Accounting Review

Review for Cumulative Final

Student: ___________________________________________________________________________

These are additional questions to help you review for the final. Note there are no questions, on this review for Ch. 16, Financial Statement Analysis, but this chapter will be tested on the final. Use your homework and quiz questions for a review.

1. The PDQ Company makes collections on credit sales according to the following schedule:

25% in month of sale70% in month following sale4% in second month following sale1% uncollectible

The following sales have been budgeted:

Cash collections in June would be: A. $113,400B. $110,000C. $111,000D. $115,500

2. Orion Corporation is preparing a cash budget for the six months beginning January 1. Shown below are the company's expected collection pattern and the budgeted sales for the period. Expected collection pattern:65% collected in the month of sale20% collected in the month after sale10% collected in the second month after sale4% collected in the third month after sale1% uncollectibleBudgeted sales:

The estimated total cash collections during April from sales and accounts receivables would be: A. $155,900B. $167,000C. $171,666D. $173,400

LDG Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.0 hours of direct labor at the rate of $10.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

3. The budgeted direct labor cost per unit of Product WZ would be: A. $12.50B. $10.50C. $21.00D. $5.25

Detmer Enterprises has budgeted sales for the next five months as follows:

Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of inventory. The company needs to prepare a Production Budget for the first quarter of the year.

4. If 500,000 finished units were to be manufactured during July, the units of raw material needed to be purchased would be: A. 1,000,000 unitsB. 1,020,000 unitsC. 1,010,000 unitsD. 990,000 units

5. Noskey Corporation's budgeted total cash receipts in August are: A. $240,000B. $294,000C. $299,400D. $239,400

Pardise Company plans the following beginning and ending inventory levels (in units) for July:

Two units of raw material are needed to produce each unit of finished product.

Division A makes a part with the following characteristics:

Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.

6. Hirons Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:

The manufacturing cycle efficiency (MCE) was closest to: A. 0.11B. 0.15C. 0.04D. 0.53

7. Rodenberger Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below:

The delivery cycle time was: A. 30.8 hoursB. 8.8 hoursC. 31.9 hoursD. 2.7 hours

8. Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. The Eastern Division can sell all of Part WY4 they can make to other companies for $30. The Western Division of Tyble Corporation can use Part WY4 in one of its products. What is the lowest transfer price at which the Eastern Division would be willing to sell Part WY4 to the Central Division? A. $30B. $26C. $23D. $27

Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table.

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.

9. Noskey Corporation's budgeted cash collections in July from June credit sales are: A. $144,000B. $136,800C. $96,000D. $91,200

10. Hutton Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:

The throughput time was: A. 25 hoursB. 13.5 hoursC. 20.9 hoursD. 4.1 hours

11. The following labor standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the labor rate variance for the month? A. $2,955 FB. $4,935 FC. $2,955 UD. $1,890 U

12. Division A of Harkin Company has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per motor is $35.70. Division B of Harkin Company would like to obtain 1,400 motors each month from Division A. What should be the lowest acceptable transfer price from the perspective of Division A? A. $26.57B. $51.20C. $35.70D. $62.00

13. The following materials standards have been established for a particular product:


What is the materials price variance for the month? A. $14,850 UB. $8,250 UC. $8,640 UD. $2,860 F



What is the labor efficiency variance for the month? A. $5,955 UB. $9,240 UC. $9,240 FD. $6,090 U

15. Cox Company's direct material costs for the month of January were as follows:

For January there was a favorable direct materials quantity variance of: A. $3,360B. $3,375C. $3,400D. $3,800

16. The materials price variance should be computed: A. when materials are purchased.B. when materials are used in production.C. based upon the amount of materials used in production when only a portion of materials purchased is actually used.D. based upon the difference between the actual quantity of inputs and the standard quantity allowed for output times the standard price.

17. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:

Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November? A. 23,200 mugsB. 26,800 mugsC. 25,900 mugsD. 34,300 mugs

18. Superior Industries' sales budget shows quarterly sales for the next year as follows:

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 should be: A. 7,200 unitsB. 8,000 unitsC. 8,800 unitsD. 8,400 units

19. Brummitt Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $7.50 per direct labor-hour. The production budget calls for producing 9,100 units in May and 8,800 units in June. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A. $3,300.00B. $3,412.50C. $6,712.50D. $3,356.25

20. (Ignore income taxes in this problem.) Tighe Corporation is contemplating purchasing equipment that would increase sales revenues by $420,000 per year and cash operating expenses by $231,000 per year. The equipment would cost $747,000 and have a 9 year life with no salvage value. The annual depreciation would be $83,000. The simple rate of return on the investment is closest to: A. 25.3%B. 14.2%C. 11.1%D. 25.2%

21. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year. The payback period for this machine in years is closest to: A. 0.27 yearsB. 10.7 yearsC. 3.75 yearsD. 40 years

22. Information on four investment proposals is given below:

Rank the proposals in terms of preference according to the project profitability index: A. 3, 4, 1, 2B. 1, 2, 3, 4C. 1, 3, 2, 4D. 2, 1, 4, 3

23. (Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each of the 6 years. Kumanu's discount rate is 16%. What is the net present value of this equipment? A. $(2,200)B. $3,700C. $20,500D. $(34,950)

24. The total number of units needed (i.e., unit sales plus desired ending inventory) in March is: A. 6,120 unitsB. 6,080 unitsC. 5,400 unitsD. 5,940 units

25. The capital budgeting method that divides a project's annual incremental net operating income by the initial investment is the: A. internal rate of return method.B. the simple rate of return method.C. the payback method.D. the net present value method.

26. (Ignore income taxes in this problem.) Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: A. $1,290B. $(1,290)C. $2,000D. $4,350

27. (Ignore income taxes in this problem.) Boston Company is contemplating the purchase of a new machine on which the following information has been gathered:

The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given these data, the machine has a net present value of: A. -$26,100B. -$23,900C. $0D. +$26,100

28. What is the maximum price per wheel that Walsh should be willing to pay Vega? A. $28B. $41C. $42D. $45

29. Suppose that Vega can sell 9,000 wheels each month to outside consumers, so transfers to the Walsh Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the Vega Division? A. $28.00B. $31.75C. $41.00D. $42.00

30. Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost? A. store manager salariesB. store building depreciation expenseC. the cost of corporate advertising aired during the Super BowlD. all of these

31. Return on investment (ROI) is equal to the margin multiplied by: A. sales.B. turnover.C. average operating assets.D. residual income.

32. The concept of economic value added (EVA) is most similar to: A. residual income.B. transfer pricing.C. segment reporting.D. return on investment.

33. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of $50,000 for Division A, and had a contribution margin ratio of 30% in Division B, when sales in Division B were $200,000. Net operating income for the company was $25,000 and traceable fixed expenses were $40,000. Lyons Company's common fixed expenses were: A. $85,000B. $70,000C. $45,000D. $40,000

34. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 30%. Net operating income for the company was $20,000 and traceable fixed costs for the two plants totaled $50,000. Johnson Company's common fixed costs for last year were: A. $50,000B. $70,000C. $40,000D. $90,000

35. Anspach Corporation has two divisions: the Governmental Products Division and the Consumer Products Division. The Governmental Products Division's divisional segment margin is $11,800 and the Consumer Products Division's divisional segment margin is $155,500. The total amount of common fixed expenses not traceable to the individual divisions is $142,200. What is the company's net operating income? A. ($167,300)B. $25,100C. $309,500D. $167,300

36. Given the following data:

Return on investment (ROI) would be: A. 10%B. 20%C. 16.7%D. 80%

37. 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. 9.5B. 10.2C. 9.8D. 9.2

Data for September for Mossman Corporation and its two major business segments, North and South, appear below:

In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment.

38. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $673,000B. $523,000C. -$115,000D. $204,000

39. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:

Selling price to outside customers $50Variable cost per unit $30Total fixed costs $400,000Capacity in units 25,000

Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the selling division? A. $50B. $49C. $46D. $30

40. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the company as a whole will be: A. better off by $5,000 each period.B. worse off by $15,000 each period.C. worse off by $5,000 each period.D. There will be no change in the status of the company as a whole.

The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month the Walsh Division bought all 4,000 of its wheels from the Vega Division for $42 each. The following data are available from last month's operations for the Vega Company:

If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.

41. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers. What should be the lowest acceptable transfer price from the perspective of the Vega Division? A. $28B. $30C. $42D. $45

42. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is: A. $3B. $15C. $8D. $12

43. Litke Corporation, a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 5,100 units, its net operating income should be closest to: A. $15,600B. $11,700C. $8,400D. $14,733

44. Filson Inc., a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 9,700 units, its total contribution margin should be closest to: A. $252,200B. $74,026C. $247,000D. $263,200

45. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point was: A. $640,000B. $480,000C. $800,000D. $960,000

46. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:

What would be the amount of dollar sales at the break-even point? A. $1,125,000B. $2,000,000C. $2,650,000D. $1,750,000

47. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales? A. $187,500B. $200,000C. $225,500D. $180,000

48. The following is last month's contribution format income statement:

What is the company's margin of safety in dollars? A. $100,000B. $600,000C. $1,500,000D. $250,000

49. Purchase order processing is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity.

50. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Fabrication activity cost pool is closest to: A. $3.72 per machine-hourB. $4.44 per machine-hourC. $7.44 per machine-hourD. $1.24 per machine-hour

51. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $905 per orderB. $630 per orderC. $1,080 per orderD. $840 per order

52. Process costing would be appropriate for each of the following except: A. custom furniture manufacturing.B. oil refining.C. grain milling.D. newsprint production.

53. When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? A. Work in process will decrease.B. Cost of goods sold will increase.C. Net income will decrease.D. Gross margin will increase.

54. Job 607 was recently completed. The following data have been recorded on its job cost sheet:

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 607 would be: A. $4,107B. $6,319C. $3,432D. $4,863

55. The following data have been recorded for recently completed Job 501 on its job cost sheet. Direct materials cost was $3,067. A total of 30 direct labor-hours and 104 machine-hours were worked on the job. The direct labor wage rate is $12 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $11 per machine-hour. The total cost for the job on its job cost sheet would be: A. $4,571 B. $3,757 C. $3,090 D. $3,427

56. Jarratt Inc., a manufacturing company, has provided the following data for the month of September. The balance in the Work in Process inventory account was $21,000 at the beginning of the month and $24,000 at the end of the month. During the month, the company incurred direct materials cost of $69,000 and direct labor cost of $31,000. The actual manufacturing overhead cost incurred was $54,000. The manufacturing overhead cost applied to Work in Process was $58,000. The cost of goods manufactured for September was: A. $158,000B. $154,000C. $151,000D. $155,000

57. Erholm Inc. has provided the following data for the month of March. The balance in the Finished Goods inventory account at the beginning of the month was $43,000 and at the end of the month was $42,000. The cost of goods manufactured for the month was $221,000. The actual manufacturing overhead cost incurred was $45,000 and the manufacturing overhead cost applied to Work in Process was $49,000. The adjusted cost of goods sold that would appear on the income statement for March is: A. $218,000B. $220,000C. $222,000D. $221,000

58. The linear equation Y = a + bX is often used to express cost formulas. In this equation: A. the b term represents variable cost per unit of activity.B. the a term represents variable cost in total.C. the X term represents total cost.D. the Y term represents total fixed cost.

59. An example of a discretionary fixed cost is: A. insurance.B. taxes on real estate.C. management training.D. depreciation of buildings and equipment.

60. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit.

The best estimate of the total contribution margin when 4,300 units are sold is: A. $343,140B. $65,790C. $121,260D. $411,080

61. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? A. $2,000B. $400C. $2,250D. $1,740

62. Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total monthly fixed manufacturing cost is: A. $737,950B. $686,400C. $274,000D. $789,500

Review Cumulative Test Key

These are additional questions to help you review for the final. Note there are no questions, on this review for Ch. 16, Financial Statement Analysis, but this chapter will be tested on the final. Use your homework and quiz questions for a review.

1. The PDQ Company makes collections on credit sales according to the following schedule:

25% in month of sale70% in month following sale4% in second month following sale1% uncollectible

The following sales have been budgeted:

Cash collections in June would be: A. $113,400B. $110,000C. $111,000D. $115,500

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009 #27Learning Objective: 2Level: Medium

2. Orion Corporation is preparing a cash budget for the six months beginning January 1. Shown below are the company's expected collection pattern and the budgeted sales for the period. Expected collection pattern:65% collected in the month of sale20% collected in the month after sale10% collected in the second month after sale4% collected in the third month after sale1% uncollectibleBudgeted sales:

The estimated total cash collections during April from sales and accounts receivables would be: A. $155,900B. $167,000C. $171,666D. $173,400

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009 #29Learning Objective: 2Level: MediumSource: CMA, adapted

LDG Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.0 hours of direct labor at the rate of $10.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009Learning Objective: 3Level: Medium

3. The budgeted direct labor cost per unit of Product WZ would be: A. $12.50B. $10.50C. $21.00D. $5.25

Budgeted direct labor cost per unit = Direct labor-hours per unit x Direct labor rate = 2.0 x $10.50 = $21.00

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009 #83Learning Objective: 3Level: MediumSource: CMA, adapted

Detmer Enterprises has budgeted sales for the next five months as follows:

Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of inventory. The company needs to prepare a Production Budget for the first quarter of the year.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009Learning Objective: 5Level: Easy

4. If 500,000 finished units were to be manufactured during July, the units of raw material needed to be purchased would be: A. 1,000,000 unitsB. 1,020,000 unitsC. 1,010,000 unitsD. 990,000 units

Garrison - Chapter 009 #80

5. Noskey Corporation's budgeted total cash receipts in August are: A. $240,000B. $294,000C. $299,400D. $239,400


Pardise Company plans the following beginning and ending inventory levels (in units) for July:

Two units of raw material are needed to produce each unit of finished product.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009Learning Objective: 2Level: Hard

Division A makes a part with the following characteristics:

Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.

Garrison - Chapter 009

6. Hirons Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:

The manufacturing cycle efficiency (MCE) was closest to: A. 0.11B. 0.15C. 0.04D. 0.53

Throughput time = Process time + Inspection time + Move time + Queue time= 1.5 hours + 0.4 hours + 3.3 hours + 8.4 hours = 13.6 hours= 1.5 hours 13.6 hours = 0.11 (rounded)


7. Rodenberger Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below:

The delivery cycle time was: A. 30.8 hoursB. 8.8 hoursC. 31.9 hoursD. 2.7 hours

Throughput time = Process time + Queue time + Move time + Inspection time= 2.7 hours + 6.1 hours + 1.0 hours + 0.1 hours = 9.9 hoursDelivery cycle time = Wait time + Throughput time= 22.0 hours + 9.9 hours = 31.9 hours


8. Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. The Eastern Division can sell all of Part WY4 they can make to other companies for $30. The Western Division of Tyble Corporation can use Part WY4 in one of its products. What is the lowest transfer price at which the Eastern Division would be willing to sell Part WY4 to the Central Division? A. $30B. $26C. $23D. $27

(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.)From the perspective of the selling division, profits would increase as a result of the transfer if and only if:Transfer price > Variable cost + Opportunity costThe opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:Opportunity cost = $30 - $10 - $4 - $9 = $7 eachTherefore, Transfer price > $23 + $7 = $30.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 009Learning Objective: 3Learning Objective: 5Level: Easy

Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table.

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.


9. Noskey Corporation's budgeted cash collections in July from June credit sales are: A. $144,000B. $136,800C. $96,000D. $91,200

Cash collections in July from June credit sales= ($240,000 x 95% collectible portion) x 40% = $91,200


10. Hutton Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:

The throughput time was: A. 25 hoursB. 13.5 hoursC. 20.9 hoursD. 4.1 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 0.7 days + 0.1 days + 3.3 days + 9.4 days = 13.5 days

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 012Learning Objective: 1Level: Medium



What is the labor rate variance for the month? A. $2,955 FB. $4,935 FC. $2,955 UD. $1,890 U

AR = $103,635 6,300 = $16.45Direct labor rate variance = AH (AR - SR) = 6,300 ($16.45 - $16.15) = $1,890 U

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 012Learning Objective: 2Level: Easy

12. Division A of Harkin Company has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per motor is $35.70. Division B of Harkin Company would like to obtain 1,400 motors each month from Division A. What should be the lowest acceptable transfer price from the perspective of Division A? A. $26.57B. $51.20C. $35.70D. $62.00

(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.)From the perspective of the selling division, profits would increase as a result of the transfer if and only if:Transfer price > Variable cost per unit + Opportunity costThe opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:Opportunity cost = [$62 x 350*] 1,400 = $15.50* 1,400 - (3,000 - 1,950) = 350Therefore, Transfer price > $35.70 + $15.50 = $51.20.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 012Learning Objective: 3Level: Easy

13. The following materials standards have been established for a particular product:


What is the materials price variance for the month? A. $14,850 UB. $8,250 UC. $8,640 UD. $2,860 F

AP = $60,500 4,400 = $13.75Materials price variance = AQ (AP - SP) = 4,400 ($13.75 - $14.40) = $2,860 F




What is the labor efficiency variance for the month? A. $5,955 UB. $9,240 UC. $9,240 FD. $6,090 U

SH = 5.0 x 1,400 = 7,000Direct labor efficiency variance = SR (AH - SH)= $19.85 (7,300 - 7,000) = $5,955 U


15. Cox Company's direct material costs for the month of January were as follows:

For January there was a favorable direct materials quantity variance of: A. $3,360B. $3,375C. $3,400D. $3,800

MPV = AQ (AP - SP)$3,600 = 18,000 ($3.60 - SP)SP = $3.40MQV = SP (AQ - SQ)MQV = $3.40 (15,000 - 16,000)MQV = $3,400 F


16. The materials price variance should be computed: A. when materials are purchased.B. when materials are used in production.C. based upon the amount of materials used in production when only a portion of materials purchased is actually used.D. based upon the difference between the actual quantity of inputs and the standard quantity allowed for output times the standard price.


17. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:

Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November? A. 23,200 mugsB. 26,800 mugsC. 25,900 mugsD. 34,300 mugs

Units produced = Ending inventory + Units sold - Beginning inventory= (30% x 31,000) + 25,000 - (25,000 x 30%)= 9,300 + 25,000 - 7,500 = 26,800


18. Superior Industries' sales budget shows quarterly sales for the next year as follows:

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 should be: A. 7,200 unitsB. 8,000 unitsC. 8,800 unitsD. 8,400 units

Units produced = Ending inventory + Units sold - Beginning inventory= (12,000 x 20%) + 8,000 - (8,000 x 20%)= 2,400 + 8,000 - 1,600 = 8,800


19. Brummitt Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $7.50 per direct labor-hour. The production budget calls for producing 9,100 units in May and 8,800 units in June. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A. $3,300.00B. $3,412.50C. $6,712.50D. $3,356.25

May: 9,100 units x 0.05 direct labor-hours x $7.50 per direct labor-hour= $3,412.50June: 8,800 units x 0.05 direct labor-hours x $7.50 per direct labor-hour= $3,300.00Total direct labor cost = $6,712.50


20. (Ignore income taxes in this problem.) Tighe Corporation is contemplating purchasing equipment that would increase sales revenues by $420,000 per year and cash operating expenses by $231,000 per year. The equipment would cost $747,000 and have a 9 year life with no salvage value. The annual depreciation would be $83,000. The simple rate of return on the investment is closest to: A. 25.3%B. 14.2%C. 11.1%D. 25.2%

The simple rate of return of 14.2% is calculated by dividing $106,000 ($420,000 - $231,000 - $83,000) by $747,000.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter Appendix...Learning Objective: 5Level: Medium

21. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year. The payback period for this machine in years is closest to: A. 0.27 yearsB. 10.7 yearsC. 3.75 yearsD. 40 years

$75,000 $20,000 = 3.75 years

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter Appendix...Learning Objective: 5Level: Hard

22. Information on four investment proposals is given below:

Rank the proposals in terms of preference according to the project profitability index: A. 3, 4, 1, 2B. 1, 2, 3, 4C. 1, 3, 2, 4D. 2, 1, 4, 3

Proposal 1's profitability index is 0.60 ($30,000 $50,000), project 2's is 0.40 ($24,000 $60,000), project 3's is 0.50 ($15,000 $30,000) and project 4's is 0.20 ($9,000 45,000). Therefore the projects will be ranked as follows: 1, 3, 2, and 4.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter Appendix...Learning Objective: 5Level: Easy

23. (Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each of the 6 years. Kumanu's discount rate is 16%. What is the net present value of this equipment? A. $(2,200)B. $3,700C. $20,500D. $(34,950)

Garrison - Chapter Appendix...

24. The total number of units needed (i.e., unit sales plus desired ending inventory) in March is: A. 6,120 unitsB. 6,080 unitsC. 5,400 unitsD. 5,940 units

Total number of units needed = Ending inventory + Units sold = (7,200 x 10%) + 5,400 = 6,120


25. The capital budgeting method that divides a project's annual incremental net operating income by the initial investment is the: A. internal rate of return method.B. the simple rate of return method.C. the payback method.D. the net present value method.

Garrison - Chapter Appendix...

26. (Ignore income taxes in this problem.) Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: A. $1,290B. $(1,290)C. $2,000D. $4,350


27. (Ignore income taxes in this problem.) Boston Company is contemplating the purchase of a new machine on which the following information has been gathered:

The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given these data, the machine has a net present value of: A. -$26,100B. -$23,900C. $0D. +$26,100


28. What is the maximum price per wheel that Walsh should be willing to pay Vega? A. $28B. $41C. $42D. $45

The maximum price is the price at which the purchasing division can purchase the units.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter Appendix... #14Learning Objective: 5Level: Hard

29. Suppose that Vega can sell 9,000 wheels each month to outside consumers, so transfers to the Walsh Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the Vega Division? A. $28.00B. $31.75C. $41.00D. $42.00

(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.)From the perspective of the selling division, profits would increase as a result of the transfer if and only if:Transfer price > Variable cost + Opportunity costThe opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:Opportunity cost = [($45 - $30) x 1,000*] 4,000 = $3.75* 4,000 - (12,000 - 9,000) = 1,000Therefore, Transfer price > ($30 - $2) + $3.75 = $31.75.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 014Learning Objective: 6Level: EasySource: CMA, adapted

30. Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost? A. store manager salariesB. store building depreciation expenseC. the cost of corporate advertising aired during the Super BowlD. all of these


31. Return on investment (ROI) is equal to the margin multiplied by: A. sales.B. turnover.C. average operating assets.D. residual income.


32. The concept of economic value added (EVA) is most similar to: A. residual income.B. transfer pricing.C. segment reporting.D. return on investment.


33. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of $50,000 for Division A, and had a contribution margin ratio of 30% in Division B, when sales in Division B were $200,000. Net operating income for the company was $25,000 and traceable fixed expenses were $40,000. Lyons Company's common fixed expenses were: A. $85,000B. $70,000C. $45,000D. $40,000

*GivenSolve in the following steps:1) $200,000 x 30% = $60,0002) $50,000 + $60,000 = $110,0003) $110,000 - $40,000 = $70,0004) $70,000 - $25,000 = $45,000


34. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 30%. Net operating income for the company was $20,000 and traceable fixed costs for the two plants totaled $50,000. Johnson Company's common fixed costs for last year were: A. $50,000B. $70,000C. $40,000D. $90,000

*GivenSolve in the following steps:1) $200,000 x 30% = $60,0002) $50,000 + $60,000 = $110,0003) $110,000 - $50,000 = $60,0004) $60,000 - $20,000 = $40,000


35. Anspach Corporation has two divisions: the Governmental Products Division and the Consumer Products Division. The Governmental Products Division's divisional segment margin is $11,800 and the Consumer Products Division's divisional segment margin is $155,500. The total amount of common fixed expenses not traceable to the individual divisions is $142,200. What is the company's net operating income? A. ($167,300)B. $25,100C. $309,500D. $167,300

*GivenSolve in the following steps:1) $11,800 + $155,500 = $167,3002) $167,300 - $142,200 = $25,100


36. Given the following data:

Return on investment (ROI) would be: A. 10%B. 20%C. 16.7%D. 80%

ROI = Net operating income Average operating assets = $5,000 $25,000 = 20.0%

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 011Learning Objective: 2Level: Medium

37. 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. 9.5B. 10.2C. 9.8D. 9.2

Turnover = Sales Average operating assetsTurnover = $826,650 [($84,000 + $90,000) 2] = 9.5 (rounded)


Data for September for Mossman Corporation and its two major business segments, North and South, appear below:

In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment.


38. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $673,000B. $523,000C. -$115,000D. $204,000


39. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:

Selling price to outside customers $50Variable cost per unit $30Total fixed costs $400,000Capacity in units 25,000

Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the selling division? A. $50B. $49C. $46D. $30

(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.)From the perspective of the selling division, profits would increase as a result of the transfer if and only if:Transfer price > Variable cost + Opportunity costThe opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred:Opportunity cost = [($50 - $30) x 5,000] 5,000 = $20Therefore, Transfer price > $30 + $20 = $50.


40. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the company as a whole will be: A. better off by $5,000 each period.B. worse off by $15,000 each period.C. worse off by $5,000 each period.D. There will be no change in the status of the company as a whole.

Since the company's selling the units currently for $25, if they sell internally for $24, they will be worse off by $1 per unit, or $5,000 in total ($1 x 5,000).


The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month the Walsh Division bought all 4,000 of its wheels from the Vega Division for $42 each. The following data are available from last month's operations for the Vega Company:

If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.


41. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers. What should be the lowest acceptable transfer price from the perspective of the Vega Division? A. $28B. $30C. $42D. $45

(Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.)From the perspective of the selling division, profits would increase as a result of the transfer if and only if:Transfer price > Variable cost + Opportunity costThe opportunity cost zero if there is excess capacity.Therefore, the minimum acceptable transfer > ($30 - $2) = $28.


42. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is: A. $3B. $15C. $8D. $12

Contribution margin per unit= Sales price - Variable manufacturing costs per unitContribution margin per unit = $30 - $15 - ($30 x 10%) = $12

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 006 #32Learning Objective: 1Level: Easy

43. Litke Corporation, a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 5,100 units, its net operating income should be closest to: A. $15,600B. $11,700C. $8,400D. $14,733

Current sales dollars Current sales in units = Sales price per unit$129,600 5,400 = $24 sales price per unitCurrent variable expenses Current sales in units = Variable expense per unit$59,400 5,400 = $11 variable expense per unit


44. Filson Inc., a company that produces and sells a single product, has provided its contribution format income statement for February.

If the company sells 9,700 units, its total contribution margin should be closest to: A. $252,200B. $74,026C. $247,000D. $263,200

Current contribution margin Current sales in units = Contribution margin per unit$247,000 9,500 = $26 contribution margin per unitIf 9,700 units are sold, the total contribution margin will be 9,700 x $26, or $252,200.


45. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point was: A. $640,000B. $480,000C. $800,000D. $960,000

Solve backwards for unknowns:

* GivenBreak-even point = Fixed expenses Contribution= $200,000 25%= $800,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 006 #37Learning Objective: 3Learning Objective: 5Learning Objective: 6Level: Hard

46. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:

What would be the amount of dollar sales at the break-even point? A. $1,125,000B. $2,000,000C. $2,650,000D. $1,750,000

Break-even in total sales dollars = Fixed expenses Contribution margin ratio= $700,000 35% = $2,000,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 006 #42Learning Objective: 3Learning Objective: 6Level: Medium

47. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales? A. $187,500B. $200,000C. $225,500D. $180,000

Variable expenses as a % of sales = $75,000 $100,000 = 75%Sales = Variable expenses + Fixed expenses + ProfitSales = (75% x Sales) + $30,000 + (10% x Sales)15% x Sales = $30,000Sales = $200,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 006 #43Learning Objective: 3Learning Objective: 5Level: Hard

48. The following is last month's contribution format income statement:

What is the company's margin of safety in dollars? A. $100,000B. $600,000C. $1,500,000D. $250,000

Break-even in total sales dollars = Fixed expenses Contribution margin ratio= $500,000 0.40 = $1,250,000Margin of safety in dollars = Sales - Break-even sales= $1,500,000 - $1,250,000 = $250,000


49. Purchase order processing is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 008 #13Learning Objective: 1Level: Medium

50. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Fabrication activity cost pool is closest to: A. $3.72 per machine-hourB. $4.44 per machine-hourC. $7.44 per machine-hourD. $1.24 per machine-hour

Total Fabrication Cost:


51. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $905 per orderB. $630 per orderC. $1,080 per orderD. $840 per order

Order Processing Cost:


52. Process costing would be appropriate for each of the following except: A. custom furniture manufacturing.B. oil refining.C. grain milling.D. newsprint production.

AACSB: Reflective ThinkingAICPA BB: IndustryAICPA FN: MeasurementGarrison - Chapter 004 #7Learning Objective: 1Level: Easy

53. When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? A. Work in process will decrease.B. Cost of goods sold will increase.C. Net income will decrease.D. Gross margin will increase.


54. Job 607 was recently completed. The following data have been recorded on its job cost sheet:

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 607 would be: A. $4,107B. $6,319C. $3,432D. $4,863

Applied manufacturing overhead= Predetermined overhead rate x Actual machine-hoursApplied manufacturing overhead = $14 x 158Applied manufacturing overhead = $2,212Total cost = Direct materials + Direct labor + Applied manufacturing overheadTotal cost of Job 607 = $3,405 + (54 x $13) + $2,212= $6,319

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 003 #35Learning Objective: 2Learning Objective: 5Level: Easy

55. The following data have been recorded for recently completed Job 501 on its job cost sheet. Direct materials cost was $3,067. A total of 30 direct labor-hours and 104 machine-hours were worked on the job. The direct labor wage rate is $12 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $11 per machine-hour. The total cost for the job on its job cost sheet would be: A. $4,571 B. $3,757 C. $3,090 D. $3,427

Applied manufacturing overhead = Predetermined overhead rate x Actual machine-hours Applied manufacturing overhead = $11 x 104 Applied manufacturing overhead = $1,144 Total cost = Direct materials + Direct labor + Applied manufacturing overhead Total cost of Job 607 = $3,067 + (30 x $12) + $1,144 = $4,571

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 003 #36Learning Objective: 2Learning Objective: 5Level: Easy

56. Jarratt Inc., a manufacturing company, has provided the following data for the month of September. The balance in the Work in Process inventory account was $21,000 at the beginning of the month and $24,000 at the end of the month. During the month, the company incurred direct materials cost of $69,000 and direct labor cost of $31,000. The actual manufacturing overhead cost incurred was $54,000. The manufacturing overhead cost applied to Work in Process was $58,000. The cost of goods manufactured for September was: A. $158,000B. $154,000C. $151,000D. $155,000


57. Erholm Inc. has provided the following data for the month of March. The balance in the Finished Goods inventory account at the beginning of the month was $43,000 and at the end of the month was $42,000. The cost of goods manufactured for the month was $221,000. The actual manufacturing overhead cost incurred was $45,000 and the manufacturing overhead cost applied to Work in Process was $49,000. The adjusted cost of goods sold that would appear on the income statement for March is: A. $218,000B. $220,000C. $222,000D. $221,000


58. The linear equation Y = a + bX is often used to express cost formulas. In this equation: A. the b term represents variable cost per unit of activity.B. the a term represents variable cost in total.C. the X term represents total cost.D. the Y term represents total fixed cost.


59. An example of a discretionary fixed cost is: A. insurance.B. taxes on real estate.C. management training.D. depreciation of buildings and equipment.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 005 #18Learning Objective: 1Level: Easy

60. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit.

The best estimate of the total contribution margin when 4,300 units are sold is: A. $343,140B. $65,790C. $121,260D. $411,080

Variable component of cost of goods sold:Variable cost = Change in costs Change in unitsVariable cost = ($384,500 - $307,600) (5,000 - 4,000)Variable cost = $76.90 per unitVariable component of selling and administrative expenses:Variable cost = Change in costs Change in unitsVariable cost = ($337,000 - $321,200) (5,000 - 4,000)Variable cost = $15.80 per unit

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementGarrison - Chapter 005 #28Learning Objective: 1Learning Objective: 3Learning Objective: 4Level: Hard

61. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? A. $2,000B. $400C. $2,250D. $1,740

Variable cost = Change in cost Change in activity= ($2,000 - $2,000) (10,000 - 8,000) = $0.00Fixed cost element = Total cost - Variable cost element= $2,000 - ($0.00 x 10,000) = $2,000Therefore, the cost formula for total maintenance cost is $2,000 per period plus $0.00 per machine-hour, or Y = $2,000 + $0.00X.At an activity level of 8,700 machine-hours, total cost is estimated to be:Y = $2,000 + ($0.00 x 8,700) = $2,000


62. Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

The best estimate of the total monthly fixed manufacturing cost is: A. $737,950B. $686,400C. $274,000D. $789,500

To calculate the variable manufacturing cost per unit:

Variable manufacturing overhead cost = Change in cost Change in activity= ($358,000 - $341,200) (5,000 - 4,000) = $16.80Fixed cost element of manufacturing overhead = Total cost - Variable cost element= $358,000 - ($16.80 x 5,000) = $274,000


Review Cumulative Test Summary

Category # of Questions

AACSB: Analytic 52

AACSB: Reflective Thinking 10

AICPA BB: Critical Thinking 61

AICPA BB: Industry 1

AICPA FN: Measurement 62

Garrison - Chapter 003 5









Garrison - Chapter Appendix... 9

Learning Objective: 1 18








Level: Easy 25

Level: Hard 9

Level: Medium 28

Source: CMA, adapted 3

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