AIM 3341 PRACTICE EXAM III

**NOTE: THIS PRACTICE EXAM SHOULD ONLY BE USED AS AN ADDITIONAL

STUDY AID AND NOT THE PRIMARY STUDY AID. YOU SHOULD MEMORIZE
YOUR NOTES IN ORDER TO PERFORM SUCCESSFULLY ON THE M/C QUESTIONS,
AND YOU SHOULD UNDERSTAND HOW TO WORK ALL OF THE ASSIGNED
PROBLEMS. THE WORKOUT PROBLEMS ON YOUR EXAM WILL BE SIMILAR IN
FORMAT TO THE HOMEWORK PROBLEMS. GOOD LUCK!!!**
Chapter 7:
1.

Flexible budgets
a.
b.
c.
d.

Accommodate changes in the inflation rate.

Accommodate changes in activity levels.
Are used to evaluate capacity utilization.
Are static budgets that have been revised for changes in prices.

2. The following information is available for the XYZ Company for the month of July:
Static Budget
Units
5,000
Sales revenue
$60,000
Variable manufacturing costs
$15,000
Fixed manufacturing costs
$18,000
Variable marketing and administrative expense $10,000
Fixed marketing and administrative expense
$12,000
The total sales-volume variance for the month of July would be
a.
b.
c.
d.

$2,550U
$1,350U
$700F
$100F

Actual
5,100
$58,650
$16,320
$17,000
$10,500
$11,000

3. Bartholomew Corporations master budget calls for the production of 6,000 units of
product monthly. The master budget includes indirect labor of $396,000 annually;
Bartholomew considers indirect labor to be a variable cost. During the month of
September, 5,600 units of product were produced, and indirect labor costs of
$30,970 were incurred. A performance report utilizing flexible budgeting would
report a flexible budget variance for indirect labor of
a.
b.
c.
d.

$170U
$170F
$2,030U
$2,030F

4. Information on Pruitt Companys direct materials costs for the month of July 2003
was as follows:
Actual quantity purchased
Actual unit purchase price
Materials purchase-price variance
Unfavorable (based on purchases)
Standard quantity allowed for actual production
Actual quantity used

30,000 units
$2.75
$1,500
24,000 units
22,000 units

For July 2003 there was a favorable direct-materials efficiency variance of

a.
b.
c.
d.

$7,950
$5,500
$5,400
$5,600

5. Information for Garner Companys direct labor costs for the month of September
2003 was as follows:
Actual direct-labor hours
Standard direct-labor hours
Total direct-labor payroll
Direct-labor efficiency variancefavorable

34,500 hours
35,000 hours
$241,500
$3,200

What is Garners direct-labor price (or rate) variance?

a.
b.
c.
d.

$21,000F
$21,000U
$17,250U
$20,700U

6. Performance evaluation using variance analysis should guard against

a.
b.
c.
d.

Emphasis on a single performance measure.

Emphasis on total company objectives.
Basing effect of a managers action on total costs of the company as a whole.
Highlighting individual aspects of performance.

Chapter 8:
1.

Which of the following pertains primarily to the planning of fixed overhead costs?
a.
b.
c.
d.

A standard rate per output unit is developed.

Only essential activities are to be undertaken.
Activities are to be undertaken in most efficient method.
Decisions are made at the start of the budget period determining the costs.

2. A feature of a standard-costing system is that the costs of every product or service

planned to be worked on during the period can be computed at the start of that
period. This feature of standard costing makes it possible to
a.
b.
c.
d.

Maintain actual costs as an integral part of the costing system.

Use a simple recording system.
Eliminate routine reports.
Justify eliminating the budgeting process.

The following data apply to questions 39.

Sebastian Company, which manufactures electrical switches, uses a standard cost
system and carries all inventories at standard. The standard manufacturing overhead
costs per switch are based on direct labor hours and are shown below:

Variable overhead (5 hours @ $12 per direct manufacturing labor hour) $ 60

Fixed overhead (5 hours @ $15* per direct manufacturing labor hour)
75
Total overhead per switch
$135
*Based on capacity of 200,000 direct manufacturing labor hours per month.
The following information is available for the month of December:

46,000 switches were produced although 40,000 switches were scheduled.

225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000.

Variable manufacturing overhead costs were $2,750,000.

Fixed manufacturing overhead costs were $3,050,000.

3. The variable overhead spending variance for December was

a.
b.
c.
d.

$50,000 U
$350,000 U
$10,000 F
$60,000 F

4. The variable manufacturing overhead efficiency variance for December was

a.
b.
c.
d.

$50,000 U
$350,000 U
$10,000 F
$60,000 F

5. The fixed manufacturing overhead spending variance for December was

a.
b.
c.
d.

$450,000 F
$400,000 F
$50,000 U
$775,000 F

6. The fixed overhead production volume variance for December was

a.
b.
c.
d.

$450,000 F
$400,000 F
$50,000 U
$775,000 F

7. What amount should be credited to the allocated manufacturing overhead control

account for the month of December?
a.
b.
c.
d.

$6,210,000
$5,800,000
$5,760,000
$5,700,000

8. Under the 2-variance method, the flexible budget variance for December was
a.
b.
c.
d.

$10,000 F
$40,000 U
$50,000 U
$100,000 U

9. Under the 3-variance method, the spending variance for December was
a.
b.
c.
d.

$10,000 F
$40,000 U
$50,000 U
$100,000 U

Chapter 9:
1. The main difference between variable costing and absorption costing is
a.
b.
c.
d.

The treatment of nonmanufacturing costs.

The accounting for variable manufacturing costs.
The accounting for fixed manufacturing costs.
Their value for decision makers.

The following data apply to questions 2 and 3.

Alvin Inc. planned and actually manufactured 200,000 units of its single product in 2001,
its first year of operations. Variable manufacturing costs were $30 per unit of product.
Planned and actual fixed manufacturing costs were $600,000, and marketing and
administrative costs totaled $400,000 in 2001. Alvin sold 120,000 units of product in
2001 at a selling price of $40 per unit.
2. Alvins 2001 operating income using variable costing is
a.
b.
c.
d.

$800,000
$600,000
$440,000
$200,000

3. Alvins 2001 operating income using absorption costing is

a.
b.
c.
d.

$840,000
$800,000
$440,000
$200,000

4. Operating income under variable costing compared to absorption costing is higher

a. When the quantity of beginning inventory equals the quantity of ending inventory.
b. When the quantity of beginning inventory is more than the quantity of ending
inventory.
c. When the quantity of beginning inventory is less than the quantity of ending
inventory.
d. Under no circumstances.

5. The proponents of throughput costing

a. Maintain that variable costing undervalues inventories.
b. Maintain that it provides more incentive to produce for inventory than do either
variable or absorption costing.
c. Argue that only direct materials and direct labor are truly variable and all
indirect manufacturing costs be written off in the period in which they are
incurred.
d. Treat all costs except those related to variable direct materials as costs of the
period in which they are incurred.

6. The absolute minimum absorption-inventory cost that would be reported under the
best conceivable operating conditions is a description of which type of denominatorlevel concept cost?
a.
b.
c.
d.

Master-budget utilization
Practical capacity
Theoretical capacity
Normal utilization

7. Use of capacity levels based on demand

a.
b.
c.
d.

Hides the amount of unused capacity.

Highlights the cost of capacity acquired but not used.
Yields a cost rate that does not include a charge for unused capacity.
Results in a price that covers the cost of capacity customers expect to pay.

8. A company may experience the downward demand spiral when

a. The use of theoretical capacity as a denominator-level has contributed to budgets
that project sales to be higher than actually attainable.
b. Spreading capacity costs over a small number of units and setting selling prices
even higher to recover those costs.
c. Engaged in a cyclical business and after experiencing an upturn.
d. The production-volume variance is unfavorable each time period during a year.