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ACC241 Practice Questions Ch. 9, 10, 11 Formulas that will be provided on the exam are listed on the last page. Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Which of the following alternatives reflects the proper order of preparing components of the master budget? 1. Production budget 2. Sales budget 3. Direct materials budget a. b. c. d. 2, 3, 1 1, 3, 2 2, 1, 3 3, 1, 2 2. Bright Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of 2015 is as follows: Month October November December Sales 10,000 14,000 13,000 Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25 percent of the next month's sales. Bright Lamp expects to sell the lamps for $25 each. January 2016 sales are projected at 16,000 lamps. How many lamps should be produced in November? a. 11,000 lamps b. 10,500 lamps c. 14,000 lamps d. 13,750 lamps 3. Which of the following is a potential disadvantage of participative budgeting? a. Managers may build slack into the budget b. Managers are more likely to be motivated by budgets they helped to create c. Managers should have more detailed knowledge for creating realistic budgets d. None of the above Copyright 2016, School of Accountancy, Arizona State University 4. Bella Inc. would like to prepare a summary cash budget for June. The following information is available: The cash balance at June 1 was estimated to be $6,000. June sales, all on account, were estimated to be $75,000. Sales are collected over a two-month period with 60 percent collected in the month of sale and the remainder in the subsequent month. May sales on account were $70,000. Inventory purchases are expected to be $50,000 in June. The company pays for one-half of inventory purchases in the month of purchase and the remainder in the subsequent month. May purchases were $60,000. Cash disbursements for selling and administrative expenses are expected to be $9,000 in June. Depreciation expense for June is expected to be $3,000. What is the cash balance at the end of June expected to be? a. $15,000 b. $12,000 c. $26,000 d. $29,000 5. Dallas Company has an unfavorable materials price variance. Which of the following would be the least likely reason for this variance? a. The company purchased a higher quality material than was budgeted. b. The company did not take advantage of purchase discounts. c. The company used more material than was budgeted for in each unit. d. The company under budgeted the standard price for materials. e. The company hired unemployable University of Arizona supply chain majors (students). 6. Becca reported actual operating income for the current year of $40,000. The flexible budget's operating income for actual volume achieved is $38,000, while the static budget's operating income is $35,000. What is the total flexible budget variance? a. $2,000 Favorable b. $5,000 Favorable c. $5,000 Unfavorable d. $2,000 Unfavorable Copyright 2016, School of Accountancy, Arizona State University In early 2015, Ryan, Inc. had budgeted for the production and sales of 6,000 units at a sales price of $20 per unit. The following information is available regarding the standard cost for each unit: Direct materials: Direct labor: 2 pounds at $3.00 per lb 30 minutes of assembly at $.25 per minute Actual results for 2015 were determined to be as follows: Number of units produced and sold: Sales revenue: Direct materials cost: Direct labor cost: 6,800 units $149,600 ($22 per unit) $43,384 (14,960 lbs purchased and used at $2.90 per lb) $59,024 (210,800 minutes at $.28 per minute) 7. Refer to the Ryan Inc. information above. What was Ryan Inc.'s direct materials price variance for 2015? a. $1,496 F b. $1,496 U c. $1,360 F d. $1,360 U 8. Refer to the Ryan Inc. information above. What was Ryan's direct materials usage variance for 2015? a. $4,080 F b. $4,080 U c. $2,584 F d. $2,584 U 9. Refer to the Ryan Inc. information above. What was Ryan Inc.'s direct labor rate variance for 2015? a. $1,904 F b. $1,904 U c. $6,324 F d. $6,324 U 10. Refer to the Ryan Inc. information above. What was Ryan Inc.'s direct labor efficiency variance for 2015? a. $1,700 F b. $1,700 U c. $6,120 F d. $6,120 U 11. 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 was closest to: a. 3.19 b. 3.35 c. 3.50 d. 6.00 Copyright 2016, School of Accountancy, Arizona State University 12. All of the following are true except a. A favorable labor efficiency variance could result from using higher quality materials that result in fewer inspections. b. A favorable labor rate variance could result from lower wage workers quitting and replaced with more senior/experienced employees. c. A favorable materials price variance could result from purchasing identical materials from another supplier at a lower price. d. An unfavorable materials usage variance could result from not efficiently utilizing raw materials, thus causing waste. e. All of these. 13. JetSky Airways has three divisions, the Western Division, the Eastern Division, and the Northern Division. The manager of the Western Division had wanted to purchase replacement airplanes for the division. However, he decided against it because, although revenues would increase, and the new planes would be less expensive to operate, the initial cost of the planes was quite large. The Western Division is most probably accounted for as a a. cost center b. revenue center c. profit center d. investment center e. none of these 14. Jeffrey Company had operating income of $70,000, sales of $218,750, and turnover of 0.5. What is Jeffrey's ROI? a. 32% b. 50% c. 16% d. 64% e. cannot be determined from this information 15. The Balanced Scorecard perspective that describes the economic consequences of actions taken in the other three perspectives is the ____ perspective. a. customer b. process c. learning and growth d. financial e. none of these Copyright 2016, School of Accountancy, Arizona State University Lots -of- Stuff Lots-of-Stuff, Inc. has a number of divisions. One division, Davison One, makes a component, component X, that is used in the manufacture of DVD players. Another division, Division Two, makes DVD players that use component X and needs 60,000 units of component X per year. Division One incurs the following costs for one unit of component X: Direct materials Direct labor Variable overhead Fixed overhead Total $0.30 0.15 0.70 1.00 $2.15 Division One has capacity to make 400,000 units of component X per year, but due to a soft market, only plans to produce and sell 320,000 units next year. Division Two currently buys component X from an outside supplier for $2.50 each (the same price that Division One receives). 16. Refer to Lots-of-Stuff. Assume that Division One and Division Two have agreed on a transfer price of $2.20. What are the total cost savings for Division Two? a. $18,000 b. $132,000 c. $63,000 d. $69,000 e. $81,000 ABC Broadcasting Company is comprised of two divisions: Music and News. operations in 2016 for each division and the total corporation follows: Sales Expenses Average assets $ Music News 800,000 $1,200,000 700,000 900,000 1,000,000 2,000,000 A summary of expected Total $2,000,000 1,600,000 3,000,000 A new project has just been identified that could be purchased and put in place by 2017. The required investment in assets is $500,000 and it would generate net income of $70,000 in 2017. This project is an investment that is available to managers of either the Music or News Division. 17. Refer to ABC Broadcasting. Who would be in favor of investing in the new project assuming that the divisions are organized as investment centers and their performance is evaluated on the basis of return on investment? Music Manager News Manager a. yes yes b. no no c. yes no d. no yes Copyright 2016, School of Accountancy, Arizona State University DM Price Variance = DM Quantity Variance = DL Price (Rate) Variance = DL Quantity (Efficiency) Variance = Note: AQ (SP - AP) or AQ (AP - SP) SP (SQ - AQ) or SP (AQ - SQ) AH (SR - AR) or AH (AR - SR) SR (SH - AH) or SR (AH - SH) Order of terms in parentheses may differ from what was used in class or in the textbook. Where: AQ: Actual quantity SQ: Standard quantity AP: Actual price SP: Standard price AH: Actual hours SH: Standard hours AR: Actual labor rate SR: Standard labor rate ROI = Operating Income / Operating Assets = OI/Sales X Sales/OA RI = Operating Income - (Operating Assets x Target Rate of Return) Copyright 2016, School of Accountancy, Arizona State University