1) Aunt Ethel’s Fancy Cookie Company manufactures and sells three flavors of cookies:
Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000
cookies based on the size of the ovens and cookie molds owned by the company. Based
on budgetary projections, the information listed below is available:
Total overhead costs and activity levels for the year are estimated as follows:
Required:
a.Determine the activity-cost-driver rate for packaging costs.
b.Using the ABC system, for the sugar cookie:
1.compute the estimated overhead costs per thousand cookies.
2.compute the estimated operating profit per thousand cookies.
c.Using a traditional system (with direct labor hours as the overhead allocation base),
for the sugar cookie:.
1.compute the estimated overhead costs per thousand cookies.
2.compute the estimated operating profit per thousand cookies.
d.Explain the difference between the profits obtained from the traditional system and
the ABC system. Which system provides a better estimate of profitability? Why?
2) Electrical costs at one of Kantola Corporations factories are listed below:
Management believes that electrical cost is a mixed cost that depends on
machine-hours. Use the high-low method to estimate the variable and fixed components
of this cost. Compute the variable component first, rounding off to the nearest whole
cent. Then compute the fixed component, rounding off to the nearest whole dollar.
Those estimates are closest to:
A) $0.14 per machine-hour; $36,336 per month
B) $10.19 per machine-hour; $36,470 per month
C) $7.48 per machine-hour; $9,708 per month
D) $7.29 per machine-hour; $10,392 per month
3) Actual costing is a costing system that traces direct costs to a cost object by
________.
A) using the budgeted direct cost rates times the budgeted quantities of direct-cost
inputs
B) using the actual direct costs rates times the budgeted quantities of the direct-cost
inputs
C) using the actual direct cost rates times the actual quantities of the direct-cost inputs
D) using the budgeted direct cost rates times the actual quantities of the direct cost
inputs
4) Hanung Corp has two service departments, Maintenance and Personnel. Maintenance
Department costs of $300,000 are allocated on the basis of budgeted
maintenance-hours. Personnel Department costs of $100,000 are allocated based on the
number of employees. The costs of operating departments A and B are $160,000 and
$240,000, respectively. Data on budgeted maintenance-hours and number of employees
are as follows:
Using the direct method, what amount of Personnel Department costs will be allocated
to Department B?
A) $82,000
B) $80,000
C) $77,000
D) $75,000
5) Which of the following is true of a bottleneck?
A) It occurs in an operation when the work to be performed approaches or exceeds the
capacity available to do it.
B) It occurs in an operation when there is excess capacity to complete the work given.
C) It is the uncertainty about when customers will order products or services.
D) It is the time taken by a manufacturing department to produce a finished product.
6) Brilliant Accents Company manufactures and sells three styles of kitchen faucets:
Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to
manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The
following additional data apply:
Total overhead costs and activity levels for the year are estimated as follows:
Required:
a.Using the traditional system, determine the operating profit per unit for the brass style
of faucet.
b.Determine the activity-cost-driver rate for setup costs and inspection costs.
c.Using the ABC system, for the brass style of faucet:
1.compute the estimated overhead costs per unit.
2.compute the estimated operating profit per unit.
d.Explain the difference between the profits obtained from the traditional system and
the ABC system. Which system provides a better estimate of profitability? Why?
7) For a fast-food restaurant, the average waiting time can be formulated as ________.
A)
B)
C)
D)
8) Home Decor Inc., manufactures home cleaning products. The company has two
divisions, Bleach and Cleanser. Because of different accounting methods and inflation
rates, the company is considering multiple evaluation measures. The following
information is provided for 2015:
The company is currently using a 15% required rate of return.
What are Bleach’s and Cleanser’s return on investment based on current values,
respectively?
A) 0.22; 0.6749
B) 0.42; 0.5219
C) 0.50; 0.3286
D) 0.67; 0.2286
9) ________ is the differentiating factor while classifying a product as a main product
or byproduct.
A) Number of units per processing period
B) Weight or volume of outputs per period
C) Percentage of total sales value
D) Joint costs incurred up to the splitoff point
10) When fixed overhead spending variance is unfavorable, it can be safely assumed
that ________.
A) flexible budget amount is higher than actual costs incurred
B) fixed overhead allocated for actual output is lower than actual costs incurred
C) flexible budget amount is lower than actual costs incurred
D) fixed overhead allocated for actual output is higher than actual costs incurred
11) Why do accountants criticize the practice of carrying inventories at estimated net
realizable values?
A) The costs of producing the products are usually estimates.
B) There is usually no clearly defined realizable value for any inventories.
C) In effect, this practice recognizes income before sales are made.
D) It will result in higher cost of goods sold and lesser profits.
12) Times Corporation, whose tax rate is 40%, has two sources of funds: long-term debt
with a market value of $6,000,000 and an interest rate of 9%, and equity capital with a
market value of $18,000,000 and a cost of equity of 11%. Times Corporation’s after-tax
cost of debt is ________.
A) 3.40%
B) 5.40%
C) 5.00%
D) 7.40%
13) Einstein Motors, has a capacity to produce 25,000 electric cars. Due to a temporary
subsidy announced, there is a sudden increase in demand. Einstein decides to adopt
peak-load pricing and charge a premium of 25% over its normal selling price of $2,000.
It has already accepted orders for 20,000 units at normal selling price. What is the total
contribution to the company on sale of additional 5,000 units if the variable cost per
unit is $900?
A) $10,000,000
B) $8,000,000
C) $4,500,000
D) $4,000,000
14) The total overhead variance should be ________.
A) $145,500 F
B) $130,500 U
C) $145,500 U
D) $130,500 F
15) Which of the following statements is true of decentralization?
A) A decentralized structure does not empower employees to handle customer
complaints directly.
B) A decentralized structure forces top management to lose some control over the
organization.
C) Decentralization slows responsiveness to local needs for decision making.
D) A decentralized structure only delegate recurring and structured decisions to lower
levels.
16) Tony Manufacturing produces a single product that sells for $80. Variable costs per
unit equal $30. The company expects total fixed costs to be $78,000 for the next month
at the projected sales level of 2,500
units. In an attempt to improve performance, management is considering a number of
alternative actions. Each situation is to be evaluated separately.Suppose that
management believes that a 10% reduction in the selling price will result in a 10%
increase in sales. If this proposed reduction in selling price is implemented ________.
A) operating income will decrease by $9,500
B) operating income will increase by $10,000
C) operating income will decrease by $6,000
D) operating income will increase by $11,300