Week 6 Lecture

Revision

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1. Which of the following represents the normal sequence
in which the indicated budgets are prepared?

A. Direct Materials, Cash, Sales

B. Production, Cash, Income Statement
C. Sales, Balance Sheet, Direct Labour
D. Production, Production Overhead, Sales

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2. Budgeted production needs are determined by:

A. adding budgeted sales in units to the desired

ending inventory in units and deducting the
beginning inventory in units from this total.
B. adding budgeted sales in units to the beginning
inventory in units and deducting the desired ending
inventory in units from this total.
C. adding budgeted sales in units to the desired
ending inventory in units.
D. deducting the beginning inventory in units from
budgeted sales in units.

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3. Zero-based budgeting:

A. does not adjust costs for the expected level of

activity.
B. is used when no increases in budgets are allowed.
C. requires that all programs be justified and prioritized.
D. assumes that departments are entitled to at least the
current level of spending.

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4. Shocker Company’s sales budget shows quarterly sales
for the next year as follows:

Unit Sales
Quarter 1..... 10,000 units
Quarter 2..... 8,000 units
Quarter 3..... 12,000 units
Quarter 4..... 14,000 units

Company policy is to have a finished goods inventory at

the end of each quarter equal to 20% of the next quarter’s
sales. Budgeted production for the second quarter of the
next year would be:
A. 7,200 units B. 8,000 units
C. 8,800 units D. 8,400 units
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5. Prestwich Company has budgeted production for the
next year as follows:

Production in units
Quarter 1..... 60,000
Quarter 2..... 80,000
Quarter 3..... 90,000
Quarter 4..... 70,000

Two pounds of material A are required for each unit

produced. The company has a policy of maintaining a
stock of material A on hand at the end of each quarter
equal to 25% of the next quarter’s production needs for
material A. A total of 30,000 pounds of material A are on
hand to start the year. Budgeted purchases of material A
for the second quarter would be:
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5.

A. 82,500 pounds.
B. 165,000 pounds
C. 200,000 pounds
D. 205,000 pounds

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Use the following to answer questions 6 - 7

April May June July

Credit Sales.... $320,000 $300,000 $350,000 $400,000

Cash Sales..... $70,000 $80,000 $90,000 $70,000

The regular pattern of collection of credit sales is 30% in

the month of sale, 60% in the month following the month
of sale, and the remainder in the second month following
the month of sale. There are no bad debts.

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6. The budgeted cash receipts for July would be:

A. $400,000.
B. $430,000
C. $435,000
D. $390,000

7. The budgeted accounts receivable balance on May 31

would be:
A. $210,000.
B. $212,000
C. $180,000
D. $242,000
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8. During the budget period, opening debtors are $15,200,
credit sales total $95,000 and closing debtors are
$16,000. The amounts received from customers
included in the cash budget are:

A. $63,800
B. $94,200
C. $95,800
D. $110,200

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9. If investment A has a payback period of 3 years and
investment B has a payback period of 4 years, then:

A. A is more profitable than B.

B. A is less profitable than B
C. A and B are equally profitable.
D. The relative profitability of A and B cannot be
determined using only the payback periods.

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10. A decrease in the discount rate:

A. will increase present values of future cash flows

B. is one way to compensate for greater risk in a
project.
C. will reduce present values of future cash flows.
D. responses A and B are both correct.

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 Rate
Rate
Periods
Periods 10%
10% 12%
12% 14%
14%
11 0.909
0.909 0.893
0.893 0.877
0.877
22 0.826
0.826 0.797
0.797 0.769
0.769
33 0.751
0.751 0.712
0.712 0.675
0.675
44 0.683
0.683 0.636
0.636 0.592
0.592
55 0.621
0.621 0.567
0.567 0.519
0.519

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11. A company is planning to invest in a machine with a
useful life of five years and no salvage value. The
machine is expected to produce cash flow from
operations of $20,000 in each of the five years. The
company’s required rate of return is 10%. The
maximum price that the company would pay for the
machine would be:

A. $32,220
B. $62,100
C. $75,800
D. $122,100

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Use the following data pertain to an investment proposal to
answer questions 12 - 14

Cost of machinery $35,000

Additional working capital $10,000
Accounting profit $8,000
Estimated salvage value $7,000
Life of the project 4 years
Discount rate 14%

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12. The accounting rate of return is:

A. 25.8% B. 38.1% C. 48.4% D. 71.4%

13. The payback period is:

A. 1 year B. 2 years C. 3 years D. 4 years

14. The net present value is:

A. $2,524 B. $17,639 C. $21,286 D. $31,000

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15. Which of the following would probably be the least
appropriate absorption base for absorbing overhead in
a highly automated manufacturer of specialty valves?

A. machine-hours
B. power consumption
C. direct labour-hours
D. machine setups

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16. Malcolm Company uses an overhead absorption rate
based on direct labor hours to apply production
overhead to jobs.

On September 1, the estimates for the month were:

Production overhead............ $17,000
Direct labour hours............... 13,600
During September, the actual results were:
Production overhead............ $18,500
Direct labour hours............... 12,000

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16.

The cost records for September will show:

A. Over-absorbed overhead of $1,500.

B. Under-absorbed overhead of $1,500.
C. Over-absorbed overhead of $3,500.
D. Under-absorbed overhead of $3,500.

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17. Nil Co. uses an overhead absorption rate based on
direct labour cost to apply manufacturing overhead to
jobs. For the year ended December 31, Nil’s
estimated manufacturing overhead was $600,000,
based on an eatimated volume of 50,000 direct labour
hours, at a direct labour rate of $6.00 per hour. Actual
manufacturing overhead amounted to $620,000, with
actual direct labour cost of $325,000. For the year,
manufacturing overhead was:

A. Over-absorbed by $20,000
B. Under-absorbed by $22,000
C. Over-absorbed by $30,000
D. Under-absorbed by $30,000

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18. Pinnini Co. uses an overhead absorption rate based on
direct labour hours to apply manufacturing overhead to
jobs. Last year, Pinnini Company incurred $225,000 in
actual manufacturing overhead cost. The
manufacturing Overhead account showed that
overhead was over-absorbed $14,500 for the year. If
the overhead absorption rate was $5.00 per direct
labour hour, how many hours did the company work
during the year?

A. 45,000 hours
B. 47,900 hours
C. 42,100 hours
D. 44,000 hours

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Use the following to answer questions 19 - 22

A2 Company Limited is a diversified manufacturer of industrial goods.

The company’s activity-based costing system has the following three
activity cost pools and activity rates:

Activity Cost Pool Expected Overhead Cost Expected Activity

Labor related $14,000 2,000 direct labor-hours

Machine related $12,000 4,000 machine-hours
Machine setups $400 10 machine setups

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Use the following to answer questions 19 - 22

Cost and activity data for Job J1 have been supplied as follows:

J1
Direct materials cost per unit $6.00
Direct labor cost per unit $3.00
Number of units produced per year 4,000

J1 Actual
Activity
Direct labor-hours 1,000
Machine-hours 3,200
Machine setups 5

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19. The cost driver rate (predetermined overhead rate) for
the labor related cost pool was:

A. $8.00
B. $7.00
C. $6.00
D. $5.00

20. The amount of machine related overhead applied to

Job J1 was:

A. $3,000
B. $7,000
C. $9,600
D. $22,400
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21. Total overhead applied to Job J1 was:

A. $14,800
B. $15,800
C. $16,800
D. $17,800

22. The unit product cost of Job J1 was:

A. $12.45
B. $13.20
C. $13.45
D. $14.20

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Use the following to answer questions 23 - 25

Monrovia Bike Corporation manufactures two models of

bicycles: the “Runner” and the “Jumper.” In the past,
Monrovia had been using a traditional overhead
absorption system based on machine hours. Monrovia
has decided to switch to an activity-based costing system
using two activity cost pools. Information related to the
new system is as follows:

Activity Estimated Overhead Estimated Activity

Cost
Automated assembly $189,000 7,000 machine hours

Parts management $63,000 100 part numbers

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Use the following to answer questions 23 - 25

Actual activity for the year for the two models of bicycles
were as follows:

Bicycles Machine Part

Produced Hours Used Number Used
Jumper 300 2,400 70

Runner 960 4,800 30

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23. Under the new activity-based costing system, what
amount of overhead cost would Monrovia assign to
each Jumper bicycle?

A. $357.00
B. $363.00
C. $656.25
D. $657.00

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24. If Monrovia was still using its traditional system, how
much overhead cost would have been assigned to
each Runner bicycle?

A. $135.00
B. $175.00
C. $180.00
D. $200.00

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25. If Monrovia’s actual overhead cost was $257,600, what
would total under- or over-absorbed overhead be for
the year under the new activity-based costing system?

A. $200 over-absorbed
B. $3,800 over-absorbed
C. $3,800 under-absorbed
D. $200 under-absorbed

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26. A company’s total costs and associated output levels
for the last four accounting periods have been:
Total costs Output
Period 1 $120,000 6,000 units
2 $160,000 10,000 units
3 $180,000 11,000 units
4 $130,000 7,000 units

What are the estimated fixed costs per period?

A. $38,000
B. $48,000
C. $56,000
D. $66,000

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Use the following to answer questions 27 - 28

B2 employs a standard cost system and sells a single

product. Each product has a standard cost of 0.8
kilograms of materials at $2.00 per kilogram.

During a recent month, the company manufactured 10,000

units of products using 8,200 kilograms of materials at a
total cost of $14,760.

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27. The direct materials price variance is:

A. $1,240 Favourable
B. $1,240 Unfavourable
C. $1,640 Favourable
D. $1,640 Unfavourable

28. The direct materials quantity variance is:

A. $400 Favourable
B. $400 Unfavourable
C. $600 Favourable
D. $600 Unfavourable

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29. A company produced 12,000 units of product and the
labour rate variance for the month was $2,000
favourable. The actual wages amounted to $124,000
and the actual hours worked were 10,000.

What was the standard hourly rate of pay?

A. $10.50
B. $11.60
C. $12.20
D. $12.60

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30. An unfavourable labor rate variance can possibly be
explained by which of the following factors?

A. Better negotiation skill with labor union.

B. Less overtime works which were paid at premium
rates.
C. Employed more skilled workers.
D. More supply of labors.

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