EXAM III PRACTICE QUESTIONSDISCLAIMER - PLEASE READ:These practice exam problems will serve as an excellent review for the actual exam. These questions shouldgive students a good idea of the format and rigor of problems to be encountered on the exams. The practiceexam questions; however, are NOT intended to be comprehensive in their coverage of the topics thatmay be included on the exam. Simply learning the concepts reflected in these sample questions willNOT be adequate for complete exam preparation. In order to be successful on the exam, studentsmust be comfortable with ALL concepts and problems covered in the online lectures.1. Wright Company uses a standard costing system and reported the following information for themonth of September:Direct MaterialsDirect materials purchased 25,000 poundsStandard price per pound $2Direct material price variance $2,500 unfavorableDirect materials inventory, September 1 0 poundsDirect materials inventory, September 30 5,000 poundsDirect material quantity variance $4,000 favorableThe actual price per pound of direct materials purchased in September is equal to:A. $1.85B. $2.00C. $2.10D. $2.13E. $2.152. All other things being equal, if a division’s traceable fixed costs decrease:A. the division’s segment margin will increaseB. the overall company’s net income will decreaseC. the division’s contribution margin will increaseD. the division’s sales will increaseE. both (a) and (c) are correct3. Which of the following changes would result in an increase in the return on investment?A. an increase in sales revenueB. an increase in average operating assetsC. a decrease in expensesD. two of the above answer choices are correctE. all of the above answer choices are correctUse the following information for questions 4 – 5.Young Enterprises has budgeted sales in units for the next five months as follows:June ………………………… 4,600 unitsJuly ………………………… 7,200 unitsAugust ……………………... 5,400 unitsSeptember ………………….. 6,800 unitsOctober …………………….. 3,800 unitsPast experience has shown that the ending inventory of finished goods for each month should be equal to10% of the next month’s sales in units. The company is in the process of preparing a production budget.4. The beginning inventory in units for September would be equal to:A. 460 unitsB. 720 unitsC. 540 unitsD. 380 unitsE. 680 units5. The number of units to be produced in July would be equal to:A. 7,020 unitsB. 7,200 unitsC. 7,280 unitsD. 7,360 unitsE. 7,740 units6. Assume the following unit cost data for the production of a product:direct materials …………………………. $13.00direct labor ……………………………... 8.00variable overhead ………………………. 2.00allocated fixed overhead ……………….. 6.00If a customer placed a special order for 900 units at a sales price of $27 each, how much profit (loss) wouldbe made on the special order if accepted, assuming that sufficient unused capacity exists to produce the order? A. $1,800 lossB. $3,600 profitC. $5,400 profitD. $6,000 profitE. none of the above are correct7. If the direct labor rate variance is $500 favorable, and the direct labor efficiency variance is $300 unfavorable,which of the following statements must be true?A. the total direct-labor variance is $200 favorable B. actual direct labor wages paid were $500 more than expectedC. the use of direct labor was extremely efficientD. both (a) and (b) are correctE. all of the above statements are correct 8. Thames Company is considering replacing a machine that is presently used in the production of its product.Information related to this decision is given below:Old machine Replacement machineOriginal cost $180,000 $140,000Useful life 10 years 5 yearsCurrent age 5 years N/ASalvage value if sold $32,000 now $5,000 in 5 yearsAnnual cash operating costs $28,000 $16,000Which of the above pieces of information would be classified as a sunk cost to this decision?A. the salvage value of the old machineB. the original cost of the old machineC. the annual cash operating costs of the old machineD. the annual cash operating costs of the replacement machineE. both (c) and (d) would be classified as sunk costs 9. ABC Company consists of two divisions, G and H. During March, Division G reported a contribution marginof $50,000. Division H had a contribution margin ratio of 30% and sales in Division H totaled $250,000. Netincome for the overall company was $30,000 and traceable fixed costs for the two divisions totaled $50,000.ABC Company’s common fixed costs for March were equal to:A. $40,000B. $45,000C. $65,000D. $75,000E. $95,00010. Home Company manufactures tables with vinyl tops. The standard direct material cost for the vinyl used perType-R table is $7.80 based on six square feet of vinyl at a cost of $1.30 per square foot. A production run of1,000 tables in January resulted in the usage of 6,400 square feet of vinyl. During January, each square footof vinyl was purchased at a cost of $1.20 per square foot. The direct material quantity variance resulting fromthe production run was equal to:A. $480 unfavorableB. $120 favorableC. $520 unfavorableD. $640 favorableE. $370 unfavorableUse the following information for questions 11 – 13.The Gidney Division reported the following operating data for the past two years:Year 1 Year 2Return on investment 12% 36%Net operating income ? $270,000Turnover ? 3Sales $1,800,000 ?The Gidney Division’s margin in year 2 was 150% of the margin in year 1.11. The Gidney Division’s net operating income for year 1 was equal to:A. $216,000B. $432,000C. $188,000D. $324,000E. $144,00012. The Gidney Division’s turnover for year 1 was equal to:A. 0.5B. 1.0C. 1.5D. 2.0E. 3.013. The Gidney Division’s sales for year 2 were equal to:A. $1,944,000B. $2,250,000C. $ 900,000D. $1,620,000E. $2,500,00014. In a decision on whether to buy a new car or maintain an existing one, the resale value of the existing caris considered to be a(n):A. opportunity costB. irrelevant costC. sunk costD. indirect costE. allocated cost15. Assume that all sales are made on account and total sales are as follows: July, $500,000; August, $420,000;and September, $190,000. Cash collections are budgeted as follows:● 20% of a month’s sales are collected in the month of sale● 50% of a month’s sales are collected the following month● 30% of a month’s