MGMT 640 (MGMT 640)-Fall '12 MGMT 640 Section 1121 Tuesdays - Final exam 2

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Multiple Choice, Question 83

Sierra Company allocates the estimated $200,000 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows:

Department	Employees
Accounting	4
Production	36
Sales	12

How much of the accounting department costs will be allocated to the production and sales departments?

Employees

Department

$180,000

$60,000

$1,800,000

$600,000

$22,222

$66,667

$150,000

$50,000

Multiple Choice, Question 115

Velvet Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet which the production department occupies within the factory. Information about the departments is presented below:

		Number of	Number of Square
Department	Costs	Employees	Feet Occupied
Payroll (S1)	$150,000	2	2,000
Maintenance (S2)	$220,000	8	64,000
Molding (P1)		75	100,000
Finishing (P2)		50	60,000
Packaging (P3)		25	40,000

Velvet uses the direct method to allocate costs. Round all answers to the nearest dollar. What amount of the payroll department costs will be allocated to the molding department?

$185,000

$132,353

$70,313

$75,000

Multiple Choice, Question 126

Rand Company sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping and Rand has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected and shipped. The final cost pool is used for general operations and supervision of the department and the cost driver is the number of shipments. Information about the department is summarized below:

Cost Pool	Total Costs	Cost Driver	Annual Activity
Packaging and shipping	$170,000	Number of boxes shipped	25,000 boxes
Final inspection	$200,000	Number of individual items shipped	100,000 items
General operations and supervision	$85,000	Number of orders	10,000 orders

During the period, the Far East sales office generated 680 orders for a total of 6,120 items. These orders were shipped in 1,495 boxes. What amount of shipping department costs should be allocated to these sales?

$22,406

$10,588

$16,590

$28,186

Multiple Choice, Question 140

Library Resources Company uses activity-based costing. The company produces soft and hard-cover books. The estimated costs and expected activity for each of the activity pools follow:

Activity	Estimated	Expected Activity
Cost Pool	Cost	Hard-Cover	Soft-Cover	Total
Activity 1	$15,675	800	300	1,100
Activity 2	$11,900	500	200	700
Activity 3	$36,000	800	400	1,200

To which of the following is the rate for activity 3 that will used to apply costs to Soft-cover books closest?

$90.00

$12,000

$30.00

Not enough information is provided.

Multiple Choice, Question 149

Biltmore Financial is a banking services company that offers many different types of checking accounts. The bank has recently adopted an activity-based costing system to assign costs to their various types of checking accounts. The following data relate to the money market checking accounts, one of the popular checking accounts, and the ABC cost pools: Annual number of accounts = 60,000 accounts Checking account cost pools:

Cost Pool	Cost	Cost Drivers
Returned check costs	$3,000,000	Number of returned checks
Checking account reconciliation costs	60,000	Number of account reconciliation requests
New account setup	650,000	Number of new accounts
Copies of cancelled checks	400,000	Number of cancelled check copy requests
Online banking web site maintenance	195,000	Per product group (type of account)
Total checking account costs	$4,305,000

Annual activity information related to cost drivers:

Cost Pool	All Products	Money Market Checking
Returned check	200,000 returned checks	18,000
Check reconciliation costs	3,000 checking account	420
New accounts	60,000 new accounts	15,000
Cancelled check copy requests	100,000 cancelled check	60,000
Web site costs	10 types of accounts	1

Calculate the total cost assigned to the money market checking account.

$68.50

$3.26

$71.75

$9.21

Multiple Choice, Question 48

Rockwell Company owns a single restaurant which has a cantina primarily used to seat patrons while they wait on their tables. The company is considering eliminating the cantina and adding more dining tables. Segmented contribution income statements are as follows and fixed costs applicable to both segments are allocated on the basis of sales.

	Restaurant	Cantina	Total
Sales	$800,000	$200,000	$1,000,000
Variable costs	475,000	160,000	635,000
Direct fixed costs	50,000	15,000	65,000
Allocated fixed costs	212,500	37,500	250,000
Net Income	$ 62,500	($12,500)	$50,000

What financial effect will occur to profit if Rockwell eliminates the cantina but no more dining customers are served?

Net income will be $50,000.

Net income will increase by $12,500.

Net income will decrease to $37,500.

Net income will decline by $25,000.

Multiple Choice, Question 56

Explorer Company manufactures two products, hard-tops and covers for its convertible vehicles. Data for each follows:

	Hard-top	Covers
Direct labor hours required per unit	4	8
Contribution margin per unit	$240	$390

Only 4,200 direct labor hours are available per month. How many units of each product should Explorer make in order to maximize profits?

Hard-top

Covers

250

1,050

250

4,200

400

Multiple Choice, Question 88

Superior Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2011 follows:

	Audio	Video	Accelerators	Total
Sales	$1,045,000	$2,255,000	$2,200,000		$5,500,000
Less COGS	575,000	1,240,000	1,870,000		3,685,000
Gross margin	470,000	1,015,000	330,000		1,815,000
Less other var costs	53,000	69,000	20,000		142,000
Contribution margin	417,000	946,000	310,000		1,673,000
Less direct salaries	155,000	175,000	65,000		395,000
Less common fixed costs:
Rent	11,970	25,830	25,200		63,000
Utilities	4,370	9,430	9,200		23,000
Depreciation	5,890	12,710	12,400		31,000
Other admin costs	79,230	170,970	166,800		417,000
Net income	$160,540	$552,060	$31,400		$744,000

Since the profit for accelerators is relatively low, the company is considering dropping this product line. What is the incremental effect of dropping accelerators?

($245,000)

$499,000

$31,400

($310,000)

Multiple Choice, Question 105

Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina’s business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.

	Hospital Supplies	Retail Stores	Mail Order
Sales	$120,000		$440,000	$360,000
Variable costs	64,000		200,000	140,000
Contribution Margin	56,000		240,000	220,000
Direct Fixed Costs	50,000		80,000	90,000
Allocated common fixed costs	20,000		70,000	60,000
Net Income	($ 14,000)		$ 90,000	$ 70,000

If hospital supplies are dropped, what would happen to profit?

Decrease by $6,000.

Decrease by $114,000.

Increase by $14,000.

Increase by $76,000.

Multiple Choice, Question 106

	Hospital Supplies	Retail Stores	Mail Order
Sales	$120,000		$440,000	$360,000
Variable costs	64,000		200,000	140,000
Contribution Margin	56,000		240,000	220,000
Direct Fixed Costs	50,000		80,000	90,000
Allocated common fixed costs	20,000		70,000	60,000
Net Income	($ 14,000)		$ 90,000	$ 70,000

Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact of the increase in retail store sales have on overall profitability?

Income will increase by $14,000.

Income will increase by $60,000.

Income would increase by $54,000.

Income will increase by $104,000.

Multiple Choice, Question 46

Iguana Company sells a single product. Iguana estimates demand and costs at various activity levels as follows:

Units Sold	Price	Total Variable Costs	Fixed Costs
120,000	$48	$3,000,000	$1,000,000
140,000	$45	$3,500,000	$1,000,000
160,000	$40	$4,000,000	$1,000,000
180,000	$35	$4,500,000	$1,000,000
200,000	$30	$5,000,000	$1,000,000

How would you best describe Iguana’s variable cost per unit over the range shown?

It is decreasing as volume increases.

It is first increasing as volume increases, then decreasing.

It is constant.

It is increasing as volume increases.

Multiple Choice, Question 55

Jackson Company is trying to determine the optimal price to charge for its PUNCH model. Jackson has fixed costs of $50,000 and the PUNCH has variable costs of $12.00 per unit. Jackson has determined that the following relationships exist between price and demand:

Price	Demand
$20	6,875
$19	8,800
$18	10,000
$17	11,000

What price should Jackson charge in order to maximize its profit?

$19

$20

$18

$17

Multiple Choice, Question 74

Costa Company has a capacity of 40,000 units per year and is currently selling 35,000 for $400 each. Barton Company has approached Costa about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Costa $20 per unit when compared to the normal packaging cost. Normally, Costa has a variable cost of $280 per unit. The annual fixed cost of $2,000,000 would be unaffected by the special order. What would be the impact on profits if Costa were to accept this special order?

Profits would decrease $200,000.

Profits would increase $40,000.

Profits would increase $60,000.

Profits would increase $80,000.

Multiple Choice, Question 84

The Pure Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the company wants to continue to earn a 50% return, what price should the company charge?

$12.75

$14.55

$13.50

$10.95

Multiple Choice, Question 90

A company has $8.00 per unit in variable costs and $4.00 per unit in fixed costs at a volume of 50,000 units. If the company marks up total cost by 60%, what price should be charged if 60,000 units are expected to be sold?

$19.20

$7.20

$18.13

$11.33

Multiple Choice, Question 97

The chief engineer at Tech Deals has proposed production of a high-tech portable electronic storage device to be sold at a 30 percent markup above its full cost. Management estimates that the fixed costs per year will be $160,000. The quantity demanded is 40,000 units. How much is the price with a 30 percent markup?

$19.60

$20.80

$20.00

Consultation	200,000	Number of consultations	100 consultations
Administrative Costs	150,000	Admin labor hours	10,000 labor hours
Client Service	99,000	Number of clients	110 clients

Processing electronic orders	$1,000,000	Number of orders	500,000
Processing non-electronic orders	$2,000,000	Number of orders	400,000
Picking orders	$3,000,000	Number of different products ordered	800,000
Packaging orders	$1,500,000	Number of items ordered	50,000,000
Returns	$2,000,000	Number of returns	50,000