ACCT434 Advanced Cost Management: Week 4 Midterm Exam (Version 2)

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

ACCT434 Advanced Cost Management
Week 4 Cost Allocation - Midterm Exam (Version 2)

1. (TCO 1) Which of the following is a sign that an ABC system may be useful? (Points: 5)
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.

2. (TCO 1) Merriman Company provides the following ABC costing information:
Activities Total Costs Activity-cost drivers
Account inquiry hours $400,000 10,000 hours
Account billing lines $280,000 4,000,000 lines
Account verification accounts $150,000 40,000 accounts
Correspondence letters $ 50,000 4,000 letters
Total costs $880,000

The above activities are used by Department A and B as follows:
Department A Department B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters

How much of the account billing cost will be assigned to Department B? (Points: 5)
None of the above

3. (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

4. (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 (Points: 5)
$2,000 favorable
$14,000 unfavorable
$16,400 unfavorable
$2,400 favorable

5. (TCO 3) The conference method estimates cost functions
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.
by mathematically analyzing the relationship between inputs and outputs in physical terms.

6. (TCO 4) In evaluating different alternatives, it is useful to concentrate on (Points: 5)
variable costs.
fixed costs.
total costs.
relevant costs.

7. (TCO 5) Producing more nonbottleneck output (Points: 5)
creates more inventory and increases throughput contribution.
creates less pressure for the bottleneck workstations.
allows for the maximization of overall contribution.
creates more inventory, but does not increase throughput contribution

8. (TCO 5) Schmidt Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows: (Points: 5)
Direct materials $45,000
Direct labor 65,000
Variable factory overhead 30,000
Fixed factory overhead 70,000
Total costs $210,000
Of the fixed factory overhead costs, $30,000 is avoidable.

Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit. Assuming there is no other use for the facilities, Schmidt should
a. make the part as this would save $3 per unit.
b. buy the part as this would save $3 per unit.
c. buy the part as this would save the company $30,000.
d. make the part as this would save $1 per unit.

9. (TCO 3) The cost components of an air conditioner include $35 for the compressor, $11.50 for the sheet-molded compound frame, and $80 per unit for assembly. The factory machines and tools cost is $55,000. 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 = 55,000 + 1,500X
y = 55,000 +126.50X

10. (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

11. (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.

a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month. Answer:

12. (TCO 3) As part of his job as cost analyst, Max Thompson collected the following information concerning the operations of the Machining Department:
Observation Machine-hours Total Operating Costs
January 4,000 $45,000
February 4,600 49,500
March 3,800 45,750
April 4,400 48,000
May 4,500 49,800

a. Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b. If June's estimated machine-hours total 4,200, what are the total estimated costs of the Machining Department?

13. (TCO 5) Collier Bicycles has been manufacturing its own wheels for its bikes. The company is operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively. Normal production is 200,000 wheels per year.

A supplier offers to make the wheels at a price of $4 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead being charged to the wheels will have to be absorbed by other products.

a. Prepare an incremental analysis for the decision to make or buy the wheels.
b. Should Collier Bicycles buy the wheels from the outside supplier? Justify your answer.
(Points : 25)

14. (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
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