Business Multiple Choice Question -A static budget should be compared

Business Multiple Choice Question -A static budget  should be compared

Subject: Business    / General Business
Question
Multiple Choice (3 points each)
1. A static budget:
A. should be compared to actual costs to assess how well costs were controlled.
B. should be compared to a flexible budget to assess how well costs were controlled.
C. is valid for only one level of activity.
D. represents the best way to set spending targets for managers. Nussey Clinic uses client-visits as its measure of activity. During May, the clinic budgeted for 2,100
client-visits, but its actual level of activity was 2,050 client-visits. The clinic has provided the
following data concerning the formulas used in its budgeting and its actual results for May:
Data used in budgeting: Actual results for May:

2. The revenue variance for May would be closest to:
A. $1,040 F
B. $1,040 U
C. $960 F
D. $960 U

3. The spending variance for medical supplies in May would be closest to:
A. $200 F
B. $200 U
C. $195 F
D. $195 U

4. The materials quantity variance should be computed:
A. when materials are purchased.
B. based upon the amount of materials used in production.
C. based upon the difference between the actual and standard prices per unit times the actual quantity
used.
D. only when there is a difference between standard and actual cost per unit for the materials.

Kibodeaux Corporation makes a product with the following standard costs: The company budgeted for production of 3,300 units in June, but actual production was 3,400 units.
The company used 33,240 liters of direct material and 320 direct labor-hours to produce this output.
The company purchased 35,900 liters of the direct material at $4.90 per liter. The actual direct labor
rate was $22.70 per hour and the actual variable overhead rate was $2.70 per hour.
The company applies variable overhead on the basis of direct labor-hours. The direct materials
purchases variance is computed when the materials are purchased.

5. The variable overhead efficiency variance for June is:
A. $54 F
B. $54 U
C. $60 F
D. $60 U

6. The variable overhead rate variance for June is:
A. $96 U
B. $102 F
C. $96 F
D. $102 U

7. The purpose of the Data Processing Department of Falena Corporation is to assist the various
departments of the corporation with their information needs free of charge. The Data
Processing Department would best be evaluated as a:
A. cost center.
B. revenue center.
C. profit center.
D. investment center.

8. If the internal rate of return is used as the discount rate in computing net present value, the
net present value will be:
A. positive.
B. negative.
C. zero.
D. unknown.

Payne Company makes two products, M and N, in a joint process. At the split-off point, 40,000 units of
M and 50,000 units of N are available each month. Monthly joint production costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be sold at the splitoff point for $3.20 per unit or it can be processed further and sold for $6.30 per unit. If N is processed
further, additional processing costs of $2.50 per unit will be incurred.

9. If N is processed further and then sold, rather than being sold at the split-off point, the
change in monthly operating income would be a:
A. $30,000 increase
B. $315,000 increase
C. $155,000 increase
D. $125,000 decrease Dodrill Company makes two products from a common input. Joint processing costs up to the split-off
point total $43,200 a year. The company allocates these costs to the joint products on the basis of their
total sales values at the split-off point. Each product may be sold at the split-off point or processed
further. Data concerning these products appear below:

10. What is the net monetary advantage (disadvantage) of processing Product X beyond the
split-off point?
A. $26,800
B. $7,000
C. $4,800
D. $29,000 Use the following data to answer questions 11, 12, & 13
Western Company is an online retailer that purchases merchandise for resale. The company sells a
single product. Inventory, production, and sales data (in units) have been forecasted for the next three
months and are listed below:
January February March Beginning Inventory 10,000 10,000 10,000 Merchandise Purchases 60,000 70,000 35,000 Sales 60,000 70,000 40,000 Ending Inventory 10,000 10,000 5,000 Units are sold for $6 each. One fourth of all sales are paid for in the month of sale and the balance are
paid for in the following month. Accounts receivable at December 31 totaled $225,000.
Merchandise is purchased for $3.50 per unit. Half of the purchases are paid for in the month of the
purchase and the remainder are paid for in the month following purchase. Selling and administrative
expenses are expected to total $60,000 each month. One half of these expenses will be paid in the
month in which they are incurred and the balance will be paid in the following month. Depreciation is
$2,000 per month. The accounts payable balance at December 31 totaled $145,000.
Cash at December 31 totaled $40,000. A payment of $150,000 for purchase of equipment is scheduled
for February and a dividend of $100,000 is to be paid in March.

11. Prepare a schedule of cash collections for each of the months January, February, and March.
(10 points)

12. Prepare a schedule of showing expected cash disbursements for merchandise purchases
and selling and administrative expenses during each of the months January, February, and
March. (10 points)

13. Prepare a cash budget for each of the months January, February, and March. There is no
minimum required ending cash balance. (10 points) Use the following data to answer questions 14 & 15 High Prairie Industries produces three products, A, B, & C. The selling price, variable costs, and
contribution margin for one unit of each product follow:
Product
X Y Z $120 $180 $160 Direct materials 54 28 80 Direct labor 24 64 32 6 16 8 Total variable costs 84 108 120 Contribution margin $36 $72 $40 Contribution margin ratio 30% 40% 25% Selling price
Variable costs: Variable manufacturing overhead Due to a strike in the plant of one of its competitors, demand for the company’s products far exceeds its
capacity to produce. Management is trying to determine which product(s) to concentrate on next week
in filling its backlog of orders. The direct labor rate is $16 per hour, and only 3,000 hours of labor time
are available each week. 14. Which orders would you recommend that the company work on next week – the order for
Product X, Product Y, or Product Z? Show computations. (6 points) 15. By paying overtime wages, more than 3,000 hours of direct labor time can be made
available next week. Up to how much should the company be willing to pay per hour in
overtime wages as long as there is unfilled demand for the three products? Explain. (4 points) 16. Donelan Products makes high-pressure lines for a variety of heavy road-improvement equipment.
Donelan Products sells the lines to companies that manufacture and sell the equipment. The
company’s market research department has discovered a market for high-pressure lines used in
automated manufacturing equipment, which Donelan Products currently does not produce. The market
research department has indicated that lines would likely sell for $50 per foot.
Assume Donelan Products desires an operating profit of 20 percent of sales. What is the
highest acceptable manufacturing cost per foot for which Donelan Products would produce the
lines? (5 points)

17. Charity Quilt Company produces and sells custom quilts. The company has a standard cost system
to help control costs and has established the following labor standards for completing quilt tops. (10
points) Standard labor-hours per unit of output: 5.4 hours
Standard labor rate: $10.20 per hour
The following data pertain to quilt top operations for the last month.
Actual hours worked: 1,000 hours
Actual labor cost: $10,600
Actual output: 200 units Compute the following variances
Direct labor rate and efficiency variances.
Prepare a brief explanation of the possible causes of each variance.

18. Foley Foods produces frozen meals targeted at the college student market. The production takes
place in four stages: Preparation, in which the food is cleaned and cut; Cooking;Freezing; and
Packaging. The company has a bottleneck in the Preparation stage, as shown below. Each “unit”
refers to a container of 144 frozen meals. Hourly Capacity
Actual Hourly Capacity Preparatio
n
300 Units
300 Units Cooking
312 Units
300 Units Freezing
320 Units
300 Units Packagin
g
340 Units
300 Units Each unit sells for $200 and has a variable cost of $120.
Option a. Foley can increase Preparation output by renting additional equipment that would cost $200
per hour and increase the hourly capacity in Preparation by 5 units.
Option b. Foley can pay its suppliers to perform some of the food preparation. This option would cost
Foley $2 more per unit and would enable the company to increase its hourly output in Preparation by
10 units.
Foley can take either or both options as presented if viable. If both options are taken, the cost
increases in Option b would apply to 310 units. What do you recommend? Show computations
to support your answer. (10 points)