Exam 3 Spring 2010

Version #1

Choose the best answer for each question. Mark your answers in your test booklet and on your scan sheet. 1. 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. $3,300.00 B. $3,412.50 C. $6,712.50 D. $3,356.25 2. The PDQ Company makes collections on credit sales according to the following schedule: 25% in month of sale 70% in month following sale 4% in second month following sale 1% uncollectible The following sales have been budgeted:

Cash collections in June would be: A. $113,400 B. $110,000 C. $111,000 D. $115,500 3. If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur? A. Favorable labor efficiency variance. B. Favorable labor rate variance. C. Unfavorable labor efficiency variance. D. Unfavorable labor rate variance.

4.

Hart Company's labor standards call for 500 direct labor-hours to produce 250 units of product. During October the company worked 625 direct labor-hours and produced 300 units. The standard hours allowed for October would be: A. 625 hours B. 500 hours C. 600 hours D. 250 hours

5.

A flexible budget is a budget that: A. is updated with actual costs as they occur during the period. B. is updated to reflect the actual level of activity during the period. C. is only prepared using a computer spreadsheet application. D. contains only variable production costs.

6.

The cash budget must be prepared before you can complete the: A. production budget. B. budgeted balance sheet. C. raw materials purchases budget. D. schedule of cash disbursements.

7.

ABC Company has a cash balance of $9,000 on April 1. The company must maintain a minimum cash balance of $6,000. During April expected cash receipts are $45,000. Expected cash disbursements during the month total $52,000. During April the company will need to borrow: A. $2,000 B. $4,000 C. $6,000 D. $8,000

8.

A favorable materials price variance coupled with an unfavorable material usage variance would most likely result from: A. labor efficiency problems. B. machine efficiency problems. C. the purchase and use of higher than standard quality material. D. the purchase and use of lower than standard quality material.

9.

Ofarrell Snow Removal's cost formula for its vehicle operating cost is $1,840 per month plus $377 per snow-day. For the month of November, the company planned for activity of 14 snow-days, but the actual level of activity was 19 snow-days. The actual vehicle operating cost for the month was $9,280. The vehicle operating cost in the flexible budget for November would be closest to: A. $9,003 B. $7,118 C. $9,280 D. $9,660

10. Roufs Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 7,800 units are planned to be sold in April. The variable selling and administrative expense is $3.20 per unit. The budgeted fixed selling and administrative expense is $95,160 per month, which includes depreciation of $9,360 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the April selling and administrative expense budget should be: A. $85,800 B. $24,960 C. $120,120 D. $110,760 11. The Waverly Company has budgeted sales for next year as follows:

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the third quarter should be: A. 17,500 B. 18,500 C. 22,000 D. 13,500 12. The budget or schedule that provides necessary input data for the direct labor budget is the: A. raw materials purchases budget. B. production budget. C. schedule of cash collections. D. cash budget. 13. Which of the following variances is caused by a difference between the denominator activity in the predetermined overhead rate and the standard hours allowed for the actual production of the period? A. variable overhead rate variance. B. variable overhead efficiency variance. C. fixed manufacturing overhead budget variance. D. fixed manufacturing overhead volume variance. 14. Yumm Dairy Corporation manufactures carrot-flavored ice cream. Yumm's production budget indicated the following units to be produced for the upcoming months:

Four (4) ounces of carrots are needed for each gallon of ice cream. Yumm also likes to have enough carrots on hand to cover 5% of the next month's production needs for carrots. How many ounces of carrots should Yumm plan on purchasing during the month of February? A. 474,000 ounces B. 486,000 ounces C. 490,000 ounces D. 510,000 ounces

15. Dunklin Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,620 patient-visits and the actual level of activity was 1,540 patient-visits. The cost formula for administrative expenses is $3.20 per patient-visit plus $14,300 per month. The actual administrative expense was $21,050. In the clinic's flexible budget performance report for last month, the spending variance for administrative expenses was: A. $118 F B. $256 F C. $1,566 U D. $1,822 U 16. Portsche Snow Removal's cost formula for its vehicle operating cost is $2,310 per month plus $317 per snow-day. For the month of November, the company planned for activity of 18 snow-days, but the actual level of activity was 20 snow-days. The actual vehicle operating cost for the month was $8,730. The activity variance for vehicle operating cost in November would be closest to: A. $714 U B. $714 F C. $634 F D. $634 U Mzimba Sofa Company has developed the following manufacturing overhead standards for its sofa production. Manufacturing overhead at Mzimba is applied to production on the basis of standard machine-hours. Expected Annual Volume Standard Machine Hours per sofa Variable Overhead Rate Fixed Overhead Budget Fixed Overhead Rate 20,000 sofas .9 hours $32 per machine hour $1,044,000 $58 per machine hour

The actual results last year were as follows:

17. What was Mzimba's fixed manufacturing overhead volume variance? A. $12,080 favorable B. $42,920 unfavorable C. $61,000 unfavorable D. $73,080 favorable 18. What was Mzimba's variable overhead efficiency variance? A. $8,766 unfavorable B. $15,552 unfavorable C. $17,280 unfavorable D. $51,200 favorable

Reenu Company manufactures wigs. 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:

19. What is Reenu's labor efficiency variance for October? A. $2,700 favorable B. $7,200 unfavorable C. $9,900 unfavorable D. $27,600 favorable 20. What is Reenu's materials quantity variance for October? A. $2,660 unfavorable B. $14,440 unfavorable C. $17,100 unfavorable D. $51,300 unfavorable 21. What is Reenu's variable overhead rate variance for October? A. $3,400 favorable B. $4,850 unfavorable C. $8,250 unfavorable D. $26,400 favorable 22. What is Reenu's materials price variance (based on pounds purchased) for October? A. $1,680 favorable B. $12,760 unfavorable C. $14,440 unfavorable D. $15,420 unfavorable

Murphree Clinic uses client-visits as its measure of activity. During April, the clinic budgeted for 3,300 client-visits, but its actual level of activity was 3,350 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for April:

23. The net operating income in the flexible budget for April would be closest to: A. $20,115 B. $19,519 C. $14,425 D. $13,550 24. The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for April would be closest to: A. $5,390 F B. $6,265 U C. $5,390 U D. $6,265 F

Wriphoff Company uses a standard cost system to collect costs related to the production of its clay bud vases. Manufacturing overhead at Wriphoff is applied to production on the basis of standard direct labor-hours. The overhead standards used at Wriphoff are as follows:

The standards above were based on an expected annual volume of 40,000 bud vases or 36,000 direct labor-hours, and budgeted fixed overhead costs of $345,600. The actual results for last year were as follows:

25. What was Wriphoff's fixed manufacturing overhead budget variance for last year? A. $7,600 favorable B. $9,200 unfavorable C. $30,416 unfavorable D. $38,016 unfavorable 26. What was Wriphoff's variable overhead rate variance for last year? A. $6,850 favorable B. $7,294 unfavorable C. $14,144 unfavorable D. $15,070 unfavorable Cotty Clinic uses client-visits as its measure of activity. During March, the clinic budgeted for 3,000 client-visits, but its actual level of activity was 2,970 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for March:

27. The activity variance for administrative expenses in March would be closest to: A. $118 U B. $12 F C. $118 F D. $12 U 28. The spending variance for medical supplies in March would be closest to: A. $1,050 U B. $1,050 F C. $1,263 F D. $1,263 U

Exam 3 Spring 2010 Key

Version #1

1. C 2. D 3. C 4. C 5. B 6. B 7. B 8. D 9. A 10. D 11. A 12. B 13. D 14. B 15. D 16. D 17. D 18. C 19. C 20. A 21. A 22. A 23. C 24. A 25. A 26. A 27. B 28. B

Exam 3 Spring 2010 Summary

Category # of Questions AACSB: Analytic 22 AACSB: Reflective Thinking 6 AICPA BB: Critical Thinking 28 AICPA FN: Measurement 28 Garrison - Chapter 009 8 Garrison - Chapter 010 10 Garrison - Chapter 011 7 Garrison - Chapter Appendix... 8 Learning Objective: 1 8 Learning Objective: 2 5 Learning Objective: 3 5 Learning Objective: 4 7 Learning Objective: 5 2 Learning Objective: 6 4 Learning Objective: 7 1 Learning Objective: 8 1 Level: Easy 11 Level: Hard 1 Level: Medium 16 Source: CIMA, adapted 1 Source: CMA, adapted 3