The
spending variance is the difference between the actual total factory
overhead and the budgeted amount for the actual output.
Budgeted
$7,000 + (3,500 x $2.50)
$15,750
Actual
(15,000)
$750 F
2. (TCO 5) In an activity-based
costing system, what should be used to assign a department’s
manufacturing overhead costs to products produced in varying lot sizes? (Points : 11)
A single cause-and-effect
relationship Multiple cause-and-effect
relationships Relative net sales value of the
products A product’s ability to bear cost
allocations
Explanation:
Instead of using
a single allocation base for overhead, and ABC system determines the
multiple activities associated with the incurrence of costs and then
accumulates a cost pool for each activity using the appropriate activity
base (cost driver). Consequently, overhead is assigned based on the
multiple cause-and-effect relationships between activities and their cost
drivers.
3. (TCO 1) An examination of
Boener Company’s past maintenance records disclosed the following costs
and volume measures the following.
Highest
Lowest
Cost per month
$39,200
$32,000
Machine hours
24,000
15,000
Using the high-low technique, estimate the annual
fixed cost for maintenance expenditures.
(Points : 11)
$447,360 $384,000 $240,000 $230,400
Explanation:
The variable cost
per unit is $.80 per hour ($7,200/9,000). The fixed cost is found by
substituting the unit variable cost into either of the activity-cost
functions.
Monthly FC = TC – VC
Monthly FC = $32,000 – (15,000 x .80) = $20,000 or
Monthly FC = $32,000 – (24,000 x .80) = $20,000.
4. (TCO 1) Serendipity Co. uses
regression analysis to develop a model for prediction overhead costs. Two
different cost drivers (machine hours and direct materials weight) are
under consideration as the independent variable. Relevant data were run
on a computer using one of the standard regression programs, with the
following results.
Machine hours
Coefficient
Y intercept
2,500
B
5.0
r-squared = .70
Direct materials weight
Y intercept
4,600
B
2.6
r-squared = .50
Which regression equation should be used?
(Points : 11)
y = 2.500 + 5.0x y = 2500 + 3.5x y = 4,600 + 2.6x y = 4,600 + 1.3x
Explanation:
The simple
regression equation is y = a + bx, given that y is the dependent variable,
a is the y-axis intercept, b is the slope of the regression line, and x is
the independent variable. Because machine hours have a higher r-squared
factor than direct materials weight, the coefficients for machine hours
should be used to predict costs. Consequently, the regression equation is y
= 2,500 + 5.0x.
takes all variable and fixed
costs into account to analyze decision alternatives. considers only variable costs as
they change with each decision alternative. considers the change in reported
net income for each alternative to arrive at the optimum decision for the
company. considers all variable and fixed
costs as they change with each decision alternative.
Explanation:
Relevant cost
analysis considers only those costs that differ among decision options.
Both fixed and variable costs are considered if they vary with the option
selected.
6. (TCO 2) McConnell is a
manufacturer of industrial components. One of its products that is used
as a subcomponent in auto manufacturing is JC-46. This product has the
following financial structure per unit.
Selling price
$150
Direct materials
20
Direct labor
15
Variable manufacturing overhead
12
Fixed manufacturing overhead
30
Shipping and handling
3
Fixed selling and administrative
10
Total costs
$ 90
McConnell has received a special, one-time order for
1,000 JC-46 parts. Assuming McConnell has excess capacity, the minimum
price that is acceptable for this one-time special order must be greater
than
(Points : 11)
$47. $50. $60. $77. Explanation:
A company must
cover the incremental costs of a special order when it has excess capacity.
The incremental costs for product JC-46 are $50 ($20 direct materials + $15
direct labor + $12 variable overhead + $3 shipping and handling). The fixed
costs will not change as a result of the special order, so they are not
relevant. Thus, any price in excess of $50 per unit is acceptable.
7. (TCO 5) Janice Foeld Company
manufactures part Z for use in its production cycle. The costs per unit
for 10,000 units of part Z are as follows.
Direct materials
$3
Direct labor
15
Variable overhead
6
Fixed overhead
8
TOTAL
$32
Baloney Company has offered to sell Janice Foeld
10,000 units of part Z for $30 per unit. If Janice Foeld accepts
Baloney’s offer, the released facilities can be used to save $45,000 in
relevant costs in the manufacture of part A. In addition, $5 per unit of
the fixed overhead applied to part Z would be totally eliminated.
The total relevant costs to buy part Z are
(Points : 11)
$320,000. $300,000. $290,000. $250,000.
Explanation:
The
relevant costs are those that can be changed or eliminated.
Direct
materials (10,000 x $3)
$30,000
Direct
labor (10,000 x $15)
150,000
Variable
O/H (10,000 x $6)
60,000
Fixed
O/H applied (10,000 x $5)
50,000
Total
$290,000
8. (TCO 2) Bieber Company has
excess capacity on two machines, 24 hours on Machine 105 and 16 hours on
Machine 107. To use this excess capacity, the company has two products,
known as Product D and Product F, that must use both machines in
manufacturing. Both have excess product demand, and the company can sell
as many units as it can manufacture. The company’s objective is to
maximize profits.
Product D has an incremental profit of $6 per unit, and each unit
utilizes 2 hours of time on Machine 105 and then 2 hours of time on
Machine 107. Product F has an incremental profit of $7 per unit, and each
unit utilizes 3 hours of time on Machine 105 and then 1 hour of time on
machine 107. Let D be the number of units for Product D, F be the number
of units for product F, and P be the company’s profit.
A feasible solution for Bieber Company is (Points : 11)
D = 2 and F = 8. D = 6 and F = 4. D = 12 and F = 0. D = 8 and F = 3.
Explanation:
This problem can
be solved either graphically or by means of trial and error. The easier
approach is to solve the problem by trial and error. Whether the production
levels violate the constraint functions below can be determined for each
answer. Only answer (B) does not violate the constraints:
2D + 3F < 24
2D + F < 16
9. (TCO 4) Which of the following
criteria would be most useful to a sales department manager in evaluating
the performance of the manager’s customer service group? (Points : 11)
The customer is always right. Customer complaints should be
processed promptly. Employees should maintain a
positive attitude when dealing with customers. All customer inquiries should be
answered within 7 days of receipt.
Explanation:
A criterion that
requires all customer inquiries to be answered within 7 days of receipt
permits accurate measurement of performance. The quantitative and specific
nature of the appraisal using this standard avoids the vagueness, subjectivity,
and personal bias that may afflict other forms of personnel evaluations.
actual units x (budgeted
weighted-average UCM for planned mix – budgeted weighted-average UCM for
actual mix). (actual units – master budget
units) x budgeted weighted-average UCM for the planned mix. budgeted market share percentage
x (actual market size in units – budgeted market size in units) x budgeted
weighted-average UCM. (actual market share percentage
– budgeted market share percentage) x actual market size in units x
budgeted weighted-average UCM.
Explanation:
The sales volume
variance equals the difference between the flexible budget contribution
margin for the actual volume and that included in the master budget. It
assumes a constant product mix and an average contribution margin for the
composite unit. It equals the difference between actual and budgeted total
unit sales, times the budgeted weighted-average UCM for the planned mix.
11. (TCO 6) The following are
relevant data for calculating sales variances for Lumber Co., which sells
its sole product in two countries.
John
Quincy
Total
Budgeted selling price per unit
$6.00
$10.00
NA
Budgeted variable cost per unit
3.00
7.50
NA
Budgeted contribution margin per unit
$3.00
$ 2.50
NA
Budgeted unit sales
300
200
500
Budgeted mix percentage
60%
40%
100%
Actual units sold
260
260
520
Actual selling price per unit
$6.00
$9.50
NA
The sales volume variance for John and Quincy is
(Points : 11)
$130 U. $120 U. $30 F. $150 F.
Explanation:
The sales volume
variance for John is $120 U [$3 budgeted UCM x (260 actual units sold – 300
budgeted units sales)]. The sales volume variance for Quincy is $150 F
[$2.50 budgeted UCM x (260 actual units sold – 200 budgeted unit sales)].
Thus the multiple-country sales volume variance is $30 F ($150 F - $120 U).
12. (TCO 4) Nonfinancial
performance measures are important to engineering and operations managers
in assessing the quality levels of their products. Which of the following
indicators can be used to measure product quality?
I. Returns and allowances
II. Number and types of customer complaints
III. Production cycle time (Points : 11)
I and II only I and III only II and III only I, II, and III
Explanation:
Nonfinancial
performance measures, such as product quality, are useful for day-to-day
control purposes.
13. (TCO 6) For a single-product
company, the sales volume variance is (Points : 11)
the difference between actual
and master budget sales volume, times actual unit contribution margin. the difference between flexible
budget and actual sales volume, times master budget unit contribution
margin. the difference between flexible
budget and master budget sales volume, times actual budget unit
contribution margin. the difference between flexible
budget and master budget sales volume, times master budget unit
contribution margin.
Explanation:
For a
single-product company, the sales volume variance is the difference between
the actual and budgeted sales quantities, times the budgeted UCM. If the
company sells two or more products, the difference between the actual and
budgeted product mixes must be considered. In that case, the sales volume
variance equals the difference between 1) actual total unit sales times the
budgeted weighted-average UCM for the actual mix and 2) budgeted total unit
sales times the budgeted weighted-average UCM for the planned mix.
14. (TCO 5) Variable factory
overhead is applied on the basis of standard direct labor hours. If, for
a given period, the direct labor efficiency variance is unfavorable, the
variable factory overhead efficiency variance will be (Points : 11)
favorable. unfavorable. zero. the same amount as the labor
efficiency variance.
Explanation:
If the variable
factory overhead efficiency variance and the direct labor efficiency
variance measures the effect of the difference between actual and standard
hours, both variance calculations will be based on the same activity base.
Thus, if the direct labor efficiency variance is unfavorable, the variable
factory overhead efficiency variance will also be unfavorable.
15. (TCO 1) Bubba company has
developed a learning (improvement) curve for one of its newer processes
from its accounting and production records. Management asked for an
internal audit to review the curve. Which of the following events tend to
mitigate the effects of the learning curve? (Points : 11)
Labor costs incurred for
overtime hours were charged to an overhead account. The number of preassembled
purchased parts that were used exceeded the plan. Newly developed processing
equipment with improved operating characteristics was used. All of the above
Explanation:
The learning curve
is developed with a plan of all the factors of production. Any changes in the
skill level of the workers, processing equipment, parts used, or method of
labor cost allocation will make the predesigned learning curve less useful.
Page 2
1. (TCO 3) How do companies determine target costs? (Points : 15)
2. (TCO 2) How and why
are capacity constraints relevant when trying to decide which products to
produce? (Points : 35)
3. (TCO 1) Outline the
six steps involved in estimating a cost function using quantitative analysis.
(Points : 35)
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