Comprehensive Final ExamAccounting 3300 Fall 2009Prof. Richard McDermott

Name ____________________________

Take home exam. Then go to testing center and put answers on chi-tester. Show work on scratch paper turned into testing center with exam. Exam due last day of finals.

1. Purchasing costs as defined in the EOQ formula, include the cost of goods acquired from suppliers, excluding freight.a. Trueb. False

2. The cost of receiving and inspecting items ordered and received on a purchase order; and of matching invoices, purchase orders, and delivery records prior to the issuance of a check to the vendor, all are included in purchasing costs.a. Trueb. False

3. Normal scrap is inventoried while abnormal scrap is written off as a separate line on the income statement.a. trueb. false

4. Internal failure is classified as a:a. Quality costb. Stock-out costc. Carrying costd. Ordering costse. Manufacturing cost

5. One of the strengths of EOQ is that it takes into consideration stock-out costs.a. Trueb. False

6. The formula for EOQ is the square root of 2DP/C. a. trueb. false

7. The formula for EOQ is the square root of 2DP/? What does P in the equation stand for?a. The purchase price of the item inventoried.b. The cost to cut a purchase order.c. The penalty for a stock-out.

d. The opportunity cost of capital as a percent of total investment.e. None of the above are correct.

8. The ________________ is the quantity level of inventory on hand, that triggers a new purchase order.a. EOQb. Safety stockc. Square root of the prediction errord. Reorder pointe. Standard quantity

9. The total relevant carrying cost is the cost of purchasing goods and can change with the quantity of inventory held.a. trueb. false

10. The opportunity cost of capital should be recorded in the general ledger.a. trueb. false

11. MRP is a “pull-through” manufacturing system.a. trueb. false

12. Backflush costing is primarily used by companies that manufacture flush toilets.a. trueb. false

13. (D/Q x P) is the formula for:a. Total relevant carrying costsb. Total relevant ordering costsc. Total relevant stock-out costsd. Economic order quantitye. MRP

14. The total relevant ordering cost of Adams Interior's primary product is $1200. The total relevant carrying cost is $1800. Given this information, which of the following statements is true.a. The company is obviously not using EOQ.b. It is obvious the company is using MRP.c. The product line can never be profitable with these figures.d. Prof. McDermott is trying to drive me crazy with all of these acronyms.e. a and d are most likely correct

15. Which of the following are not balanced scorecard perspectives?a. Financial

b. Customerc. Learning and growthd. Internal business processe. All of the above are balanced scorecard perspectives.

16. Companies that operate in multiple countries are most often highly centralized.a. trueb. false

17. Profit centers are concerned with return on investment.a. trueb. false

18. The minimum transfer price one division should accept from another is equal to incremental (or variable) cost plus opportunity cost of the transferred product.a. trueb. false

19. Duel pricing uses two separate transfer pricing methods to price transfers of intermediate products from one subunit to another.a. trueb. false

20. Return on investment is calculated by dividing income by investment.a. trueb. false

21. The DuPont method of profitability analysis is a derivation of the residual income formula.a. trueb. false

22. In the residual income formula, the required rate of return times investment is also known as the _____________ cost of the investment.

23. The complexity of modern manufacturing processes was one of the forces that drove the development of activity-based costing.a. Trueb. False

24. Traditional costing systems, where two or more dissimilar products are produced in the same facility, will usually result in one product being over-costed.a. Trueb. False

25. A factory that manufactures only one product would not need activity-based costing.a. Trueb. False

26. A cost __________ is a factor with a direct cause-and-effect relationship with the resource consumed.

27. The ____________ point is the stage of the production process at which products are examined to determine whether they are acceptable or not acceptable.

28. All but which of the following signal that management should consider installing an activity-based costing system.a. Product lines differ in volume and manufacturing complexity.b. Product lines are numerous and diverse, and require different degrees of support services.c. Overhead costs constitute a minor portion of total costs.d. Production or marketing managers are ignoring data provided by the existing accounting

system.e. All of the above indicate that management should consider installing an activity-based

costing system

29. Facility sustaining activities have no good cost driver.a. Trueb. False

30. Factory yard maintenance would be an example of a unit based activity driver.a. Trueb. False

31. Progressive manufacturing system used a push approach to manufacturing.a. Trueb. False

32. All but which of the following are characteristics of activity-based costing:a. Employees are highly specialized and rarely performed more than one function.b. Inventories are reduced or eliminated.c. Quality is enhanced.d. Rework costs are reduced.e. Production cost savings result from improved flow of goods through the process.

33. The first step in the budgeting process is usually the preparation of the _____________ budget.

34. A production budget in units begins with budgeted unit sales and then adds:a. Units of finished goods or producedb. Target ending finished goods inventoryc. Total required units

d. Beginning of finished goods inventorye. Purchases of new units

35. The terms operating department and support department are synonymous.a. Trueb. False

36. FASB requires the allocation of fixed overhead to cost of goods sold for inventory valuation and income determinationa. Trueb. False

37. The reciprocal method of multiple support department allocation is the most accurate of the three methods studied.a. Trueb. False

38. The __________ method of cost allocation considers each party as the first primary party, and then as the incremental party, and then takes the average as the final value.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 39 AND 40:Owen-King Company sells optical equipment. Lens Company manufactures special glass lenses. Owen-King Company orders 5,200 lenses per year, 100 per week, at $20 per lens. Lens Company covers all shipping costs. Owen-King Company earns 30% on its cash investments. The purchase-order lead time is 2.5 weeks. Owen-King Company sells 125 lenses per week. The following data are available:

Relevant ordering costs per purchase order $21.25Relevant insurance, materials handling, breakage,and so on, per year $ 2.50

39. What is the economic order quantity for Owen-King Company?a. 325 lensesb. 297 lensesc. 210 lensesd. 161 lenses

40. What is the reorder point?a. 220.5 lensesb. 312.5 lensesc. 397.5 lensesd. 415.5 lenses

41. Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per pound for the next year. The Production Division recently increased its unit price to $40. The manager of the Production Division presented the following information —

variable cost $32 and fixed cost $8 — to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 pounds of stuffing per month.

What would be the monthly operating advantage (disadvantage) of purchasing the goods internally, assuming the external supplier increased its price to $50 per pound and the Production Division is able to utilize the facilities for other operations, resulting in a monthly cash-operating savings of $30 per pound?a. $1,000,000b. $360,000c. $(240,000)d. $(400,000)

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 42THROUGH 43:Dakoil Corporation has two divisions, Refining and Production. The company's primary product is Enkoil Oil. Each division's costs are provided below:

Production: Variable costs per barrel of oil $ 3Fixed costs per barrel of oil $ 2

Refining: Variable costs per barrel of oil $10Fixed costs per barrel of oil $12

The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $20 per barrel.

42. What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 180% of variable costs?a. $5.40b. $9.00c. $18.00d. $23.40

43. What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 110% of full costs?a. $5.50b. $22.00c. $24.20d. $29.70

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 44 THROUGH 46:Ruth Cleaning Products manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 20X5:

ASSETS INCOMEBook value Current value Book value Current value

Bleach $225,000 $300,000 $150,000 $155,000Cleanser $450,000 $250,000 $100,000 $105,000

The company is currently using a 15% required rate of return.

44. What are Bleach's and Cleanser's return on investment based on book values, respectively?a. 0.22; 0.67b. 0.42; 0.52c. 0.52; 0.42d. 0.67; 0.22

45. What are Bleach's and Cleanser's return on investment based on current values, respectively?a. 0.22; 0.67b. 0.42; 0.52c. 0.52; 0.42d. 0.67; 0.22

46. What are Bleach's and Cleanser's residual incomes based on book values, respectively?a. $116,250; $32,500b. $110,000; $67,500c. $67,500; $110,000d. $37,500; $116,250

47. Target pricing takes market costs and adds the desired profit to calculate a target price.a. trueb. false

48. The addition of a Bose speaker system in a Mercedes-Benz would be an example of a non-value added cost.a. trueb. false

49. The term locked-in-costs describes a situation where a resource is consumed or a benefit forgone to meet a specific objective.a. trueb. false

50. Price discrimination is always illegal.a. trueb. false

51. Dumping occurs when companies in an industry conspire to set prices that are above what the market would set.a. trueb. false

52. Fixed costs are relevant in long-run pricing decisions but may not be relevant in a short-run one-time pricing decision.a. trueb. false

53. All but which of the following are conditions that must be set for a manufacturer to sell for less than full cost and still make a profit.a. The company must know its fixed and variable costs.b. The company must be able to segregate its markets.c. The company must be operating at full capacity.d. The sales price must cover variable costs and provide at least a small contribution margin.e. All of the above are conditions that must be set for a manufacturer to sell for less

than full cost and still make a profit.

54. The main difference between job costing and process costing is the extent of averaging used in process costing to compute the unit cost of the products or services produced.a. trueb. false

55. A(n) ____________ unit of labor is the cost of labor it would take to manufacture a complete product during the month.

56. The weighted-average method of process costing calculates cost per equivalent unit for all work done to date, regardless of the accounting period in which it was done.a. trueb. false

57. Both FIFO and weighted-average systems use the cost per equivalent unit figure to assign costs to raw materials, work in process, and finished goods inventories.a. trueb. false

58. Transferred-in costs in a process costing system are handled as just one other type of direct materials.a. trueb. false

59. Scrap consist of units of production that do not meet the specifications required by customers and are discarded or sold at reduced prices.a. trueb. false

60. Normal spoilage is always written off as a separate line on the income statement.a. trueb. false

61. An inspector can normally tell whether spoilage is normal or abnormal by just looking at it.

a. trueb. false

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 62 THROUGH 65:Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows:

Stand-AloneSelling Price

Cost PackagePackaged

Price

Reading Fun $50 $7.201. Reading Fun & Math Fun

$88

Math Fun $60 $8.002. Reading Fun & Analysis

$112

Analysis $90 $10.00 3. All three $152

62. Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)?a. $40b. $44c. $38d. $50

63. Using the incremental method for revenue allocation, what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)? Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.a. $40b. $44c. $38d. $50

64. Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be allocated to Math Fun in the package that contains all three products?a. $48.25b. $60.00c. $45.60d. $50.67

65. Using the incremental method, what amount of revenue will be allocated to Math Fun in the package that contains all three products?a. $48.25b. $60.00c. $45.60d. $50.67

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 66 THROUGH 69:

Wallace Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.

For 20X5 Wallace Printing decided to evaluate the use of additional cost pools. After 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 costs Activity levelDesign changes $ 60,000 200 design changesSetups 320,000 4,000 setupsInspections 40,000 16,000 inspections Total manufacturing overhead costs $420,000

During 20X5, two customers, Wealth Managers and Health Systems, are expected to use the following printing services:

Activity Wealth Managers Health SystemsPages 60,000 76,000Design changes 10 2Setups 20 10Inspections 30 38

66. If manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity, what is the cost driver rate?a. $0.25 per pageb. $0.05 per pagec. $0.025 per paged. $0.035 per page

67. Using the cost driver rate determined in the previous question, what is the manufacturing overhead cost estimate for Health Systems during 20X5?a. Manufacturing overhead costs applied to Health Systems total $2,100.b. Manufacturing overhead costs applied to Health Systems total $1,900.c. Manufacturing overhead costs applied to Health Systems total $2,660.d. Manufacturing overhead costs applied to Health Systems total $3,800.

68. Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?a. $300 per change, $80 per setup, $2.50 per inspectionb. $250 per change, $200 per setup, $3.75 per inspectionc. $210 per change, $105 per setup, $26.25 per inspectiond. $333 per change, $125 per setup, $4.00 per inspection

69. Using the activity-cost driver rates determined in the previous question, what is the manufacturing overhead cost estimate for Health Systems during 20X5?a. $3,113.75b. $1,495.00c. $2,068.00d. $3,412.50

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 70 THROUGH 75:The following information pertains to the January operating budget for Casey Corporation.

Budgeted sales for January $100,000 and February $200,000. Collections for sales are 60% in the month of sale and 40% the next month. Gross margin is 30% of sales. Administrative costs are $10,000 each month. Beginning accounts receivable is $20,000. Beginning inventory is $14,000. Beginning accounts payable is $60,000. (All from inventory purchases.) Purchases are paid in full the following month. Desired ending inventory is 20% of next month’s cost of goods sold (COGS).

70. For January, budgeted cash collections are:a. $20,000b. $60,000c. $80,000d. None of these answers are correct.

71. At the end of January, budgeted accounts receivable is:a. $20,000b. $40,000c. $60,000d. None of these answers are correct.

72. For January, budgeted cost of goods sold is:a. $20,000b. $30,000c. $40,000d. None of these answers are correct.

73. For January, budgeted net income is:a. $20,000b. $30,000c. $40,000d. None of these answers are correct.

74. For January, budgeted cash payments for purchases are:a. $14,000b. $70,000c. $60,000

d. None of these answers are correct.

75. At the end of January, budgeted ending inventory is:a. $20,000b. $28,000c. $40,000d. None of these answers are correct.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 76 THROUGH 78:Timothy Company has invested $2,000,000 in a plant to make vending machines. The target operating income desired from the plant is $300,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $2,000 each.

76. What is the target rate of return on investment for Timothy Company?a. 15.0%b. 17.6%c. 10.0%d. 11.1%

77. What is the markup percentage as a percentage of cost for Timothy Company?a. 15.0%b. 17.6%c. 10.0%d. 11.1%

78. What is the cost base of each vending machine for Timothy Company?a. $1,739b. $1,802c. $1,700d. $1,780

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 79 THROUGH 82:The Rest-a-Lot chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 75,000 chairs. During the month, the firm completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Rest-a-Lot. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs.

Beginning inventory:Direct materials $24,000Conversion costs $35,000

Manufacturing costs added during the accounting period:Direct materials $168,000Conversion costs $278,000

79. How many of the units that were started during February were completed during February?a. 85,000

b. 80,000c. 75,000d. 65,000

80. What were the equivalent units for conversion costs during February?a. 83,500b. 85,000c. 75,000d. 79,500

81. What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of February?a. $19,200b. $22,400c. $25,600d. $22,500

82. What is the cost of the goods transferred out during February?a. $417,750b. $456,015c. $476,750d. $505,000