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Week 8 : Week 8 Final Exam Time Remaining: Page: 1 2 Final Question 1.1. (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. Question 2.2. (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 Question 3.3. (TCO 2) Fixed overhead costs include (Points : 5) the cost of sales commissions. property taxes paid on plant facilities. indirect materials. energy costs. Question 4.4. (TCO 2) Information pertaining to Brenton Corporation's sales revenue is presented in the following table: February Cash Sales Credit Sales Total Sales $160,000 300,000 $460,000 March April $150,000 400,000 $550,000 $120,000 280,000 $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 receipts in April are (Points : 5) $448,000. $414,500. $431,600. $328,000. Question 5.5. (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. Question 6.6. (TCO 3) The cost function y = 1,000 + 5X (Points : 5) represents a fixed cost. is not a straight line. has an intercept of 1,000. has a slope coefficient of 1,000. Question 7.7. (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 Question 8.8. (TCO 4) Sunk costs (Points : 5) are relevant to all decisions. have future implications. are future costs. are past costs. Question 9.9. (TCO 5) Throughput contribution equals revenues minus (Points : 5) operating costs. direct material costs of goods sold. direct material costs and minus operating costs. direct material and direct labor costs. Question 10.10. (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. Question 11.11. (TCO 6) What type of cost is the result of an event that results in more than one product or service simultaneously? (Points : 5) Byproduct cost Joint cost Main costs Separable cost Question 12.12. (TCO 6) Which of the following is a disadvantage of the physicalmeasure method of allocating joint costs? (Points : 5) The measurement basis for each product may be different. There is a need for a common denominator. The physical measure may not reflect the product's ability to generate revenues. All of the above Question 13.13. (TCO 7) Life-cycle costing is the name given to (Points : 5) a method of cost planning to reduce manufacturing costs to targeted levels. the process of examining each component of a product to determine whether its cost can be reduced. the process of managing all costs along the value chain. a system that focuses on reducing costs during the manufacturing cycle. Question 14.14. (TCO 7) Each month, Haddon Company has $300,000 total manufacturing costs (20% fixed) and $125,000 distribution and marketing costs (75% fixed). Haddon's monthly sales are $500,000. The markup percentage on variable costs to arrive at the existing (target) selling price is (Points : 5) 84%. 40%. 80%. 66 2/3%. Question 15.15. (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. Question 16.16. (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 Question 17.17. (TCO 8) When companies do not want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur. (Points : 5) short-run average cost long-run cost average-cost full-cost Question 18.18. (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 activitybased costing. results in subsidizing products that are not profitable. generally uses the cost driver as the cost allocation base. Question 19.19. (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 lamp division? (Points : 5) $450,000 $6,000,000 $4,200,000 $780,000 Question 20.20. (TCO 10) The net present value method focuses on (Points : 5) cash inflows. accrual-accounting net income. cash outflows. Both 1 and 3 are correct Question 21.21. (TCO 10) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $400,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. (Points : 5) $119,550; Yes $314,800; Yes $1,019,550; Yes $69,550; No Question 22.22. (TCO 11) The four cost categories in a cost of quality program are (Points : 5) product design, process design, internal success, and external success. prevention, appraisal, internal failure, and external failure. design, conformance, control, and process. design, process specification, on-time delivery, and customer satisfaction. Question 23.23. (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 $20,000 in training costs and $150,000 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. What is the net change in the budget of prevention costs if the procedures are automated in 20X6? Will management agree with the changes? (Points : 5) $138,000 increase, no $78,000 increase, yes $60,000 increase, no $110,000 decrease, yes Question 24.24. (TCO 12) Obsolescence is an example of which cost category? (Points : 5) Ordering costs Carrying costs Labor costs Quality costs Question 25.25. (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. Page: 1 2 Time Remaining: Week 8 : Week 8 Final Exam Time Remaining: Page: 1 2 Page 2 Question 1.1. (TCO 2) Rossi Company has the following projected account balances for June 30, 20X9: Accounts payable Accounts receivable Depreciation, factory Inventories (5/31 & 6/30) Direct materials used Office salaries Insurance, factory Plant wages Bonds payable $ 60,000 $ 120,000 $ 24,000 $ 180,000 $ 210,000 $ 92,000 $ 4,000 $ 140,000 $ 160,000 Sales Capital stock Retained earnings Cash Equipment, net Buildings, net Utilities, factory Selling expenses Maintenance, factory $ $ ? $ $ $ $ $ $ Prepare a budgeted income statement AND a budgeted balance sheet as of June 30, 20X9. (Points : 25) Question 2.2. (TCO 5) Steven'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 $600,000 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%? (Points : 25) Question 3.3. (TCO 7) Grace 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 $200 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. 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? (Points : 25) Question 4.4. (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. (Points : 25) Question 5.5. (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 economicorderquantity 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. (Points : 25) Page: 1 2 Time Remaining: Sales Capital stock Retained earnings Cash Equipment, net Buildings, net Utilities, factory Selling expenses Maintenance, factory $ 800,000 $ 420,000 ? $ 56,000 $ 260,000 $ 400,000 $ 16,000 $ 50,000 $ 28,000