Question 1.1. (TCO 9) Harper Company’s Job 501 for the manufacture of 2,200 coats was completed during August at the unit costs presented as follows. Final inspection of Job 501 disclosed 200 spoiled coats, which were sold to a jobber for $6,000.
Direct labor 18
Factory overhead (which includes an
allowance of $1 for spoiled work) 18
Assume that spoilage loss is charged to all production during August. What would be the unit cost of the good coats produced on Job 501? (Points : 11)
Question 2.2. (TCO 9) Some units of output failed to pass final inspection at the end of the manufacturing process. The production and inspection supervisors determined that the estimated incremental revenue from reworking the units exceeded the cost of rework. The rework of the defective units was authorized, and the following costs were incurred in reworking the units.
Materials requisitioned from stores:
Direct materials $ 5,000
Miscellaneous supplies 300
Direct labor 14,000
The manufacturing overhead budget includes an allowance for rework. The predetermined manufacturing overhead rate is 150% as large as direct labor. The account(s) to be charged and the appropriate charges for the rework costs would be (Points : 11)
work-in-process inventory control for $19,000.
work-in-process inventory control for $5,000 and factory overhead control for $35,300.
overhead control for $19,300.
overhead control for $40,300.
Question 3.3. (TCO 6) If annual demand decreases by 20%, what is the approximate percentage change in the economic order quantity? (Points : 11)
Decrease by approximately 20%
Decrease by approximately 10%
Increase by approximately 10%
Increase by approximately 20%
Question 4.4. (TCO 6) Huron Corporation purchases 60,000 headbands per year. The average normal purchase lead time is 20 working days, safety stock equals 7 days normal usage, and the corporation works 240 days per year. Huron should reorder headbands when the quantity in inventory reaches (Points : 11)
Question 5.5. (TCO 6) Which changes in costs are most conducive to switching from a traditional inventory ordering system to a just-in-time ordering system?
Cost per Purchase Order Inventory Unit Carrying Costs (Points : 11)
Question 6.6. (TCO 7) The technique that incorporates the time value of money by determining the compound interest rate of an investment at which the present value of the after-tax cash inflows over the life of the investment is equal to the initial investment is the (Points : 11)
average rate of return method.
internal rate of return method.
capital asset pricing model.
profitability index method.
Question 7.7. (TCO 7) Burnham Co. bought a machine that it will depreciate on the straight-line basis over an estimated useful life of 7 years. The machine will have no salvage value. Burnham expects the machine to generate after-tax net cash inflows from operations to equal $110,000 in each of the 7 years. Burnham’s minimum rate of return is 12%. Information on present value factors is as follows.
Present value of $1 at 12% at the end of 7 periods 0.452
Present value of an ordinary annuity of $1 at 125 for 7 periods 4.564
Assuming a positive net present value of $12,000, what was the original cost of the machine? (Points : 11)
(TCO 7) Paula bought a machine costing $1,000, which will produce cash inflows of $1,400 over the next 4 years. Determine the payback period given the following cash flows.
Year After-Tax Cash Flows Cumulative Cash Flows
1 $400 $400
2 300 700
3 500 1,200
4 200 1,400 (Points : 11)
Question 9.9. (TCO 9) Which of the following does not describe the six steps in designing an accounting-based performance measure? (Points : 11)
The issues in each step are interdependent.
The decision maker will often proceed through the steps several times before deciding on one or more performance measure(s).
The answers to the questions raised at each step depend on top management’s beliefs about the organization.
The steps must be done in sequence.
Question 10.10. (TCO 8) The proposed transfer price is based on outlay cost. Outlay cost plus opportunity cost is (Points : 11)
the retail price.
the price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
the price usually set by an absorption-costing calculation.
the price set by charging for variable costs plus a lump-sum or additional markup, but less than full markup.
(TCO 8) Abalone & Fitch has two divisions, C and D, each operated as a profit center. C charges D $35 per unit for each unit transferred to D. Other data follow.
C’s variable cost per unit $30
C’s fixed costs 10,000
C’s annual sales to D 5,000 units
C’s sales to outsiders 50,000 units
C is planning to raise its transfer price to $50 per unit. Division D can purchase units at $40 each from outsiders, but doing so would idle C’s facilities now committed to producing units for D. Division C cannot increase its sales to outsiders. From the perspective of the company as a whole, from whom should division D acquire the units, assuming D’s market is unaffected?
(Points : 11)
Division C, but only at the variable cost per unit
Division C, but only until fixed costs are covered, then from outside vendors
Division C, despite the increased transfer price
Question 12.12. (TCO 8) Milton Industries is a vertically integrated firm with several divisions that operate as decentralized profit centers. Milton’s Savvy Division manufactures scientific instruments and uses the products of two of Milton’s other divisions. The Bored Division manufactures printed circuit boards (PCBs). One PCB model is made exclusively for the Savvy Division using proprietary designs, whereas less complex models are sold in outside markets. The products of the Transistor Division are sold in a well-developed competitive market; however, one transistor model is also used by the Savvy Division.
The costs per unit of the products used by the Savvy Division are presented below.
Direct materials$2.50 $ .80
Direct labor 4.50 1.00
Variable overhead 2.00 .50
Fixed cost .80 .75
Total cost $9.80 $3.05
The Bored Division sells its commercial products at full cost plus a 25% markup and believes the proprietary board made for the Savvy Division would sell for $12.25 per unit on the open market. The market price of the transistor used by the Savvy Division is $3.70 per unit.
Assume that the Savvy Division is able to purchase a large quantity of transistors from an outside source at $2.90 per unit. The Transistor Division, having excess capacity, agrees to lower its transfer price to $2.90 per unit. This action would (Points : 11)
allow evaluation of both divisions on the same basis.
subvert the profit goals of the Transistor Division while optimizing the profit goals of the Savvy Division.
cause mediocre behavior in the Transistor Division as lost opportunity costs increase.
optimize the overall profit goals of Milton Industries.
Question 13.13. (TCO 9) Given
Segment A Segment B
Net income $ 5,0000
Sales 60,000 $750,000
Investment 24,000 500,000
Minimum ROI --% 20% 6%
For Segment B, ROI is (Points : 11)
Question 14.14. (TCO 6) When the level of safety stock is increased, (Points : 11)
lead time will increase.
the frequency of stockouts will decrease.
carrying costs will decrease.
ordering costs will decrease.
Question 15.15. (TCO 6) For inventory management, ignoring safety stocks, which of the following is a valid computation of the reorder point? (Points : 11)
The economic order quantity
The economic order quantity times the anticipated demand during lead time
The anticipated demand per day during lead time times lead time in days
The square root of the anticipated demand during the lead time
Question 16. 16. (TCO 8) What is the range over which two divisions will negotiate a transfer price when there is unused capacity? (Points : 20)
Question 17. 17. (TCO 9) There are six categories of costs associated with inventoriable goods for sale. What are they? (Points : 35)
Question 18. 18. (TCO 9) What special problems arise when evaluating performance in multinational companies? (Points : 35)
Preview of DeVry-ACCT349-final-exam--2017.docx