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Solutions to Multi-Choice Problems for Practice Final Use the following information to answer 1- The following are budgeted data for the Bingham Company, a merchandising company: Budget Sales (at Retail) January $ 300, February 340, March 400, April 350, Cost of goods sold as a percentage of sales is 60%. The desired ending inventory is 75% of next month’s sales. _____1. Assuming that the Bingham Company had inventory on hand of $70,000 (at cost) on January 1, the purchases for January (at cost) would be: A) $180, B) $250, C) $263, D) $110, Budgeted cost of goods sold: ($300,000 x 60%) $ 180, Add desired ending inventory: ($340,000 x 75% x 60%) 153, Total Needs 335, Less beginning inventory <70,000> Required Purchases $ 263, _____2. The desired ending inventory (at cost) for the month of February would be: A) $180, B) $300, C) $240, D) $160, Desired ending inventory = 400,000 x 75% x 60% = 180, _____3. Assume that all purchases are paid for in the month following the month of purchase. The cash disbursements for purchases that would appear in the April cash budget would be: A) $180,
B) $157,
C) $240,
D) $217,
April cash disbursements = Cost Goods Sold-March + March-end inv
- March-beg inv* = (400,000 x 60%) + (350,000 x 75% x 60%)
- 180, = 240,000 + 157,500 - 180, = 217,
- From #2 above Beg Inv for March = 400,000 x 75% x 60% = 180, ________ 4. Actual sales in Ward Company were $30,000 in June, $50,000 in July, and $70,000 in August. Budgeted sales in September are $60,000. Thirty percent of a month’s sales are collected in the month of sale, 50% in the first month after sale, 15% in the second month after sale, and the remaining 5% are uncollectible. Budgeted cash receipts for September should be: A) $60, B) $62, C) $57, D) $70, September Sales ($60,000 x 30%) $ 18, August Sales ($70,000 x 50%) 35, July Sales ($50,000 x 15%) 7, Total Cash Sales $ 60, ________ 5. Archer Company has budgeted sales of 30,000 units in April, 40,000 units in May, and 60,000 units in June. The company has 6,000 units on hand on April 1. If the company requires an ending inventory equal to 20% of the following month’s sales, production during May should be: A) 32,000 units B) 44,000 units C) 36,000 units D) 40,000 units Budgeted Sales $ 40, Desired ending inventory (20% x 60,000) 12, Total Needs 52, Less: begin inventory (20% x 40,000) <8,000> Required Production $ 44,
_____8. The division’s turnover is closest to: A) 2. B) 13. C) 0. D) 2. Turnover = Sales Average operating assets = 17,340, 6,000, = 2. _____9. The division’s return on investment (ROI) is closest to: A) 1.5% B) 20.8% C) 5.3% D) 17.2% ROI = Margin x Turnover = 7.2 % x 2. = 20.81 % _____ 10. During the month of May, Domino Manufacturing Corporation purchased materials that had a total standard cost of $57,000. The Materials Price Variance on these materials was $3,000 favorable. What summary journal entry would Domino make to record this purchase and variance for May? Debit Credit A Work in Process 57, Materials Price Variance 3, Raw Materials 60, B Work in Process 54, Materials Price Variance 3, Raw Materials 57, C Raw Materials 57, Materials Price Variance 3, Accounts Payable 54, D Raw Materials 57, Materials Price Variance 3, Accounts Payable 60, A) A above
B) B above C) C above D) D above ________ 11. During June, Bradley Company produced 4,000 units of product. The standard cost card indicates the following labor standards per unit of output: 3.5 hours at $6 per hour = $21. During the month, the company worked 15,000 hours. The standard hours allowed for the month were: A) 14,000 hours B) 15,000 hours C) 24,000 hours D) 18,000 hours The computation is: 4,000 units x 3.5 hours per unit = 14,000 standard hours _______ 12. Refer to the data in question 8 above. What is the labor efficiency variance for June? (F indicates a favorable variance and U indicates an Unfavorable variance). A) $1,000 F B) $1,000 U C) $6,000 F D) $6,000 U Efficiency Variance = SR (AH – SH) = $6 (15,000 – 14,000) = $6,000 U ________ 13. Refer to the data in question 8 above. The total labor cost during June was $88,000 for the 15,000 hours that were worked. What is the labor rate variance for June? A) $6,000 F B) $6,000 U C) $2,000 F D) $2,000 U Rate Variance = (AH x AR) – (AH - SR) = ($88,000) – (15,000 x $6) = $2,000 F ______ 14. One of Simplex Company’s products has a contribution margin of $50, and fixed costs totaling $60,000. If the product is dropped, $40,000 of the fixed costs will
Fixed selling and admin. Costs 3. There is ample idle capacity to produce the special order without any increase in total fixed costs. The variable selling costs on the special order would be $0.15 per unit instead of $0.75 per unit. The special order would have no impact on the company’s other sales. What effect would accepting this special order have on the company’s net operating income? A) $ 1,850 increase B) $ 1,850 decrease C) $ 4,550 increase D) $ 4,550 decrease Incremental revenue ($9.95 x 1,000) $ 9, Incremental costs: Variable production ($5.25 x 1,000) <5,250> Variable selling ($0.15 x 1,000) <150> Increase in operating income $ 4,
