Devry acct434 final exam 2014

Devry ACCT434 final exam 2014


Question 1.1. (TCO 1) Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management? (Points : 5)

Pricing and product-mix decisions

Cost reduction decisions

Design decisions

Discretionary decisions

Question 2.2. (TCO 1) Ireland Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $180,000. The budgeted number of nozzles to be inserted is 80,000. What is the budgeted indirect cost allocation rate for this activity? (Points : 5)





Question 3.3. (TCO 2) Overhead costs have been increasing due to all of the following except (Points : 5)

product proliferation.

tracing more costs as direct costs with the help of technology.

more complexity in distribution processes.

increased automation.

Question 4.4. (TCO 2) Information pertaining to Brenton Corporation’s sales revenue is presented in the following table:

February March April

Cash Sales $160,000 $150,000 $120,000

Credit Sales 300,000 400,000 280,000

Total Sales $460,000 $550,000 $400,000

Management estimates that 5% of credit sales are not collectible. Of the credit sales that are collectible, 75% are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month are 80% of the next month’s projected total sales. All purchases of inventory are on account; 50% are paid in the month of purchase, and the remainder is paid in the month following the purchase.

Brenton’s budgeted total cash receipts in March are

(Points : 5)





Question 5.5. (TCO 2) Financing decisions PRIMARILY deal with (Points : 5)

the use of scarce resources.

how to obtain funds to acquire resources.

acquiring equipment and buildings.

preparing financial statements for stockholders.

Question 6.6. (TCO 3) For January, the cost components of a picture frame include $0.20 for the glass, $0.85 for the wooden frame, and $0.60 for assembly. The assembly desk and tools cost $200. A total of 1,000 frames is expected to be produced in the coming year. What cost function best represents these costs? (Points : 5)

y = 1.80 + 400X

y = 400 + 1.80X

y = 200 + 1.65X

y = 1.00 + 400X

Question 7.7. (TCO 3) Which cost estimation method may use time-and-motion studies to analyze the relationship between inputs and outputs in physical terms? (Points : 5)

Quantitative analysis method

Account analysis method

Conference method

Industrial engineering method

Question 8.8. (TCO 4) Sunk costs (Points : 5)

have future implications.

are ignored when evaluating alternatives.

are differential.

are relevant.

Question 9.9. (TCO 5) Throughput contribution equals revenues minus (Points : 5)

operating costs.

direct material costs of goods sold.

direct material costs and minus operating costs.

direct material and direct labor costs.

Question 10.10. (TCO 5) Producing more nonbottleneck output (Points : 5)

allows for the maximization of overall contribution.

creates less pressure for the bottleneck workstations.

creates more inventory and increases throughput contribution.

creates more inventory, but does not increase throughput contribution.

Question 11.11. (TCO 6) What type of cost is the result of an event that results in more than one product or service simultaneously? (Points : 5)

Byproduct cost

Joint cost

Main costs

Separable cost

Question 12.12. (TCO 6) Which of the following is a disadvantage of the physical-measure method of allocating joint costs? (Points : 5)

The measurement basis for each product may be different.

There is a need for a common denominator.

The physical measure may not reflect the product’s ability to generate revenues.

All of the above

Question 13.13. (TCO 7) An understanding of life-cycle costs can lead to (Points : 5)

additional costs during the manufacturing cycle.

less need for evaluation of the competition.

cost-effective product designs that are easier to service.

mutually beneficial relationships between buyers and sellers.

Question 14.14. (TCO 7) Each month, Haddon Company has $300,000 total manufacturing costs (20% fixed) and $125,000 distribution and marketing costs (75% fixed). Haddon’s monthly sales are $500,000.

The markup percentage on variable costs to arrive at the existing (target) selling price is

(Points : 5)




66 2/3%.

Question 15.15. (TCO 8) Transfer prices should be judged by whether they promote (Points : 5)

goal congruence.

the balanced scorecard method.

a high level of subunit autonomy in decision making.

Both 1 and 3 are correct

Question 16.16. (TCO 8) The seller of Product A has no idle capacity and can sell all it can produce at $25 per unit. Outlay cost is $10. What is the opportunity cost, assuming the seller sells internally? (Points : 5)





Question 17.17. (TCO 8) Transferring products or services at market prices generally leads to optimal decisions when (Points : 5)

the market for the intermediate product is perfectly competitive.

the interdependencies of the subunits are minimal.

there are no additional costs or benefits to the company in buying or selling in the external market.

All of the above

Question 18.18. (TCO 9) To guide cost allocation decisions, the cause-and-effect criterion (Points : 5)

may allocate corporate salaries to divisions based on profits.

is used less frequently than the other criteria.

is the primary criterion used in activity-based costing.

is a difficult criterion on which to obtain agreement.

Question 19.19. (TCO 9) The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $50,000,000 bond issuance, the electric mixer division used $24,000,000 and the electric lamp division used $26,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the electric mixer division? (Points : 5)





Question 20.20. (TCO 10) The net present value method focuses on (Points : 5)

cash inflows.

accrual-accounting net income.

cash outflows.

Both 1 and 3 are correct

Question 21.21. (TCO 10) Upper Darby Park Department is considering a new capital investment. The cost of the machine will be $200,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a five-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences.

If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project? (Points : 5)





Question 22.22. (TCO 11) An advantage of financial cost of quality measures is that they (Points : 5)

are often easy to quantify and understand.

provide immediate short-run feedback on whether quality improvement efforts have, in fact, succeeded in improving quality.

direct attention to physical processes and therefore focus attentions on the precise problem areas needing improvement.

provide a single, summary measure of quality performance.

Question 23.23. (TCO 11) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $20,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company’s average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. What is the net change in the budget of prevention costs if the procedures are automated in 20X6? Will management agree with the changes? (Points : 5)

$138,000 increase, no

$78,000 increase, yes

$60,000 increase, no

$110,000 decrease, yes

Question 24.24. (TCO 12) Obsolescence is an example of which cost category? (Points : 5)

Ordering costs

Carrying costs

Labor costs

Quality costs

Question 25.25. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $80. There are no flag displays on hand but Liberty had scheduled 70 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous.

If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is (Points : 5)





Page 2

Question 1. 1. (TCO 2) Gardenia Company has the following projected account balances for June 30, 20X9:

Accounts payable $ 60,000 Sales $ 800,000

Accounts receivable $ 100,000 Capital stock $ 400,000

Depreciation, factory $ 36,000 Retained earnings ?

Inventories (5/31 & 6/30) $ 180,000 Cash $ 56,000

Direct materials used $ 200,000 Equipment, net $ 240,000

Office salaries $ 80,000 Buildings, net $ 400,000

Insurance, factory $ 4,000 Utilities, factory $ 16,000

Plant wages $ 140,000 Selling expenses $ 50,000

Bonds payable $ 160,000 Maintenance, factory $ 28,000
Prepare a budgeted income statement AND a budgeted balance sheet as of June 30, 20X9.

Question 2. 2.

(TCO 5) Paul’s Medical Equipment Company manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,800 and fixed costs of $1,000 per unit, based on an average production run of 5,000 units. It normally has four production runs a year, with $500,000 in setup costs each time. Plant capacity can handle up to six runs a year for a total of 30,000 beds.

A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000. Management believes it must lower the price to compete. Marketing believes that the new price will increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the same level of fixed costs. The company sells all the Deluxe beds it can produce.

Question 1: What is the annual operating income from Deluxe at the price of $5,000?

Question 2: What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%?


(TCO 7) Grace Greeting Cards Incorporated is starting a new business venture and is in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:

? For 16 times each year, a new card design will be put into production. Each new design will require $200 in setup costs.

? The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years.

? Direct costs of producing the designs average $0.50 each.

? Indirect manufacturing costs are estimated at $50,000 per year.

? Customer service expenses average $0.10 per card.

? Sales are expected to be 2,500 units of each card design. Each card sells for $3.50.

? Sales units equal production units each year.

What is the total estimated life-cycle operating income?
(Points : 25)

Question 4. 4.

(TCO 8) Autocar Company manufactures automobiles. The red car division sells its red cars for $25,000 each to the general public. The red cars have manufacturing costs of $12,500 each for variable and $5,000 each for fixed costs. The division’s total fixed manufacturing costs are $25,000,000 at the normal volume of 5,000 units.

The blue car division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the red car division at the full cost of $18,000. The red car division has excess capacity and the 1,000 units can be produced without interfering with the outside sales of 5,000. The 6,000 volume is within the division’s relevant operating range.

Explain whether the red car division should accept the offer. Support your decision showing all calculations.

Question 5. 5. (TCO 11) For supply item HM, Bertha Company has been ordering 130 units based on the recommendation of the salesperson who calls on the company monthly. The company has hired a new purchasing agent, who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:

Annual demand in units


Days used per year


Lead time, in days


Ordering costs


Annual unit carrying costs


Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

(Points : 25)

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