Revques t3 Sub 2011

REVQUES T3 SuB 2011

Student: ___________________________________________________________________________

1. In a recent period 12,250 units were made and there was a favorable labor efficiency variance of $22,500. If 41,000 labor-hours were worked and the standard wage rate was $12 per labor-hour, the standard hours allowed per unit of output is closest to: A. 3.19B. 3.35C. 3.50D. 6.00

A manufacturing company that has only one product has established the following standards for its variable overhead. The company uses direct labor-hours (DLHs) as its measure of activity.

The following data pertain to operations for the last month:

2. What is the variable overhead efficiency variance for the month? A. $504 UB. $1,120 UC. $1,120 FD. $1,144 F

The following data have been provided by Wordell Corporation:

3. The variable overhead rate variance for power is closest to: A. $84 FB. $765 UC. $765 FD. $849 U

4. The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as: A. normal standards.B. practical standards.C. ideal standards.D. budgeted standards.

The following data have been provided by Dicus Corporation:

5. The variable overhead rate variance for lubricants is closest to: A. $113 UB. $120 UC. $7 UD. $113 F

Reenu Company manufactures wigs out of used dental floss. The variable cost standards for wig production developed by Reenu are as follows:

Variable overhead at Reenu is based on direct labor-hours. The actual results for the month of October were as follows:

6. What is Reenu's labor efficiency variance for October? A. $2,700 favorableB. $7,200 unfavorableC. $9,900 unfavorableD. $27,600 favorable

7. The variable overhead rate variance for supplies is closest to: A. $133 UB. $47 FC. $180 UD. $133 F

The Holmes Division recorded operating data as follows for the past year:

8. For the past year, the turnover was: A. 25B. 10C. 4D. 2

9. 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

Ahina Industries is a division of a major corporation. Data concerning the most recent year appears below:

10. The division's return on investment (ROI) is closest to: A. 21.1%B. 2.5%C. 26.7%D. 7.0%

Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%.


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.

12. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A. $211,000B. $51,000C. $259,000D. $121,000

The following information relates to the Cranberry Division of Innovative Bologna Corporation for last year:

13. Assume that Cranberry was being evaluated solely on the basis of return on investment (ROI). Which of the following investment opportunities would Cranberry want to invest in?

A. AB. BC. CD. D

Harstin Corporation has provided the following data:

14. The turnover for the past year was: A. 2.5B. 6.94C. 2.98D. 1.4

Kava Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below:

The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost.

15. Refer to the original data in the problem. What is the current contribution margin per unit for component K65 based on its selling price of $180 and its annual production of 4,000 units? A. $142B. $102C. $40D. $140

Creelman Company makes four products in a single facility. Data concerning these products appear below:

The milling machines are potentially the constraint in the production facility. A total of 13,000 minutes are available per month on these machines.

16. Up to how much should the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? (Round off to the nearest whole cent.) A. $10.40B. $13.80C. $0.00D. $4.74

17. Vanikoro Corporation currently has two divisions which had the following operating results for last year:

Since the Rubber Division sustained a loss, the president of Vanikoro is considering the elimination of this division. All of the fixed costs for the division could be eliminated if the division was dropped. If the Rubber Division was dropped at the beginning of last year, how much higher or lower would Vanikoro's total net operating income have been for the year? A. $10,000 higherB. $40,000 lowerC. $50,000 higherD. $100,000 lower

Elgot Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 30,000 units per month is as follows:

The normal selling price of the product is $51.10 per unit.An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.50 less per unit on this order than on normal sales.Direct labor is a variable cost in this company.

18. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,200 units for regular customers. The minimum acceptable price per unit for the special order is closest to: A. $51.10B. $39.68C. $40.90D. $49.40

19. Which product makes the LEAST profitable use of the milling machines? A. Product AB. Product BC. Product CD. Product D

20. The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company should not go? A. $180B. $38C. $59D. $78

21. JB Lumber Corporation is downsizing operations and has to decide which of its large saws should be sold. JB currently has four saws but only needs to keep three. All four saws have a remaining useful life of 3 years and will all have a salvage value of zero at the end of those 3 years. Also, all four saws have equal annual operating costs and output efficiency. Information related to the four saws is provided below:

In order to maximize profits for the next three years, which machine would be most beneficial for JB to sell? A. 1B. 2C. 3D. 4

Jones and Company has just purchased a new piece of equipment, the cost characteristics of which are given below:

The company uses a required rate of return of 10% and depreciates equipment using the straight-line method.

22. The payback period for the investment is: A. 5 yearsB. 15 yearsC. 2 yearsD. 7.143 years

Eckels Corporation is considering the following three investment projects:

23. The profitability index of investment project N is closest to: A. 0.18B. 0.82C. 1.18D. 0.15

24. Glassett Corporation is considering a project that would require an investment of $62,000. No other cash outflows would be involved. The present value of the cash inflows would be $70,060. The profitability index of the project is closest to: A. 0.13B. 1.13C. 0.87D. 0.12

The Wisbley Company is contemplating the purchase of a helicopter for its executives to use in their business trips. This helicopter could be either purchased or leased from the manufacturer. The useful life of the helicopter is four years. Data concerning these two alternatives follow:

If the helicopter is leased, it would be returned to the manufacturer in four years. Wisbley's required rate of return is 22%.

25. The present value of the cash outflows for repairs, assuming the helicopter is purchased, would be: A. $(14,000)B. $(8,682)C. $(2,000)D. $(8,440)

26. The following data pertain to an investment:

The net present value of the proposed investment is: A. $3,355B. $(3,430)C. $0D. $621

Steinmann Inc. is considering the acquisition of a new machine that costs $410,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

27. If the discount rate is 14%, the net present value of the investment is closest to: A. $410,000B. $239,000C. $446,002D. $36,141

The Connelly Company has funds available to invest in the following project:

The working capital needed now would be released at the end of the seven years for investment elsewhere.

28. Consider only the cash flows for the third year. The present value of the net cash flows (cash inflows less cash outflows) for this year only is: A. $6,090B. $36,540C. $8,720D. $30,450

29. (Ignore income taxes in this problem.) White Company's required rate of return on capital budgeting projects is 12%. The company is considering an investment opportunity which would yield a cash flow of $10,000 in five years. What is the most that the company should be willing to invest in this project? A. $36,050B. $2,774C. $17,637D. $5,670

30. (Ignore income taxes in this problem.) Knipper Corporation has entered into a 9 year lease for a piece of equipment. The annual payment under the lease will be $2,300, with payments being made at the beginning of each year. If the discount rate is 11%, the present value of the lease payments is closest to: A. $18,649B. $14,136C. $20,700D. $8,092

REVQUES T3 SuB 2011 Key

1. In a recent period 12,250 units were made and there was a favorable labor efficiency variance of $22,500. If 41,000 labor-hours were worked and the standard wage rate was $12 per labor-hour, the standard hours allowed per unit of output is closest to: A. 3.19B. 3.35C. 3.50D. 6.00

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: AnalysisBrewer - Chapter 09 #40Learning Objective: 3Level: HardSource: CIMA, adapted

A manufacturing company that has only one product has established the following standards for its variable overhead. The company uses direct labor-hours (DLHs) as its measure of activity.

The following data pertain to operations for the last month:

Brewer - Chapter 09

2. What is the variable overhead efficiency variance for the month? A. $504 UB. $1,120 UC. $1,120 FD. $1,144 F

SH = 2,400 0.7 = 1,680

Variable overhead efficiency variance = SR (AH - SH) = $14.30 (1,600 - 1,680) = $1,144 F

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 09 #99Learning Objective: 4Level: Medium

The following data have been provided by Wordell Corporation:

Brewer - Chapter 09

3. The variable overhead rate variance for power is closest to: A. $84 FB. $765 UC. $765 FD. $849 U

AR = $33,105 11,520 = $2.87 (rounded)

Variable overhead rate variance = AH (AR - SR) = 11,520 ($2.87 - $2.80) = $8,49 U (rounded)

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 09 #103Learning Objective: 4Level: Easy

4. The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as: A. normal standards.B. practical standards.C. ideal standards.D. budgeted standards.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeBrewer - Chapter 09 #14Learning Objective: 1Level: Easy

The following data have been provided by Dicus Corporation:

Brewer - Chapter 09

5. The variable overhead rate variance for lubricants is closest to: A. $113 UB. $120 UC. $7 UD. $113 F

AR = $2,387 2,500 = $0.95 (rounded)

Variable overhead rate variance = AH (AR - SR) = 2,500 ($0.95 - $1.00) = $113 F (rounded)


Reenu Company manufactures wigs out of used dental floss. The variable cost standards for wig production developed by Reenu are as follows:

Variable overhead at Reenu is based on direct labor-hours. The actual results for the month of October were as follows:

Brewer - Chapter 09

6. What is Reenu's labor efficiency variance for October? A. $2,700 favorableB. $7,200 unfavorableC. $9,900 unfavorableD. $27,600 favorable

SH = 12,500 0.75 = 9,375

Direct labor efficiency variance = SR (AH - SH) = $12.00 (10,200 - 9,375) = $9,900 U


7. The variable overhead rate variance for supplies is closest to: A. $133 UB. $47 FC. $180 UD. $133 F

AR = $3,703 2,500 = $1.48 (rounded)

Variable overhead rate variance = AH (AR - SR) = 2,500 ($1.48 - $1.50) = $47 F (rounded)


The Holmes Division recorded operating data as follows for the past year:

Brewer - Chapter 10

8. For the past year, the turnover was: A. 25B. 10C. 4D. 2

Turnover = Sales Average operating assets = $200,000 $100,000 = 2


9. 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 30% = $60,0002) $50,000 + $60,000 = $110,0003) $110,000 - $40,000 = $70,0004) $70,000 - $25,000 = $45,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 10 #20Learning Objective: 1Level: Hard

Ahina Industries is a division of a major corporation. Data concerning the most recent year appears below:

Brewer - Chapter 10


ROI = Net operating income Average operating assets = $533,920 $2,000,000 = 26.7% (rounded)


Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%.

Brewer - Chapter 10


ROI = Net operating income Average operating assets = $538,000 $8,000,000 = 6.725%


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.

Brewer - Chapter 10

12. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A. $211,000B. $51,000C. $259,000D. $121,000


The following information relates to the Cranberry Division of Innovative Bologna Corporation for last year:

Brewer - Chapter 10

13. Assume that Cranberry was being evaluated solely on the basis of return on investment (ROI). Which of the following investment opportunities would Cranberry want to invest in?

A. AB. BC. CD. D

ROI = Net operating income Average operating assets = $60,000 $280,000 = 21.4% (rounded)Would not invest in any project with an ROI less than 21.4%.


Harstin Corporation has provided the following data:

Brewer - Chapter 10

14. The turnover for the past year was: A. 2.5B. 6.94C. 2.98D. 1.4

Turnover = Sales Average operating assets = $625,000 $250,000 = 2.5


Kava Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below:

The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost.

Brewer - Chapter 11

15. Refer to the original data in the problem. What is the current contribution margin per unit for component K65 based on its selling price of $180 and its annual production of 4,000 units? A. $142B. $102C. $40D. $140

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 11 #71Learning Objective: 4Level: EasySource: CMA, adapted

Creelman Company makes four products in a single facility. Data concerning these products appear below:

The milling machines are potentially the constraint in the production facility. A total of 13,000 minutes are available per month on these machines.

Brewer - Chapter 11

16. Up to how much should the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? (Round off to the nearest whole cent.) A. $10.40B. $13.80C. $0.00D. $4.74

The company should be willing to pay up to $4.74 per minute to obtain more of the constrained resource since this is the value to the company of using this constrained resource to make more of product B. By assumption, the other products will already have been produced up to demand.


17. Vanikoro Corporation currently has two divisions which had the following operating results for last year:

Since the Rubber Division sustained a loss, the president of Vanikoro is considering the elimination of this division. All of the fixed costs for the division could be eliminated if the division was dropped. If the Rubber Division was dropped at the beginning of last year, how much higher or lower would Vanikoro's total net operating income have been for the year? A. $10,000 higherB. $40,000 lowerC. $50,000 higherD. $100,000 lower

The segment margin of the Rubber Division represents the amount by which the company's overall net income would drop if the Rubber Division were to be dropped.


Elgot Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 30,000 units per month is as follows:

The normal selling price of the product is $51.10 per unit.An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.50 less per unit on this order than on normal sales.Direct labor is a variable cost in this company.

Brewer - Chapter 11

18. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,200 units for regular customers. The minimum acceptable price per unit for the special order is closest to: A. $51.10B. $39.68C. $40.90D. $49.40

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: AnalysisBrewer - Chapter 11 #76Learning Objective: 4Level: Hard

19. Which product makes the LEAST profitable use of the milling machines? A. Product AB. Product BC. Product CD. Product D


20. The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company should not go? A. $180B. $38C. $59D. $78

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 11 #69Learning Objective: 4Level: MediumSource: CMA, adapted

21. JB Lumber Corporation is downsizing operations and has to decide which of its large saws should be sold. JB currently has four saws but only needs to keep three. All four saws have a remaining useful life of 3 years and will all have a salvage value of zero at the end of those 3 years. Also, all four saws have equal annual operating costs and output efficiency. Information related to the four saws is provided below:

In order to maximize profits for the next three years, which machine would be most beneficial for JB to sell? A. 1B. 2C. 3D. 4

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 11 #25Learning Objective: 1Level: Hard

Jones and Company has just purchased a new piece of equipment, the cost characteristics of which are given below:

The company uses a required rate of return of 10% and depreciates equipment using the straight-line method.

Brewer - Chapter 12

22. The payback period for the investment is: A. 5 yearsB. 15 yearsC. 2 yearsD. 7.143 years

The payback period is the investment cost of $30,000 divided by the $6,000 annual cash flow; $30,000 $6,000 = 5 years.


Eckels Corporation is considering the following three investment projects:

Brewer - Chapter 12

23. The profitability index of investment project N is closest to: A. 0.18B. 0.82C. 1.18D. 0.15

Profitability index = ($56,640 - $48,000) $48,000 = $8,640 $48,000 = 0.18


24. Glassett Corporation is considering a project that would require an investment of $62,000. No other cash outflows would be involved. The present value of the cash inflows would be $70,060. The profitability index of the project is closest to: A. 0.13B. 1.13C. 0.87D. 0.12

The profitability index is 0.13 ($8,060 $62,000).


The Wisbley Company is contemplating the purchase of a helicopter for its executives to use in their business trips. This helicopter could be either purchased or leased from the manufacturer. The useful life of the helicopter is four years. Data concerning these two alternatives follow:

If the helicopter is leased, it would be returned to the manufacturer in four years. Wisbley's required rate of return is 22%.

Brewer - Chapter 12

25. The present value of the cash outflows for repairs, assuming the helicopter is purchased, would be: A. $(14,000)B. $(8,682)C. $(2,000)D. $(8,440)

Present value = ($6,000 0.672) + ($8,000 0.551) = $4,032 + $4,408 = $8,440


26. The following data pertain to an investment:

The net present value of the proposed investment is: A. $3,355B. $(3,430)C. $0D. $621


Steinmann Inc. is considering the acquisition of a new machine that costs $410,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

Brewer - Chapter 12

27. If the discount rate is 14%, the net present value of the investment is closest to: A. $410,000B. $239,000C. $446,002D. $36,141

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 12 #50Learning Objective: 1Level: MediumSource: CMA, adapted

The Connelly Company has funds available to invest in the following project:

The working capital needed now would be released at the end of the seven years for investment elsewhere.

Brewer - Chapter 12

28. Consider only the cash flows for the third year. The present value of the net cash flows (cash inflows less cash outflows) for this year only is: A. $6,090B. $36,540C. $8,720D. $30,450

Present value = ($60,000 - $50,000) 0.609 = $10,000 0.609 = $6,090


29. (Ignore income taxes in this problem.) White Company's required rate of return on capital budgeting projects is 12%. The company is considering an investment opportunity which would yield a cash flow of $10,000 in five years. What is the most that the company should be willing to invest in this project? A. $36,050B. $2,774C. $17,637D. $5,670

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationBrewer - Chapter 12A... #7Learning Objective: 5Level: Medium

30. (Ignore income taxes in this problem.) Knipper Corporation has entered into a 9 year lease for a piece of equipment. The annual payment under the lease will be $2,300, with payments being made at the beginning of each year. If the discount rate is 11%, the present value of the lease payments is closest to: A. $18,649B. $14,136C. $20,700D. $8,092

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: AnalysisBrewer - Chapter 12A... #14Learning Objective: 5Level: Hard

REVQUES T3 SuB 2011 Summary

Category # of Questions

AACSB: Analytic 29

AACSB: Reflective Thinking 1

AICPA BB: Critical Thinking 30

AICPA FN: Measurement 30

Bloom's: Analysis 3

Bloom's: Application 26

Bloom's: Knowledge 1

Brewer - Chapter 09 11




Brewer - Chapter 12A... 2

Learning Objective: 1 8





Level: Easy 13

Level: Hard 5

Level: Medium 12

Source: CIMA, adapted 1

Source: CMA, adapted 3

Revques t3 Sub 2011

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