Managerial AccountingAcct 2301Summer II 2008Exam 3 – Version 1

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There are 25 questions on this exam. Select the best answer for each question and fill your answer in on your scantron. Minor rounding (around $5) is acceptable for PV problems. Good Luck!

  1. The Dallas Division of Texas Inc. as a return on investment of 20%. The Division generates sales of $600,000 from $200,000 of operating assets. What is the division’s margin? (Round to two decimal places.)
  2. 30.00%
  3. 20.22%
  4. 10.50%
  5. 6.67%
  6. None of the above
  1. Peck Company started the accounting period with the following beginning balances in 2007:

Raw materials inventory$42,000

Work in process inventory$90,000

Finished goods inventory$20,000

During the accounting period, the company purchased $60,000 of additional raw materials and ended the period with $16,000 in raw materials inventory. Direct labor costs for the period were $120,000 and $36,000 of manufacturing overhead costs was allocated to work in process. There were no over or underapplied overhead. Ending work in process was $82,000 and ending finished goods inventory was $35,000. Goods were sold during the period for sales revenue of $350,000. What was the company’s cost of goods sold for the period?

  1. $235,000
  2. $250,000
  3. $270,000
  4. $300,000
  5. None of the above
  1. Rice Company began 2007 with no beginning inventory. The company purchased $10,000 of raw materials and used $8,000 in the production process. The company paid production workers $12,000 for 10,000 labor hours worked. The company uses a predetermined overhead of $0.70 per direct labor hour to applied manufacturing overhead. The actual manufacturing overhead amounted to $7,500. The company produced 9,000 units and sold 8,000 units. After adjusted for any over or underapplied overhead, what was Rice’s cost of goods sold for 2007?
  2. $27,000
  3. $24,000
  4. $24,500
  5. $23,500
  6. None of the above
  7. Timothy Plant is considering investing in new machinery. The new machinery will increase cash sales by $20,000 per, but will also increase cash expenses by $4,000 per year. The machine has a useful life of 5 years. What is the maximum amount that Timothy is willing to pay for the machinery if the company has a 10% required rate of return? (Ignore taxes)
  8. $75,816
  9. $60,653
  10. $ 9,935
  11. $15,163
  12. None of the above
  13. The Warner Corporation was started on January 1, 2007. The company incurred the following cash transactions during the year

1.) Acquired $1,000 of capital from the owners.

2.)Purchased $500 of direct raw materials.

3.)Used $400 of direct raw materials in the production process

4.)Paid production workers $600 cash.

5.)Paid $600 for manufacturing overhead.

6.)Applied manufacturing overhead was $500.

7.)Paid $300 for sales commission.

8.)Started and completed 500 units of inventory.

9.)Sold 400 units for $7 each.

What was Warner’s net income for 2007?

  1. $1,000
  2. $1,220
  3. $1,500
  4. $1,300
  5. None of the above
  1. Which of the following is the approximate internal rate of return for an investment that costs $33,901 and provides a $6,000 annuity for 10 years?
  2. 8%
  3. 9%
  4. 10%
  5. 12%
  6. None of the above
  1. An investment which cost $48,000 increased annual cash inflows by $12,000 per year for a six-year period. The desired rate of return is 10%. The actual return from the investment was
  2. Greater than the desired rate of return
  3. Less than the desired rate of return
  4. Equal to the desired rate of return
  5. Half that of the desired rate of return
  6. The answer cannot be determined from the information provided.
  7. Barney’s Bagels invested in a new oven for $25,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflow:

Year 1 - $6,000

Year 2 - $8,000

Year 3 - $7,000

Year 4 - $5,000

Year 5 - $2,000

Year 6 - $2,000

Using the averaging method, the payback period for the investment

  1. 4.0years
  2. 4.5 years
  3. 5.0 years
  4. 5.5 years
  5. None of the above
  1. Which of the following would increase residual income?
  2. Decrease in income
  3. Decrease in investment
  4. Increase in the required ROI
  5. Decrease in sales
  6. None of the above
  7. Perfecto Products provided the following selected information about its consumer products division for 2007:

Desired ROI9%

Net Income$360,000

Residual Income$270,000

What is the company’s investment amount?

  1. $4,000,000
  2. $3,000,000
  3. $2,000,000
  4. $1,000,000
  5. None of the above
  1. Tom is planning a vacation to Europe two years from now. He would like to have $20,000 saved for the vacation. How much must Tom invest today at a rate of 8% in order to go to Europe? (Round to the nearest dollar.)
  2. $18,519
  3. $18,182
  4. $17,147
  5. $35,665
  6. None of the above
  7. Loftin Corporation’s balance sheet indicates that the company has $600,000 invested in operating assets. During 2007, Loftin earned $96,000 of operating and had a margin of 5%. What was Loftin’s turnover for 2007?
  8. 3.0
  9. 16.4
  10. 3.2
  11. 6.25
  12. None of the above
  1. Britzelburg Company’s work in process account balance increased by $1,000 from the beginning to the end of the year, while its finished goods account balance decreased by $500. Assuming total manufacturing costs $5,000, what was the company’s cost of goods sold amount?
  2. $5,500
  3. $4,500
  4. $4,000
  5. $3,500
  6. None of the above
  1. During 2007, Lela Company estimated that its manufacturing employees would work 80,000 direct labor hours and incur $384,000 in manufacturing overhead costs. During the year the company actually worked 75,000 direct labor hours. Actual manufacturing overhead costs amounted to $344,000. Lela applied overhead cost on the basis of direct labor hours. Based on this information, overhead was
  2. Overapplied by $16,000
  3. Undeapplied by $40,000
  4. Overapplied by $40,000
  5. Underapplied by $16,000
  6. None of the above
  1. Torvald’s Construction is considering purchasing a new piece of equipment for $80,000. The new equipment will increase cash inflows by $20,000 per year over the equipment’s six-year useful life. The equipment has a $5,000 salvage value. What is the net present value of the investment if Torvald has a desired rate of return of 12%? (Ignore taxes)
  2. Positive NPV of $84,761
  3. Positive NPV of $2,228
  4. Negative NPV of $2,533
  5. Positive NPV of $4,761
  6. None of the above
  1. All of the following costs are accumulated in the work in process account except
  2. Direct materials cost
  3. Direct labor costs
  4. Applied overhead costs
  5. Sales commission costs
  6. All of the above are accumulated in WIP
  1. Coleridge Manufacturing began 2008 with two jobs (Job 101 and 202) in work in process. An additional job (Job 303) was started during the year but was not completed. Jobs 101 and 202 were completed and Job 101 was sold during 2008. The job order cost sheets showed the following information:

Job 101Job 202Job 303

Beginning Balance$ 8,000$10,000$ 0

Direct Materials$10,000$12,000$14,000

Direct Labor$12,000$14,000$16,000

The company applies overhead to jobs at a rate of $0.60 per direct labor cost. What was the company’s ending balance in Work in Process?

  1. $37,200
  2. $44,400
  3. $30,000
  4. $39,600
  5. None of the above.
  1. Needlemeyer Company uses a job order cost system. During the month of November, the company worked on three jobs. The job order cost sheets for the three jobs contained the following information at the end of November:

Job A / Job B / Job C
Beg. Balances / $2,000 / $1,500 / $3,000
Direct Material / $ 500 / $ 800 / $1,000
Direct Labor / $1,200 / $2,300 / $ 900

The company applies overhead at a rate of $1.20 per direct labor dollar. During November Job B was completed and sold in December. Jobs A and C were completed in December. At the end of November what was the balance in Work in Process?

  1. $11,120
  2. $ 6,120
  3. $13,200
  4. $18,480
  5. None of the above
  1. Cumberland Company had 800 units of product in its work in process inventory at the beginning of the period. During the period 3,000 additional units of product were started. At the end of the period there were 1,200 units of product in the work in process account. The ending work in process inventory was estimated to be 30% complete. The beginning work in process inventory had a balance of $2,000. There were $21,680 of product costs added to work in process during the period. What is the amount of cost ending Work in Process inventory?
  2. $9,600
  3. $2,880
  4. $27,200
  5. $9,500
  6. None of the above
  1. Riley Company had no beginning inventory. Its total manufacturing costs for the year were $900,000. Its ending work in process inventory balance was $600,000 and cost of goods sold was $125,000 for the year. What was the ending finished goods inventory balance?
  2. $300,000
  3. $175,000
  4. $125,000
  5. $475,000
  6. None of the above
  1. Durst Company began the year with 500 units of product in work in process inventory. At the end of the year 3,000 units had been completed. There were 1,000 units remaining in work in process at the end of the year that were on average 60% complete. Total manufacturing costs for the year totaled $57,600. What was the company’s cost per equivalent unit for the year?
  2. $14.40
  3. $16.50
  4. $18.58
  5. $16.00
  6. None of the above
  1. Vernon Company estimates that its production workers will work 100,000 direct labor hours during the upcoming period and that overhead costs will amount to $500,000. If the actual direct labor hours worked is 112,000, what is the amount of applied overhead?
  2. $560,000
  3. $500,000
  4. $446,429
  5. $400,000
  6. None of the above
  1. The St. Lois Division of Missouri Garage Doors, Inc. is currently achieving a 16 percent ROI. The company’s target ROI is 10%. The division has the opportunity to invest in operating assets an additional $600,000 at 13 percent, but is reluctant to do so because its ROI will fall to 15.5 percent. The division’s present investment in operating assets is $3,000,000. What will happen to the division’s residual income if the new investment is accepted?
  2. Increase by $18,000
  3. Decrease by $180,000
  4. Increase by $198,000
  5. The division’s RI will not change.
  6. None of the above
  1. Friendly Fred Incorporated is considering a capital investment project that will generate cash sales of $80,000 per year for the next five years. The investment has a cost of $150,000 that is depreciated using the straight-line method and has no salvage value. Assuming a tax rate of 30%, what amount of annual after-tax net cash flow will be provided by this project?
  2. $80,000
  3. $50,000
  4. $30,000
  5. $65,000
  6. None of the above
  1. Standard Oil Company operates two divisions. The Houston Division has residual income of $22,500 and operating assets of $250,000. The company’s desired ROI is 15%. What is Houston Division’s return on investment?
  2. 15%
  3. 24%
  4. 12%
  5. 22%
  6. There is not enough information available.

Acct 2301 – Exam 3Page 1