1) customer profitability analysis:
a.always shows that the company with the highest total sales generates the highest net
customer profit
b.always shows that the company with the lowest total sales generates the lowest net
customer profit
c.produces the same results as a pareto analysis
d.helps identify actions that affect customer profitability
e.none of the above answers is correct
2) when deciding to purchase a new cutting machine or continue using the existing
machine, the following costs are all relevant except the:
a.$60,000 cost of the old machine
b.$30,000 cost of the new machine
c.$15,000 disposal (salvage) value of the old machine
d.$4,000 annual savings in operating costs if the new machine is purchased
e.maintenance costs, which are expected to be less under the new machine
3) wang company has established the following overhead cost pools and cost drivers for
the month of may:
the following information pertains to the actual consumption of activity resources for
two sample jobs completed during may.
what is the activity-based overhead rate per purchase order?
a.$615
b.$600
c.$575
d.$550
e.$500
4) which one of the following is not included as a factor in cvp analysis?
a.total fixed costs
b.variable cost per unit
c.desired (targeted) profit
d.selling price per unit
e.expected production level
5) the reciprocal method of departmental cost allocation is preferred over the step
method because it takes into account all the reciprocal flows between:
a.the service departments
b.the producing departments
c.multiple products
d.competing departments
e.similar, but separate, products
6) the decision to keep or drop products or services involves strategic consideration of
all the following except:
a.potential impact on remaining products or services
b.impact on employee morale
c.impact on organizational effectiveness
d.growth potential of the firm
e.the desired inventory levels of the product
7) the opportunity cost of making a component part in a factory with excess capacity for
which there is no alternative use is:
a.the variable manufacturing cost of the component
b.the total manufacturing cost of the component
c.the total variable cost of the component
d.the fixed manufacturing cost of the component
e.zero
8) which of the following statements best describes a by-product?
a.a product that is produced from material that would otherwise be scrap
b.a product that has a selling price similar to that of the main product
c.a product created along with the main product whose sales value does not cover its
cost of production
d.a product that usually produces a small amount of revenue when compared to the
main product’s revenue
e.a product that has a lower unit selling price than the main unit
9) some of the indicators of a growing concern for sustainability include:
a.the liquidity crisis and sub-prime loan scandals
b.the global economic recession
c.the increased use of value chain analysis
d.the increased concern about climate change
e.the increased use of the balanced scorecard
10) the journal entry required to record factory depreciation includes:
a.a debit to the cost of goods manufactured account
b.a debit to the factory overhead account
c.a debit to the depreciation expense account
d.a debit to the accumulated depreciation account
e.none of the above
11) giddings pharmaceutical company is a maker of drugs for high blood pressure and
uses a process costing system. the following information pertains to the final
department of giddings’s blockbuster drug called solcax.
giddings calculates separate costs of spoilage by computing both normal and abnormal
spoiled units. normal spoilage costs are reallocated to good units and abnormal spoilage
costs are charged as a loss. the units of solcax that are spoiled are the result of defects
not discovered before inspection of finished units. materials are added at the beginning
of the process. using the weighted-average method, answer the following question:
what are the total conversion costs of abnormal spoilage?
a.$375
b.$430
c.$625
d.$860
12) with the enactment of the sarbanes-oxley act of 2002, all public companies are now
required by the sec to disclose whether or not the company has:
a.an audit committee
b.human resources guidelines
c.a code of ethics
d.a management compensation plan
e.none of the above
13) universal automotive group is a maker of engines for high performance cars and
uses a process costing system. the following information pertains to the final
department of manufacturing for universal’s most popular engine, the “atomic 8”.
universal automotive group calculates separate costs of spoilage by computing both
normal and abnormal spoiled units. normal spoilage costs are reallocated to good units
and abnormal spoilage costs are charged as a loss. the units of the atomic 8 that are
spoiled are the result of defects not discovered before inspection of finished units. using
the weighted-average method, answer the following question:
what are the equivalent units for conversion costs?
a.1,700 units
b.1,800 units
c.1,900 units
d.2,000 units
14) transcript company is preparing a cash budget for february.
the company has $150,000 cash at the beginning of february and anticipates total sales
of $800,000, consisting of 25% cash sales and 75% bank credit-card sales.
the bank charges 3 percent for credit-card deposits.
the firm sets its selling price at 160 percent of the cost of purchases and pays the cost of
each month’s sales at the end of the month.
operating expenses are $45,000 per month, of which $25,000 is depreciation expense.
selling expenses (commissions) amount to 4 percent of total sales dollars.
in addition, a $600,000 note will be due in february for equipment purchased last
august. in addition to the principal amount, interest for one month (at 12% per annum)
will be paid in february.
transcript company has an agreement with its bank to maintain a minimum cash balance
of $100,000.
required: prepare in good form a cash budget that shows the amount, if any, that the
company must borrow during february. separate your budget, at a minimum, into the
following categories:
beginning cash balance
operating cash flows (both inflows and outflows)
cash balance before financing effects
financing activity
ending cash balance
15) quinta inc. manufactures machine parts for aircraft engines. the ceo is considering
an offer from a subcontractor who would provide 2,800 units of product qr128 for a
price of $190,000. if quinta does not purchase these parts from the subcontractor it must
produce them in-house with the following costs:
in addition to the above costs, if quinta produces part qr128, there would also be a
retooling and design cost of $13,000. calculate the total relevant costs of producing
2,800 units of product qr128 .
16) jones and jones cpa firm has the following budget for the year:
the firm uses direct labor as the cost driver to apply overhead to clients. during january,
the firm worked for many clients; data for two of them follow:
required:
(1) compute the jones and jones budgeted overhead rate. explain how this is used.
(2) compute the amount of overhead to be charged to the henderson and fisher accounts
using the predetermined overhead rate calculated in requirement (1).
(3) compute the separate job cost for the henderson and fisher accounts.
17) uncertainty and the budgeting process: as indicated in the text, the validity of
pro-forma financial statements that are produced as part of the master budgeting
process is affected by the accuracy of the forecasted data going into the component
budgets. such data are subject to various levels of uncertainty. for this reason,
accountants need to understand ways of dealing with uncertainty in the budgeting
process.
required: define and distinguish among the following ways of handling uncertainty in
the budgeting process:
1> what-if analysis (give at least one concrete example)
2> sensitivity analysis
3> scenario analysis.
18) the subway sandwich shop, inc. is seeking to sell new franchises for its business.
the company is in the process of developing a business plan to present to potential
investors. following are various projected cost data for a typical sandwich shop:
the average order (sandwich) sells for $4, with food cost of $2.
required:
1> what is the contribution of each order (sandwich) toward covering fixed expenses?
2> what is the projected monthly breakeven point in units (round your answer up, to
nearest whole unit)?
3> a potential franchisee has a target before-tax net profit of $2,000 per month. what
level of sales (in units and in dollars, per month) must be achieved to meet the
franchisee’s profit goal (round up, to nearest whole unit)?
4> this potential franchisee has a target after-tax net profit of $1,800 per month. to
achieve this profit objective, what level of sales (in units and in dollars, per month)
must be achieved if the tax rate is 35% (roundup to nearest whole unit)?
5> what is the degree of operating leverage (dol) of a typical sandwich shop at the
volume level needed to achieve a targeted before-tax profit (i.e., an operating income)
of $2,000 per month? round your answer to 2 decimal places.
6> from the sales volume level needed to achieve the monthly pre-tax profit goal of
$2,000, what would be the percentage change in pre-tax (i.e., operating) income if sales
increased by 5%?
19) the following information applies to the johnson tools company for the year.
required:
prepare a statement of cost of goods manufactured and an income statement for the
year.
20) elisko inc. is a major book distributor. elisko’s shipping department consists of a
manager plus ten other permanent positions- four supervisors and six loaders. the four
supervisors and six loaders provide the minimum staff and frequently must be
supplemented by additional workers, especially during the weeks when the volume of
shipments is heavy. thus, the number of people shipping the orders frequently averages
over 30 per week, i.e., ten permanent persons plus 20 temporary workers. the temporary
workers are hired through a local agency. elisko must use temporary workers to
maintain a minimum daily shipment rate of 95 percent of orders presented for shipping.
the loss of efficiency from using temporary workers is minimal, and the $10.00 per hour
cost of temporary workers is less than the $15.00 per hour for the loaders and $22.50
per hour for the supervisors on elisko’s permanent staff. the agency requires elisko to
utilize each temporary worker for at least four hours each day.
jim locter, shipping manager, schedules temporary help based on forecasted orders for
the coming week. supervisors serve as loaders until temporary help is needed. a
supervisor stops loading when the ratio of loaders to supervisors reaches 7: 1 . locter
knows that he will need temporary help when the forecasted average daily orders
exceed 300 . locter has frequently requested from two to four extra temporary workers
per day to guard against unexpected rush orders. if there was not enough work, he
would dismiss the extra people at noon after four hours of work.
the agency has not been pleased with locter’s practice of overhiring and has notified
elisko that it is changing its policy. from now on, if a person is dismissed before an
eight-hour assignment is completed, elisko will still be charged for an eight-hour day
plus mileage back to the agency for reassignment. this policy would go into effect the
following week.
paula brand, general manager, called jim locter to her office when she received the
notice from the agency. she told locter, “your staffing has to be better. this penalty could
cost us up to $300-$500 per week in labor cost for which we receive no benefit. why
can’t you schedule better?”
locter replied, “i agree that the staffing should be better, but i can’t do it accurately when
there are rush orders. by being able to layoff people at noon, i have been able to adjust
for the uncertain order schedule without cost to the company. of course the agency’s
new policy changes this.”
locter and brand contacted elisko’s controller, mitch berg regarding locter’s problem on
how to estimate the number of people needed each week. berg reasoned that locter
needed a quick solution until he could study the work flow. berg suggested a regression
analysis using the number of orders shipped as the independent variable and the number
of workers (permanent plus temporary) as the dependent variable. berg indicated that
data for the past year was available and that the analysis could be done quickly using
the accounting department’s computer system.
berg completed the two regression analyses that are presented below. the first regression
was based on the data for the entire year. the second regression excluded the weeks
when only the 10 permanent staff persons were used; these weeks were unusual and
appeared to be out of the relevant range.
locter was not familiar with regression analysis and, therefore, was unsure how to
implement this technique. he wondered which regression data he should employ, i.e.,
which one was better. when he recognized that the regression was based on actual
orders shipped by week, berg told him he could use the forecasted shipments for the
week to determine the number of workers needed.
regression equation:
w = a + bs
s = orders shipped
required:
(1) using regression 1 based on data from a full year, calculate the number of temporary
workers jim locter would plan to hire for a forecast indicating 1,200 shipments per day.
(2) which one of the two regressions appears to be better? explain your answer.
(3) explain the circumstances under which jim locter can use the regression in his
planning for temporary workers.
(4) explain whether the regression analysis that elisko inc. employed in this situation
could be improved. if it cannot be improved, explain why.
(5) how can the regression analysis help elisko be more competitive?
21) samsung, the large korean manufacturer of electronics, has just developed a new
80-inch plasma tv. the tv is expected to retail in the range of $50,000. normally,
samsung sells its tvs and other electronics in big box retailers such as best buy. in this
case, samsung is thinking of choosing a different means to retail the product.
required: what retail store or stores, or what method would you suggest samsung should
use in selling its new tv?