QUESTION 1
An activity-based costing system that is designed for internal decision-making will not conform
to generally accepted accounting principles because:
under activity-based costing the sum of all product costs does not equal the total costs of the
company
under activity-based costing manufacturing costs are assigned to products
activity-based costing has not been approved by the United Nation’s International
Accounting Board
activity-based costing results in less accurate costs than more traditional costing methods
based on direct labor-hours or machine-hours
3 points
QUESTION 2
The plant manager’s salary is an example of a(n):
Unit-level activity
Batch-level activity
Product-level activity
Organization-sustaining activity
3 points QUESTION 3
Grammer Corporation uses an activity-based costing system with three activity cost pools. The
company has provided the following data concerning its costs: Costs:
Wages and salaries $240,000
Depreciation 160,000 Occupancy 140,000 Total $540,000 The distribution of resource consumption across the three activity cost pools is given below: Activity Cost Pools
Fabricating Order Processing Othe
Total
r Wages and salaries 30% 45% 25% 100% Depreciation 20% 35% 45% 100% Occupancy 5% 65% 30% 100% How much cost, in total, would be allocated in the first-stage allocation to the Other
activity cost pool? $135,000 $174,000
$162,000
$180,000
3 points
QUESTION 4
Poskey Corporation uses an activity-based costing system with three activity cost pools. The
company has provided the following data concerning its costs and its activity based costing
system: Costs:
Wages and salaries $400,000 Depreciation 160,000 Utilities
Total 100,000
$660,000 Distribution of resource consumption:
Activity Cost Pools
Assembly Setting
Up Other Total Wages and salaries 40% 40% 20% 100% Depreciation 20% 35% 45% 100% Utilities 25% 55% 20% 100% How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity
cost pool? $187,000
$264,000
$217,000
$165,000
3 points
QUESTION 5
Consider the following statements:
I. A division’s net operating income, after deducting both traceable and allocated common fixed
costs, is negative.
II. The division’s avoidable fixed costs exceed its contribution margin.
III. The division’s traceable fixed costs plus its allocated common corporate costs exceed its
contribution margin.
Which of the above statements is a valid reason for eliminating the division?
Only I
Only II
Only III
Only I and II
3 points
QUESTION 6
Yehle Inc. regularly uses material Y51B and currently has in stock 460 liters of the material for
which it paid $2,530 several weeks ago. If this were to be sold as is on the open market as
surplus material, it would fetch $4.55 per liter. New stocks of the material can be purchased on
the open market for $5.45 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 720 liters of the material to be used in a job for a
customer. The relevant cost of the 720 liters of material Y51B is:
$3,924
$5,450
$3,510
$3,276
3 points QUESTION 7
Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total
cost of $1,100,000. If these computers are upgraded at a total cost of $40,000, they can be sold
for a total of $750,000. As an alternative, the computers can be sold in their present condition for
$690,000.
Suppose the selling price of the upgraded computers has not been set. At what selling price per
unit would the company be as well off upgrading the computers as if it just sold the computers in
their present condition?
$86.50
$887.50
$912.50
$562.50
3 points
QUESTION 8 (Ignore income taxes in this problem.) Pro-Mate, Inc. is a producer of athletic equipment. The
company is considering the purchase of a machine to produce baseball bats. The machine will
cost $60,000 and have a 10-year useful life. The following annual revenues and expenses are
projected: Sales $40,000 Less expenses:
Out-of-pocket production
costs
Selling expenses
Depreciation
Net operating income $15,000
9,000
6,000 30,000
$10,000 The machine will have no salvage value. Assume cash flows occur uniformly throughout a year
except for the initial investment.
The payback period for the new machine is about: 6.0 years
1.5 years
5.4 years
3.75 years
3 points
QUESTION 9 (Ignore income taxes in this problem.) Carlson Manufacturing has some equipment that needs to
be rebuilt or replaced. The following information has been gathered relative to this decision: Present Equipment New Equipment
Purchase cost new $50,000 $48,000 Remaining book value $30,000 – Cost to rebuild now $25,000 – Major maintenance at the end of 3
years $8,000 $5,000 Annual cash operating costs $10,000 $8,000 Salvage value at the end of 5 years $3,000 $7,000 Salvage value now $9,000 – Carlson uses the total cost approach to net present value analysis and a discount rate of 12%.
Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson
Manufacturing will have no future use for the equipment.
If the new equipment is purchased, the present value of the annual cash operating costs
associated with this alternative is: ($28,840)
($19,160)
($14,420)
($36,050)
3 points QUESTION 10
The WRT Corporation makes collections on sales according to the following schedule: 25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible
The following sales have been budgeted:
Sales
April$120,000
May $100,000
June $110,000
Budgeted cash collections in June would be: $27,500
$98,500
$71,000
$115,500
3 points
QUESTION 11 1. Bracken Corporation is a small wholesaler of gourmet food products. Data regarding the
store’s operations follow:
o Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000
for January.
o Collections are expected to be 80% in the month of sale, 17% in the month following
the sale, and 3% uncollectible.
o The cost of goods sold is 75% of sales.
o The company would like to maintain ending merchandise inventories equal to 70% of
the next month’s cost of goods sold. Payment for merchandise is made in the month
following the purchase.
o Other monthly expenses to be paid in cash are $21,800.
o Monthly depreciation is $19,000.
o Ignore taxes. Balance Sheet
October 31
Assets
Cash $28,000 Accounts receivable, net of allowance for uncollectible accounts 76,000 Merchandise inventory 173,250 Property, plant and equipment, net of $604,000 accumulated depreciation 1,170,000
Total assets $1,447,250 Liabilities and Stockholders’ Equity
Accounts payable $255,000 Common stock 840,000 Retained earnings
Total liabilities and stockholders’ equity 352,250
$1,447,250 The cost of December merchandise purchases would be:
$225,000
$178,500
$247,500
$255,000
3 points
QUESTION 12
Bobe Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets
and performance reports. The cost formula for plane operating costs is $44,580 per month plus
$2,390 per flight plus $8 per passenger. The company expected its activity in May to be 68
flights and 211 passengers, but the actual activity was 71 flights and 210 passengers. The actual
cost for plane operating costs in May was $215,140.
The spending variance for plane operating costs in May would be closest to:
$810 U
$6,352 U
$810 F
$6,352 F
3 points
QUESTION 13
Hagel Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for
2,300 client-visits, but its actual level of activity was 2,320 client-visits. The clinic has provided
the following data concerning the formulas used in its budgeting and its actual results for July: Data used in budgeting: Fixed element per month Variable element per client-visit
Revenue – $44.60 Personnel expenses $23,200 $15.10 Medical supplies 900 7.40 Occupancy expenses 6,500 2.00 Administrative expenses
Total expenses 4,000 0.20 $34,600 $24.70 Actual results for July: Revenue $100,902 Personnel expenses $60,922 Medical supplies $18,648 Occupancy expenses $11,290 Administrative expenses $4,594 The revenue variance for July would be closest to: $2,570 F
$1,678 U
$1,678 F $2,570 U
3 points
QUESTION 14
Kudej Printing uses two measures of activity, press runs and book set-ups, in the cost formulas in
its budgets and performance reports. The cost formula for wages and salaries is $8,360 per month
plus $570 per press run plus $910 per book set-up. The company expected its activity in May to
be 194 press runs and 74 book set-ups, but the actual activity was 195 press runs and 72 book
set-ups. The actual cost for wages and salaries in May was $188,370.
The wages and salaries in the planning budget for May would be closest to:
$185,030
$188,370
$187,404
$186,280
3 points
QUESTION 15
The following materials standards have been established for a particular product: Standard quantity per unit of
output 1.7 Standard price $19.80 per meter meters The following data pertain to operations concerning the product for the last month: Actual materials purchased 5,800 Actual cost of materials purchased $113,680 meters Actual materials used in
production 5,100 meters Actual output 3,200 units What is the materials quantity variance for the month?
$13,720 U
$6,732 F
$13,860 U
$6,664 F
3 points
QUESTION 16
Dreary Credit Agency uses a standard cost system for the processing of its credit applications.
The labor standard at Dreary is 10 applications per 8 hour day at a standard cost of $15 per hour.
During the last pay period, Dreary’s credit agents worked 1,920 hours and processed 2,500
applications. The total labor cost for the agents during this period was $29,184. What was
Dreary’s labor efficiency variance for this last pay period?
$384 Unfavorable
$816 Favorable
$1,200 Favorable
$1,500 Favorable
3 points QUESTION 17
The following standards for variable manufacturing overhead have been established for a
company that makes only one product: Standard hours per unit of
output 7.8 hours Standard variable overhead rate $12.55 per hour
The following data pertain to operations for the last month: Actual hours 2,900 Actual total variable manufacturing overhead
cost $36,97
5 Actual output 200 hours units What is the variable overhead efficiency variance for the month? $17,397 U
$16,817 U
$312 F
$17,085 U
3 points
QUESTION 18
Cabal Products is a division of a major corporation. Last year the division had total sales of
$10,040,000, net operating income of $582,320, and average operating assets of $4,000,000. The
company’s minimum required rate of return is 14%. The division’s return on investment (ROI) is closest to:
4.1%
14.6%
36.6%
0.9%
3 points
QUESTION 19
Brandon, Inc. has provided the following data for last year’s operations: Sales $100,000 Net operating income $6,000 Average operating assets $40,000 Stockholders’ equity $25,000 Minimum required rate of
return 10% Brandon’s residual income is:
$2,000
$4,000 $3,500
$2,500
3 points
QUESTION 20
The Jenkins Division recorded operating data as follows for the past year: Sales $600,000 Net operating income $30,000 Average operating assets $200,000
Stockholders’ equity $50,000 Residual income $14,000 For the past year, the minimum required rate of return was:
7%
8%
16%
14%
3 points
QUESTION 21
Villeda Corporation uses the following activity rates from its activity-based costing to assign
overhead costs to products. Activity Cost Pools Activity Rate Setting up batches $34.47 per batch Processing customer
orders $66.77 per customer order Assembling products $2.66 per assembly hour Data concerning two products appear below: Product G32H Product U15Z
Number of batches 79 48 Number of customer
orders 36 31 Number of assembly hours 487 417 How much overhead cost would be assigned to each of the two products using the
company’s activity-based costing system? Please submit your answers in a table format.
10 points
QUESTION 22
Kerbow Corporation uses part B76 in one of its products. The company’s Accounting
Department reports the following costs of producing the 12,000 units of the part that are needed
every year. Per Unit
Direct materials $7.20 Direct labor $7.10 Variable overhead $3.50 Supervisor’s salary $4.70 Depreciation of special
equipment $3.40 Allocated general overhead $2.40 An outside supplier has offered to make the part and sell it to the company for $27.40 each. If
this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor,
can be avoided. The special equipment used to make the part was purchased many years ago and
has no salvage value or other use. The allocated general overhead represents fixed costs of the
entire company. If the outside supplier’s offer were accepted, only $6,000 of these allocated
general overhead costs would be avoided. In addition, the space used to produce part B76 could
be used to make more of one of the company’s other products, generating an additional segment
margin of $29,000 per year for that product.
Required:
a. Prepare a report that shows the effect on the company’s total net operating income of buying
part B76 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose? Please submit your answer to question A in a table. 10 points
QUESTION 23
Allen Corporation’s required rate of return is 14%. The company is considering the purchase of a
new machine that will save $10,000 per year in cash operating costs. The machine will cost
$39,540 and will have an 8-year useful life with zero salvage value. Straight-line depreciation
will be used.
Required:
Compute the machine’s internal rate of return. Would you recommend purchase of the machine?
Explain.
10 points QUESTION 24
Ameigh Tech is a for-profit vocational school. The school bases its budgets on two measures of
activity (i.e., cost drivers), namely student and course. The school uses the following data in its
budgeting: Fixed element per
month Variable element per
student Variable element per
course Revenue $0 $335 $0 Faculty wages $0 $0 $2,600 Course supplies $0 $54 $18 Administrative
expenses $38,600 $13 $30 In June, the school budgeted for 1,890 students and 146 courses. The actual activity for the
month was 2,290 students and 151 courses.
Required:
Prepare a report showing the school’s activity variances for June. Label each variance as
favorable (F) or unfavorable (U).
Please submit in a table format.
QUESTION 25
During the most recent month at Luinstra Corporation, queue time was 4.5 days, inspection time
was 0.8 day, process time was 1.9 days, wait time was 5.1 days, and move time was 0.7 day.
Required:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time. Please write answers as simple mathematical statements.
