ACCT 434 Midterm Exam

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ACCT 434 Midterm Exam

1.Question :(TCO 1) Which of the following is a sign that an ABC system may be useful?
Student Answer: Operations staff agrees with accountants about the costs of manufacturing and marketing products and services.
 There are small amounts of indirect costs.
 Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.
 Products a company is less suited to produce and sell show small profits.


Question 2.Question :(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 the inquiry cost will be assigned to Department A?

Student Answer: $80,000
 None of the above


Question 3.Question :(TCO 2) Budgeting provides all of the following EXCEPT
Student Answer: 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 4.Question :(TCO 2) White planned to use $82 of material per unit but actually used $80 of material per unit, and planned to make 1,200 units but actually made 1,000 units.  The flexible-budget variance is
Student Answer: $2,000 favorable.
 $14,000 unfavorable.
 $16,400 unfavorable.
 $2,400 favorable.

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Question 5.Question :(TCO 3) Which of the following does NOT represent a cause-and-effect relationship?
Student Answer: It makes sense that if a complex product has a large number of parts, it will take longer to assemble than a simple product with fewer parts.
 Material costs increase as the number of units produced increases.
 A company is charged 40 cents for each brochure printed and mailed.
 Utility costs increase at the same time that insurance costs increase.


Question 6.Question :(TCO 4) Relevant costs in a make-or-buy decision of a part include
Student Answer: setup overhead for the manufacture of the product using the outsourced part.
 currently used manufacturing capacity that has alternative uses.
 annual plant insurance that will remain the same.
 corporate office costs that will be allocated differently.


Question 7.Question :(TCO 5) The theory of constraints is used for cost analysis when
Student Answer: 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 8.Question :(TCO 5) Jensen Company has relevant costs of $80 per unit to manufacture Part A.  A current supplier offers to make Part A for $70 per unit.  If capacity is constrained, the opportunity cost of buying Part A from the supplier is
Student Answer: 0.


Question 9.Question :(TCO 3) For January, the cost components of a picture frame include $0.35 for the glass, $0.65 for the wooden frame, and $0.80 for assembly.  The assembly desk and tools cost $400. A total of 1,000 frames is expected to be produced in the coming year.  What cost function best represents these costs?
Student Answer: y = 1.80 + 400X
 y = 2.20 + 1,000X
 y = 400 + 1.80X
 y = 1.00 + 400X


Question 10.Question :(TCO 4) Sunk costs
Student Answer:are future costs.
are past costs.
 have future implications.
 are relevant to all decisions.
1.Question :(TCO 1) For each of the following activities, identify an appropriate activity-cost driver.

a.    machine maintenance

b.    machine setup

c.    quality control

d.    material ordering

e.    production scheduling

f.     warehouse expense

g.    engineering design

Question 2.Question :(TCO 2) Lubriderm Corporation has the following budgeted sales for the next six-month period

Month                          Unit Sales

June                              90,000

July                              120,000

August                           210,000

September                      150,000

October                         180,000

November                       120,000

There were 30,000 units of finished goods in inventory at the beginning of June.  Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced.  Each pound of material costs $8.  Inventory levels for materials are equal to 30% of the needs for the next month.  Materials inventory on June 1 was 15,000 pounds.

Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

Question 3.Question :(TCO 3) The Wildcat Company has provided the following information:

Units of Output             30,000 Units           42,000 Units

Direct materials                         $180,000                    $252,000

Workers’ wages                        1,080,000                    1,512,000

Supervisors’ salaries                    312,000                      312,000

Equipment depreciation                151,200                      151,200

Maintenance                                 81,600                      110,400

Utilities                                       384,000                     528,000

Total                                       $2,188,800                $2,865,600

Using the high-low method and the information provided above, identify the linear cost function equation.

Question 4.Question :(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.

a.     What is the relevant per unit cost for the original part?

b.    Which alternative is best for Kirkland Company?  By how much?


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