Achievement Test 6: Chapters 11-12 Name ___________________________

Managerial Accounting, 6e Instructor ________________________

Section # _________ Date __________

Part I II III IV V Total

Points 30 10 30 20 10 100

Score

PART I MULTIPLE CHOICE (30 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. Wilson Company determined that its standard number of hours that should have been
worked for the output attained is 6,000 direct labor hours and the actual number of
direct labor hours worked was 5,800. The direct labor price variance was $1,160
unfavorable, and the standard rate of pay was $14 per direct labor hour, what was the
actual rate of pay for direct labor?
a. $14.20 per direct labor hour
b. $13.80 per direct labor hour
c. $14.39 per direct labor hour
d. $14.68 per direct labor hour

____ 2. Which one of the capital budgeting methods does not use cash flow amounts?
a. Cash payback technique
b. Annual rate of return method
c. Internal rate of return method
d. Net present value method

____ 3. Which method does not consider time value of money?

a. Profitability index
b. Net present value method
c. Internal rate of return method
d. Annual rate of return

____ 4. A company uses 2,400 pounds of materials and exceeds the standard by 80 pounds.
The quantity variance is $40 unfavorable. What is the standard price?
a. $2.00
b. $62.00
c. $5.00
d. $0.50
AT6- 2 Test Bank for Managerial Accounting, Sixth Edition

____ 5. Which of the following is considered to be a rigorous but attainable standard?

a. All material standards
b. Normal standards
c. Ideal standards
d. Balanced standards

____ 6. A company uses 30,000 pounds of materials for which the price paid was $3.80 a
pound. The materials price variance was $3,000 favorable. What is the standard price
per pound?
a. $10.00
b. $3.90
c. $3.70
d. $13.80

____ 7. An unfavorable materials quantity variance would occur if

a. more materials are purchased than are used.
b. actual pounds of materials used were less than the standard labor hours.
c. actual labor hours were greater than the standard labor hours allowed.
d. actual pounds of materials used were greater than the standard pounds allowed.

____ 8. The annual rate of return method of capital budgeting

a. incorporates the time value of money.
b. considers the timing of the cash flows.
c. ignores length of time over which the cash flows will be received.
d. all of the above.

____ 9. Which statement is true?

a. A project with an internal rate of return that is zero or positive is acceptable.
b. A project with a net present value that is zero is acceptable.
c. Potential salvage value is ignored as a noncash flow item.
d. The internal rate of return method cannot be calculated when unequal annual cash
inflows exist.

____ 10. Which statement is true concerning how the internal rate of return is expressed?
a. As a yes-no decision
b. As a dollar amount
c. In years
d. In the same expression as the annual rate of return

____ 11. Which statement is true as it relates to a standard cost?

a. It is the actual cost of a unit of product.
b. It represents the selling price of a product to produce the most profit.
c. It is a total budgeted amount in the accounting records.
d. It is often journalized in the accounting system.

____ *12. From what does the overhead volume variance result?
a. Variable overhead costs
b. Fixed overhead costs
c. Both variable and fixed overhead costs
d. All manufacturing costs
 Achievement Test 6 AT6- 3

PART II TRUE/FALSE (10 points)

Instructions: Designate whether each of the following statements is true or false by circling the T
or F.

T F 1. If actual costs are less than standard costs, the variance is favorable.

T F 2. On an income statement prepared under a standard cost accounting system, cost of

goods sold is stated at standard costs with variances disclosed separately.

T F 3. An unfavorable labor quantity variance indicates the actual number of direct labor
hours worked was greater than the number of direct labor hours that should have
been worked for the output attained.

T F 4. Both the book value and the disposal value of an existing asset are relevant in a
retain or replace equipment decision.

T F 5. A direct labor price standard is frequently called the direct labor efficiency standard.

T F 6. The cash payback technique identifies the time period required to recover the cost of
the capital investment from the annual cash inflow produced by the investment.

T F 7. The primary capital budgeting method that uses discounted cash flow techniques is
the cash payback method.

T F 8. Intangible benefits in capital budgeting include increased quality, safety, or employee

loyalty.

T F 9. Normal capacity is the average activity output that a company achieves at its highest
level of profit.

T F 10. The annual rate of return method is based on accounting data and indicates the
profitability of a capital expenditure.
AT6- 4 Test Bank for Managerial Accounting, Sixth Edition

PART III VARIANCE ANALYSIS (30 points)

Gulf Production manufactures recycle bins using recycled plastic that it sells to municipal
governments. It has developed the following per unit standard costs for 2014 for each bine:
Direct Materials Direct Labor Manufacturing Overhead
Standard quantity 3 pounds hour hour
Standard price $0.80 $12.00 $4.50
Unit standard cost $2.40 $6.00 $2.25

In 2014, the company planned to produce 40,000 bins at a level of 20,000 hours of direct labor.
Actual results for 2014 are presented below:

1. Direct materials purchased and used were 116,000 pounds of plastic that cost $98,600.
2. Direct labor costs were $258,300 for 21,000 direct labor hours actually worked.
3. Total manufacturing overhead was $88,000.
4. Actual production was 40,200 bins.

Instructions
Compute the following variances:
1. Direct materials price
2. Direct materials quantity
3. Direct labor price
4. Direct labor quantity
5. Total overhead variance
 Achievement Test 6 AT6- 5

PART IV CAPITAL BUDGETING (20 points)

Shangria Company is considering a capital investment of $140,000 in new equipment, which is

expected to have a useful life of 4 years with no salvage value. Depreciation is computed by the
straight-line method. During the life of the investment, annual net income and cash inflows are
expected to be $10,000 and $45,000, respectively. Shangria requires either a 10% rate of return,
or a payback period of 3 years.

Instructions: Compute the (a) annual rate of return, (b) cash payback period, (c) net present
value, (d) profitability index, and (e) internal rate of return. Show all computations. State whether
the project should be accepted or rejected for each of the five capital budgeting techniques.

Present Value of a Series of Future Payments

Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14%
1 0.990 0.98 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877
2 1.970 1.942 1.914 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.975 2.914
5 4.853 4.714 4.580 4.452 4.330 4.212 4.100 3.993 3.89 3.791 3.696 3.605 3.517 3.433

(a) Annual Rate of Return = _____________________.

(b) Cash Payback Period = _____________________.

(c) Net Present Value = _____________________.

(d) Profitability Index = _____________________.

(e) Internal Rate of Return = _______________________.

AT6- 6 Test Bank for Managerial Accounting, Sixth Edition

PART V BALANCED SCORECARD (10 points)

A. For what purpose is a balanced scorecard approach used?

B. Name the four perspectives of the balanced scorecard approach.

C. Describe the nature of the balanced scorecard.

 Achievement Test 6 AT6- 7

Solutions Achievement Test 6: Chapters 11-12

PART I MULTIPLE CHOICE (30 points)

1. A 6. B 11. D
2. B 7. D *12. B
3. D 8. C
4. D 9. B
5. B 10. D

PART II TRUE/FALSE (10 points)

1. T 6. T
2. T 7. F
3. T 8. T
4. F 9. F
5. F 10. T
PART III VARIANCE ANALYSIS (30 points)
1. Direct materials price variance = $5,800 Unfavorable
(AQ AP) (AQ SP)
(116,000 $0.85*) (116,000 $0.80) = $5,800
*AP = $98,600 116,000 pounds = $0.85

2. Direct materials quantity variance = $3,680 Favorable

(AQ SP) (SQ SP)
(116,000 $0.80) (120,600* $0.80) = $3,680
*SQ = 40,200 3 pounds = 120,600 pounds

3. Direct labor price variance = $6,300 Unfavorable

(AH AR) (AH SR)
(21,000 $12.30*) (21,000 $12.00) = $6,300
*AR = $258,300 21,000 hours = $12.30 per hour

4. Direct labor quantity variance = $10,800 Unfavorable

(AH SR) (SH SR)
(21,000 $12.00) (20,100* $12.00) = $10,800
*SH = 40,200 hour = 20,100 hours

5. Actual overhead Overhead applied = Total overhead variance

$88,000 $90,450* = $2,450 Favorable
*SH = 40,200 $4.50 = $90,450

PART IV CAPITAL BUDGETING (20 points)

(a) Annual rate of return $10,000 (($140,000 + $0) 2) = 14.3%. Accept
(b) Cash payback period $140,000 $45,000 = 3.11 years. Accept
(c) Net present value ($45,000 3.170) $140,000 = $2,650 Accept
(d) Profitability index ($45,000 3.170) $140,000 = 1.02. Accept
(e) Internal rate of return $140,000 $45,000 = 3.111, or slightly less than 11%. Accept
PART V BALANCED SCORECARD (10 points)
AT6- 8 Test Bank for Managerial Accounting, Sixth Edition

A. It is used for performance measurement.

B. Financial perspective; customer perspective; internal processes perspective; learning and
growth perspective
C. The balanced scorecard incorporates and links performance measurement and a
companys strategic goals. Objectives are set within each of the perspectives. It goes
beyond financial issues, and considers qualitative issues as well.