Manufacturing Inc (use for Qs 1 through 4)
Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand, 7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050 ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per minute).
1. Moreland's direct materials price variance is:
a. $1,050.00 F.
b. $1,050.00 U.
c. $1,060.50 F.
d. $1,060.50 U.
2. Moreland's direct materials usage variance is:
a. $ 420 U.
b. $ 420 F.
c. $6,420 U.
d. $6,420 F.
3. Moreland's direct labor rate variance is:
a. $2,100 F.
b. $1,800 F.
c. $1,960 U.
d. $ 560 U.
4. Moreland's direct labor efficiency variance is:
a. $1,600 U.
b. $1,400 F.
c. $2,100 U.
d. $2,100 F.
Mystic Falls Inc (Q 5 & 6)
Mystic Falls Inc. bottles and sells a popular soft drink. In 2011, the company had expected to sell 1,000,000 bottles but actually bottled and sold 900,000 bottles. The standard direct materials cost for each bottle is $.40 comprised of 10 ounces at a cost of $.04 per ounce. During 2011, 10,000,000 ounces of material were purchased out of which 9,200,000 ounces were used at a cost of $.05 per ounce.
5. The direct materials price variance for 2011 was:
a. $ 92,000 U.
b. $ 92,000 F.
c. $100,000 U.
d. $100,000 F.
6. The direct materials usage variance for 2011 was:
a. $ 8,000 U.
b. $ 8,000 F.
c. $40,000 U.
d. $40,000 F.
Sampson Apparel Inc.
Sampson Apparel Inc. incurred actual variable overhead expenses of $20,000 in the current year for the production of 5,000 units. Variable overhead was applied at a rate of $1.50 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 9,000 direct labor hours for production.
7. What was Sampson's variable overhead spending variance?
a. $6,500 U
b. $6,500 F
c. $1,500 U
d. $1,500 F
8. Hannah's Homemade Cookies produces and sells delicious shortbread cookies. The cost of producing a bag of cookies is $.65 and the bag sells for $3.75. Hannah is considering processing all the cookies further by dipping them in chocolate. The additional processing costs would be $.50 per bag and the sales price of the chocolate-dipped cookies would be $4.20 per bag. If Hannah can sell 5,000 bags of either type of cookie per year, which of the following statements is true if she chooses to process the cookies further?
a. Net income would increase by $2,250 per year.
b. Net income would decrease by $2,500 per year.
c. Net income would decrease by $250 per year.
d. Net income would increase by $15,250 per year.
9. Wright Manufacturing:
Wright Manufacturing makes picnic tables in three sizes: small, medium, and large. The picnic tables can be sold with or without a finishing stain. The following information is available for each table:
Small Medium Large
Initial sales price $60 $10 $175
Initial cost 20 40 55
Sales price after staining 70 125 210
Cost of staining 11 15 20
Number sold per month 100 300 175
Which table(s) should be processed further?
a. Small and medium tables
b. Medium and large tables
c. Large tables
d. Small, medium, and large tables
10 & 11 Henderson Manufacturing Inc.
Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 10,000 motors are manufactured each year, the motor costs per unit are as follows:
Direct materials $5
Direct labor 5
Variable overhead 2
Fixed overhead 7
10. Plymouth Inc. has offered to sell Henderson 10,000 motors for $14 per unit. If Henderson accepts the offer, 50% of the fixed overhead currently allocated to the motors could be avoided.
What are the relevant costs per unit of Henderson manufacturing the motors themselves?
a. $15.50
b. $15.20
c. $19.00
d. $14.00
11. If Henderson accepts the offer to purchase 6,000 motors from Plymouth, the net income will:
a. decrease by $9,000.
b. increase by $10,000.
c. decrease by $10,000.
d. increase by $9,000.
12. A local science museum normally sells tickets to its museum for $5 each. The daily maximum capacity of the museum is 1,000 visitors. At the maximum capacity, fixed costs are $2 per visitor and variable costs are $1.50 per visitor. A local school group has approached the museum wishing to purchase 50 special passes at a cost of $2.50 each. Assuming the museum has excess capacity, if the special order were accepted, net income would:
a. increase by $50.00.
b. decrease by $125.00.
c. increase by $125.00.
d. decrease by $50.00.
13. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials
$150,000
Direct labor
240,000
Inspecting products
60,000
Providing power
30,000
Providing supervision
40,000
Setting up equipment
60,000
Moving materials
20,000
Total
$600,000
If the component is not produced by Foster, inspection of products and provision of power costs will only be 10% of the current production costs; moving materials costs and setting up equipment costs will only be 50% of the production costs; and supervision costs will amount to only 40% of the production amount. An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?
a. $25,000 increase
b. $45,000 increase
c. $90,000 decrease
d. $90,000 increase
14. Rose Manufacturing Company had the following unit costs:
Direct materials $24
Direct labor 8
Variable overhead 10
Fixed overhead (allocated) 18
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit or loss will be generated by accepting the special order?
a. $12,000 profit
b. $96,000 profit
c. $84,000 loss
d. $24,000 loss
15. A company has computed that their "margin" is .18. Which of the following statements is the best interpretation of these results?
a. $.18 of every $1 invested in assets is net profit.
b. $.18 of every $1 made in sales is profit.
c. Every $1 invested in assets generates $.18 in sales revenue.
d. Every $1 invested in assets generates $.18 of segment margin.
16. Bryan Manufacturing had sales of $4,000,000 and net operating income of $700,000. Operating assets during the year averaged $600,000. The manager of Bryan is considering the purchase of a new machine which is expected to increase average operating assets by 8%. If the new machine is purchased, the company's new return on investment (ROI) would be:
a. 126.0%
b. 16.2%
c. 108.0%
d. 92.6%
17 Shannon Pharmaceuticals has the following information available for one of its divisions in the current year:
Sales revenue
$10,000,000
Operating expenses
4,500,000
Average operating assets
4,000,000
The company requires each of its divisions to generate a minimum return of 30%. What is this division's residual income?
a. $1,500,000
b. $4,300,000
c. $2,350,000
d. $8,800,000
18 Compute the residual income for the Hi Ho investment center as shown below.
Hi Ho Subsidiary
Total sales
$20,000
Operating income
$4,300
Beginning assets invested
$14,000
Ending assets invested
$16,000
Average assets invested
$?
Desired ROI
25%
Residual income
$?
a. $550
b. $3,050
c. $4,300
d. $1,800
19. Country Farmer Grocery has decided to invest in a pizza stand for its store. The investment will cost the store $200,000. The company expects to sell 25,000 slices of pizza per year for $2.40 per slice. The variable costs for the pizza stand will be $0.80 per slice, and the stand will have fixed cost of $12,000 per year. What is the store's return on this investment?
A. 30%
B. 24%
C. 20%
D. 14%
E. There is not enough information
20. Murphy Company reported operating income of $320,000 in 2005 from $6,000,000 in sales. The company had a turnover of 3. Based on this information, what is company's return on investment?
A. 18.75%
B. 17.78%
C. 16%
D. 5.33%
E. None of the above