BLUE Company
BLUE Company needs 10,000 units of a certain part to be used in production. If BLUE
buys the part from RED Company instead of making it, BLUE could not use the present
facilities for another manufacturing activity. Sixty percent (60%) of the fixed overhead
applied will continue regardless of what decision is made.
The following quantitative information is available regarding the situation presented:
Refer to BLUE Company. Which alternative is more desirable for BLUE and by what
amount?
A.Buy, $40,000
B.Make, $40,000
C.Buy, $50,000
D.Make, $50,000
Colonial Computing Systems
Colonial Computing Systems manufactures and sells various computer products and
has two decentralized divisions: (1) Production and (2) Marketing. The Marketing
Division has always purchased a particular mouse from Production at $50 per unit. The
Production Division is considering raising the price to $60 per unit. The Production
Division’s costs related to the mouse production is as follows:
The Marketing Division handles the promotion and distribution of the mouse purchases
from the Production Division and sells each mouse for $100. Marketing Division incurs
monthly fixed costs of $5,000. Marketing Division sells 1,500 units per month.
Marketing Division can buy the same mouse from outside suppliers for $60. If the
Marketing Division purchases the mouse from outside suppliers, the facilities the
Production Division uses to manufacture the mouse would remain idle.
Refer to Colonial Computing Systems. The Production Division is operating at
maximum capacity because of strong worldwide demand for the product. What should
be the mouse transfer price between the Production Division and Marketing Division in
order for Colonial to optimize profits?
A.$ 50
B.$ 55
C.$ 60
D.$100
Which of the following best identifies the reason for using probabilities in the
capital-budget decision?
A.Uncertainty.
B.Cost of capital.
C.Time value of money.
D.Projects with unequal lives.
Which of the following represents the thirdstep in activity based costing?
A.Identify the activities that consume resources and assign costs to those activities.
B.Identify the cost drivers associated with each activity.
C.Compute a cost rate per cost driver unit.
D.Assign cost to products by multiplying the cost driver rate times the volume of cost
driver consumed by the product.
Which of the following is a reason for using activity-based costing to allocate service
department costs?
A.It results in identifying more accurate cost drivers.
B.It is required by generally accepted accounting principles.
C.It is required by the tax authorities.
D.All of the answers are correct.
Which of the following can complicate the collection of data to estimate costs?
A.inflation and deflation, missing data, and outliers.
B.allocated and discretionary costs.
C.mismatched time periods and trade-offs in choosing the time period.
D.All of the answers are correct.
What recent management innovation uses such performance measures as product
reliability and service delivery, as well as traditional measures of profitability?
A.Just-in-time production
B.Total quality management
C.Economic order quantities
D.Strategic cost analysis systems
Certain fixed costs that provide a firm with the capability to produce or sell or both are
known as:
A.capacity costs.
B.committed costs.
C.discretionary costs.
D.opportunity costs.
The optimal number of units to order or produce is the economic order quantity, which
is the optimal trade-off between which of the following?
A.controllable and non-controllable costs.
B.fixed costs and variable costs.
C.setup (or order) costs and carrying costs.
D.sunk and opportunity costs.
ABC Company
ABC Company reports the following information for the most recent period when 2,750
units were produced.
Refer to ABC Company. Calculate the total direct labor variance.
A.$70 F
B.$200 U
C.$270 U
D.$130 U
Activity-based management and costing cannot be applied to marketing in order to
A.identify the marketing activities needed to service each customer or order more
appropriately.
B.determine the variability in marketing costs across customer types and distribution.
C.support activity-based management by encouraging the elimination of accounts with
high processing costs.
D.eliminate plantwide discretionary fixed costs.
Leman Suitcase Company
The Leman Suitcase Company is trying to decide which independent variable would be
a better predictor of advertising expense. The following regressions were run using
sales dollars and units sold as the independent variables.
Regression Analysis #1
Dependent variable – Advertising Expense
Independent variable – Sales Dollars
Regression Analysis #2
Dependent variable – Advertising Expense
Independent variable – Units Sold
Refer to the Leman Suitcase Company. Which regression formula is likely to be more
reliable? Why?
Waterbury Box Company
General Factory Administration and Maintenance are service departments in the
Waterbury Box Company. Management has decided to allocate maintenance costs on
the basis of the area in each department and general factory administration costs on the
basis of labor hours the employees worked in each of their respective departments.
The following data appears in the company records for the current period:
Refer to the Waterbury Box Company. Use the step method to allocate service
department costs to the operating departments, starting with general factory
administration.
What is the reasoning behind the separation of the investing and financing aspects of
making long-term decisions?
How could activity-based costing shift the emphasis from managing overhead to
managing
supplier relations?
Explain how the cost hierarchy affects activity-based costing and management.