ACCT 434 Midterm Exam (Updated)

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ACCT 434 Midterm Exam (Updated)


1. (TCO 1) ABC systems create (Points : 5)

one large cost pool .
homogenous activity-related cost pools.
activity-cost pools with a broad focus.
activity-cost pools containing many direct costs.

Question 2.2. (TCO 1) Merriamn Company provides the following ABC costing information:

ActivitiesTotal CostsActivity-cost drivers
Account inquiry hours$400,00010,000 hours
Account billing lines$280,0004,000,000 lines
Account verification accounts$150,00040,000 accounts
Correspondence letters$ 50,0004,000 letters
Total costs$880,000

The above activities are used by Department A and B as follows:

Department ADepartment B
Account inquiry hours2,000 hours4,000 hours
Account billing lines400,000 lines200,000 lines
Account verification accounts10,000 accounts8,000 accounts
Correspondence letters1,000 letters1,600 letters

How much of account verification costs will be assigned to Department A? (Points : 5)


Question 3.3. (TCO 2) Examples of nonfinancial budgets include all of the following EXCEPT (Points : 5)

cash collections from customers.
units sold.
units manufactured.
number of new products introduced.

Question 4.4. (TCO 2) Dalyrymple Company produces a special spray nozzle.  The budgeted indirect total cost of inserting the spray nozzle is $80,000.  The budgeted number of nozzles to be inserted is 40,000.  What is the budgeted indirect cost allocation rate for this activity? (Points : 5)


Question 5.5. (TCO 3) The conference method estimates cost functions (Points : 5)

by mathematically analyzing the relationship between inputs and outputs in physical terms.
using quantitative methods that can be very time consuming and costly.
based on analysis and opinions gathered from various departments.
using time-and-motion studies.

Question 6.6. (TCO 4) Relevant costs of a make-or-buy decision include all of the following EXCEPT (Points : 5)

fixed salaries that will not be incurred if the part is outsourced.
current direct material costs of the part.
special machinery for the part that has no resale value.
material-handling costs that can be eliminated.

Question 7.7. (TCO 5) One-time-only special orders should only be accepted if ________. (Points : 5)

incremental revenues exceed incremental costs
differential revenues exceed variable costs
incremental revenues exceed fixed costs
total revenues exceed total costs

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Question 8.8. (TCO 5) Konrade’s Engine Company manufactures part TE456 used in several of its engine models.  Monthly production costs for 1,000 units are as follows:
Direct materials                              $40,000
Direct labor                                   10,000
Variable overhead costs                     30,000
Fixed overhead costs                         20,000
Total costs                               $100,000
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.  Konrade’s Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
If Konrade’s Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total (Points : 5)


Question 9.9. (TCO 3) The cost function y = 100 + 10X (Points : 5)

has a slope coefficient of 100.
is a nonlinear.
has an intercept of 100.
represents a fixed cost.

Question 10.10. (TCO 4) Sunk costs (Points : 5)

are future costs.
are past costs.
have future implications


  1. (TCO 1) For each of the following drivers identify an appropriate activity.
  2. # of machines
  3. # of setups
  4. # of inspections
  5. # of orders
  6. # of runs
  7. # of bins or aisles
  8. # of engineers
  1. (TCO 2) Favata Company has the following information
    Month                   Budgeted Sales
    June                     $60,000
    July                      51,000
    August                  40,000
    September            70,000
    October                 72,000
    In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month’s cost of sales.
    Prepare a purchases budget for July through September. (Points : 30)



  1. (TCO 5) Kirkland Company manufactures a part for use in its production of hats.  When 10,000 items are produced, the costs per unit are:
    Direct materials                                   $0.60
    Direct manufacturing labor                    3.00
    Variable manufacturing overhead           1.20
    Fixed manufacturing overhead               1.60
    Total                                                   $6.40
    Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit.  The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer.  In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.
  2. What is the relevant per unit cost for the original part
  3. Which alternative is best for Kirkland Company? By how much?



  1. (TCO 3) The Wildcat Company has provided the following information:
Units of Output30,000 Units42,000 Units
Direct materials$180,000$252,000
Workers’ wages1,080,0001,512,000
Supervisors’ salaries312,000312,000
Equipment depreciation151,200151,200

Using the high-low method and the information provided above, identify the linear cost function equation. (Points : 30)



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