Week 4 : Cost Allocation - Midterm

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1. (TCO 1) Activity-based costing systems provide better product costs when they (Points : 5)

always yield more accurate product costs than traditional systems. employ more activity-cost drivers. employ fewer activity-cost drivers. identify and cost more indirect cost differences among products.
0 1427724160 MultipleChoice 1

2. (TCO 1) Merriamn Company provides the following ABC costing information:

Activities Account inquiry hours

Total Costs $400,000

Activity-cost drivers 10,000 hours

4,000,000 lines Account verification 40,000 $150,000 accounts accounts Correspondence $ 50,000 4,000 letters letters Total costs $880,000 Account billing lines $280,000

The above activities are used by Department A and B as follows: Department A Account inquiry hours Account billing lines Department B

2,000 hours 4,000 hours

400,000 200,000 lines lines Account verification 10,000 8,000 accounts accounts accounts Correspondence 1,600 1,000 letters letters letters How much of the inquiry cost will be assigned to Department A?
(Points : 5)

$80,000 $400,000 $160,000 None of the above

0 1427724161 MultipleChoice 4

3. (TCO 2) Budgeting provides all of the following EXCEPT (Points : 5)

a means to communicate the organization's short-term goals to its members. support for the management functions of planning and coordination. a means to anticipate problems. an ethical framework for decision making.
0 1427724162 MultipleChoice 8

4. (TCO 2) Dalyrymple Company produces a special spray nozzle. The budgeted indirect

total cost of inserting the spray nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost allocation rate for this activity?
(Points : 5)

$.50 $1.00 $1.50

$2.00
0 1427724163 MultipleChoice 11

5. (TCO 3) The conference method estimates cost functions (Points : 5)

by mathematically analyzing the relationship between inputs and outputs in physical terms. using quantitative methods that can be very time consuming and costly. based on analysis and opinions gathered from various departments. using time-and-motion studies.
0 1427724164 MultipleChoice 14

6. (TCO 4) In evaluating different alternatives, it is useful to concentrate on (Points : 5)

variable costs. fixed costs. total costs. relevant costs.

0 1427724165 MultipleChoice 18

7. (TCO 5) The theory of constraints is used for cost analysis when (Points : 5)

a manufacturing company produces multiple products and uses multiple manufacturing facilities and/or machines. using a short-run time horizon. operating costs are assumed fixed. all of the above
0 1427724166 MultipleChoice 31

8. (TCO 5) Schmidt Corporation produces a part that is used in the manufacture of one of its products.

The costs associated with the production of 10,000 units of this part are as follows: Direct materials Direct labor $45,000 65,000

Variable factory overhead Fixed factory overhead Total costs

30,000 70,000 $210,000

Of the fixed factory overhead costs, $30,000 is avoidable. Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit. Assuming there is no other use for the facilities, Schmidt should
(Points : 5)

make the part, as this would save $3 per unit. buy the part, as this would save $3 per unit. buy the part, as this would save the company $30,000. make the part, as this would save $1 per unit.
0 1427724167 MultipleChoice 23

9. (TCO 3) The cost function y = 100 + 10X (Points : 5)

has a slope coefficient of 100.

is a nonlinear. has an intercept of 100.

represents a fixed cost.

0 1427724168 MultipleChoice 27

10. (TCO 4) Opportunity costs (Points : 5)

result in a cash outlay. only are considered when selecting among alternatives. are recorded in the accounting records. should be maximized for the best decision.

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Week 4 : Cost Allocation - Midterm

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1.

(TCO 1) For each of the following drivers identify an appropriate activity. a. b. c. d. e. f. # of machines # of setups # of inspections # of orders # of runs # of bins or aisles

g. # of engineers
(Points : 25)

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2. (TCO 2) Favata Company has the following information:

Month June July August September October

Budgeted Sales $60,000 51,000 40,000 70,000 72,000

In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month's cost of sales. Prepare a purchases budget for July through September.
(Points : 25)

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3.

(TCO 3) The Wildcat Company has provided the following information: Units of Output Direct materials Workers' wages Supervisors' salaries Equipment depreciation Maintenance Utilities Total
(Points : 25)

30,000 Units $180,000 1,080,000 312,000 151,200 81,600 384,000 $2,188,800

42,000 Units $252,000 1,512,000 312,000 151,200 110,400 528,000 $2,865,600

Using the high-low method and the information provided above, identify the linear cost function equation.

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4. (TCO 5) Collier Bicycles has been manufacturing its own wheels for its bikes. The

company is operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively. Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $4 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead being charged to the wheels will have to be absorbed by other products. a. b. Prepare an incremental analysis for the decision to make or buy the wheels. Should Collier Bicycles buy the wheels from the outside supplier? Justify your answer.

(Points : 25)

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