Acct434 Advanced Cost Management Week 8 – Final Examination (Version 3)

Reminder: There are several versions of this week’s questions, please make sure you have reviewed and compared our tutorial questions with your test questions.

ACCT434 Advanced Cost Management
Week 8 – Final Examination (Version 3) 25
Multiple Choice Questions:
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. 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
3. (TCO 2) Overhead costs have been increasing due to all of the following except (Points : 5) product proliferation. tracing more costs as direct costs with the help of technology. more complexity in distribution processes. increased automation.
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) $380,000. $505,000. $306,250. $280,000.
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.
6. (TCO 3) The cost components of an air conditioner include $35 for the compressor, $15 for the sheet-molded compound frame, and $100 per unit for assembly. The factory machines-and-tools cost is $80,000. The company expects to produce 1,500 air conditioners in the coming year. What cost function best represents these costs? (Points : 5) y = 1500 + 126.5X y = 1,500 + 55,000X y = 80,000 + 150X y = 55,000 + 126.50X
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
8. (TCO 4) Sunk costs (Points : 5) have future implications. are ignored when evaluating alternatives. are differential. are relevant.
9. (TCO 5) In the theory of constraints, the only direct costs are (Points : 5) direct material, direct labor, and variable overhead costs. investment costs. direct material. direct material and direct labor.
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.
11. (TCO 6) Which of the following methods of allocating costs use market-based data? (Points : 5) Sales value at split-off method Estimated net realizable value method Constant gross-margin percentage method All of the above
12. (TCO 6) The benefits-received criteria for allocating joint costs indicates market-based measures are preferred because (Points : 5) physical measures such as volume are a clearer basis for allocating cost than other measures. other measures are more difficult to calculate. revenues are usually the best indicator of the benefits received. None of the above
13. (TCO 7) Life-cycle budgeting is particularly important when (Points : 5) the development period for R&D is short and inexpensive. there are significant nonproduction costs. most costs are locked in during production. a low percentage of costs are incurred before any revenues are received.
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) $49 $43.75 $42 $41.07
15. (TCO 8) The costs used in cost-based transfer prices (Points : 5) are actual costs. are budgeted costs. can either be actual or budgeted costs. are lower than the market-based transfer prices.
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 while Division B incurs additional costs of $3 per pound. What is Division A's operating income per pound, assuming the transfer price of the soybean paste is set at $1.25 per pound? (Points : 5) $0.45 $0.875 $1.25 $1.625

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
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.
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 mixer division? (Points : 5) $4,200,000 $14,000,000 $1,050,000 $720,000
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.
21. (TCO 10) Upper Darby Park Department is considering a new capital investment. The cost of the machine will be $200,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a five-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project? (Points : 5) -$35,950 -$150,000 $14,060 -$12,418
22. (TCO 11) Nonfinancial measures for internal quality performance include all but which of the following? (Points : 5) Employee empowerment Process yields Feedback Product defect levels
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
24. (TCO 12) Obsolescence is an example of which cost category? (Points : 5) Ordering costs Carrying costs Labor costs Quality costs
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.

5 Essays/Problems:
1. (TCO 2) Russell Company has the following projected account balances for June 30, 20X9: Accounts payable $ 60,000 Sales $ 800.000 800,000 Accounts receivable $ 100,000 Capital stock $ 400.000 400,000 Depreciation, factory $ 36,000 Retained earnings ? Inventories (5/31 & 6/30) $ 180,000 Cash $ 56.000 56,000 Direct materials used $ 210,000 Equipment, net $ 260.000 260,000 Office salaries $ 92,000 Buildings, net $ 400.000 400,000 Insurance, factory $ 4,000 Utilities, factory $ 16.000 16,000 Plant wages $ 140,000 Selling expenses $ 50.000 50,000 Bonds payable $ 160,000 Maintenance, factory $ 28.000 28,000 Prepare a budgeted income statement AND a budgeted balance sheet as of June 30, 20X9.

2.(TCO 5) Paul'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 $500,000 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%?

3. (TCO 7) Mercy 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 $100 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. ∙ Current 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?

4. (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.

5. (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 units 250 Days used per year 250 Lead time, in days 13 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.
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