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
