Introduction to Accounting and Financial Reporting ACCTG 225 Section A Exam 2 TRUE/FALSE. (2 points each) Write ‘True’ if the statement is true and ‘False’ if the statement is false. 1) The direct labor rate variance is calculated by multiplying the standard hours that should have been worked for the actual output by the difference between the standard labor rate and the actual labor rate. 2) The sales budget must be prepared after every other component of the operating budget. 3) Standard costs for production inputs are used to develop flexible budgets. 4) If the actual number of units produced is less than the number of units budgeted to produced, then the fixed overhead volume variance will always be unfavorable. 5) Up-to-date standard costs provide a benchmark by which to evaluate actual costs and operations. 6) For retailers and service companies without inventory, operating income is different if an absorption income statement or a contribution margin income statement is prepared. 7) If the number of units produced equals the number of units sold for a manufacturer, both variable costing and absorption costing income statements will yield the same gross margin. 8) Under absorption costing, all nonmanufacturing costs are treated as period costs. 9) Both the static budget and the flexible budget used for performance evaluation are developed before the period of actual production. 10) A company’s plan to purchase property, plant, equipment, and other long-term assets is part of the budgeted balance sheet. MULTIPLE CHOICE. (2 points each) Circle the one alternative that best completes the statement or answers the question. 11) The HF Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year. Selling price per unit $8.00 Variable manufacturing costs per unit $1.83 Variable selling and administrative expenses per unit $4.45 Fixed manufacturing overhead (in total) $75,000 Fixed selling and administrative expenses (in total) $80,000 Units produced during the year 500,000 Units sold during the year 150,000 Using absorption costing, what is gross profit for last year? A) $903,000 B) $1,497,000 C) $1,200,000 D) $3,703,000 12) By increasing ________, a manager can increase operating income under absorption costing. A) variable costs B) fixed costs C) production D) leased assets 13) Which of the following statements is true concerning income if production exceeds units sold? A) A higher operating income will result under a variable costing income statement. B) A lower operating income will result under an absorption costing income statement. C) A higher operating income will result under an absorption costing income statement. D) The same operating income will result under both a variable costing and absorption costing income statement. 14) The direct materials flexible budget variance can be divided into which of the following two variances? A) Price variance and the rate variance B) Price variance and the standard variance C) Price variance and the quantity variance D) Quantity variance and the efficiency variance 15) Shamrock Manufacturing budgeted fixed overhead costs of $2.75 per unit at an anticipated production level of 1,350 units. In July Shamrock incurred actual fixed overhead costs of $4,400 and actually produced 1,300 units. What is Shamrock’s fixed overhead volume variance in July? A) $137.50 favorable B) $137.50 unfavorable C) $687.50 favorable D) $687.50 unfavorable 16) With ________, managers look at the size of the variances between actual results and budgeted amounts to determine which variances a manager should investigate. A) management by variance B) management by budget C) management by decision D) management by exception 17) DOT Safety Systems manufactures motorcycle helmets. What is the standard quantity of material used to manufacture each helmet if the material required is 1.2 pounds, and DOT allows for .25 pounds of waste and .35 pounds of rejected material? A) 1.80 pounds B) 1.45 pounds C) 1.55 pounds D) 1.20 pounds 18) Summer Nights sells bottles of bug spray for $6.50 each. Variable costs are $3.00 per bottle, while fixed costs are $44,000 per month for volumes up to 30,000 bottles of spray and $54,000 per month for volumes above 30,000 bottles of spray. The flexible budget would reflect monthly operating income for 19,000 bottles of lotion and 24,000 bottles of lotion of what dollar amounts? A) $79,500 and $40,000, respectively B) $22,500 and $40,000, respectively C) $123,500 and $156,000, respectively D) $12,500 and $102,000, respectively 19) The Standard Quantity (SQ) of direct materials is calculated as A) the budgeted quantity of units less the Standard Quantity (SQ) of units. B) the Standard Quantity (SQ) of input per unit times the number of units budgeted. C) the number of units actually made times the direct materials price standard. D) the Standard Quantity (SQ) of input per unit times the number of units actually made. 20) The entry to allocate manufacturing overhead costs to production involves which of the following? A) Debit to work in process inventory for the actual cost of overhead B) Credit to work in process inventory for the standard rate of overhead times the standard quantity of the allocation base allowed for actual output C) Credit to work in process inventory for the actual cost of overhead D) Debit to work in process inventory for the standard rate of overhead credit 21) What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing? A) Absorption costing expenses all costs, whether fixed or variable. B) Absorption costing “inventories” all fixed manufacturing costs. C) Absorption costing “inventories” all direct manufacturing costs. D) Absorption costing “inventories” all fixed manufacturing and period costs. 22) A company receives an unusually high number of orders in a month. To produce all of the orders within the scheduled dates of delivery, the company pays employees an extra $8 per hour for every hour of overtime the employees work. Which of the following variances may be directly impacted? A) Direct materials price variance B) Direct materials quantity variance C) Direct labor efficiency variance D) Direct labor rate variance 23) The managerial accountant at Space Right Office Cubicles calculates fixed overhead variances to complete the August report. The actual fixed overhead cost in the month of August was $56,400 and the budgeted fixed overhead cost was $58,100. The standard hours in August were 3,200 and the standard rate per machine-hour was $18. Calculate the standard fixed overhead cost allocated to production, the fixed overhead budget variance, and the fixed overhead volume variance. A) $58,100;$2,200 U;$1,200 F B) $56,400;$1,300 U; $1,700 F C) $57,600;$1,700 U;$500 F (should have been 57,600, $1,700F, $500U) D) $52,300;$1,200 U;$1,700 F 24) The ________ is the optimum budget to managers that plan revenues and expenses at different sales volumes. A) flexible budget B) capital budget C) static budget D) master budget 25) Jackson Industries has collected the following data for one of its products: Direct materials standard (6 pounds per unit @ $0.55/lb.) $3.30 per finished good Direct materials spending variance-unfavorable $12,000 Actual Direct Materials Used (AQU) 35,000 pounds Actual finished goods produced 26,000 units What is the total actual cost of the direct materials used? A) $19,250 B) $73,800 C) $97,800 D) $85,800
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