Exam 3 Review

1
Exam 3 Review

• This review does NOT cover every thing we
  discussed, use it with your notes, handouts,
  quizzes, and books.

2
Chapter 9

• You need to know
• Standard cost.
• Sources for setting standards.
• Ideal, attainable and Kaizen standards.
• Purpose of standards.
• Variances.
• Difference between actual, normal and standard
  costing systems.

3
Chapter 9

• Mover Company has developed the following
  standards for one of its products
• Direct materials 7.5 pounds 8 per pound
• Direct labor 2 hours 12 per hour
• Variable manufacturing overhead 2 hours 7
  per hour

4
Chapter 9

• The following activity occurred during the month
  of March
• Materials purchased 5,000 pounds costing 42,500
• Materials used 3,600 pounds
• Units produced 500 units
• Direct labor 1,150 hours at 11.80/hour
• Actual variable
• manufacturing overhead 7,500

5
Chapter 9

• The company records materials price variances at
  the time of purchase.
• The variable standard cost per unit is
• a. 98.
• b. 84.
• c. 74.
• d. 38.
• 98

6
Chapter 9

• Griffen Corporation uses a standard costing
  system. Information for the month of May is as
  follows
• Actual manufacturing overhead costs (26,000 is
  fixed) 80,000
• Direct labor
• Actual hours worked 12,000 hrs.
• Standard hours allowed for actual
  production 10,000 hrs.
• Average actual labor cost per hour 18

7
Chapter 9

• The factory overhead rate is based on a normal
  volume of 12,000 direct labor hours. Standard
  cost data at 12,000 direct labor hours were as
  follows
• Variable factory overhead 48,000
• Fixed factory overhead 24,000
• Total factory overhead 72,000

8
Chapter 9

• What is the variable overhead efficiency variance
  for Griffen?
• a. 2,000 (U)
• b. 8,000 (U)
• c. 4,000 (U)
• d. 20,000 (U)
• B

9
Chapter 9

• During September, 40,000 units were produced.
  The standard quantity of material allowed per
  unit was 5 pounds at a standard cost of 2.50 per
  pound. If there was a favorable usage variance
  of 25,000 for September, the actual quantity of
  materials used must have been
• a. 210,000 pounds.
• b. 190,000 pounds.
• c. 105,000 pounds.
• d. 95,000 pounds.
• b

10
Chapter 9

• Bender Corporation produced 100 units of Product
  AA. The total standard and actual costs for
  materials and direct labor for the 100 units of
  Product AA are as follows
• Raw materials Standard Actual
• Standard 200 pounds at 3.00 per pound 600
• Actual 220 pounds at 2.85 per pound 627
• Direct labor
• Standard 400 hours at 15.00 per hour 6,000
• Actual 368 hours at 16.50 per hour 6,072

11
Chapter 9

• What is the material price variance for Bender
  Corporation?
• a. 27 (U)
• b. 60 (F)
• c. 33 (F)
• d. 33 (U)
• C

12
Chapter 9

• During January, 7,000 direct labor hours were
  worked at a standard cost of 20 per hour. If
  the direct labor rate variance for January was
  17,500 favorable, the actual cost per direct
  labor hour must be
• a. 17.50.
• b. 20.00.
• c. 22.50.
• d. 25.00.
• a

13
Chapter 10

• You need to know
• What responsibility accounting is.
• What are the four major types of responsibility
  centers, and examples on them.
• Reasons for decentralization.
• ROI, RI, and EVA equations.
• The components of ROI, the margin and the turn
  over.
• The advantages and the disadvantages of ROI.

14
Chapter 10

• You need to know
• Disadvantages of RI.
• How to calculate the weighted average cost of
  capital.
• Advantages and disadvantages of EVA
• Stock based compensation.
• Stock option.
• Transfer price
• When can we use market price.
• What are the disadvantages of negotiated transfer
  price.

15
Chapter 10

• Both revenue center and profit center managers
  are responsible for achieving
• a. budgeted revenues.
• b. budgeted net income.
• c. budgeted costs.
• d. budgeted contribution margin.
• A

16
Chapter 10

• The manager of a profit center is responsible for
• a. delivering a quality product or service at
  reasonable but minimal cost.
• b. decisions to invest in capital equipment.
• c. decisions regarding revenue generation.
• d. both a and c.
• d

17
Chapter 10

• Which of the following changes would increase
  return on investment (ROI)?
• a. decrease sales and expenses by the same
  percentage
• b. increase total assets
• c. increase sales and expenses by the same
  percentage
• d. decrease sales and expenses by the same dollar
  amount
• c

18
Chapter 10

• Beta Division had the following information
• Asset base in Beta Division 400,000
• Net income in Beta Division 50,000
• Weighted average cost of capital 12
• Target ROI 15
• Margin for Beta Division 20
• What is the turnover ratio for Beta Division?
• a. 0.200
• b. 0.125
• c. 0.625
• d. 8.000
• c

19
Chapter 10

• The following information pertains to the three
  divisions of Marlow Company
• Division X Division Y Division Z
• Sales ? ? 1,250,000
• Net operating income 36,000 25,000 75,000
• Average operating assets 300,000 ? ?
• Return on investment ? 20 15
• Margin 0.10 0.05 ?
• Turnover 1.5 ? ?
• Target ROI 15 12 10
• What are the average operating assets for
  Division Z?
• a. 75,000
• b. 500,000
• C . 1,250,000
• d. 187,500
• b

20
Chapter 10

• What are the sales for Division Y?
• a. 25,000
• b. 125,000
• c. 500,000
• d. 208,333
• c

21
Chapter 10

• What are the average operating assets for
  Division Y?
• a. 25,000
• b. 125,000
• c. 5,000
• d. 208,333
• b

22
Chapter 10

• Correll Company has two divisions, A and B.
  Information for each division is as follows
•     A          B     
• Net earnings for division 40,000 260,000
• Asset base for division 100,000 1,200,000
• Target rate of return 15 18
• Margin 10 20
• Weighted average cost of capital 12 12
• What is EVA for Division A?
• a. 40,000
• b. 25,000
• c. 15,000
• d. 28,000
• d

23
Chapter 10

• EVA encourages the right kind of behavior from
  divisions because of its emphasis on
• a. after-tax net income.
• b. total capital employed.
• c. true cost of capital.
• d. before-tax operating income.
• c

24
Chapter 10

• In the Ambros Company, Division A has a product
  that can be sold either to outside customers or
  to Division B. Information about these divisions
  is given below
• Case 1 Case 2
• Division A
• Capacity in units 100,000 100,000
• Number of units sold externally 100,000 60,000
• Market selling price 90 75
• Variable costs per unit 73 58
• Fixed costs per unit based on capacity 10 10
• Division B
• Number of units needed for production 40,000 40,0
  00
• Purchase price per unit fromexternal
  supplier 86 74

25
Chapter 10

• The company uses the opportunity cost approach to
  transfer pricing. What is the minimum transfer
  price in Case 2?
• a. 75
• b. 74
• c. 68
• d. 58
• d

26
Chapter 10

• The company uses the opportunity cost approach to
  transfer pricing. What is the maximum transfer
  price in Case 2?
• a. 75
• b. 74
• c. 68
• d. 58
• b

27
Chapter 12

• You need to know
• The functional-based costing system.
• The limitations of plantwide and departmental
  rates.
• ABC.
• Steps for ABC system.
• Primary activity and secondary activity.
• Activity level classification, unit, batch,
  product and facility and example on each.

28
Chapter 12

• If activity-based costing is used, insurance on
  the plant would be classified as a
• a. unit-level activity.
• b. batch-level activity.
• c. product-level activity.
• d. facility-level activity.
• d

29
Chapter 12

• Newman Company recently installed an
  activity-based relational database. Using the
  information contained in the activity relational
  table, the following pool rates were computed
• 400 per purchase order
• 24 per machine hour, Process 1
• 30 per machine hour, Process 2
• 80 per engineering hour

30
Chapter 12

• Two products are produced by Special Products X
  and Y. The plant has two manufacturing
  processes, Process 1 and Process 2. Other
  processes include engineering, product handling,
  and procurement. Product X goes through Process
  1 while Product Y goes through Process 2. The
  product relational table for Special Products is
  as follows

31
Chapter 12

• Product X
• Activity Driver and Name Activity Usage
• 1 Units 200,000
• 2 Purchase orders 250
• 3 Machine hours 80,000
• 4 Engineering hours 1,250
• Product Y
• Activity Driver and Name Activity Usage
• 1 Units 25,000
• 2 Purchase orders 125
• 3 Machine hours 10,000
• 4 Engineering hours 1,500

32
Chapter 12

• How much overhead cost will be assigned to
  Product X using Process 1?
• a. 2,400,000
• b. 4,800,000
• c. 1,920,000
• d. 240,000
• c

33
Chapter 12

• Zipp Company manufactures two products (X and Y).
  The overhead costs (84,000) have been divided
  into three cost pools that use the following
  activity drivers
• Product Number of Setups Machine Hours Packing
  Orders
• X 10 500 75
• Y 10 2,000 175
• Cost per pool 9,000 60,000 15,000
• What is the allocation rate per setup using
  activity-based costing?
• a. 900
• b. 450
• c. 9,000
• d. 2,100
• B

34
Chapter 12

• Winter Manufacturing has four categories of
  overhead. The four categories and expected
  overhead costs for each category for next year
  are listed as follows
• Maintenance 255,000
• Materials handling 125,000
• Setups 30,000
• Inspection 105,000

35
Chapter 12

• Currently, overhead is applied using a
  predetermined overhead rate based upon budgeted
  direct labor hours. 100,000 direct labor hours
  are budgeted for next year.
• The company has been asked to submit a bid for a
  proposed job. The plant manager feels that
  obtaining this job would result in new business
  in future years. Usually bids are based upon
  full manufacturing cost plus 10 percent.

36
Chapter 12

• Currently, overhead is applied using a
  predetermined overhead rate based upon budgeted
  direct labor hours. 100,000 direct labor hours
  are budgeted for next year.
• The company has been asked to submit a bid for a
  proposed job. The plant manager feels that
  obtaining this job would result in new business
  in future years. Usually bids are based upon
  full manufacturing cost plus 10 percent.

37
Chapter 12

• The plant manager has heard of a new way of
  applying overhead that uses cost pools and
  activity drivers. Expected activity for the four
  activity drivers that would be used are
• Machine hours 60,000
• Material moves 20,000
• Setups 3,000
• Quality inspections 12,000

38
Chapter 12

• What is the total cost of the proposed job if
  Winter Manufacturing uses direct labor hours as
  its only activity driver?
• a. 72,000
• b. 68,200
• c. 56,200
• d. 53,200
• b

39

• This review does NOT cover every thing we
  discussed, use it with your notes, handouts,
  quizzes, and books.