Instruction: Encircle the letter of the correct answer in each of the given question.
1. Based on predicted production of 28,000 units, a company anticipates $574,000 of fixed costs and $511,000 of variable costs. The flexible
budget amounts of fixed and variable costs for 26,000 units are (Do not round intermediate calculations):
a. $574,000 fixed and $511,000 variable.
b. $474,500 fixed and $574,000 variable.
c. $574,000 fixed and $474,500 variable.
d. $533,000 fixed and $511,000 variable.
e. $533,000 fixed and $474,500 variable.
2. Fletcher Company collected the following data regarding production of one of its products. Compute the direct materials price variance.
Direct materials standard (6 lbs. @ $2/lb.) $12 per finished unit
Actual direct materials used 200,650 lbs.
Actual finished units produced 33,000 units
Actual cost of direct materials used $398,940
a. $2,360 unfavorable.
b. $2,940 unfavorable.
c. $2,360 favorable.
d. $5,300 unfavorable.
e. $2,940 favorable.
3. The standard materials cost to produce 1 unit of Product R is 6 pounds of material at a standard price of $50 per pound. In manufacturing
7,000 units, 41,000 pounds of material were used at a cost of $51 per pound. What is the total direct materials cost variance?
a. $9,000 favorable.
b. $51,000 favorable.
c. $9,000 unfavorable.
d. $51,000 unfavorable.
e. $42,000 unfavorable.
4. Georgia, Inc. has collected the following data on one of its products. The direct materials quantity variance is:
Direct materials standard (3 lbs @ $1/lb) $ 3 per finished unit
Total direct materials cost variance—unfavorable $ 26,250
Actual direct materials used 140,000 lbs
Actual finished units produced 35,000 units
a. $26,250 favorable.
b. $26,250 unfavorable.
c. $35,000 unfavorable.
d. $8,750 favorable.
e. $35,000 favorable.
5. Georgia, Inc. has collected the following data on one of its products. The actual cost of the direct materials used is:
Direct materials standard (4 lbs @ $2/lb) $ 8 per finished unit
Total direct materials cost variance—unfavorable $ 18,250
Actual direct materials used 120,000 lbs
Actual finished units produced 24,000 units
a. $210,250.
b. $259,250.
c. $192,000.
d. $120,000.
e. $173,750.
6. Use the following data to find the direct labor efficiency variance if the company produced 3,500 units during the period.
Direct labor standard (4 hrs. @ $7.00/hr.) $28.00 per unit
Actual hours worked 12,000
Actual rate per hour $7.50
a. $6,000 unfavorable.
b. $7,000 unfavorable.
c. $7,000 favorable.
d. $14,000 favorable.
e. $6,000 favorable.
7. The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is:
Actual hours used 43,000
Actual rate per hour $ 14.00
Standard rate per hour $ 13.00
Standard hours for units produced 45,000
a. $17,000 unfavorable.
b. $43,000 favorable.
c. $26,000 favorable.
d. $26,000 unfavorable.
e. $43,000 unfavorable.
8.
Megamart, a retailer of consumer goods, provides the following information on two of its departments
(each considered an investment center).
Net Average
Investment Center Sales Income Invested Assets
Electronics $ 10,600,000 $ 807,500 $ 4,250,000
Sporting goods 7,400,000 812,000 5,800,000
1-a. Compute return on investment for each department.
1-b. Using return on investment, which department is most efficient at using assets to generate returns
for the company?
2-a. Assume a target income level of 12.3% of average invested assets. Compute residual income for
each department.
2-b. Which department generated the most residual income for the company?
3. Assume the Electronics department is presented with a new investment opportunity that will yield a
14.6% return on investment. Should the new investment opportunity be accepted? Why?
