Study Guide for Managerial Exam 2

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 1. What term is commonly used to describe the concept whereby the cost of manufactured products is composed of
direct materials cost, direct labor cost, and factory overhead cost?
a. Standard costing
b. Variable costing
c. Absorption costing
d. Direct costing
____ 2. Under absorption costing, which of the following costs would not be included in finished goods inventory?
a. Hourly wages of assembly worker
b. Straight-line depreciation on factory equipment
c. Overtime wages paid factory workers
d. Advertising costs for a furniture manufacturer
____ 3. Which of the following would be included in the cost of a product manufactured according to variable costing?
a. Sales commissions
b. Property taxes on factory buildings
c. Interest expense
d. Direct materials
____ 4. The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data
are also available:

Variable Fixed
Unit manufacturing costs of the period $12.00 $5.00
Unit operating expenses of the period 4.00 1.50

What would be the effect on income from operations if absorption costing is used rather than variable costing?
a. $40,000 decrease
b. $40,000 increase
c. $44,000 increase
d. $52,000 increase
____ 5. A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (20,000 units):

Direct materials $180,000
Direct labor 240,000
Variable factory overhead 280,000
Fixed factory overhead 100,000 $800,000

Operating expenses:
Variable operating expenses $130,000
Fixed operating expenses 50,000 180,000

If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on
the variable costing balance sheet?
a. $64,000
b. $56,000
 c. $66,400
d. $68,000
____ 6. A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (10,000 units):

Direct materials $170,000
Direct labor 340,000
Variable factory overhead 190,000
Fixed factory overhead 50,000 $750,000

Operating expenses:
Variable operating expenses $ 60,000
Fixed operating expenses 18,000 78,000

If 300 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the
variable costing balance sheet?
a. $22,500
b. $21,000
c. $23,040
d. $24,300
____ 7. A business operated at 100% of capacity during its first month, with the following results:

Sales (80 units) $80,000

Production costs (100 units):
Direct materials $50,000
Direct labor 10,000
Variable factory overhead 5,000
Fixed factory overhead 2,000 67,000
Operating expenses:
Variable operating expenses $ 6,000
Fixed operating expenses 1,000 7,000

What is the amount of the income from operations that would be reported on the absorption costing income
statement?
a. $21,000
b. $19,400
c. $22,000
d. $28,000
____ 8. The relative distribution of sales among various products sold is referred to as the:
a. by-product mix
b. joint product mix
c. profit mix
d. sales mix
____ 9. Management should concentrate its sales and production efforts on the product or products with:
a. the highest sales
b. the lowest costs
c. the highest contribution margin
d. the highest contribution margin per unit
____ 10. If variable selling and administrative expenses totaled $120,000 for the year (80,000 units at $1.50 each) and the
planned variable selling and administrative expenses totaled $120,900 (78,000 units at $1.55 each), the effect of
the quantity factor on the change in variable selling and administrative expenses is:
a. $900 decrease
b. $3,100 decrease
c. $4,000 decrease
d. $3,100 increase
____ 11. The benefits of comparing actual performance of the operations against planned goals include all of the following
except:
a. providing prompt feedback to employees about their performance relative to the goal
b. preventing unplanned expenditures
c. helping to establish spending priorities
d. determining how managers are performing against prior years' actual operating results
____ 12. McCabe Manufacturing Co.'s static budget at 8,000 units of production includes $40,000 for direct labor and
$4,000 for electric power. Total fixed costs are $23,000. At 9,000 units of production, a flexible budget would
show:
a. variable costs of $49,500 and $25,875 of fixed costs
b. variable costs of $44,000 and $23,000 of fixed costs
c. variable costs of $49,500 and $23,000 of fixed costs
d. variable and fixed costs totaling $75,375
____ 13. Christiansen and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000
for direct labor, utilities of $5,000, and supervisor salaries of $15,000. A flexible budget for 12,000 units of
production would show:
a. the same cost structure in total
b. direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor
salaries of $18,000
c. total variable costs of $136,800
d. direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor
salaries of $15,000
____ 14. A series of budgets for varying rates of activity is termed a(n):
a. flexible budget
b. variable budget
c. master budget
d. activity budget
____ 15. For February, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000;
advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are
$2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of February are:
a. $185,650
b. $189,500
c. $196,100
d. $230,600
____ 16. Mancini Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units,
estimated beginning inventory is 108,000 units, and desired ending inventory is 90,000 units. The quantities of
direct materials expected to be used for each unit of finished product are given below.

Material A .50 lb. per unit @ $ .60 per pound

Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound

The amount of direct material A purchased during the year is:

 a. $186,600
b. $181,200
c. $240,000
d. $210,600
____ 17. Mancini Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units,
estimated beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of
direct materials expected to be used for each unit of finished product are given below.

Material A .50 lb. per unit @ $ .60 per pound

Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound

The amount of direct material B purchased during the year is:

a. $1,057,400
b. $1,193,400
c. $1,026,800
d. $1,224,000
____ 18. If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 200 units, and
the beginning inventory is 300 units, the number of units set forth in the production budget, representing total
production for the current period, is:
a. 7,000
b. 6,900
c. 7,100
d. 7,200
____ 19. Production and sales estimates for April are as follows:

Estimated inventory (units), April 1 9,000

Desired inventory (units), April 30 8,000
Expected sales volume (units):
Area A 3,500
Area B 4,750
Area C 4,250
Unit sales price $20

The budgeted total sales for April is:

a. $200,000
b. $230,000
c. $270,000
d. $250,000
____ 20. Production estimates for July are as follows:

Estimated inventory (units), July 1 8,500

Desired inventory (units), July 31 10,500
Expected sales volume (units), July 76,000

For each unit produced, the direct materials requirements are as follows:

Direct material A ($5 per lb.) 3 lbs.

Direct material B ($18 per lb.) 1/2 lb.
 The number of pounds of materials A and B required for July production is:
a. 216,000 lbs. of A; 36,000 lbs. of B
b. 216,000 lbs. of A; 72,000 lbs. of B
c. 234,000 lbs. of A; 39,000 lbs. of B
d. 225,000 lbs. of A; 37,500 lbs. of B
____ 21. Production estimates for July are as follows:

Estimated inventory (units), July 1 8,500

Desired inventory (units), July 31 10,500
Expected sales volume (units), July 76,000

For each unit produced, the direct materials requirements are as follows:

Direct material A ($5 per lb.) 3 lbs.

Direct material B ($18 per lb.) 1/2 lb.

The total direct materials purchases of materials A and B required for July production is:
a. $1,080,000 for A; $648,000 for B
b. $1,080,000 for A; $1,296,000 for B
c. $1,170,000 for A; $702,000 for B
d. $1,125,000 for A; $675,000 for B
____ 22. O'Neill Co. has $296,000 in accounts receivable on January 1, 2000. Budgeted sales for January are $860,000.
O'Neill expects to sell 20% of its merchandise for cash. Of the remaining 80% of sales on account, 75% are
expected to be collected in the month of sale and the remainder the following month. The January cash collections
from sales are:
a. $812,000
b. $688,000
c. $468,000
d. $984,000
____ 23. The standard price and quantity of direct materials are separated because:
a. GAAP reporting requires this separation
b. direct materials prices are controlled by the purchasing department, and quantity used is
controlled by the production department
c. standard quantities are more difficult to estimate than standard prices
d. standard prices change more frequently than standard quantities
____ 24. Agnew Corporation uses a standard cost system. The following information was provided for the period that just
ended:

Actual price per kilogram $1.96

Actual kilograms of material used 61,500
Actual hourly labor rate $22
Actual hours of production 8,850
Standard price per kilogram $1.90
Standard kilograms per completed unit 3.5 kilograms
Standard hourly labor rate $21.00
Standard time per completed unit 1/2 hr.
Actual total factory overhead $64,500
Fixed factory overhead $30,000
Standard fixed factory overhead rate $6.00 per labor hour
Standard variable factory overhead rate $8.00 per labor hour
 Maximum plant capacity 10,000 hours
Plant operated during the period 9,000 hours
Units completed during the period 18,000

The direct materials quantity variance is:

a. $2,850 favorable
b. $2,940 favorable
c. $2,940 unfavorable
d. $2,850 unfavorable
____ 25. The following data relate to direct labor costs for the current period:

Standard costs 6,000 hours at $12.00

Actual costs 7,500 hours at $11.60

What is the direct labor rate variance?

a. $15,000 unfavorable
b. $3,000 favorable
c. $17,400 unfavorable
d. $2,400 favorable
____ 26. Agnew Corporation uses a standard cost system. The following information was provided for the period that just
ended:

Actual price per kilogram $1.76

Actual kilograms of material used 61,500
Actual hourly labor rate $20.60
Actual hours of production 8,850
Standard price per kilogram $1.80
Standard kilograms per completed unit 5 kilograms
Standard hourly labor rate $20.00
Standard time per completed unit 3/4 hr.
Actual total factory overhead $64,500
Fixed factory overhead $30,000
Standard fixed factory overhead rate $3.00 per labor hour
Standard variable factory overhead rate $5.00 per labor hour
Maximum plant capacity 10,000 hours
Plant operated during the period 9,000 hours
Units completed during the period 12,000

The direct labor time variance is:

a. $3,000 favorable
b. $5,310 favorable
c. $5,310 unfavorable
d. $3,000 unfavorable
____ 27. Frogue Corporation uses a standard cost system. The following information was provided for the period that just
ended:

Actual price per kilogram $3.00

Actual kilograms of material used 31,000
Actual hourly labor rate $18.10
Actual hours of production 4,900 labor hours
 Standard price per kilogram $2.80
Standard kilograms per completed unit 6 kilograms
Standard hourly labor rate $18.00
Standard time per completed unit 1 hr.
Actual total factory overhead $34,900
Fixed factory overhead $18,000
Standard fixed factory overhead rate $1.20 per labor hour
Standard variable factory overhead rate $3.80 per labor hour
Maximum plant capacity 15,000 hours
Plant operated during the period 10,000 hours
Units completed during the period 5,000

The direct labor cost variance is:

a. $1,310 favorable
b. $2,290 favorable
c. $1,310 unfavorable
d. $2,290 unfavorable
____ 28. The cost of available but unused productive capacity is indicated by the:
a. factory overhead cost volume variance
b. direct labor cost time variance
c. direct labor cost rate variance
d. factory overhead cost controllable variance
____ 29. Agnew Corporation uses a standard cost system. The following information was provided for the period that just
ended:

Actual price per kilogram $1.76

Actual kilograms of material used 61,500
Actual hourly labor rate $20.60
Actual hours of production 8,850
Standard price per kilogram $1.80
Standard kilograms per completed unit 5 kilograms
Standard hourly labor rate $20.00
Standard time per completed unit 3/4 hr.
Actual total factory overhead $64,500
Fixed factory overhead $30,000
Standard fixed factory overhead rate $3.00 per labor hour
Standard variable factory overhead rate $5.00 per labor hour
Normal capacity 10,000 hours
Plant operated during the period 9,000 hours
Units completed during the period 12,000

The total factory overhead cost variance is:

a. $10,500 favorable
b. $7,500 favorable
c. $7,500 unfavorable
d. $10,500 unfavorable
____ 30. Frogue Corporation uses a standard cost system. The following information was provided for the period that just
ended:

Actual price per kilogram $3.00

 Actual kilograms of material used 31,000
Actual hourly labor rate $18.10
Actual hours of production 4,900 labor hours
Standard price per kilogram $2.80
Standard kilograms per completed unit 6 kilograms
Standard hourly labor rate $18.00
Standard time per completed unit 1 hr.
Actual total factory overhead $34,900
Fixed factory overhead $18,000
Standard fixed factory overhead rate $1.20 per labor hour
Standard variable factory overhead rate $3.80 per labor hour
100% of normal capacity 15,000 hours
Plant operated during the period 10,000 hours
Units completed during the period 5,000

The total factory overhead cost variance is:

a. $3,900 favorable
b. $8,100 favorable
c. $8,100 unfavorable
d. $9,900 unfavorable
____ 31. In a cost center, the manager has responsibility and authority for making decisions that affect:
a. revenues
b. assets
c. both costs and revenues
d. costs
____ 32. Income from operations of the Commercial Aviation Division is $2,225,000. If income from operations before
service department charges is $3,250,000:
a. operating expenses are $1,025,000
b. total service department charges are $1,025,000
c. noncontrollable charges are $1,025,000
d. direct manufacturing charges are $1,025,000
____ 33. The costs of services charged to a profit center on the basis of its use of those services are called:
a. operating expenses
b. noncontrollable charges
c. service department charges
d. activity charges
____ 34. The following financial information was summarized from the accounting records of Block Corporation for the
current year ended December 31:

Software Hardware Corporate

Division Division Total
Cost of goods sold $47,200 $30,720
Direct operating expenses 27,200 20,040
Net sales 95,000 64,000
Interest expense $ 2,040
General overhead 18,160
Income tax 4,700

The gross profit for the Software Division is:

a. $47,800
 b. $20,600
c. $13,240
d. $33,280
____ 35. The following financial information was summarized from the accounting records of Block Corporation for the
current year ended December 31:

Software Hardware Corporate

Division Division Total
Cost of goods sold $47,200 $30,720
Direct operating expenses 27,200 20,040
Net sales 95,000 64,000
Interest expense $ 2,040
General overhead 18,160
Income tax 4,700

The net income for Block Corporation is:

a. $13,640
b. $ 8,940
c. $15,680
d. $10,980
____ 36. In an investment center, the manager has responsibility and authority for making decisions that affect:
a. costs
b. revenues
c. assets
d. costs, revenues, and assets
____ 37. Identify the formula for the rate of return on investment.
a. Invested Assets/Income From Operations
b. Sales/Invested Assets
c. Income From Operations/Sales
d. Income From Operations/Invested Assets
____ 38. Which of the following expressions is termed the investment turnover factor as used in determining the rate of
return on investment?
a. Invested Assets/Sales
b. Income From Operations/Invested Assets
c. Income From Operations/Sales
d. Sales/Invested Assets
____ 39. Assume that Division P has achieved income from operations of $165,000 using $900,000 of invested assets. If
management desires a minimum rate of return of 8%, the residual income is:
a. $72,000
b. $13,200
c. $185,000
d. $93,000
____ 40. Division W of Comer Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of
$43,000, and invested assets of $100,000. What is the rate of return on investment for Division W?
a. 14%
b. 2.8%
c. 10%
d. 5.47%
 Managerial Exam 2
Answer Section

MULTIPLE CHOICE

1. ANS: C DIF: 1 OBJ: 01

2. ANS: D DIF: 5 OBJ: 01
3. ANS: D DIF: 5 OBJ: 01
4. ANS: B DIF: 3 OBJ: 02
5. ANS: B DIF: 3 OBJ: 02
6. ANS: B DIF: 3 OBJ: 02
7. ANS: B DIF: 3 OBJ: 02
8. ANS: D DIF: 1 OBJ: 03
9. ANS: D DIF: 5 OBJ: 03
10. ANS: D DIF: 3 OBJ: 03
11. ANS: D DIF: 5 OBJ: 01
12. ANS: C DIF: 3 OBJ: 02
13. ANS: D DIF: 3 OBJ: 02
14. ANS: A DIF: 1 OBJ: 02
15. ANS: D DIF: 3 OBJ: 02
16. ANS: A DIF: 3 OBJ: 04
17. ANS: A DIF: 3 OBJ: 04
18. ANS: B DIF: 3 OBJ: 04
19. ANS: D DIF: 3 OBJ: 04
20. ANS: C DIF: 3 OBJ: 04
21. ANS: C DIF: 3 OBJ: 04
22. ANS: D DIF: 3 OBJ: 05
23. ANS: B DIF: 1 OBJ: 02
24. ANS: A DIF: 3 OBJ: 03
25. ANS: B DIF: 3 OBJ: 04
26. ANS: A DIF: 3 OBJ: 04
27. ANS: A DIF: 3 OBJ: 04
28. ANS: A DIF: 1 OBJ: 05
29. ANS: B DIF: 3 OBJ: 05
30. ANS: D DIF: 3 OBJ: 05
31. ANS: D DIF: 1 OBJ: 02
32. ANS: B DIF: 3 OBJ: 03
33. ANS: C DIF: 1 OBJ: 03
34. ANS: A DIF: 3 OBJ: 03
35. ANS: B DIF: 3 OBJ: 03
36. ANS: D DIF: 1 OBJ: 04
37. ANS: D DIF: 1 OBJ: 04
38. ANS: D DIF: 1 OBJ: 04
39. ANS: D DIF: 3 OBJ: 04
40. ANS: A DIF: 3 OBJ: 04