1. (TCO1) ABC systems create (Points : 5) one large cost pool . homogenous activity-related cost pools. activity-cost pools with a broad focus. activity-cost pools containing many direct costs. 2. (TCO 1) Merriamn Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry hours $400,000 10,000 hours Account billing lines $280,000 4,000,000 lines Account verification accounts $150,000 40,000 accounts Correspondence letters $ 50,000 4,000 letters Total costs $880,000 The above activities are used by Department A and B as follows: Department A Department B Account inquiry hours 2,000 hours 4,000 hours Account billing lines 400,000 lines 200,000 lines Account verification accounts 10,000 accounts 8,000 accounts Correspondence letters 1,000 letters 1,600 letters How much of the account billing cost will be assigned to Department B? (Points : 5) $80,000 $14,000 $28,000 $280,000 3. (TCO 2) Examples of nonfinancial budgets include all of the following EXCEPT (Points : 5) cash collections from customers. units sold. units manufactured. number of new products introduced. 4. (TCO 2) Dalyrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost allocation rate for this activity? (Points : 5) $.50 $1.00 $1.50 $2.00 5. (TCO 3) Which of the following does NOT represent a cause-and-effect relationship? (Points : 5) It makes sense that if a complex product has a large number of parts, it will take longer to assemble than a simple product with fewer parts. Material costs increase as the number of units produced increases. A company is charged 40 cents for each brochure printed and mailed. Utility costs increase at the same time that insurance costs increase. 6. (TCO 4) In evaluating different alternatives, it is useful to concentrate on (Points : 5) variable costs. fixed costs. total costs. relevant costs. 7. (TCO 5) The theory of constraints is used for cost analysis when (Points : 5) a manufacturing company produces multiple products and uses multiple manufacturing facilities and/or machines. using a long-term time horizon. operating costs are assumed fixed. All of the above 8. (TCO 5) Konrade's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows: Direct materials $40,000 Direct labor 10,000 Variable overhead costs 30,000 Fixed overhead costs 20,000 Total costs $100,000 It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit. If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total (Points : 5) $82,000 $98,000 $50,000 $100,000 9. (TCO 3) The cost components of an air conditioner include $35 for the compressor, $11.50 for the sheet-molded compound frame, and $80 per unit for assembly. The factory machines and tools cost is $55,000. The company expects to produce 1,500 air conditioners in the coming year. What cost function best represents these costs? (Points : 5) y = 1500 + 126.5X y = 1,500 + 55,000X y = 55,000 + 126.50X y = 55,000 + 1,500X 10. (TCO 4) Sunk costs (Points : 5) are future costs. are past costs. have future implications. are relevant to all decisions. Essays 1. (TCO 1) For each of the following drivers identify an appropriate activity. a. # of machines b. # of setups c. # of inspections d. # of orders e. # of runs f. # of bins or aisles g. # of engineers (Points : 25) (TCO 2) Lubriderm Corporation has the following budgeted sales for the next six-month period: Month Unit Sales June 90,000 July 120,000 August 210,000 September 150,000 October 180,000 November 120,000 There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month. Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds. Prepare production budgets in units for July, August, and September. (Points : 25) 3. (TCO 3) As part of his job as cost analyst, Max Thompson collected the following information concerning the operations of the Machining Department: Observation Machine-hours Total Operating Costs January 4,000 $45,000 February 4,600 49,500 March 3,800 45,750 April 4,400 48,000 May 4,500 49,800 Use the high-low method to determine the estimating cost function with machine-hours as the cost driver. (Points : 25 4. (TCO 5) Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are: Direct materials $ 12 Direct manufacturing labor 60 Variable manufacturing overhead 24 Fixed manufacturing overhead 32 Total $128 Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated. a. What is the relevant per unit cost for the original part? b. Which alternative is best for Lewis Auto Company? By how much? (Points : 25)