Multiple Choice Questions on Overhead Maintenance and Inspection

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Question 1

The Underhill plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance $180,000
Inspection 380,000

The plant currently applies overhead using direct labor hours and expected capacity of 70,000 direct labor hours. The following data has been assembled for use in developing a bid for a proposed job:

Prime costs $8,000
Machine hours 500
Number of inspections 4
Direct labor hours 800

Total expected machine hours for all jobs during the year are 25,000, and the total expected number of inspections is 1,900. Using direct labor hours to assign overhead, the total cost of the potential job would be?
Answer
$8,000

$14,400

$8,000

$6,400

Question 2

Chess Company provided the following information from its 2006 income statement.
Sales revenue $800,000
Cost of goods sold 400,000
Selling expenses 100,000
Administrative expenses 50,000
Other operating expenses 50,000
Interest expense 20,000
Tax expense 63,000

In addition, the company reported the following asset balances for fiscal years ended December 31, 2005 and 2006:

Assets 2005 2006
Cash $50,000 $55,000
Accounts receivable 170,000 185,000
Inventory 100,000 120,000
Investment in Checkers Company 80,000 85,000
Undeveloped land 170,000 170,000
Buildings, net of depreciation 400,000 450,000

Calculate Chess Company?s operating income.
Answer
$117,000

$180,000

$200,000

$400,000

Question 3

Last year Luchen Company had a net loss of $8,000. The company sells one product with a selling price of $80 and a variable cost per unit of $60. This year the company would like to earn a before-tax profit of $40,000.

How many additional units must the company sell this year than it sold last year? Assume that the tax rate is 40 percent.
Answer
400 units

5,400 units

2,400 units

2,000 units

Question 4

The following information was extracted from the accounting records of Bowater Company:

Estimated manufacturing overhead $260,000
Estimated machine hours 7,500
Actual machine hours worked 8,000
Actual overhead costs incurred:
Indirect materials $97,500
Indirect labor $60,000
Utilities $10,000
Insurance $25,000
Rent $70,000

If B If Bowater uses a predetermined overhead rate to apply overhead, manufacturing overhead applied would be (round the rate to two decimal places)
Answer
$260,000

$262,500

$277,360

$243,750

Question 5

A company has provided the following information concerning its assets.

Asset Account 2005 2006
Cash $4,000 $6,000
Accounts receivable 20,000 40,000
Undeveloped land 80,000 80,000
Buildings, net of depreciation 140,000 180,000

Calculate the company?s average operating assets for 2006.
Answer
$226,000

$244,000

$195,000

$275,000

Question 6

The following information pertains to Artisan Company:

Sales price per unit $?
Variable cost per unit $130
Total fixed costs $125,000
Units Sold 4,000
Before-tax income $75,000

Contribution margin per unit must have been?
Answer
$50

$130

$180

$210

Question 7

Max Company has developed the following standards for one of its products:

Direct materials 15 pounds x $16 per pound
Direct labor 4 hours x $24 per hour
Variable overhead 4 hours x $14 per hour

The following activities occurred during the month of October:

Materials purchased 10,000 pounds costing $170,000
Materials used 7,200 pounds
Units produced 500 units
Direct labor 2,300 hours at $23.60 per hour
Actual variable overhead $30,000

The company records materials price variances at the time of purchase.

Max's materials price variance would be?
Answer
$50,000 favorable

$50,000 unfavorable

$10,000 unfavorable

$10,000 favorable

Question 8

Andrews Company sells a product for $10. Budgeted sales for the first quarter of the current year are as follows:

Budgeted Sales
January $160,000
February 100,000
March 180,000

The company collects 70 percent in the month of sale and 25 percent in the following month. Five percent of all sales are uncollectible and written off.

Andrews Company's budgeted cash receipts for March are?
Answer
$126,000

$151,000

$156,000

$205,000

Question 9
The following information was reported on two projects of Dartmouth, Inc.:

Prior Year Current Year
Sales $30,000,000 $30,000,000
Operating income 2,160,000 2,100,000
Average operating assets 12,000,000 12,000,000

Dartmouth, Inc.'s margin for the current year is?
Answer
7.0%

7.2%

4.0%

2.5%

Question 10

Bronco Company sells a product for $10. Budgeted sales for the first quarter of the current year are as follows:

Budgeted Sales
January $600,000
February 800,000
March 900,000

The company wants to maintain an inventory of finished units equal to 30 percent of the following month's sales, and 10,000 units are on hand at the beginning of the year.

Each unit requires two pounds of raw material costing $1 per pound. The company maintains a raw materials inventory equal to 20 percent of the following month's production needs.

Budgeted production in units for February would be?
Answer
131,000

107,000

83,000

80,000