Question 1
Kirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the production of 100,000 units. Fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets.
a. Compute a markup percentage based on the variable costs concept. Round your answer to one decimal place.
b. Determine a selling price. Round your answer to two decimal places.
Question 2
Glover Inc. manufactures Product B, incurring variable costs of $15.00 per unit and fixed costs of $70,000. Glover desires a profit equal to a 12% rate of return on assets. Assets of $785,000 are devoted to producing Product B, and 100,000 units are expected to be produced and sold.
a. Compute the markup percentage using the total cost concept.
b. Compute the selling price of Product B. Round your answer to two decimal places.
Question 3
Tidewater Company uses the product cost concept of applying the cost-plus approach to product pricing. The cost and expenses of producing and selling 50,000 units of Product K are as follows:
|
Variable costs:
|
|
|
Direct materials
|
$5.00
|
|
Direct labor
|
8.50
|
|
Factory overhead
|
2.50
|
|
Selling and administrative expenses
|
1.00
|
|
Total
|
$17.00
|
|
|
Fixed costs:
|
|
|
Factory overhead
|
$50,000
|
|
Selling and administrative expenses
|
34,000
|
Tidewater desires a profit equal to a 10% rate of return on invested assets of $1,285,000.
a. Determine the amount of desired profit from the production and sale of Product K.
b. Determine the total manufacturing costs and the cost amount per unit for the production and sale of 50,000 units of Product K.
|
Total manufacturing costs
|
$
|
|
Cost amount per unit
|
$
|
c. Determine the markup percentage for Product K.
d. Determine the selling price of Product K. Round your answer to two decimal places.
Question 4
Jarvis Company uses the total cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing and selling 35,000 units of Product E are as follows:
|
Variable costs:
|
|
|
Direct materials
|
$3.00
|
|
Direct labor
|
1.25
|
|
Factory overhead
|
0.75
|
|
Selling and administrative expenses
|
3.00
|
|
Total
|
$8.00
|
|
|
Fixed costs:
|
|
|
Factory overhead
|
$50,000
|
|
Selling and administrative expenses
|
20,000
|
Jarvis desires a profit equal to a 14% rate of return on invested assets of $450,000.
a. Determine the amount of desired profit from the production and sale of Product E.
b. Determine the total costs and the cost amount per unit for the production and sale of 35,000 units of Product E.
|
Total manufacturing costs
|
$350000
|
|
Cost amount per unit
|
$10.00
|
c. Determine the markup percentage for Product E.
d. Determine the selling price of Product E. Round your answer to two decimal places.
Question 5
Product J is one of the many products manufactured and sold by Gooble Company. An income statement by product line for the past year indicated a net loss for Product J of $7,250. This net loss resulted from sales of $265,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. However, because of the net loss, management is considering the elimination of the unprofitable endeavor. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued.
Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J.
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Gooble Company
|
|
Proposal to Discontinue Product J
|
|
February 8, 20XX
|
|
Differential revenue from annual sales of product:
|
|
|
|
Revenue from sales
|
|
|
|
Differential cost of annual sales of product:
|
|
|
|
Variable cost of goods sold
|
|
|
|
Variable operating expenses
|
51450
|
|
|
Annual differential income from sales of Product J
|
|
|
Question 6
Pull Company is considering the disposal of equipment that is no longer needed for operations. The equipment originally cost $600,000, and accumulated depreciation to date totals $460,000. An offer has been received to lease the machine for its remaining useful life for a total of $300,000, after which the equipment will have no salvage value. The repair, insurance, and property tax expenses during the period of the lease are estimated at $75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a 10% commission.
Prepare a differential analysis report, dated June 15 of the current year, on whether the equipment should be leased or sold.
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Pull Company
|
|
Proposal to Lease or Sell Equipment
|
|
June 15, 20XX
|
|
Net revenue from leasing:
|
|
|
|
Revenue from lease
|
|
|
|
Costs associated with the lease
|
75800
|
|
|
Net revenue from lease
|
|
|
|
Net revenue from selling:
|
|
|
|
Sales price
|
$230000
|
|
|
Commission expense on sale
|
23000
|
|
|
Net revenue from selling
|
|
|
|
Net advantage of lease alternative
|
|
|
Question 7
FDE Manufacturing Company has a normal plant capacity of 75,000 units per month. Because of an extra large quantity of inventory on hand, it expects to produce only 60,000 units in May. Monthly fixed costs and expenses are $150,000 ($2 per unit at normal plant capacity), and variable costs and expenses are $13 per unit. The present selling price is $25 per unit. The company has an opportunity to sell 5,000 additional units at $14.30 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is therefore not expected to affect the regular selling price or quantity of sales of FDE Manufacturing Company.
Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.
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FDE Manufacturing Company
|
|
Proposal to Sell to Exporter
|
|
April 21, 20XX
|
|
Differential revenue from accepting offer:
|
|
|
Revenue from sale of 5,000 additional units at $14.30
|
|
|
Differential cost of accepting offer:
|
|
|
Variable costs and expenses of 5,000 additional units at $13
|
|
|
Differential income from accepting offer
|
|
Question 8
Grey Inc. has been purchasing a component, Z for $85 a unit. The company is currently operating at 75% of full capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Z, determined by absorption costing method, is estimated as follows:
|
Direct materials
|
$30
|
|
Direct labor
|
15
|
|
Variable factory overhead
|
26
|
|
Fixed factory overhead
|
10
|
|
Total
|
$81
|
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.
|
Grey Inc.
|
|
Proposal to Manufacture Part Z
|
|
March 12, 20XX
|
|
Purchase price of part Z
|
|
|
|
Differential cost to manufacture Z:
|
|
|
|
Direct materials
|
|
|
|
Direct labor
|
|
|
|
Variable factory overhead
|
26
|
|
|
Cost savings from manufacturing Part Z
|
|
$
|
Question 9
In attempting to improve profitability when faced with a bottleneck related to hours that is involved in the production of two or more products, which of the following is most important for management to consider?
a. Contribution margin per unit for each product
b. Time required for each different product passing through the bottleneck
c. Contribution margin per bottleneck hour for each product
d. Selling price or sales revenue generated by each product produced through the bottleneck
Question 10
What is a production constraint?
a. The point in the manufacturing process where the demand for the company’s products exceeds its ability to produce the products
b. The point in the manufacturing process where total variable costs and total fixed costs equals total revenues
c. A manufacturing strategy used to reduce production cost by eliminating waste of inventory
d. A manufacturing strategy that focuses on increasing the influence of constraints on production processes
Question 11
What is a production constraint?
a. The point in the manufacturing process where the demand for the company’s products exceeds its ability to produce the products
b. The point in the manufacturing process where total variable costs and total fixed costs equals total revenues
c. A manufacturing strategy used to reduce production cost by eliminating waste of inventory
d. A manufacturing strategy that focuses on increasing the influence of constraints on production processes
Question 12
Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Hours available to produce the products is the constrained resources. Based on the following data, if Soap could reduce the processing time for X by 10%, which of the following statements is true?
|
|
X
|
Y
|
|
Sales Price
|
$20
|
|
$25
|
|
|
Variable Cost
|
14
|
|
15
|
|
|
Hours needed to process
|
3
|
|
5
|
|
a. It would take 162 minutes to process one unit of X.
b. Soap Y would still be the most profitable.
c. There would be no difference in the contribution margin per hour as compared to it before the processing time reduction.
d. The contribution margin per hour for X would be $2.
Question 13
Red Co. uses the product cost concept of applying the cost-plus approach to product pricing. Given below is cost information for the production and sale of 40,000 units of its sole product. Red Co. desires a profit equal to a 15% rate of return on invested assets of $1,200,000.
|
Fixed factory overhead cost
|
$80,000.00
|
|
Fixed selling and administrative costs
|
140,000.00
|
|
Variable direct materials cost per unit
|
7.00
|
|
Variable direct labor cost per unit
|
11.00
|
|
Variable factory overhead cost per unit
|
3.00
|
|
Variable selling and administrative cost per unit
|
2.00
|
The unit selling price for the company’s product is:
a. $42.
b. $33.
c. $28.
d. $37.
Question 14
red Co. uses the product cost concept of applying the cost-plus approach to product pricing. Below is cost information for the production and sale of 40,000 units of its sole product. Red Co. desires a profit equal to a 15% rate of return on invested assets of $1,200,000.
|
Fixed factory overhead cost
|
$80,000.00
|
|
Fixed selling and administrative costs
|
140,000.00
|
|
Variable direct materials cost per unit
|
7.00
|
|
Variable direct labor cost per unit
|
11.00
|
|
Variable factory overhead cost per unit
|
3.00
|
|
Variable selling and administrative cost per unit
|
2.00
|
What is the markup percentage for the company’s product? (Round the answer to two decimal places.)
a. 43.50%
b. 40.00%
c. 35.60%
d. 30.30%
Question 15
Hill Co. can further process Product O to produce Product P. Product O is currently selling for $65 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $82 per pound.
True
False
Question 16
Materials used by Ford Company in producing Division A’s product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit.
a. If a transfer price of $25 per unit is established and 60,000 units of material are transferred with no reductions in Division B’s current sales, how much would Ford Company’s total operating income increase?
$fill in the blank 1
b. How much would the operating income of Division A increase?
$fill in the blank 2
c. How much would the operating income of Division B increase?
$fill in the blank 3
d. If the negotiated price approach is used, what would be the range of acceptable transfer prices? Round your answer to two decimal places.
$fill in the blank 4 to $fill in the blank 5
(d is wrong)
Question 17
The sales, operating income, and invested assets for each division of Salem Company are as follows:
|
Sales
|
Operating
Income
|
Invested
Assets
|
|
Division C
|
$4,000,000
|
|
$410,000
|
|
$3,500,000
|
|
|
Division D
|
3,500,000
|
|
600,000
|
|
4,000,000
|
|
|
Division E
|
2,250,000
|
|
780,000
|
|
7,000,000
|
|
Management has established a minimum rate of return for invested assets of 11%.
a. Determine the residual income for each division.
|
|
Residual Income
|
|
Division C
|
$fill in the blank 1
|
|
Division D
|
$fill in the blank 2
|
|
Division E
|
$fill in the blank 3
|
b. Based on residual income, which division is the most profitable?
Division D
Question 18
The sales, operating income, and invested assets for each division of Garner Company are as follows:
|
Sales
|
Operating
Income
|
Invested
Assets
|
|
Division E
|
$3,000,000
|
|
$470,000
|
|
$2,500,000
|
|
|
Division F
|
3,600,000
|
|
430,000
|
|
2,400,000
|
|
|
Division G
|
6,000,000
|
|
560,000
|
|
3,000,000
|
|
a. Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment for each division. Round to one decimal place.
|
|
Division E
|
Division F
|
Division G
|
|
Profit margin
|
15.7
|
%
|
11.9
|
%
|
9.3
|
%
|
|
Investment turnover
|
1.2
|
|
1.5
|
|
2.0
|
|
|
Rate of return on investment
|
18.8
|
%
|
17.9
|
%
|
18.7
|
%
|
b. Which division is the most profitable as per dollar invested?
Question 19
PDT Co. has two divisions, East and West. Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:
|
East Division
|
West Division
|
|
Revenues
|
$1,200,000
|
|
$800,000
|
|
|
Operating expenses
|
950,000
|
|
640,000
|
|
|
Service department charges
|
145,000
|
|
72,000
|
|
|
Invested assets
|
800,000
|
|
500,000
|
|
a. Prepare condensed income statements for the past year for each division.
|
PDT Co.
|
|
Divisional Income Statements
|
|
For the Year Ended December 31, 20–
|
|
a. Prepare condensed income statements for the past year for each division.
|
PDT Co.
|
|
Divisional Income Statements
|
|
For the Year Ended December 31, 20–
|
|
East Division
|
West Division
|
|
Revenues
|
$1200000
|
$800000
|
|
Operating expenses
|
950000
|
640000
|
|
Operating income before service department charges
|
$250000
|
$160000
|
|
Service department charges
|
145000
|
72000
|
|
Operating income
|
$105000
|
$88000
|
|
|
|
2
|
|
|
|
East Division
|
West Division
|
|
Profit margin
|
8.75
|
%
|
11
|
%
|
|
Investment turnover
|
1.5
|
|
1.6
|
|
|
Rate of return on investment
|
13.13
|
%
|
17.6
|
%
|
|
East Division
|
West Division
|
|
Profit margin
|
|
|
|
|
|
Investment turnover
|
|
|
|
|
|
Rate of return on investment
|
|
|
|
|
Question 20
A portion of the divisional income statement for the year just ended is presented below in a condensed form.
|
Department F
|
|
Net sales
|
$93,800
|
|
|
Cost of goods sold
|
72,400
|
|
|
Gross profit
|
$21,400
|
|
|
Operating expenses
|
28,900
|
|
|
Loss from operations
|
$(7,500)
|
|
The operating expenses of Department F include $16,000 for direct expenses.
It is estimated that the discontinuance of Department F would not have affected the sales of the other departments nor have reduced the indirect expenses of the business. Assuming the accuracy of these estimates, determine the effect (increase or decrease and the amount) on the operating income of the business if Department F had been discontinued.
$fill in the blank 1 Decrease
Question 21
A department store apportions payroll costs to the various departments on the basis of the number of payroll checks issued by each department. Accounting costs are apportioned on the basis of the number of reports generated for each department. The payroll costs for the year were $150,000, and the accounting costs for the year totaled $70,000. The number of payroll checks issued and the number of reports generated for each department are as follows:
|
Number of
Payroll Checks
|
Number
of Reports
|
|
Department A
|
396
|
|
60
|
|
|
Department B
|
1,278
|
|
90
|
|
|
Department C
|
126
|
|
150
|
|
a. Determine the amount of payroll cost to be apportioned to each department.
|
|
Payroll Cost
|
|
Department A
|
$fill in the blank 1
|
|
Department B
|
$fill in the blank 2
|
|
Department C
|
$fill in the blank 3
|
b. Determine the amount of accounting cost to be apportioned to each department.
|
|
Accounting Cost
|
|
Department A
|
$fill in the blank 4 14,000
|
|
Department B
|
$fill in the blank 5 21,000
|
|
Department C
|
$fill in the blank 6
|
Question 22
The budget for Department 5 of Plant M for the current month ending March 31 is as follows:
|
Materials
|
$206,000
|
|
Factory wages
|
265,000
|
|
Supervisory salaries
|
67,800
|
|
Depreciation of plant and equipment
|
35,000
|
|
Power and light
|
22,500
|
|
Insurance and property taxes
|
15,500
|
|
Maintenance
|
9,700
|
During March, the costs incurred in Department 5 of Plant M were materials, $204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant and equipment, $35,000; power and light, $21,360; insurance and property taxes, $14,400; maintenance, $9,456.
a. Prepare a budget performance report for the supervisor of Department 5 of Plant M for the month of March. Enter all amounts as positive values.
|
Budget
|
Actual
|
Over Budget
|
Under Budget
|
|
Materials
|
$206000
|
$204000
|
|
$2000
|
|
Factory wages
|
265000
|
285000
|
$20000
|
|
|
Supervisory salaries
|
67800
|
63600
|
|
4200
|
|
Depreciation of plant and equipment
|
35000
|
35000
|
|
|
|
Power and light
|
22500
|
21360
|
|
1140
|
|
Insurance and property taxes
|
15500
|
14400
|
|
1100
|
|
Maintenance
|
9700
|
9456
|
|
244
|
|
$621500
|
$632816
|
$20000
|
$8684
|
b. Are there any significant variances (greater than 5%) of the budgeted amounts that should be examined by the supervisor?
Yes
Question 23
Which of the following is true of the balanced scorecard?
a. It has the ability to reveal the underlying nonfinancial drivers of financial performance.
b. It ignores the financial performance of the company.
c. It aims to improve the nonfinancial performance of the business.
d. It focuses primarily on the short term performance of the business.
Question 24
The balanced scorecard measures:
a. only nonfinancial information.
b. only financial information.
c. both financial and nonfinancial information.
d. both external and internal information.
Question 25
Which component of the balanced scorecard evaluates the economic performance of the responsibility centers?
a. Customer
b. Innovation and learning
c. Financial
d. Internal process
Question 26
A common balanced scorecard measures performance in all of the following areas except:
a. education.
b. innovation and learning.
c. financial.
d. internal process.
Question 27
Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000 of invested assets. If the management desires a minimum rate of return of 12% on the invested assets, Division A’s residual income would be:
a. $52,500.
b. $85,000.
c. $81,500.
d. $38,000.
Question 28
Some organizations use internal service departments to provide services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department?
a. Inventory Control
b. Payroll Accounting
c. Information Systems
d. Human Resources
Question 29
If operating income for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover would be 6.3.
True
False
Question 30
The major advantage of using the rate of return on investment over operating income as a divisional performance measure is that, divisional investment is directly considered and thus comparability of divisions is facilitated.
True
False
Homework Assignments and Papers 