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1. (TCO 1) A significant limitation of activity-based costing is the (Points : 5)

attention given to indirect cost allocation.
many necessary calculations.
operations staff’s attitude toward the accounting staff.
use it makes of technology.

 

Question 2.2. (TCO 1) Ireland Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $180,000. The budgeted number of nozzles to be inserted is 80,000. What is the budgeted indirect cost allocation rate for this activity? (Points : 5)

$0.50
$1.00
$1.50
$2.25

 

Question 3.3. (TCO 2) Variable overhead costs include (Points : 5)

machine maintenance.
depreciation on plant equipment.
plant-leasing costs.
the plant manager’s salary.

 

Question 4.4. (TCO 2) Information pertaining to Brenton Corporation’s sales revenue is presented in the following table:

February March April
Cash Sales $160,000 $150,000 $120,000
Credit Sales 300,000 400,000 280,000
Total Sales $460,000 $550,000 400,000

Management estimates that 5% of credit sales are not collectible. Of the credit sales that are collectible, 75% are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month is 80% of the next month’s projected total sales. All purchases of inventory are on account; 50% are paid in the month of purchase, and the remainder is paid in the month following the purchase.
Brenton’s budgeted total cash receipts in April are (Points : 5)

$448,000.
$414,500.
$431,600.
$328,000.

 

Question 5.5. (TCO 2) Financing decisions PRIMARILY deal with (Points : 5)

the use of scarce resources.
how to obtain funds to acquire resources.
acquiring equipment and buildings.
preparing financial statements for stockholders.

 

Question 6.6. (TCO 3) For January, the cost components of a picture frame include $0.20 for the glass, $0.85 for the wooden frame, and $0.60 for assembly. The assembly desk and tools cost $200. A total of 1,000 frames is expected to be produced in the coming year. What cost function best represents these costs? (Points : 5)

y = 1.80 + 400X
y = 400 + 1.80X
y = 200 + 1.65X
y = 1.00 + 400X

 

Question 7.7. (TCO 3) Which cost estimation method uses a formal mathematical method to develop cost functions based on past data? (Points : 5)

Quantitative analysis method
Industrial engineering method
Account analysis method
Conference method

 

Question 8.8. (TCO 4) Sunk costs (Points : 5)

are relevant to all decisions.
have future implications.
are future costs.
are past costs.

 

Question 9.9. (TCO 5) The theory of constraints is used for cost analysis when (Points : 5)

a manufacturing company produces multiple products and uses multiple manufacturing facilities and/or machines.
using a long-term time horizon.
operating costs are assumed fixed.
All of the above

 

Question 10.10. (TCO 5) Keeping the bottleneck operation busy and subordinating all nonbottleneck operations to the bottleneck operation involves (Points : 5)

keeping the bottleneck resource busy at least 90% of the time.
maximizing the contribution margin of the nonbottleneck operation.
having the workers at the nonbottleneck operation or machine improving their productivity.
None of the above

 

Question 11.11. (TCO 6) What type of cost is the result of an event that results in more than one product or service simultaneously? (Points : 5)

By-product cost
Joint cost
Main costs
Separable cost

 

Question 12.12. (TCO 6) When a product is the result of a joint process, the decision to process the product past the split-off point further should be influenced by (Points : 5)

the total amount of the joint costs.
the portion of the joint costs allocated to the individual products.
the extra revenue earned past the split-off point.
the extra operating income earned past the split-off point.

 

Question 13.13. (TCO 7) Life-cycle costing is the name given to (Points : 5)

a method of cost planning to reduce manufacturing costs to targeted levels.
the process of examining each component of a product to determine whether its cost can be reduced.
the process of managing all costs along the value chain.
a system that focuses on reducing costs during the manufacturing cycle.

 

Question 14.14. (TCO 7) Each month, Haddon Company has $300,000 total manufacturing costs (20% fixed) and $125,000 distribution and marketing costs (75% fixed). Haddon’s monthly sales are $500,000. The markup percentage on variable costs to arrive at the existing (target) selling price is (Points : 5)

84%.
40%.
80%.
66 2/3%.

 

Question 15.15. (TCO 8) A transfer-pricing method leads to goal congruence when managers (Points : 5)

always act in their own best interest.
act in their own best interest and the decision is in the long-term best interest of the manager’s subunit.
act in their own best interest and the decision is in the long-term best interest of the company.
act in their own best interest and the decision is in the short-term best interest of the company.

 

Question 16.16. (TCO 8) Division A sells soybean paste internally to Division B, which, in turn, produces soybean burgers that sell for $5 per pound. Division A incurs costs of $0.80 per pound and Division B incurs additional costs of $3 per pound. Which of the following formulas correctly reflects the company’s operating income per pound? (Points : 5)

$5 – ($1.25 + $2.50) = $1.25
$5 – ($0.75 + $2.50) = $1.75
$5 – ($0.80 + $3) = $1.20
$5 – ($0.25 + $1.25 + $3.50) = 0

 

Question 17.17. (TCO 8) A benefit of using a market-based transfer price is the (Points : 5)

profits of the transferring division are sacrificed for the overall good of the corporation.
profits of the division receiving the products are sacrificed for the overall good of the corporation.
economic viability and profitability of each division can be evaluated individually.
None of the above

 

Question 18.18. (TCO 9) To guide cost allocation decisions, the benefits-received criterion (Points : 5)

may use an allocation base of division revenues to allocate advertising costs.
is the primarily used criterion in activity-based costing.
results in subsidizing products that are not profitable.
generally uses the cost driver as the cost allocation base.

 

Question 19.19. (TCO 9) The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. Which corporate costs should be allocated to divisions? (Points : 5)

Variable costs
Fixed costs
Neither fixed nor variable costs
Both fixed and variable costs

 

Question 20.20. (TCO 10) A “what-if” technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes is called (Points : 5)

adjusted rate-of-return analysis.
internal rate-of-return analysis.
sensitivity analysis.
net-present-value analysis.

 

Question 21.21. (TCO 10) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $400,000 in annual cash flows for a period of 4 years. The required rate of return is 12%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the 4-year period.
What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. (Points : 5)

$119,550; Yes
$314,800; Yes
$1,019,550; Yes
$69,550; No

 

Question 22.22. (TCO 11) The four cost categories in a cost of quality program are (Points : 5)

product design, process design, internal success, and external success.
prevention, appraisal, internal failure, and external failure.
design, conformance, control, and process.
design, process specification, on-time delivery, and customer satisfaction.

 

Question 23.23. (TCO 11) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company’s average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change, assuming the new prevention methods reduce material failures by 40% in the appraisal phase? (Points : 5)

$60,000 increase
$12,000 decrease
$30,000 decrease
$240,000 decrease

 

Question 24.24. (TCO 12) Quality costs include (Points : 5)

prevention costs.
stockout costs.
purchasing costs.
ordering costs.

 

Question 25.25. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $100. There are no flag displays on hand but Liberty had scheduled 70 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. The estimated total setup cost for the flag displays for the coming year is (Points : 5)

$2,000.
$3,000.
$7,000.
$12,500.

 

 

 

 

 

  1. (TCO 2) Russell Company has the following projected account balances for June 30, 20X9:
Accounts payable $60,000  Sales $800,000
Accounts receivable $100,000 Capital stock $400,000
Depreciation, factory $36,000 Retained  earnings ?
Inventories (5/31 & 6/30) $180,000 Cash $56,000
Direct materials used $210,000 Equipment, net $260,000
Office salaries $92,000 Buildings, net $400,000
Insurance, factory $4,000 Utilities, factory $16,000
Plant wages $140,000 Selling expenses $50,000
Bonds payable $160,000 Maintenance, factory $28,000

Prepare a budgeted income statement AND a budgeted balance sheet as of June 30, 20X9. (Points : 25)

 

 

2)  (TCO 5) Jane’s Medical Equipment Company manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,800 and fixed costs of $1,000 per unit, based on an average production run of 5,000 units. It normally has four production runs a year, with $700,000 in setup costs each time. Plant capacity can handle up to six runs a year for a total of 30,000 beds.

A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000. Management believes it must lower the price to compete. Marketing believes that the new price will increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the same level of fixed costs. The company sells all the Deluxe beds it can produce.
Question 1: What is the annual operating income from Deluxe at the price of $5,000?
Question 2: What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%? (Points : 25)

 

 

3)    (TCO 7) Grace Greeting Cards Incorporated is starting a new business venture and is in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:
∙ Sixteen times each year, a new card design will be put into production. Each new design will require $200 in setup costs.
∙ The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years.
∙ Direct costs of producing the designs average $0.50 each.
∙ Indirect manufacturing costs are estimated at $50,000 per year.
∙ Customer service expenses average $0.10 per card.
∙ Sales are expected to be 2,500 units of each card design. Each card sells for $3.50.
∙ Sales units equal production units each year.
What is the total estimated life-cycle operating income? (Points : 25)

 

  1. (TCO 8) Motormart Company manufactures automobiles. The red car division sells its red cars for $25,000 each to the general public. The red cars have manufacturing costs of $12,500 each for variable and $5,000 each for fixed costs. The division’s total fixed manufacturing costs are $25,000,000 at the normal volume of 5,000 units.
    The blue car division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the red car division at the full cost of $16,000. The red car division has excess capacity and the 1,000 units can be produced without interfering with the outside sales of 5,000. The 6,000 volume is within the division’s relevant operating range.
    Explain whether the red car division should accept the offer. Support your decision showing all calculations. (Points : 25)

 

5) (TCO 11) For supply item MT, Bluesky Company has been ordering 150 units based on the recommendation of the salesperson who calls on the company monthly. The company has hired a new purchasing agent, who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:

Annual demand in units 300
Days used per year 300
Lead time, in days 20
Ordering costs $125
Annual unit carrying costs $25
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs. (Points : 25)