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Managerial Accounting Study Guide- Chapters 9-12

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Future costs that do not differ among the alternatives are not relevant in a decision
TRUE
Fixed costs are irrelevant in a decision
FALSE
Sunk costs are considered to be avoidable costs
FALSE
Avoidable costs are also called relevant costs
TRUE
An avoidable cost is a cost that can be eliminated (in whole or in part) as a result of choosing one alternative over another
TRUE
A sunk cost is a cost that has already been incurred and that cannot be avoided regardless of what action is chosen
TRUE
The book value of a machine, as shown on the balance sheet, is relevant in a decisionconcerning the replacement of that machine by another machine
FALSE
If by dropping a product a firm can avoid more in fixed costs than it loses in contributionmargin, then the firm is better off economically if the product is dropped
TRUE
Generally, a product line should be dropped when the fixed costs that can be avoided bydropping the product line are less than the contribution margin that will be lost
FALSE
The cost of a resource that has no alternative use in a make or buy decision problem hasan opportunity cost of zero
TRUE
Vertical integration is the involvement by a company in more than one of the steps fromsecuring basic raw materials to the production and distribution of a finished product
TRUE
Depreciation expense on existing factory equipment is generally relevant to a decision of whether to accept or reject a special offer for a company's product
FALSE
When a company has a production constraint, the product with the highest contributionmargin per unit of the constrained resource should be given highest priority
TRUE
Managers should not authorize working overtime at a work station that contains a bottleneck
FALSE
Joint costs are not relevant to the decision to sell a product at the split-off point or to process the product further
TRUE
Joint production costs are relevant costs in decisions about what to do with a product fromthe split-off point onward in the production process
FALSE
Costs which are always relevant in decision making are those costs which are
AVOIDABLE
A general rule in relevant cost analysis is
differential future costs and revenues are always relevant
The opportunity cost of making a component part in a factory with no excess capacity is the
net benefit foregone from the best alternative use of the capacity required
Freestone Company is considering renting Machine Y to replace Machine X. It isexpected that Y will waste less direct materials than does X. If Y is rented, X will be sold onthe open market. For this decision, which of the following factors is (are) relevant
Both I and II
Which of the following are valid reasons for eliminating a product line
Only I
When there is a production constraint, a company should emphasize the products with
the highest contribution margin per unit of the constrained resource
In a sell or process further decision, which of the following costs are relevant
Only II
Scherer Corporation is preparing a bid for a special order that would require 720 liters of material U48N. The company already has 560 liters of this raw material in stock thatoriginally cost $6.30 per liter. Material U48N is used in the company's main product and isreplenished on a periodic basis. The resale value of the existing stock of the material is $5.80 per liter. New stocks of the material can be readily purchased for $6.65 per liter. What is therelevant cost of the 720 liters of the raw material when deciding how much to bid on the special order
$4,788

The relevant cost is the current market cost which is 720 liters×current market $6.65 per liter = $4,788
Cung Inc. has some material that originally cost $68,400. The material has a scrap valueof $30,100 as is, but if reworked at a cost of $1,400, it could be sold for $30,800. What would be the incremental effect on the company's overall profit of reworking and selling the materialrather than selling it as is as scrap
-$700

Sales value of reworked material $30,800
Less: Cost to rework material 1,400
Net sales value 29,400
Current scap value 30,100
Net disadvantage -$ 700
Liffick Corporation is a specialty component manufacturer with idle capacity.Management would like to use its extra capacity to generate additional profits. A potentialcustomer has offered to buy 6,200 units of component VFG. Each unit of VFG requires 8units of material C79 and 6 units of material X70. Data concerning these two materials follow

Material C79 is in use in many of the company's products and is routinely replenished.Material X70 is no longer used by the company in any of its normal products and existingstocks would not be replenished once they are used up.What would be the relevant cost of the materials, in total, for purposes of determining aminimum acceptable price for the order for product VFG
$484,455
Schemm Inc. regularly uses material F04E and currently has in stock 460 liters of thematerial for which it paid $2,622 several weeks ago. If this were to be sold as is on the openmarket as surplus material, it would fetch $5.25 per liter. New stocks of the material can be purchased on the open market for $5.85 per liter, but it must be purchased in lots of 1,000liters. You have been asked to determine the relevant cost of 800 liters of the material to beused in a job for a customer. The relevant cost of the 800 liters of material F04E is
$4,680

The relevant cost is the current market value: 800 liters×current market $5.85 per liter =$4,680
Stampka Corporation is a specialty component manufacturer with idle capacity.Management would like to use its extra capacity to generate additional profits. A potentialcustomer has offered to buy 4,200 units of component JJF. Each unit of JJF requires 6 units of material O38 and 9 units of material P56. Data concerning these two materials follow: Material O38 is in use in many of the company's products and is routinely replenished.Material P56 is no longer used by the company in any of its normal products and existingstocks would not be replenished once they are used up.What would be the relevant cost of the materials, in total, for purposes of determining aminimum acceptable price for the order for product JJF?
$155,610
Janus Corporation has in stock 43,700 kilograms of material L that it bought five yearsago for $6.10 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material L can be sold as is for scrap for $3.23 per kilogram. Analternative would be to use material L in one of the company's current products, E99D, whichcurrently requires 2 kilograms of a raw material that is available for $9.45 per kilogram.Material L can be modified at a cost of $0.62 per kilogram so that it can be used as asubstitute for this material in the production of product E99D. However, after modification, 3kilograms of material L is required for every unit of product E99D that is produced. JanusCorporation has now received a request from a company that could use material L in its production process. Assuming that Janus Corporation could use all of its stock of material Lto make product E99D or the company could sell all of its stock of the material at the currentscrap price of $3.23 per kilogram, what is the minimum acceptable selling price of material Lto the company that could use material L in its own production process
$5.68
Lampshire Inc. is considering using stocks of an old raw material in a special project. Thespecial project would require all 160 kilograms of the raw material that are in stock and thatoriginally cost the company $1,136 in total. If the company were to buy new supplies of thisraw material on the open market, it would cost $7.25 per kilogram. However, the companyhas no other use for this raw material and would sell it at the discounted price of $6.50 per kilogram if it were not used in the special project. The sale of the raw material would involvedelivery to the purchaser at a total cost of $75 for all 160 kilograms. What is the relevant costof the 160 kilograms of the raw material when deciding whether to proceed with the special project
$965
A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expensescharged to the product total $90,000 per year. The company estimates that $40,000 of thesefixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would
decrease by $10,000 per year
The Kelsh Company has two divisions--North and South. The divisions have thefollowing revenues and expenses:

Management at Kelsh is pondering the elimination of North Division. If North Division wereeliminated, its traceable fixed expenses could be avoided. The total common corporateexpenses would be unaffected. Given these data, the elimination of North Division wouldresult in an overall company net operating income of
$(140,000)

The company currently has a net operating income of $50,000—the combined effect of theapparent $50,000 loss in the North Division and the apparent $100,000 profit in the SouthDivision. Dropping the North Division would reduce net operating income by $190,000.Therefore, after dropping the North Division, the overall company net operating loss would be$140,000 (= $50,000 - $190,000).
Power Systems Inc. manufactures jet engines for the United States armed forces on a cost- plus basis. The production cost of a particular jet engine is shown below:

If production of this engine was discontinued, the production capacity would be idle, and thesupervisor would be laid off. The depreciation referred to above is for special equipment thatwould have no resale value and that does not wear out through use. When asked to bid on thenext contract for this engine, the minimum unit price that Power Systems should bid is
$385,000
The management of Heider Corporation is considering dropping product J14V. Data fromthe company's accounting system appear below

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $211,000 of the fixed manufacturingexpenses and $172,000 of the fixed selling and administrative expenses are avoidable if product J14V is discontinued. What would be the effect on the company's overall netoperating income if product J14V were dropped?
Overall net operating income would decrease by $160,000
Product R19N has been considered a drag on profits at Buzzeo Corporation for some timeand management is considering discontinuing the product altogether. Data from thecompany's accounting system appear below
Overall net operating income would decrease by $59,000
Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has beenmade concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product wasdiscontinued. These data indicate that if Product A is discontinued, the company's overall netoperating income would
decrease by $60,000 per month
Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity.Peluso's plant manager is considering making the headlights now being purchased from anoutside supplier for $11 each. The Peluso plant has idle equipment that could be used tomanufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of themanufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of
$0.40
Part I51 is used in one of Pries Corporation's products. The company makes 18,000 unitsof this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce this part and sell it to the company for $15.80each. If this offer is accepted, the supervisor's salary and all of the variable costs, includingdirect labor, can be avoided. The special equipment used to make the part was purchasedmany years ago and has no salvage value or other use. The allocated general overheadrepresents fixed costs of the entire company. If the outside supplier's offer were accepted,only $26,000 of these allocated general overhead costs would be avoided.If management decides to buy part I51 from the outside supplier rather than to continuemaking the part, what would be the annual impact on the company's overall net operatingincome?
Net operating income would decline by $119,800 per year
Iwasaki Inc. is considering whether to continue to make a component or to buy it from anoutside supplier. The company uses 13,000 of the components each year. The unit productcost of the component according to the company's cost accounting system is given as follows: Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% isavoidable if the component were bought from the outside supplier. In addition, making thecomponent uses 1 minute on the machine that is the company's current constraint. If thecomponent were bought, this machine time would be freed up for use on another product thatrequires 2 minutes on this machine and that has a contribution margin of $5.20 per unit.When deciding whether to make or buy the component, what cost of making the componentshould be compared to the price of buying the component
$19.88
Part N29 is used by Farman Corporation to make one of its products. A total of 11,000units of this part are produced and used every year. The company's Accounting Departmentreports the following costs of producing the part at this level of activity: An outside supplier has offered to make the part and sell it to the company for $21.20 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the directlabor, can be avoided. The special equipment used to make the part was purchased manyyears ago and has no salvage value or other use. The allocated general overhead representsfixed costs of the entire company, none of which would be avoided if the part were purchasedinstead of produced internally. In addition, the space used to make part N29 could be used tomake more of one of the company's other products, generating an additional segment marginof $29,000 per year for that product. What would be the impact on the company's overall netoperating income of buying part N29 from the outside supplier?
Net operating income would decline by $32,600 per year
Fillip Corporation makes 4,000 units of part U13 each year. This part is used in one of thecompany's products. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make and sell the part to the company for $21.60 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including directlabor, can be avoided. The special equipment used to make the part was purchased manyyears ago and has no salvage value or other use. The allocated general overhead representsfixed costs of the entire company. If the outside supplier's offer were accepted, only $3,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company's other products,generating an additional segment margin of $13,000 per year for that product.What would be the impact on the company's overall net operating income of buying part U13from the outside supplier
Net operating income would increase by $9,200 per year
Ethridge Corporation is presently making part H25 that is used in one of its products. Atotal of 9,000 units of this part are produced and used every year. The company's AccountingDepartment reports the following costs of producing the part at this level of activity: An outside supplier has offered to make and sell the part to the company for $15.40 each. If this offer is accepted, the supervisor's salary and all of the variable costs can be avoided. Thespecial equipment used to make the part was purchased many years ago and has no salvagevalue or other use. The allocated general overhead represents fixed costs of the entirecompany, none of which would be avoided if the part were purchased instead of producedinternally. If management decides to buy part H25 from the outside supplier rather than tocontinue making the part, what would be the annual impact on the company's overall netoperating income?
Net operating income would decline by $24,300 per year
Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows: An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costsabove will continue if the parts are purchased from the outside supplier. Assume that directlabor is an avoidable cost in this decision. Based on these data, the per unit dollar advantageor disadvantage of purchasing the parts from the outside supplier would be
$3 advantage
A customer has requested that Inga Corporation fill a special order for 2,000 units of product K81 for $25.00 a unit. While the product would be modified slightly for the specialorder, product K81's normal unit product cost is $19.90: Direct labor is a variable cost. The special order would have no effect on the company's totalfixed manufacturing overhead costs. The customer would like modifications made to productK81 that would increase the variable costs by $1.20 per unit and that would require aninvestment of $10,000 in special molds that would have no salvage value.This special order would have no effect on the company's other sales. The company has amplespare capacity for producing the special order. If the special order is accepted, the company'soverall net operating income would increase (decrease) by
$13,000
Rojo Corporation has received a request for a special order of 8,000 units of product W68for $27.20 each. Product W68's unit product cost is $18.50, determined as follows: Direct labor is a variable cost. The special order would have no effect on the company's totalfixed manufacturing overhead costs. The customer would like modifications made to productW68 that would increase the variable costs by $7.90 per unit and that would require aninvestment of $31,000 in special molds that would have no salvage value.This special order would have no effect on the company's other sales. The company has amplespare capacity for producing the special order. If the special order is accepted, the company'soverall net operating income would increase (decrease) by:
$30,600
Ellis Television makes and sells portable televisions. Each television regularly sells for $210. The following cost data per television is based on a full capacity of 10,000 televisions produced each period. A special order has been received by Ellis for a sale of 2,000 televisions to an overseascustomer. The only selling costs that would be incurred on this order would be $6 per television for shipping. Ellis is now selling 6,000 televisions through regular channels each period. What should be the minimum selling price per television in negotiating a price for thisspecial order?
$174
An automated turning machine is the current constraint at Naik Corporation. Three products use this constrained resource. Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized
YY, KU, OP
Pappan Corporation makes three products that use compound W, the current constrainedresource. Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized
RH, QF, GY
Consider the following production and cost data for two products, X and Y: The company has 15,000 machine hours available each period, and there is unlimited demandfor each product. What is the largest possible total contribution margin that can be realizedeach period?
$135,000
The constraint at Mcglathery Corporation is time on a particular machine. The companymakes three products that use this machine. Data concerning those products appear below: Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay toacquire more of the constrained resource
$11.80 per minute
Wright Company produces products I, J, and K from a single raw material input.Budgeted data for the next month follows: If the cost of the raw material input is $78,000, which of the products should be processed beyond the split-off point?
Option B
Two products, IF and RI, emerge from a joint process. Product IF has been allocated$25,300 of the total joint costs of $46,000. A total of 2,000 units of product IF are producedfrom the joint process. Product IF can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,000 and then sold for $13 per unit. If product IF is processed further and sold, what would be the effect on the overall profit of thecompany compared with sale in its unprocessed form directly after the split-off point
$6,000 less profit
Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beetscosts $48 to buy from farmers and $10 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can besold as is for $24 or processed further for $16 to make the end product industrial fiber that issold for $36. The beet juice can be sold as is for $44 or processed further for $28 to make theend product refined sugar that is sold for $70. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it asis?
$(2)
Galluzzo Corporation processes sugar beets in batches. A batch of sugar beets costs $51 to buy from farmers and $14 to crush in the company's plant. Two intermediate products, beetfiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20or processed further for $18 to make the end product industrial fiber that is sold for $45. The beet juice can be sold as is for $41 or processed further for $21 to make the end productrefined sugar that is sold for $62. How much profit (loss) does the company make by processing one batch of sugar beets into the end products industrial fiber and refined sugar?
$3
Beilke Corporation processes sugar beets in batches that it purchases from farmers for $53a batch. A batch of sugar beets costs $12 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can besold as is for $20 or processed further for $10 to make the end product industrial fiber that issold for $26. The beet juice can be sold as is for $30 or processed further for $29 to make theend product refined sugar that is sold for $79. Which of the intermediate products should be processed further
beet fiber should NOT be processed into industrial fiber; beet juice should be processedinto refined sugar
Zollars Cane Products, Inc., processes sugar cane in batches. The company buys a batchof sugar cane from farmers for $70 which is then crushed in the company's plant at a cost of $19. Two intermediate products, cane fiber and cane juice, emerge from the crushing process.The cane fiber can be sold as is for $21 or processed further for $13 to make the end productindustrial fiber that is sold for $42. The cane juice can be sold as is for $44 or processedfurther for $26 to make the end product molasses that is sold for $88. How much profit (loss)does the company make by processing one batch of sugar cane into the end products industrialfiber and molasses
$2
Kempler Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for $34 from farmers and then crushes the cane in the company's plant at the costof $15. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $26 or processed further for $17 to make the end product industrial fiber that is sold for $41. The cane juice can be sold as is for $32 or processed further for $22 to make the end product molasses that is sold for $51. Which of theintermediate products should be processed further?
Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be processed into molasses
Are the materials costs and processing costs relevant in the choice between alternatives Xand Y? (Ignore the equipment rental and occupancy costs in this question.)
Only processing costs are relevant
What is the differential cost of Alternative Y over Alternative X, including all of therelevant costs
$39,000
Zurasky Corporation is considering two alternatives: A and B. Costs associated with thealternatives are listed below: . Are the materials costs and processing costs relevant in the choice between alternatives Aand B? (Ignore the equipment rental and occupancy costs in this question.)
Only materials costs are relevant
What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?
$44,000
If Austin chooses to produce 4,000 afghans each month, the change in the monthly netoperating income as compared to selling 4,000 spindles of yarn is
$24,000 increase
What is the lowest price Austin should be willing to accept for one afghan as long as itcan sell spindles of yarn to the outside market for $12 each
$26
TThe Tingey Company has 500 obsolete microcomputers that are carried in inventory at a totalcost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000
The sunk cost in this situation is
720,000
What is the net advantage or disadvantage to the company from upgrading the computersrather than selling them in their present condition
$10,000 advantage
Suppose the selling price of the upgraded computers has not been set. At what selling price per unit would the company be as well off upgrading the computers as if it just sold thecomputers in their present condition
$300

The selling price of the upgraded computers would have to cover the opportunity cost of $50,000 for selling the computers as is as well as the $100,000 cost of upgrading.The point of indifference would be $150,000÷500 computers = $300 per computer
The management of Fries Corporation has been concerned for some time with the financial performance of its product R89H and has considered discontinuing it on several occasions.Data from the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $31,000 of the fixed manufacturing expensesand $46,000 of the fixed selling and administrative expenses are avoidable if product R89H isdiscontinued.

According to the company's accounting system, what is the net operating income earned by product R89H
$(8,000)
What would be the effect on the company's overall net operating income if product R89H were dropped
Overall net operating income would decrease by $66,000
The management of Freshwater Corporation is considering dropping product C11B. Datafrom the company's accounting system appear below: All fixed expenses of the company are fully allocated to products in the company's accountingsystem. Further investigation has revealed that $211,000 of the fixed manufacturing expensesand $122,000 of the fixed selling and administrative expenses are avoidable if product C11Bis discontinued. 12-138

According to the company's accounting system, what is the net operating income earned by product C11B
$(74,000)
What would be the effect on the company's overall net operating income if product C11Bwere dropped?
Overall net operating income would decrease by $188,000
The Western Company is considering the addition of a new product to its current productlines. The expected cost and revenue data for the new product are as follows: If the new product is added to the existing product line, then sales of existing products willdecline. As a consequence, the contribution margin of the other existing product lines isexpected to drop $78,000 per year

If the new product is added next year, the increase in net operating income resulting fromthis decision would be
$183,000
What is the lowest selling price per unit among those listed below that could be chargedfor the new product and still make it economically desirable to add the new product
$249
Condensed monthly operating income data for Cosmo Inc. for November is presented below.Additional information regarding Cosmo's operations follows the statement. Three-quarters of each store's traceable fixed expenses are avoidable if the store were to beclosed.Cosmo allocates common fixed expenses to each store on the basis of sales dollars.Management estimates that closing the Town Store would result in a ten percent decrease inMall Store sales, while closing the Mall Store would not affect Town Store sales.The operating results for November are representative of all months.

A decision by Cosmo Inc. to close the Town Store would result in a monthly increase(decrease) in Cosmo's operating income of
$(10,800)
Cosmo is considering a promotional campaign at the Town Store that would not affect theMall Store. Increasing annual promotional expenses at the Town Store by $60,000 in order toincrease Town Store sales by ten percent would result in a monthly increase (decrease) inCosmo's operating income of
$(1,400)
The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for the new cabinets are as follows: If the new cabinets are added, it is expected that the contribution margin of other product linesat the cabinet shop will drop by $20,000 per year.

If the new cabinet product line is added next year, the increase in net operating incomeresulting from this decision would be
$105,000
What is the lowest selling price per unit that could be charged for the new cabinets fromthe following list and still make it economically desirable to add the new product line?
$160
Knaack Corporation is presently making part R20 that is used in one of its products. A totalof 18,000 units of this part are produced and used every year. The company's AccountingDepartment reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce and sell the part to the company for $27.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including directlabor, can be avoided. The special equipment used to make the part was purchased manyyears ago and has no salvage value or other use. The allocated general overhead representsfixed costs of the entire company, none of which would be avoided if the part were purchasedinstead of produced internally.

If management decides to buy part R20 from the outside supplier rather than to continuemaking the part, what would be the annual impact on the company's overall net operatingincome
Net operating income would decline by $50,400 per year
In addition to the facts given above, assume that the space used to produce part R20 could be used to make more of one of the company's other products, generating an additionalsegment margin of $27,000 per year for that product. What would be the impact on thecompany's overall net operating income of buying part R20 from the outside supplier andusing the freed space to make more of the other product?
Net operating income would decline by $23,400 per year
Meltzer Corporation is presently making part O13 that is used in one of its products. A totalof 3,000 units of this part are produced and used every year. The company's AccountingDepartment reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce and sell the part to the company for $27.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including directlabor, can be avoided. The special equipment used to make the part was purchased manyyears ago and has no salvage value or other use. The allocated general overhead representsfixed costs of the entire company. If the outside supplier's offer were accepted, only $3,000 of these allocated general overhead costs would be avoided.

If management decides to buy part O13 from the outside supplier rather than to continuemaking the part, what would be the annual impact on the company's overall net operatingincome?
Net operating income would decline by $8,700 per year.
If management decides to buy part O13 from the outside supplier rather than to continuemaking the part, what would be the annual impact on the company's overall net operating income?
Net operating income would decline by $8,700 per year.
In addition to the facts given above, assume that the space used to produce part O13 could be used to make more of one of the company's other products, generating an additionalsegment margin of $26,000 per year for that product. What would be the impact on thecompany's overall net operating income of buying part O13 from the outside supplier andusing the freed space to make more of the other product?
Net operating income would increase by $17,300 per year
Ahsan Company makes 60,000 units per year of a part it uses in the products it manufactures.The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all of these parts it needs for $45.70 aunit. If the company accepts this offer, the facilities now being used to make the part could beused to make more units of a product that is in high demand. The additional contributionmargin on this other product would be $318,000 per year.If the part were purchased from the outside supplier, all of the direct labor cost of the partwould be avoided. However, $3.50 of the fixed manufacturing overhead cost being applied tothe part would continue even if the part were purchased from the outside supplier. This fixedmanufacturing overhead cost would be applied to the company's remaining product

How much of the unit product cost of $40.50 is relevant in the decision of whether tomake or buy the part
$37.00
What is the net total dollar advantage (disadvantage) of purchasing the part rather thanmaking it?
$(204,000)
What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 60,000 units required each year
$42.30
If Talboe chooses to buy the wheel from the outside supplier, then the change in annualnet operating income is a
$50,000 increase
What is the highest price that Talboe could pay the outside supplier for each wheel andstill be economically indifferent between making or buying the wheels
$1.05
Assume that there is no other use for the capacity now being used to produce thecomponent and the total fixed manufacturing overhead of the company would be unaffected by this decision. If Rodgers Company purchases the components rather than making theminternally, what would be the impact on the company's annual net operating income
$81,000 decrease
Assume that if the component is purchased from the outside supplier, $35,100 of annualfixed manufacturing overhead would be avoided and the facilities now being used to make thecomponent would be rented to another company for $64,800 per year. If Rodgers chooses to buy the component from the outside supplier under these circumstances, then the impact onannual net operating income due to accepting the offer would be
$18,900 increase
If Meacham decides to purchase the subcomponent from the outside supplier, how muchhigher or lower will net operating income be than if Meacham continued to make the subcomponent
$45,000 higher
Suppose the price for the subcomponent has not been set. At what price per unit charged by the outside supplier would Meacham be economically indifferent between making thesubcomponent or buying it from the outside
$30.25
Suppose there is ample idle capacity to produce the units required by the overseascustomer and the special discounted price on the special order is $41.60 per unit. By howmuch would this special order increase (decrease) the company's net operating income for themonth?
$25,200
Suppose the company is already operating at capacity when the special order is receivedfrom the overseas customer. What would be the opportunity cost of each unit delivered to theoverseas customer
$22.00
Suppose there is not enough idle capacity to produce all of the units for the overseascustomer and accepting the special order would require cutting back on production of 200units for regular customers. The minimum acceptable price per unit for the special order isclosest to
$31.20
If Varone can expect to sell 32,000 Homs next year through regular channels and thespecial order is accepted at 15% off the regular selling price, the effect on net operatingincome next year due to accepting this order would be a
$68,000 increase
If Varone can expect to sell 32,000 Homs next year through regular channels, at whatspecial order price from Fairview should Varone be economically indifferent between either accepting or not accepting this special order
$42.50
If Varone has an opportunity to sell 37,960 Homs next year through regular channels andthe special order is accepted for 15% off the regular selling price, the effect on net operatingincome next year due to accepting this order would be a
$33,320 decrease
If Immanuel accepts this special order, the change in monthly net operating income will be a
$12,600 increase
Residual income is superior to return on investment as a means of measuring performance because it encourages managers to make investment decisions that are more consistent withthe interests of the company as a whole
True
Residual income equals average operating assets multiplied by the difference between thereturn on investment and the minimum required rate of return
True
Consider a company that has only variable costs. All other things the same, an increase inunit sales will result in no change in the return on investment
False
The use of return on investment as a performance measure may lead managers to makedecisions that are not in the best interests of the company as a whole
True
Residual income is the net operating income that an investment center earns above theminimum required return on the investment in operating assets
True
Residual income should not be used to evaluate a cost center
True
The performance measures on a balanced scorecard tend to fall into four groups: financialmeasures, customer measures, internal business process measures, and external business process measures
False
A balanced scorecard should contain every performance measure that can be expected toinfluence a company's profits
False
The performance measures on an individual's scorecard should not be overly influenced byactions taken by others in the company or by events that are outside of the individual's control.
True
Managers of cost centers are evaluated according to the profits which their departmentsare able to generate
False
If expenses exceed revenues in a department, then it would be considered a cost center.
False
Residual income is a better measure for performance evaluation of an investment center manager than return on investment because
desirable investment decisions will not be rejected by divisions that already have a high ROI.
Turnover is computed by dividing average operating assets into
Sales
Which of the following statements provide(s) an argument in favor of including only a plant's net book value rather than gross book value as part of operating assets in the ROIcomputation?I. Net book value is consistent with how plant and equipment items are reported on a balancesheet.II. Net book value is consistent with the computation of net operating income, which includesdepreciation as an operating expense.III. Net book value allows ROI to decrease over time as assets get older
Only I and II.
In computing the margin in a ROI analysis, which of the following is used
Sales in the denominator
Which of the following is not an operating asset
Common stock
In determining the dollar amount to use for operating assets in the return on investment(ROI) calculation, companies will generally use either net book value or gross cost of theassets. Which of the following is an argument for the use of gross cost rather than net book value?
It encourages the replacement of old, worn-out equipment
Which of the following will not result in an increase in the residual income, assumingother factors remain constant
An increase in the minimum required rate of return
All other things the same, which of the following would increase residual income
Decrease in average operating assets
Which of the following three statements are correct?I. A profit center has control over both cost and revenue.II. An investment center has control over invested funds, but not over costs and revenue.III. A cost center has no control over sales
Only I and III
The purpose of the Data Processing Department of Falena Corporation is to assist thevarious departments of the corporation with their information needs free of charge. The Data Processing Department would best be evaluated as a
cost center
Average operating assets are $110,000 and net operating income is $23,100. The companyinvests $25,000 in new assets for a project that will increase net operating income by $4,750.What is the return on investment (ROI) of the new project
19 %

ROI = Net operating income÷Average operating assets= $4,750÷$25,000 = 19%
Last year a company had stockholder's equity of $160,000, net operating income of $16,000 and sales of $100,000. The turnover was 0.5. The return on investment (ROI) was
8%


Margin = Net operating income÷Sales = $16,000÷$100,000 = 16%ROI = Margin×Turnover = 16%×0.5 = 8%
Sales and average operating assets for Company P and Company Q are given below: What is the margin that each company will have to earn in order to generate a return oninvestment of 20%?
8% and 4%
Reed Company's sales last year totaled $150,000 and its return on investment (ROI) was12%. If the company's turnover was 3, then its net operating income for the year must have been
$6,000

ROI = Margin×Turnover Margin = ROI÷Turnover = 12%÷3 = 4%Margin = Net operating income÷Sales Net operating income = Margin×Sales = 4%×$150,000 = $6,000
A company's current net operating income is $16,800 and its average operating assets are$80,000. The company's required rate of return is 18%. A new project being consideredwould require an investment of $15,000 and would generate annual net operating income of $3,000. What is the residual income of the new project?
$300
Soderquist Corporation uses residual income to evaluate the performance of its divisions.The company's minimum required rate of return is 11%. In April, the Commercial ProductsDivision had average operating assets of $100,000 and net operating income of $9,400. Whatwas the Commercial Products Division's residual income in April
-$1,600
In August, the Universal Solutions Division of Jugan Corporation had average operatingassets of $670,000 and net operating income of $77,500. The company uses residual income,with a minimum required rate of return of 12%, to evaluate the performance of its divisions.What was the Universal Solutions Division's residual income in August?
-$2,900
Division B had an ROI last year of 15%. The division's minimum required rate of return is10%. If the division's average operating assets last year were $450,000, then the division'sresidual income for last year was
$22,500
Garnick Corporation keeps careful track of the time required to fill orders. The timesrecorded for a particular order appear below: The delivery cycle time was
36.1 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 0.9 hours + 0.3 hours + 3.5 hours + 5.2 hours = 9.9 hoursDelivery cycle time = Wait time + Throughput time= 26.2 hours + 9.9 hours = 36.1 hours
Galanis Corporation keeps careful track of the time required to fill orders. Dataconcerning a particular order appear below: The throughput time was
14.1 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 1.4 hours + 0.4 hours + 3.6 hours + 8.7 hours = 14.1 hours
Hoster Corporation keeps careful track of the time required to fill orders. The timesrecorded for a particular order appear below: The throughput time was
8.9 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 1.2 hours + 0.4 hours + 2.9 hours + 4.4 hours = 8.9 hours
Botelho Corporation keeps careful track of the time required to fill orders. Dataconcerning a particular order appear below

The delivery cycle time was
33.1 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 1.9 hours + 0.3 hours + 3.7 hours + 8.9 hours = 14.8 hoursDelivery cycle time = Wait time + Throughput time= 18.3 hours + 14.8 hours = 33.1 hours
Niemiec Corporation keeps careful track of the time required to fill orders. The timesrecorded for a particular order appear below: The manufacturing cycle efficiency (MCE) was closest to
0.12

Throughput time = Process time + Inspection time + Move time + Queue time= 1.5 hours + 0.2 hours + 2.6 hours + 8.5 hours = 12.8 hoursMCE = Value-added time (Process time)÷Throughput (manufacturing cycle) time= 1.5 hours÷12.8 hours = 0.12
Mordue Corporation keeps careful track of the time required to fill orders. Dataconcerning a particular order appear below: The manufacturing cycle efficiency (MCE) was closest to
0.16

Throughput time = Process time + Inspection time + Move time + Queue time= 1.7 hours + 0.1 hours + 2.4 hours + 6.7 hours = 10.9 hoursMCE = Value-added time (Process time)÷Throughput (manufacturing cycle) time= 1.7 hours÷10.9 hours = 0.16
Aide Industries is a division of a major corporation. Data concerning the most recent year appears below
Sales ...$17,400,000
Net operating income $870,000
Average operating assets $4,000,000

The division's turnover is closest to
4.35
Turnover = Sales÷Average operating assets = $17,400,000÷$4,000,000 = 4.35
Aide Industries is a division of a major corporation. Data concerning the most recent year appears below
Sales ...$17,400,000
Net operating income $870,000
Average operating assets $4,000,000

The division's margin is closest to
5.0%

Margin = Net operating income÷Sales = $870,000÷$17,400,000 = 5.0%
Aide Industries is a division of a major corporation. Data concerning the most recent year appears below
Sales ...$17,400,000
Net operating income $870,000
Average operating assets $4,000,000
The division's return on investment (ROI) is closest to
21.75%

ROI = Net operating income÷Average operating assets = $870,000÷$4,000,000 = 21.75%
The Reed Division reports the following operating data for the past two years: The return on investment at Reed was exactly the same in Year 1 and Year 2.

The margin in Year 2 was
20%

ROI in Year 1:ROI = Margin×Turnover = 16%×2.5 = 40%By assumption, the ROI is the same in Year 2 as in Year 1. Therefore, in Year 2:ROI = Margin×Turnover 40% = Margin×2Margin = 40%÷2 = 20%
Sales in Year 2 amounted to
300,000

ROI in Year 1:ROI = Margin×Turnover = 16%×2.5 = 40%By assumption, the ROI is the same in Year 2 as in Year 1. Therefore, in Year 2: Net operating income = ROI×Average operating assets = 40%×$150,000 = $60,000Margin = Net operating income÷SalesSales = Net operating income÷Margin = $60,000÷20% = $300,000
Average operating assets in Year 1 were
100,000

Margin = Net operating income÷SalesSales = Net operating income÷Margin= $40,000÷16% = $250,000Turnover = Sales÷Average operating assetsAverage operating assets = Sales÷Turnover = $250,000÷2.5 = $100,000
Net operating income in Year 2 amounted to
60,000

ROI in Year 1: ROI = Margin×Turnover = 16%×2.5 = 40%By assumption, the ROI is the same in Year 2 as in Year 1. Therefore, in Year 2: Net operating income = ROI×Average operating assets = 40%×$150,000 = $60,000
The division's margin is closest to
7.9%

Margin= Net operating income÷Sales= $1,592,640÷$20,160,000 = 7.9%
The division's turnover is closest to
2.52

Turnover = Sales÷Average operating assets= $20,160,000÷$8,000,000 = 2.52
The division's return on investment (ROI) is closest to
19.9%

ROI = Net operating income÷Average operating assets= $1,592,640÷$8,000,000 = 19.9%
The West Division of Shekarchi Corporation had average operating assets of $620,000 andnet operating income of $80,100 in March. The minimum required rate of return for performance evaluation purposes is 14%. 46.

What was the West Division's minimum required return in March?
$86,800
What was the West Division's residual income in March
-$6,700
The Consumer Products Division of Weiter Corporation had average operating assets of $570,000 and net operating income of $65,100 in March. The minimum required rate of return for performance evaluation purposes is 12%.
$68,400

Minimum required return = Average operating assets×Minimum required rate of return= $570,000×12% = $68,400
What was the Consumer Products Division's residual income in March
-$3,300
Estes Company has assembled the following data for its divisions for the past year

Division A's sales are
$625,000

Turnover = Sales÷Average operating assetsSales = Average operating assets×Turnover = $500,000×1.25 = $625,000
Division A's residual income is
$30,000
Division B's average operating assets is
$130,000

Turnover = Sales÷Average operating assetsAverage operating assets = Sales÷Turnover = $520,000÷4 = $130,000
The average operating assets amounted to
$600,000

Turnover = Sales÷Average operating assetsAverage operating assets = Sales÷Turnover = $900,000÷1.5 = $600,000
The residual income was
$12,000

Turnover = Sales÷Average operating assetsAverage operating assets = Sales÷Turnover = $900,000÷1.5 = $600,000ROI = Net operating income÷Average operating assets Net operating income = ROI×Average operating assets= 12%×$600,000 = $72,000
The margin used in ROI calculations was closest to:
8.00%

ROI = Margin×Turnover Margin = ROI÷Turnover = 12%÷1.5 = 8%
Sales in Year 1 amounted to
$900,000

Turnover = ROI÷Margin = 22.5%÷15% = 1.5Turnover = Sales÷Average operating assetsSales = Average operating assets×Turnover = $600,000×1.5 = $900,000
The net operating income in Year 1 was
$135,000

Turnover = ROI÷Margin = 22.5%÷15% = 1.5Turnover = Sales÷Average operating assetsSales = Average operating assets×Turnover = $600,000×1.5 = $900,000Margin = Net operating income÷Sales Net operating income = Sales×Margin = $900,000×15% = $135,000
The margin in Year 2 was
12.00%

Turnover in Year 1 = ROI in Year 1÷Margin in Year 1 = 22.5%÷15% = 1.5ROI = Margin×Turnover Margin in Year 2 = ROI in Year 2÷Turnover in Year 2= ROI in Year 2÷Turnover in Year 1= 18%÷1.5 = 12%
The average operating assets in Year 2 were
$800,000

Turnover in Year1 = ROI in Year 1÷Margin in Year 1 = 22.5%÷15% = 1.5Turnover in Year 2 = Sales in Year 2÷Average operating assets in Year 2Average operating assets in Year 2 = Sales in Year 2÷Turnover in Year 2= Sales in Year 2÷Turnover in Year 1= $1,200,000÷1.5 = $800,000
The following data are available for the South Division of Redride Products, Inc. and thesingle product it makes

How many units must South sell each year to have an ROI of 16%
65,000

ROI = Net operating income÷Average operating assets Net operating income = ROI×Average operating assets= 16%×$1,500,000 = $240,000Unit sales to attain a target profit = (Target profit + Fixed expenses)÷Unit CM= ($240,000 + $280,000)÷($20 per unit - $12 per unit)= $520,000÷$8 per unit= 65,000 units
If South wants a residual income of $50,000 and the minimum required rate of return is10%, the annual turnover will have to be
0.80

Turnover = Sales÷Average operating assetsWe need to determine the Sales that would generate a residual income of $50,000.Residual income = Net operating income - Average operating assets×Minimum requiredrate of return$50,000 = Net operating income - ($1,500,000×10%) Net operating income = $50,000 + ($1,500,000×10%) = $200,000Dollar sales to attain a target profit = (Target profit + Fixed expenses)÷CM ratio= ($200,000 + $280,000)÷[($20 per unit - $12 per unit)/$20 per unit]= $480,000÷($8 per unit/$20 per unit)= $480,000÷0.40= $1,200,000Turnover = Sales÷Average operating assets= $1,200,000÷$1,500,000 = 0.8
The average operating assets for Year 2 amounted to
$500,000

Turnover = Sales÷Average operating assetsAverage operating assets = Sales÷Turnover = $600,000÷1.2 = $500,000
The return on investment in Year 1 was
48.00%

ROI = Margin×Turnover Margin in Year 2 = ROI in Year 2÷Turnover in Year 2= 9.6%÷1.2 = 8%ROI in Year 1 = Margin in Year 1×Turnover in Year 1ROI in Year 1 = Margin in Year 2×Turnover in Year 1= 8%×6 = 48%
The minimum required rate of return in Year 1 was
16%
Margin = Net operating income÷Sales Net operating income = Sales×Margin= $300,000×8% = $24,000ROI = Margin×Turnover Margin in Year 2 = ROI in Year 2÷Turnover in Year 2= 9.6%÷1.2 = 8%ROI in Year 1 = Margin in Year 1×Turnover in Year 1ROI in Year 1 = Margin in Year 2×Turnover in Year 1= 8%×6 = 48%ROI = Net operating income÷Average operating assets48% = $24,000÷Average operating assetsAverage operating assets = $24,000÷48% = $50,000Residual income = Net operating income - Average operating assets×Minimum requiredrate of return$16,000 = $24,000 - $50,000×Minimum required rate of return$50,000×Minimum required rate of return = $24,000 - $16,000Minimum required rate of return = $8,000÷$50,000 = 16%

The following data pertain to the Whalen Division of Northern Industries
The division's margin is closest to (Dickonson Products is a division of a major corporation)
Dickonson Products is a division of a major corporation. The following data are for the lastyear of operations

2.4%

Margin = Net operating income÷Sales= $399,360÷$16,640,000 = 2.4%
The division's turnover is closest to (Dickonson Products is a division of a major corporation)
4.16

Turnover = Sales÷Average operating assets= $16,640,000÷$4,000,000 = 4.16
The division's return on investment (ROI) is closest to (Dickonson Products is a division of a major corporation)
10.0%

ROI = Net operating income÷Average operating assets= $399,360÷$4,000,000 = 9.984%
The division's residual income is closest to
$(320,640)
The division's margin is closest to
(Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000.The company's minimum required rate of return is 12%.)
2.7%

Margin = Net operating income÷Sales = $575,100÷$21,300,000 = 2.7%
The division's turnover is closest to
(Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000.The company's minimum required rate of return is 12%.)
4.26

Turnover = Sales÷Average operating assets = $21,300,000÷$5,000,000 = 4.26
The division's return on investment (ROI) is closest to
((Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000.The company's minimum required rate of return is 12%.)
11.5%

ROI = Net operating income÷Average operating assets= $575,100÷$5,000,000 = 11.502%
The division's residual income is closest to
((Chace Products is a division of a major corporation. Last year the division had total sales of $21,300,000, net operating income of $575,100, and average operating assets of $5,000,000.The company's minimum required rate of return is 12%.)
(24,900)
The delivery cycle time was
(Diorio Corporation keeps careful track of the time required to fill orders. The times recordedfor a particular order appear below)
30.61 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 1.4 hours + 0.1 hours + 2.7 hours + 5.3 hours = 9.5 hoursDelivery cycle time = Wait time + Throughput time= 21.1 hours + 9.5 hours = 30.6 hours
The throughput time was

Diorio Corporation keeps careful track of the time required to fill orders. The times recordedfor a particular order appear below
0.15

Throughput time = Process time + Inspection time + Move time + Queue time= 1.4 hours + 0.1 hours + 2.7 hours + 5.3 hours = 9.5 hoursMCE = Value-added time (Process time)÷Throughput (manufacturing cycle) time= 1.4 hours÷9.5 hours = 0.15
The manufacturing cycle efficiency (MCE) for this operation is

Hart Manufacturing operates an automated steel fabrication process. For one operation, Harthas found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities. Delivery cycle time is 12 hours, waiting time during the production processis 3 hours, queue time prior to starting the production process is 2 hours, and inspection timeis 1.2 hours.
55%

Percentage of time spent on non-value-added activities = 100% - MCE45% = 100% - MCEMCE = 100% - 45% = 55%
What is the move time recorded for the operation

Hart Manufacturing operates an automated steel fabrication process. For one operation, Harthas found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities. Delivery cycle time is 12 hours, waiting time during the production processis 3 hours, queue time prior to starting the production process is 2 hours, and inspection timeis 1.2 hours.
0.85 hours


Delivery cycle time = Wait time + Throughput time12 hours = 3 hours + Throughput timeThroughput time = 12 hours - 3 hours = 9 hoursPercentage of time spent on non-value-added activities = 100% - MCE45% = 100% - MCEMCE = 100% - 45% = 55%MCE = Value-added time (Process time)÷Throughput (manufacturing cycle) time55% = Process time÷9 hoursProcess time = 9 hours×55% = 4.95 hoursThroughput time = Process time + Inspection time + Move time + Queue time9.00 hours = 4.95 hours + 1.20 hours + Move time + 2.00 hoursMove time = 9.00 hours - (4.95 hours + 1.20 hours + 2.00 hours)= 9.00 hours - 8.15 hours = 0.85 hours
What is the throughput (manufacturing cycle) time for the operation


Hart Manufacturing operates an automated steel fabrication process. For one operation, Harthas found that 45% of the total throughput (manufacturing cycle) time is spent on non-value-added activities. Delivery cycle time is 12 hours, waiting time during the production processis 3 hours, queue time prior to starting the production process is 2 hours, and inspection timeis 1.2 hours
9.0 hours

Delivery cycle time = Wait time + Throughput time12 hours = 3 hours + Throughput timeThroughput time = 12 hours - 3 hours = 9 hours
The throughput time was

Saffer Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:
9.3 hours

Throughput time = Process time + Inspection time + Move time + Queue time= 1.6 hours + 0.2 hours + 3.1 hours + 4.4 hours = 9.3 hours
The manufacturing cycle efficiency (MCE) was closest to

Saffer Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below:
0.17

MCE = Value-added time (Process time)÷Throughput (manufacturing cycle) time= 1.6 hours÷9.3 hours = 0.17
Saffer Corporation keeps careful track of the time required to fill orders. Data concerning a particular order appear below

The delivery cycle time was
30.9 hours

Delivery cycle time = Wait time + Throughput time= 21.6 hours + 9.3 hours = 30.9 hours
Heavey Fabrication is a division of a major corporation. Last year the division had totalsales of $21,120,000, net operating income of $2,006,400, and average operating assets of $6,000,000. The company's minimum required rate of return is 12%.Required:

What is the division's return on investment (ROI)?
ROI = Net operating income÷Average operating assets = $2,006,400÷$6,000,000 = 33.4%
Gilde Industries is a division of a major corporation. Last year the division had total salesof $23,380,000, net operating income of $2,828,980, and average operating assets of $7,000,000. The company's minimum required rate of return is 12%.Required:
a. What is the division's margin?
b. What is the division's turnover?
c. What is the division's return on investment (ROI)?
a. Margin = Net operating income÷Sales = $2,828,980÷$23,380,000 = 12.1%
b. Turnover = Sales÷Average operating assets = $23,380,000÷$7,000,000 = 3.3
c. ROI = Net operating income÷Average operating assets = $2,828,980÷$7,000,000 =40.4%
Ferris Wares is a division of a major corporation. The following data are for the latest year of operations: Required:
a. What is the division's return on investment (ROI)?
b. What is the division's residual income?
a. ROI = Net operating income÷Average operating assets = $1,054,100÷$5,000,000 =21.1% b. Residual income = Net operating income - Average operating assets×Minimum requiredrate of return = $1,054,100 - $5,000,000×16% = $1,054,100 - $800,000 = $254,100
Financial data for Windsor, Inc. for last year appear below: The company paid dividends of $104,000 last year. The "Investment in Pine Company" on thestatement of financial position represents an investment in the stock of another company.Required:

a. Compute the company's margin, turnover, and return on investment for last year.

b. The Board of Directors of Windsor, Inc. has set a minimum required return of 25%. Whatwas the company's residual income last year?
A. Operating assets do not include investments in other companies or in undeveloped land. Average operating assets = ($1,020,000 + $980,000)÷2 = $1,000,000Margin = Net operating income÷Sales = $280,000÷$1,750,000 = 16%Turnover = Sales÷Average operating assets = $1,750,000÷$1,000,000 = 1.75ROI = Margin×Turnover = 16%×1.75 = 28%

b. Residual income = Net operating income - Average operating assets×Minimum requiredrate of return = $280,000 - ($1,000,000×25%) = $280,000 - $250,000 = $30,000
Eckels Wares is a division of a major corporation. The following data are for the latestyear of operations: Required:

a. What is the division's margin?
b. What is the division's turnover?
c. What is the division's return on investment (ROI)?
d. What is the division's residual income?
a. Margin = Net operating income÷Sales = $1,319,700÷$24,900,000 = 5.3%

b. Turnover = Sales÷Average operating assets = $24,900,000÷$6,000,000 = 4.2

c. ROI = Net operating income÷Average operating assets = $1,319,700÷$6,000,000 =22.0%

d. Residual income = Net operating income - Average operating assets×Minimum requiredrate of return = $1,319,700 - $6,000,000×12% = $1,319,700 - $720,000 = $599,700
Iles Industries is a division of a major corporation. The following data are for the latestyear of operations: Required:

What is the division's residual income?
Residual income = Net operating income - Average operating assets×Minimum requiredrate of return= $2,553,480 - $6,000,000×16% = $2,553,480 - $960,000 = $1,593,480
The Casket Division of Rosencranz Corporation had average operating assets of $150,000and net operating income of $27,800 in March. The company uses residual income to evaluatethe performance of its divisions, with a minimum required rate of return of 17%.

What was the Casket Division's residual income in March
Net operating $27,800

Minimum Required Return ($150,000 X 17%) 25,500

Residual Income $2,300
Madrazo Corporation uses residual income to evaluate the performance of its divisions.The minimum required rate of return for performance evaluation purposes is 19%. The GamesDivision had average operating assets of $410,000 and net operating income of $86,000 inJune.Required:What was the Games Division's residual income in June?
Net Operating $86,000
Minimum required return ($410,00 X 19%) 77,900

Residual Income $8,100
Jaster Corporation's management keeps track of the time it takes to process orders. Duringthe most recent month, the following average times were recorded per order: Required:a. Compute the throughput time. b. Compute the manufacturing cycle efficiency (MCE).c. What percentage of the production time is spent in non-value-added activities?d. Compute the delivery cycle time.
a. Throughput time= Process time + Inspection time + Move time + Queue time= 2.6 days + 0.2 days + 0.6 days + 3.2 days = 6.6 days

b. MCE = Value-added time (Process time)÷Throughput time= 2.6 days÷6.6 days = 0.39

c. Percentage of time spent on non-value-added activities= 100% - MCE% = 100% - 39% = 61%d. Delivery cycle time = Wait time + Throughput time= 10.6 days + 6.6 days = 17.2 days
During the most recent month at Coggan Corporation, queue time was 5.3 days,inspection time was 0.5 day, process time was 1.9 days, wait time was 4.5 days, and movetime was 0.5 day.Required:

a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time
a. Throughput time= Process time + Inspection time + Move time + Queue time= 1.9 days + 0.5 days + 0.5 days + 5.3 days = 8.2 days

b. MCE = Value-added time (Process time)÷Throughput time= 1.9 days÷8.2 days = 0.23c. Percentage of time spent on non-value-added activities= 100% - MCE% = 100% - 23% = 77%d. Delivery cycle time = Wait time + Throughput time= 4.5 days + 8.2 days = 12.7 days
Durkee Corporation keeps careful track of the time required to fill orders. The timesrequired for a particular order appear below: Required:a. Determine the throughput time. Show your work! b. Determine the manufacturing cycle efficiency (MCE). Show your work!c. Determine the delivery cycle time. Show your work!
a. Throughput time= Process time + Inspection time + Move time + Queue time= 0.9 hours + 0.4 hours + 2.3 hours + 4.5 hours= 8.1 hours

b. MCE = Value-added time/Throughput time= 0.9 hours÷8.1 hours = 0.11

c. Delivery cycle time = Wait time + Throughput time= 10.7 hours + 8.1 hours = 18.8 hours
Waltner Corporation's management reports that its average delivery cycle time is 20.0days, its average throughput time is 7.5 days, its manufacturing cycle efficiency (MCE) is0.32, its average move time is 0.2 day, and its average queue time is 4.0 days.Required:

a. What is the wait time?

b. What is the process time?

c. What is the inspection time?
a. Delivery cycle time = Wait time + Throughput time20.0 days = Wait time + 7.5 daysWait time = 20.0 days - 7.5 days = 12.5 days

b. MCE = Process time÷Throughput time0.32 = Process time÷7.5 daysProcess time = 0.32×7.5 days = 2.4 days

c. Throughput time = Process time + Inspection time + Move time + Queue time7.5 days = 2.4 days + Inspection time + 0.2 days + 4.0 daysInspection time = 7.5 days - 2.4 days - 0.2 days - 4.0 days = 0.9 days
The purpose of a flexible budget is to
update the static planning budget to reflect the actual level of activity of the period
Which of the following comparisons best isolates the impact of a change in activity on performance?
static planning budget and flexible budget
Which of the following would not appear on a flexible budget performance report as shown in the text?
The previous year's actual costs
Stock Manufacturing Corporation has prepared the following overhead budget for next month.


The company's variable overhead costs are driven by machine-hours.
What would be the total budgeted overhead cost for next month if the activity level is 6,600 machine-hours rather than 6,900 machine-hours?
$84,860,00

Variable cost per MH for supplies = $21,390 6,900 MHs = $3.10 per MH
Variable cost per MH for indirect labor = $41,400 6,900 MHs = $6.00 per MH
Variable cost per MH for supplies = $21,390 6,900 MHs = $3.10 per MH
Variable cost per MH for indirect labor = $41,400 6,900 MHs = $6.00 per MH
$8,780

Cost = Fixed cost + Variable cost per unit q
= $1,900 + $430 16 = $8,780
Oscarson Midwifery's cost formula for its wages and salaries is $2,720 per month plus $351 per birth. For the month of September, the company planned for activity of 121 births, but the actual level of activity was 119 births. The actual wages and salaries for the month was $43,380. The wages and salaries in the planning budget for September would be closest to
$45,191

Cost = Fixed cost + Variable cost per unit q
= $2,720 + $351 121 = $45,191
Clovis Midwifery's cost formula for its wages and salaries is $2,680 per month plus $245 per birth. For the month of September, the company planned for activity of 118 births, but the actual level of activity was 121 births. The actual wages and salaries for the month was $33,290. The wages and salaries in the flexible budget for September would be closest to
$32,325

Cost = Fixed cost + Variable cost per unit q
= $2,680 + $245 121 = $32,325
1. Fixed costs should not be included in a performance report because fixed costs are not controllable.FALSE

2. A flexible budget can be used to determine what costs should have been at a given level of activity.TRUE

3. If activity is higher than expected, total variable costs should be higher than expected. If activity is lower than expected, totalvariable costs should be lower than expected.TRUE

4. When a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for theactual level of activity during the period rather than to the static planning budget.TRUE

5. An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual levelof activity used in the flexible budget.TRUE

6. The activity variance for revenue is favorable if the actual level of activity for the period exceeds the planned level of activity.TRUE

7. The activity variance for revenue is unfavorable if the revenue in the flexible budget is less than the revenue in the static planning budget.TRUE

8. The revenue and spending variances are the differences between the static planning budget and the actual results for the period.FALSE

9. A revenue variance is favorable if the revenue in the static planning budget exceeds the revenue in the flexible budget.FALSE

10. A spending variance is the difference between how much a cost should have been, given the actual level of activity, and the actualamount of the cost for the period.TRUE

11. A favorable spending variance occurs when the actual cost exceeds the amount of that cost in the flexible budget.FALSE 1

2. A flexible budget performance report contains both activity variances and revenue and spending variances.TRUE

13. While fixed costs should not be affected by a change in the level of activity within the relevant range, they may change for other reasons.TRUE

14. Flexible budgets cannot be used when there is more than one cost driver (i.e., measure of activity).FALSE

15. Directly comparing static budget costs to actual costs only makes sense if the costs are fixed.TRUE

16. If the actual level of activity is 4% more than planned, then the variable costs in the static budget should be increased by 4% before comparing them to actual costs TRUE
T/F
A static budget:
is valid for only one level of activity
Salyers Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate itsgourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below:The Inn's variable overhead costs are driven by the number of guests.What would be the total budgeted overhead cost for a month if the activity level is 53 guests?
$7159.20
Stock Manufacturing Corporation has prepared the following overhead budget for next month.

What would be the total budgeted overhead cost for next month if the activity level is 6,600 machine-hours rather than 6,900 machine-hours
$84,860.00
Gummer Hospital bases its budgets on patient-visits. The hospital's static budget for February appears below
$302,850
Scarfo Hotel bases its budgets on guest-days. The hotel's static budget for December appears below
$20,680
Wadhams Snow Removal's cost formula for its vehicle operating cost is $1,900 per month plus $430 per snow-day. For the monthof December, the company planned for activity of 16 snow-days, but the actual level of activity was 21 snow-days. The actual vehicleoperating cost for the month was $11,470. The vehicle operating cost in the planning budget for December would be closest to
$8,780
Petersheim Snow Removal's cost formula for its vehicle operating cost is $1,750 per month plus $484 per snow-day. For themonth of November, the company planned for activity of 15 snow-days, but the actual level of activity was 14 snow-days. The actualvehicle operating cost for the month was $8,360. The vehicle operating cost in the flexible budget for November would be closest to
$8,526
Oscarson Midwifery's cost formula for its wages and salaries is $2,720 per month plus $351 per birth. For the month of September, the company planned for activity of 121 births, but the actual level of activity was 119 births. The actual wages andsalaries for the month was $43,380. The wages and salaries in the planning budget for September would be closest to:A.$45,191
$45,191
Clovis Midwifery's cost formula for its wages and salaries is $2,680 per month plus $245 per birth. For the month of September,the company planned for activity of 118 births, but the actual level of activity was 121 births. The actual wages and salaries for themonth was $33,290. The wages and salaries in the flexible budget for September would be closest to
$32,325
Gradert Framing's cost formula for its supplies cost is $1,540 per month plus $12 per frame. For the month of September, thecompany planned for activity of 668 frames, but the actual level of activity was 666 frames. The actual supplies cost for the monthwas $9,980. The supplies cost in the planning budget for September would be closest to
$9,556
Bargas Framing's cost formula for its supplies cost is $2,240 per month plus $6 per frame. For the month of May, the company planned for activity of 808 frames, but the actual level of activity was 810 frames. The actual supplies cost for the month was $7,090.The supplies cost in the flexible budget for May would be closest to
$7,100
Stuchlik Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. Thecost formula for catering supplies is $430 per month plus $80 per job plus $14 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in January to be 20 jobs and 190 meals, but the actual activity was 21 jobs and 194 meals. The actual cost for catering supplies in January was $4,850. The catering supplies inthe planning budget for January would be closest to
$4,690
Thomasson Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $36,160 per month plus $2,038 per flight plus $1 per passenger. The company expected its activity in April to be 73 flights and 223 passengers, but the actual activity was 72 flights and 228 passengers. The actual cost for plane operating costs in April was $179,020. The activity variance for plane operating costs in April would be closest to
$2,033 F
Farver Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. Thecost formula for plane operating costs is $44,420 per month plus $2,008 per flight plus $1 per passenger. The company expected itsactivity in May to be 80 flights and 281 passengers, but the actual activity was 81 flights and 277 passengers. The actual cost for planeoperating costs in May was $199,650. The spending variance for plane operating costs in May would be closest to
$7,695 F
Sissac Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. Thecost formula for catering supplies is $470 per month plus $101 per job plus $24 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in May to be 12 jobs and 123 meals, butthe actual activity was 9 jobs and 126 meals. The actual cost for catering supplies in May was $4,240. The spending variance for catering supplies in May would be closest to
$163 F
Fussner Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,610 patient-visits and the actual level of activity was 1,670 patient-visits. The cost formula for administrative expenses is $3.30 per patient-visit plus $17,900 per month. The actual administrative expense was $24,600. In the clinic's flexible budget performancereport for last month, the spending variance for administrative expenses was
$1,189 U
Brayboy Tile Installation Corporation measures its activity in terms of square feet of tile installed. Last month, the budgeted levelof activity was 1,360 square feet and the actual level of activity was 1,300 square feet. The company's owner budgets for supply costs,a variable cost, at $3.90 per square foot. The actual supply cost last month was $4,300. In the company's flexible budget performancereport for last month, what would have been the spending variance for supply costs
$770 F
Newsom Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.61 per unit of output. Thecompany's flexible budget performance report for last month showed a $6,840 unfavorable spending variance for supplies. During thatmonth, 17,100 units were produced. Budgeted activity for the month had been 16,700 units. The actual cost per unit for indirectmaterials must have been closest to
$3.01
Fudala Snow Removal's cost formula for its vehicle operating cost is $1,480 per month plus $308 per snow-day. For the month of March, the company planned for activity of 11 snow-days, but the actual level of activity was 16 snow-days. The actual vehicleoperating cost for the month was $6,130. The spending variance for vehicle operating cost in March would be closest t
$278 F
Ingrum Framing's cost formula for its supplies cost is $1,120 per month plus $11 per frame. For the month of June, the company planned for activity of 611 frames, but the actual level of activity was 607 frames. The actual supplies cost for the month was $8,150.The spending variance for supplies cost in June would be closest to
$353 U
Zylka Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. Thecost formula for plane operating costs is $47,400 per month plus $2,337 per flight plus $3 per passenger. The company expected itsactivity in April to be 67 flights and 263 passengers, but the actual activity was 62 flights and 267 passengers. The actual cost for plane operating costs in April was $189,760. The plane operating costs in the planning budget for April would be closest to
$204,768

Cost = Fixed cost + Variable cost per unit1 ×q1+ Variable cost per unit2 ×q2= $47,400 + $2,337×67 + $3×263 = $204,768
The revenue variance for May would be closest to

Nussey Clinic uses client-visits as its measure of activity. During May, the clinic budgeted for 2,100 client-visits, but its actual levelof activity was 2,050 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and itsactual results for May
$960 F
The spending variance for medical supplies in May would be closest to

Nussey Clinic uses client-visits as its measure of activity. During May, the clinic budgeted for 2,100 client-visits, but its actual levelof activity was 2,050 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and itsactual results for May
200U
The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variancecolumn on the flexible budget performance report) for April would be closest to:
$4,880 U
The spending variance for manufacturing overhead in April would be closest to:Refer To:
$970 F
The spending variance for direct materials in April would be closest to:Refer To: 9-90
$2,260 U
The revenue variance for April would be closest to
3,840 U
The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variancecolumn on the flexible budget performance report) for September would be closest to:Refer To: 9-86
3,470 U
The spending variance for facility expenses in September would be closest to:Refer To: 9-86
$290 F
The spending variance for expendables in September would be closest to:Refer To: 9-86
2, 830 U
The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variancecolumn on the flexible budget performance report) for May would be closest to:
$1,200 F
The spending variance for occupancy expenses in May would be closest to
$80 F
The spending variance for medical supplies in May would be closest to
$200 U
The revenue variance for May would be closest to
$960 F
T/F
The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actualquantity of materials used in production.FALSE
2. In general, the purchasing agent is responsible for the materials price variance.TRUE

3. A materials price variance is favorable if the actual price exceeds the standard price.FALSE

4. Generally speaking, it is the responsibility of the production department to see that material usage is kept in line with standards.TRUE

5. When more hours of labor time are necessary to complete a job than the standard allows, the labor rate variance is unfavorable.FALSE

6. Standard costs should generally be based on the actual costs of prior periods.FALSE

7. The standard quantity per unit for direct materials should not include an allowance for waste.FALSE

8. Ideal standards should be used for forecasting and planning.FALSE

9. The standard cost per unit is computed by multiplying the standard quantity or hours by the standard price or rate.TRUE

10. Standard costs greatly increase the complexity of the bookkeeping process.FALSE
Answer in text
The general model for calculating a price variance is
actual quantity of inputs×(actual price - standard price).
Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unitof Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. Theaccountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120.Based on these variances, one could conclude that
the actual cost of materials was less than the standard cost
Which department should usually be held responsible for an unfavorable materials price variance
Purchasing
A labor efficiency variance resulting from the use of poor quality materials should be charged to
the purchasing agent
Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used. If the actual purchase price per poundwas $0.50 more than the standard purchase price per pound, then the materials price variance was
37,500 U

Materials price variance = (AQ×AP) - (AQ×SP) = AQ (AP - SP)= 75,000 pounds×$0.50 per pound = $37,500 U
The following materials standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:What is the materials quantity variance for the month
$20,230 F

SQ = 7.3 pounds per unit×1,000 units = 7,300 poundsMaterials quantity variance = (AQ - SQ) SP= (5,900 pounds - 7,300 pounds) $14.45 per pound= (-1,400 pounds) $14.45 per pound = $20,230 F
The following labor standards have been established for a particular product:The following data pertain to operations concerning the product for the last month:What is the labor efficiency variance for the month?
$13,530U

SH = 1,500 units×4 hours per unit = 6,000 hoursLabor efficiency variance = (AH - SH) SR = (7,100 hours - 6,000 hours) $12.30 per hour = (1,100 hours) $12.30 per hour = $13,530 U
The following standards for variable manufacturing overhead have been established for a company that makes only one product:The following data pertain to operations for the last month:What is the variable overhead efficiency variance for the month?
$10,179 U

SH = 600 units×2.7 hours per unit = 1,620 hoursVariable overhead efficiency variance = (AH - SH) SR = (2,400 hours - 1,620 hours) $13.05 per hour = (780 hours) $13.05 per hour = $10,179
Lafountaine Manufacturing Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company's cost formula for variable manufacturing overhead is $4.70 per MH. Duringthe month, the actual total variable manufacturing overhead was $20,210 and the actual level of activity for the period was 4,700MHs. What was the variable overhead rate variance for the month
$1,880 favorable

Variable overhead rate variance = AH (AR - SR) = AH×AR - AH×SR = $20,210 - (4,700 hours×$4.70 per hour)= $20,210 - $22,090 = $1,880 F
Kornfeld Corporation produces metal telephone poles. In the most recent month, the company budgeted production of 2,800 poles.Actual production was 3,200 poles. According to standards, each pole requires 2.2 machine-hours. The actual machine-hours for themonth were 6,890 machine-hours. The standard variable manufacturing overhead rate is $9.20 per machine-hour. The actual variablemanufacturing cost for the month was $67,020. The variable overhead efficiency variance is
$1,380 F

SH = 3,200 poles×2.2 hours per pole = 7,040 hoursVariable overhead efficiency variance = (AH - SH) SR = (6,890 hours - 7,040 hours) $9.20 per hour = (-150 hours) $9.20 per hour = $1,380 F
The following data have been provided by Spraglin Corporation, a company that produces forklift trucks:Supplies cost is an element of variable manufacturing overhead. The variable overhead efficiency variance for supplies cost is
$484 U

SH = 6,200 trucks×3.7 hours per truck = 22,940 hoursVariable overhead efficiency variance = (AH - SH) SR = (23,160 hours - 22,940 hours) $2.20 per hour = (220 hours) $2.20 per hour = $484 U
The materials price variance is

The Litton Company has established standards as follows:Direct material: 3 pounds per unit @ $4 per pound = $12 per unitDirect labor: 2 hours per unit @ $8 per hour = $16 per unitVariable manufacturing overhead: 2 hours per unit @ $5 per hour = $10 per unitActual production figures for the past year are given below. The company records the materials price variance when materials areThe company applies variable manufacturing overhead to products on the basis of standard direct labor-hours
$600 F

Materials price variance = (AQ×AP) - (AQ×SP)$11,400 - (3,000 pounds×$4 per pound)$11,400 - $12,000 = $600 F
The materials quantity variance is

The Litton Company has established standards
$800 U

SQ = 3 pounds per unit×600 units = 1,800 poundsMaterials quantity variance = (AQ - SQ) SP= (2,000 pounds - 1,800 pounds) $4 per pound= (200 pounds) $4 per pound = $800 U
The labor rate variance is

The Litton Company has established standards
$440 U

Labor rate variance = AH (AR - SR) = AH×AR - AH×SR = $9,240 - (1,100 hours×$8 per hour)= $9,240 - $8,800 = $440 U
The labor efficiency variance is
The Litton Company has established standards
$800 F
SH = 600 units×2 hours per unit = 1,200 hoursLabor efficiency variance = (AH - SH) SR = (1,100 hours - 1,200 hours) $8 per hour = (-100 hours) $8 per hour = $800 F
The variable overhead rate variance is
The Litton Company has established standards
$220 U

Variable overhead rate variance = (AH×AR) - (AH×SR)= $5,720 - (1,100 hours×$5.00 per hour)= $5,720 - $5,500 = $220 U
The variable overhead efficiency variance is
The Litton Company has established standards
$500 F

Variable overhead efficiency variance = (AH - SH) SR = (1,100 hours - 1,200 hours) $5.00 per hour = (-100 hours) $5.00 per hour = $500 F
Gentile Corporation makes a product with the following standard costs:The company produced 6,000 units in May using 36,970 kilos of direct material and 4,340 direct labor-hours. During the month, thecompany purchased 40,400 kilos of the direct material at $4.70 per kilo. The actual direct labor rate was $13.70 per hour and theactual 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 whenthe materials are purchased.

75. The materials quantity variance for May is:
A.$13,150 F

SQ = 6,000 units×6.6 kilos per unit = 39,600 kilosMaterials quantity variance = (AQ - SQ) SP= (36,970 kilos - 39,600 kilos) $5.00 per kilo= (-2,630 kilos) $5.00 per kilo = $13,150 F

76. The materials price variance for May is:

C.$12,120 F

Materials price variance = AQ (AP - SP)= 40,400 kilos ($4.70 per kilo - $5.00 per kilo)= 40,400 kilos (-0.30 per kilo) = $12,120 F

77. The labor efficiency variance for May is:
C.$6,440
FSH = 6,000 units×0.8 hour per unit = 4,800 hoursLabor efficiency variance = (AH - SH) SR = (4,340 hours - 4,800 hours) $14 per hour = (-460 hours) $14 per hour = $6,440 F

78. The labor rate variance for May is:
D.$1,302 F

Labor rate variance = AH(AR - SR)= 4,340 hours ($13.70 per hour - $14.00 per hour)= 4,340 hours (-$0.30 per hour) = $1,30

79. The variable overhead efficiency variance for may is
A $1,380 F

SH = 6,000 units×0.8 hour per unit = 4,800 hoursVariable overhead efficiency variance = (AH - SH) SR = (4,340 hours - 4,800 hours) $3.00 per hour = (-460 hours) $3.00 per hour = $1,380 F

80. The variable overhead rate variance for may is
B $1,302F

Variable overhead rate variance = AH(AR - SR)= 4,340 hours ($2.70 per hour - $3.00 per hour)= 4,340 hours (-$0.30 per hour) = $1,302 F
Answers given in question
Tidd Corporation makes a product with the following standard costs:The company reported the following results concerning this product in November.The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed whenthe materials are purchased.

81. The materials quantity variance for November is:

A.$7,530 U

FSQ = 9,000 units×4.7 grams per unit = 42,300 gramsMaterials quantity variance = (AQ - SQ) SP= (44,810 grams - 42,300 grams) $3.00 per gram= (2,510 grams) $3.00 per gram = $7,530 U

82. The materials price variance for November is:

D.$9,460 F

Materials price variance = (AQ×AP) - (AQ×SP)= $132,440 - (47,300 grams×$3.00 per gram)= $132,440 - $141,900 = $9,460 F

83. The labor efficiency variance for November is:
A.$10,720U

FSH = 9,000 units×0.8 hour per unit = 7,200 hoursLabor efficiency variance = (AH - SH) SR = (7,870 hours - 7,200 hours) $16 per hour = (670 hours) $16 per hour = $10,720 U

84. The labor rate variance for November is:

C.$787 F

Labor rate variance = (AH×AR) - (AH×SR)= $125,133 - (7,870 hours×$16.00 per hour)= $125,133 - $125,920 = $787 F

85. The variable overhead efficiency variance for November is:
C.$2,680 U

USH = 9,000 units×0.8 hour per unit = 7,200 hoursVariable overhead efficiency variance = (AH - SH) SR = (7,870 hours - 7,200 hours) $4 per hour = (670 hours) $4 per hour = $2,680 U

86. The variable overhead rate variance for November is:
A.$1,574 F

Variable overhead rate variance = (AH×AR) - (AH×SR)= $29,906 - (7,870 hour ×$4 per hour)= $29,906 - $31,480 = $1,574F
Answer in text