Spacer Company has two service departments and two operating departments. Budgeted costs and budgeted activity in the various departments for last year are shown below:
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Custodial
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Cutting
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Assembly
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Services
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Cafeteria
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Department
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Department
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Departmental costs.........
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$50,400
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$28,000
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$120,000
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$200,000
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Square feet occupied......
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500
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1,000
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4,000
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5,000
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Number of employees....
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10
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15
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75
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100
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Machine-hours................
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10,000
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15,000
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Service department costs are allocated to operating departments with the costs of Custodial Services allocated on the basis of square feet of space occupied and the costs of the Cafeteria on the basis of number of employees. The departmental costs for the cutting and assembly departments are overhead costs. Predetermined overhead rates in the Cutting and Assembly departments are based on machine-hours.
1. Assume that the company uses the direct method of allocation. The predetermined overhead rate in the Assembly Department would be closest to:
A) $16.27
B) $15.00
C) $15.87
D) $16.00
2. Assume that the company uses the step method of allocation with Custodial Services allocated first. The amount of Custodial Services cost allocated to the Assembly Department would be:
A) $0
B) $28,000
C) $24,000
D) $25,200
3. Product X-47 is one of the joint products in a joint manufacturing process. Management is studying whether to sell X-47 at the split-off point or to process X-47 further into Xylene. The following data have been gathered:
Selling price of X-47
I. Variable cost of processing X-47 into Xylene.
II. The avoidable fixed costs of processing X-47 into Xylene.
III. The selling price of Xylene.
IV. The joint cost of the process from which X-47 is produced.
Which of the above items are relevant in a decision of whether to sell the X-47 as is or process it further into Xylene?
A) I, II, and IV.
B) I, II, III, and IV.
C) II, III, and V.
D) I, II, III, and V.
4. Robot Inc. has some material that originally cost $73,500. The material has a scrap value of $45,600 as is, but if reworked at a cost of $6,600, it could be sold for $58,100. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?
A) -$22,000
B) -$67,600
C) $5,900
D) $51,500
5. Candle Corporation is preparing a bid for a special order that would require 880 liters of material R9S. The company already has 280 liters of this raw material in stock that originally cost $6.20 per liter. Material R9S is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $5.45 per liter. New stocks of the material can be readily purchased for $6.20 per liter. What is the relevant cost of the 880 liters of the raw material when deciding how much to bid on the special order?
A) $5,456
B) $5,006
C) $4,796
D) $5,456
6. Oz Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 2,300 units of component OTB. Each unit of OTB requires 9 units of material G58 and 7 units of material H66. Data concerning these two materials follow:
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Material
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Units in Stock
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Original Cost Per Unit
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Current Market Price Per Unit
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Disposal Value Per Unit
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G58
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18,940
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$4.40
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$4.65
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$4.35
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H66
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15,700
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$6.10
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$6.50
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$4.80
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Material G58 is in use in many of the company's products and is routinely replenished. Material H66 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product OTB?
A) $189,890
B) $174,215
C) $168,533
D) $200,905
7. When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following?
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Fixed costs per unit
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Variable costs per unit
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A)
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Increase
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Increase
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B)
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Increase
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No change
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C)
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No change
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No change
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D)
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No change
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Increase
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8. Shipping costs at Columbia Mining Company are a mixture of variable and fixed components.The company shipped 8,000 tons of coal for $400,000 in shipping costs in February and 10,000 tons for $499,000 in March. Assuming that this activity is within the relevant range, expected shipping costs for 11,000 tons would be:
A) $548,500
B) $544,500
C) $422,222
D) $554,000
9. To allocate corporate costs to divisions, the allocation base used should:
A) be an output unit-level base
B) combine administrative costs and human resource management costs
C) have the best cause-and-effect relationship with the costs
D) allocate the full costs
10. The XTRA Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The following information was gathered about the two products:
Standard Super
Budgeted sales in units 3,200 800
Budgeted selling price $600 $1,700
Budgeted contribution margin per unit $420 $1,100
Actual sales in units 3,500 1,500
Actual selling price $650 $1,680
What is the total sales-quantity variance in terms of the budgeted contribution margin?
A) $220,000 favorable
B) $340,000 favorable
C) $556,000 favorable
D) $896,000 favorable
Use the following information for Questions 11 and 12.
Jet Equipment uses a flexible budget for its indirect manufacturing costs. For 2013, the company anticipated that it would produce 18,000 units with 3,500 machine-hours and 7,200 employee days. The costs and cost drivers were to be as follows:
Fixed Variable Cost driver
Product handling $30,000 $0.40 per unit
Inspection 8,000 8.00 per 100 unit batch
Utilities 400 4.00 per 100 unit batch
Maintenance 1,000 0.20 per machine-hour
Supplies 5.00 per employee day
During the year, the company processed 20,000 units, worked 7,500 employee days, and had 4,000 machine-hours. The actual costs for 2013 were:
Actual costs
Product handling $36,000
Inspection 9,000
Utilities 1,600
Maintenance 1,200
Supplies 37,500
11. The static budget overhead variances total
A) $2,800 U
B) $2,800 F
C) $160 F
D) $160 U
12. The flexible budget overhead variances total
A) $2,800 U
B) $2,800 F
C) $160 F
D) $160 U
Use the following information for Questions 13 - 15.
Chloe Industries manufactures one product and uses a standard costing system. The following relates to the production of the product for the month of October: Budgeted Fixed Overhead $100,000; Budgeted Variable Overhead $150,000; Budgeted Production in Units 10,000; Actual Fixed Overhead $110,000; Actual Variable Overhead $185,000; Actual Units Produced 11,000; Budgeted Direct Labor Hours 10,000; Actual Direct Labor Hours 11,500; Standard Number of Direct Labor Hours per Unit of Output is 1. The activity to allocate overhead is direct labor hours.
13. The variable overhead spending (budget) variance is
A) $20,000 F
B) $12,500 F
C) $20,000 U
D) $12,500 U
14. The fixed overhead volume variance is
A) $15,000 F
B) $10,000 F
C) $15,000 U
D) $10,000 U
15. The variable overhead efficiency variance is
A) $10,000 F
B) $10,000 U
C) $7,500 F
D) $7,500 U