Introduction to Accounting and Financial Reporting

 

ACCTG 225 Section A

 

Exam 2

 

TRUE/FALSE. (2 points each) Write ‘True’ if the statement is true and ‘False’ if

 

the statement is false.

 

1) The direct labor rate variance is calculated by multiplying the standard hours that

 

should have been worked for the actual output by the difference between the standard

 

labor rate and the actual labor rate.

 

 

 

2) The sales budget must be prepared after every other component of the operating

 

budget.

 

 

 

3) Standard costs for production inputs are used to develop flexible budgets.

 

 

 

4) If the actual number of units produced is less than the number of units budgeted to

 

produced, then the fixed overhead volume variance will always be unfavorable.

 

 

 

5) Up-to-date standard costs provide a benchmark by which to evaluate actual costs and

 

operations.

 

6) For retailers and service companies without inventory, operating income is different if

 

an absorption income statement or a contribution margin income statement is

 

prepared.

 

 

 

7) If the number of units produced equals the number of units sold for a manufacturer,

 

both variable costing and absorption costing income statements will yield the same

 

gross margin.

 

 

 

8) Under absorption costing, all nonmanufacturing costs are treated as period costs.

 

 

 

9) Both the static budget and the flexible budget used for performance evaluation are

 

developed before the period of actual production.

 

 

 

10) A company’s plan to purchase property, plant, equipment, and other long-term assets

 

is part of the budgeted balance sheet.

 

 

 

MULTIPLE CHOICE. (2 points each) Circle the one alternative that best

 

completes the statement or answers the question.

 

 

 

11) The HF Corporation manufactures and sells toy gyroscopes. The following data is

 

related to sales and production of the toy gyroscopes for last year.

 

Selling price per unit $8.00

 

Variable manufacturing costs per unit $1.83

 

Variable selling and administrative expenses per unit $4.45

 

Fixed manufacturing overhead (in total) $75,000

 

Fixed selling and administrative expenses (in total) $80,000

 

Units produced during the year 500,000

 

Units sold during the year 150,000

 

Using absorption costing, what is gross profit for last year?

 

A) $903,000

 

B) $1,497,000

 

C) $1,200,000

 

D) $3,703,000

 

 

 

12) By increasing ________, a manager can increase operating income under absorption

 

costing.

 

A) variable costs

 

B) fixed costs

 

C) production

 

D) leased assets

 

 

 

13) Which of the following statements is true concerning income if production exceeds

 

units sold?

 

A) A higher operating income will result under a variable costing income

 

statement.

 

B) A lower operating income will result under an absorption costing income

 

statement.

 

C) A higher operating income will result under an absorption costing income

 

statement.

 

D) The same operating income will result under both a variable costing and

 

absorption costing income statement.

 

 

 

14) The direct materials flexible budget variance can be divided into which of the

 

following two variances?

 

A) Price variance and the rate variance

 

B) Price variance and the standard variance

 

C) Price variance and the quantity variance

 

D) Quantity variance and the efficiency variance

 

 

 

15) Shamrock Manufacturing budgeted fixed overhead costs of $2.75 per unit at an

 

anticipated production level of 1,350 units. In July Shamrock incurred actual fixed

 

overhead costs of $4,400 and actually produced 1,300 units.

 

What is Shamrock’s fixed overhead volume variance in July?

 

A) $137.50 favorable

 

B) $137.50 unfavorable

 

C) $687.50 favorable

 

D) $687.50 unfavorable

 

 

 

16) With ________, managers look at the size of the variances between actual results and

 

budgeted amounts to determine which variances a manager should investigate.

 

A) management by variance

 

B) management by budget

 

C) management by decision

 

D) management by exception

 

 

 

17) DOT Safety Systems manufactures motorcycle helmets. What is the standard quantity

 

of material used to manufacture each helmet if the material required is 1.2 pounds, and

 

DOT allows for .25 pounds of waste and .35 pounds of rejected material?

 

A) 1.80 pounds

 

B) 1.45 pounds

 

C) 1.55 pounds

 

D) 1.20 pounds

 

 

 

18) Summer Nights sells bottles of bug spray for $6.50 each. Variable costs are $3.00

 

per bottle, while fixed costs are $44,000 per month for volumes up to 30,000 bottles of

 

spray and $54,000 per month for volumes above 30,000 bottles of spray. The flexible

 

budget would reflect monthly operating income for 19,000 bottles of lotion and 24,000

 

bottles of lotion of what dollar amounts?

 

A) $79,500 and $40,000, respectively

 

B) $22,500 and $40,000, respectively

 

C) $123,500 and $156,000, respectively

 

D) $12,500 and $102,000, respectively

 

 

 

19) The Standard Quantity (SQ) of direct materials is calculated as

 

A) the budgeted quantity of units less the Standard Quantity (SQ) of units.

 

B) the Standard Quantity (SQ) of input per unit times the number of units

 

budgeted.

 

C) the number of units actually made times the direct materials price standard.

 

D) the Standard Quantity (SQ) of input per unit times the number of units

 

actually made.

 

 

 

20) The entry to allocate manufacturing overhead costs to production involves which of

 

the following?

 

A) Debit to work in process inventory for the actual cost of overhead

 

B) Credit to work in process inventory for the standard rate of overhead times the

 

standard quantity of the allocation base allowed for actual output

 

C) Credit to work in process inventory for the actual cost of overhead

 

D) Debit to work in process inventory for the standard rate of overhead credit

 

 

 

21) What factor related to manufacturing costs causes the difference between operating

 

income computed using absorption costing and operating income computed using

 

variable costing?

 

A) Absorption costing expenses all costs, whether fixed or variable.

 

B) Absorption costing “inventories” all fixed manufacturing costs.

 

C) Absorption costing “inventories” all direct manufacturing costs.

 

D) Absorption costing “inventories” all fixed manufacturing and period costs.

 

 

 

22) A company receives an unusually high number of orders in a month. To produce all

 

of the orders within the scheduled dates of delivery, the company pays employees an

 

extra $8 per hour for every hour of overtime the employees work. Which of the following

 

variances may be directly impacted?

 

A) Direct materials price variance

 

B) Direct materials quantity variance

 

C) Direct labor efficiency variance

 

D) Direct labor rate variance

 

 

 

23) The managerial accountant at Space Right Office Cubicles calculates fixed overhead

 

variances to complete the August report. The actual fixed overhead cost in the month of

 

August was $56,400 and the budgeted fixed overhead cost was $58,100. The standard

 

hours in August were 3,200 and the standard rate per machine-hour was $18. Calculate

 

the standard fixed overhead cost allocated to production, the fixed overhead budget

 

variance, and the fixed overhead volume variance.

 

A) $58,100;$2,200 U;$1,200 F

 

B) $56,400;$1,300 U; $1,700 F

 

C) $57,600;$1,700 U;$500 F (should have been 57,600, $1,700F, $500U)

 

D) $52,300;$1,200 U;$1,700 F

 

 

 

 

 

24) The ________ is the optimum budget to managers that plan revenues and expenses at

 

different sales volumes.

 

A) flexible budget

 

B) capital budget

 

C) static budget

 

D) master budget

 

 

 

25) Jackson Industries has collected the following data for one of its products:

 

Direct materials standard (6 pounds per unit @ $0.55/lb.) $3.30 per finished good

 

Direct materials spending variance-unfavorable $12,000

 

Actual Direct Materials Used (AQU) 35,000 pounds

 

Actual finished goods produced 26,000 units

 

What is the total actual cost of the direct materials used?

 

A) $19,250

 

B) $73,800

 

C) $97,800

 

D) $85,800