Question 1:
Blitzer Enterprises has identified three cost pools and three corresponding cost drivers to allocate overhead costs. The following estimates are provided for the coming year:
Cost Pool Overhead Costs Cost driver Activity level
Supervision of direct labor $480,000 Direct labor - hours 800,000
Machine maintenance $220,000 Machine - hours 550,000
Facility rent $260.000 Square feet of area 100.000
Total overhead costs $960,000
The accounting records show the Gergen Job consumed the following resources:
Cost driver Actual level
Direct labor - hours 600
Machine - hours 2,100
Square feet of area 90
Which method of allocation probably best estimates actual overhead costs used for Blitzer Enterprises? Why?
A. Three activity - cost drivers, because product costs can be significantly cross - subsidized.
B. Three activity - cost drivers, because it best reflects the relative consumption of resources.
c. Single direct labor - hours cost driver, because it is best to allocate total costs uniformly to individual jobs.
d. Single direct labor - hours cost driver, because it is easiest to analyze and interpret.
Question 2:
Donnelly Company has three products, R2, R4, and R2D2. The following information is available:
|
|
Product R2
|
Product R4
|
Product R2D2
|
|
Sales
|
$30,000
|
$45,000
|
$12,000
|
|
Variable costs
|
18.000
|
24.000
|
7.500
|
|
Contribution margin
|
12.000
|
21.000
|
4.500
|
|
Fixed costs:
|
|
|
|
|
Avoidable
|
4,500
|
9.000
|
3.000
|
|
Unavoidable
|
3.000
|
4.500
|
2.700
|
|
Operating income
|
$4,500
|
$7,500
|
$(1,200)
|
Assuming Product R2D2 is discontinued and the space formerly used to produce the product is rented for $6,000 per year, operating income will:
A. increase by $7,200.
B. increase by $3,300.
c. increase by $4.500.
D increase by $6,000.
Question 3:
Skate Magic manufactures three different product lines, Model TS, Model AY, and Model GG. Considerable market demand exists for all models. The following per unit data apply:
|
|
Model TS
|
Model AY
|
Model GG
|
|
Selling price
|
$100
|
$120
|
5140
|
|
Direct materials
|
12
|
12
|
12
|
|
Direct labot ($12 per hour)
|
24
|
24
|
48
|
|
Variable support costs ($4 per machine - hour)
|
8
|
16
|
16
|
|
Fixed support costs
|
20
|
20
|
20
|
Which model has the greatest contribution margin per machine - hour?
A. Model AY
B. Model TS
C. Model GG
D. both Models YA and GG
Question 4:
Spencer Guthrie, a financial planner, contacts and meets with local individuals to assist with financial planning and investments in Spencer's employer's investment services company. Spencer receives no fee for financial planning advice, but in addition to his salary, he receives commissions on client investments in the investment services company.
Commission rates vary across different investment products. Spencer's employer pays office and phone costs and also reimburses Spencer for business-related travel. Satisfied clients have recommended Spencer to their friends. and Spencer now finds himself with more clients than he can handle in the 50 hours per week he would like to work.
To analyze where to most profitably spend his time. Spencer has classified his current set of customers into the three groups listed here. The hours devoted per customer include direct contact time. travel time, and research and follow-up time for the clients. Spencer will introduce clients he is unable to serve to one of his colleagues.
Requirement (a) Based on the data given, what client mix will maximize Spencer's monthly commissions, assuming he works 200 hours per month?
Complete the analysis by computing the average commission per hour and then computing the hours that Spencer is currently devoting to each customer group and the hours that Spencer will devote assuming he works 200 hours per month.
Requirement (b) What other factors should Spencer consider as he makes his decisions about his client mix?
|
|
CUSTOMER GROUP
|
|
A
|
|
|
|
Average investment in company products per month
|
$ 700
|
$ 750
|
$ 100
|
|
Hours devoted per customer per month
|
3.0
|
1.5
|
0.5
|
|
Average commission percentage
|
6%
|
4%
|
2%
|
|
Current number of customers
|
30
|
70
|
90
|
Clients in group A are generally interested in hearing about new investment products that Spencer's company is offering and will usually invest sizable amounts in new products after meeting with Spencer or conversing with him on the phone. Clients in group B will also invest but generally in smaller amounts than clients in group A. Clients in group C appreciate meeting with Spencer because of the excellent advice he provides in planning for retirement and other future expenses but have little discretionary income to invest. Group C clients also generally invest in products with a lower commission rate for Spencer. However, Spencer maintains contact with these clients because he anticipates they will become more profitable as their careers develop.
Question 5:
Skate Magic manufactures three different product lines, Model TS, Model AY, and Model GG. Considerable market demand exists for all models. The following per unit data apply:
|
|
Model TS
|
Model AY
|
Model GG
|
|
Selling price
|
$100
|
$120
|
$140
|
|
Direct materials
|
12
|
12
|
12
|
|
Direct labot ($12 per hour)
|
24
|
24
|
48
|
|
Variable support costs ($4 per machine - hour)
|
8
|
16
|
16
|
|
Fixed support costs
|
20
|
20
|
20
|
Which model has the greatest contribution margin per unit?
A. Model AY
B. Model GG
C. Model TS
D. both Models TS and AY
Question 6:
Blitzer Enterprises has identified three cost pools and three corresponding cost drivers to allocate overhead costs. The following estimates are provided for the coming year:
Cost Pool Overhead Costs Cost driver Activity level
Supervision of direct labor $480,000 Direct labor - hours 800,000
Machine maintenance $220,000 Machine - hours 550,000
Facility rent $260.000 Square feet of area 100.000
Total overhead costs $960,000
The accounting records show the Gergen Job consumed the following resources:
Cost driver Actual level
Direct labor - hours 600
Machine - hours 2,100
Square feet of area 90
If Blitzer Enterprises uses the three activity cost pools to allocate overhead costs, what are the activity - cost driver rates for the supervision of direct labor, machine maintenance, and facility rent. respectively?
A. $2.50 per direct labor hour, $0.50 per machine hour, $1.00 per sq ft
B. $0.80 per direct labor hour, $0.10 per machine hour, $2.40 per sq ft
C. $1.20 per direct labor hour, $0.50 per machine hour, $3.60 per sq ft
D. $0.60 per direct labor hour, $0.40 per machine hour, $2.60 per sq ft
Question 7:
Baldwin Printers has contracts to complete weekly supplements required by forty - two customers. For the year 2011. manufacturing overhead cost estimates total 51.840,000 for an annual production capacity of 20 million pages.
For 2011 Baldwin Printers has decided to evaluate the use of additional cost pools. ARer analyzing manufacturing overhead costs, it was determined that number of design changes. setups. and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:
Cost pool Manufacturing overhead Activity level
Design changes S 520.000 400 design changes
Setups 1.040.000 8,000 setups
Inspections 280.000 14,000 inspections
Total manufacturing overhead costs 51,840.000
During 2011. two customers, Wellington Drugs and Home Again, are expected to use the following printing services:
Actnity Millington Drugs Homo Again
Pages Printed 90.000 56.000
Design changes 7 4
Setups 10 10
Inspections 20 18
What is the cost driver rate if manufacturing overhead costs are considered one largo cost pool and are assigned based on 20 million pages of production capacity?
A $0.10 per page
B. $0.07 per page
C. $1.84 per page
D. $0.092 per page
Question 8:
Seth Anderson. the production manager at Frawley Company, purchased a cutting machine for the company last year. Six months after the purchase of the cutting machine, Seth learned about a new cutting machine that is more reliable than the machine that he purchased. The following information is available for the two machines:
Requirements
(a) Should Seth Anderson replace the old machine with the new machine? Explain, listing all relevant costs.
(b) What costs should be considered as sunk costs for this decision?
(c) What other factors may affect Anderson's decision?
Data Table
CATEGORY OLD MACHINE NEW MACHINE
Acquisition cost $305,000 $380,000
Remaining life 4 years 4 years
Salvage value now $100,000
Salvage value at the end of 4 years $2.000 $6,500
Annual operating costs for the old machine are $120,000. The new machine will decrease annual operating costs by $50,000. These amounts do not include any charges for depreciation. Frawley Company uses the straight-line depreciation method. These estimates of operating costs exclude rework costs. The new machine will also result in a reduction in the defect rate from the current 5% to 1%. All defective units are reworked at a cost of $2 per unit. The company, on average, produces 80,000 units annually.
Question 9:
Capilano Containers Company specializes in making high-quality customized containers to order. Its agreement with the labor union ensures employment for all its employees and a fixed payroll of $80.000 per month, including fringe benefits.
Requirement
Determine the total costs for June.
Question 10:
Blazer Enterprises has identified three cost pools and three corresponding cost drivers to allocate overhead costs. The following estimates are provided for the coming year:
Cost Pool Overhead Costs Cost driver Activity level
Supervision of direct labor $480,000 Direct labor - hours 800,000
Machine maintenance $220,000 Machine - hours 550,000
Facility rent $260.000 Square feet of area 100.000
Total overhead costs $960,000
The accounting records show the Gergen Job consumed the following resources:
Cost driver Actual level
Direct labor - hours 600
Machine - hours 2,100
Square feet of area 90
Using the three cost pools to allocate overhead costs. what is the total amount of overhead costs to be allocated to the Gergen Job?
A 51,074
B 51,400
C $1,350
D $1,434
Question 11:
The Amsterdam Company manufactures two models of compact disc players: a deluxe model and a regular model. The company has manufactured the regular model for years; the deluxe model was introduced recently to tap a new segment of the market. Since the introduction of the deluxe model. the company's profits have steadily declined. and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.
The current cost accounting system allocates manufacturing support costs to the two products on the basis of direct labor hours.
The company has estimated that this year it will incur 81.187,200 in manufacturing support costs and will produce 8.000 units of the deluxe model and 64.000 units of the regular model. The deluxe model requires 2 hours of direct labor, and the regular model requires 1 hour. Material and labor costs per unit and selling price per unit are as follows:
Requirement (a) Compute the manufacturing support cost driver rate for this year.
Determine the formula, then calculate the manufacturing support cost driver rate.