Introduction to Accounting and Financial Reporting ACCTG 225 Section A

Introduction to Accounting and Financial Reporting

ACCTG 225 Section A

Fall 2014 Dr.
J.B. Paperman

Exam 2

November 13, 2014

Answer Key

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.

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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.

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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.

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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

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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

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.

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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

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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