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business
principles financial accounting
Financial Accounting 9th Edition Dr Carl S. Warren, Dr James M. Reeve, Philip E. Fess - Solutions
Bower Company produced 4,000 units of product. Each unit requires 0.5 standard hour. The standard labor rate is $12 per hour. Actual direct labor for the period was $22,000 (2,200 hours X $10 per hour). The direct labor time variance is:A. 200 hours unfavorable C. $4,000 favorable B. $2,000
The actual and standard factory overhead costs for producing a specified quantity of product are as follows:Actual: Variable factory overhead Fixed factory overhead Standard: 19,000 hours at $6($4 variable and $2 fixed)$72,500 40,000 $112,500 114,000 If 1,000 hours were unused, the fixed factory
Applegate Company has a normal budgeted ca- head volume variance would be: A. $1.500 favorable C. $4.000 unfavorable B. $2,000 unfavorable D. $6,000 unfavorable AppendixLO1
Ramathan Company produced 6,000 units of prod- uct Y. which is 80% of capacity. Each unit required 0.25 standard machine hour for production. The standard variable factory overhead rate is $5.00 per machine hour. The actual variable factory overhead incurred during the period was $8,000. The vari-
what are the basic objectives in the use of standard costs?AppendixLO1
How can standards be used by management to help control costs?AppendixLO1
What is meant by reporting by the “principle of exceptions,” as the term is used in reference to cost control?AppendixLO1
How often should standards be revised?AppendixLO1
How are standards used in budgetary' performance evaluation?AppendixLO1
a. What are the two variances between the actual cost and the standard cost for direct materials?b. Discuss some possible causes of these variances.AppendixLO1
The materials cost variance report for Nickols Inc. indicates a large favorable materials price variance and a significant unfavorable materials quantity variance. What might have caused these offsetting variances?AppendixLO1
a. What are the two variances betv,'een the actual cost and the standard cost for direct labor?b. Who generally has control over the direct labor cost?AppendixLO1
A new assistant controller recently was heard to remark: “All the assembly w'ork- ers in this plant are covered by union contracts, so there should be no labor variances.” Was the controller’s remark correct? Discuss.AppendixLO1
a. Describe the two variances between the actual costs and the standard costs for factory overhead.b. What is a factoiy overhead cost variance report?AppendixLO1
What are budgeted fixed costs at normal volume?AppendixLO1
If variances are recorded in the accounts at the time the manufacturing costs are incurred, what does a debit balance in Direct Materials Price Variance represent?AppendixLO1
If variances are recorded in the accounts at the time the manufacturing costs are incurred, what does a credit balance in Direct Materials Quantity Variance rep¬ resent?AppendixLO1
Would the use of standards be appropriate in a nonmanufacturing setting, such as a fast food restaurant?AppendixLO1
Briefly explain why firms might use nonfinancial performance measures.AppendixLO1
Prepare a differential analysis report for decisions involving leasing or sell¬ ing equipnnent, discontinuing an un¬ profitable segment, manufacturing or purchasing a needed part, replacing usable fixed assets, processing further or selling an intermediate product, or accepting additional
Determine the selling price of a product, using the total cost, product cost, and variable cost concepts.AppendixLO1
Calculate the relative profitability of products in bottleneck production environments.AppendixLO1
Mario Company is considering discontinuing a product. The costs of the product consist of $20,000 fixed costs and $15,000 variable costs. The variable operating expenses related to the product total $4,000. What is the differential cost?A. $19,000 C. $35,000 B. $15,000 D. $39,000 AppendixLO1
Victor Company is considering disposing of equip¬ ment that was originally purchased for $200,000 and has $150,000 of accumulated depreciation to date. The same equipment would cost $310,000 to re¬ place. What is the sunk cost?A. $50,000 C. $200,000 B. $150,000 D. $310,000 AppendixLO1
Henry Company is considering spending $100,000 for a new grinding machine. This amount could be invested to yield a 12% return. What is the oppor¬ tunity cost?A. $112,000 C. $12,000 B. $88,000 D. $100,000 AppendixLO1
For which cost concept used in applying the cost- plus approach to product pricing are fixed manu¬facturing costs, fixed selling and administrative ex¬ penses, and desired profit allowed for in deter¬ mining the markup?A. Total cost C. Variable cost B. Product cost D. Standard cost.AppendixLO1
Mendosa Company produces three products. All the products use a furnace operation, which is a pro¬ duction bottleneck. The following information is available:Product 1 Product 2 Product 3 Unit volume—March 1,000 1,500 1,000 Per unit information:Sales price$35$33$29 Variable cost 15 15 15
Explain the meaning of (a) differential revenue, (b) differential cost, and (c) dif¬ ferential income.AppendixLO1
It was reported that Exabyte, a fast growing (100-fold in four years) Colorado marketer of tape drives, has decided to purchase key components of its prod¬ uct from others. For example, Sony pro^4des Exabyte with mechanical decks, and Solectron provides circuit boards. Exabyte’s chief executive
In the long run, the normal selling price must be set high enough to cover what factors?AppendixLO1
A company could sell a building for $500,000 or lease it for $5,000 per month. What would need to be considered in determining if the lease option would be preferred?AppendixLO1
A chemical company has a commodity-grade and premium-grade product. Why might the company elect to process the commodity-grade product further to the premium-grade product?AppendixLO1
A company accepts incremental business at a special price that exceeds the vari¬ able cost. What other issues must the company consider in deciding whether to accept the business?AppendixLO1
A company fabricates a component at a cost of $4.00. A supplier offers to sup¬ ply the same component for $3.60. Under what circumstances is it reasonable to purchase from the supplier?AppendixLO1
Many fast-food restaurant chains, such as McDonald’s, will occasionally dis¬ continue restaurants in their system. What are some financial considerations in deciding to eliminate a store?AppendixLO1
Why might the use of ideal standards in applying the cost-plus approach to product pricing lead to setting product prices that are too low?AppendixLO1
Although the cost-plus approach to product pricing may be used by manage¬ ment as a general guideline, what are some examples of other factors that man¬ agers should also consider in setting product prices?AppendixLO1
What method of determining product cost may be appropriate in settings where the manufacturing process is complex?AppendixLO1
How does the target cost concept differ from cost-plus approaches?AppendixLO1
Under what circumstances is it appropriate to use the target cost concept?AppendixLO1
What is a production bottleneck?AppendixLO1
What is the appropriate measure of a product’s value when a firm is operating under production bottlenecks?AppendixLO1
Explain the nature and importance of capital investment analysis.AppendixLO1
Evaluate capital investment proposals, using the following methods: average rate of return, cash payback, net present value, and internal rate of return.AppendixLO1
List and describe factors that compli¬ cate capital investment analysis.AppendixLO1
Diagram the capital rationing process.AppendixLO1
Methods of evaluating capital investment proposals that ignore present value include:A. average rate of return B. cash payback C. both A and B D. neither A nor B AppendixLO1
Management is considering a $100,000 investment in a project with a 5-year life and no residual value. If the total income from the project is expected to be $60,000 and recognition is given to the effect of straight-line depreciation on the investment, the av¬ erage rate of return is:A. 12% C.
The expected period of time that will elapse be¬ tween the date of a capital investment and the com¬ plete recovery of the amount of cash invested is called.A. the average rate of return period B. the cash payback period C. the net present value period D. the internal rate of return
A project that will cost $120,000 is estimated to gen¬ erate cash flows of $25,000 per year for eight years. What is the net present value of the project, as¬ suming an 11% required rate of return? (Use the present value tables in Appendix A.)A. ($38,214) C. $55,180 B. $8,653 D. $75,000
A project is estimated to generate cash flows of $40,000 per year for 10 years. The cost of the pro¬ ject is $226,009. What is the internal rate of return for this project?A. 8% C. 12%B. 10% D. 14%.AppendixLO1
What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?AppendixLO1
Discuss the principal limitations of the cash payback method for evaluating cap¬ ital investment proposals.AppendixLO1
Why would the average rate of return differ from the internal rate of return on the same project?AppendixLO1
What information does the cash payback period ignore that is included by the net present value method?AppendixLO1
Your boss has suggested that a one-year payback period is the same as a 100% average rate of return. Do you agree?AppendixLO1
Why would the cash payback method understate the attractiveness of a project with a large salvage value?AppendixLO1
Why would the use of the cash payback period for analyzing the financial per¬ formance of theatrical releases from a motion picture production studio be sup¬ ported over the net present value method?AppendixLO1
A net present value analysis used to evaluate a proposed equipment acquisition indicated a $9,750 net present value. What is the meaning of the $9,750 as it re¬ lates to the desirability of the proposal?AppendixLO1
Two projects have an identical net present value of $5,000. Are both projects equal in desirability?AppendixLO1
What are the major disadvantages of the use of the net pre.sent value method of analyzing capital investment proposals?AppendixLO1
Identify three methods used for allocating factory overhead costs to products.AppendixLO1
Use a single plantwide factory over¬ head rate for product costing.AppendixLO1
Use multiple production department factory overhead rates for product costing.AppendixLO1
Use activity-based costing for product costing.AppendixLO1
Use activity-based costing to allocate selling and administrative expenses to products.AppendixLO1
Use activity-based costing in a service business.AppendixLO1
which of the following statements is most accurate?A. The single plantw ide factory' overhead rate method will usually provide management with accurate product costs.B. Activity-based costing can be used by manage¬ ment to determine accurate profitability for each product.C. The multiple
San Madeo Company had the following factory overhead costs:Power $120,000 Indirect labor 60,000 Equipment depreciation 500,000 The factory is budgeted to work 20,000 direct la¬ bor hours in the upcoming period. San Madeo uses a single plantwide factory overhead rate based on direct labor hours.
Which of the follow ing activity bases would best be used to allocate setup activity to products?A. Number of inspections B. Direct labor hours C. Direct machine hours D. Number of production runs AppendixLO1
Production Department 1 (PDl) and Production Department 2 (PD2) had factory overhead budgets of $26,000 and $48,000, respectively. Each depart¬ ment w'as budgeted for 5,000 direct labor hours of production activity. Product T required 5 direct la¬ bor hours in PDl and 2 direct labor hours in PD2.
The following activity rates are associated with mov¬ ing rail cars by train:$4 per gross ton mile $50 per rail car sw'itch $200 per rail car A train with 20 rail cars traveled 100 miles. Each rail car carried 10 tons of product. Each rail car was switched 2 times. What is the total cost of moving
How does a company use product costing?AppendixLO1
Why would it be appropriate for a company that builds aircraft carriers for the Navy to use a single overhead rate?AppendixLO1
Why would management be concerned about the accuracy of product costs?AppendixLO1
Why is the sum of product costs under alternative factory' ov'erhead cost allo¬ cation methods equal?AppendixLO1
Why w'ould a manufacturing company with multiple production departments still prefer to use a single plantwide overhead rate?AppendixLO1
How do the multiple production department and the single planNvide factoty overhead rate methods differ?AppendixLO1
How are multiple production depanment factory' overhead rates determined?AppendixLO1
How is the allocation base for a production department selected?AppendixLO1
Under what two conditions would the multiple production department factory overhead rate method provide more accurate product costs than the single plantwide factory' overhead rate method?Chapter 25 • Cost Allocation and Activity-Based Costing 1047 AppendixLO1
How does activity-based costing differ from the multiple production department factory overhead rate method?AppendixLO1
Shipping, selling, marketing, sales order processing, return processing, and ad¬ vertising activities can be related to products by using activity-based costing. Would allocating these activities to products for financial statement reporting be acceptable according to GAAP?AppendixLO1
What would happen to net income if the activities noted in Question 11 were al¬ located to products for financial statement reporting and the inventory increased?AppendixLO1
Under what circumstances might the activity-based costing method provide more accurate product costs than the multiple production department factory over¬ head rate method?AppendixLO1
When might activity-based costing be preferred over using a relative amount of product sales in allocating selling and administrative expenses to products?AppendixLO1
How can activity-based costirig be used in service companies?AppendixLO1
How would a telecommunications company use activity-based costing in con¬ ducting profit analysis?AppendixLO1
Describe the nature of the corporate Ji, form of organization.AppendixLO1
List the major sources of paid-in capital, including the various classes of stock.AppendixLO1
Journalize the entries for issuing stock.AppendixLO1
Journalize the entries for treasury stock transactions.AppendixLO1
State the effect of stock splits on corporate financial statements.AppendixLO1
Journalize the entries for cash divi¬ dends and stock dividends.AppendixLO1
Describe and illustrate the reporting of stockholders' equity.AppendixLO1
Compute and interpret the dividend yield on common stock.AppendixLO1
If a corporation has outstanding 1,000 shares of 9% cumulative preferred stock of $100 par and divi¬ dends have been passed for the preceding three years, what is the amount of preferred dividends that must be declareci in the current year before a dividend can be declared on common stock?A. $
Paid-in capital for a corporation may arise from which of the following sources?A. Issuing cumulative preferred stock B. Receiving donations of real estate C. Selling the corporation's treasury stock n. All of the above AppendixLO1
The Stockholders’ Equity section of the balance sheet may include:A. Common Stock B. Stock Divdiends Distributable C. Preferred Stock D. All of the above AppendixLO1
If a corporation reacquires its own stock, the stock is listed on the balance sheet in the:A. Current Assets section.B. Long-Term Liabilities section.C. Stockholders’ Equity section.D. Investments section.Chapter 11 • Corporations: Organization, Capital Stock Transactions, and Dividends 463 A
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