Assignment Task: Financial Accounting Questions:
Q1. Which of the following should a management team review to analyze a fixed cost variance?
A. The sales volume variance for fixed costs
B. The flexible budget variance for fixed costs
C. Both A and B above
D. None of the above
Q2. Using the information below, calculate the spending (flexible budget) variance for direct labor costs
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2019 Standard (Budget)
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2019 Actual
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Sales price per unit
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$200
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$199
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Direct materials per unit
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$100
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$102
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Direct labor per unit
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$30
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$28
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Fixed overhead costs
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$200,000
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$195,000
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Units Sold
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12,000
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11,900
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A. $3,000 favorable
B. $26,800 favorable
C. $3,000 unfavorable
D. $23,800 favorable
Q3. Kramerica Inc. has forecast sales to be $600,000 in January, $480,000 in February, $500,000 in March and $620,000 in April. Forty percent of sales are made in cash, with the remainder on credit. Credit sales are collected 70% in the month of sale, and 30% in the following month. What are budgeted cash collections for April?
A. $598,400
B. $248,000
C. $508,400
D. $350,400
Q4. Costanza Inc., a stationary reseller, forecasted its sales for the next three months as follows: January 8,000 boxes, February 10,000 boxes, March 14,000 boxes. The unit cost of each box is $45. Selling and administrative expenses are budgeted to be $20,000 per month plus $8 per unit sold. What are budgeted selling and administrative expenses for February?
A. $20,000
B. $450,000
C. $100,000
D. $132,000
Q5. Braun Corporation, a computer reseller, began January with 4,000 computers on hand. During the month, Braun purchased 9,600 computers and sold 10,000 computers. Assuming that Braun has an ending goods inventory policy to have a fixed percentage of the following month's sales on hand, what are Braun's projected computer sales for February?
A. 10,000 computers
B. 9,600 computers
C. 9,000 computers
D. None of the above
Q6. Susan Ross wants to know how many years it will take for her to double her savings if she can invest her money and earn 9% compounded monthly. How many years will Susan have to wait to double her money?
A. 92.77 years
B. 8.04 years
C. 7.73 years
D. The answer depends on how much Susan invests
Q7. David Puddy is car shopping and plans to buy a 2019 Toyota Corolla. After making a down payment, David plans to borrow $21,000 from his bank. The bank offers 4-year (48-month) car loans. David's budget allows him to pay $500 monthly (at the end of each month) for the car. What is the maximum monthly interest rate that David can accept to keep his monthly payments to no more than $500 per month?
A. 6.70%
B. 5.56%
C. 0.56%
D. 0.42%
Q8. Joe Davola planned to begin saving for his retirement starting next month. Joe's plan was to invest $450 per month, starting at the end of next month, for the next 25 years. Because of some unexpected circumstances, Joe will not be able to begin funding his retirement for 12 months. If Joe wants to end up with the same amount of total savings in 25 years, how much would Joe have to save per month over the 24-year period? Assume that Joe will be able to earn 6% annually on his investment.
A. $23,345.18
B. $81.06
C. $486.41
D. $36.41
Q9. Which of the following alternatives would a logical and sensible investor choose?
A. Borrow money with an interest rate of 7% with monthly compounding, rather than borrowing money with an interest rate of 7% with annual compounding
B. Invest money with an interest rate of 5% with annual compounding, rather than investing money with an interest rate of 5% with monthly compounding
C. Borrow money with an interest rate of 9% with quarterly compounding, rather than borrowing money with an interest rate of 9% with semiannual compounding
D. Invest money with an interest rate of 5% with quarterly compounding, rather than investing money with an interest rate of 5% with semiannual compounding
Q10. Which of the following will increase the breakeven units for a company?
A. A $1 decrease in the variable costs per unit and a $20,000 decrease in fixed costs
B. A $3 increase in the selling price per unit and a $1 decrease in the variable costs per unit
C. A $2 increase in the variable costs per unit and a $1 increase in the selling price per unit
D. A $5 increase in the selling price per unit and a $20,000 decrease in fixed costs
Q11. H&H Bagels sells bagels in packages of six bagels. In April 2020, H&H sold 15,000 packages with a unit price of $8.80 each. H&H had $45,895 of fixed costs and calculated its breakeven volume at 6,850 packages for the month of April. What were H&H's variable costs per unit and how much did H&H incur in total variable costs in April?
A. $2.10 and $31,500
B. $6.70 and $100,500
C. $2.10 and $14,385
D. $6.70 and $45,895
Q12. Bania's Soup Company is considering accepting a special order for its soup. The normal sales price of a case of soup is $22 and the variable cost per case of soup is $17. Bania's total fixed costs are $10,000, which is equivalent to $5 per case. Normal volume is 2,000 cases of soup. The relevant range is 1,000 - 4,000 cases. The company has received a special order for 200 cases of soup at a price of $19 per case. If they accept the order:
A. Their profits will increase by $3,800
B. Their profits will decrease by $600
C. Their profits will decrease by $1,400
D. Their profits will increase by $400
Q13. Which of the following costs should not be included by Kassem's Soup Restaurant in its capital budgeting analysis to determine whether to add sandwiches to its current menu of all soup?
A. $5,800 in lost sales from customers who were expected to buy soup and are now expected to buy sandwiches
B. $3,500 in advertising costs related to launching the sandwich line
C. $900 in sandwich inventory as part of the initial cash flow
D. $ 1,700 in costs previously spent on a market research study related to customer sandwich buying patterns
Q14. Pendant Publishing is considering a new product line that has expected sales of $1,100,000 per year for each of the next 5 years. New equipment that is required to produce the new product will cost $1,200,000. The equipment has a useful life of 5 years and a $300,000 salvage value and will be sold at the end of year 5 for its' salvage value. Total variable costs of the product line are $450,000 per year, total fixed costs (not including depreciation) will be an additional $180,000 per year and the initial working capital investment, to buy inventory, will be $15,000. The discount rate (interest rate) for the project is 10% and the company's tax rate is 35%. What is the operating cash flow of year 1 for the company?
A. $305,500
B. $368,500
C. $470,000
D. ($846,500)
Q15. Rick Barr Inc. is considering a new product line that has expected sales of $500,000 per year for each of the next 5 years. New equipment that is required to produce the new product will cost $800,000. The equipment has a useful life of 5 years and an $80,000 salvage value and will be sold at the end of year 5 for its salvage value. Total variable costs of the product line are $230,000 per year, total fixed costs (not including depreciation) will be an additional $100,000 per year and the initial working capital investment, to buy inventory, will be $10,000. The discount rate (interest rate) for the project is 10% and the company's tax rate is 35%. What is the total cash flow of year 5 for the company?
A. $250,900
B. $160,900
C. $240,900
D. $256,750
Q16. Which of the following statements about capital budgeting is correct?
A. The timing of cash flows is irrelevant in capital budgeting
B. A company should use the same discount rate for all of its projects regardless of their risk
C. Interest expense on an outstanding loan is a relevant cost for capital budgeting
D. Proceeds forgone because a company used a building in a new project, rather than selling the building, is a relevant cost for capital budgeting
Q17. A financial analyst in Pitt's Sock Company prepared a capital budgeting analysis. The analyst calculated an NPV of $150,000 for the project. You just realized that the initial cash flow related to buying new equipment had a typo. The analysis was based on a purchase price of $10,000; however, the actual cost should have been $100,000. Which of the following is correct?
A. If the analysis were rerun with the correct initial purchase price, the NPV would be a negative number
B. If the analysis were rerun with the correct initial purchase price, the NPV would be $60,000
C If the analysis were rerun with the correct initial purchase price, the NPV would be $240,000
D. The impact on NPV cannot be calculated with the information above
Q18. What is the NPV of the following cash flows? The company uses an 11% discount rate.
Initial Cash Flow ($168,000)
Year 1 Cash Flow $25,000
Year 2 Cash Flow $25,000
Year 3 Cash Flow $25,000
Year 4 Cash Flow $0
Year 5 Cash Flow $75,000
Year 6 Cash Flow $75,000\
Year 7 Cash Flow $80,000
Year 8 Cash Flow $80,000
Year 9 Cash Flow $90,000
Year 10 Cash Flow $100,000
A. $121,348.25
B. $146,456.34
C. $109,322.75
D. $131,942.65
Q19. A financial analyst in Bookman's Book Company just analyzed a capital budgeting project and realized that the IRR of 12% on the project was identical to the company's discount rate of 12%. Which of the following is true regarding the net present value of the project?
A. The NPV of the project is positive
B. The NPV of the project is zero
C. The NPV of the project is negative
D. More information is needed to answer the question
Q20. When a company's discount rate increases, which of the following is true for a project that currently has a net present value of $105,325.69 and an IRR of 15.66%?
A. The company's IRR will increase
B. The company's IRR will decrease
C. The company's net present value will increase
D. The company's net present value will decrease
Q21. Which of the following is a period cost for a computer manufacturer:
A. Wages for assembly line workers
B. Glue for computers
C. Rent for factory building
D. None of the above
Q22. If the LHK Company had a per unit cost that was $5 when 400 units were produced and a per unit cost of $4 when 500 units were produced, the cost is a
A. Variable cost of $5 per unit
B. Fixed cost of $2,000
C. Mixed cost of $5 per unit variable cost and $400 fixed cost
D. Mixed cost of $4 per unit variable cost and $400 fixed cost
Q23. Which of the following would be included as a cash disbursement on a cash budget?
A. Fixed asset purchases
B. Depreciation
C. Borrowings from a bank
D. Both A & C
Q24. Which of the following is a possible reason for a sales volume variance?
A. Direct material prices per unit were different than expected
B. The quantity of labor hours used per unit were different than expected
C. The actual number of units sold were different than expected
D. Both A & B
Q25. You have won the lottery and you have been given the following options. Which one should you choose if the current interest rate is 5% annually?
A. $3,000,000 today
B. $290,000 per year at the end of each of the next 15 years
C. $6,000,000 at the end of 15 years.
D. $350,000 per year at the end of each of the next 10 years
Q26. You have received a settlement from an insurance company which will pay you $100,000 per year for 12 years at the end of each year and J.G. Wentworth wants to buy your annuity. What is JG Wentworth's annual rate of return (interest rate) if they are willing to pay you $500,000 today?
A. 7.56%
B. 18.21%
C. 16.94%
D. Interest rate cannot be calculated.
Q27. The Merrymount Company has budgeted sales of $400,000 and budgeted cash receipts of $380,000 for the month of July. The company sells beach bags for $40 each. The Company has also budgeted inventory purchases of 10,500 units at a cost of $20 each. If the company incurred $125,000 of selling and administrative expenses during July, what is the company's budgeted operating income for the month of July?
A. $75,000
B. $65,000
C. $45,000
D. None of the above
Q28. David is in the business of sharpening skates for college hockey teams. He signed a contract on August 1, 2019 for $28,000 with Bentley University ("Bentley") to sharpen the team's skates for the 2019-2020 hockey season, which is played from the months of September 2019 through March 2020. The contract states that Bentley will pay David a deposit of $8,000 on August 31, 2019, $8,000 on October 31, 2019, $4,000 on December 31, 2019 and the remaining $8,000 on March 31, 2020. David performed the services as contracted throughout the hockey season. What was the amount of revenue David should recognize for year-end December 31, 2019 on the Bentley contract?
A. $0
B. $16,000
C. $20,000
D. $28,000
Q29. Katelyn's Catering, Inc. ("Katelyn") provides gourmet appetizers for corporate functions. For the month of January 2020, Katelyn had the following events occur in its business: 1) Katelyn incurred and paid salaries for their wait staff and chefs of $10,000; 2) Katelyn paid their food supplier $18,000 for food supplies used in the prior month; 3) Katelyn incurred but did not pay $800 in utilities; 4) Katelyn incurred $1,200 of repairs expenses on the delivery van, but will not pay until next month; 5) Katelyn was paid $12,000 from her largest corporate customer for a holiday party they catered in the prior month. What are the total amount of expenses that Katelyn will show on their income statement for the month of January 2020?
A. $0
B. $12,000
C. $18,000
D. $30,000
Q30. On May 1, 2019, Luke paid LinkedIn $1,200 for his 2-year subscription for online professional networking. The subscription starts immediately. What amount of revenue should LinkedIn record for the years of 2019 and 2020?
A. Year 2019 = $1,200; Year 2020 = $0
B. Year 2019 = $600, Year 2020 = $600
C. Year 2019 = $400; Year 2020 = $600
D. The answer cannot be determined based on the information given
Q31. Leia is opening an elite pet grooming and spa business for celebrity pets in Beverly Hills, CA. She will provide these services for $200 per pet visit. Variable costs to provide the service are $60 per pet visit and fixed costs on the grooming spa location are $10,000 per month. What are the breakeven number of pets that Leia has to groom in a month and what would be the total monthly sales?
A. Breakeven = 72 pets per month; total sales = $14,400
B. Breakeven = 50 pets per month; total sales = $10,000
C. Breakeven = 72 pets per month; total sales = $10,000
D. Breakeven = 60 pets per month; total sales = $12,000
Q32. Alton Benes paints graduation pictures and then sells them in expensive frames. His average selling price is $299 per painting. Variable costs to deliver a painting are $29 each and Alton's fixed costs are $2,000 per month. Alton currently sells 30 paintings per month and he cannot increase the number of paintings sold per month, due to a lack of available time. If Alton wants to generate a profit of $10,000 per month, what would his average selling price per unit need to be?
A. $130
B. $429
C. $270
D. $400
Q33. A company has an unfavorable spending (flexible budget) variance for direct materials. A possible explanation of this is:
A. The company made more units than they had budgeted
B. The company used less material per product than they had budgeted
C. The company paid more per pound of material than they had budgeted
D. None of the above answers in correct
Q34. Your Aunt Mary recently found a painting in her closet that she purchased 20 years ago for $500. She found out that the painting is now worth $50,000. What annual rate of return did Aunt Mary earn on this painting?
A. 100.0%
B. 25.9%
C. 5.0%
D. 50.0%
Q35. The Romanowksi Manufacturing Company uses a plant wide overhead rate to allocate overhead with direct labor hours as its cost driver. The budgeted direct labor was $750,000 with an hourly rate of $25. The budgeted overhead spending was $3,000,000. During the first month of the year, Romanowski manufactured 100 pieces of product A using 2,500 direct labor hours. What was the amount of overhead allocated to Product A?
A. $210,000
B. $62,500
C. $225,000
D. $250,000
Q36. The preferred method to use in capital budgeting analysis is:
A. Return on equity
B. Net present value
C. Internal rate of return
D. All of the above are equally acceptable methods to use in capital budgeting analysis
Q37. Which of the following is NOT an element of a master budget?
A. The capital expenditures budget
B. The selling and administrative expense budget
C. The inventory purchases budget
D. All of the above are elements of the master budget
38. The Coleman Co. produces canned tomatoes and it is considering the purchase of a new machine that would increase the speed of the canning process and save money. The cost of this machine is $40,000. The annual cash flows are projected to be the following:
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Year
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Cash Flow
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1
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$5,000
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2
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$10,000
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3
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$25,000
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4
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$15,000
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5
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$20,000
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What is the net present value of selecting the new machine, assuming an interest rate of 8%?
A. $17,686
B. $97,686
C. $57,686
D. $7,868
Q39. Calabria Enterprise's current sales price per unit is $26 and the current variable cost per unit is $18. Fixed costs are $40,000. If the sales price increases by $2 and all the other costs remain unchanged, the break-even point in units will:
A. increase by 4,000 units
B. increase by 1,000 units
C. decrease by 1,000 units
D. remain unchanged
Q40. The Battaglia Co. produces lounge chairs. At a budgeted amount of 10,000 lounge chairs the manufacturing overhead is $50,000 variable and $135,000 fixed. If Battaglia had actual variable manufacturing overhead of $60,500 and actual fixed manufacturing overhead of $125,000 for 11,000 lounge chairs produced, what would the spending (flexible budget) variance be for the total manufacturing overhead?
A. $500 unfavorable
B. $4,500 unfavorable
C. $4,500 favorable
D. $500 favorable
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