VSA IRS CPA Review

Management Services Winding Up Exercises 1

1. The following costs were incurred in July:

Direct materials .................................. $35,000
Direct labor ......................................... $13,000
Manufacturing overhead .................... $15,000
Selling expenses ................................ $14,000
Administrative expenses .................... $30,000
Prime costs during the month totaled:
A) $48,000
B) $28,000
C) $107,000
D) $63,000

2. Abel Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
$38,000 and if direct materials are $47,000, the manufacturing overhead is:
A) $152,000
B) $11,750
C) $21,250
D) $9,500

3. Using the following data for a recent period, calculate the beginning finished goods inventory:
Sales................................................................ $40,000
Beginning finished goods inventory ................. ?
Cost of goods manufactured ........................... $16,000
Ending finished goods inventory ..................... $5,000
Cost of goods sold ........................................... ?
Gross margin ................................................... $17,000
Administrative and selling expenses ............... ?
Net operating income ...................................... $10,000
The beginning finished goods inventory was:
A) $24,000
B) $23,000
C) $7,000
D) $12,000

4. The following data are for a recent period's operations:

Beginning finished goods inventory ................. $150,475
Ending finished goods inventory ..................... $145,750
Sales................................................................ $400,000
Gross margin ................................................... $120,000
The cost of goods manufactured was:
A) $115,275
B) $284,725
C) $275,275
D) $124,725

5. Gabrio Inc. is a merchandising company. Last month the company's merchandise purchases
totaled $87,000. The company's beginning merchandise inventory was $19,000 and its ending
merchandise inventory was $11,000. What was the company's cost of goods sold for the month?
A) $79,000
B) $87,000
C) $95,000
D) $117,000

6. The following inventory balances relate to Komiza Manufacturing Corporation at the beginning and
end of the year:
Beginning Ending
Raw materials ....................... $10,000 $21,000
Work in process .................... $5,000 $3,000
 Finished goods ...................... $41,000 $48,000
Komiza's cost of goods available for sale was $622,000. What was Komiza's cost of goods
manufactured?
A) $581,000
B) $615,000
C) $629,000
D) $663,000

7. Washtenaw Corporation uses a job-order costing system. The following data are for last year:
Estimated direct labor-hours .................................................. 12,000
Estimated manufacturing overhead costs .............................. $39,000
Actual direct labor-hours ........................................................ 11,000
Actual manufacturing overhead costs .................................... $37,000

Washtenaw applies overhead using a predetermined rate based on direct labor-hours. What
amount of overhead was applied to work in process last year?
A) $39,050
B) $42,600
C) $35,750
D) $36,960

8. Iacono Corporation is a wholesaler that sells a single product. Management has provided the
following cost data for two levels of monthly sales volume. The company sells the product for
$127.20 per unit.
Sales volume (units) ........................................ 5,000 6,000
Cost of sales .................................................... $419,000 $502,800
Selling and administrative costs ...................... $186,500 $202,200
The best estimate of the total contribution margin when 5,300 units are sold is:
A) $230,020
B) $51,410
C) $146,810
D) $32,330

9. Hopi Corporation expects the following operating results for next year:
Sales................................................................ $400,000
Margin of safety ............................................... $100,000
Contribution margin ratio ................................. 75%
Degree of operating leverage .......................... 4
What is Hopi expecting total fixed expenses to be next year?
A) $75,000
B) $100,000
C) $200,000
D) $225,000

10. Escareno Corporation has provided its contribution format income statement for June. The
company produces and sells a single product.
Sales (8,400 units) ............................. $764,400
Variable expenses .............................. 445,200
Contribution margin ............................ 319,200
Fixed expenses .................................. 250,900
Net operating income ......................... $ 68,300

If the company sells 8,200 units, its total contribution margin should be closest to:
A) $301,000
B) $311,600
C) $319,200
D) $66,674
11. Rovinsky Corporation, a company that produces and sells a single product, has provided its
contribution format income statement for November.
Sales (5,700 units) ................ $319,200
Variable expenses ................. 188,100
Contribution margin ............... 131,100
Fixed expenses ..................... 106,500
Net operating income ............ $ 24,600

If the company sells 5,300 units, its net operating income should be closest to:
A) $24,600
B) $2,200
C) $22,874
D) $15,400

12. The margin of safety in the Flaherty Company is $24,000. If the company's sales are $120,000
and its variable expenses are $80,000, its fixed expenses must be:
A) $8,000
B) $32,000
C) $24,000
D) $16,000

13. Holt Company's variable expenses are 70% of sales. At a $300,000 sales level, the degree of
operating leverage is 10. If sales increase by $60,000, the degree of operating leverage will be:
A) 12
B) 10
C) 6
D) 4

14. Cherry Street Market reported the following information for the sales of their only product,
cherries sold by the pint:
Total Per Unit
Sales...................................... $31,500 $4.50
Variable expenses ................. 9,450 1.35
Contribution margin ............... 22,050 $3.15
Fixed expenses ..................... 13,000
Net operating income ............ $ 9,050

Cherry Street would like to increase their selling price by 50 cents per unit, and feel that this will
decrease sales volume by 10%. Should Cherry Street increase the price, and what will the effect
be on net operating income?
A) Yes; $3,500 increase
B) Yes; $945 increase
C) No; no change
D) No; $945 decrease

15. Hartl Corporation is a single product firm with the following selling price and cost structure for next
year:
Selling price per unit ........................................ $1.80
Contribution margin ratio ................................. 40%
Total fixed expenses for the year .................... $218,700

How many units will Hartl have to sell next year in order to break-even?
A) 121,500
B) 202,500
C) 303,750
D) 546,750

16. Wenstrom Corporation produces and sells a single product. Data concerning that product appear
below:
Selling price per unit ........................... $130.00
 Variable expense per unit ................... $41.60
Fixed expense per month ................... $109,616

The break-even in monthly dollar sales is closest to:

A) $342,550
B) $204,455
C) $109,616
D) $161,200

17. Product Y sells for $15 per unit, and has related variable expenses of $9 per unit. Fixed expenses
total $300,000 per year. How many units of Product Y must be sold each year to yield an annual
profit of $90,000:
A) 50,000 units
B) 65,000 units
C) 15,000 units
D) 43,333 units

18. Majid Corporation sells a product for $240 per unit. The product's current sales are 41,300 units
and its break-even sales are 36,757 units. What is the margin of safety in dollars?
A) $8,821,680
B) $6,608,000
C) $9,912,000
D) $1,090,320

19. Mcmurtry Corporation sells a product for $170 per unit. The product's current sales are 10,000
units and its break-even sales are 8,100 units. The margin of safety as a percentage of sales is
closest to:
A) 23%
B) 81%
C) 19%
D) 77%

20. Serfass Corporation's contribution format income statement for July appears below:
Sales...................................... $260,000
Variable expenses ................. 176,000
Contribution margin ............... 84,000
Fixed expenses ..................... 71,800
Net operating income ............ $ 12,200

The degree of operating leverage is closest to:

A) 0.05
B) 0.15
C) 21.31
D) 6.89

21. Rushenberg Corporation's operating leverage is 10.8. If the company's sales increase by 14%, its
net operating income should increase by about:
A) 151.2%
B) 14.0%
C) 77.1%
D) 10.8%

22. Newham Corporation produces and sells two products. In the most recent month, Product R10L
had sales of $28,000 and variable expenses of $6,440. Product X96N had sales of $22,000 and
variable expenses of $7,560. And the fixed expenses of the entire company were $32,710. The
break-even point for the entire company is closest to:
A) $32,710
B) $45,431
C) $46,710
D) $17,290
 Use the following to answer questions 23 - 25:

Biskra Corporation is a single product firm that expects the following operating results next year:
In Total Per Unit
Sales ................................... $288,000 $0.80
Variable expenses ............... $172,800 $0.48
Fixed expenses ................... $72,000 $0.20

23. Every unit that Biskra sells next year after the break-even point will increase net operating income
by:
A) $0.12
B) $0.20
C) $0.32
D) $0.60

24. What would Biskra's total sales dollars have to be next year to generate $180,000 of net
operating income?
A) $450,000
B) $630,000
C) $588,000
D) $787,500

25. What is Biskra's margin of safety percentage?

A) 15%
B) 24%
C) 37.5%
D) 40%

26. Fleet Corporation produces a single product. The company manufactured 700 units last year. The
ending inventory consisted of 100 units. There was no beginning inventory. Variable
manufacturing costs were $6.00 per unit and fixed manufacturing costs were $2.00 per unit. What
would be the change in the dollar amount of ending inventory if variable costing was used instead
of absorption costing?
A) $800 decrease
B) $200 decrease
C) $0
D) $200 increase

27. Shun Corporation manufactures and sells a hand held calculator. The following information
relates to Shun's operations for last year:
Unit product cost under variable costing ................................ $5.20 per unit
Fixed manufacturing overhead cost for the year .................... $260,000
Fixed selling and administrative cost for the year ................... $180,000
Units (calculators) produced and sold .................................... 400,000

What is Shun's unit product cost under absorption costing for last year?
A) $4.10
B) $4.55
C) $5.85
D) $6.30

28. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
Units in beginning inventory ............................ 0
Units produced ................................................ 7,100
Units sold ......................................................... 7,000
Units in ending inventory ................................. 100

Variable costs per unit:

Direct materials ............................................ $33
Direct labor ................................................... $53
 Variable manufacturing overhead ................ $1
Variable selling and administrative .............. $7

Fixed costs:
Fixed manufacturing overhead .................... $170,400
Fixed selling and administrative ................... $7,000

What is the unit product cost for the month under variable costing?
A) $118
B) $94
C) $111
D) $87

29. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
Selling price ..................................................... $135

Units in beginning inventory ............................ 0

Units produced ................................................ 6,400
Units sold ......................................................... 6,200
Units in ending inventory ................................. 200

Variable costs per unit:

Direct materials................................................ $49
Direct labor ...................................................... $38
Variable manufacturing overhead ................... $6
Variable selling and administrative .................. $11

Fixed costs:
Fixed manufacturing overhead ........................ $108,800
Fixed selling and administrative ...................... $74,400
The total contribution margin for the month under the variable costing approach is:
A) $155,000
B) $260,400
C) $192,200
D) $83,400

30. Sipho Corporation manufactures a variety of products. Last year, the company's variable costing
net operating income was $90,900. Fixed manufacturing overhead costs released from inventory
under absorption costing amounted to $21,900. What was the absorption costing net operating
income last year?
A) $69,000
B) $90,900
C) $21,900
D) $112,800
31. Last year, Kirsten Corporation's variable costing net operating income was $63,400. Fixed
manufacturing overhead costs released from inventory under absorption costing amounted to
$10,700. What was the absorption costing net operating income last year?
A) $10,700
B) $74,100
C) $63,400
D) $52,700

Use the following to answer questions 32 - 35: Hopkins Company manufactures a single product.
The following data pertain to the company's operations last year:
Selling price per unit ........................................ $24
Variable costs per unit:
Production .................................................... $8
Selling and administration ............................ $2
Fixed costs in total:
Production .................................................... $48,000
 Selling and administration ............................ $36,000

At the beginning of the year there were no units in inventory. A total of 12,000 units were
produced during the year, and 10,000 units were sold.

32. Under variable costing, the unit product cost is:

A) $8.00
B) $10.00
C) $12.00
D) $14.00

33. Under absorption costing, the unit product cost is:

A) $8.00
B) $10.00
C) $12.00
D) $15.00

34. The net operating income under variable costing would be:
A) $64,000
B) $60,000
C) $56,000
D) $52,000

35. The net operating income under absorption costing would be:
A) the same as the income under variable costing.
B) $8,000 greater than the income under variable costing.
C) $12,000 greater than the income under variable costing.
D) $8,000 less than the income under variable costing.

36. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month
following sale, and 6% in the second month following sale. The remainder is uncollectible.
Budgeted sales for the next four months are:
January February March April
Budgeted sales ......... $200,000 $300,000 $350,000 $250,000

Cash collections in April are budgeted to be:

A) $321,000
B) $313,000
C) $320,000
D) $292,000

37. On January 1, Barnes Company has 8,000 units of Product A on hand. During the year, the
company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at year
end. How many units of Product A must be produced during the year?
A) 28,500
B) 31,500
C) 30,000
D) 36,500

38. The following information relates to Minorca Manufacturing Corporation for next quarter:
January February March
Expected sales (in units) ................................. 440,000 390,000 400,000
Desired ending finished goods inventory (in
units) ............................................................ 28,000 30,000 35,000

How many units should Minorca plan on producing for the month of February?
A) 360,000 units
B) 388,000 units
C) 392,000 units
D) 420,000 units
 39. MJ Department Store expects to generate the following sales figures for the next three months:
July August September
Expected sales ......... $480,000 $560,000 $600,000

MJ's gross profit rate is 45% of sales dollars. At the end of each month, MJ wants a merchandise
inventory balance equal to 30% of the following month's expected sales, stated at cost. What
dollar amount of merchandise inventory should MJ plan to purchase in August?
A) $257,400
B) $314,600
C) $320,000
D) $327,800

40. Garry Manufacturing Corporation's most recent production budget indicates the following required
production:
October November December
Required production (units) ............ 210,000 175,000 110,000

Each unit of finished product requires 5 pounds of raw materials. The company maintains raw
materials inventory equal to 25% of the next month's expected production needs. How many
pounds of raw material should Garry plan on purchasing for the month of November?
A) 1,006,250
B) 793,750
C) 1,012,500
D) 893,500

41. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct
labor budget indicates that 5,600 direct labor-hours will be required in August. The variable
overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing
overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed
manufacturing overhead costs represent current cash flows. The August cash disbursements for
manufacturing overhead on the manufacturing overhead budget should be:
A) $99,680
B) $84,000
C) $53,760
D) $30,240

42. The selling and administrative expense budget of Choo Corporation is based on budgeted unit
sales, which are 4,600 units for August. The variable selling and administrative expense is $7.30
per unit. The budgeted fixed selling and administrative expense is $51,980 per month, which
includes depreciation of $6,440 per month. The remainder of the fixed selling and administrative
expense represents current cash flows. The cash disbursements for selling and administrative
expenses on the August selling and administrative expense budget should be:
A) $85,560
B) $45,540
C) $79,120
D) $33,580

Use the following to answer questions 43 - 51: Dilly Farm Supply is located in a small town in the rural
west. Data regarding the store's operations follow:
• Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.
• Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and 2%
uncollectible.
• The cost of goods sold is 80% of sales.
• The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in
the month of sale. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,100.
• Monthly depreciation is $21,000.
• Ignore taxes.
 Statement of Financial Position
October 31
Assets:
Cash ....................................................................................................... $ 25,000
Accounts receivable
(net of allowance for uncollectible accounts) ...................................... 77,000
Inventory................................................................................................. 162,400
Property, plant and equipment
(net of $624,000 accumulated depreciation) ...................................... 1,026,000
Total assets ............................................................................................ $1,290,400

Liabilities and Stockholders’ Equity:

Accounts payable ................................................................................... $ 239,000
Common stock ....................................................................................... 740,000
Retained earnings .................................................................................. 311,400
Total liabilities and stockholders’ equity ................................................. $1,290,400

43. Expected cash collections in December are:

A) $310,000
B) $95,700
C) $297,200
D) $201,500

44. The cost of December merchandise purchases would be:

A) $248,000
B) $232,000
C) $117,600
D) $192,000

45. December cash disbursements for merchandise purchases would be:

A) $192,000
B) $243,200
C) $117,600
D) $248,000

46. The excess (deficiency) of cash available over disbursements for December would be:
A) $46,600
B) $19,200
C) $13,700
D) $32,900

47. The net income for December would be:

A) $13,700
B) $32,900
C) $40,900
D) $19,900

48. The cash balance at the end of December would be:

A) $63,300
B) $25,000
C) $57,900
D) $38,300

49. The accounts receivable balance, net of uncollectible accounts, at the end of December would
be:
A) $102,300
B) $198,000
C) $83,200
D) $108,500
50. Accounts payable at the end of December would be:
A) $192,000
B) $248,000
C) $117,600
D) $74,400

51. Retained earnings at the end of December would be:

A) $325,100
B) $311,400
C) $335,200
D) $347,200

52. Persechino Corporation is developing standards for its products. One product requires an input
that is purchased for $82.00 per kilogram from the supplier. By paying cash, the company gets a
discount of 2% off this purchase price. Shipping costs from the supplier's warehouse amount to
$6.55 per kilogram. Receiving costs are $0.47 per kilogram. The standard price per kilogram of
this input should be:
A) $76.62
B) $87.38
C) $90.66
D) $82.00

53. Jeffs Corporation is developing direct labor standards. The basic direct labor wage rate is $14.00
per hour. Employment taxes are 11% of the basic wage rate. Fringe benefits are $3.24 per direct
labor-hour. The standard rate per direct labor-hour should be:
A) $14.00
B) $9.22
C) $4.78
D) $18.78

54. Information on Rex Co.'s direct material costs for May follows:
Actual quantity of direct materials purchased and used ......... 30,000 pounds
Actual cost of direct materials ................................................ $84,000
Unfavorable direct materials quantity variance ...................... $3,000
Standard quantity of direct materials allowed for May
production ........................................................................... 29,000 pounds

For the month of May, what was Rex's direct materials price variance?
A) $2,800 favorable
B) $2,800 unfavorable
C) $6,000 unfavorable
D) $6,000 favorable

55. Buckler Company manufactures desks with vinyl tops. The standard material cost for the vinyl
used per Model S desk is $27.00 based on 12 square feet of vinyl at a cost of $2.25 per square
foot. A production run of 1,000 desks in March resulted in usage of 12,600 square feet of vinyl at
a cost of $2.00 per square foot, a total cost of $25,200. The materials quantity variance resulting
from the above production run was:
A) $1,200 unfavorable
B) $1,350 unfavorable
C) $1,800 favorable
D) $3,150 favorable

56. The standards for direct materials in making a certain product are 20 pounds at $0.75 per pound.
During the past period, 56,000 units of product were made and the material quantity variance was
$30,000 U. The number of pounds of direct material used during the period amounted to:
A) 1,080,000
B) 1,160,000
C) 1,200,000
D) 784,000
 57. Mazzucco Corporation has provided the following data concerning its direct labor costs for
September:
Standard wage rate ............... $13.30 per DLH
Standard hours...................... 5.5 DLHs per unit
Actual wage rate ................... $13.20 per DLH
Actual hours .......................... 45,880 DLHs
Actual output ......................... 8,400 units

The Labor Rate Variance for September would be recorded as a:

A) debit of $4,588.
B) credit of $4,588.
C) credit of $4,620.
D) debit of $4,620.

58. Warmuth Corporation has provided the following data concerning its direct labor costs for
September:
Standard wage rate ............... $12.00 per DLH
Standard hours ...................... 8.8 DLHs per unit
Actual wage rate .................... $12.50 per DLH
Actual hours........................... 68,120 DLHs
Actual output ......................... 6,600 units

The Labor Efficiency Variance for September would be recorded as a:

A) credit of $120,480.
B) debit of $120,480.
C) debit of $125,500.
D) credit of $125,500.

59. During the month of August, Linosa Manufacturing Corporation purchased 10,000 pounds of
materials at a total actual cost of $70,000. Linosa used 8,000 pounds of this material for August's
production. Linosa's materials price variance for August was $4,000 favorable. Its materials
quantity variance was $7,000 unfavorable. What journal entry would Linosa make to record the
usage of materials and the materials quantity variance for the month of August?
A) Work in Process 52,200
Materials Quantity Variance 7,000
Raw Materials 59,200

B) Work in Process 66,200

Materials Quantity Variance 7,000
Raw Materials 59,200

C) Raw Materials 63,000

Materials Quantity Variance 7,000
Accounts Payable 70,000

D) Work in Process 67,000

Materials Quantity Variance 7,000
Raw Materials 74,000

Use the following to answer questions 60 - 62: Beakins Company produces a single product. The
standard cost card for the product follows:
Direct materials (4 yards @ $5 per yard) ........................................... $20
Direct labor (1.5 hours @ $10 per hour) ............................................ $15
Variable manufacturing overhead (1.5 hrs @ $4 per /hour) ............... $6

During a recent period the company produced 1,200 units of product. Various costs associated with the
production of these units are given below:
Direct materials purchased (6,000 yards) .................... $28,500
Direct materials used in production .............................. 5,000 yards
Direct labor cost incurred (2,100 hours) ....................... $17,850
Variable manufacturing overhead cost incurred ........... $10,080
The company records all variances at the earliest possible point in time. Variable manufacturing overhead
costs are applied to products on the basis of direct labor hours.

60. The labor efficiency variance for the period is:

A) $3,000 U
B) $2,550 U
C) $2,550 F
D) $3,000 F

61. The variable overhead spending variance for the period is:
A) $1,680 F
B) $1,440 U
C) $1,440 F
D) $1,680 U

62. The variable overhead efficiency variance for the period is:
A) $1,200 U
B) $1,440 U
C) $1,200 F
D) $1,440 F

Use the following information for questions 63 and 64. Budgeted overhead for Harrington Company at
normal capacity of 30,000 direct labor hours is $4.50 per hour variable and $3 per hour fixed. In May,
$232,500 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed.

63. The overhead controllable or budget variance is

a. $3,750 favorable.
b. $1,500 favorable.
c. $7,500 favorable.
d. $7,500 unfavorable.

64. The overhead volume variance is

a. $6,000 favorable.
b. $8,250 favorable.
c. $3,750 favorable.
d. $7,500 favorable.

END

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