Acc 312 - Spring 2005

Sample Exam II
Note: Questions in italics are from Chapters 10 and 11 and should be ignored
for Exam II.
1.

Iowa makes all sales on account, subject to the following collection pattern: 20% are
collected in the month of sale; 70% are collected in the first month after sale; and 10% are
collected in the second month after sale. If sales for October, November, and December were
$70,000, $60,000, and $50,000, respectively, what were the firm's budgeted collections for
December?
a)
b)
c)
d)
e)

2.

Yummy Bakeries anticipated making 15,000 fancy cakes during a recent period, requiring
12,000 hours of process time. Each hour of process time was expected to cost the firm $10.
Actual activity for the period was higher than anticipated: 16,000 cakes and 12,800 hours. If
each hour of process time actually cost Yummy $11, what process-time variance would be
disclosed on a performance report that incorporated static budgets and flexible budgets?
a)
b)
c)
d)
e)

3.

$10,000.
$46,000.
$52,000.
$59,000.
None of the above.

Static
Flexible
$20,800U
$20,800U
$20,800U
$12,800U
$12,800U
$20,800U
$12,800U
$12,800U
None of the above

Gourmet Restaurants has the following flexible-budget formula:

Y = $13PH + $450,000 where PH is defined as process hours
Which of the following statements is (are) true?
a)
b)
c)
d)
e)

Gourmet has $450,000 of fixed costs.

Each additional hour of process time costs Gourmet $13.
Y would equal the amount shown as "total cost" in the firm's flexible budget.
Choices "A" and "B" are true.
Choices "A," "B," and "C" are true.

Acc 312 - Spring 2005

Sample Exam II - Page 1

4.

Ribco Co., makes and sells only one product. The unit contribution margin is $6 and the
break-even point in unit sales is 24,000. The company's fixed expenses are:
a)
b)
c)
d)
e)

5.

$4,000.
$14,400.
$40,000.
$144,000.
an amount other than those given above.

Which of the following would take place if a company were able to reduce its variable cost
per unit?

a)
b)
c)
d)
e)

Contribution
Margin
Increase
Increase
Decrease
Decrease
Increase

Break-Even
Point
Increase
Decrease
Increase
Decrease
No effect

Use the following to answer questions 6-7:

Barrick Company has established a flexible budget for manufacturing overhead based on directlabor hours. Total budgeted costs at 200,000 direct labor hours are as follows:
Variable costs (total)
Packing supplies
Indirect labor
Fixed costs (total)
Utilities
Rent
Insurance
6.

$100,000
$ 40,000
$ 20,000

At an activity level of 170,000 direct labor-hours, the flexible budget for factory overhead
would show the budgeted amount for utilities as:
a)
b)
c)
d)

7.

$120,000
$180,000

$ 85,000
$140,000
$160,000
$100,000

The flexible budget for factory overhead would show that the variable factory overhead cost
per direct labor-hour:
a)
b)
c)
d)

$1.80
$1.50
$0.90
$0.60
Acc 312 - Spring 2005
Sample Exam II - Page 2

8.

Justin Company recently purchased materials from a new supplier at a very attractive price.
The materials were found to be of poor quality, and the company's laborers struggled
significantly as they shaped the materials into finished product. In a desperation move to
make up for some of the time lost, the manufacturing supervisor brought in more-senior
employees from another part of the plant. Which of the following variances would have a
high probability of arising from this situation?
a)
b)
c)
d)
e)

9.

Material price variance, favorable.

Material quantity variance, unfavorable.
Labor rate variance, unfavorable.
Labor efficiency variance, unfavorable.
All of the above.

Once the break-even point has been reached, each additional unit sold will increase operating
income by the unit's:
a)
b)
c)
d)

selling price
contribution margin
fixed cost
variable cost

Use the following to answer questions 10-13:

Cost standards for products no. B55:
Direct material
3 pounds at $5.00 per pound
Direct labor
5 hours at $15.00 per hour
Actual results:
Units products
Direct material purchased
Direct material used
Direct labor

7,800 units
25,000 pounds at $5.40
23,100 pounds at $5.40
40,100 hours at $14.60

10.

The direct-material quantity variance is:

a)
$1,500F.
b)
$1,620F.
c)
$9,500F.
d)
$1,500U.
e)
none of the above.

11.

The direct-labor efficiency variance is:

a)
$16,000F.
b)
$16,500F.
c)
$16,000U.
d)
$16,500U.
e)
none of the above.
Acc 312 - Spring 2005
Sample Exam II - Page 3

$ 15.00
75.00

$135,000
124,700
585,460

12.

The direct-material price variance is:

a)
b)
c)
d)
e)

13.

The direct-labor rate variance is:

a)
b)
c)
d)
e)

14.

$15,600F.
$15,900F.
$16,040F.
$16,000U.
none of the above.

A disadvantage of the high-low method of cost analysis is that:

a)
b)
c)
d)

15.

$9,240F.
$10,000F.
$9,240U.
$10,000U.
none of the above.

It cannot be used when there are a very large number of observations.

It is too time consuming to apply.
It uses only two data points, and ignores all the other data points.
It relies totally on the judgment of the person performing the cost analysis.

A recent income statement of Olson Corporation reported the following data:

Sales revenue
Variable costs
Fixed costs

$2,500,000
1,500,000
800,000

If the company sold 5,000 units to achieve the above sales, the break-even point would be:
a)
b)
c)
d)
e)
16.

4,000 units.
4,412 units.
5,000 units.
20,000 units.
an amount other than those given above.

Clinton Corporation recently produced and sold 50,000 units of a product. Fixed costs at this
level of activity amounted to $50,000; variable costs were $100,000. How much cost would
the company anticipate if during the next period it produced and sold 48,000 units?
a)
b)
c)
d)
e)

$144,000.
$146,000.
$148,000.
$150,000.
Some other amount not listed above.
Acc 312 - Spring 2005
Sample Exam II - Page 4

17.

Brooks Company uses the cost formula Y = $7,200 + $0.60X for the maintenance cost in
department T, where X is machine hours. The July budget is based on 20,000 hours of
planned machine time. Maintenance cost expected to be incurred during the month is:
a)
b)
c)
d)

18.

Flexible budgets reflect a company's anticipated costs based on variations in:

a)
b)
c)
d)
e)

19.

activity levels.
inflation rates.
managers.
anticipated capital acquisitions.
standards.

Yellow, Inc., sells a single product for $10. Variable costs are $4 per unit and fixed costs total
$120,000 at a volume level of 10,000 units. What dollar sales level would Yellow have to
achieve to earn a target net profit of $240,000?
a)
b)
c)
d)
e)

20.

$ 7,200
$12,000
$12,600
$19,200

$400,000.
$500,000.
$600,000.
$750,000.
$900,000.

Diego makes all purchases on account, subject to the following payment pattern:
Paid in the month of purchase--30%
Paid in the first month following purchase--60%
Paid in the second month following purchase--10%
If purchases for January, February, and March were $200,000, $180,000, and $230,00
respectively, what were the firm's budgeted payments in March?
a)
b)
c)
d)
e)

$69,000.
$138,000.
$177,000.
$197,000.
None of the above.

Acc 312 - Spring 2005

Sample Exam II - Page 5

21.

Richard Hamilton has a fast-food franchise and must pay a franchise fee each year that
consists of $35,000 plus 3% of gross sales. In terms of cost behavior, the fee is a:
a)
b)
c)
d)
e)

22.

variable cost.
fixed cost.
step-fixed cost.
semivariable cost.
curvilinear cost.

Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that
machine hours best explain the company's utilities cost. The company's relevant range of
activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the
following data being available for the first six months of the year:
Month
January
February
March
April
May
June

Utilities
$8,700
8,360
8,950
9,360
9,625
9,150

Machine Hours
800
720
810
920
950
900

Using the high-low method, the utilities cost associated with 850 machine hours would be:
a)
b)
c)
d)
e)
23.

The budgeting process that requires every line-item to be justified each budgeting period is
a)
b)
c)
d)

24.

flexible budgeting
incremental budgeting
line-item budgeting
zero-based budgeting

Which of the following outcomes is not typically associated with participative budgeting?
a)
b)
c)
d)
e)

25.

$8,885
$9,035
$9,075
$9,165
an amount other than those listed above.

Employees make significant attempts in trying to achieve budgetary goals.

Budget preparation time can be somewhat lengthy.
The problem of budget padding may surface.
Ethical issues may arise, especially when the budget is used as a basis for performance
appraisal.
Employee morale may suffer.

Which of the following would have no effect, either direct or indirect, on an organization's
cash budget?
Acc 312 - Spring 2005
Sample Exam II - Page 6

a)
b)
c)
d)
e)
26.

An investment project for which the net present value is $300 would result in which of the
following conclusions:
a)
b)
c)
d)
e)

27.

cost of capital
hurdle rate
internal rate of return
discount rate
required rate of return

An investment of P dollars now will yield cash inflows of $3,000 at the end of the first year
and $2,000 at the end of the fourth year. If the required rate of return for this investment is
20%, the value of P is:
a)
b)
c)
d)
e)

29.

The net present value is too small; the project should be rejected.
The investment project promises slightly more than the required rate of return.
The net present value method is not suitable for evaluating this project; the internal
rate of return should be used.
The investment project should only be accepted if net present value is zero; a positive
net present value indicates an error(s) in the estimates associated with the analysis of
this investment.
none of the above are true.

Under the internal rate of return capital budgeting technique, it is assumed that cash flows
are reinvested at the companys:
a)
b)
c)
d)
e)

28.

Sales revenues.
Outlays for professional labor.
Advertising expenditures.
Raw material purchases.
None of the above, as all of these items would have some influence.

$3,463
$2,499
$964
$4,185
none of the above are correct

Peter wants to buy a computer that he expects to save him $4,000 each year in bookkeeping
costs. The computer will last for five years, and at the end of five years it will have no
salvage value. If Peters required rate of return is 12%, what is the maximum price Peter
would be willing to pay for the computer?
a)
b)
c)
d)
e)

$20,000
$14,420
$11,340
$10,830
none of the above are correct
Acc 312 - Spring 2005
Sample Exam II - Page 7

Use the following information for questions 30 - 31.

Chow Company has gathered the following data on a proposed investment project:
Investment in required equipment
Annual cash inflows
Salvage value
Life of the investment
Required rate of return
30.

The net present value of this investment is closest to:

a)
b)
c)
d)
e)

31.

$30,000
$76,024
$58,800
$21,048
$17,550

The internal rate of return on the investment is closest to:

a)
b)
c)
d)
e)

12%
13%
14%
15%
16%

Acc 312 - Spring 2005

Sample Exam II - Page 8

$139,000
$30,000
$0
8 years
10%

Computational Problems
#1.

(13 points) Delta Company produces widgets. Each widget requires 2 units of part A, 5 units
of part B, and 3 units of part C. Each part A costs $2, each part B costs $5, and each part C
costs $4. Projected widget sales are as follows:
January
February
March

10,000
15,000
20,000

Required
a.
Prepare a production budget for January and February assuming Delta maintains a finished
goods inventory of 20% of next month's needs.
b.
Prepare a raw materials budget for January showing units of Part A. to be purchased and the
dollar value. Assume Delta maintains a raw materials inventory equal to 10% of next
month's materials needs.

Acc 312 - Spring 2005

Sample Exam II - Page 9

#2.

(12 points) Monthly profit data for two of Yellow Lorry Ltd.'s products, M-1 and F-1 are
shown below:

Sales
Variable Costs
Contribution Margin
Incremental Fixed Costs
Allocated corporate costs
Net income (loss)

M-1
$40,000
16,000
$24,000
10,000
$14,000
2,000
$12,000

F-1
$60,000
42,000
$18,000
20,000
$(2,000)
3,000
$(5,000)

Total
$100,000
58,000
$ 42,000
30,000
$ 12,000
5,000
$ 7,000

Additional information regarding Yellow Lorry's operations is as follows:

1.
2.
3.

One-fourth of each product's incremental fixed costs are unavoidable even if the product is
discontinued.
Yellow Lorry allocates corporate costs to each product on the basis of sales dollars.
Management estimates that discontinuing F-1 would result in a 10% decline in sales of M-1.
However, discontinuing M-1 would not affect sales of F-1.

Required
a.
Discontinuing F-1 would result in a monthly increase (decrease) in Yellow Lorry's operating
income of what amount?
b.
Yellow Lorry is considering a promotional campaign for F-1 that would not affect sales of
M-1. Increasing monthly promotional expenses for F-1 by $2,500, which would increase F1's sales by 10%, which would result in a monthly increase (decrease) in the company's
operating income of what amount?

Acc 312 - Spring 2005

Sample Exam II - Page 10

#3.

Travis Industries is currently purchasing part #456 from an outside supplier for $90 per unit.
Because of supplier reliability problems, the company is considering producing the part
internally in a currently idle manufacturing plant. Annual volume over the next five years is
expected to total 400,000 units at variable manufacturing costs of $88 per unit.
Travis must acquire $200,000 of new equipment if it reopens the plant. The equipment has a
five-year service, and will be depreciated using the straight-line method (the company
ignores any expected salvage value when it calculates depreciation). Normal equipment
maintenance is expected to total $12,000 at the end of year 4, and the company expects to
sell the asset at the end of year 5 for $20,000. The company is subject to a 30% tax rate.

Required
Determine whether Travis should make or buy part #456.

Acc 312 - Spring 2005

Sample Exam II - Page 11

Multiple-Choice Answers
Question #
1
D
2
B
3
E
4
D
5
B
6
D
7
B
8
E
9
B
10
A
11
D
12
D
13
C
14
C
15
A
16
B

Question #
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

D
A
C
D
D
C
D
E
E
B
C
A
B
D
C

Computational Problem Solutions

#1.

Production for January and February:

Sales
Ending Inventory
Beginning Inventory
Production
Raw materials budget:
Needs
Ending Inventory
Beginning inventory
Units needed
Dollars

January
10,000
3,000
13,000
<2,000>
11,000

February
15,000
4,000
19,000
<3,000>
16,000

Part A
22,000
3,200
25,200
<2,200>
23,000

Part B
55,000
8,000
63,000
<5,500>
57,500

$46,000

Acc 312 - Spring 2005

Sample Exam II - Page 12

$287,500

Part C
33,000
4,800
37,800
<3,300>
34,500
$138,000

#2.

a.

New sales
New variable costs
New incremental fixed costs
New allocated corporate costs
New net income
New net income
Original net income
Decrease in net income

b.
Sales
Variable costs
CM
Incremental fixed costs
Total corporate costs
Net income
New net income
Original net income
Decrease in net income

36,000
<14,400>
<15,000>
<5,000>
1,600
1,600
<7,000>
<5,400>
M-1
40,000
<16,000>
24,000
<10,000>

F-1
66,000
<46,200>
19,800
<22,500>

Total
106,000
<62,200>
43,800
<32,500>
<5,000>
6,300

6,300
<7,000>
<700>

#3.
Travis is better off to make part #456.
Buy:
Purchase (400,000 units x $90 x 0.70)
Make:
Variable manufacturing costs
(400,000 units x $88 x 0.70)
New equipment
Depreciation ($200,000 5 years =
$40,000; $40,000 x 0.30)
Maintenance ($12,000 x 0.70)
Equipment sale ($20,000 - $0 book
value = $20,000 gain; $20,000 x
0.30 = $6,000 tax; $20,000 $6,000)
Total

$(25,200,000) x 3.605

$(90,846,000)

$(24,640,000) x 3.605
$(200,000) x 1.0

$(88,827,200)
(200,000)

$12,000 x 3.605
$8,400 x 0.636

43,260
(5,342)

$14,000 x 0.567

7,938
$(88,981,344)

Acc 312 - Spring 2005

Sample Exam II - Page 13