Professional Documents
Culture Documents
1.Garnick Corporation keeps careful track of the time required to fill orders. The times recorded for a
particular order appear below:
2. Orscheln Snow Removal's cost formula for its vehicle operating cost is $2,800 per month plus $381 per
snow-day. For the month
of February, the company planned for activity of 17 snow-days, but the actual level of activity was 14
snow-days. The actual vehicle
operating cost for the month was $7,920. The activity variance for vehicle operating cost in February
would be closest to:
C.$1,143 F
The following standards for variable manufacturing overhead have been established for a company that
makes only one product: The following data pertain to operations for the last month:
3. What is the variable overhead rate variance for the month?
C. $3,440 F
Variable overhead rate variance = (AH × AR) - (AH × SR) = $95,890 - (8,600 actual hours × $11.55 per
hour)
= $95,890 - $99,330 = $3,440 F
5. Salyers Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The
Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead
budget for the most recent month appears below:
The Inn's variable overhead costs are driven by the number of guests.
What would be the total budgeted
overhead cost for a month if the activity level is 53 guests?
A. $7,159.20
Variable cost per guest for supplies = $148.20 ÷ 57 guests = $2.60 per guest
Variable cost per guest for
laundry = $216.60 ÷ 57 guests = $3.80 per guest
6. Thomasson Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets
and performance reports. The cost formula for plane operating costs is $36,160 per month plus $2,038
per flight plus $1 per passenger. The company expected its activity in April to be 73 flights and 223
passengers, but the actual activity was 72 flights and 228 passengers. The actual cost for plane operating
costs in April was $179,020. The activity variance for plane operating costs in April would be closest to:
D. $2,033 F
Because the flexible budget is less than the planning budget, the variance is favorable (F).
7. Farver Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and
performance reports. The cost formula for plane operating costs is $44,420 per month plus $2,008 per
flight plus $1 per passenger. The company expected its activity in May to be 80 flights and 281
passengers, but the actual activity was 81 flights and 277 passengers. The actual cost for plane operating
costs in May was $199,650. The spending variance for plane operating costs in May would be closest to:
C. $7,695 F
D. $5,691 U
8. Soehl Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the
budgeted level of activity was 14,100 skeins and the actual level of activity was 13,700 skeins. The
company's owner budgets for dye costs, a variable cost, at $0.40 per skein. The actual dye cost last month
was $4,510. In the company's flexible budget performance report for last month, what would have been
the spending variance for dye costs?
A. $970 F
9. Fabiano Corporation makes a product whose direct labor standards are 0.5 hours per unit and $23.00
per hour. In February the company produced 3,300 units using 1,640 direct labor-hours. The actual
direct labor cost was $38,540.
138. The labor efficiency variance for February is:
A. $230 F
SH = 3,300 units × 0.5 hours per unit = 1,650 hours Labor efficiency variance = (AH - SH) SR
= (1,640
hours - 1,650 hours) $23.00 per hour
= (-10 hours) $23.00 per hour = $230 F
Aide Industries is a division of a major corporation. Data concerning the most recent year appears below:
11. The division's margin is closest to:
A. 21.8%
B. 5.0%
ROI = Net operating income Average operating assets = $870,000 $4,000,000 = 21.75%
14. A company's current net operating income is $16,800 and its average operating assets are $80,000.
The company's required rate of return is 18%. A new project being considered would require an
investment of $15,000 and would generate annual net operating income of $3,000. What is the residual
income of the new project?
D. $300
16. Thompson Company uses a standard cost system for its single product. The following data are available:
Required:
Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price
variance for materials is recognized at point of purchase
Materials price variance = AQ (AP - SP)
= 15,000 yards ($13.00 per yard - $15.00 per yard)
= 15,000 yards (-$2.00 per yard) = $30,000 F
17. Niemiec Corporation keeps careful track of the time required to fill orders. The times recorded for a
particular order appear below:
2. Residual income equals average operating assets multiplied by the difference between the return on
investment and the minimum required rate of return. TRUE
3. Consider a company that has only variable costs. All other things the same, an increase in unit sales
will result in no change in the return on investment. FALSE
4. The use of return on investment as a performance measure may lead managers to make decisions that
are not in the best interests of the company as a whole. TRUE
5. Residual income is the net operating income that an investment center earns above the minimum
required return on the investment in operating assets.
TRUE
6. Residual income should not be used to evaluate a cost center.
TRUE
7. The performance measures on a balanced scorecard tend to fall into four groups: financial measures,
customer measures, internal business process measures, and external business process measures.
FALSE
8. A balanced scorecard should contain every performance measure that can be expected to influence a
company's profits.
FALSE
9. The performance measures on an individual's scorecard should not be overly influenced by actions
taken by others in the company or by events that are outside of the individual's control. TRUE
10. Managers of cost centers are evaluated according to the profits which their departments are able to
generate. FALSE
11. If expenses exceed revenues in a department, then it would be considered a cost center. FALSE
Multiple Choice Questions
12. Residual income is a better measure for performance evaluation of an investment center manager
than return on investment because:
B. desirable investment decisions will not be rejected by divisions that already have
14. Which of the following statements provide(s) an argument in favor of including only a plant's net
book value rather than gross book value as part of operating assets in the ROI computation ? C. Only I and
II.
15. In computing the margin in a ROI analysis, which of the following is used? A. Sales in the denominator
16. Which of the following is not an operating asset? D. Common stock
17. In determining the dollar amount to use for operating assets in the return on investment (ROI)
calculation, companies will generally use either net book value or gross cost of the assets. Which of the
following is an argument for the use of gross
C. It encourages the replacement of old, worn-out equipment.
18. Which of the following will not result in an increase in the residual income, assuming other factors
remain constant?
B. An increase in the minimum required rate of return.
19. All other things the same, which of the following would increase residual income?B. Decrease in
average operating assets.
22. Average operating assets are $110,000 and net operating income is $23,100. The company invests
$25,000 in new assets for a project that will increase net operating income by $4,750. What is the return
on investment (ROI) of the new project?
B. 19%
ROI = Net operating income Average operating assets
= $4,750 $25,000 = 19%
23. Last year a company had stockholder's equity of $160,000, net operating income of $16,000 and sales
of $100,000. The turnover was 0.5. The return on investment (ROI) was:
C. 8%
Margin = Net operating income Sales = $16,000 $100,000 = 16%
ROI = Margin Turnover = 16% 0.5 = 8%
24. Sales and average operating assets for Company P and Company Q are given below:
What is the margin that each company will have to earn in order to generate a return on investment of
20%?
C. 8% and 4%
Company P:
Turnover = Sales Average operating assets = $20,000 $8,000 = 2.5
ROI Turnover = Margin = 20% 2.5 = 8%
Company Q:
Turnover = Sales Average operating assets = $50,000 $10,000 = 5
ROI Turnover = Margin = 20% 5 = 4%
25. Reed Company's sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the
company's turnover was 3, then its net operating income for the year must have been:
A. $6,000
26. A company's current net operating income is $16,800 and its average operating assets are $80,000.
The company's required rate of return is 18%. A new project being considered would require an
investment of $15,000 and would generate annual net operating income of $3,000. What is the residual
income of the new project?
D. $300
27. Soderquist Corporation uses residual income to evaluate the performance of its divisions. The
company's minimum required rate of return is 11%. In April, the Commercial Products Division had
average operating assets of $100,000 and net operating income of $9,400. What was the Commercial
Products Division's residual income in April?
A. -$1,600
28. In August, the Universal Solutions Division of Jugan Corporation had average operating assets of
$670,000 and net operating income of $77,500. The company uses residual income, with a minimum
required rate of return of 12%, to evaluate the performance of its divisions. What was the Universal
Solutions Division's residual income in August?
B. -$2,900
29. Division B had an ROI last year of 15%. The division's minimum required rate of return is 10%. If the
division's average operating assets last year were $450,000, then the division's residual income for last
year was:
B. $22,500
31. Galanis Corporation keeps careful track of the time required to fill orders. Data concerning a
particular order appear below:
32. Hoster Corporation keeps careful track of the time required to fill orders. The times recorded for a
particular order appear below:
35. Mordue Corporation keeps careful track of the time required to fill orders. Data concerning a
particular order appear below:
The manufacturing cycle efficiency (MCE) was closest to: D. 0.16
Aide Industries is a division of a major corporation. Data concerning the most recent year appears below:
The Reed Division reports the following operating data for the past two years:
The return on investment at Reed was exactly the same in Year 1 and Year 2.
The West Division of Shekarchi Corporation had average operating assets of $620,000 and net operating
income of $80,100 in March. The minimum required rate of return for performance evaluation purposes
is 14%.
46. What was the West Division's minimum required return in March? B. $86,800
47. What was the West Division's residual income in March?
A. -$6,700
The Consumer Products Division of Weiter Corporation had average operating assets of $570,000 and
net operating income of $65,100 in March. The minimum required rate of return for performance
evaluation purposes is 12%.
48. What was the Consumer Products Division's minimum required return in March? C. $68,400
49. What was the Consumer Products Division's residual income in March?
A. -$3,300
Estes Company has assembled the following data for its divisions for the past year:
D. 12.00%
59. The average operating assets in Year 2 were:
C. $800,000
60. How many units must South sell each year to have an ROI of 16%?
D. 65,000
61. If South wants a residual income of $50,000 and the minimum required rate of
B. 0.80
The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
62. The average operating assets for Year 2 amounted to: D. $500,000
63. The return on investment in Year 1 was: A. 48.00%
Dickonson Products is a division of a major corporation. The following data are for the last year of
operations:
Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000,
net operating income of $575,100, and average operating assets of $5,000,000. The company's minimum
required rate of return is 12%.
Diorio Corporation keeps careful track of the time required to fill orders. The times recorded for a
particular order appear below:
75. The manufacturing cycle efficiency (MCE) was closest to: A. 0.15
Hart Manufacturing operates an automated steel fabrication process. For one operation, Hart has found
that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities.
Delivery cycle time is 12 hours, waiting time during the production process is 3 hours, queue time prior
to starting the production process is 2 hours, and inspection time is 1.2 hours.
76. The manufacturing cycle efficiency (MCE) for this operation is: A. 55%
Percentage of time spent on non-value-added activities = 100% - MCE
45% = 100% - MCE
MCE = 100% - 45% = 55%
77. What is the move time recorded for the operation? D. 0.85 hours
78. What is the throughput (manufacturing cycle) time for the operation?
B. 9.0 hours
Saffer Corporation keeps careful track of the time required to fill orders. Data concerning a particular
order appear below:
79. The throughput time was: A. 9.3 hours
80. The manufacturing cycle efficiency (MCE) was closest to: A. 0.17
CHAPTER 10
6. Blomdahl Corporation makes a product with the following standard costs:
The company reported the following results concerning this product in October.
The materials price variance is recognized when materials are purchased. Variable overhead is applied
on the basis of direct labor-hours.
1. The Porter Company has a standard cost system. In July the company purchased and used 22,500
pounds of direct material at an actual cost of $53,000; the materials quantity variance was $1,875
Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds. The
materials price variance for July was: C. $3,250 F
Materials price variance = (AQ AP) - (AQ SP)
= $53,000 - (22,500 pounds $2.50 per pound) = $53,000 -
$56,250 = $3,250 F
2. The Wright Company has a standard costing system. The following data are available for
September:
The actual price per pound of direct materials purchased in September is:
C. $2.10
Materials price variance = AQ (AP - SP)
25,000 pounds (AP - $2 per pound) = $2,500 U
25,000 pounds
AP - $50,000 = $2,500 U
25,000 pounds AP - $50,000 = $2,500
25,000 pounds AP = $52,500
AP =
$52,500 25,000 pounds
AP = $2.10 per pound
3. The Cox Company uses standard costing. The following data are available for April:
The standard
quantity of material allowed for April production is:
C. 11,700 gallons
Materials quantity variance = (AQ - SQ) SP
(12,200 gallons - SQ) $4 per gallon = $2,000 U
($48,800 -
SQ) $4 per gallon = $2,000 U
SQ $4 per gallon = $46,800
SQ = $46,800 $4 per gallon
SQ = 11,700
gallons
4. The following labor standards have been established for a particular product:
The following data
pertain to operations concerning the product for the last month:
What is the labor rate variance for
the month?
A. $1,325 U
AH AR = $94,340
Labor rate variance = AH (AR - SR) = AH AR - AH SR
= $94,340 - (5,300 hours
$17.55 per hour) = $1,325 U
5. Borden Enterprises uses standard costing. For the month of April, the company reported the following
data:
Standard direct labor rate: $10 per hour
Standard hours allowed for actual production: 8,000
hours
Actual direct labor rate: $9.50 per hour
Labor efficiency variance: $4,800 Favorable
The labor
rate variance for April is:
B. $3,760 F
Labor efficiency variance = (AH - SH) SR
= (AH - 8,000 hours) $10 per hour = -$4,800
AH $10 per hour
- $80,000 = -$4,800
AH $10 per hour = $75,200
AH = $75,200 $10 per hour
AH = 7,520
Labor rate
variance = AH(AR - SR)
= 7,520 hours ($9.50 per hour - $10.00 per hour)
= 7,520 hours (-$0.50 per
hour) = $3,760 F
6. The following data have been provided by Spraglin Corporation, a company that produces forklift
trucks:
Supplies cost is an element of variable manufacturing overhead. The variable overhead
efficiency variance for supplies cost is:
A. $484 U
SH = 6,200 trucks 3.7 hours per truck = 22,940 hours
Variable overhead efficiency variance = (AH - SH)
SR
= (23,160 hours - 22,940 hours) $2.20 per hour
= (220 hours) $2.20 per hour = $484 U
7. The following standards for variable manufacturing overhead have been established for a company
that makes only one product:
The following data pertain to operations for the last
month:
What is the variable overhead rate variance for the month?
D. $990 U
Variable overhead rate variance = AH (AR - SR) = AH AR - AH SR
= $45,375 - (3,300 hours $13.45 per
hour)
= $45,375 - $44,385 = $990 U
8. Lafountaine Manufacturing Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company's cost formula for
variable manufacturing overhead is $4.70 per MH. During the month, the actual total variable
manufacturing overhead was $20,210 and the actual level of activity for the period was 4,700 MHs. What
was the variable overhead rate variance for the month?
B. $1,880 favorable
Variable overhead rate variance = AH (AR - SR) = AH AR - AH SR
= $20,210 - (4,700 hours $4.70 per
hour)
= $20,210 - $22,090 = $1,880 F
9. Millonzi Corporation has a standard cost system in which it applies manufacturing overhead to
products on the basis of standard machine-hours (MHs). The company has provided the following data
for the most recent month:
What was the variable overhead rate variance for the month?
C. $2,650 favorable
Variable overhead rate variance = AH (AR - SR) = AH AR - AH SR
= $42,400 - (5,300 hours $8.50 per
hour)
= $42,400 - $45,050 = $2,650 F
The Litton Company has established standards as follows:
Direct material: 3 pounds per unit @ $4 per
pound = $12 per unit
Direct labor: 2 hours per unit @ $8 per hour = $16 per unit
Variable
manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unit
Actual production figures for
the past year are given below. The company records the materials price variance when materials are
purchased.
The company applies variable manufacturing overhead to products on the basis of
standard direct labor-hours.
13. The labor efficiency variance is:
A. $800 F
B. $800 U
C. $840 F
D. $840 U
SH = 600 units 2 hours per unit = 1,200 hours
Labor efficiency variance = (AH - SH) SR
= (1,100 hours
- 1,200 hours) $8 per hour
= (-100 hours) $8 per hour = $800 F
14. The variable overhead rate variance is:
A. $240 U
B. $220 U
C. $220 F
D. $240 F
Variable overhead rate variance = (AH AR) - (AH SR)
= $5,720 - (1,100 hours $5.00 per hour)
= $5,720
- $5,500 = $220 U
15. The variable overhead efficiency variance is:
D. $500 F
Variable overhead efficiency variance = (AH - SH) SR
= (1,100 hours - 1,200 hours) $5.00 per hour
= (-
100 hours) $5.00 per hour = $500 F
YOU WILL HAVE 18 PROBLEMS/QUESTIONS: 16 ARE MULTIPLE CHOICE AND 6 ARE IN THE SAME
FORMAT AS THE QUIZ ON CHAPTER 10 (VARIANCES):