ACCT211 Summer 2014 Final

Acct 211

Summer 2014

Final

1.     Describe a difference between traditional cost systems and ABC cost systems.

2.     Match the activities to the appropriate level they are grouped in:

1. processing purchase orders
2. design new products
3. hire a new employee
4. process a unit in the manufacturing process

1. organization sustaining
2. unit level
3. product level
4. batch level

3.     Apex’s ABC activity information is as follows:

Compute the activity rate for all applicable activities above.

4.     Apex manufactures 2 models of sailboats, the standard and the deluxe.

Use the activity rate from above in #4 in the activity rate column.  Compute the ABC cost allocation above.

5.     What are 2 advantages of budgeting?

6.     Why is self-imposed budgeting better than budgets that are just imposed from top management down?

7.     The _________________ budget should always be prepared first.

8.     List 3 different types of budgets.

9.     True or False – managers should be punished for missing a budget target.

10.  Why is it important to identify only the relevant costs when making decisions?

11.  Sherri is going to Chicago to see her friend Ryan.  She is trying to decide which is cheaper, driving or riding the train.  Following is a list of costs that Sherri has compiled in relation to the trip. 

Identify which costs are relevant (R).

·      _________ Annual straight line depreciation on the car

·      _________ Cost of gasoline

·      _________ Annual cost of auto insurance and license fee

·      _________ Maintenance and repairs

·      _________ Parking fees at home

·      _________ Cost of train ticket

·      _________ Reduction in resale value of car due to mileage used and wear and tear

·      _________ Cost of putting dog in kennel while she is gone

·      _________ Cost of parking car in Chicago

12.  Austin LTD. Manufactures a component that is used in the fans it produces.  A supplier has offered to supply the component for $25 per part.  The annual requirements of Austin are 20,000 components.  Austin’s cost detail of manufacturing the component is as follows:

It was determined that the special equipment has no resale value and cannot be used for another process.  The factory overhead is an allocation and would be unaffected by the decision.  The costs above are based on the same 20,000 units that the supplier would supply.

Should Austin continue to manufacture the component or purchase it from the outside supplier?

13.  Mountain Goat Cycles has just received a request from the Seattle Police Department to produce 100 specially modified mountain bikes at $179 each. Mountain Goat Cycles can easily modify its City Cruiser model to fit the specifications of the Seattle Police Department.  The normal selling price of the City Cruiser bike is $249 and its unit product cost is $182 as shown below:

The variable portion of the above manufacturing overhead is $6 per unit.  The order would have no effect on the company’s total fixed manufacturing overhead costs.  The special modifications requested by the Seattle Police Department would require $17 per unit incremental variable costs.  In addition, the company would have to pay a graphics design studio $1,200 to design and cut stencils that would be used for painting the Police Department’s logo on the bikes.  Currently, Mountain Goat Cycles is not operating at capacity.

a.     Should Mountain Goat Cycles accept the special order? 

b.     Show your calculations to show what effect the order will have on net income.

c.     Would it make a difference if Mountain Goat Cycles was operating at capacity?  Why or why not?

14.  The financial information for Chase drug store by business line is as follows:

It was determined that the associated salaries, advertising and insurance would all be eliminated if Chase drops the housewares segment.  The utilities, depreciation, rent and general and administrative fees are all allocations.

Chase is currently deciding whether the company would benefit overall if the housewares business line was dropped completely, since it is losing money consistently each month.  Using what you know about avoidable and unavoidable costs, advise Chase as their outside consultant as to which is the better business decision.  (Support your work with numbers.)

15.  John Boy Lumber cuts logs to create 2 immediate joint products, lumber and sawdust.  Unfinished lumber can be sold as is for $140 or processed further at a sales price of $270.  Sawdust can be sold as is for $40 or processed further for a sales price of $50.  There are joint product costs (costs up to the split off point) allocated to each of the products – $176 for lumber and $24 for sawdust.  The cost of further processing is $40 for lumber and $20 for sawdust. 

1. Should John Boy Lumber process lumber further or sell the unfinished lumber as is?

1. Should John Boy Lumber process the sawdust further or sell it as is?

16.  There are 2 types of capital budgeting decisions, screening decisions and preference decisions.  What is the difference between the two?

17.  What is the concept of the time value of money?

18.   Why do companies have hurdle rates (or required rates of return)? 

19.  What is the cost of capital and why is it used as the hurdle rate for companies?

20.  How are flexible budgets more helpful vs. static or planning budgets?

21.  Warrior Company needs a new processing machine.  The company is considering 2 different machines:  machine 0178 and machine 2216.  Machine 0178 costs $20,000 and will reduce operating costs by $5,000 per year.  Machine 2216 costs $15,000 and reduces operating costs by $3,000 per year.  Compute the payback for each machine and determine which should be selected using the payback method.

22.  Westerville Services Company, a division of a golf holding company, provides various services to operators of golf courses in Columbus, Ohio.  Select financial information concerning the most recent year appears below:

Ignore the impact of income taxes on your calculation.

Compute the return on investment (ROI) for Westerville Services Company.

23.   Ohio Golf Inc. specializes in managing and developing golf course communities in Ohio and surrounding states.

In the most recent year, the company had a net operating income of $2,000,000 on sales of $10,000,000.  The company’s average operating assets for the year were $12,000,000 and its minimum required rate of return is 15% based on the company’s cost of capital.

      Ignore the impact of income taxes on your calculation.

      Compute the company’s residual income for the year.

24.  Why is it helpful to evaluate residual income when determining performance and not just focus on ROI?

25.  What is target costing?  How does it differ from cost plus pricing?

26.  What is decentralization?  Describe 2 benefits of decentralizing.

27.  What are the 4 perspectives of the balanced scorecard?

28.  Why is it important to focus on lead indicators as well as lag indicators?