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Question 1

Sam tells Betty that his window installation business (Maco, Inc.) is incorporated and enters into a contract on
behalf of Maco, Inc. with Betty to install windows in Betty's home. Sam installs the windows, but Betty is
unhappy with both the quality of the windows and Sam's workmanship. Betty files a suit against Sam personally
and Maco, Inc., and subsequently discovers that the business was, in fact, never incorporated. Sam's best
argument for avoiding personal liability under the contract is:

Choice 1 is correct. Under the corporation by estoppel doctrine, a party who treats a business as a corporation
will not later be allowed to deny the validity of its corporate status or existence. Generally, an agent of a
corporation who enters into a contract on behalf of the corporation is not personally liable on the contract. Thus,
this is Sam's best argument.

Choice 2 is incorrect. A de facto corporation exists where there has been a good faith attempt at properly
forming the corporation but where there is some minor flaw in the process. Nothing in the facts indicates that
Sam made a good faith attempt to incorporate.

Choice 3 is incorrect. A de jure corporation is a corporation where all of the requirements for incorporation have
been met. The facts here specifically indicate that a de jure corporation was not formed.

Choice 4 is incorrect. The promoter liability rule generally makes a promoter who enters into a contract for a
corporation to be formed to be deemed liable on the contract. Thus, this would not help Sam.

Question 2

A shareholder of a corporation's common stock generally will have a right to:

Choice 3 is correct. Common shareholders are owners of the corporation with the right to vote on matters
affecting fundamental operation of the corporation. Hence, they are entitled to vote for the directors that
manage the business but generally do not manage it themselves. As owners, common shareholders generally
have the right to share in the profits of the corporation when the Board declares dividends.
Declared
Vote for Directors Dividends Manage

Question 3

Preferred stock owners may have priority over common stock owners as to payment:
Choice 3 is correct. Preferred shares of stock may have priority over common shareholders regarding the
payment of dividends and on distributions in event of corporate dissolution.

Choice 1 is incorrect. Preference on distribution in the event of dissolution is possible.

Choice 2 is incorrect. Preference can be given in the distribution of dividends.

Question 4

The relevance of a particular cost to a decision is determined by:

Riskiness of the decision.
Number of decision variables.
Potential effect on the decision.
Accuracy of the cost.
Choice 3 is correct. The relevance of a particular cost to a decision is determined by the potential effect on the
decision. Relevant costs are expected future costs that vary with the action taken. All other costs are assumed
to be constant and thus have no effect on the decision.

Question 5

Delphi Company has developed a new product that will be marketed for the first time during the next fiscal year.
Although the Marketing Department estimates that 35,000 units could be sold at $36 per unit, Delphi's
management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the
new product annually. The fixed-costs associated with the new product are budgeted at $450,000 for the year,
which includes $60,000 for depreciation on new manufacturing equipment. Data associated with each unit of
product are presented below. Delphi is subject to a 40 percent income tax rate.

Variable Costs
Direct material $ 7.00
Direct labor 3.50
Manufacturing overhead 4.00
Total variable manufacturing cost 14.50
Selling expenses 1.50
Total variable cost $16.00

Delphi Company's management has stipulated that it will not approve the continued manufacture of the new
product after the next fiscal year unless the after-tax profit is at least $75,000 the first year. The unit selling
price to achieve this target profit must be at least:

Choice 4 is correct. $39.00

After-tax profit $ 75,000

Reciprocal of tax rate (100% - 40%) ÷ 60%
Pre-tax profit 125,000
Fixed cost 450,000
575,000
Maximum volume ÷25,000
Required contribution margin per unit 23
Variable cost per unit 16
Required selling price $ 39
Question 6

McLean Inc. is considering the purchase of a new machine that will cost $150,000. The machine has an
estimated useful life of three years. Assume for simplicity that the equipment will be fully depreciated 30, 40,
and 30 percent in each of the three years, respectively. The new machine will have a $10,000 resale value at the
end of its estimated useful life. The machine is expected to save the company $85,000 per year in operating
expenses. McLean uses a 40 percent estimated income tax rate and a 16 percent hurdle rate to evaluate capital
projects.

Discount rates for a 16 percent rate are as follows:

Present Value of an
Present Value of $1 Ordinary Annuity of $1

Year 1 .862 .862

Year 2 .743 1.605
Year 3 .641 2.246

What is the net present value of this project?

Choice 2 is correct. $13,278 net present value.

Year 0 Year 1 Year 2 Year 3

Investment (150,000)
Depreciation tax shield 18,000 24,000 18,000
Annual savings (after tax) 51,000 51,000 51,000
Salvage (after tax) 6,000
After tax cash flow (150,000) 69,000 75,000 75,000
Discount rate x 1.00 x .862 x .743 x .641
Present value (150,000) 59,478 55,725 48,075

Present value of cash flows 163,278 (59,478 + 55,725 + 48,075)

Net present value 13,278

Calculation of Depreciation tax shield:

Years 1 & 3 150,000(.30) =45,000 x (tax rate) (.40) = 18,000
Year 2 150,000(.40) =60,000 x (tax rate) (.40) = 24,000
Calculation of Annual savings (after tax):
85,000 each year x (1 - tax rate) .60 = 51,000
Calculation of Salvage value inflow (after tax):
10,000 x (1 - tax rate) (.60) = 6,000
Question 7

The treasury analyst for Garth Manufacturing has estimated the cash flows for the first half of next year (ignoring
any short-term borrowings) as follows:

Cash (millions)
Inflows Outflows
January $2,000 $1,000
February 2,000 4,000
March 2,000 5,000
April 2,000 3,000
May 4,000 2,000
June 5,000 3,000

Garth has a line of credit of up to $4 million on which it pays interest monthly at a rate of 1 percent of the
amount utilized. Garth is expected to have a cash balance of $2 million on January 1 and no amount utilized on
its line of credit. Assuming all cash flows occur at the end of the month, approximately how much will Garth pay
in interest during the first half of the year?
Choice 1 ($61,000) is correct.

First determine the amount and timing of cash needs and calculate the interest expense on cumulative negative
cash balances (implied borrowing):

Cash (no 000's)

Inflows Outflows Balance
Beg. bal $2,000
January $2,000 $1,000 3,000
February 2,000 4,000 1,000
March 2,000 5,000 (2,000)
Borrow $2,000,000 0
April 2,000 3,000 (1,000)
Interest paid $2 mil 20 (1,020)
Borrow additional $1,020,000 0
May 4,000 2,000 2,000
Interest paid on $3.02 mil 30.2 1,969.8
Pay line of credit 1,969.8 0
June 5,000 3,000 2,000
Interest on $1,050,200 10.502

Second, compute the interest paid is sum of three interest payments:

$ 20,000
30,200
10,502
Total $ 60,702
Question 8

Alex Company had the following inventories at the beginning and end of the month of January.

January 1 January 31
Finished Goods $125,000 $117,000
Work-in-process 235,000 251,000
Direct materials 134,000 124,000

The following additional manufacturing data was available for the month of January.

Direct materials purchased $189,000

Purchase returns and allowances 1,000
Transportation in 3,000
Direct labor 300,000
Actual factory overhead 175,000

Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or
underapplied factory overhead is deferred until the end of the year, December 31.

Alex Company's total manufacturing cost for January was:

Choice 1 is correct.

Direct Material - Beg $134,000

Add: Purchases 189,000
Less: Returns (1,000)
Add: Transportation in 3,000
Less: Ending Inventory (124,000)
Direct Materials used 201,000

Direct material used $201,000

Direct labor 300,000
Overhead (300,000 x .6) 180,000
Total manufacturing cost $681,000
Question 9

For the month of December, Crystal Clear Bottling expects to sell 12,500 cases of Cranberry Sparkling Water at
$24.80 per case and 33,100 cases of Lemon Dream Cola at $32.00 per case. Sales personnel receive 6 percent
commission on each case of Cranberry Sparkling Water and 8 percent commission on each case of Lemon Dream
Cola. In order to receive a commission on a product, the sales personnel team must meet the individual product
revenue quota. The sales quota for Cranberry Sparkling Water is $500,000, and the sales quota for Lemon
Dream Cola is $1,000,000. The sales commission that should be budgeted for December is:
Choice 3 is correct. $84,736 budgeted sales commission.

Lemon Dream Cola:

Projected case sales 33,100

Price per case x $32
Sales $1,059,200
Commission rate x 8%
Budgeted sales commission $ 84,736

Note: Sales of cranberry sparkling water (12,500 cases x $24.80 = $310,000) are not expected to reach the
sales quota of $500,000.

Question 10

Maverick Corp. has twelve directors on its board. Absent special provisions in Maverick's articles of incorporation
or bylaws, what is the least number of directors that may declare a dividend?
Choice 2 is correct. Absent a special provision in a corporation's articles or bylaws, a majority of the board
constitutes a quorum, which is required to validly hold a meeting. A dividend may be declared by a majority of
the directors present at a meeting at which there is a quorum. Thus, seven of the twelve directors must be
present to establish the minimum for a quorum, and at least a majority of them (four) must approve the dividend.

Question 11

Smackeyboy, Inc. and Paulie Hot Bikes Company agree to combine forces as one company under the
Smackeyboy Inc. name. Such a business combination is known as:
Choice 1 is correct. A merger involves two or more companies combining together where one company continues
as the surviving corporation.

Choice 2 is incorrect. A consolidation is when 2 or more companies join together to form a new corporation.

Choice 3 is incorrect. A share exchange occurs when 2 companies join together and both continue to survive.

Choice 4 is incorrect. The term derivative refers to a matter being derived from another matter (e.g., financial
instrument) and has nothing to do with companies combining.
Question 12

Harry is director of ABC Company. Harry's brother-in-law Peter starts up a new company that goes into business
in direct competition to ABC Company. Peter tries to convince Harry to join him in the business without resigning
as a director from ABC Company. If Harry joins Peter and does not resign from his position as a director of ABC
Company, Harry will have:
Choice 2 is correct. The duty of loyalty requires a director to act in the best interest of the corporation, to refrain
from competing with the corporation, and to refrain from `usurping business opportunities of the corporation.
Joining a competing business would breach this duty.

Choice 1 is incorrect. The duty of care requires directors to act with the reasonable care of a director in a like
situation. Harryƞs joining Peterƞs business has nothing to do with the duty of reasonable care.

Choice 3 is incorrect. The parol evidence rule is an evidentiary rule relating to the admissibility of evidence at
trial to vary the terms of a contract and it has no bearing on the facts here.

Choice 4 is incorrect. The doctrine of substantial performance is a common law contracts issue whereby a party
is entitled to a remedy for substantially (rather than fully) performing their contractual obligations. It is not
applicable to the facts here.

Question 13

The first step in evaluation of transaction exposure is the computation of:

Choice 3 is correct. The first step taken in the evaluation of transaction exposure is the determination of the net
inflow or outflow of currency.

Choice 1 is incorrect. Gross currency inflows do not consider the extent to which transactions are settled and
fully satisfied using the foreign currency and therefore do not consider the extent to which exposure is fully
mitigated by execution of the transaction.

Choice 2 is incorrect. Gross currency outflows do not consider the extent to which foreign currency transactions
are fully satisfied using the foreign currency.

Choice 4 is incorrect. Determination of currency volatility is relevant only after determination of the net exposure
to the entity.
Question 14

American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets
during the next year. Reese Zipper Company has quoted a price of $.60 per zipper. American would prefer to
purchase 5,000 units per month, but Reese is unable to guarantee this delivery schedule. In order to ensure
availability of these zippers, American is considering the purchase of all 60,000 units at the beginning of the year.
Assuming American can invest cash at eight percent, the company's opportunity cost of purchasing the 60,000
units at the beginning of the year is?
Choice 1 is correct. Cost to purchase 60,000 zippers
60,000 x .60 = $36,000
The opportunity cost is the forgone interest on the $33,000 cash payment. (Computed 36,000 - 3,000, the first
$3,000 would have had to be paid at the beginning of the month in either case.)
The invested cash is the average balance available for investment. Some $33,000 is available at the beginning of
the year and is reduced by $3,000 per month for the remainder of the year until no cash is available in the final
month. The average balance not invested is estimated at $33,000/2.

Principal Rate Time Interest

($33,000/2)x .08 x 12/12 = $1,320

Question 15

Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The
following cost information relates to the product.

Unit Costs
Direct materials $3.25
Direct labor 4.00
Distribution .75

The company will also be absorbing $120,000 of additional fixed-costs associated with this new product. A
corporate fixed charge of $20,000 currently absorbed by other products will be allocated to this new product.

If the selling price is $14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge
protectors is: Choice 3 is correct (20,000 units).

Price $ 14.00
Direct materials (3.25)
Direct labor (4.00)
Distribution (75)
Contribution margin $ 6.00
Additional "fixed" costs $120,000
Contribution margin ÷ $6
Units to breakeven 20,000

Note: The $20,000 of allocated fixed costs is irrelevant because it will be incurred as a corporate cost in any case.
Question 16

When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the
asset, it is applying:

Choice 1 is correct. Appropriate working capital management matches the maturity life of each asset with the
length of the financial instrument used to finance that asset.

Choice 2 is incorrect. Return maximization seeks to obtain the optimal return rate by asset utilization. It is not
necessarily related to the maturity of the asset.

Choice 3 is incorrect. Financial leverage is the amount of debt used to finance an asset. Higher leverage equals
more debt. It is unrelated to the maturity life of an asset.

Choice 4 is incorrect. Operating leverage is the degree that fixed costs are used in the production process.
Operating leverage is unrelated to the methods used to finance assets.

Question 17

Which of the following statements is (are) correct with respect to reporting risks?

I. Strategic risk includes the risk of choosing inappropriate technology.

II. Information risk includes the risk of loss of data integrity but not that of incomplete transactions.
III. Financial risk includes the risk of having financial resources lost, wasted, or stolen.

Choice 3 is correct. Strategic risk (I) includes the risk of choosing inappropriate technology, and financial risk (III)
includes the risk of having financial resources lost, wasted, or stolen. [Statements I and III are correct.]

Choices 1 and 2 are incorrect because statement II is incorrect. Information risk (II) includes the risk of loss of
data integrity and that of incomplete transactions.

Choice 4 is incorrect because statements I and III are correct.

Question 18

Which of the following are examples of access controls in a computerized environment?

I. User identification codes and passwords.

II. Callbacks on dial-up systems.
III. File attributes.
Choice 4 is correct. All of the items listed are examples of access controls in a computerized environment. User
identification codes and passwords are common. Callbacks can be used on dial-up systems where the security
system may automatically look up the phone number of an authorized user and call that user back before access
is allowed. File attributes restrict read and write access to a file or a specific data element.
Question 19

Which of the following statements is (are) correct?

I. In B2C, consumers can utilize various mechanisms for payment.

II. In B2B, businesses must utilize the Federal Reserve's wire transfer system for payments so that the Federal
Reserve can ensure that the payments meet government requirements.
III. Complete security is provided in both B2C and B2B transactions by the use of data encryption.

Choice 1 is correct. In B2C, consumers can utilize various mechanisms for payment (I). [Statements II and III
are incorrect.]

Choices 2 and 4 are incorrect. In B2B, businesses can utilize various mechanisms for payment; there is no
requirement for the use of Federal Reserve's wire transfer system and there are no government requirements for
payments, any more than there are government requirements for any other type of payment (II). There is no
such thing as complete security, regardless of the mechanism that may be used (III).

Choice 3 is incorrect. Although statement I is correct, statement III is not. There is no such thing as complete
security, regardless of the mechanism that may be used (III).

Question 20

Water Control, Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead
costs per water pump are based on direct labor hours and are shown below.

Variable overhead (4 hours at $8/hour) $32

Fixed overhead (4 hours at $5*/hour) 20
Total overhead cost per unit $52
*Based on a capacity of 100,000 direct labor hours per month.

The following additional information is available for the month of November.

22,000 pumps were produced although 25,000 had been scheduled for production.
94,000 direct labor hours were worked at a total cost of $940,000.
The standard direct labor rate is $9 per hour.
The standard direct labor time per unit is four hours.
Variable overhead costs were $740,000.
Fixed overhead costs were $540,000.

The variable overhead efficiency variance for November was:

Choice 1 is correct.

Flexible budget based on actual

DL hours: 94,000 x $8/hr. $752,000
Flexible budget based on standard
DL hours: 22,000 units x $4 hrs/unit x $8/hr. 704,000
Unfavorable variance $ 48,000
Question 21

Wellfleet Company manufactures recreational equipment and prepares annual operational budgets for each
department. The Purchasing Department is finalizing plans for the fiscal year ending June 30, 2004, and has
gathered the following information regarding two of the components used in both tricycles and bicycles. Wellfleet
uses the first-in, first-out inventory method.
A19 B12 Tricycles Bicycles
Beginning inventory July 1, 2003 3,500 1,200 800 2,150
Ending inventory June 30, 2004 2,000 1,800 1,000 900
Unit cost $1.20 $4.50 $54.50 $ 89.60
Projected 2003-04 unit sales - - 96,000 130,000
Component usage:
Tricycles 2/unit 1/unit - -
Bicycles 2/unit 4/unit - -

The budgeted dollar value of Wellfleet Company's purchases of Component A19 for the fiscal year ending June 30,
2004 is:

Choice 1 is correct.
Trikes Bikes
7-1-03 800 2,150
Production (squeeze) 96,200* 128,750*
97,000 130,900
Sales (96,000) (130,000)
6-30-04 1,000 900

A19
7-1-03 3,500
Purchases (squeeze) 448,400***
451,900
Usage (449,900)**
6-30-04 2,000

** Usage (production):
Tricycles - 96,200* x 2 = 192,400*
Bicycles - 128,750* x 2 = 257,500*
449,900

*** Budgeted purchases:

448,400 x $1.20 = $ 538,080

Question 22

Unless otherwise agreed upon, profits and losses are shared in proportion to the value of each partner's
contribution in which entity (ies)?
Choice 2 is correct. In a general partnership, unless partners agree otherwise, profits and losses are shared
equally regardless of contribution. Partners in limited partnerships and members of limited liability companies
share profits and losses based upon the partners'/members' contributions unless agreed otherwise.
Question 23

Which of the following is most likely to lead to cost-push inflation?

Choice 3 is correct. Cost-push inflation is caused by a shift left in aggregate supply. Of the answers provided,
only a sharp rise in nominal wages would result in a shift left in aggregate supply.

Choice 1 is incorrect. A decline in real interest rates would cause aggregate demand to shift, not aggregate
supply.

Choice 2 is incorrect. A rise in consumer confidence would cause aggregate demand to shift, not aggregate
supply.

Choice 4 is incorrect. A sharp rise in consumer wealth would cause aggregate demand to shift, not aggregate
supply.

Note that choices 1, 2 and 4 are all likely to lead to demand-pull inflation, not cost-push inflation.

Question 24

A preferred stock is sold for $101 per share, has a face value of $100 per share, underwriting fees of $5 per
share, and annual dividends of $10 per share. If the tax rate is 40 percent, the cost of funds (capital) for the
preferred stock is:
Choice 4 is correct. The stock is issued for a net of $96 per share ($101 less $5 underwriting fee). Because
preferred stock dividends are not tax deductible, the cost to the company is $10/share (the tax rate is a
distracter). Therefore, the cost of the preferred stock is:

$10 ÷ $96 = 10.4%

Question 25

Corbin, Inc. can issue three-month commercial paper with a face value of $1,000,000 for $980,000. Transaction
costs would be $1,200. The effective annualized percentage cost of the financing, based on a 360-day year,
would be:
Choice 3 is correct. The cost to issue the commercial paper is the $20,000 original issue discount ($1 million -
$980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to borrow
$980,000 for 3 months. The 3-month quarterly interest cost is 2.16% (21,200 / 980,000). The annual interest
cost is 8.65% (2.16% x 4).
Question 26

A company obtained a short-term bank loan of $500,000 at an annual interest rate of eight percent. As a
condition of the loan, the company is required to maintain a compensating balance of $100,000 in its checking
account. The checking account earns interest at an annual rate of three percent. Ordinarily, the company
maintains a balance of $50,000 in its account for transaction purposes. What is the effective interest rate of the
loan?
Choice 4 is correct. To calculate the effective annualized percentage cost of financing:

Step 1 Calculate the actual finance charge:

Actual interest (P x Rate x Time)

Step 2 Subtract any interest earned (if any) on additional required compensating balance:

$50,000 x .03 = $1,500

Net interest cost = 40,000 - 1,500 = $38,500

Step 3 Divide the difference (net interest) by the loan proceeds the company has use of:

Additional compensating $500,000 - balance above normal balance = $450,000

38,500 ÷ 450,000 = 8.555% = 8.56% (Periodic Rates)

Question 27

Which of the following statements is (are) correct?

I. An ad hoc report is a report that does not currently exist but that can be readily produced by a programmer
working under the direction of an end user.
II. A query is a specific question made up of various criteria that the end user can pose to a system, but only if
that question has been previously defined and programmed into the system.
III. Push reports are reports that are automatically sent to an end user's screen or desktop.
Choice 3 is correct. Push reports are reports that are automatically sent to an end user's screen or desktop.
Statement III is correct.
An ad hoc report is a report that does not currently exist but that can be readily produced without having to get
a software developer involved. Statement I is incorrect.
A query is a specific question made up of various criteria that the end user can pose to a system; the question
may or may not have been previously defined and programmed into the system. Statement II is incorrect.
Question 28

Which of the following statements is incorrect?

Information is processed data that is meaningful to somebody.
Information tells a much more detailed story about a business than does the data from which it is derived.
The structure of the data in a database often provides the data relationships that start to change the data into
information.
Traditionally, data has been stored on some media in files, records, and fields; today, most successful databases
are stored in hierarchies or trees implemented with indexes and linked lists.
Choice 4 is correct. Traditionally, data has been stored on some media in files, records, and fields; today, most
successful databases are based on what is called relational technology, not stored in hierarchies or trees
implemented with indexes and linked lists.

Question 29

Which of the following statements is (are) correct?

I. A database is an integrated collection of data records and data files.

II. A database management system is a separate computer system that allows an organization to create new
databases and work with the data in a database after the database has been created.
III. Database maintenance handled by the database management system may include the addition or subtraction
of data elements or changes to the structure of the database itself.

All of the statements are correct.

Question 30

Which of the following statements is (are) correct?

I. Supply chain management is the close linkage and coordination of the activities involved in buying, making,
and moving a product.
II. Supply chain management is involved with the what, when, where, and how much of product manufacturing
and sale.
III. Once stable supply chains are set up, they can remain unchanged for considerable periods of time.
I and II only are correct.
Choice 2 is correct.
Supply chain management is the close linkage and coordination of the activities involved in buying, making, and
moving a product. Statement I is correct.
Supply chain management is involved with the what, when, where, and how much of product manufacturing and
sale. Statement II is correct.
Supply chains have to be constantly reengineered as products change and to increase efficiency and reduce costs.
Statement III is incorrect.
Question 31

Which of the following are advantages of B2B?

I. Speed (compared to traditional means of communication).

II. Timing (because transactions do not have to occur during the normal business day).
III. Personalization (because the B2B interface can be personalized).
I and II only are correct.
Choice 4 is correct. Advantages of B2B are: speed, compared to traditional means of communication (Statement
I), timing, because transactions do not have to occur during the normal business day (Statement II), and
personalization, because the B2B interface can be personalized (Statement III).

Question 32

Wellfleet Company manufactures recreational equipment and prepares annual operational budgets for each
department. The Purchasing Department is finalizing plans for the fiscal year ending June 30, 20X4, and has
gathered the following information regarding two of the components used in both tricycles and bicycles. Wellfleet
uses the first-in, first-out inventory method.

A19 B12 Tricycles Bicycles

Beginning inventory July 1, 2003 3,500 1,200 800 2,150
Ending inventory June 30, 2004 2,000 1,800 1,000 900
Unit cost $1.20 $4.50 $54.50 $ 89.60
Projected 2003-04 unit sales - - 96,000 130,000
Component usage:
Tricycles 2/unit 1/unit - -
Bicycles 2/unit 4/unit - -

If the economic order quantity of Component B12 is 70,000 units, the number of times that Wellfleet Company
should purchase this component during the fiscal year ended June 30, 20X4 is:
Choice 4 is correct.

B12
7-1-20X3 1,200
Purchases (squeeze) 611,800**
613,000
Usage (611,200)*
6-30-20X4 1,800

* Usage (production):
Tricycles - 96,200 x 1 = 96,200
Bicycles - 128,750 x 4 = 515,000
611,200

** 611,800 ÷ 70,000 EOQ = 8.74 orders rounded up to nine times

Question 33

Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to
assemble into a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost
of $1.45 per unit. During May 20X1, Blaster experienced the following with respect to part XBEZ52.

Units
Purchases ($18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000

During May 20X1, Blaster Inc. incurred a material efficiency variance of:
Choice 1 is correct.

(Actual Units - STD Units ) x STD Unit Price

( 10,000 - 9,000 ) x $1.45
(1,000) x $1.45

Alternate approach:

Units Cost Cost

*Standard (3 x 3,000) 9,000 1.45 13,050
Actual 10,000 1.45 14,500
Difference (1,000) 0.00 (1,450)

* Standard quantity allowed = actual output (3,000) x standard units allowed per output (3).