QUESTION 1

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

under activity-based costing the sum of all product costs does not equal the total costs of the company

under activity-based costing manufacturing costs are assigned to products

activity-based costing has not been approved by the United Nation's International Accounting Board

activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours

QUESTION 2
The plant manager's salary is an example of a(n):

Unit-level activity

Batch-level activity

Product-level activity

Organization-sustaining activity

QUESTION 3
Grammer Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs:

The distribution of resource consumption across the three activity cost pools is given below:

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?

$135,000

$174,000

$162,000

$180,000

QUESTION 4
Poskey Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?

$187,000

$264,000

$217,000

$165,000

QUESTION 5
Consider the following statements:

I. A division's net operating income, after deducting both traceable and allocated common fixed costs, is negative.
II. The division's avoidable fixed costs exceed its contribution margin.
III. The division's traceable fixed costs plus its allocated common corporate costs exceed its contribution margin.

Which of the above statements is a valid reason for eliminating the division?

Only I

Only II

Only III

Only I and II

QUESTION 6
Yehle Inc. regularly uses material Y51B and currently has in stock 460 liters of the material for which it paid $2,530 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $4.55 per liter. New stocks of the material can be purchased on the open market for $5.45 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 720 liters of the material to be used in a job for a customer. The relevant cost of the 720 liters of material Y51B is:

$3,924

$5,450

$3,510

$3,276

QUESTION 7
Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total cost of $1,100,000. If these computers are upgraded at a total cost of $40,000, they can be sold for a total of $750,000. As an alternative, the computers can be sold in their present condition for $690,000.

Suppose the selling price of the upgraded computers has not been set. At what selling price per unit would the company be as well off upgrading the computers as if it just sold the computers in their present condition?

$86.50

$887.50

$912.50

$562.50

QUESTION 8
(Ignore income taxes in this problem.) Pro-Mate, Inc. is a producer of athletic equipment. The company is considering the purchase of a machine to produce baseball bats. The machine will cost $60,000 and have a 10-year useful life. The following annual revenues and expenses are projected:

The machine will have no salvage value. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the new machine is about:

6.0 years

1.5 years

5.4 years

3.75 years

QUESTION 9
(Ignore income taxes in this problem.) Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision:

Carlson uses the total cost approach to net present value analysis and a discount rate of 12%. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing will have no future use for the equipment.

If the new equipment is purchased, the present value of the annual cash operating costs associated with this alternative is:

($28,840)

($19,160)

($14,420)

($36,050)

QUESTION 10
The WRT Corporation makes collections on sales according to the following schedule:

25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible

The following sales have been budgeted:

Budgeted cash collections in June would be:

$27,500

$98,500

$71,000

$115,500

QUESTION 11
1. Bracken Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

o Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000 for January.
o Collections are expected to be 80% in the month of sale, 17% in the month following the sale, and 3% uncollectible.
o The cost of goods sold is 75% of sales.
o The company would like to maintain ending merchandise inventories equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
o Other monthly expenses to be paid in cash are $21,800.
o Monthly depreciation is $19,000.
o Ignore taxes.

The cost of December merchandise purchases would be:

$225,000

$178,500

$247,500

$255,000

QUESTION 12
Bobe Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $44,580 per month plus $2,390 per flight plus $8 per passenger. The company expected its activity in May to be 68 flights and 211 passengers, but the actual activity was 71 flights and 210 passengers. The actual cost for plane operating costs in May was $215,140.

The spending variance for plane operating costs in May would be closest to:

$810 U

$6,352 U

$810 F

$6,352 F

QUESTION 13
Hagel Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for 2,300 client-visits, but its actual level of activity was 2,320 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for July:

Actual results for July:

The revenue variance for July would be closest to:

$2,570 F

$1,678 U

$1,678 F

$2,570 U

QUESTION 14
Kudej Printing uses two measures of activity, press runs and book set-ups, in the cost formulas in its budgets and performance reports. The cost formula for wages and salaries is $8,360 per month plus $570 per press run plus $910 per book set-up. The company expected its activity in May to be 194 press runs and 74 book set-ups, but the actual activity was 195 press runs and 72 book set-ups. The actual cost for wages and salaries in May was $188,370.

The wages and salaries in the planning budget for May would be closest to:

$185,030

$188,370

$187,404

$186,280

QUESTION 15
The following materials standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the materials quantity variance for the month?

$13,720 U

$6,732 F

$13,860 U

$6,664 F

QUESTION 16
Dreary Credit Agency uses a standard cost system for the processing of its credit applications. The labor standard at Dreary is 10 applications per 8 hour day at a standard cost of $15 per hour.

During the last pay period, Dreary's credit agents worked 1,920 hours and processed 2,500 applications. The total labor cost for the agents during this period was $29,184. What was Dreary's labor efficiency variance for this last pay period?

$384 Unfavorable

$816 Favorable

$1,200 Favorable

$1,500 Favorable

QUESTION 17
The following standards for variable manufacturing overhead have been established for a company that makes only one product:

The following data pertain to operations for the last month:

What is the variable overhead efficiency variance for the month?

$17,397 U

$16,817 U

$312 F

$17,085 U

QUESTION 18
Cabal Products is a division of a major corporation. Last year the division had total sales of $10,040,000, net operating income of $582,320, and average operating assets of $4,000,000. The company's minimum required rate of return is 14%.

The division's return on investment (ROI) is closest to:

4.1%

14.6%

36.6%

0.9%

QUESTION 19
Brandon, Inc. has provided the following data for last year's operations:

Brandon's residual income is:

$2,000

$4,000

$3,500

$2,500

QUESTION 20
The Jenkins Division recorded operating data as follows for the past year:

7%

8%

16%

14%

QUESTION 21
Villeda Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.

Data concerning two products appear below:

Please submit your answers in a table format.

QUESTION 22
Kerbow Corporation uses part B76 in one of its products. The company's Accounting Department reports the following costs of producing the 12,000 units of the part that are needed every year.

An outside supplier has offered to make the part and sell it to the company for $27.40 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $6,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part B76 could be used to make more of one of the company's other products, generating an additional segment margin of $29,000 per year for that product.

Required:

a. Prepare a report that shows the effect on the company's total net operating income of buying part B76 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?

Please submit your answer to question A in a table.

QUESTION 23
Allen Corporation's required rate of return is 14%. The company is considering the purchase of a new machine that will save $10,000 per year in cash operating costs. The machine will cost $39,540 and will have an 8-year useful life with zero salvage value. Straight-line depreciation will be used.

Required:

Compute the machine's internal rate of return. Would you recommend purchase of the machine? Explain.

QUESTION 24
Ameigh Tech is a for-profit vocational school. The school bases its budgets on two measures of activity (i.e., cost drivers), namely student and course. The school uses the following data in its budgeting:

In June, the school budgeted for 1,890 students and 146 courses. The actual activity for the month was 2,290 students and 151 courses.

Required:

Prepare a report showing the school's activity variances for June. Label each variance as favorable (F) or unfavorable (U).

Please submit in a table format.

QUESTION 25
During the most recent month at Luinstra Corporation, queue time was 4.5 days, inspection time was 0.8 day, process time was 1.9 days, wait time was 5.1 days, and move time was 0.7 day.

Required:

a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
Please write answers as simple mathematical statements.