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34 Multiple Choice Questions in Managerial Accounting

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13. R Corp. applies manufacturing overhead to products on the basis of standard machine-hours. The company's predetermined overhead rate for fixed manufacturing overhead is $1.20 per machine-hour and the denominator level of activity is 6,600 machine-hours. In the most recent month, the total actual fixed manufacturing overhead was $8,340 and the company actually worked 6,400 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 6,480 machine-hours. What was the overall FIXED OVERHEAD VOLUME VARIANCE for the month?
a. $240 favorable
b. $144 unfavorable
c. $240 unfavorable
d. $96 favorable

Use the following to answer questions 14 and 15:
Cal Hospital bases its budgets on patient visits. The hospital's static budget for August appears below:
Budgeted # of patient visits..................8,300
Budgeted variable overhead costs:
Supplies (@ $5.00 per patient visit)...$41,500
Laundry (@ $7.30 per patient visit).... 60,590
Total variable overhead cost............... 102,090
Budgeted fixed overhead costs:
Wages and salaries............................... 60,590
Occupancy costs................................... 73,040
Total fixed overhead cost................... 133,630
Total budgeted overhead cost.......... $235,720

14. The TOTAL VARIABLE OVERHEAD COST at an activity level of 9,300 patient-visits per month should be:
a. $114,390
b. $149,730
c. $102,090
d. $133,630

15. The TOTAL FIXED OVERHEAD COST at activity level of 9,600 patient-visits per month should be:
a. $133,630
b. $154,560
c. $235,720
d. $272,640

Use the following to answer questions 16-18:
M. Corp's static budget for June appears below. The company bases its budget on machine-hours.

Budgeted # of machine hours........................... 8,900
Budgeted variable overhead costs:
Supplies (@$2.20 per machine hour)..............$19,580
Power (@$3.80 per machine hour).................. 33,820
Total variable overhead cost............................. 53,400
Budgeted fixed overhead costs:
Salaries.................................................................. 26,700
Equipment depreciation.................................... 39,160
Total fixed overhead cost................................ 65,860
Total budgeted overhead cost....................... $119,260
In June, the actual# of machine hours was 9,300, the actual supplies cost was $19,760, the actual power cost was $35,720, the actual salaries cost was $27,130, and the actual equipment depreciation was $39,430.

16. The variance for SUPPLIES cost in the flexible budget performance report for the month should be:
a. $180 U
b. $700 U
c. $700 F
d. $180 F

17. The variance for POWER cost in the flexible budget performance report for the month should be:
a. $1,900 F
b. $1,900 U
c. $380 U
d. $380 F

18. The variance for EQUIPMENT DEPRECIATION in the flexible budget performance report for the month should be:
a. $1,490 F
b. $1,490 U
c. $270 U
d. $270 F

19. In order to properly report segment margin as a guide to long-run segment profitability and performance, fixed costs must be separated into two broad categories. One category is common fixed costs. What is the other category?
a. discretionary fixed costs
b. committed fixed costs
c. traceable fixed costs
d. specialized fixed costs

20. Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:
a. return on investment
b. residual income
c. contribution margin
d. segment margin

21. Duke corporation has 2 divisions: the Governmental Product's Division's divisional segment margin is $255,000 and the Export Product Division's divisional segment margin is $59,800. The total amount of common fixed expenses not traceable to the individual divisions is $163,700. What is the company's net operating income?
a. $314,800
b. ($314,800)
c. $151,100
d. $478,500
22. K. Corp. has provided the following data:
Return on investment (ROI).................................. 15%
Sales.......................................................................... $120,000
Average operating assets..................................... $60,000
Minimum required rate of return....................... 12%
Margin on sales...................................................... 7.5%
K. Corp's RESIDUAL INCOME is:
a. $1,800
b. $5,400
c. $2,700
d. $3,600

Use the following to answer questions 23-25:
O. Inc's income statement for the most recent month is given below.
Total Store A Store B
Sales......................................................... $300,000 $100,000 $200,000
Variable expenses................................ 192,000 72,000 120,000
Contribution Margin............................. 108,000 28,000 80,000
Traceable fixed expenses.................... 76,000 21,000 55,000
Segment margin.................................... 32,000 $7,000 $25,000
Common fixed expenses..................... 27,000
Net operating income.......................... $5,000

23. If Store B sales increase by $20,000 with no change in traceable fixed expenses, the overall company net operating income should:
a. increase by $2,500
b. increase by $5,000
c. increase by $8,00
d. increase by $12,000

24. The marketing department believes that a promotional campaign at Store A costing $5,000 will increase sales by $15,000. If its plan is adopted, overall company net operating income should:
a. decrease by $800
b. decrease by $5,800
c. increase by $5,800
d. increase by $10,000

25. A proposal has been made that will lower variable expenses in Store A to 62% of sales. However, this reduction can only be accomplished by an increase in fixed expenses of $8,000. If this proposal is implemented and sales remain constant, overall company net operating income should:
a. remain the same
b. decrease by $4,200
c. increase by $2,000
d. increase by $8,000

26. The following information relates to the quilt Division of TDS Corp for last year:
Sales...................................................................................... $200,000
Contribution Margin.......................................................... $90,000
Net operating income........................................................ $65,000
Average operating assets.................................................. $500,000
Minimum desired rate of return..................................... 10%
What was the Quilt Division's return on investment (ROI) for last year?
a. 13%
b. 18%
c. 40%
d. 45%

27. Costs which can be eliminated in whole or in part if a particular business segment is discontinued are called:
a. sunk costs
b. opportunity costs
c. avoidable costs
d. irrelevant costs

28. Which of the following best describes an OPPORTUNITY COST:
a. it is a relevant cost in decision making, but is not part of the traditional accounting records.
b. it is not a relevant cost in decision making, but is part of the traditional accounting records.
c. it is a relevant cost in decision making, but is part of the traditional accounting records.
d. it is not a relevant cost in decision making, but is not part of the traditional accounting records.

29. The acceptance of a special order will improve overall net operating income so long as the revenue from the special order exceeds:
a. the contribution margin on the order.
b. the incremental costs associated with the order.
c. the variable costs associated with the order.
d. the sunk costs associated with the order.

30. K. Corp manufactures five different products. All 5 of these products must pass through a stamping machine in its fabrication department. This machine is K's constrained resource. K would ma ke the most profit if it produces the product that:
a. uses the lowest # of stamping machine hours.
b. generates the highest contribution margin per unit.
c. generates the highest contribution margin ratio.
d. generates the highest contribution margin per stamping machine hour.

31. G. Co. has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost of $50,000. If the lamps are reworked for $20,000, they could be sold for $35,000. Alternatively, the lamps could be sold for $8,000 for scrap. In a decision model analyzing these alternatives, the SUNK COST would be:
a. $8,000
b. $15,000
c. $20,000
d. $50,000

32. R. Corp currently operates 2 divisions which had operating results last year as follows:
West Division Troy Division
Sales................................................................. $600,000 $300,000
Variable costs................................................. 310,000 200,000
Contribution margin..................................... 290,000 100,000
Traceable fixed costs................................... 110,000 70,000
Allocated common corporate costs.......... 90,000 45,000
Net operating income (loss)...................... $90,000 ($15,000)
Since the Troy Division also sustained an operating loss in the prior year, R's president is considering the elimination of the division. Troy Division's traceable fixed costs could be avoided if the division were eliminated. The total common corporate costs would be unaffected by the decision. If the Troy Division had been eliminated at the beginning of last year, R. Corp's operating income for last year would have been:
A. $15,000 higher
b. $ 30,000 lower
c. $45,000 lower
d. $60,000 higher

33. B. Co., a multi-product firm, produces 5,000 units of Product X each year. Each unit of Product X
Sells for $8 and has a contribution margin of $5. If Product X is discontinued, $18,000 of fixed overhead would be eliminated. As a result of discontinuing Product X, the co's overall operating income would:
a. decrease by $25,000
b. increase by $43,000
c. decrease by $7,000
d. increase by $7,000

34. S. Co. produces a part used in the manufacture of 1 of its products. The unit product cost is $18, computed as follows:
Direct materials.......................................................... $8
Direct labor................................................................. 4
Variable manufacturing overhead......................... 1
Fixed manufacturing overhead.............................. 5
Unit product cost...................................................... $18
An outside supplier has offered to provide the annual requirement of 4,000 of the parts for only $14 each. It is estimated that 60% of the fixed overhead cost above could be eliminated if the parts are purchased from the outside supplier. Based on these data, the per-unit dollar advantage or disadvantage of PURCHASING FROM THE OUTSIDE SUPPLIER would be:
a. $1 disadvantage
b. $1 advantage
c. $2 advantage
d. $4 disadvantage

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The solution explains various multiple choice questions relating to managerial accounting

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