Question

In: Accounting

1. The following data relate to Logan Electric and its Lightbulb Division. Lightbulb Division sales $8,500,000...

1. The following data relate to Logan Electric and its Lightbulb Division.

Lightbulb Division sales

$8,500,000

Lightbulb Division operating income

$510,000

Lightbulb Division total assets

$2,500,000

Lightbulb Division current liabilities

$560,000

Corporate target rate of return

16%

Corporate weighted average cost of capital

13%

Corporate effective tax rate

45%

What is the Lightbulb Division's capital turnover?

A. 3.4
B. 4.5
C. 16.7
D. 4.9

2. A favorable direct labor efficiency variance might indicate that

A. higher skilled workers were used that performed the task faster than expected.
B. higher skilled workers were used that performed the task slower than expected.
C. lower skilled workers were paid a higher wage than expected.

D. lower skilled workers were paid a lower wage than expected.

3. Mockingbird Company expects to sell 5,100 bird perches in January and 9,000 in February for $3 each. What will be the total sales revenue reflected in the sales budget for those months?

A. January $3,000; February $1,700
B. January $27,000; February $15,300
C. January $15,300; February $27,000

D. January $1,700; February $3,000

4. The ______ capital budgeting method uses accrual accounting income.

A. internal rate of return
B. accounting rate of return
C. net present value

D. payback

5. The Stallard Corporation manufactures Product X that consumes a large amount of overhead. For the month of October, Stallard produced 14,200 units of Product X and incurred actual overhead costs of $269,000. The standard costs developed for Product X by Stallard follow:

Standard direct labor hours per unit

4

Standard direct labor rate per hour

$11.00

Standard overhead hours per unit

8

Standard overhead rate per hour

$4.80

What was the total variable overhead variance for Product X in October?

A. $276,280 favorable
B. $200,840 favorable
C. $276,280 unfavorable
D. $200,840 unfavorable

6. Tommy's Toys produces two types of toys: trains and dolls. Tommy's uses stainless steel to manufacture the trains and plastic to manufacture the dolls. Information regarding the usage of steel and plastic for the past year follows:

Product Names

Steel

Plastic

Direct materials information

Standard pounds per unit

2 lb.

1.0 lb.

Standard Price (SP) per pound

$3.00

?

Actual Quantity (AQ) used per unit

3.0 lb.

3.00 lb.

Actual Price (AP) paid for material

$1.75

$2.25

Actual Quantity Purchased (AQP) and used

2,800 lb.

800 lb.

Price variance

?

$1,200 F

Quantity variance

$900 U

?

Flexible budget variance

?

$412 F

Number of units produced

300

525

What is the direct materials flexible budget variance for steel used to manufacture the trains?

A. $4,400 favorable
B. $2,600 unfavorable
C. $2,600 favorable
D. $4,400 unfavorable

7. Sparky the Electrician specializes in rewiring historic houses. Sparky recently purchased a new wire-pulling device that will decrease the time needed to complete each job and increase total revenues. The device will cost $5,577 and will increase net cash flows by $1,690 per year. The new device has a useful life of 7 years and a residual value of $0. What is the payback period for the new wire-pulling device?

A. 3.12 years
B. 2.80 years
C. 3.48 years
D. 3.30 years

8. Sharon Corporation collects 10% in the second month following sale, 40% in the month following sale, and 40% of a month's sales in the month of sale. The company has found that 10% of their sales are uncollectible. Budgeted sales for the upcoming four months are:

August budgeted sales

$280,000

September budgeted sales

$350,000

October budgeted sales

$380,000

November budgeted sales

$240,000

The amount of cash that will be collected in November is budgeted to be

A. $316,000
B. $96,000
C. $283,000
D. $216,000

9. Suppose Whole Foods is considering investing in warehouse-management software that costs $900,000; has $40,000 residual value; and should lead to cash cost savings of $180,000 per year for its 5-year life. In calculating the ARR, which of the following figures should be used as the equation's denominator?

A.$220,000
B. $180,000
C. $40,000

D. $900,000

10. All of the following budgets are prepared by merchandising companies except

A.cost of goods sold, inventory and purchases.
B. operating expense.
C. direct materials.
D. sales.

Solutions

Expert Solution

  • Answering first 4 questions as asked, with explanation and workings as required.
  • Answer 1

Capital Turnover Ratio = Division sales / Division total Assets

= $ 8,500,000 / $ 2,500,000

= 3.4

CORRECT ANSWER = Option ‘A’: 3.4

  • Answer 2

Direct labor efficiency variance = (Difference between Standard hours and Actual hours) x Standard rate.

It will be favourable when Actual hours will be LOWER than Standard hours. This will happen when workers with greater efficiency complete the task faster than expected.

CORRECT ANSWER = Option ‘A’: higher skilled workers were used that performed the task faster than expected.

  • Answer 3

Total Sales revenue for January = 5100 x $ 3 = $ 15,300
Total Sales revenue for February = 9000 x $ 3 = $ 27,000

CORRECT ANSWER = Option ‘C’: January $15,300; February $27,000

  • Answer 4

CORRECT ANSWER = Option ‘B’ Accounting Rate of Return.

Accounting rate of return = capital budgeting method, which uses the accrual rate of accounting rather than net cash flows.


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