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:
Unit manufacturing costs of the period
Unit operating expenses of the period

____

Variable

Fixed

$12.00
4.00

$5.00
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
Direct labor
Variable factory overhead
Fixed factory overhead

$180,000
240,000
280,000
100,000

$800,000

Operating expenses:
Variable operating expenses
Fixed operating expenses

$130,000
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
Direct labor
Variable factory overhead
Fixed factory overhead

$170,000
340,000
190,000
50,000

$750,000

Operating expenses:
Variable operating expenses
Fixed operating expenses

$ 60,000
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)
Production costs (100 units):
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Operating expenses:
Variable operating expenses
Fixed operating expenses

____

____

$80,000
$50,000
10,000
5,000
2,000

67,000

$ 6,000
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
Material B
Material C

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

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

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

1.00 lb. per unit @ $1.70 per pound
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
Desired inventory (units), April 30
Expected sales volume (units):
Area A
Area B
Area C
Unit sales price

9,000
8,000
3,500
4,750
4,250
$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
Desired inventory (units), July 31
Expected sales volume (units), July

8,500
10,500
76,000

For each unit produced, the direct materials requirements are as follows:
Direct material A ($5 per lb.)
Direct material B ($18 per lb.)

3 lbs.
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
Desired inventory (units), July 31
Expected sales volume (units), July

8,500
10,500
76,000

For each unit produced, the direct materials requirements are as follows:
Direct material A ($5 per lb.)
Direct material B ($18 per lb.)

3 lbs.
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
Actual kilograms of material used
Actual hourly labor rate
Actual hours of production
Standard price per kilogram
Standard kilograms per completed unit
Standard hourly labor rate
Standard time per completed unit
Actual total factory overhead
Fixed factory overhead
Standard fixed factory overhead rate
Standard variable factory overhead rate

$1.96
61,500
$22
8,850
$1.90
3.5 kilograms
$21.00
1/2 hr.
$64,500
$30,000
$6.00 per labor hour
$8.00 per labor hour

Maximum plant capacity

Plant operated during the period
Units completed during the period

10,000 hours
9,000 hours
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
Actual costs

6,000 hours at $12.00

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
Actual kilograms of material used
Actual hourly labor rate
Actual hours of production
Standard price per kilogram
Standard kilograms per completed unit
Standard hourly labor rate
Standard time per completed unit
Actual total factory overhead
Fixed factory overhead
Standard fixed factory overhead rate
Standard variable factory overhead rate
Maximum plant capacity
Plant operated during the period
Units completed during the period

$1.76
61,500
$20.60
8,850
$1.80
5 kilograms
$20.00
3/4 hr.
$64,500
$30,000
$3.00 per labor hour
$5.00 per labor hour
10,000 hours
9,000 hours
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
Actual kilograms of material used
Actual hourly labor rate
Actual hours of production

$3.00
31,000
$18.10
4,900 labor hours

Standard price per kilogram

Standard kilograms per completed unit
Standard hourly labor rate
Standard time per completed unit
Actual total factory overhead
Fixed factory overhead
Standard fixed factory overhead rate
Standard variable factory overhead rate
Maximum plant capacity
Plant operated during the period
Units completed during the period

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

$1.76
61,500
$20.60
8,850
$1.80
5 kilograms
$20.00
3/4 hr.
$64,500
$30,000
$3.00 per labor hour
$5.00 per labor hour
10,000 hours
9,000 hours
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

Actual hourly labor rate
Actual hours of production
Standard price per kilogram
Standard kilograms per completed unit
Standard hourly labor rate
Standard time per completed unit
Actual total factory overhead
Fixed factory overhead
Standard fixed factory overhead rate
Standard variable factory overhead rate
100% of normal capacity
Plant operated during the period
Units completed during the period

____ 31.

____ 32.

____ 33.

____ 34.

31,000
$18.10
4,900 labor hours
$2.80
6 kilograms
$18.00
1 hr.
$34,900
$18,000
$1.20 per labor hour
$3.80 per labor hour
15,000 hours
10,000 hours
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
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
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
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
The following financial information was summarized from the accounting records of Block Corporation for the
current year ended December 31:

Cost of goods sold

Direct operating expenses
Net sales
Interest expense
General overhead
Income tax
The gross profit for the Software Division is:
a. $47,800

Software
Division

Hardware
Division

$47,200
27,200
95,000

$30,720
20,040
64,000

Corporate
Total

$ 2,040
18,160
4,700

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:

Cost of goods sold

Direct operating expenses
Net sales
Interest expense
General overhead
Income tax

____ 36.

____ 37.

____ 38.

____ 39.

____ 40.

Software
Division

Hardware
Division

$47,200
27,200
95,000

$30,720
20,040
64,000

Corporate
Total

$ 2,040
18,160
4,700

The net income for Block Corporation is:

a. $13,640
b. $ 8,940
c. $15,680
d. $10,980
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
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
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
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
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
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