1. (TCO 7) Harper Company’s Job 501 for the manufacture of 2,200 coats was completed during August at the unit costs presented as follows. Final inspection of Job 501 disclosed 200 spoiled coats, which were sold to a jobber for $6,000.

Direct materials$20

Direct labor18

Factory overhead (which includes an

allowance of $1 for spoiled work) 18

 $56

Assume that spoilage loss is charged to all production during August. What would be the unit cost of the good coats produced on Job 501? (Points : 11) 

        $57.50

        $55.00

        56.00

        $58.60

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.

If management does not implement the online ordering system, assume that its EOQ will be 12,000 units.

If, however, management decides to implement the online ordering system, this will change the economic order quantity and save the company ordering costs by what amount?

                Increase (Decrease) in EOQ                             Order Cost Savings (Expenditures) for EOQ Change (Points : 11) 

        2,000 units                                                                      $(1,000)

        600 units                                                                          $(13,200)

        (2,000) units                                                                  $1,000

        1,100 units                                                                      $22,000

Question 4. 4. (TCO 7) Canseco Enterprises uses 84,000 units of Part 256 in manufacturing activities over a 300-day work year. The usual lead time for the part is 6 days; occasionally, however, the lead time has gone 8 days. The company now desires to adjust its safety stock policy. The increase in safety stock size and the likely effect on stockout costs and carrying costs, respectively, would be (Points : 11) 

        560 units, decrease, increase.

        560 units, decrease, decrease.

        1,680 units, decrease, increase.

        2,240, units increase, decrease.

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 technique that incorporates the time value of money by determining the compound interest rate of an investment at which the present value of the after-tax cash inflows over the life of the investment is equal to the initial investment is the (Points : 11) 

        average rate of return method.

        internal rate of return method.

        capital asset pricing model.

        profitability index method.

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) Anglemenesis Company is planning to spend $84,000 for a new machine, to be depreciated on a straight-line basis over 10 years with no salvage value. The related cash flows, net of taxes, are expected to be $10,000 a year for each of the first 6 years and $12,000 for each of the next 4 years. What is the payback period? (Points : 11) 

        4.4 years

        7.6 years

        7.8 years

        8.0 years

Question 9. 9. (TCO 8) Which of the following does not describe the six steps in designing an accounting-based performance measure? (Points : 11) 

        The issues in each step are interdependent.

        The decision maker will often proceed through the steps several times before deciding on one or more performance measure(s).

        The answers to the questions raised at each step depend on top management’s beliefs about the organization.

        The steps must be done in sequence.

Question 10. 10. (TCO 9) The proposed transfer price is based on outlay cost. Outlay cost plus opportunity cost is (Points : 11) 

        the retail price.

        the price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.

        the price usually set by an absorption-costing calculation.

        the price set by charging for variable costs plus a lump-sum or additional markup, but less than full markup.

Question 11. 11. 

(TCO 9) Abalone & Fitch has two divisions, C and D, each operated as a profit center. C charges D $35 per unit for each unit transferred to D. Other data follow. 

C’s variable cost per unit$30

C’s fixed costs10,000

C’s annual sales to D5,000 units

C’s sales to outsiders50,000 units

C is planning to raise its transfer price to $50 per unit. Division D can purchase units at $40 each from outsiders, but doing so would idle C’s facilities now committed to producing units for D. Division C cannot increase its sales to outsiders. From the perspective of the company as a whole, from whom should division D acquire the units, assuming D’s market is unaffected?

(Points : 11) 

        Outside vendors

        Division C, but only at the variable cost per unit

        Division C, but only until fixed costs are covered, then from outside vendors

        Division C, despite the increased transfer price

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.

 PCBTransistor

Direct materials$2.50$  .80

Direct labor4.501.00

Variable overhead2.00.50

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.

A per unit transfer price from the Transistor Division to the Savvy Division at full cost, $3.05, would (Points : 11) 

        allow evaluation of both divisions on a competitive basis.

        satisfy the Transistor Division’s profit desire by allowing recovery of opportunity costs.

        demotivate the Savvy Division and cause mediocre performance.

        provide no profit incentive for the Transistor Division to control or reduce costs.

Question 13. 13. (TCO 9) Given

 Segment ASegment B

Net income$  5,0000

Sales60,000$750,000

Investment24,000 500,000

Minimum ROI  –%20%6%

For Segment A, ROI is (Points : 11) 

        6%.

        20%.

        20.8%.

        7.5%.

Question 14. 14. (TCO 7) When the level of safety stock is increased, (Points : 11) 

        lead time will increase.

        the frequency of stockouts will decrease.

        carrying costs will decrease.

        ordering costs will decrease.

Question 15. 15. (TCO 7) The elapsed time between placing an order for inventory and receiving the order is (Points : 11) 

        lead time.

        reorder time.

        stockout time.

        stocking time.

Question 16. 16. (TCO 9) What problems can arise when full cost plus a markup is used as a transfer price? (Points : 20) 

Question 17. 17. (TCO 7) What are scrap, spoilage, and rework? (Points : 35) 

Question 18. 18. (TCO 9) If the divisions of a company are operating in different countries, how is it possible to compare their performance? (Points : 35)