ACCT 434 Final Exam

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ACCT 434 Final Exam

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)



Question 3. 3. (TCO 2) Fixed overhead costs include (Points : 5)

the cost of sales commissions.
property taxes paid on plant facilities.
indirect materials.
energy costs.


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 are 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 payments in March for inventory purchases are

(Points : 5)



Question 5. 5. (TCO 2) Budgeting provides all of the following EXCEPT (Points : 5)

a means to communicate the organization’s short-term goals to its members.
support for the management functions of planning and coordination.
a means to anticipate problems.
an ethical framework for decision making.


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

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Question 7. 7. (TCO 3) Which cost estimation method may use time-and-motion studies to analyze the relationship between inputs and outputs in physical terms? (Points : 5)

Quantitative analysis method
Account analysis method
Conference method
Industrial engineering method


Question 8. 8. (TCO 4) Sunk costs (Points : 5)

have future implications.
are ignored when evaluating alternatives.
are differential.
are relevant.


Question 9. 9. (TCO 5) Throughput contribution equals revenues minus (Points : 5)

operating costs.
direct material costs of goods sold.
direct material costs and minus operating costs.
direct material and direct labor costs.


Question 10. 10. (TCO 5) Producing more nonbottleneck output (Points : 5)

allows for the maximization of overall contribution.
creates less pressure for the bottleneck workstations.
creates more inventory and increases throughput contribution.
creates more inventory, but does not increase throughput contribution.


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)

Byproduct 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 splitoff 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 splitoff point.
the extra operating income earned past the splitoff point.


Question 13. 13. (TCO 7) An understanding of life-cycle costs can lead to (Points : 5)

additional costs during the manufacturing cycle.
less need for evaluation of the competition.
cost-effective product designs that are easier to service.
mutually beneficial relationships between buyers and sellers.


Question 14. 14. (TCO 7) Pritchard Company manufactures a product that has a variable cost of $30 per unit.  Fixed costs total $2,000,000, allocated on the basis of the number of units produced.  Selling price is computer by adding a 12% markup to full cost.  How much should the selling price be per unit for 300,000 units? (Points : 5)



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) The seller of Product A has no idle capacity and can sell all it can produce at $25 per unit.  Outlay cost is $10.  What is the opportunity cost, assuming the seller sells internally? (Points : 5)



Question 17. 17. (TCO 8) Transferring products or services at market prices generally leads to optimal decisions when (Points : 5)

the market for the intermediate product is perfectly competitive.
the interdependencies of the subunits are minimal.
there are no additional costs or benefits to the company in buying or selling in the external market.
All of the above


Question 18. 18. (TCO 9) To guide cost allocation decisions, the cause-and-effect criterion (Points : 5)

may allocate corporate salaries to divisions based on profits.
is used less frequently than the other criteria.
is the primary criterion used in activity-based costing.
is a difficult criterion on which to obtain agreement.


Question 19. 19. (TCO 9) The Hassan Corporation has an electric mixer division and an electric lamp division.  Of a $50,000,000 bond issuance, the electric mixer division used $24,000,000 and the electric lamp division used $26,000,000 for expansion.  Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the electric lamp division? (Points : 5)



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 four 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 four-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) Nonfinancial measures for internal quality performance include all but which of the following? (Points : 5)

Employee empowerment
Process yields
Product defect levels


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 200,000 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 internal failure costs change if the internal product failures are reduced by 50% with the new procedures? (Points : 5)

$500,000 decrease
$750,000 decrease
$33,750 decrease
$45,000 decrease


Question 24. 24. (TCO 12) The costs associated with storage are an example of which cost category? (Points : 5)

Carrying costs
Ordering costs
Quality costs
Labor 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 $80.  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.
If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is (Points : 5)



. (TCO 2) Russell Company has the following projected account balances for June 30, 20X9:

Accounts payable $   60,000 Sales $               800,000
Accounts receivable $ 100,000Capital stock $               400,000
Depreciation, factory $   36,000Retained  earnings  ?
Inventories (5/31 & 6/30) $ 180,000Cash $                 56,000
Direct materials used $ 210,000Equipment, net $               260,000
Office salaries $   92,000Buildings, net $               400,000
Insurance, factory $     4,000Utilities, factory $                 16,000
Plant wages $ 140,000Selling expenses $                 50,000
Bonds payable $ 160,000Maintenance, factory $                 28,000


(TCO 11) For supply item LK, Boatman Company has been ordering 125 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 units250
Days used per year250
Lead time, in days13
Ordering costs$100
Annual unit carrying costs$20

Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

(Points : 25)


(TCO 8) Autocar 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 $18,000.  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)


(TCO 5) Steven’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 $600,000 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)


(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:

∙     For 16 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)




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