. Expected cash collections in December are:
ACC 2203 PRACTICE PROBLEMS FOR CHAPTERS 6, 7, 8, 9, AND 10 Diltex Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000 for January. Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible. The cost of goods sold is 65% of sales. The company desires to have an ending merchandise inventory at the end of each month equal to 50% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. 1. Expected cash collections in December are: A. $59,400 B. $140,000 C. $199,400 D. $200,000 2. December cash disbursements for merchandise purchases would be: A. $136,500 B. $68,250 C. $133,250 D. $130,000 3. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A. $82,000 B. $113,400 C. $60,000 D. $54,000 4. Accounts payable at the end of December would be: A. $65,000 B. $68,250 C. $130,000 D. $133,250 1 5. Caba Corporation's sales budget for the first half of the year is as follows: January February March April May June Total: Budgeted Sales $ 115,000 $ 198,000 $ 220,000 $ 250,000 $ 210,000 $ 290,000 $ 1,283,000 Sales are 30% cash and 70% on account. Sales on account are to be collected over a three-month period, with 20% collected in the month of the sale, 65% collected in the first month following the sale, and 15% collected in the second month following the sale. What is the budgeted balance in the Accounts Receivable account as of June 30? a. $184,450 b. $263,500 c. $249,400 d. $232,000 6. Reyes Merchandising Company has created the following sales forecast for the beginning of the upcoming fiscal year: Budgeted unit sales January 15,400 February 18,500 March 16,200 April 17,600 The company expects to start the year with 1,970 units in merchandise inventory. Management desires an ending merchandise inventory in each month equal to 15% of next month's budgeted unit sales. How many units of merchandise does Reyes expect to purchase for March? a. 18,840 b. 16,410 c. 16,200 d. 18,155 2 Deluca Manufacturing prepared the following cost control report for the prior month: Planning Budget Actual Results Variances Direct labor hours 30,000 33,000 Direct materials $45,000 $55,000 $10,000 Direct labor wages $480,000 $520,000 $40,000 Maintenance $125,000 $136,000 $11,000 Utilities $82,000 $86,000 $4,000 Rent $65,000 $65,000 $0 Depreciation $27,000 $27,000 $0 Total: $824,000 $889,000 $65,000 U U U U U Direct materials and direct labor wages are variable costs; rent and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $35,000; the fixed component of the budgeted utilities cost is $13,000. 7. a. b. c. d. What is the activity variance for Maintenance? $9,000 U $9,000 F $2,000 U $2,000 F 8. a. b. c. d. What is the spending variance for Utilities? $6,900 F $6,900 U $2,900 F $2,900 U 3 Outdoor Adventures, Inc. offers guided jeep tours for small groups in Denali National Park. The company bases its budget on two cost drivers: jeeps and guests. Data concerning the company's costs is as follows: Tour guide Vehicle expenses Meal expenses First aid expenses Administrative expenses Fixed Cost per Month $20,000 $3,500 $13,000 $2,000 $2,500 Cost per Jeep $150 $35 $0 $24 $0 Cost per Guest $0 $15 $20 $10 $8 In June, the company budgeted for 60 jeeps and 600 guests at an average tour price of $250 per guest. Data concerning the company's operations in June appear below: Actual Results Jeeps Guests Revenue Tour guide Vehicle expenses Meal expenses First aid expenses Administrative expenses 65 700 $202,000 $32,000 $7,000 $30,000 $5,000 $3,500 9. a. b. c. d. What is the activity variance for Vehicle expenses? $9,275 F $9,275U $1,675 F $1,675U 10. a. b. c. d. What is the spending variance for First aid expenses? $5,560U $5,560 F $1,120U $1,120 F 4 11. The Keystone Company has three divisions: A, B, and C . Assume the following data for Division A for March: Sales $1,200,000 Variable expenses $600,000 Traceable fixed costs $120,000 Allocated common fixed costs $60,000 Average operating assets $2,000,000 Minimum required return 15% How much is Division A's residual income? 12. Uchimura Corp. has two divisions: the AFE Division and the GBI Division. The corporation's net income is $42,000. The AFE Division's segment profit is $24,300 and the GBI Division's segment profit is $175,400. What is the amount of the common fixed expense not traceable to the individual divisions? A. $148,000 B. $157,700 C. $217,400 D. $161,100 E. None of the above 5 13. The Freed Company produces three products, X, Y, Z, from a single raw material input. Product Y can be sold at the split-off point for total revenues of $50,000, or it can be processed further at a total cost of $16,000 and then sold for $68,000. Product Y: a. b. c. d. e. Should be sold at the split-off point, rather than processed further. Would increase the company's overall net operating income by $18,000 if processed further and then sold. Would increase the company's overall net operating income by $68,000 if processed further and then sold. Would increase the company's overall net operating income by $2,000 if processed further and then sold. None of the above 14. Campion Company has two divisions, A and B. The following data pertain to operations in May: If common fixed expenses were $10,000, total fixed expenses were: A. $10,000 B. $30,500 C. $40,500 D. $65,500 15. Maroni & Sons is a plumbing and heating company. A contribution margin format segmented income statement (by division) for the most recent year is given below: Sales Variable expenses Contribution margin Traceable fixed expenses Segment margin Common fixed expenses Net operating income Division Plumbing $506,000 $328,900 $177,100 $91,080 $86,020 Heating $624,000 $149,760 $474,240 $262,080 $212,160 100% 65% 35% 18% 17% 100% 24% 76% 42% 34% Total Company $1,130,000 100% $478,660 42% $651,340 58% $353,160 31% $298,180 26% $88,000 8% $210,180 19% To increase sales in the Plumbing division next year, Maroni & Sons is considering starting an intense advertising campaign in that division. This campaign would cost $15,000 and would be expected to increase sales in the Plumbing division by $120,000. If the company were to adopt the advertising campaign, what would be the impact on the total company's profit? a. Profit would increase by $105,000 b. Profit would decrease by $105,000 c. Profit would increase by $27,000 d. Profit would decrease by $27,000 6 16. a. b. c. d. Which of the following costs are always irrelevant in decision making? avoidable costs sunk costs opportunity costs fixed costs 17. In deciding whether to manufacture a part or buy it from an outside supplier, which of the following costs are relevant? a. b. c. d. Fixed overhead that will continue even if the part is bought from an outside supplier Yes Yes No No Freight charges paid by the purchaser only if the part is bought from an outside supplier Yes No Yes No 18. Greenland Co., an organic products retailer, has two departments: Housewares and Gardenwares. The company's most recent monthly contribution margin format income statement is as follows: Department Housewares Gardenwares Total Company Sales $603,000 $362,000 $965,000 Variable expenses $231,000 $150,000 $381,000 Contribution margin $372,000 $212,000 $584,000 Fixed expenses $64,000 $218,000 $282,000 Net operating income (loss) $308,000 ($6,000) $302,000 Internal reports indicate that $38,100 of the fixed expenses being charged to Gardenwares are allocated costs that will continue even if the Gardenwares Department is dropped. Also, eliminating the Gardenwares Department will result in a 19% decrease in sales for the Housewares Department. What is the impact to the total company's profit if the Gardenwares Department is dropped? a. Profit would decrease by $146,670 b. Profit would decrease by $102,780 c. Profit would decrease by $32,100 d. Profit would increase by $6,000 7 19. Dipuisto Inc. manufactures radios at an annual production level of 50,000 units. At this production level, the cost per unit for a radio is as follows: Direct materials Direct labor Variable manufacturing overhead Supervisor's salary Fixed manufacturing overhead Total cost: $2.10 $3.70 $8.40 $6.65 $9.15 $30.00 An outside supplier has offered to sell the radios to Dipuisto Inc. for $26.20 per unit. If Dipuisto Inc. accepts this offer, then they will not need to employ the supervisor. Also, if the radios are purchased from the outside supplier, then 40% of the fixed manufacturing overhead costs can be eliminated. Assuming that there are no other uses for the facility space that Dipuisto uses to manufacture the radios, what is the annual impact to the company's profit if it buys the radios from the supplier instead of manufacturing them? a. Profit would decrease by $84,500 b. Profit would increase by $84,500 c. Profit would decrease by $190,000 d. Profit would increase by $190,000 20. Marjess Corp. manufactures shirts, and it is considering whether or not it should accept a special order for 5,000 shirts. The normal selling price of a shirt is $45 and its unit product cost is $36 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $8.00 $16.00 $12.00 $36.00 Most of the manufacturing overhead is fixed; however, 30% of it is variable with respect to the number of shirts produced. The special order will require customizing the shirts for the customer with an additional direct materials cost of $5 per shirt and an additional direct labor cost of $4 per shirt. If it accepts this order, Marjess will have to rent special equipment to handle the shirt customization at a cost of $22,000. The order would have no effect on Marjess Corporation's regular sales and it could be fulfilled using the company's existing capacity without affecting any other order. What is the minimum (i.e., the break-even) sales price per unit that Marjess should charge for this special order? a. $17.00 b. $49.40 c. $32.00 d. $41.00 8 21. Norel Sports makes three products: frisbees, bats, and balls. All three products require the same direct material (plastic), which Norel purchases from its supplier for $1.50 per pound; however, Norel can't obtain all the plastic that it needs to fill the current orders for its products due to a strike at the supplier's plant. The company has provided the following data for one unit of each product it makes: Product Frisbee $26.00 Bat $19.00 Ball $7.00 $3.00 $16.50 25% Selling price Variable expenses: Direct materials Other variable expenses Contribution margin ratio $6.00 $3.50 50% $2.25 $2.30 35% In what order should Norel Sports manufacture its products, starting with the most profitable product (first product) and ending with the least profitable product (third product)? a. b. c. d. Manufacturing Order First product Second product Bat Ball Frisbee Bat Bat Frisbee Ball Frisbee 9 Third product Frisbee Ball Ball Bat
