CHAPTERS 6-12

Use the following to answer question 1:

Wright Corporation's contribution format income statement for last month appears below.
Sales
Less variable expenses
Contribution margin
Less fixed expenses
Net income

$45,000
27,000
18,000
12,000
$6,000

There were no beginning or ending inventories. The company produced and sold 3,000 units during the month.
Ch. 9
1. If sales decrease by 500 units by next month, by how much would fixed expenses
have to be reduced to maintain the current net income?
A) $2,000
B) $3,000
C) $6,000
D) $7,500
Ch 6
2. The break-even point in sales for Rice Company is $360,000 and the company's
contribution margin ratio is 30%. If Rice Company desires an income of $84,000,
sales would have to total
A) $280,000.
B) $560,000.
C) $640,000.
D) $480,000.
Ch 6
3. The margin of safety in the Flaherty Company is $24,000. If the company's sales
are $120,000 and its variable expenses are $80,000, its fixed expenses must be:
A) $32,000.
B) $16,000.
C) $8,000.
D) $24,000.
Ch 6
4. Last year, Perry Company reported profits of $4,200. It's variable expenses totaled $66,000 or $6 per unit. The unit
contribution margin was $3.00. The break-even point in units for Perry Company is:
A) 12,400.
B) 11,000.
C) 22,000.
D) 9,600.
Use the following to answer questions 5-6:
The LaGrange Company had the following budgeted sales for the first half of the current year:
Cash Sales Credit Sales
January
February

$70,000
50,000

$340,000
190,000

March
April
May
June

40,000
35,000
45,000
40,000

135,000
120,000
160,000
140,000

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To
this end, the following information has been assembled:
Collections on sales:

60% in month of sale

30% in month following sale
10% in second month following sale

The accounts receivable balance on January I of the current year was $70,000, of which $50,000 represents uncollected
December sales and $20,000 represents uncollected November sales.
Ch 9
5. The total cash collected by LaGrange Company during January would be:
A) $410,000.
B) $344,000.
C) $331,500.
D) $254,000.
6. What is the budgeted accounts receivable balance on June I of the current year?
A) $64,000.
B) $132,000.
C) $76,000.
D) $56,000.

Ch 9
7. Friden Company has budgeted sales and production over the next quarter as follows:
April
Sales in units
Production in units

100,000
104,000

May

June

120,000
128,000

?
156,000

The company has 20,000 units of product on hand at April 1. A minimum of 20% of the next month's sales needs
in units must be on hand at the end of each month. July sales are expected to be 140,000 units. Budgeted sales
for June would be (in units):
A) 184,000.
B) 160,000.
C) 188,000.
D) 128,000.
Ch 9
8. Marple Company's budgeted production in units and budgeted raw materials purchases over the next three
months are given below:
January
Budgeted production (in units) 60,000
Budgeted raw materials
purchases (in pounds)
129,000

February March
?

100,000

165,000

188,000

Two pounds of raw materials are required to produce one unit of product. The company wants raw materials on
hand at the end of each month equal to 30% of the following month's production needs. The company is
expected to have 36,000 pounds of raw materials on hand on January 1. Budgeted production for February
should be:
A) 82,500 units.
B) 150,000 units.
C) 75,000 units.
D) 105,000 units.
Use the following to answer questions 9-11:
The Upton Company employs a standard costing system in which variable overhead is assigned to production on
the basis of direct labor hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance:
$300 F
Standard hours allowed for actual production:
7,000
Actual direct labor hours worked:
6,840
Ch 10
9. The standard variable overhead rate per direct labor hour is:
A) $7.12.
B) $6.95.
C) $6.91.
D) $7.00.
10. The variable overhead spending variance is:
A) $740 U.
B) $740 F.
C) $820 F.
D) $820 U.
11. The variable overhead efficiency variance is:
A) $740 F.
B) $950 U.
C) $430 U.
D) $1,120 F.
Ch 10
12. For the month of April, Thorp Co.'s records disclosed the following data relating to direct labor:
Actual cost
Rate variance
Efficiency variance

$10,000
$ 1,000 favorable
$ 1,500 unfavorable

For the month of April, actual direct labor hours amounted to 2,000. In April, Thorp's standard direct labor rate
per hour was:
A) $4.50.
B) $4.75.
C) $5.50.
D) $5.00.
Use the following to answer questions 13-15:
The Murray Company makes and sells a single product. The company recorded the following activity and cost
data for May:
Number of units completed
Standard direct labor-hours allowed per unit of product
Budgeted direct labor-hours (denominator activity)
Actual fixed overhead costs incurred
Volume variance

45,000 units
1.5 DLHS
72,000 DLHS
$66,000
$4,275 U

The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour.
Ch 11
13. The amount of fixed overhead contained in the company's overhead flexible
budget for May was:
A) $64,125.
B) $70,275.
C) $67,500.
D) $68,400.
14. The amount of fixed manufacturing overhead cost applied to work in process
during May was:
A) $42,750.
B) $64,125.
C) $61,725.
D) $62,700.
15. The fixed overhead budget variance for May was:
A) $2,400 F.
B) $6,000 F.
C) $6,000 U.
D) $2,400 U.
16. Web Company uses a standard cost system in which manufacturing overhead is
applied to units of product on the basis of machine hours. During February, the
company used a denominator activity of 80,000 machine hours in computing its
predetermined overhead rate. However, only 75,000 standard machine hours were
allowed for the month's actual production. If the fixed overhead volume variance
for February was $6,400 unfavorable, then the total budgeted fixed overhead cost
for the month was:
A) $98,600.
B) $96,000.
C) $100,000.
D) $102,400.

Ch. 12
17. Sales and average operating assets for Company P and Company Q are given below:
Sales Average Operating Assets
Company P
Company Q

$20,000
$50,000

$8,000
$10,000

What is the margin that each company will have to earn in order to generate a return on investment of 20%?
A) 8% and 4%.
B) 5 0% and 100%.
C) 2.5% and 5%.
D) 12% and 16%.
18. A company had the following results last year: sales, $700,000; return on
investment, 28%; and margin, 8%. The average operating assets last year were:
A) $2,450,000.
B) $200,000.
C) $2,500,000.
D) $540,000.
19. (Appendix) Division X of Charter Corporation makes and sells a single product
which is used by manufacturers of fork lift trucks. Presently it sells 12,000 units
per year to outside customers at $24 per unit. The annual capacity is 20,000 units
and the variable cost to make each unit is $16. Division Y of Charter Corporation
would like to buy 10,000 units a year from Division X to use in its products.
There would be no cost savings from transferring the units within the company
rather than selling them on the outside market. What should be the lowest
acceptable transfer price from the perspective of Division X?
A) $24.00
B) $16.00
C) $21.40
D) $17.60
20. More Company has two divisions, L and M. During July, the contribution margin
in Division L was $60,000. The contribution margin ratio in Division M was 40%
and its sales were $250,000. Division M's segment margin was $60,000. The
common fixed expenses were $50,000 and the company net income was $20,000.
The segment margin for Division L was:
A) $0.
B) $60,000.
C) $50,000.
D) $10,000.

Answer Key -- pracfinal

1. B

$3,000

2. C

$640,000.

3. A

$32,000.

4. D

9,600.

5. C

$331,500.

6. C

$76,000.

7. B

160,000.

8. C

75,000 units.

9. D

$7.00.

10. D

$820 U.

11. D

$1,120 F.

12. C

$5.50.

13. D

$68,400.

14. B

$64,125.

15. A

$2,400 F.

16. D

$102,400.

17. A

8% and 4%.

18. B

$200,000.

19. D

$17.60

20. D

$10,000.