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

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

Week 4 Cost Allocation - Midterm Exam (Version 4)

1. (TCO 1) Which of the following is a sign that an ABC system may be useful? (Points: 5)
Operation staff agrees with accountants about the cost
There are small amount of indirect cost
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 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 account verification cost will be assigned to department A? (Points: 5)
\$14,000
\$150,000
\$10,000
\$37,500

3. (TCO 2) Examples of nonfinancial budgets include all the following except (Points: 5)
cash collections from customers
units sold
units manufactured
number of new products introduced

4. (TCO 2) White planned to use \$82 of material per unit but actually used \$80 of the material per unit and planned to make 1,200 units but actually made 1,000 units .
The flexible budge 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 (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

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

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

8. (TCO 5) Konrade’s Engine Company manufactures part TE456 used in several of its engine models Monthly production cost for 1,000 units are as follows
Direct materials \$40,000
Direct Labor \$ 10,000
Total Cost \$100,000

It is estimated that 10% of the fixed overhead cost 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 cost (cost that will no longer be incurred) total (Points: 5)
\$82,000
\$98,000
\$50,000
\$100,000

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

10. (TCO 4) Sunk cost (Points: 5)
are future cost
past cost
have future implications
are relevant to all decisions

Essays
1. (TCO 1) For each of the following drivers identify an appropriate activity
a. # of machines
b. # of setups
c. # of inspections
d. # of orders
e. # of runs
f. # of bins or aisles
g. # of engineers

2. (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.

Required:
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:

3. (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, a. identify the linear cost function equation and b. estimate the total cost at 36,000 units of output.

4. (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.