Espinosa corporation had $1,100,000 in invested assets, sales of

True or False: Please indicate whether each statement is true or false. (2 points per question)

1. The standard cost is how much a product should cost to manufacture.
2. Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.
3. An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.
4. A centralized business organization is one in which all major planning and operating decisions are made by top management.
5. The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.
6. Property tax expense for a department store’s store equipment is an example of a direct expense.
7. Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
8. The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
9. When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.
10. Care must be taken involving capital investment decisions, since normally a long-term commitment of funds is involved and operations could be affected for many years.
11. Average rate of return equals average investment divided by estimated average annual income.
12. Managers depend on product costing to make decisions regarding continuing operations, advertising, and product mix.
13. The single plantwide overhead rate method is very expensive to apply.
14. In the just-in-time (JIT) philosophy, unexpected downtime is the result of unreliable processes.
15. In a just-in-time (JIT) system, the work in process account will show more transactions than in a traditional cost system.

Multiple Choice (2 points per question):

16. If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is termed:
a. controllable variance
b. price variance
c. quantity variance
d. rate variance

17. The Joyner Corporation purchased and used 126,000 board feet of lumber in production, at a total cost of $1,449,000. Original production had been budgeted for 22,000 units with a standard material quantity of 5.5 board feet per unit and a standard price of $12 per board foot. Actual production was 23,000 units.

Compute the material price variance.
a. 63,000F
b. 63,000U
c. 6,000F
d. 6,000U

18. The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:

Standard: 25,000 hours at $10 $250,000
Actual: Variable factory overhead 202,500
Fixed factory overhead 60,000
What is the amount of the factory overhead volume variance?
a. $12,500 favorable
b. $10,000 unfavorable
c. $12,500 unfavorable
d. $10,000 favorable

19. Espinosa Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $242,000, and a desired minimum rate of return of 15%.

The profit margin for Espinosa is:
a. 20%
b. 22%
c. 15%
d. 32%

20. Materials used by Bristol Company in producing Division C’s product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 30,000 units of material are transferred, with no reduction in Division A’s current sales.

How much would Division C’s income from operations increase?
a. $0
b. $90,000
c. $15,000
d. $60,000

21. The balanced scorecard measures
a. only financial information
b. only nonfinancial information
c. both financial and nonfinancial information
d. external and internal information

22. All of the following should be considered in a make or buy decision except
a. cost savings
b. quality issues with the supplier
c. future growth in the plant and other production opportunities
d. the supplier will make a profit that would no longer belong to the business

23. What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the “markup”?
a. Product cost concept
b. Variable cost concept
c. Sunk cost concept
d. Total cost concept

True or False: Please indicate whether each statement is true or false. (2 points per question)

1. The standard cost is how much a product should cost to manufacture.
2. Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.
3. An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.
4. A centralized business organization is one in which all major planning and operating decisions are made by top management.
5. The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.
6. Property tax expense for a department store’s store equipment is an example of a direct expense.
7. Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
8. The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
9. When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.
10. Care must be taken involving capital investment decisions, since normally a long-term commitment of funds is involved and operations could be affected for many years.
11. Average rate of return equals average investment divided by estimated average annual income.
12. Managers depend on product costing to make decisions regarding continuing operations, advertising, and product mix.
13. The single plantwide overhead rate method is very expensive to apply.
14. In the just-in-time (JIT) philosophy, unexpected downtime is the result of unreliable processes.
15. In a just-in-time (JIT) system, the work in process account will show more transactions than in a traditional cost system.

Multiple Choice (2 points per question):

16. If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is termed:
a. controllable variance
b. price variance
c. quantity variance
d. rate variance

17. The Joyner Corporation purchased and used 126,000 board feet of lumber in production, at a total cost of $1,449,000. Original production had been budgeted for 22,000 units with a standard material quantity of 5.5 board feet per unit and a standard price of $12 per board foot. Actual production was 23,000 units.

Compute the material price variance.
a. 63,000F
b. 63,000U
c. 6,000F
d. 6,000U

18. The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:

Standard: 25,000 hours at $10 $250,000
Actual: Variable factory overhead 202,500
Fixed factory overhead 60,000
What is the amount of the factory overhead volume variance?
a. $12,500 favorable
b. $10,000 unfavorable
c. $12,500 unfavorable
d. $10,000 favorable

19. Espinosa Corporation had $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $242,000, and a desired minimum rate of return of 15%.

The profit margin for Espinosa is:
a. 20%
b. 22%
c. 15%
d. 32%

20. Materials used by Bristol Company in producing Division C’s product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 30,000 units of material are transferred, with no reduction in Division A’s current sales.

How much would Division C’s income from operations increase?
a. $0
b. $90,000
c. $15,000
d. $60,000

21. The balanced scorecard measures
a. only financial information
b. only nonfinancial information
c. both financial and nonfinancial information
d. external and internal information

22. All of the following should be considered in a make or buy decision except
a. cost savings
b. quality issues with the supplier
c. future growth in the plant and other production opportunities
d. the supplier will make a profit that would no longer belong to the business

23. What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the “markup”?
a. Product cost concept
b. Variable cost concept
c. Sunk cost concept
d. Total cost concept

25. All of the following qualitative considerations may impact upon capital investments analysis except:
a. time value of money
b. employee morale
c. the impact on product quality
d. manufacturing flexibility

26. All of the following are factors that may complicate capital investment analysis except:
a. the leasing alternative
b. changes in price levels
c. sunk cost
d. the federal income tax

27. The Nite Lite Factory produces two products – small lamps and desk lamps. It has two separate departments – finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, how much factory overhead will be allocated to each unit of desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours?
a. $11.10
b. $4.91
c. $5.00
d. $10.00

28. Using a plant-wide factory overhead rate distorts product costs when:
a. products require different ratios of allocation-base usage in each production department
b. significant differences exist in the factory overhead rates used across different production departments
c. both A and B exist
d. either A or B exist

29. Which of the following is characteristic of a traditional cost system?
a. Many work in process account transactions
b. Reliance on financial performance measures
c. Many process control points
d. All of the above

30. The local college is aggressively working in reducing the time that a student needs to enroll for each semester. All except one of the following changes is helping in their efforts.
a. Counselors are specializing in common degree plans.
b. One application is good at the Community college and at the transferring University.
c. A one stop area includes registration, admissions, advising, and ID’s. Each working closely with each other.
d. Reduce the number of degrees being offered.

Problems:

31. Diamond Company produces a chair that requires 5 yds. of material per unit. The standard price of one yard of material is $7.50. During the month, 8,500 chairs were manufactured, using 40,000 yards at a cost of $7.60. Determine the (a) price variance, (b) quantity variance, and (c) cost variance (6 points).

32. Some items are omitted from each of the following condensed divisional income statements of Willis Inc (8 points):

Division L Division M Division N
Sales $ (1) $320,000 $580,000
Cost of goods sold  480,000  120,000 $ (5)
Gross profit $220,000 $ (3) $180,000
Operating expenses  95,000  160,000 $ (6)
Income from operations $ (2) $ (4) $ 75,000

(a) Determine the amount of the missing items, identifying them by number.
(b) Based on income from operations, which division is the most profitable?

33. Delicious Cake Factory normally sells their specialty cake for $22. An offer to buy 100 cakes for $18 per cake was made by an organization hosting a national event in the city. The variable cost per cake is $12. A special decoration per cake will add another $1 to the cost. Determine the differential income or loss per cake from selling the cakes (10 points).

34.
Year 6% 10% 12%
1 .943 .909 .893
2 1.833 1.736 1.690
3 2.673 2.487 2.402
4 3.465 3.170 3.037
5 4.212 3.791 3.605
6 4.917 4.355 4.111
7 5.582 4.868 4.564
8 6.210 5.335 4.968
9 6.802 5.759 5.328
10 7.360 6.145 5.650

A project is estimated to cost $273,840 and provide annual cash flows of $60,000 for seven years. Determine the internal rate of return for this project, using the above table (6 points).

35. Nite Lite Factory produces two similar products – small lamps and desk lamps. The total plant budget is $800,000 with 640,000 estimated direct labor hours. It is further estimated that small lamp production will have 375,000 direct labor hours and desk lamp production will require 265,000 direct labor hours (10 points).
(a) Determine the single plant factory overhead rate based on direct labor hours.
(b) How much is the factory overhead cost per unit if each small lamp uses 3 hours per unit?
(c) How much is the factory overhead cost per unit if each desk lamp uses 2.5 hours per unit?
(d) How much total factory overhead will be allocated to the small lamp production if 130,000 units are produced during the period?
(e) How much total factory overhead will be allocated to the desk lamp production if 104,000 are produced during the period?