Break-even time, working backward. Montana Instruments is considering
manufacturing the S-Card, a new type of sound card for personal computers. The new
product development committee will not approve a new-product proposal if it has a
break-even time of more than four years. If the project is approved, the investments to
make the S-Card will begin on January 1, Year 1. The projected sales for the S-Card are
$5 million each year for Years 1 through 4. The costs of manufacturing, distribution,
marketing, and customer service are expected to be $3 million each year. Assume that
all cash flow numbers are discounted cash flows.
Required:
a. What is the maximum cash investment that the new product development committee
will agree to fund for the S-Card project?
b. Why might Montana specify a policy not to fund new product proposals with an
estimated breakeven of more than four years?
The theory of constraints identifies bottlenecks and possible disruption that threatens
throughput. When disruptions are hard to pinpoint or eliminate, managers may utilize
which of the following techniques?
A.quality control techniques from Total Quality Management.
B.quantity control techniques from Total Quantity Management.
C.price control techniques from Total Price Management.
D.cost control techniques from Total Cost Management.
Which of the following is a measure developed by successful firms to focus on
customer requirements and to assess performance based on service, quality, and cost?
A.customer success factors.
B.critical success factors.
C.critical performance factors.
D.customer performance factors.
Which of the following is an advantage for compensating on future performance?
A.a short-term orientation.
B.a disincentive to invest in new technology.
C.”golden handcuffs” for managers because they have incentives to stay with the
company.
D.rewards that come too far in the future to be motivational.
Which of the following is/are examples of incorrect use(s) of accounting data by
decision makers?
A.Reliance on data that include cost allocations.
B.Reliance on cost information produced by the full-absorption method of product
costing, which allocates fixed manufacturing costs to units produced by manufacturing
companies.
C.Reliance on full-absorption unit costs for short-run decision making.
D.All of the answers are correct.
Which of the following represents an example of an organization that would use
continuous flow processing methods?
A.a chemical manufacturer.
B.a custom home builder.
C.a hospital.
D.a custom jeweler.
What is the final step for allocating service department costs to production
departments?
A.Assign overhead costs that are directly attributable to a service or production
department.
B.Allocate other overhead costs (that are not directly attributable to a service or
production department) based on some cost driver.
C.Allocate service department costs to production departments
D.Service department costs cannot be allocated to production departments.
Which statement is true concerning semi-variable costs?
A.Semi-variable costs contain both fixed and random components.
B.Semi-variable costs contain both random and variable components.
C.Semi-variable costs contain both fixed and variable components.
D.Semi-variable costs contain either fixed or variable components.
Java Gourmet Coffee
Java Gourmet Coffee reports the following data for April 2010 where 200,000 pounds
of roasted gourmet coffee beans were actually produced (note: standard costs do not
allow for any wastage), Actual:
Standard:
Refer to Java Gourmet Coffee. Calculate the total direct labor variance.
A.$11,000 F
B.$9,000 U
C.$20,000 U
D.$9,500 U
Which statement best describes an activity center?
A.An organizational command post from which management controls activity.
B.A unit of the organization that performs a set of tasks.
C.A think-tank where managers select value-added activities.
D.A part of the organization that has been designated for in depth study of specific
activities.
Ben’s Delivery Company
Ben’s Delivery Company reports the following information for 2010:
Actual:
Standard:
Refer to Ben’s Delivery Company. What is the actual fuel cost for March 2010?
A.$374.00
B.$352.00
C.$340.00
D.$320.00
Framing Division
The Framing Division had the following data:
Refer to the Framing Division. What is the profit margin percentage for Year 2008?
A.6%.
B.8%.
C.10%.
D.12%.
What is the proper sequence of steps in allocating costs to production departments?
A.Assign direct costs to departments, allocate indirect costs to departments, and
allocate service department costs to production departments.
B.Assign indirect costs to departments, allocate direct costs to departments, and allocate
service department costs to production departments.
C.Assign service department costs to production departments, allocate direct costs to
departments, and allocate indirect costs to production departments.
D.Assign indirect costs to departments, allocate service department costs to
departments, and allocate direct costs to production departments.
The theory of constraintsfocuses on all operating costs other than short-run variable
costs. These costs are incurred to earn throughput contribution and include
A.salaries and wages that are fixed costs.
B.rent and utilities.
C.depreciation.
D.All of the answers are correct.
Which of the following is not a reason that costs of operating service departments are
allocated to other departments?
A.Many departments consume the services provided by service departments and should
be assigned a share of the costs associated with the services consumed.
B.Allocating service costs to other departments for services provided gives department
managers incentives to control the use of support services.
C.External reporting regulations (for tax and financial reporting) require allocating
manufacturing overhead to the units produced.
D.Many departments consume the services provided by service departments and should
be charged an arbitrary share of the costs because the costs must be allocated to
someone.
What happens when a company ties manager compensation to the company’s stock
performance?
A.It creates a significant amount of risk because of a lack of diversity since the
performance indicator is based on just one stock – that of the company.
B.It has the risk that a company’s stock can fluctuate widely based on factors over
which the manager has no control.
C.It is accomplished through issuing stock options which shields some of risk.
D.All of the answers are correct.
Ben’s Delivery Company
Ben’s Delivery Company reports the following information for 2010:
Actual:
Standard:
Refer to Ben’s Delivery Company. What is the variable overhead flexible budget for
March 2010?
A.$374.00
B.$352.00
C.$340.00
D.$320.00
Sun Devil, Inc.
Sun Devil, Inc. is considering the introduction of a new product with the following
price and cost characteristics
It expects to sell 70,000 units for the year.
Refer to Sun Devil, Inc; how many units must be sold to make an operating profit of
$15,000?
A.4,200
B.12,600
C.6,300
D.3,150
Which of the following is an assumption of capital budgeting?
A.The firm can raise new funds at the same opportunity costs as the opportunity cost of
the funds it already has on hand.
B.The firm can raise new funds at the 30-year Federal funds rate.
C.The firm can raise new funds at the prime interest rate.
D.The firm can raise new funds at the same interest rate as the mean of the interest rates
of the funds it already has on hand.