Multiple Choice Answers

1. A company’s average operating assets are $220,000, and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project’s residual income if the required rate of return is 20%?
a)600.00, b) (450.00), c)450 d) (600)

2. 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)85,000 b)45000 c)40000 . d)70000

3. Werber Clinic uses client visits as its measure of activity. During January, the clinic budgeted for 2,700 client visits, but its actual level of activity was 2,730 client visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ___-___ $33.60
Personnel expenses $22,100 $8.70
Medical supplies 1,100 6.60
Occupancy expenses 5,600 1.60
Administrative expenses 3,700 0.40
Total expenses $32,500 $17.30
Actual results
for January:
Revenue $93,408
Personnel expenses $46,251
Medical supplies $19,348
Occupancy expenses $9,508
Administrative expenses $4,772
13529
The activity variance for net operating income in January would be closest to
a)2019 U b)489 U c)2019F d)489F
4. Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
The labor efficiency variance for January is
a)475F b)110 F c)350U d)130U

6.
Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds

The materials price variance for January is
a)1300U
b)1640U
c)1700F
d)1640F

7. Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for 3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ____-____ $25.10
Personnel expenses $27,100 $7.10
Medical supplies 1,500 4.50
Occupancy expenses 6,000 1.00
Administrative expenses 3,000 0.10
Total expenses $37,600 $12.70
Actual results
for December:
Revenue $96,299
Personnel expenses $51,009
Medical supplies $17,425
Occupancy expenses $9,240
Administrative expenses $3,239

The spending variance for medical supplies in December would be closest to
a)680F
b)725F
c)725U
d)680U

8. Super Drive is a computer hard-drive manufacturer. The company’s balance sheet for the fiscal year ended on November 30 appears below:
Super Drive, Inc.
Statement of Financial Position
For the year ended November 30
Assets:
Cash $52,000
Accounts receivable 150,000
Inventory 315,000
Property, plant, and equipment 1,000,000
Total Assets $1,517,000
Liabilities and stockholders’ equity:
Accounts payable $175,000
Common stock 900,000
Retained earnings 442,000
Total liabilities and
stockholders’ equity $1,517,000
Additional information regarding Super Drive’s operations appears below:
• Sales are budgeted at $520,000 for December and $500,000 for January.
• Collections are expected to be 60% in the month of sale and 40% in the month following sale. There are no bad debts.
• 80% of the disk-drive components are purchased in the month prior to the month of the sale, and 20% are purchased in the month of the sale. Purchased components comprise 40% of the cost of goods sold.
• Payment for components purchased is made in the month following the purchase.
• Assume that the cost of goods sold is 80% of sales.
The budgeted cash collections for the upcoming December should be
a)520,000
b)462,000
c)402,000
d)208,000

9.
Manufacturing Cycle Efficiency (MCE) is computed as
a) Value-Added Time divided by Throughput Time
b) Process Time divided by Delivery Cycle Time
c) Throughput Time divided by Delivery Cycle Time
d) Value-Added Time divided by Delivery Cycle Time.
10.
Vandall Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During April, the company budgeted for 7,300 units, but its actual level of activity was 7,340 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for April:
Data used in budgeting:
Fixed element Variable element
per month per unit
Revenue ___-___ $35.40
Direct labor 0 $3.30
Direct materials 0 15.90
Manufacturing overhead 49,200 1.20
Selling and
administrative expenses 26,600 0.10
Total expenses $75,800 $20.50
Actual results
for April:
Revenue $254,146
Direct labor $24,722
Direct materials $116,496
Manufacturing overhead $59,608
Selling and
administrative expenses $26,494
26,826
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)6740U b)6144U c)6144F d)6740F
11. Coles Company, Inc. makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows:
August 14,000 units
September 14,500 units
October 15,500 units
November 12,600 units
December 11,900 units
The company wants to maintain monthly ending inventories of Material K equal to 20% of the following month’s production needs. On July 31, this requirement wasn’t met because only 2,500 yards of Material K were on hand. The cost of Material K is $0.85 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year.
The total cost of Material K to be purchased in August is
a) $48,200.
b) . $42,300.
c) $33,840
d) $40,970.
12. Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for 3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December:
Data used in budgeting:
Fixed element Variable element
per month per client-visit
Revenue ____-____ $25.10
Personnel expenses $27,100 $7.10
Medical supplies 1,500 4.50
Occupancy expenses 6,000 1.00
Administrative expenses 3,000 0.10
Total expenses $37,600 $12.70
Actual results
for December:
Revenue $96,299
Personnel expenses $51,009
Medical supplies $17,425
Occupancy expenses $9,240
Administrative expenses $3,239

The medical supplies in the flexible budget for December would be closest to
a)18105
b)17378
c)18150
d)17472
13. 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)17.60
b)21.40
c)24.00
d)16.00
14.
The LFM Company makes and sells a single product, Product T. Each unit of Product T requires 1.3 hours of direct labor at a rate of $9.10 per direct-labor hour. LFM Company needs to prepare a direct-labor budget for the second quarter of next year. The budgeted direct-labor cost per unit of Product T would be
a)7.00
b)11.83
c)10.40
d)9.10
15. The Adams Company, a merchandising firm, has budgeted its activity for November according to the following information:
• Sales were at $450,000, all for cash.
• Merchandise inventory on October 31 was $200,000.
• The cash balance on November 1 was $18,000.
• Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash.
• Budgeted depreciation for November is $25,000.
• The planned merchandise inventory on November 30 is $230,000.
• The cost of goods sold is 70% of the selling price.
• All purchases are paid for in cash.

The budgeted net income for November is
a)135000
b)50000
c)75000
d)68000
16.
The cash budget must be prepared before you can complete the
a) raw materials purchases budget
b) budgeted balance sheet.
c) production budget.
d) schedule of cash disbursements
17. 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)9.5
b)10.2
c)9.28
d)9.8
18. The budget or schedule that provides necessary input data for the direct-labor budget is the
a)cash budget
b) raw materials budget
c)production budget
d)schedule of cash collections
19. The Adams Company, a merchandising firm, has budgeted its activity for November according to the following information:
• Sales were at $450,000, all for cash.
• Merchandise inventory on October 31 was $200,000.
• The cash balance on November 1 was $18,000.
• Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash.
• Budgeted depreciation for November is $25,000.
• The planned merchandise inventory on November 30 is $230,000.
• The cost of goods sold is 70% of the selling price.
• All purchases are paid for in cash.
The budgeted cash disbursements for November are
a)405000
b)375000
c)530000
d)345000
20. Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:
Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
The labor rate variance for January is
a)475F
b)585 U
c)585F
d)475U