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1. (TCO 7) Assume that 550 units were worked on during a period in which a total of 500 good units were completed. Normal spoilage consisted of 30 units; abnormal spoilage, 20 units. Total production costs were $2,200. The company accounts for abnormal spoilage separately on the income statement as loss due to abnormal spoilage. Normal spoilage is not accounted for separately. What is the cost of the good units produced? (Points : 11) $2,000 $2,080 $2,120 $2,200 Question 2.2. (TCO 7) Hart Company incurred the following costs on Job 109 for the manufacture of 200 motors. Original cost accumulation: Direct materials $660 Direct labor 800 Overhead (150% of DL) 1,200 $2,660 Direct costs of reworking 10 units: Direct materials $100 Direct labor 160 $ 260 The rework costs were attributable to the exacting specifications of Job 109, and the full rework costs were charged to this specific job. What is the cost per finished unit of Job 109? (Points : 11) $15.80 $14.60 $13.80 $13.30 Question 3.3. (TCO 7) A wholesale distributor of lenses and frames has been seeking to minimize its inventory costs and is planning to apply the economic order quantity model to its main product, lens blanks. The data in the next column are available for the next year. Demand 1,000,000 units Average unit costs $20.00 Cost of ordering $72.00 per order Unit carrying costs 5% of average per unit cost Management believes it can reduce the cost of ordering to $50.00 by implementing an online ordering system with the lens manufacturer. Assuming that no online ordering system is implemented, the optimal economic order quantity based on the above data for next year (to the nearest whole unit) is (Points : 11) 50,000 units. 12,000 units. 6,945 units. 2,500 units. Question 4.4. (TCO 7) In computing the reorder point for an item of inventory, which of the following is used? I. Cost per unit II. Usage per day III. Lead time (Points : 11) I and II II and III I and III I, II, and III Question 5.5. (TCO 7) In a JIT costing system, factory overhead should be charged to (Points : 11) raw materials. cost of goods sold. finished goods. work-in-process. Question 6.6. (TCO 8) The accounting rate of return (Points : 11) focuses on income as opposed to cash flows. is inconsistent with the divisional performance measure known as return on investment. recognizes the time value of money. should be used only with mutually exclusive projects. Question 7.7. (TCO 8) 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) $485,200 $490,040 $502,040 $514,040 Question 8.8. (TCO 8) 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) 2 years 2.60 years 2.86 years 3 years Question 9.9. (TCO 8) In order to motivate subunit managers to exert effort to maximize their own subunit’s operating income, interdivisional transfers of a product preferably should be made at prices (Points : 11) equally to fully allocated costs to the producing subunit. equal to the market price of the product. equal to variable costs of the producing subunit. negotiated by top management. Question 10.10. (TCO 9) A limitation of transfer prices based on actual cost is that they (Points : 11) charge inefficiencies to the department that is transferring the goods. can lead to suboptimal decisions for the company as a whole. must be adjusted by some markup. lack clarity and administrative convenience. Question 11.11. (TCO 9) The Apple Division of a company, which is operating at capacity, produces and sells 1,000 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows. Sales $50,000 Variable costs 34,000 Fixed costs 12,000 The minimum transfer price that should be charged to the Banana Division of the same company for each component is (Points : 11) $12. $34. $46. $50. Question 12.12. (TCO 9) 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. PCB Transistor 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. The Bored and Savvy Divisions have negotiated a transfer price of $11.00 per printed circuit board. This price will (Points : 11) cause the Bored Division to reduce the number of commercial printed circuit boards it manufactures. motivate both divisions as estimated profits are shared. encourage the Savvy Division to seek an outside source for printed circuit boards. demotivate the Bored Division, causing mediocre performance. Question 13.13. (TCO 9) Norway Co.’s industrial photo-finishing division, Pi, incurred the following costs and expenses in 2013. Variable Fixed Direct materials $200,000 Direct labor 150,000 Factory overhead 70,000 $42,000 Selling, general, and administrative 30,000 48,000 Totals $450,000 $90,000 During 2013, Pi produced 300,000 units of industrial photoprints, which were sold for $2.00 each. Norway’s investment in Pi was $500,000 and $700,000 at January 1, 2013 and December 31, 2013, respectively. Norway normally imputes interest on investment at 15% of average invested capital. For the year ended December 31, 2013, Pi’s return on average investment was (Points : 11) 15.0%. 10.0%. 8.6%. (5.0%). Question 14.14. (TCO 7) What are the three factors a manager should consider in controlling stockouts? (Points : 11) Holding costs, quality costs, and physical inventories Economic order quantity, annual demand, and quality costs Time needed for delivery, rate of inventory usage, and safety stock Economic order quality, production bottlenecks, and safety stock Question 15.15. (TCO 7) The following information regarding inventory policy was assembled by the XYZ Corporation. The company uses a 50-week year in all calculations. Order quantity 10,000 units per year Safety stock 2,000 units Lead time 1,300 units The reorder point isSales 4 weeks (Points : 11) 3,300 units. 2,100 units. 100 units. 1,300 units. Question 16.16. (TCO 9) What is the range over which two divisions will negotiate a transfer price when there is unused capacity? (Points : 20) Question 17.17. (TCO 7) What is the proper method of accounting for scrap? (Points : 35) Question 18.18. (TCO 9) There are benefits and costs associated with decentralization. What are they? (Points : 35)

1. (TCO 7) Assume that 550 units were worked on during a period in which a total of 500 good units were completed. Normal spoilage consisted of 30 units; abnormal spoilage, 20 units. Total production costs were $2,200. The company accounts for abnormal spoilage separately on the income statement as loss due to abnormal spoilage. Normal spoilage is not accounted for separately. What is the cost of the good units produced? (Points : 11)       

 

 

 

Question 2.2. (TCO 7) Hart Company incurred the following costs on Job 109 for the manufacture of 200 motors.

Original cost accumulation:
Direct materials $660
Direct labor 800
Overhead (150% of DL) 1,200
$2,660
Direct costs of reworking 10 units:
Direct materials $100
Direct labor     160
$  260

The rework costs were attributable to the exacting specifications of Job 109, and the full rework costs were charged to this specific job. What is the cost per finished unit of Job 109? (Points : 11)

 

 

 

 

Question 3.3. (TCO 7) A wholesale distributor of lenses and frames has been seeking to minimize its inventory costs and is planning to apply the economic order quantity model to its main product, lens blanks. The data in the next column are available for the next year.

Demand                                                                              1,000,000 units

Average unit costs                                                               $20.00

Cost of ordering                                                                   $72.00 per order

Unit carrying costs                                                               5% of average per unit cost

Management believes it can reduce the cost of ordering to $50.00 by implementing an online ordering system with the lens manufacturer.

Assuming that no online ordering system is implemented, the optimal economic order quantity based on the above data for next year (to the nearest whole unit) is (Points : 11)

 

 

 

 

Question 4.4. (TCO 7) In computing the reorder point for an item of inventory, which of the following is used?

I.   Cost per unit

II.  Usage per day

III. Lead time (Points : 11)

 

 

 

 

Question 5.5. (TCO 7) In a JIT costing system, factory overhead should be charged to (Points : 11)

 

 

 

 

Question 6.6. (TCO 8) The accounting rate of return (Points : 11)

 

 

 

 

Question 7.7. (TCO 8) 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)

 

 

 

 

Question 8.8.(TCO 8) 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 8) In order to motivate subunit managers to exert effort to maximize their own subunit’s operating income, interdivisional transfers of a product preferably should be made at prices (Points : 11)

 

 

 

 

Question 10.10. (TCO 9) A limitation of transfer prices based on actual cost is that they (Points : 11)

 

 

 

 

Question 11.11. (TCO 9) The Apple Division of a company, which is operating at capacity, produces and sells 1,000 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows.

Sales $50,000
Variable costs 34,000
Fixed costs 12,000

The minimum transfer price that should be charged to the Banana Division of the same company for each component is

(Points : 11)

 

 

 

 

Question 12.12.(TCO 9) 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.

PCB Transistor
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.

The Bored and Savvy Divisions have negotiated a transfer price of $11.00 per printed circuit board. This price will

(Points : 11)

 

 

 

 

Question 13.13. (TCO 9) Norway Co.’s industrial photo-finishing division, Pi, incurred the following costs and expenses in 2013.

Variable
Fixed
Direct materials
$200,000
Direct labor
150,000
Factory overhead
70,000
$42,000
Selling, general, and administrative
    30,000
  48,000
Totals
$450,000
$90,000

During 2013, Pi produced 300,000 units of industrial photoprints, which were sold for $2.00 each. Norway’s investment in Pi was $500,000 and $700,000 at January 1, 2013 and December 31, 2013, respectively. Norway normally imputes interest on investment at 15% of average invested capital. For the year ended December 31, 2013, Pi’s return on average investment was

(Points : 11)

 

 

 

 

Question 14.14. (TCO 7) What are the three factors a manager should consider in controlling stockouts? (Points : 11)

 

 

 

 

Question 15.15. (TCO 7) The following information regarding inventory policy was assembled by the XYZ Corporation. The company uses a 50-week year in all calculations.

Order quantity 10,000 units per year
Safety stock 2,000 units
Lead time 1,300 units
The reorder point isSales 4 weeks

(Points : 11)

 

 

 

 

Question 16.

Question 17.

Question 18.

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