Outward Rowing Company manufactures canoes and kayaks. Due to an increasing
focus on fitness, the company has been experiencing an increased demand for its
products. Two of its newer products, which are very popular with water sport
enthusiasts, require a waterproofing process that can only be completed on machines
that were recently purchased for this purpose. The machines have a maximum capacity
of 12,000 machine hours, and no other products that the company makes use these
machines.
Charlie Green, the company ‘s operations manager, is preparing the production schedule
for the coming month and can ‘t seem to find enough machine time to produce enough
units to meet the customer demand that the marketing department has included in the
sales budget.
Mollie Beach, the company ‘s controller, has gathered the following information about
the two products:
Required
a. Calculate the total number of machine hours needed to produce enough units to meet
the sales demand for the two products.
b. How should Charlie allocate the 12,000 available machine hours between the two
products so that Outward Rowing maximizes its profits?
c. What total contribution margin will Outward Rowing realize based on your answer to
(b)?
d. Charlie has talked with the marketing department about the situation and suggested
that the company raise the sales price on the kayak to $320 to reduce customer demand.
The marketing department believes that at the higher price, demand for this kayak will
drop to 11,600 units. How should Charlie allocate the 12,000 machine hours based on
this new information? What total contribution margin will Outward Rowing earn?
e. After hearing about Charlie ‘s recommendation to increase the kayak price to $320,
Lon Clark, the sales manager, suggested that the company raise the price of the canoe
instead. He believes that if the price is increased to $264, demand will fall to 4,000
units. How should Charlie allocate the 12,000 machine hours under Lon ‘s proposal?
What total contribution margin will Outward Rowing earn?
f. Based on your answers to (c), (d), and (e), which action do you suggest that Outward
Rowing take? Why?
The formula for calculating ROI is
a. Operating Income divided by average operating assets.
b. Segment margin divided by average operating assets.
c. Either operating Income divided by average operating assets or segment margin
divided by average operating assets.
d. Neither operating Income divided by average operating assets nor segment margin
divided by average operating assets.
Jody Jewelry manufactures jewelry. In October Jody is planning to make 500 rings, 400
bracelets, and 210 pendants. The company expects the total manufacturing overhead for
the year would be $3,450,000 and that total direct labor hours for the year would be
75,000. Actual overhead incurred for October was $295,920. Each ring requires 6.25
hours of labor to manufacture; each bracelet requires 5.5 hours of labor to manufacture,
and each pendant requires 4 hours of labor to manufacture. What is the standard
overhead cost per ring?
a. $46.00
b. $287.50
c. $300.00
d. $48.00
Dana owns her own real estate agency. She has been working hard to increase her client
base. She offers the most comprehensive advertising campaign in the city and it has
been paying off by the steady increase in the number of listings over the last several
months. However, Dana is concerned that her extensive cost for advertising is eating
into her profits. It is difficult to determine how much she spends on advertising for each
listing because some of her advertising sources are fixed amounts each month and
others are more variable in nature. She would like to analyze the following information
to determine how her advertising costs behave based on the number of listings.
Using the high-low method, what is Dana’s variable cost per listing for advertising?
a.$610
b.$593
c.$612
d.$598
On a pro-forma balance sheet, the cash balance comes directly from
a. The cash receipts budget.
b. The general ledger.
c. The cash budget.
d. The bank statement.
Which of the following is not an assumption about the data when using CVP analysis?
a. All costs can be easily and accurately separated into fixed and variable components.
b. Total fixed costs remain at a constant level and variable costs per unit remain
unchanged at all sales levels.
c. More inventory is purchased than sold.
d. A linear relationship exists between variable costs and sales activity over the relevant
range of interest.
Vest Manufacturing Company applies overhead cost based on 120% of direct labor cost.
In completing the 250 units in job #220, the company incurred $22,000 in direct
materials and direct labor of $17,000. How much overhead should be applied to job
#220?
a. $8,160
b. $18,720
c. $20,400
d. $26,880
Which of the following would be considered a batch-level activity?
a. Machine set-up
b. Preparing the annual budget
c. Direct labor
d. None of these answer choices are correct.
Marshall Industries operates as an investment center. Buddy Hall, the region ‘s division
manager, has set a required minimum rate of return of 15%. Marshall ‘s total assets are
$350,000, current liabilities are $150,000, and operating income is $60,000. The
company ‘s weighted-average cost of capital is 18% and its tax rate is 28%.
Required:
Calculate Marshall ‘s EVA. Show your work.
Ellis Dover is a scout for a Major League Baseball team based in Phoenix, Arizona.
Ellis needs to travel to Los Angeles, California on June 1 to perform a variety of
professional functions prior to the team travelling to Los Angeles to play. If Ellis flies,
he could catch a 6 a.m. flight on June 1. In order to perform all of his professional
responsibilities, Ellis will need to spend the night and catch a flight on June 2nd to
return to Phoenix. If Ellis flies, he will need to rent a car for $38 per day. To cover
meals and other incidental expenses, Ellis will receive $45 per day (per diem) for each
day he works out of town. Flights between Phoenix and Los Angeles can be purchased
for $89 one way.
Phoenix is approximately 300 miles from Los Angeles, a 5-hour drive at speed limits
permitted on the freeways connecting the two cities. If he drives from Phoenix to Los
Angeles, Ellis would need to leave the afternoon of May 31 and would be reimbursed
$.50 per mile. He would need to spend 2 nights in a hotel, the night of May 31 and the
night of June 1. He would return to Phoenix by car on June 2nd. The hotel used by the
team charges $160 per night. What is the incremental cost of driving over flying?
a. $101
b. $251
c. $116
d. $296
Which of the following statements relating to just-in-time inventory is not correct?
a.As soon as goods are completed, they are shipped directly to the customer.
b.Products are generally completed in small batches in response to customer requests.
c.Just-in-time is beneficial to all companies that will implement it.
d.No safety stock is kept in the event that some units are found to be defective.
Silver Moon Boutique sells a line of sterling silver jewelry. On average, Silver Moon
earns a 60% gross profit on its jewelry. The owner, Pat Harring, wants to add some
pewter jewelry to the boutique’s offerings. Pat has found a vendor who sells pewter
necklaces for $35 each. However, she believes that her customers won’t pay more than
$50 for pewter jewelry.
Required:
a. What price would Silver Moon normally charge for a pewter necklace?
b. What is the target cost Silver Moon would need to meet to sell the pewter necklaces
for $50?
c. What could Silver Moon do to meet the target cost in part b?
Good managerial accounting information helps
a.Creditors decide on good credit risks.
b.Managers to do their jobs.
c.Stockholders make informed investment decisions.
d.All of these answer choices are correct.