1. As an analyst at Delta Airlines, you are asked to help the operations staff.

Operations has identified a

new method of loading baggage that is expected to result in a 30 percent reduction in labor time but no
changes in any other costs. The current labor cost to load bags is $2 per bag. Other costs are $1 per
bag.

Required:
a. What differential costs should the operations staff consider for the decision to use the new method
next year? What would be the cost savings per bag using it? (Round your answer to 2 decimal
places.)

b. Describe how management would use the information in requirement (a) and any other appropriate
information to proceed with the contemplated use of the new baggage loading method.

Management would use the information, but would also want to know the effect on quality.

 
Explanation:
a.
Differential costs are costs that would change, which are the labor costs in this situation. Other costs
would presumably not be affected by the change in labor. Other issues include the quality and
dependability of the new approach.

Differential costs next year are $0.60 ( = $2.00 – $1.40) calculated as follows:

  Labor Cost
 
  Old Method New Method
  Next year $2.00 $1.40 [ = (1 – 0.30) × $2.00]

b.
Management would use the information to help decide whether to use the new method. Management
would also want to know the effect on quality (lost bags, delays in delivering bags to the baggage claim,
etc.).

2.

Assume that Carmen's Cookies is preparing a budget for the month ending June 30. Management
prepares the budget by starting with the actual results for April 30. Next, management considers what the
differences in costs will be between April and June.
     Management expects the number of cookies sold to be 15 percent greater in June than in April, and it
expects all food costs (e.g., flour, eggs) to be 15 percent higher in June than in April. Management
expects "other" labor costs to be 20 percent higher in June than in April, partly because more labor will
be required in June and partly because employees will get a pay raise. The manager will get a pay raise
that will increase the salary from $3,000 in April to $3,750 in June. Rent and utilities are not expected to
change.

Required:
Prepare a budget for Carmen's Cookies for June.
 
Explanation:
Food:
  Flour = $2,100 × 1.15 = $2,415
  Eggs = $5,200 × 1.15 = $5,980
  Chocolate = $2,000 × 1.15 = $2,300
  Nuts = $2,000 × 1.15 = $2,300
  Other = $2,200 × 1.15 = $2,530
 
Labor:
  Other = $1,500 × 1.20 = $1,800
 
Number of cookies sold = 32,000 × 1.15 = 36,800

CARMEN'S COOKIES
Retail Responsibility Center
Budgeted Costs
For the Month Ending June 30
Actual Budget
(April) (June)
Food
Flour $2,100 $2,415
Eggs 5,200 5,980
Chocolate 2,000 2,300
Nuts 2,000 2,300
Other 2,200 2,530
Total food $13,500 $15,525
Labor
Manager $3,000 $3,750
Other 1,500 1,800
Total labor $4,500 $5,550
Utilities 1,800 1,800
Rent 5,000 5,000
Total cookie cost $24,800 $27,875
Number of cookies sold 32,000 36,800
3.

The following balances are from the accounts of Hill Components:

January 1 December 31
 
(Beginning) (Ending)
  Direct materials inventory $48,100   $44,200  
  Work-in-process inventory  67,730    71,500  
  Finished goods inventory  15,600    18,200  

Direct materials used during the year amount to $59,800, and the cost of goods sold for the year was
$68,900.

Required:

a. Find the cost of direct materials purchased during the year. 55900

b. Find the cost of goods manufactured during the year. 71500

c. Find the total manufacturing costs incurred during the year. 75270
Cost of Goods Sold Statement
For the Year Ended December 31
  Beginning work in
          $ 67,730 
process inventory
  Manufacturing costs:               
    Direct materials:                
      Beginning inventory $ 48,100           

      Purchases   55,900(a)*          

             

        Materials available $ 104,000           

      Less ending inventory   44,200           

            

        Direct materials used      $ 59,800       

      Other manufacturing *
       15,470     
costs *
              
 
        Total manufacturing (
            75,270
costs c
)
             
      Total costs of work in
            143,000 
process
        Less ending work in
            71,500 
process
             
          Cost of goods             71,500 
manufactured (
b
 )
  Beginning finished goods
            15,600 
inventory
             
  Finished goods available
            87,100 
for sale
  Ending finished goods
            18,200 
inventory
             

  Cost of goods sold           $ 68,900 

             

* Letters (a), (b), and (c) refer to amounts found in solutions to requirements a, b, and c.
** Difference between total manufacturing costs of $75,270 and direct materials used of $59,800.

4.

The following balances are from the accounts of Todd Machining Company:

 
January 1 December 31
 
(Beginning) (Ending)
  Direct materials inventory $ 96,000  $118,000 
116,00
  Work-in-process inventory       112,000 
0
  Finished goods inventory   97,600    90,000 

 
Direct materials purchased during the year amount to $598,000, and the manufacturing costs other than
direct materials for the year were $1,584,800.

Required:

Prepare a cost of goods sold statement.

TODD MACHINING COMPANY
Cost of Goods Sold Statement
For the Year Ended December 31
Beginning work-in-process inventory

$116,000
Manufacturing costs:
 Direct materials:

Beginning inventory
$96,000

Purchases
598,000

Materials available
$694,000

Less: Ending inventory

(118,000)

Direct materials used

$576,000

Other manufacturing costs

1,584,800

Total manufacturing costs

2,160,800
Total costs of work in process

$2,276,800
Less: Ending work in process

(112,000)
Cost of goods manufactured

$2,164,800
Beginning finished goods inventory

97,600
Finished goods available for sale

$2,262,400
Less: Ending finished goods inventory
 (90,000)
Cost of goods sold

$2,172,400

5.

Anu’s Amusement Center has collected the following data for operations for the year:

     
  Total revenues $ 1,600,000  
  Total fixed costs $ 437,500  
  Total variable costs $ 900,000  
  Total tickets sold   100,000  

Required:
(a) What is the average selling price for a ticket? $1,600,000 ÷ 100,000 tickets = $16.00 per ticket
  
(b) What is the average variable cost per ticket? $900,000 ÷ 100,000 tickets = $9.00 per ticket
    
(c) What is the average contribution margin per ticket? ($16.00 – $9.00) = $7.00 per ticket
    
(d) What is the break-even point?
     
Profit = ($16.00 – $9.00)X – $437,500
Let Profit = 0
0 = ($16.00 – $9.00)X – $437,500

$437,500  
X=  
$7.00  
     
X = 62,500 tickets

(e) Anu has decided that unless the operation can earn at least $43,750 in operating profits, she will
close it down. What number of tickets must be sold for Anu’s Amusements to make a $43,750
operating profit for the year on ticket sales?

Let Profit = $43,750

$43,750 = ($16.00 – $9.00)X – $437,500

$437,500 + $43,750
X=
$7.00
   
X = 68,750 tickets

6.
The manager of Kima’s Food Mart estimates operating costs for the year will include $900,000 in fixed
costs.

Required:
(a) Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
 Break even point in sales dollars = Fixed costs ÷ Contribution margin ratio
 = $900,000  ÷ 0.40 = $2,250,000

(b) Find the break-even point in sales dollars with a contribution margin ratio of 25 percent.
 Break even point in sales dollars = Fixed costs ÷ Contribution margin ratio
= $900,000  ÷ 0.25 = $3,600,000
(c) Find the sales dollars required to generate a profit of $200,000 for the year assuming a contribution
margin ratio of 40 percent.
Sales dollars required = (Fixed costs + Desired profit) ÷ Contribution margin ratio
= ($900,000 + $200,000)  ÷ 0.40 = $2,750,000

7.

Rainbow Tours gives walking tours of Springfield. Rainbow charges $40 per person for the tour and
incurs $16 in variable costs for labor, drinks, and maps. The monthly fixed costs for Rainbow Tours are
$3,600.

Required:
(a) How many tours must Rainbow sell every month to break even?
Profit  =  (P – V)X – F

$0  =  ($40.00 – $16.00)X – $3,600

$24.00X  =  $3,600
$3,600
X=
$24.00
   
X = 150 tours
     
(b) Rainbow Tours’s owner believes that 175 people a month will sign up for the walking tour. What is the
margin of safety in terms of the number of people signing up for the tour?
Margin of safety = 175 – 150

  = 25 people (14.3%)

8.
Suburban Bus Lines operates as a not-for-profit organization providing local transit service. As a not-for-
profit, it refers to an excess of revenues over costs as a "surplus" and an excess of costs over revenues
as a "deficit." Suburban charges $1.00 per ride. The variable costs of a ride are $1.50. The fixed costs of
Suburban are $200,000 annually. The county government provides Suburban with a flat subsidy of
$250,000 annually.

Required:
(a) What is the break-even point for Suburban?
Surplus  =  (P – V)X – F + Subsidy

$0  =  ($1.00 – $1.50)X – $200,000 + $250,000

$0.50X  =  $50,000

$50,000  

X=  

$0.50  

     

X = 100,000 riders

(b) Suburban expects 75,000 riders this year. Will it operate at a surplus or deficit?
   
  Operates with a surplus below break-even
With 75,000 riders, Suburban will operate at a surplus because the subsidy more than offsets the
negative contribution margin plus fixed costs. It is "below" break-even, but because Suburban loses
money on each rider ($1.00 revenue less the $1.50 variable costs), it operates with a surplus below
break-even and at a deficit above break-even.

9.
Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel
assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these
rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as
follows (based on annual production of 2,000 units):

      
  Direct materials $ 50 
  Direct labor   106 
  Variable overhead   32 
  Fixed overhead   94 
 
       Total $ 282 
 

     Trailblazers has offered to sell the assembly to Mobility for $220 each. The total order would amount to
2,000 rear wheel assemblies per year, which Mobility's management will buy instead of make if Mobility
can save at least $20,000 per year. Accepting Trailblazers's offer would eliminate annual fixed overhead
of $80,000.

Required:
a.
Prepare a schedule that shows the differential costs per rear wheel assemblies.

Status Quo
Alternative
Difference

Trailblazers’ offer

$440,000
$440,000
higher

Materials
100,000

100,000
lower

Labor
212,000

212,000
lower

Variable overhead
64,000

64,000
lower

Fixed overhead applied

188,000
108,000
80,000
lower

Total costs
$564,000
$548,000
$16,000
lower

 
Status Quo = Based on 2,000 units.
Fixed overhead applied = $94 × 2,000 = $188,000; or $94 × 2,000 units − $80,000 = $108,000

b. Should Mobility make rear wheel assemblies or buy them from Trailblazers? Make

The $20,000 savings could not be achieved. The cost to make is only $16,000 more than the cost to
purchase from Trailblazers.

10.
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells
annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases
the cookies for $0.60 each but is considering making them instead. Mel's can bake each cookie for $0.20
for materials, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for
overhead includes an allocation of $0.30 per cookie for fixed overhead. However, total fixed overhead for
the company would not increase if Mel's makes the cookies.
     Mel himself has come to you for advice. "It would cost me $0.80 to make the cookies, but only $0.60 to
buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead would
be only $0.15 per cookie. Two cookies are put into every lunch.

Required:

a.
Prepare a schedule to show the differential costs per cookie. (Round your answers to 2 decimal
places.)

Status Quo
Alternative
Difference

Cost to buy
$0.60

$0.60
lower

Direct material

$0.20
$0.20
higher

Direct labor

$0.15
$0.15
higher
Variable overhead

$0.15
$0.15
higher

Total costs
$0.60
$0.50
$0.10
lower

b.
Should Mel continue to buy the cookies? NO

Mel could save $0.10 per cookie ($0.20 per lunch) by making the cookies rather than buying them.

11. Custom Home builders (CH) designs and constructs high-end homes on large lots owned by
customers. CH has developed several formulas, which it uses to quote jobs. These include costs for
materials, labor, and other costs. These estimates are also dependent on the region of the country a
particular customer lives. Below are the cost estimates for one region in the Midwest:

      

  Administrative costs $20,000 

  Building costs – per square foot (basic) $ 90 

  Building costs – (moderate) $ 150 

  Building costs – per square foot (luxury) $ 225 

  Appliances (basic) $15,000

  Appliances (moderate) $25,000

  Appliances (luxury) $45,000 

  Utilities costs (if required) $40,000 

Required:
A customer has expressed interest in having CH build a moderate, 3,000 square-foot home on a vacant
lot, which does not have utilities. Based on the engineering estimates above, what will such a house cost
to build?
Explanation:
Building costs – per square foot
= 3,000 ×$150 = $450,000
(moderate)
$20,000
Administrative costs
Building costs – per square foot
450,000
(moderate)
Appliances (moderate) 25,000

Utilities costs (if required) 40,000

$535,00
Estimated cost
0
12.

The accounting records for Frankie’s Fixtures report the following production costs for the past year:

       
  Direct Materials $ 420,000  
  Direct Labor   350,000  
  Variable Overhead   308,000 

Production was 210,000 units. Fixed manufacturing overhead was $480,000.

     For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent,
excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by
10 percent. Variable manufacturing overhead per unit is expected to remain the same.

Required:
(a) Prepare a cost estimate for a volume level of 220,000 units of product this year.

(b) Determine the costs per unit for last year and for this year. 
Costs per unit: Last year: $7.42 = ($1,558,000 ÷ 210,000) This year: $8.00 = ($1,760,000 ÷ 220,000)

 a.)
Cost This
Chang Year's
e Cost
(1+Co (at last
st year's
Last Year's Increa volume Growth in This Year's
  Cost   se)   )   Volume   Cost
(1) ×
(1)   (2)   (2) =   (4)   (3) × (4) = (5)
  Cost Item (3)
220,000
504,0
  Direct materials $ 420,000 × 120 % =$ × = $ 528,000
00
210,000
  Direct labor   350,000   × 104 % = 364,0 × 220,000 =   381,333 
00
 210,000
220,000
  Variable 308,0
  308,000   × 100 % =   × =   322,667 
overhead 00
210,000
528,0
  Fixed overhead   480,000   × 110 % =   × (fixed) =   528,000 
00
                  
  Total costs $ 1,558,000                    $ 1,760,000 
                  
13.

The Office Mart store in South Beach experienced the following events during the current year:

1.Incurred $400,000 in marketing costs.

2.Purchased $1,200,000 of merchandise.
3.Paid $40,000 for transportation-in costs.
4.Incurred $400,000 of administrative costs.
5.Took an inventory at year-end and learned that goods costing $200,000 were on hand. This compared
with a beginning inventory of $300,000 on January 1.
6.Determined that sales revenue during the year was $3,000,000.
7.Debited all costs incurred to the appropriate account and credited to Accounts Payable. All sales were
for cash.

Required:
Give the amounts for the following items in the Merchandise Inventory account:
Amount

a. Beginning balance (BB) $300,000

b. Transfers-in (TI) $1,240,000

c. Ending balance (EB) $200,000

d. Transfers-out (TO) $1,340,000

Explanation:
a
$300,000 (see item 5)
.
b
$1,240,000 = $1,200,000 + $40,000 (see items 2 & 3)
.
c.$200,000 (see item 5)
d.
$1,340,000.
BB + TI – TO = EB
 
 
$300,000 + $1,240,000 – X = $200,000
 
 
X = $300,000 + $1,240,000 – $200,000
 
 
X = $1,340,000
14.

Fill in the missing items for the following inventories:

A
B
C
Beginning balance
 $51,000
$28,400
$67,000
Ending balance
48,000
24,800
56,000
Transferred in
54,000
88,000
159,000
Transferred out
57,000
91,600
170,000
Explanation:
Based on the basic formula:
  BB + TI – TO = EB  
  A. $51,000 + X – $57,000 = $ 48,000 
          X = $ 54,000 
  B. $28,400 + $88,000 – X = $ 24,800 
          X = $ 88,000 + $28,400 – $24,800
          X = $ 91,600 
  C. $67,000 + X – $170,000 = $ 56,000 
          X = $ 56,000 + $170,000 – $67,000
          X = $ 159,000 

15.

Enviro Corporation manufactures a special liquid cleaner at its Green plant. Operating data for June
follow:

       
  Materials $714,000 
  Labor   61,200 
  Manufacturing overhead   244,800 

The Green plant produced 850,000 gallons in June. The plant never has any beginning or ending
inventories.

Required:
Compute the cost per gallon of liquid cleaner produced in June. 
    
 
$ 714,000  
  Materials
  61,200  
  Labor
  Manufacturing
  244,800  
overhead

 
     Total cost $ 1,020,000  

  ÷ 850,000  
  ÷ Gallons produced
$ 1.20  
  = Cost per gallon

16.

Clean Corporation manufactures liquid window cleaner. The following information concerns its work in
process:
  
• Beginning inventory, 12,000 partially complete gallons.
• Transferred out, 63,000 gallons.
• Ending inventory (materials are 20 percent complete; conversion costs are 10 percent complete).
• Started this month, 72,000 gallons.

Required:
(a)Compute the equivalent units for materials using the weighted-average method.

(b)Compute the equivalent units for conversion costs using the weighted-average method.

Conversion Costs
  Materials
  Units transferred out   63,000    63,000 
  Equivalent units in ending
         
inventory:
     Materials: 20% ×
  4,200 EU     
21,000a units
     Conversion costs: 10% ×
       2,100 EU
21,000 units
 
  Total equivalent units for all
  67,200 EU (A)   65,100 EU (B)
work done to date

a
 21,000 units in ending inventory = 12,000 units in beginning inventory + 72,000 units started this period
   – 63,000 units transferred out.
17.

Missouri Corporation shows the following information concerning the work in process at its plant:
  
• Beginning inventory was partially complete (materials are 100 percent complete; conversion costs are
60 percent complete).
• Started this month, 180,000 units.
• Transferred out, 150,000 units.
• Ending inventory, 100,000 units (materials are 100 percent complete; conversion costs are 15 percent
complete).

Required:
(a) Compute the equivalent units for materials using the weighted-average method.
(b) Compute the equivalent units for conversion costs using the weighted-average method.
Conversion
 
Materials Costs
  Units transferred out 150,000 EU   150,000 EU  

  Equivalent units in ending inventory:        

     Materials: 100% × 100,000 units 100,000 EU      

     Conversion costs: 15% × 100,000
    15,000 EU  
units
 
  Total equivalent units for all work done 165,000 EU
250,000 EU(A)  (B)
to date

18. What are the transfers-out from the Finished Goods Inventory called?

Cost of Goods Manufactured.

Cost of Goods Available.
Cost of Goods Completed.
Cost of Goods Sold.
When transfers occur from Finished Goods Inventory they go to Cost of Goods Sold.

19. One of the primary differences between job costing for service and manufacturing companies is
service firms generally:
use fewer direct materials.
have less direct labor.
do not use predetermined overhead rates.
have no Work-in-Process Inventory.
Services are more intangible and have less materials.

20. Which of the following statements is (are) true regarding product costing?
(A) Twenty cans of paint that are 25% full are equivalent to four cans of paint that are completely full.
(B) The equivalent unit concept refers to the actual amount of work during the period stated in terms of
whole units.
Only A is true.
Only B is true.
Both A and B are true.
Neither A nor B is true.
This is a basic description of equivalent units. 20 x 25% = 5 equivalent units
21. If the units in the beginning Work-in-Process Inventory are greater than the units in the ending Work-
in-Process Inventory, then the units transferred out are:
more than the units started during the period.
equal to the equivalent units of production.
less than the units started during the period.
equal to the actual work done during the period.
BWIP + TI - TO = EWIP; BWIP - EWIP = TO - TI. If BWIP > EWIP then TO > TI

22.
After reviewing the new activity-based costing system that Janis McGee has implemented at Joplin
Industries’s Port Arthur manufacturing facility, Kris Kristoff, the production supervisor, believes that he
can reduce production costs by reducing the time spent on machine setups. He has spent the last month
working with employees in the plant to change over the machines more quickly with the same reliability.
He plans to produce 100,000 units of J25P and 40,000 units of J40X in the first quarter. He believes that
with his more efficient setup routine, he can reduce the number of setup hours for both the J25P and the
J40X products by 25 percent. (Refer to Exhibit 9.16)
Required:
(a) Compute the amount of overhead allocated to the J25P and the J40X cameras for the first quarter
using activity-based costing. Assume that all events are the same in the first quarter as in the third
quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.

Explanation:
  J25P J40X
  Direct material $ 1,500,000  $ 2,400,000 
 
  Direct labor          
       Assembly $ 750,000  $ 600,000 
       Packaging   990,000    360,000 
 
            Total direct labor $ 1,740,000  $ 960,000 
 
  Direct costs $ 3,240,000  $ 3,360,000 
 
  Overhead          
  Assembly building          
      Assembling (@$30/mh) $ 180,000  $ 900,000 
      Setting up machine
  27,000    270,000 
(@$900/setup-hour)a
      Handling material
  24,000    120,000 
(@$3,000/run)
  Packaging building          
      Inspecting and
Packaging (@$5/direct labor-   300,000    114,000 
hour).
      Shipping
  132,000    264,000 
(@$1,320/shipment)
 
         Total ABC O/H $ 663,000  $ 1,668,000 
 
  Total ABC cost $ 3,903,000  $ 5,028,000 
 
  Number of units   100,000    40,000 
  Unit cost $ 39.03  $ 125.70 

a
 75% of the amounts in Exhibit 9.16. ($27,000 = .75 × $36,000; $270,000 = .75 × $360,000).
23. Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-
cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the
introduction of the new product, profits have been steadily declining. Management believes that the accounting system is
not accurately allocating costs to products, particularly because sales of the new product have been increasing.
           Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is
currently assigned to products based on their direct labor costs. For your investigation, you have data from last year.
Manufacturing overhead was $360,000 based on production of 140,000 wired mice and 50,000 wireless mice. Direct labor
and direct materials costs were as follows:
  Wired Wireless Total

  Direct labor $290,100  $109,900  $400,000  

  Materials  187,500   171,000   358,500  

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last
year are as follows:
        Activity Level  

         
Tota
Costs Assigned
  Cost Driver Wired w/l l
  Number of production runs $ 165,000  20  5 25

  Quality tests performed   148,500    6  9 15

  Shipping orders processed   46,500  50 25 75

       

     Total overhead $ 360,000       

Required:
(a) How much overhead will be assigned to each product if these three cost drivers are used to allocate
overhead? What is the total cost per unit produced for each product? 
(b) How much overhead will be assigned to each product if direct labor cost is used to allocate overhead?
What is the total cost per unit produced for each product?
(a) 
  Rate Wired Wireless Total
  Direct
     $ 290,100  $ 109,900  $ 400,000 
labora
      
  Direct
     $ 187,500  $ 171,000  $ 358,500 
materialsb
      
  Overhead
                   
costs
c f
    Prod. 6,60
$ $ 132,000 $ 33,000  $ 165,000 
runs 0
    Quality 9,90d g
    59,400   89,100    148,500 
tests 0
e h
    Ship.
  620   31,000   15,500    46,500 
orders
      
    Total
     $ 222,400  $ 137,600  $ 360,000 
overhead
      

  Total costs      $ 700,000  $ 418,500  $1,118,500 

      
i j
  Total unit
     $ 5.00 $ 8.37     
cost

a
Data given in the first table of the exercise in the text.
b
Data given in the first table of the exercise in the text.
c
$6,600 per run = $165,000 in production run costs ÷ 25 total runs.
d
$9,900 per test = $148,500 in quality costs ÷ 15 total tests.
e
$620 per order = $46,500 in shipping costs ÷ 75 processed orders.
f
$132,000 = $6,600 per production run x 20 runs for Wired.
g
$59,400 = $9,900 per quality test x 6 tests for Wired.
h
$31,000 = $620 per order shipped x 50 orders shipped for Wired.
i
$5.00 = $700,000 total costs for Wired ÷ 140,000 units produced.
j
$8.37 = $418,500 ÷ 50,000 units produced.
Reading from the table above, we can see that the total overhead assigned is $222,400 and $137,600
for Wired and Wireless, respectively. The total cost per unit is the total cost per product divided by the
total units produced; $5.00 per Wired mouse and $8.37 per Wireless mouse.

(b)
Rat
  Wired Wireless Total
e
  Dire
ct      $ 290,100  $ 109,900  $ 400,000 
labora
  Dire
ct
       187,500    171,000    358,500 
materi
b
als
c d
  Total
90
overh $   261,090   98,910    360,000 
%
ead
      
  Total
     $ 738,690  $ 379,810  $ 1,118,500 
costs
      
e
  Total
unit      $ 5.28 $ 7.60      
cost

a
Data given in the first table in the exercise.
b
Data given in the first table in the exercise.
c
90% = $360,000 total overhead ÷ $400,000 total direct labor.
d
$261,090 = $290,100 × 0.90
e
$5.28 = $738,690 ÷ 140,000 units produced (rounded).
From the table above, total overhead allocated to Wired and Wireless is $261,090 and $98,910
respectively. The unit cost for Wired and Wireless is $5.28 and $7.60 respectively.
24.

Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the
cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A
consultant has analyzed the delivery service using activity-based costing methods and identified four
activities. Data on these activities follow:

    Cost Driver Volume

   
  Activity Cost Driver Cost Driver  Volume
  Processing     Number
$ 75,000  5,000 orders
order of orders
    Number
  Loading truck   150,000  100,000 items
of items
  Delivering     Number
  90,000  5,000 orders
merchandise of orders
  Processing     Number
  72,000  4,000 invoices
invoice of invoices
      
       Total
  $ 387,000    
overhead

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to
these two customers follow:
  City Diner Le Chien Chaud

  Order value $75,000   $90,000  

  Number of orders   52     110  

  Number of items   600     1,500  

  Number of invoices   12     150  

Required:
(a) What would the delivery charge for each customer be under the current policy of 10 percent of order
value?
Order Delivery Charge
  Customer Value (@10%)
  City Diner
(b) What $75,000   costing
would the activity-based $7,500  
system estimate as the cost of delivering to each customer? 
  Le Chien Chaud  90,000    9,000  
Delivery cost based on activity-based costing:
Cost driver rates:

Activity Cost Driver Cost ÷ Driver Volume = Rate

  Processing order    Number of orders $ 75,000 ÷ 5,000 orders = $ 15 per order
150,00
  Loading truck    Number of items   ÷ 100,000 items =   1.50 per item
0
  Delivering merchandise    Number of orders   90,000 ÷ 5,000 orders =   18 per order
  Processing invoice    Number of   72,000 ÷ 4,000 invoices =   18 per invoice
 invoices

Cost driver delivery:

  
  City Diner Le Chien Chaud
 
Units of Units of
Cost Cost
  Activity Driver Cost Driver Cost
a
  Processi  order  order
52 $ 780 110 $ 1,650  
ng order s s
b
  Loading 60 1,5
 items   900  items   2,250  
truck 0 00
c
  Deliveri
ng  order  order
52   936 110   1,980  
merchan s s
dise
d
  Processi
 invoic  invoic
ng 12   216 150   2,700  
es es
invoice
       
       Total
   $ 2,832     $ 8,580  
cost
       

a
 $780 = 52 orders × $15.00 per order.
b
 $900 = 600 items × $1.50 per item.
c
 $936 = 52 orders × $18.00 per order.
d
 $216 = 12 invoices × $18.00 per invoice.

(c) Marvin can use this information to change the way he prices delivery service.
   
  True

Marvin's can use this information to change the way they price delivery service. They can also use the
information to work with customers to change the way they (customers) order to reduce the costs of
order and delivery.

25.

Davis Fabricators buys metal for manufacturing from two suppliers, Alpha Metals and First Parts. If the
metal is delivered late, the shipment to the customer is delayed. Delayed shipments lead to contractual
penalties that call for Davis to reimburse a portion of the purchase price to the customer.
During the past quarter, the purchasing and delivery data for the two suppliers showed the following:

  Alpha   First   Total  

6,00
  Total purchases (tons)   10,000        16,000 
0
12.0
  Average purchase price $ 10.00  $   $ 10.75 
0
  Number of deliveries   80    20    100 
  Percentage of late deliveries   25%  5%  21%

The Accounting Department recorded $22,400 as the cost of late deliveries to customers.

Required:
Assume that the average quality, measured by the percentage of late deliveries, and prices from the two
companies will continue as in the past. What is the effective price for metal from the two companies
when late deliveries are considered? (Do not round your intermediate calculations. Round your final
answers to 2 decimal places.)

 
 
Explanation:
First compute the cost of a late delivery.

   
  Number of tons delivered late   (10,000 × 25% + 6,000 × 5%) 2,800  
  Cost of late deliveries   (Given) $22,400  
  Cost of late delivery per ton   ($22,400 ÷ 2,800) $8  

Now compute the “effective” price of a ton.

  Alpha   First  
10.0
  Average purchase price per ton $   $12.00 
0
  Additional cost of late delivery per ton $ 8.00  $ 8.00 
  Probability of late delivery   25%   5%
  Expected cost of late delivery per ton $ 2.00  $ 0.40 
12.0 12.40
  Effective cost per ton $   $
0
26.

Smelly Perfume Company manufactures and distributes several different products. The company
currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.
Cindy is the department manager of Department C which produces Products J and P. Department C has
$16,200 in traceable overhead. Diane is the department manager of Department D which manufactures
Product X. Department D has $11,100 in traceable overhead. The product costs (per case of 24 bottles)
and other information are as follows:
   

If Smelly changes its allocation basis to machine hours, what is the total product cost per case for
Product X?
$80.48.
$79.50.
$74.00.
$75.17.
Total overhead = $28(300) + $21(500) + $14(600) = $27,300; Total machine hours = 4(300) + 2(500) +
3(600) = 4,000; Overhead rate = $27,300/4,000 = $6.825/MH; Product cost for X: $48.00 + $12.00 +
$6.825(3) = $80.48

27. A company has identified the following overhead costs and cost drivers for the coming year: (CIA
adapted)

   

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The following
information was collected on three jobs that were completed during the year:

   
If the company uses activity-based costing (ABC), what is the cost of each unit of Job 102?
$340.
$392.
$440.
$520.
[($20,000/200) × 2] + [($130,000/6,500) × 10] + [($80,000/8,000) × 10] + [($50,000/1,000) × 50] =
$3,000; $12,000 + 2,000 + 3,000 = $17,000; $17,000/50 = $340
28.Warren Ltd. has two production departments, Building A and Building B, and two service
departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service
costs used by the various departments for the month of June follow:
Proportion of Services Used by

       

Department Direct Costs Maintenance Cafeteria Building A Building B

  Building A $495,000                 

  Building B 322,000                

  Maintenance 200,000 —   0.2   0.5   0.3  

  Cafeteria 160,000 0.8   —   0.1   0.1  

Required:
Compute the allocation of service department costs to producing departments using the direct
method. (Do not round intermediate calculations.)
Explanation:
Direct Method:

To

Building A Building B
  Maintenanc a
$ 125,000  $ 75,000 
e
b
  Cafeteria 80,000  80,000

  Total Costs $ 205,000 $ 155,000

a 0.5
 $125,000
 × $200,000
=
0.5 +  0.3

0.1
b
 $80,000 =  × $160,000
0.1 +  0.1

(Note that the use of Maintenance's costs by Cafeteria and the use of Cafeteria's costs by Maintenance
are ignored.)

29.
University Printers has two service departments (Maintenance and Personnel) and two operating
departments (Printing and Developing). Management has decided to allocate maintenance costs on the
basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by
the employees in each.
     The following data appear in the company records for the current period:
   Maintenance Personnel Printing Developing
  Machine-hours   —     1,000     1,000    3,000  
  Labor-hours   500     —     500    2,000  
  Department direct
$15,000   $36,000  $45,000  $30,000  
costs

Required:
Use the direct method to allocate these service department costs to the operating departments. 
 

Personnel Printing Developing

Maintenance
Service department costs $15,000 $36,000 $0 $0
Maintenance allocation (15,000) 0 3,750 11,250
Personnel allocation 0 (36,000) 7,200 28,800
$10,95
Total costs allocated $0 $0 $40,050
0

 
Explanation:
 Maintenance allocation:
1,000
$ 3,750 =     × $15,000
(1,000 + 3,000)
   
3,000
  $ 11,250 =     × $15,000
(1,000 + 3,000)
  
Personnel allocation:
500
$ 7,200 =     × $36,000
(500 + 2,000)
   
2,000
$28,800 =     × $36,000
(500 + 2,000)
30.

Which of the following methods provides no data for service departments to monitor each other's costs?
Direct method.
Reciprocal method.
Step method.
All three methods, Direct, Reciprocal, and Step, provide data for monitoring costs.
No reciprocal services are recognized.

31.
Joint products and byproducts are produced simultaneously by a single process or series of processes
and:
joint products are salable at the split-off point, but byproducts are not.
by-products are salable at the split-off point, but joint products are not.
the revenue from by-products may be recognized at the time of production.
all by-products must be allocated some portion of joint costs.
By-products can be recognized either at time of production or time of sale.

32. Bagley Company has two service departments and two producing departments. Square footage of
space occupied by each department follows:

   

The department costs of Custodial Services are allocated on a basis of square footage of space. If
Custodial Services costs are budgeted at $38,000, the amount of cost allocated to General
Administration under the direct method would be:
$0.
$7,125.
$6,000.
$5,700.
$0. There are no allocations between service departments when using the direct method.

33. Castle Company has two service departments and two producing departments. The number of
employees in each department is:

   

The department costs of the Personnel Department are allocated on a basis of the number of
employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to
Department B under the direct method would be:
$0.
$17,187.50.
$16,875.00.
$18,021.84.
[250/(265 + 250)] × $37,125 = $18,021.84
34. Starlite Company manufactures office products. Last year, it sold 45,000 electric staplers for $10 per
unit. The company estimates that this volume represents a 30 percent share of the current electric
stapler market. The market is expected to increase by 10 percent next year. Marketing specialists have
determined that as a result of new competition, the company’s market share will fall to 25 percent (of this
larger market). Due to changes in prices, the new price for the electric staplers will be $11 per unit. This
new price is expected to be in line with the competition and have no effect on the volume estimates.
Estimate Starlite’s sales revenues from electric staplers for the coming year.
 

 
Explanation:
  Market size last year =  45,000 units ÷ 0.3 = 150,000 units
  Market size next year =  1.10 × 150,000 units
  =  165,000 units
  Company share =  25% × 165,000 units
  =  41,250 units
  Sales revenue =  41,250 units × $11 per unit
  =  $453,750

35. Sanlax, Inc., makes portable appliances and develops plans using an annual budgeting cycle. For
next year, the production budget is 400,000 units. Inventories are expected to increase by 20,000 units.

What is the sales budget for the coming year?

Sanlax Inc.
Sales Budget
For the Year Ended
(in units)
  Expected sales 400,000 units
  Subtract: Increase in inventory level 20,000 units
   
  Budgeted sales 380,000units

36.

Ashland Corporation, a merchandising firm, is preparing its cash budget for October. The following
information is available concerning its inventories:

      
  Inventories at beginning of October $ 505,000 
1,980,00
  Estimated purchases for October    
0
2,025,00
  Estimated cost of goods sold for October    
0
  Estimated payments in October for purchases in September   495,000 
  Estimated payments in October for purchases prior to September   90,000 
  Estimated payments in October for purchases in October   70%

Required:
What are the estimated cash disbursements in October?
 Ashland Corporation
Schedule of Cash Disbursements
For the Period Ended October 31
  Payments for purchases prior to September   $ 90,000   
  Payments for September purchases     495,000   
a
  October purchases 1,386,000

  Total cash disbursements   $ 1,971,000   

a
 $1,386,000 = $1,980,000 × 70%.

37.

Duluth Company is preparing its cash budget for December. The following information is available
concerning its accounts receivable:

       
  Estimated credit sales for December $ 300,000 
  Actual credit sales for November $ 225,000 
  Estimated collections in December for credit sales in December   25%
  Estimated collections in December for credit sales in November   70%
  Estimated collections in December for credit sales prior to November $ 24,000 
  Estimated write-offs in December for uncollectible credit sales $ 12,000 
  Estimated provision for bad debts in December for credit sales in December $ 10,500 

Required:
What is the estimated amount of cash receipts from accounts receivable collections in December?
Duluth Company

Schedule of Cash Collections

For the Month Ended December 31

  Collections in December for sales prior to November $ 24,000 

  November sales   157,500a

  December sales   75,000b

   

  Total cash collections $ 256,500 

a
 $157,500 = $225,000 × 70%
b
 $75,000 = $300,000 × 25%
38. Nassau Products is preparing a cash budget for April. The following information on accounts
receivable collections is available from past collection experience:
    
  Percent of current month’s sales collected this month 25%
  Percent of prior month’s sales collected this month 62 
  Percent of sales two months prior to current month collected this month 7 
  Percent of sales three months prior to current month collected this month 4 
The remaining 2 percent is not collected and is written off as bad debts. Credit sales to date are:
    

  April-estimated $300,000  

  March   270,000  

  February   240,000  

  January   285,000  

What are the estimated cash receipts from accounts receivable collections in April?
Nassau Products

Schedule of Cash Collections

For the Month Ended April 30

  January sales $ 11,400a

  February sales   16,800b

  March sales   167,400c

  April sales   75,000d

   

  Total cash collections $ 270,600 

a b
 $11,400 = $285,000 × 4%  $16,800 = $240,000 × 7%
c
 $167,400 = $270,000 × 62% d $75,000 = $300,000 × 25%

39.
Varmit-B-Gone is a pest control service that operates in a suburban neighborhood. The company
attempts to make service calls at least once a month to all homes that subscribe to its service. It makes
more frequent calls during the summer. The number of subscribers also varies with the season. The
number of subscribers and the average number of calls to each subscriber for the months of interest
follow:

Service Calls
  Subscribers (per subscriber)
  March    600 0.6  
  April    700 0.9  
  May 1,400 1.5  
  June 1,600 2.5  
  July 1,600 3.0  
  August 1,500 2.4  

The average price charged for a service call is $80. Of the service calls, 30 percent are paid in the month
the service is rendered, 60 percent in the month after the service is rendered, and 8 percent in the
second month after. The remaining 2 percent is uncollectible.
 
Varmit-B-Gone estimates that the number of subscribers in September should fall 10 percent below
August levels, and the number of service calls per subscriber should decrease by an estimated 20
percent. The following information is available for costs incurred in August. All costs except depreciation
are paid in cash.

     
  Service costs    
     Variable costs $ 24,000  
     Maintenance and repair   22,000  
     Depreciation (fixed)   42,000  
 
       Total $ 88,000  
 
   Marketing and administrative costs    
     Marketing (variable) $ 14,500  
     Administrative (fixed)   55,000  
 
       Total $ 69,500  
 
  Total costs $ 157,500  

Variable service and marketing costs change with volume. Fixed depreciation will remain the same, but
fixed administrative costs will increase by 5 percent beginning September 1. Maintenance and repair are
provided by contract, which calls for a 1 percent increase in September.
Prepare a budgeted income statement for September. 
     
    Sales revenue $ 207,360 (90% × 1,500) × (80% × 2.4) × $80
    Variable costs $ 17,280 (.72a × $24,000)
    Maintenance and repair   22,220 (1.01 × $22,000)
    Depreciation   42,000 (no change)
    Marketing (variable) $ 10,440 (.72a × $14,500)
    Administrative (fixed)   57,750 (1.05 × $55,000)

a
 Ratio of September to August volume:
  September: (90% × 1,500) × (80% × 2.4) = 2,592
  August: 1,500 × 2.4 = 3,600   Ratio = .72 = 2,592 ÷ 3,600 or Ratio = .80 × .90 = .72
  
40.
TL Division of Giant Bank has assets of $14.4 billion. During the past year, the division had profits of $1.8
billion. Giant Bank has a cost of capital of 6 percent. Ignore taxes.

Required:
(a) Compute the divisional ROI. 

$1,800,000,000
  = 12.5% (ROI)
$14,400,000,000

(b) Compute the divisional RI. 

$1,800,000,000 – (.06 × $14,400,000,000) = $936,000,000 (Residual Income)

41.

The following data are available for two divisions of Solomons Company:
  
North
  South Division
Division
  Division operating profit $ 6,000,000 $ 40,000,000 
  Division investment  30,000,000   320,000,000 

  
The cost of capital for the company is 8 percent. Ignore taxes.
  
Required:
(a) If Solomons measures performance using ROI, which division had the better performance? (Round
"ROI %" to 1 decimal place.)
  
Using return on investment measures:
$6,000,000
North:  = 20%
$30,000,000
$40,000,000
 South:  = 12.5%
320,000,000
  
North division's performance is better than that of south division.
  
(b) If Solomons measures performance using economic value added, which division had the better
performance? (The divisions have no current liabilities.)
   
Using EVA:
      North: $6,000,000 − (8% × $30,000,000) = $3,600,000
     South: $40,000,000 − (8% × $320,000,000) = $14,400,000
  
South division's performance is better than that of north division.

(c) Would your evaluation change if the company’s cost of capital were 16 percent?
   
(1) When evaluated by ROI?
   
North division-- Using ROI, the comparison is not affected by the cost of capital; the cost of capital
 
serves only as a benchmark against which to judge ROI.
  
(2) When evaluated by EVA?
   
For EVA, the comparison is affected.
North: $6,000,000 − (16% × $30,000,000) = $1,200,000
South: $40,000,000 − (16% × $320,000,000) = ($11,200,000)
  
North division's performance is better than that of south division.

42.

Mississippi Company has two decentralized divisions, Illinois and Iowa. Illinois always has purchased
certain units from Iowa at $60 per unit. Because Iowa plans to raise the price to $80 per unit, Illinois is
considering buying these units from outside suppliers for $60 per unit. Iowa's costs follow:
 
      
  Variable costs per unit $ 56 
  Annual fixed costs $ 100,000 
  Annual production of these units   5,000 units

Required:
If Illinois buys from an outside supplier, the facilities that Iowa uses to manufacture these units will
remain idle. What will be the result if Mississippi enforces a transfer price of $80 per unit between Illinois
and Iowa?
 he Mississippi Company's contribution margin woulddecrease$20,000

 
Explanation:
If Illinois Division buys from outsiders because the transfer price is greater than $60, this would cost the
company $20,000. The difference between the price paid for the units from an outside supplier ($60) and
the differential costs of producing in Iowa Division ($56) multiplied by the 5,000 units in the order =
$20,000.

43.

The master budget at Windsor, Inc., last period called for sales of 90,000 units at $12 each. The costs
were estimated to be $5 variable per unit and $300,000 fixed. During the period, actual production and
actual sales were 92,000 units. The selling price was $12.15 per unit. Variable costs were $5.90 per unit.
Actual fixed costs were $300,000.

 
Required:
Prepare a sales activity variance analysis Exhibit 16.4. (Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).
Leave no cells blank - be certain to enter "0" wherever required.)
 Windsor, Inc.
Sales Activity Variance
Flexible Master
Budget Budget
(based on Sales Activity Variance (based on
actual of budgeted
92,000 units) 90,000 units)
Sales revenue $1,104,000 $24,000 F $1,080,000
Variable costs 460,000 10,000 U 450,000
Contribution margin $644,000 $14,000 F $630,000
Fixed costs 300,000 0 None 300,000
Operating profits $344,000 $14,000 F $330,000

44.

Information on Thurmster Corporation's direct materials costs follows:

          
  Actual quantities of direct materials used   7,500 
  Actual costs of direct materials used $ 98,550 
  Standard price per unit of direct materials $ 12.60 
  Flexible budget for direct materials $ 89,775 

  
Thurmster Corporation has no materials inventories.
  
Required:
(a) Compute the direct materials price and efficiency variances for Thurmster Corporation
  Direct materials price variance $4,050 U
Direct materials efficiency variance $4,725 U
 
 
  
(b) (Appendix) Prepare the journal entries to record the purchase and use of the direct materials using
standard costing. (If no entry is required for an event, select "No journal entry required" in the
first account field.)

General journal Deb Cred

Work in prog inv 89775
Mat price var 4050
Mat eff var 4725
Acc pay 98550
 
Explanation:
(a)
Actual Costs = $98,550
Actual Inputs at Standard Price = $12.60 × 7,500 = $94,500
Flexible Budget (Standard Inputs Allowed for Good Output) = $89,775
Price Variance = $98,550 – $94,500 = $4,050 U
Efficiency Variance = $94,500 – $89,775 = $4,725 U
(b)
To record the purchase and use of 7,500 units of materials at an actual cost of $98,550 and the transfer
to work in process at a standard cost of $12.60 per unit.

A company had beginning inventories as follows: Direct Materials, $900; Work-in-Process, $1,100; Finished
Goods, $1,900.

Beginning: DM: 900 WIP 1100 FG 1900

Dm 950 WIP 1150 FG 2000

Ending DM 1000 WIP 1200 FG 2000

DM 1050 WIP 1250 FG 2100

MP 4400 DL 5100 OH 5800

MP 4650 DL 5400 OH 6150

It had ending inventories as follows: Direct Materials, $1,000; Work-in-Process, $1,200; Finished Goods, $2,000.
Material Purchases (net including freight) were $4,400, Direct Labor $5,100, and Manufacturing Overhead $5,800.
What is the Cost of Goods Sold for the period?

Selected D. 
Answer: $15,000.    
Answers: A. 
$14,900.    
B. 
$15,800.
C. 
$15,100.

D. 
$15,000.    
Respons $900 + $4,400 - $1,000 = $4,300 (Direct materials used in production)
e
Feedbac $1,100 + $4,300 + $5,100 + $5,800 - $1,200 = $15,100 (COGM)
k:
$1,900 + $15,100 - $2,000 = $15,000 (COGS)
 Question 1
10 out of 10 points
Castle Company has two service departments and two producing departments. The number of employees
in each department is:

  Personnel 10  
  Cafeteria 95  
  Producing Department A 310  
  Producing Department B 340  
 
  755  

       
The department costs of the Personnel Department are allocated on a basis of the number of employees. If these
costs are budgeted at $57,000 during a given period, the amount of cost allocated to Department B under the direct
method would be:

Selected B. 
Answer: $29,815.38.
Answers: A. 
$0.

B. 
$29,815.38.
C. 
$27,184.62.
D. 
$25,668.87.
Response [340/(310 + 340)] × $57,000 = $29,815.38
Feedback:

 Question 2
10 out of 10 points
The electricity used for production machinery would be classified as a:

Selected B. 
Answer: volume-related activity.   
Answers: A. 
product-related activity.   

B. 
volume-related activity.   
C. 
facility-related activity.   
D. 
batch-related activity.   
 Response The more units are produced, the more the machines run and the more electricity is
Feedback: consumed.

 Question 3
10 out of 10 points
Activity-based costing (ABC) is a costing technique that uses a two stage allocation process. Which of the
following statements best describes these two stages?
Selected A. 
Answer: The costs are assigned to activities, and then to the products based upon their use of the
activities.   
Answers: A. 
The costs are assigned to activities, and then to the products based upon their use of the
activities.   
B. 
The costs are assigned to departments, and then to the products based upon their use of
activity resources.   
C. 
Service department costs are allocated to the production departments, and then to the
products based upon their use of the activities.
D. 
Indirect costs are assigned to activities, and then to the products based upon the direct
cost resources used by the activities.
Response Costs are assigned to activities first; activity usage is then used to allocate the
Feedback: activity costs.

 Question 4
10 out of 10 points
A company has identified the following overhead costs and cost drivers for the coming year:

      

               Budgeted
  Overhead Item   Cost Driver Budgeted Cost    Activity Level
  Machine setup   Number of setups $  19,000           190
  Inspection   Number of inspections 106,800         4,450
  Material handling   Number of material  moves 82,600         5,900
  Engineering   Engineering hours 11,800         590
        
Budgeted direct labor cost was $175,000 and budgeted direct material cost was $490,000. The following
information was collected on three jobs that were completed during the year:

  Job 101   Job 102   Job 103

  Direct materials $ 4,250     $ 9,250     $ 5,250  
  Direct labor $ 1,900     $  1,900     $ 3,800  
  Units completed 50     25     150  
  Number of setups 1    2    2 
  Number of inspections 10     5    15  
   Number of material moves 15     5    40  
  Engineering hours 5    25     8 
      

If the company uses activity-based costing (ABC), how much overhead cost should be assigned to Job 101?

Selected B. 
Answer: $650.                
Answers: A. 
$1,280.                

B. 
$650.                
C. 
$1,611.                
D. 
$4,250.
Response [($19,000/190) × 1] + [($106,800/4,450) × 10] + [($82,600/5,900) × 15] + [($11,800/590)
Feedback: × 5] = $650

 Question 5
10 out of 10 points
Decentralizationrefers to the delegation of decision-making authority to:

Selected D. 
Answer: subordinates.   
Answers: A. 
superiors.   
B. 
board of directors.   
C. 
top management.   

D. 
subordinates.   
Response Delegation is to the subordinates; delegation is from the superiors/top management.
Feedback:

 Question 6
10 out of 10 points
Which of the following measures is used by traditional costing systems as an allocation base for allocating
overhead costs to the units produced?

Selected D. 
Answer: Volume-related activities.   
Answers: A. 
Batch-related activities.   
 B. 
Facility-related activities.   
C. 
Product-related activities.   

D. 
Volume-related activities.   
Response Traditional costing uses volume-related activities exclusively.
Feedback:

 Question 7
10 out of 10 points
Which of the following costs is NOT related to a batch-related activity?

Selected B. 
Answer: Compliance costs.   
Answers: A. 
Material handling.   

B. 
Compliance costs.   
C. 
Shipping costs.   
D. 
Machine setups.   
Response Compliance costs are considered a product-related activity.
Feedback:

 Question 8
10 out of 10 points
An operating unit of an organization is called a cost center if it is responsible:

Selected D. 
Answer: only for costs.   
Answers: A. 
for costs and revenues.   
B. 
 only for revenues.   
C. 
for investments in assets.   

D. 
only for costs.   
Response An operating unit of an organization is called a cost center if it is responsible only
Feedback: for costs.

 Question 9
10 out of 10 points
 Smelly Perfume Company manufactures and distributes several different products. The company currently
uses a plant wide allocation method for allocating overhead at a rate of $4 per direct labor hour. Cindy is
the department manager of Department C which produces Products J and P. Department C has $12,000 in
traceable overhead. Diane is the department manager of Department D which manufactures Product X.
Department D has $10,800 in traceable overhead. The product costs (per case of 24 bottles) and other
information are as follows:

      Products   
  J   P   X
  Direct materials $150.00     $ 108.00     $72.00  
  Direct labor 63.00     47.25     18.00  
  Overhead 30.00     21.00     20.00  
     
  $243.00     $176.25     $110.00  

     

         
  Machine hours (per
4   2   3 
case)
  Number of cases
300     500     600  
(per year)
       
If Smelly changes its allocation basis to machine hours, what is the total product cost per case for Product P?

Selected D. 
Answer: $171.00.
Answers: A. 
$192.00.                                    
B. 
$244.50.                                    
C. 
$197.25.                                    

D. 
$171.00.
Respons  
e Total overhead = $30(300) + $21(500) + $20(600) = $31,500;
Feedbac Total machine hours = 4(300) + 2(500) + 3(600) = 4,000;
k: Overhead rate = $31,500/4,000 = $7.875/MH;
Product cost for P: $108.00 + $47.25 + $7.875(2) = $171.00

 Question 10
10 out of 10 points
Which of the following best describes the objective of joint cost allocation?
Selected A. 
Answer:  Inventory valuation.   
Answers: A. 
  Inventory valuation.   
B. 
Making decisions about raw materials requirements.   
C. 
Pricing goods for sale.   
D. 
Making decisions about levels of production.   
Response Joint cost allocations generally do not provide good decision making support, it is used
Feedback: primarily to account for cost allocation between inventory and cost of goods sold.