When there is an outside market for an intermediate product which is perfectly
competitive, the most equitable method of transfer pricing is
A.market price.
B.production cost pricing.
C.variable cost pricing.
D.cost plus markup pricing.
Managers are often correct that the company would benefit from advanced
manufacturing technology. However, the present value of future cash flows analysis
usually results in a negative net present value for the investment because of the
exclusion of benefits that are difficult to quantify such as
A.greater flexibility in the production process.
B.shorter cycle times and lead times.
C.reduction of non-value-added costs.
D.all of the above.
EVA encourages the right kind of behavior from divisions because of its emphasis on
A.after-tax net income.
B.total capital employed.
C.true cost of capital.
D.before-tax operating income.
When producing joint products, what are the relevant costs for a decision to sell or
process further?
A.Joint costs
B.Costs incurred before the splitoff point
C.Costs incurred at the splitoff point
D.Costs incurred after the splitoff point.
REQUIRED:
a. Prepare a projected income statement for the coming year.
b. Should the company accept a special order for 500 units at a selling price of $8?
There are no variable marketing and administrative costs for this order and regular sales
will not be affected. What is the impact of this decision on profits?
c. Suppose there was a one-time set-up fee of $1,000 for the order above; should the
special order be accepted? Why?
Average cost calculations. Spinning Health Club has the following cost equation:
Total Costs = $40,000+$80, where = number of memberships.
Required:
a. Calculate Spinning’s average fixed cost per membership when there are 2,000
memberships.
b. What is the average variable cost per membership when there are 2,000
memberships?
c. Calculate the average cost per membership when there are 2,000 memberships.
What is the formula for the Break-Even Point in Units?
A.Total Fixed Costs / Unit Contribution Margin.
B.(Total Fixed Costs + Target Profit) / Unit Contribution Margin.
C.Sales Units – Break-Even Sales Units.
D.None of the answers is correct.
Which of the following statements is correct?
A.The theory of constraints focuses on revenue and cost management when dealing
with bottlenecks.
B.The theory of constraints decreases throughput contribution (sales dollars minus
direct material costs).
C.The theory of constraints maximizes investments.
D.The theory of constraints manages production by letting non-constrained activities set
the pace for the rest of operations.
Which statements is correct concerning a flexible budget?
A.A flexible budget is not appropriate when costs and expenses are affected by
fluctuations in volume limits.
B.A flexible budget is appropriate for any relevant level of activity.
C.A flexible budget is appropriate for control of factory overhead but not for control of
direct materials and direct labor.
D.A flexible budget is appropriate for control of direct materials and direct labor but not
for control of factory overhead.
In calculating return on investment (ROI), when measuring the investment base most
firms use
A.acquisition cost.
B.net book value.
C.replacement cost.
D.MCRS depreciated value.
Able Company
Able Company expects to begin the coming year with 12,000 units of product X in the
inventory of finished goods. It expects to sell 130,000 units of the product and end the
year with 15,800 units in finished goods inventory. Five pounds of material A go into
each unit of product X. The company expects to have 2,000 pounds of material A on
hand at the beginning of the coming year and wished to end the year with 3,400 pounds
in inventory.
Refer to Able Company. Calculate the number of pounds of material A the company
must purchase during the year.
Eastchester Products
Eastchester Products is considering a project that requires an initial investment of
$400,000 and will generate the following cash inflows for the next 4 years:
Refer to Eastchester Products. Ignoring tax effects, calculate the net present value of
this project if Eastchester’s cost of capital is 12 percent?
What are the strategic and operational uses of activity-based management?
Describe the nature of the various cost behavior patterns.
Explain how activity-based management can reduce customer response time at your
local motor vehicle administration.
Each year, the Benezra Company begins its budgeting process in September. Managers
are asked to provide sales forecasts by product line. The president of the company,
wishing to provide an incentive to improve performance, always increases the forecast
by 40 percent. Discuss the impact of the president’s actions on the sales force as well as
the production personnel.
Walk-In Health Center
The Walk-In Health Center sets targets for every responsibility center to achieve a 10
percent increase over last year in the number of patients treated.
Refer to the Walk-In Health Center. How would you improve the performance
evaluation of the system?
Lamar Company has two production departments and a maintenance department. In
addition, the company keeps other costs for the general plant in a separate account. The
estimated cost data for Year 1 follow:
The general plant services the three departments in the following proportions: 50
percent (Department 1); 30 percent (Department 2); 20 percent (Maintenance).
Required:
Allocate maintenance costs based on maintenance hours. Allocate maintenance
department and general plant costs to the production departments. Use the step method,
starting with general plant costs.
What tools do managers use to decide when to investigate variances?
Pete’s Toys, Inc. sold 200,000 games at $10 each last year. The company anticipates that
volume will increase by 25 percent. In addition, the new price for the game will
increase by 20 percent. What are the expected sales revenues for the coming year?