1. Products A, B, and C are produced from a single raw material input. The raw material costs $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period.
Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. Product A should be
A. processed further, since this will increase profits by $12,500 each period.
B. processed further, since this will increase profits by $2,500 each period.
C. sold at the split-off point, since further processing will result in a loss of $2,500 each period.
D. sold at the split-off point, since further processing would result in a loss of $0.50 per unit.
Use the following information to answer this question.
2. Larkins Company's earnings per share of common stock for Year 2 was closest to:
A. $17.50.
B. $16.83.
C. $25.00.
D. $7.21.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities
3. Larkins Company's price-earnings ratio on December 31, Year 2 was closest to:
A. 20.79
B. 8.91
C. 8.57
D. 6.00
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
4. Larkins Company's return on common stockholders' equity for Year 2 was closest to:
A. 25.9%.
B. 23.5%.
C. 24.4%.
D. 26.9%.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The
market price of a share of common stock on December 31, Year 2 was $150.
5. Larkins Company's dividend payout ratio for Year 2 was closest to:
A. 42.9%
B. 14.8%
C. 24.6%
D. 40.6%
6. Brittman Corporation makes three products that use the current constraint-a particular type of machine.
Data concerning those products appear below:
Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product.
Up to how much should the company be willing to pay to acquire more of the constrained resource?
IP NI YD
Selling price per unit $183.57 $207.74 $348.15
Variable cost per unit $144.42 $155.04 $269.50
Minutes on the constraint 2.90 3.40 5.50
A. $78.65 per unit
B. $13.50 per minute
C. $15.50 per minute
D. $39.15 per unit
7. The net present value method assumes that the project's cash flows are reinvested at the
A. payback rate of return.
B. discount rate used in the net present value calculation.
C. simple rate of return.
D. internal rate of return.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
8. Larkins Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 5.0%.
B. 4.1%.
C. 2.1%.
D. 4.6%.
9. An increase in the market price of a company's common stock will immediately affect its
A. debt-to-equity ratio.
B. dividend payout ratio.
C. dividend yield ratio.
D. earnings per share of common stock.
10. Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on the
machine follow:
Purchase cost $50,000
The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage
value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year.
The simple rate of return would be closest to
Annual cost savings $15,000
Life of the machine 8 years
A. 12.5%.
B. 30.0%.
C. 18.75%.
D. 17.5%.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities
Accounts receivable, net
Inventory
Prepaid expenses
11. Larkins Company's return on total assets for Year 2 was closest to:
A. 17.0%.
B. 16.0%.
C. 13.6%.
D. 15.3%.
12. A project profitability index greater than zero for a project indicates that
A. the discount rate is less than the internal rate of return.
B. the company should reevaluate its discount rate.
C. the project is unattractive and shouldn't be pursued.
D. there has been a calculation error.
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
Comparative Balance Sheet
Ending
Balance
Beginning
Balance
Assets:
Cash and cash equivalents
Accounts receivable
Inventory
13. The net cash provided by (used by) financing activities for the year was
A. ($12).
B. $1.
C. ($18).
D. $5.
14. A weakness of the internal rate of return method for screening investment projects is that it
A. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.
B. doesn't take into account all of the cash flows from a project.
C. doesn't consider the time value of money.
D. implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
15. Larkins Company's book value per share at the end of Year 2 was closest to:
A. $23.33.
B. $70.00.
C. $10.00.
D. $76.67.
16. Which of the following would be classified as a financing activity on the statement of cash flows?
A. Dividends paid to shareholders of the company on the company's common stock
B. Interest paid on bonds issued by the reporting company
C. Interest received on investments in another company's bonds
D. Dividends received on investments in another company's common stock
17. Cridwell Company's selling and administrative expenses for last year totaled $210,000. During the year,
the company's prepaid expense account balance increased by $18,000, and accrued liabilities increased by
$12,000. Depreciation charges for the year were $24,000. Based on this information, selling and
administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows
would be
A. $228,000.
B. $192,000.
C. $180,000.
D. $240,000.
18. Fonics Corporation is considering the following three competing investment proposals:
Using the project profitability index, how would the above investments be ranked (highest to lowest)?
Aye Bee Cee
Initial investment required $62,000 $74,000 $95,000
Net present value $10,000 $8,000 $12,000
Internal rate of return 15% 17% 18%
A. Aye, Bee, Cee
B. Bee, Cee, Aye
C. Aye, Cee, Bee
D. Cee, Bee, Aye
19. A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory is written off, this would
A. increase the acid-test ratio.
B. decrease the current ratio.
C. decrease the acid-test ratio.
D. increase net working capital.
20. (Ignore income taxes in this problem.) The following data pertain to an investment:
The net present value of the proposed investment is
Cost of the investment $18,955
Life of the project 5 years
Annual cost savings $5,000
Estimated salvage value $1,000
Discount rate 10%
A. $3,355.
B. $(3,430).
C. $0.
D. $621.
Second set of questions below
Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page
break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. The Charade Company is preparing its Manufacturing Overhead budget for the fourth quarter of the
year. The budgeted variable factory overhead is $5.00 per direct-labor hour; the budgeted fixed factory
overhead is $75,000 per month, of which $15,000 is factory depreciation. If the budgeted direct-labor time
for December is 8,000 hours, then total budgeted factory overhead per direct-labor hour (rounded) is
A. $14.38.
B. $12.50.
C. $9.38.
D. $16.25.
Use the following information to answer this question.
Werber Clinic uses client visits as its measure of activity. During January, the clinic budgeted for 2,700
client visits, but its actual level of activity was 2,730 client visits. The clinic has provided the following data
concerning the formulas used in its budgeting and its actual results for January:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ___-___ $33.60
Personnel expenses $22,100 $8.70
Medical supplies 1,100 6.60
Occupancy expenses 5,600 1.60
Administrative expenses 3,700 0.40
Total expenses $32,500 $17.30
Actual results
for January:
Revenue $93,408
Personnel expenses $46,251
Medical supplies $19,348
Occupancy expenses $9,508
Administrative expenses $4,772
2. The activity variance for personnel expenses in January would be closest to
A. $661 F.
B. $261 F.
C. $661 U.
D. $261 U.
Use the following information to answer this question.
Werber Clinic uses client visits as its measure of activity. During January, the clinic budgeted for 2,700
client visits, but its actual level of activity was 2,730 client visits. The clinic has provided the following data
concerning the formulas used in its budgeting and its actual results for January:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ___-___ $33.60
Personnel expenses $22,100 $8.70
Medical supplies 1,100 6.60
Occupancy expenses 5,600 1.60
Administrative expenses 3,700 0.40
Total expenses $32,500 $17.30
Actual results
for January:
Revenue $93,408
Personnel expenses $46,251
Medical supplies $19,348
Occupancy expenses $9,508
Administrative expenses $4,772
3. The activity variance for administrative expenses in January would be closest to
A. $12 U.
B. $12 F.
C. $8 U.
D. $8 F.
4. The cash budget must be prepared before you can complete the
A. schedule of cash disbursements.
B. raw materials purchases budget.
C. budgeted balance sheet.
D. production budget.
Use the following information to answer this question.
Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for
3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided the
following data concerning the formulas used in its budgeting and its actual results for December:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ____-____ $25.10
Personnel expenses $27,100 $7.10
Medical supplies 1,500 4.50
Occupancy expenses 6,000 1.00
Administrative expenses 3,000 0.10
Total expenses $37,600 $12.70
Actual results
for December:
Revenue $96,299
Personnel expenses $51,009
Medical supplies $17,425
Occupancy expenses $9,240
Administrative expenses $3,239
5. The activity variance for personnel expenses in December would be closest to
A. $2,361 U.
B. $71 F.
C. $71 U.
D. $2,361 F.
6. The budget or schedule that provides necessary input data for the direct-labor budget is the
A. production budget.
B. raw materials purchases budget.
C. cash budget.
D. schedule of cash collections.
7. Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating
assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover rounded to the nearest tenth?
A. 10.2
B. 9.8
C. 9.5
D. 9.2
Use the following information to answer this question.
The Adams Company, a merchandising firm, has budgeted its activity for November according to the
following information:
• Sales were at $450,000, all for cash.
• Merchandise inventory on October 31 was $200,000.
• The cash balance on November 1 was $18,000.
• Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash.
• Budgeted depreciation for November is $25,000.
• The planned merchandise inventory on November 30 is $230,000.
• The cost of goods sold is 70% of the selling price.
• All purchases are paid for in cash.
8. The budgeted cash disbursements for November are
A. $530,000.
B. $375,000.
C. $345,000.
D. $405,000.
9. The company plans to sell 22,000 units of Product WZ in June. The finished-goods inventories on June
1 and June 30 are budgeted to be 100 and 400 units, respectively. The direct labor hours are 11,000 and
the direct labor rate is $10.50. Budgeted direct-labor costs for June would be
A. $462,000.
B. $234,150.
C. $455,700.
D. $117,075.
Use the following information to answer this question.
Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard
costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to
production on the basis of standard direct-labor hours. During January, the company recorded the following
activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
10. The labor rate variance for January is
A. $585 F.
B. $475 F.
C. $475 U.
D. $585 U.
Use the following information to answer this question.
Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for
3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ____-____ $25.10
Personnel expenses $27,100 $7.10
Medical supplies 1,500 4.50
Occupancy expenses 6,000 1.00
Administrative expenses 3,000 0.10
Total expenses $37,600 $12.70
Actual results
for December:
Revenue $96,299
Personnel expenses $51,009
Medical supplies $17,425
Occupancy expenses $9,240
Administrative expenses $3,239
11. The medical supplies in the flexible budget for December would be closest to
A. $17,378.
B. $18,150.
C. $18,105.
D. $17,472.
12. Division X of Charter Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers at $24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is $16. Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its products. There would be no cost savings from transferring the units within the company rather than selling them on the outside market.
What should be the lowest acceptable transfer price from the perspective of Division X?
A. $24.00
B. $17.60
C. $16.00
D. $21.40
Use the following information to answer this question.
Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard
costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
13. The labor efficiency variance for January is
A. $475 F.
B. $130 U.
C. $350 U.
D. $110 F.
14. A company's average operating assets are $220,000, and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project's residual income if the required rate of return is 20%?
A. $450
B. ($600)
C. ($450)
D. $600
15. There are various budgets within the master budget. One of these budgets is the production budget.
Which of the following best describes the production budget?
A. It details the required raw materials purchases.
B. It's calculated based on the sales budget and the desired ending inventory.
C. It summarizes the costs of producing units for the budget period.
D. It details the required direct-labor hours.
Use the following information to answer this question.
Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
16. The materials quantity variance for January is
A. $300 F.
B. $300 U.
C. $750 F.
D. $800 U.
17. Super Drive is a computer hard-drive manufacturer. The company's balance sheet for the fiscal year
ended on November 30 appears below:
Super Drive, Inc.
Statement of Financial Position
For the year ended November 30
Assets:
Cash $52,000
Accounts receivable 150,000
Inventory 315,000
Property, plant, and equipment 1,000,000
Total Assets $1,517,000
Liabilities and stockholders' equity:
Accounts payable $175,000
Common stock 900,000
Retained earnings 442,000
Total liabilities and
stockholders' equity $1,517,000
Additional information regarding Super Drive's operations appears below:
• Sales are budgeted at $520,000 for December and $500,000 for January.
• Collections are expected to be 60% in the month of sale and 40% in the month following sale. There are no bad debts.
• 80% of the disk-drive components are purchased in the month prior to the month of the sale, and 20% are purchased in the month of the sale. Purchased components comprise 40% of the cost of goods sold.
• Payment for components purchased is made in the month following the purchase.
• Assume that the cost of goods sold is 80% of sales.
The budgeted cash collections for the upcoming December should be
A. $402,000.
B. $520,000.
C. $208,000.
D. $462,000.
Use the following information to answer this question.
Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for 3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ____-____ $25.10
Personnel expenses $27,100 $7.10
Medical supplies 1,500 4.50
Occupancy expenses 6,000 1.00
Administrative expenses 3,000 0.10
Total expenses $37,600 $12.70
Actual results
for December:
Revenue $96,299
Personnel expenses $51,009
Medical supplies $17,425
Occupancy expenses $9,240
Administrative expenses $3,239
18. The personnel expenses in the planning budget for December would be closest to
A. $53,370.
B. $51,147.
C. $51,009.
D. $53,299.
Use the following information to answer this question.
Werber Clinic uses client visits as its measure of activity. During January, the clinic budgeted for 2,700 client visits, but its actual level of activity was 2,730 client visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ___-___ $33.60
Personnel expenses $22,100 $8.70
Medical supplies 1,100 6.60
Occupancy expenses 5,600 1.60
Administrative expenses 3,700 0.40
Total expenses $32,500 $17.30
Actual results
for January:
Revenue $93,408
Personnel expenses $46,251
Medical supplies $19,348
Occupancy expenses $9,508
Administrative expenses $4,772
19. The activity variance for net operating income in January would be closest to
A. $2,019 U.
B. $2,019 F.
C. $489 F.
D. $489 U.
Use the following information to answer this question.
Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
20. The total variance (both rate and efficiency) for variable overhead for January is
A. $85 F.
B. $100 U.
C. $40 F.
