DeVry ACCT 505 Final Exam Answers

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DeVry ACCT 505 Final Exam Answers


Avril Company makes collections on sales according to the following schedule:



30% in the month of sale


60% in the month following sale


8% in the second month following sale




The following sales are expected:




Expected Sales


January     $100,000


February     120,000


March     110,000




Cash collections in March should be budgeted to be:


  1.  A)    $110,000.


  1.  B)    $110,800.


  1.  C)    $105,000.


  1.  D)    $113,000.





  1.    A labor efficiency variance resulting from the use of poor quality materials should be charged to:


  1.  A)    the production manager.


  1.  B)    the purchasing agent.


  1.  C)    manufacturing overhead.


  1.  D)    the engineering department.



  1.  An unfavorable labor efficiency variance indicates that:



  1.  A)    The actual labor rate was higher than thBe standard labor rate.


  1.  B)    The labor rate variance must also be unfavorable.


  1.  C)    Actual labor hours worked exceeded standard labor hours for the production level achieved.


  1.  D)    Overtime labor was used during the period.

Answer:  C



  1.  A favorable labor rate variance indicates that


  1.  A)    actual hours exceed standard hours.


  1.  B)    standard hours exceed actual hours.


  1.  C)    the actual rate exceeds the standard rate.


  1.  D)    the standard rate exceeds the actual rate.



Use the following to answer questions 22-25:




Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:




Standard Quantity    Cost per Bag


Direct material     20 pounds     $8.00


Direct labor     0.1 hours    1.10


Variable manuf. overhead     0.1 hours    .40




The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on the basis of direct labor hours. During January, the following activity was recorded by the company:




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 manufacturing overhead incurred:    $1,475


Inventory of direct materials on Jan. 31:    3,000 pounds






  1.  The materials price variance for January is:


  1.  A)    $1,640 F.


  1.  B)    $1,640 U.


  1.  C)    $1,700 F.


  1.  D)    $1,300 U.



  1.  The materials quantity variance for January is:



  1.  A)    $800 U.


  1.  B)    $300 U.


  1.  C)    $300 F.


  1.  D)    $750 F.



  1.  The labor rate variance for January is:


  1.  A)    $475 F.


  1.  B)    $475 U.


  1.  C)    $585 F.


  1.  D)    $585 U.



  1.  The labor efficiency variance for January is:


  1.  A)    $475 F.


  1.  B)    $350 U.


  1.  C)    $130 U.


  1.  D)    $110 F.



Use the following to answer questions 26-27:




The following selected data pertain to Beck Co.’s Beam Division for last year:




Sales    $400,000


Variable expenses    $100,000


Traceable fixed expenses    $250,000


Average operating assets    $200,000


Minimum required rate of return    20%






  1.    How much is the residual income?


  1.  A)    $40,000


  1.  B)    $50,000


  1.  C)    $10,000


  1.  D)    $80,000


  1.    How much is the return on the investment?


  1.  A)    25%


  1.  B)    20%


  1.  C)    12.5%


  1.  D)    40%



  1.  One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.


  1.  A)    True


  1.  B)    False



  1. In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.


  1.      A)    True


  1.      B)    False



  1.  Some managers believe that residual income is superior to return on investment as a means of measuring performance, since it encourages the manager to make investment decisions that are more consistent with the interests of the company as a whole.


  1.      A)    True


  1.      B)    False



  1.  The performance of the manager of Division A is measured by residual income. Which of the following would increase the manager’s performance measure?


  1.      A)    Increase in average operating assets.


  1.      B)    Decrease in average operating assets.


  1.      C)    Increase in minimum required return.


  1.      D)    Decrease in net operating income.



  1.  A segment of a business responsible for both revenues and expenses would be called:


  1.      A)    a cost center.
  2.      B)    an investment center.


  1.      C)    a profit center.


  1.      D)    residual income.



  1.    The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year’s net operating income at Northern was $20,000, then the residual income for Northern last year was:


  1.      A)    $20,000.
  2.      B)    $l8,000.


  1.      C)    $5,000.


  1.      D)    $2,000.


Use the following to answer questions 34 – 35:


The following information is available on Company A:


Sales    $900,000


Net operating income    36,000


Stockholders’ equity    100,000


Average operating assets    180,000

Minimum required rate of return    15%



  1.  Company A’s residual income is:


  1.      A)    $9,000.


  1.      B)    $21,000.


  1.      C)    $45,000.


  1.      D)    $24,000.



              Residual Income             9,00035.    Company A’s return on investment (ROI) is:


  1.      A)    4%.


  1.      B)    15%.


  1.      C)    20%.


  1.      D)    36%.


  1.  Gata Co. plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be the effect of this discontinuance on Gata’s overall net operating income?


  1.      A)    Increase of $48,000


  1.      B)    Decrease of $48,000


  1.      C)    Increase of $6,000


  1.      D)    Decrease of $6,000



  1.  Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows:


Direct materials      $12

Direct labor      8


Variable manufacturing overhead        3


Fixed manufacturing overhead    .  10


Unit product cost      $33


An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:


  1.      A)    $3 advantage.
  2.      B)    $1 advantage.


  1.      C)    $1 disadvantage.


  1.      D)    $4 disadvantage.



  1.  Some investment projects require that a company expand its working capital to service the greater volume of business that will be generated. Under the net present value method, the investment of working capital should be treated as:


  1.  A)    an initial cash outflow for which no discounting is necessary.


  1.  B)    a future cash inflow for which discounting is necessary.


  1.  C)    both an initial cash outflow for which no discounting is necessary and a future cash inflow for which discounting is necessary.


  1.  D)    irrelevant to the net present value analysis.



  1.  Which of the following capital budgeting techniques consider(s) cash flow over the entire life of the project?


Internal rate of return    Payback

  1.  A)        Yes    Yes


  1.  B)        Yes    No


  1.  C)        No    Yes


  1.  D)        No    No



Use the following to answer question 40:


(Ignore income taxes in this problem.) Treads Corporation is considering the replacement of an old machine that is currently being used. The old machine is fully depreciated but can be used by the corporation for five more years. If Treads decides to replace the old machine, Picco Company has offered to purchase the old machine for $60,000. The old machine would have no salvage value in five years.


 The new machine would be acquired from Hillcrest Industries for $1,000,000 in cash. The new machine has an expected useful life of five years with no salvage value. Due to the increased efficiency of the new machine, estimated annual cash savings of $300,000 would be generated.


 Treads Corporation uses a discount rate of 12%.


  1.  The net present value of the project is closest to:
  2.  A)    $171,000.
  3.  B)    $136,400.
  4.  C)    $141,500.
  5.  D)    $560,000.


Use the following to answer questions 41-42:

(Ignore income taxes in this problem.) Oriental Company has gathered the following data on a proposed investment project:


Investment in depreciable equipment    $200,000

Annual net cash flows    $ 50,000

Life of the equipment    10 years

Salvage value    -0-

Discount rate    10%


The company uses straight-line depreciation on all equipment.


  1.  The payback period for the investment would be:
  2.  A)    2.41 years.
  3.  B)    0.25 years.
  4.   C)    10 years.
  5.  D)    4 years.


  1.    The net present value of this investment would be:


  1.  A)    ($14,350).
  2.  B)    $107,250.
  3.  C)    $77,200.
  4.  D)    $200,000.
  5. The Tse Manufacturing Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company’s Finished Goods inventory account was debited for $125,000 and credited for $110,000. The ending balance in the Finished Goods inventory account was $28,000. At the end of the year, manufacturing overhead was overapplied by $4,500. The balance in the Finished Goods inventory account at the beginning of the year was:



  1. $28,000
  2. $13,000
  3. $17,500
  4. $8,500


  1. Matthias Corporation has provided data concerning the company’s Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $53,000 and the total of the credits to the account was $69,000. Which of the following statements is true?


  1. Manufacturing overhead applied to Work in Process for the month was $69,000.
  2. Manufacturing overhead for the month was underapplied by $16,000.
  3. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $53,000.
  4. Actual manufacturing overhead incurred during the month was $69,000.


  1. Yoder Company uses the weighted-average method in its process costing system. The following data pertain to operations in the first processing department for a recent month:

 What was the cost per equivalent unit for materials during the month?


  1. $0.30
  2. $0.25
  3. $0.20
  4. $0.15