1. Carson Inc., a retail establishment, expects sales of $500,000 of a particular item in March. Its gross profit percentage is 60 percent. The ending inventory in February of this item cost $40,000 and the company wants an ending inventory of $38,000 (cost). How much needs to be purchased? (Points: 10) $38,000 $198,000 $498,000 $502,000 Use the following to answer questions 2 - 5: Abracadabra Co. manufactures magic sets. The sales planned for next year are 22,000 sets. Beginning material inventory is sufficient to produce 5,000 sets. Beginning work in process inventory is 1,000 sets that are 100 percent complete as to materials and 60 percent complete as to labor and overhead; there is no ending inventory. The finished goods inventory has a beginning inventory of 3,000 sets and a target inventory of 5,000 sets for December 31. The sets sell for $75. Direct materials cost $15; direct labor is $10; and manufacturing overhead is $12. 2. What will be the total sales for the year? (Points: 10) $1,725,000 $1,650,000 $1,572,000 $1,500,000 3. How many sets will be produced? (Points: 10) 20,000 22,000 23,000 24,000 4. What will be the amount of cost of goods sold? (Points: 10) $740,000 $814,000 $851,000 $888,000 5. What will be the total costs of direct materials used during the year? (Points: 10) $360,000 $345,000 $330,000 $315,000 6. Which of the following is the first step in Activity-Based Costing? (Points: 10) Assign activity costs to products Identify and classify activities related to the company's products Calculate a cost-driver rate for each activity Estimate the cost of activities 7. Salaries of the human resource staff responsible for hiring production personnel at Dell Computer would be an example of: (Points: 10) Unit-level activity Facility-level activity Batch-level activity Product-level activity 8. The Sheila Cabot Construction Company (SCCC) is building a local stadium. They need an office at the stadium site. SCCC can build the office themselves with material costing $50,000 and labor costs of $13,000. When the company takes apart the building at the end of the project, 20% of the material would be reusable. Alternatively, SCCC can rent a pre-fabricated building at a cost of $1000 per month with no set-up or dismantling costs. It will benefit SCCC to build the office if it expects the stadium project to exceed (Points: 10) 36 months 50 months 53 months 63 months 9. Hieken is preparing the variance analysis report for October. Standard Costs are as follows: Direct Material 2.0 yards at $6 per yard Direct Labor 0.25 hours at $12 per hour During October, Ms Hieken's report shows: 100,000 gowns produced 175,000 yards of fabric purchased at a cost of $1,137,500 185,000 yards of fabric used Employees worked 24,000 hours at a cost of $276,000 Part a) The material price variance is ?? Part b) The material quantity variance is ??The Alperti Company manufactures surgical gowns for hospitals. Their controller, Ethell Material price Material Quantity Variance $87,500 favorable ---- $87,500 unfavorable $87,500 unfavorable ---- $90,000 favorable $90,000 favorable ---- $87,500 favorable $90,000 unfavorable ---- $90,000 unfavorable 10. Ferguson Molding Company produces custom bottle caps and jar covers for large cosmetic companies. Each customer owns the custom-made molds that are used for the caps and jar covers, so caps are produced only to customer order. Each order requires the setting of molds in molding machines. Two full time mechanics, whose combined total annual salary and benefits are $160,000 per year, are employed setting up and breaking down the molding machines. An order consists of anywhere from 50,000 to 500,000 units. 80 orders were received during the year 2008 for individual custom production runs. The total number of units produced was 8 million. If the company allocates the cost of the setup mechanics based on the number of setups, the setup costs to be allocated to an order of 300,000 Nurturing Face Cream jar covers for Aristedes Cosmetics Company would be: (Points: 10) $4,000 $2,000 $1,000 $0, since this is an indirect cost and cannot be traced to the product in question 11. Use the following to Answer questions 11-12: Lawrence Corporation has recently performed a value-added analysis and ranking of activities. Presented below is an analysis of one sub-activity cost, sorted by value and cost: 11. If Lawrence eliminates the two activities with the least value-added, the total cost savings will be: (Points: 10) 52.82% 10.27% 36.91% 70.41% 12(Points: 10) Is an effective way to have all departments look for waste and inefficiency Is a strong motivational tool since all departments are required to "share the pain equally." Will likely ignore the causes of waste because non-value-added activities may occur disproportionately in an organization Both A and B 13. Which of the following is not a resource necessary to successful implementation of Activity-Based Management? (Points: 10) Management commitment Customer commitment . Under Activity-Based-Management, suggesting across-the-board percentage reductions in cost Cross-functional teams Four to six months of full time effort 14. Measuring the costs of current process activities involves five steps. Which of the following is the first step? (Points: 10) Identify cost driver bases and measure activity cost driver rates Assign activity costs to products, jobs or services by multiplying the use of cost driver base by the cost driver rate Identify and measure the different levels of resource spending Measure the costs of individual activities 15. Which of the following statements is False? (Points: 10) Activity-based management has a goal of eliminating all non-value added activities An activity is value added if an external customer would encourage the organization to do more of that activity An organization will be more likely to reach its goal by performing value-added activities Some activities lie between the extremes of value added and non-value-added 16. Processing costs in the billing department of Alfaro Company are a mixture of variable and fixed components. Records indicate that average unit processing costs are $0.50 per account processed at an activity level of 32,000 accounts. When only 22,000 accounts are processed, the total cost of processing is $12,500. Given these data, at a budgeted level of 25,000 accounts: (Points: 10) Processing costs are expected to total $8,750 Fixed processing costs are expected to be $10,400 The variable processing costs are expected to be $0.35 per account processed Processing costs are expected to total $13,000 17. Which of the following represent data problems when using regression or account analysis techniques? (Points: 10) Inflation Outliers Mismatched time periods All of the above Use the following to answer questions 18-20: Shumway Company is making plans for the introduction of a new product that it will sell for $10 per unit. The following estimates have been made for manufacturing costs assuming 100,000 units will be produced in the first year: Direct materials - $180,000 Direct labor - $135,000 (the labor rate is $9 an hour for 15,000 hours) Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on the total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and will provide the basis for overhead cost estimates for the new product. Simple Regression Analysis Results Dependent Variable - Factory overhead costs Independent variable - Direct labor-hours Computed values: 18. What percentage of variation in the overhead costs is explained by the independent variable? (Points: 10) 9.0% 65.0% 90.9% 95.2% 19. The total overhead cost for an estimated activity level of 20,000 direct labor hours would be: (Points: 10) $34,000 $95,500 $129,500 None of the above 20. What is the estimated total product cost per unit for the first year, assuming 100,000 units of the new product will be produced and sold? (Hint: 15,000 direct labor hours required). (Points: 10) $3.155 $5.805 $4.850 $5.165 21. Cost-volume profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the break-even point. Once the break-even point has been reached, operating income will increase by the: (Points: 10) Contribution margin per unit for each additional unit sold Fixed cost per unit for each additional unit sold Variable cost per unit for each additional unit sold None of the above 22. If production volume increases within the relevant range, variable costs per unit will _____ and total fixed costs will __________ (Points: 10) Decrease; decrease Increase; not change Not change; increase Not change; not change 23. Gamba Corp. sells its product for $30. Variable costs are $10 per unit. At the current volume of 40,000 units sold per year, the company is just breaking even. Given these data, the annual fixed costs are: (Points: 10) $400,000 $800,000 $1,200,000 None of the above 24. Elite Company has unlimited demand for either Candy Coin or Candy Bars. However, they have a limited capacity of machine hours to produce either product. Candy Coins sells for $10 per unit, has a variable cost of $6 per unit and it takes 6 minutes to produce one unit. Candy Bars sells for $15 per unit, has a variable cost of $3 per unit and it takes 10 minutes to produce one unit. Which of the following decisions would maximize Elite's net income? (Points: 10) Allocate all machine hours to the production of Candy Coins Allocate all machine hours to the production of Candy Bars Allocate 50% of the machine hours to Candy Coins and 50% to Candy Bars Allocate 75% of the machine hours to Candy Coins and 25% to Candy Bars 25. Melnick Enterprises manufactures two products, boat wax and car wax, in two departments, the Mixing Department and the Packaging Department. The Mixing Department has 800 hours per month available, and the Packaging Department has 1,200 hours per month available. Production of the two products cannot exceed 36,000 pounds. Data on the two products follow: The objective function for the linear program Melnick would use to determine the optimal monthly production of each wax would be: (Points: 10) Z = 150B + 200C 2B + 1.5C is greater than or equal to 36,000 2B + 1.5C is less than 36,000 Z = 200B + 150C 26. During June, 90,000 units were produced. The standard quantity of material allowed per unit was 2 pounds at a standard cost of $5 per pound. If there was an unfavorable quantity variance of $5,000 for June, the actual quantity of materials used must have been (Points: 10) 179,000 pounds 181,000 pounds 84,000 pounds 1,000 pounds 27. Unfavorable material quantity variances (Points: 10) Could be caused by normal spoilage Mean that smaller quantity discounts were taken on purchases Mean that more direct materials were used than expected for actual output Mean that less indirect materials were used than expected for actual output 28. The following standard cost information is available for Leah Co.'s only product: Direct material 9 feet at $5.00 per foot. Actual information for July: 2,000 units were produced; 20,000 feet of direct material were purchased at a cost of $92,000 and 19,000 feet of material were used. What is the material purchase price variance for July? (Points: 10) $7,600 favorable $7,600 unfavorable $8,000 unfavorable $8,000 favorable 29. Lopata Manufacturing uses a standard cost system for its guitar boxes. The standard labor rate per box is $1 per box. This standard was established on the basis of producing 8 boxes per hour. This month, Lopata produced 1,500 boxes using 580 direct labor hours at an actual direct labor cost of $5,800. The direct labor rate variance was (Points: 10) $1,600 favorable $1,160 favorable $1,600 unfavorable $1,160 unfavorable 30. The following statements relate to standard costing systems: ? I Traditional standard costing systems focus too much on the cost and efficiency of direct labor which is rapidly becoming a relatively unimportant factor of production ? II Traditional standard cost variances are too aggregated in the sense that they are not tied to specific product lines, production batches, or flexible manufacturing systems ? III Traditional standard costing systems tend to focus too much on cost minimization rather than increasing product quality or customer service ? IV Traditional standard costing is not defined broadly enough to capture various important aspects of performance Which of these statements relate to disadvantages of standard costing under modern cost management systems? (Points: 10) I I, II I, II, III I, II, III, IV ESSAY QUESTIONS 1. Controller Tri Nuygen is analyzing the direct material and direct labor variances for 2008. He asks you to prepare a memo outlining what to investigate and why. The following information comes from the accounting records Required Compute the appropriate direct material and direct labor variances. (20 of 40 total points) Prepare a memo outlining what items should be investigated and why. (20 of 40 total points) For the materials price variance, the equation is Actual Quantity(AQ) x (Actual Price (AP) - Standard Price (SP)). The AQ is 550,000 lbs. AP is $172,500 / 575,000 = $0.30. The SP is $0.25 per pound. So the answer is 550,000 x ($.30 - $.25)= 550,000 x .05 = $27,500 U (unfavorable). For the materials quantity variance, the equation is SP x (AQ - Standard Quantity (SQ)). SP = $.25 per pound. AQ = 550,000 lbs. SQ = 575,000 lbs. So the answer is $.25 x (550,000 - 575,000) = .25 x -25,000 = - $6,250 (F) Favorable 2. (CMA adapted) Mac Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchases as well as replacement canopies. Mac developed its 2000 business plan based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy were projected at $200, and the annual fixed costs were budgeted at $100,000. Mac's after-tax profit objective was $240,000; the company's effective tax rate is 40 percent. While Mac's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of the year, only 350 units had been sold at the established price, with variable costs as planned, and it was clear that the 2000 after-tax profit projection would not be reached unless some actions were taken. Mac's president assigned a management committee to analyze the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president: Alternative 1: Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as budgeted. Alternative 2: Lower variable costs per unit by $25 through the use of less expensive raw materials and slightly modified manufacturing techniques. The sales price will also be reduced by $30, and sales of 2,200 units for the remainder of the year are forecast. Alternative 3: Cut fixed costs by $10,000 and lower the sales price by 5 percent. Variable costs per unit will be unchanged. Sales of 2,000 units are expected for the remainder of the year. Required: (A) If no changes are made to the selling price or cost structure, determine the number of units that Mac Company must sell: (20 of 40 Total Points) (1) in order to break even. (2) to achieve its after-tax profit objective. (B) Determine which one of the alternatives Mac Company should select to achieve its annual after-tax profit objective. Be sure to support your selection with appropriate calculations. (20 of 40 Total Points) To achieve its net income objective, Almo Company should select the first alternative where the sales price is reduced by $40, and 2,700 units are sold during the remainder of the year. ??This alternative results in the highest net income and is the only alternative that equals or exceeds the company?s net income objective.
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