforthisorderifthecompanywishestoincrease
currentprofits?
A.Anyamountover$34perunit.
B.Anyamountover$20perunit.
C.Anyamountover$14perunit.
D.Anyamountover$9perunit.
E.Anyamountover$5perunit.
18.Forbudgetstobeeffective:
A.Goalsshouldbeattainable.
B.Employeesaffectedbyabudgetshouldbeconsultedwhenitisprepared.
C.Evaluationsshouldbemadecarefullywithopportunitiestoexplainanyfailures.
D.Theyshouldbeproperlyappliedtoavoidnegativeeffects.
E.Allofthese.
19.Whichofthefollowingisnotabenefitoffollowingawelldesignedbudgetingprocess?
A.Improveddecisionmakingprocesses.
B.Improvedperformanceevaluations.
C.Improvedcoordinationofbusinessactivities.
D.Assuranceoffutureprofits.
E.Allofthesearebenefitsofeffectivebudgeting.
20.Theusualstartingpointforpreparingamasterbudgetisforecastingorestimating:
A.Expenditures.
B.Sales.
C.Production.
D.Income.
E.Cashpayments.
21.BentelsCo.desiresaDecember31endinginventoryof2,840units.BudgetedsalesforDecemberare4,000
units.TheNovember30inventorywas1,800units.Budgetedpurchasesare:
A.5,040units.
B.1,240units.
C.6,840units.
D.4,000units.
E.5,800units.

22.Fairway'sAprilsalesforecastprojectsthat6,000unitswillsellatapriceof$10.50perunit.Thedesired
endinginventoryis30%higherthanthebeginninginventory,whichwas1,000units.Budgetedpurchasesof
unitsinAprilwouldbe:
A.6,000units.
B.7,000units.
C.6,300units.
D.7,300units.
E.Someotheramount.
23.Whenpreparingthecashbudget,allthefollowingshouldbeconsideredexcept:
A.Cashreceiptsfromcustomers.
B.Cashpaymentsformerchandise.
C.Depreciationexpense.
D.Cashpaymentsforincometaxes.
E.Cashpaymentsforcapitalexpenditures.
24.Areportbasedonpredictedamountsofrevenuesandexpensescorrespondingtotheactuallevelofoutputis
calleda:
A.Rollingbudget.
B.Productionbudget.
C.Flexiblebudget.
D.Merchandisepurchasesbudget.
E.Fixedbudget.
25.Staticbudgetisanothernamefor:
A.Standardbudget.
B.Flexiblebudget.
C.Variablebudget.
D.Fixedbudget.
E.Masterbudget.
26.Basedonpredictedproductionof12,000units,acompanyanticipates$150,000offixedcostsand$123,000
ofvariablecosts.Theflexiblebudgetamountsoffixedandvariablecostsfor10,000unitsare:
A.$125,000fixedand$102,500variable.
B.$125,000fixedand$123,000variable.
C.$102,500fixedand$150,000variable.
D.$150,000fixedand$123,000variable.
E.$150,000fixedand$102,500variable.
27.Thedirectmaterialspricevarianceis:
A.$13,750unfavorable.
B.$16,250unfavorable.
C.$16,250favorable.
D.$30,000unfavorable.
E.$33,000favorable.

28.BartelsCorp.produceswoodcarvings.Ittakes2hoursofdirectlabortoproduceacarving.Bartels'standard
laborcostis$12perhour.DuringAugust,Bartelsproduced10,000carvingsandused21,040hoursofdirect
laboratatotalcostof$250,376.WhatisBartels'laborratevarianceforAugust?
A.$2,000favorable.
B.$2,104unfavorable.
C.$2,104favorable.
D.$4,160favorable.
E.$2,000unfavorable.
29.Overheadcostvarianceis:
A.Thedifferencebetweentheoverheadcostsactuallyincurredandtheoverheadbudgetedattheactual
operatinglevel.
B.Thedifferencebetweentheactualoverheadincurredduringaperiodandthestandardoverheadapplied.
C.Thedifferencebetweenactualandbudgetedcostcausedbythedifferencebetweentheactualpriceperunit
andthebudgetedpriceperunit.
D.Thecoststhatshouldbeincurredundernormalconditionstoproduceaspecificproduct(orcomponent)orto
performaspecificservice.
E.Thedifferencebetweenthetotaloverheadcostthatwouldhavebeenexpectediftheactualoperatingvolume
hadbeenaccuratelypredictedandtheamountofoverheadcostthatwasallocatedtoproductsusingthestandard
overheadrate.
30.ActualfixedoverheadforKapokCompanyduringMarchwas$92,780.Theflexiblebudgetforfixed
overheadthisperiodis$89,000basedonaproductionlevelof5,000units.Ifthecompanyactuallyproduced
4,200unitswhatisthefixedoverheadvolumevarianceforMarch?
A.$3,780favorable.
B.$18,020unfavorable.
C.$14,240unfavorable.
D.$3,780unfavorable.
E.$14,240favorable.
31.ActualfixedoverheadforKapokCompanyduringMarchwas$92,780.Theflexiblebudgetforfixed
overheadthisperiodis$89,000basedonaproductionlevelof5,000units.Ifthecompanyactuallyproduced
4,200units,whatisthefixedoverheadspendingvarianceforMarch?
A.$3,780favorable.
B.$800unfavorable.
C.$14,240unfavorable.
D.$3,780unfavorable.
E.$14,240favorable.
32.PriceCompany'sflexiblebudgetshows$10,710ofoverheadat75%ofcapacity,whichwastheoperating
levelachievedduringMay.However,thecompanyappliedoverheadtoproductionduringMayatarateof
$2.00perdirectlaborhourbasedonabudgetedoperatinglevelof6,120directlaborhours(90%ofcapacity).If
overheadactuallyincurredwas$11,183duringMay,thecontrollablevarianceforthemonthwas:
A.$473unfavorable.
B.$473favorable.
C.$1,530favorable.
D.$1,530unfavorable.
E.$1,057favorable.

Kyle,Inc.,hascollectedthefollowingdataononeofitsproducts:

33.Thedirectmaterialsquantityvarianceis:
A.$30,000favorable.
B.$13,750unfavorable.
C.$16,250favorable.
D.$30,000unfavorable.
E.$13,750favorable.
Thefollowinginformationdescribesacompany'susageofdirectlaborinarecentperiod:

34.Thedirectlaborefficiencyvarianceis:
A.$28,000unfavorable.
B.$28,000favorable.
C.$45,000unfavorable.
D.$45,000favorable.
E.$17,000unfavorable.
35.(10points)StonehengeInc.,amanufactureroflandscapingblocks,beganoperationsonApril1ofthe
currentyear.Duringthistime,thecompanyproduced750,000unitsandsold720,000unitsatasalespriceof$9
perunit.CostinformationforthisperiodisshownbelowShowallworkandcalculationinaneasytofollow,
neatformat.Ifyoujustputanswer,youlllose5points.

(a.)PrepareStonehenge'sDecember31stincomestatementforthecurrentyearunderabsorptioncosting.
(b.)PrepareStonehenge'sDecember31stincomestatementforthecurrentyearundervariablecosting.

36.(5points)MilesCompanyispreparingacashbudgetforFebruary.Thecompanyhas$30,000cashatthe
beginningofFebruaryandanticipates$75,000incashreceiptsand$96,250incashdisbursementsduring
February.MilesCompanyhasanagreementwithitsbanktomaintainacashbalanceof$10,000.Whatamount,
ifany,mustthecompanyborrowduringFebruarytomaintaina$10,000cashbalance?Showallworkand
calculationinaneasytofollow,neatformat.Ifyoujustputanswer,youlllose5points.
37.(7points)Usethefollowingdatatodeterminethecompany'scashdisbursementsforeachmonthofAugust
andSeptemberShowallworkandcalculationinaneasytofollow,neatformat.Ifyoujustputanswer,
youlllose5points:

102TestNo.3Key

1.Productcostsconsistofdirectlabor,directmaterialsandoverhead.
TRUE
2.Manufacturingoverheadarethosewhichcanbetraceddirectlytotheproduct.
FALSE
3.AbsorptioncostingisnotpermittedunderGAAP.
FALSE
4.Assumeacompanyhadthefollowingproductioncosts.

Underabsorptioncosting,thetotalproductioncostperunitwhen4,000unitsareproducedwouldbe$22.50.
FALSE
($20,000+$30,000+$40,000+$50,000)/4,000=$35perunit
5.Giventhefollowingdata,totalproductcostperunitunderabsorptioncostingis$9.14.

TRUE

$0.72DL+$0.80DM+(($202,500+140,400)/45,000units)MOH=$9.14
6.Giventhefollowingdata,totalproductcostperunitunderabsorptioncostingwillbegreaterthantotal
productcostperunitundervariablecosting.

TRUE

VariableCosting:
$9DL+$7DM+($45,000/9,000units)VOH=$21
AbsorptionCosting:
$9DL+$7DM+($45,000/9,000units)VOH+($27,000/9,000units)FOH=$24

7.Abudgetcanbeaneffectivemeansofcommunicatingmanagement'splanstotheemployeesofabusiness.
TRUE
8.Abudgetisaformalstatementoffutureplans,usuallyexpressedinmonetaryterms.
TRUE
9.Larger,morecomplexorganizationsusuallyrequirealongertimetopreparetheirbudgetsthansmaller
organizationsbecauseoftheconsiderableefforttocoordinatethedifferentunitswithinthebusiness.
TRUE
10.Standardcostscanserveasabasisforevaluatingactualperformance.
TRUE
11.Standardmaterial,labor,andoverheadcostscanbeobtainedfromstandardcosttablespublishedbythe
InstituteofManagementAccountants.
FALSE
12.Acostvarianceisthedifferencebetweenactualcostandstandardcost.
TRUE
13.Withinthesamebudgetperformancereport,itisimpossibletohavebothfavorableandunfavorable
variances.
FALSE
14.Whichofthefollowingisnotaproductcost?
A.Directlabor.
B.Indirectmanufacturingcosts.
C.Directmaterials.
D.Manufacturingoverhead.
E.Alloftheitemslistedaboveareproductcosts.
15.Whichofthefollowingcostscannotbedirectlytracedtotheproduct?
A.Fixedmanufacturingoverhead.
B.Directlabor.
C.Variablemanufacturingoverhead.
D.NeitherAnorBcanbedirectlytracedtotheproduct.
E.NeitherAnorCcanbedirectlytracedtotheproduct.
16.Whichofthefollowingstatementsis(are)true?
A.Variablecostingtreatsfixedoverheadasaperiodcost.
B.Absorptioncostingtreatsfixedoverheadasaperiodcost.
C.Absorptioncostingtreatsfixedoverheadasanexpenseintheperioditisincurred.
D.OnlyBandCaretruestatements.
E.A,BandCarealltruestatements.

17.Acompanyiscurrentlyoperatingat80%capacityproducingand5,000units.Currentcostinformation
relatingtothisproductionisshowninthetablebelow.

Thecompanyhasbeenapproachedbyacustomerwitharequestfora100unitspecialorder.Whatisthe
minimumperunitsalespricethatmanagementwouldacceptforthisorderifthecompanywishestoincrease
currentprofits?
A.Anyamountover$34perunit.
B.Anyamountover$20perunit.
C.Anyamountover$14perunit.
D.Anyamountover$9perunit.
E.Anyamountover$5perunit.
5,000/.805,000=1,250unitcapacityavailable
$2+$3+$4=$9incrementalcosts
18.Forbudgetstobeeffective:
A.Goalsshouldbeattainable.
B.Employeesaffectedbyabudgetshouldbeconsultedwhenitisprepared.
C.Evaluationsshouldbemadecarefullywithopportunitiestoexplainanyfailures.
D.Theyshouldbeproperlyappliedtoavoidnegativeeffects.
E.Allofthese.
19.Whichofthefollowingisnotabenefitoffollowingawelldesignedbudgetingprocess?
A.Improveddecisionmakingprocesses.
B.Improvedperformanceevaluations.
C.Improvedcoordinationofbusinessactivities.
D.Assuranceoffutureprofits.
E.Allofthesearebenefitsofeffectivebudgeting.
20.Theusualstartingpointforpreparingamasterbudgetisforecastingorestimating:
A.Expenditures.
B.Sales.
C.Production.
D.Income.
E.Cashpayments.

21.BentelsCo.desiresaDecember31endinginventoryof2,840units.BudgetedsalesforDecemberare4,000
units.TheNovember30inventorywas1,800units.Budgetedpurchasesare:
A.5,040units.
B.1,240units.
C.6,840units.
D.4,000units.
E.5,800units.
2,840units+4,000units1,800units=5,040units
22.Fairway'sAprilsalesforecastprojectsthat6,000unitswillsellatapriceof$10.50perunit.Thedesired
endinginventoryis30%higherthanthebeginninginventory,whichwas1,000units.Budgetedpurchasesof
unitsinAprilwouldbe:
A.6,000units.
B.7,000units.
C.6,300units.
D.7,300units.
E.Someotheramount.
Aprilpurchases=6,000+(1,000x1.30)1,000=6,300units
23.Whenpreparingthecashbudget,allthefollowingshouldbeconsideredexcept:
A.Cashreceiptsfromcustomers.
B.Cashpaymentsformerchandise.
C.Depreciationexpense.
D.Cashpaymentsforincometaxes.
E.Cashpaymentsforcapitalexpenditures.
24.Areportbasedonpredictedamountsofrevenuesandexpensescorrespondingtotheactuallevelofoutputis
calleda:
A.Rollingbudget.
B.Productionbudget.
C.Flexiblebudget.
D.Merchandisepurchasesbudget.
E.Fixedbudget.
25.Staticbudgetisanothernamefor:
A.Standardbudget.
B.Flexiblebudget.
C.Variablebudget.
D.Fixedbudget.
E.Masterbudget.

26.Basedonpredictedproductionof12,000units,acompanyanticipates$150,000offixedcostsand$123,000
ofvariablecosts.Theflexiblebudgetamountsoffixedandvariablecostsfor10,000unitsare:
A.$125,000fixedand$102,500variable.
B.$125,000fixedand$123,000variable.
C.$102,500fixedand$150,000variable.
D.$150,000fixedand$123,000variable.
E.$150,000fixedand$102,500variable.
Fixedcostsremainat$150,000
Variablecosts=($123,000/12,000)x10,000units=$102,500

27.Thedirectmaterialspricevarianceis:
A.$13,750unfavorable.
B.$16,250unfavorable.
C.$16,250favorable.
D.$30,000unfavorable.
E.$33,000favorable.
Pricevariance=$30,000(quantityvariance)$13,750(costvariancegiven)=$16,250favorable
28.BartelsCorp.produceswoodcarvings.Ittakes2hoursofdirectlabortoproduceacarving.Bartels'standard
laborcostis$12perhour.DuringAugust,Bartelsproduced10,000carvingsandused21,040hoursofdirect
laboratatotalcostof$250,376.WhatisBartels'laborratevarianceforAugust?
A.$2,000favorable.
B.$2,104unfavorable.
C.$2,104favorable.
D.$4,160favorable.
E.$2,000unfavorable.
Laborratevariance=$250,376($12x21,040hours)=$2,104favorable
29.Overheadcostvarianceis:
A.Thedifferencebetweentheoverheadcostsactuallyincurredandtheoverheadbudgetedattheactual
operatinglevel.
B.Thedifferencebetweentheactualoverheadincurredduringaperiodandthestandardoverheadapplied.
C.Thedifferencebetweenactualandbudgetedcostcausedbythedifferencebetweentheactualpriceperunit
andthebudgetedpriceperunit.
D.Thecoststhatshouldbeincurredundernormalconditionstoproduceaspecificproduct(orcomponent)orto
performaspecificservice.
E.Thedifferencebetweenthetotaloverheadcostthatwouldhavebeenexpectediftheactualoperatingvolume
hadbeenaccuratelypredictedandtheamountofoverheadcostthatwasallocatedtoproductsusingthestandard
overheadrate.

30.ActualfixedoverheadforKapokCompanyduringMarchwas$92,780.Theflexiblebudgetforfixed
overheadthisperiodis$89,000basedonaproductionlevelof5,000units.Ifthecompanyactuallyproduced
4,200unitswhatisthefixedoverheadvolumevarianceforMarch?
A.$3,780favorable.
B.$18,020unfavorable.
C.$14,240unfavorable.
D.$3,780unfavorable.
E.$14,240favorable.
Unitvariance=5,0004,200=800units
Fixedoverheadvolumevariance=800X($89,000/5,000)
800x$17.80=$14,240unfavorable

31.ActualfixedoverheadforKapokCompanyduringMarchwas$92,780.Theflexiblebudgetforfixed
overheadthisperiodis$89,000basedonaproductionlevelof5,000units.Ifthecompanyactuallyproduced
4,200units,whatisthefixedoverheadspendingvarianceforMarch?
A.$3,780favorable.
B.$800unfavorable.
C.$14,240unfavorable.
D.$3,780unfavorable.
E.$14,240favorable.
Fixedoverheadspendingvariance(actualflexible)=$92,780$89,000=$3,780unfavorable
32.PriceCompany'sflexiblebudgetshows$10,710ofoverheadat75%ofcapacity,whichwastheoperating
levelachievedduringMay.However,thecompanyappliedoverheadtoproductionduringMayatarateof
$2.00perdirectlaborhourbasedonabudgetedoperatinglevelof6,120directlaborhours(90%ofcapacity).If
overheadactuallyincurredwas$11,183duringMay,thecontrollablevarianceforthemonthwas:
A.$473unfavorable.
B.$473favorable.
C.$1,530favorable.
D.$1,530unfavorable.
E.$1,057favorable.
Controllablevariance=$11,183$10,710=$473unfavorable
Kyle,Inc.,hascollectedthefollowingdataononeofitsproducts:

33.Thedirectmaterialsquantityvarianceis:
A.$30,000favorable.
B.$13,750unfavorable.
C.$16,250favorable.
D.$30,000unfavorable.
E.$13,750favorable.
Quantityused=150,000/30,000=5poundsperunits
Quantityunitvariance=54=1poundperunit(unfavorable)
Directmaterialsquantityvariance=(30,000unitsx1poundx$1perpound)=$30,000unfavorable
Thefollowinginformationdescribesacompany'susageofdirectlaborinarecentperiod:

34.Thedirectlaborefficiencyvarianceis:
A.$28,000unfavorable.
B.$28,000favorable.
C.$45,000unfavorable.
D.$45,000favorable.
E.$17,000unfavorable.
Directlaborefficiencyvariance=$14(47,00045,000)=$28,000favorable
35.StonehengeInc.,amanufactureroflandscapingblocks,beganoperationsonApril1ofthecurrentyear.
Duringthistime,thecompanyproduced750,000unitsandsold720,000unitsatasalespriceof$9perunit.
Costinformationforthisperiodisshownbelow.

(a.)PrepareStonehenge'sDecember31stincomestatementforthecurrentyearunderabsorptioncosting.
(b.)PrepareStonehenge'sDecember31stincomestatementforthecurrentyearundervariablecosting.

36.MilesCompanyispreparingacashbudgetforFebruary.Thecompanyhas$30,000cashatthebeginningof
Februaryandanticipates$75,000incashreceiptsand$96,250incashdisbursementsduringFebruary.Miles
Companyhasanagreementwithitsbanktomaintainacashbalanceof$10,000.Whatamount,ifany,mustthe
companyborrowduringFebruarytomaintaina$10,000cashbalance?

37.Usethefollowingdatatodeterminethecompany'scashdisbursementsforeachmonthofAugustand
September:

102TestNo.3Summary
Category

#ofQuestions

AACSB:Analytic

31

AACSB:Communications

AICPABB:Industry

26

AICPABB:ResourceManagement

11

AICPAFN:Measurement

28

AICPAFN:Reporting

Difficulty:Easy

16

Difficulty:Hard

Difficulty:Medium

17

LearningObjective:A1

LearningObjective:C1

12

LearningObjective:C2

LearningObjective:C3

LearningObjective:P1

LearningObjective:P2

LearningObjective:P3

WildChapter019

11

WildChapter020

11

WildChapter021

17