Assignment
Part 1. Multiple Choice
1) Which of the following people is LEAST likely to use management accounting information?
A) the controller
B) a shareholder evaluating a stock investment
C) the treasurer
D) an assembly department supervisor
2) Budgetary slack is created when:
A) When the difference between actual and budgeted amounts are accidental
B) When the difference between actual and budgeted amounts are based on unforeseen events.
C) When the difference between actual and budgeted amounts are the result of deliberately introduced bias in the budgetary process.
D) When the difference between actual and budgeted amounts are the result of management's inability to be clairvoyant.
3) A budgeting system that allows individuals who are affected by the budget to have input into the budgeting process is called:
A) mandated budgeting
B) zero-based budgeting
C) incremental budgeting
D) participative budgeting
4) A cost system determines the cost of a cost object by:
A) accumulating and then assigning costs
B) accumulating costs
C) assigning and then accumulating costs
D) assigning costs
5) Which of the following items is NOT an assumption of CVP analysis?
A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B) When graphed, total costs curve upward.
C) The unit-selling price is known and constant.
D) All revenues and costs can be added and compared without taking into account the time value of money.
6) Sherry's Custom Jewelry sells a single product. 700 units were sold resulting in $7,000 of sales revenue, $2,800 of variable costs, and $1,200 of fixed costs.
Contribution margin per unit is:
A) $4.00
B) $4.29
C) $6.00
D) None of these answers are correct.
7) The use of a single indirect-cost rate is more likely to:
A) undercost high-volume simple products
B) undercost low-volume complex products
C) undercost lower-priced products
D) Both B and C are correct.
8) Which of the following statements about activity-based costing is NOT true?
A) Activity-based costing is useful for allocating marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) Activity-based costing seeks to distinguish batch-level, product-sustaining, and facility-sustaining costs, especially when they are not proportionate to one another.
D) Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.
9) Operating budgets and financial budgets:
A) combined form the master budget
B) are prepared before the master budget
C) are prepared after the master budget
D) have nothing to do with the master budget
10) A cost function is a ________.
A) process of calculating present value of projected cash flows
B) process of allocating costs to cost centers or cost objects
C) mathematical description of how a cost changes with changes in the level of an activity relating to that cost
D) is a very thorough and detailed way to identifying a cost object when there is a physical relationship between inputs and outputs
11) For February, the cost components of a picture frame include $0.30 for the glass, $0.75 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $500. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs?
A) y = 1.85 + 500X
B) y = 500 + 1.85X
C) y = 3.85 + 600X
D) y = 1.05 + 500X
12) Full costs of a product are the sum of ________.
A) fixed costs and sunk costs in all the business functions of the value chain
B) variable costs and sunk costs in all the business functions of the value chain
C) all variable and fixed costs in all the business functions of the value chain
D) fixed costs, variable costs, and sunk costs in the value chain
13) Black Forrest manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $180 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Back Forrest's policy to add a 50% markup to full costs.
Black Forrest is invited to bid on a one-time-only special order to supply 100 rustic tables. What is the lowest price Black Forrest should bid on this special order?
A) $12,600
B) $14,400
C) $18,000
D) $23,000
14) An organization that is using the cost leadership approach would ________.
A) incur costs for innovative R&D
B) provide products at a higher cost than competitors
C) focus on productivity through efficiency improvements
D) bring products to market rapidly
15) ________ is the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction.
A) Strategy
B) Product differentiation
C) Product designing
D) Reengineering
Part 2. Fill-in-the-blank
1) For compilation of a production budget, ____________ and _________________are included as well as the forecasted sales from the sales budget.
2) A predetermined overhead rate is used in which type of costing model? _____________________
3) _____________ can provide both planning and control roles for management.
4) How many units would have to be sold to yield a target operating income of $22,000, assuming variable costs are $15 per unit, total fixed costs are $2,000, and the unit selling price is $20?
5) _________________is that quantity of output where total revenues equal total costs.
6) _______________systems distort product costs because they apply average support costs to each unit of product
7) ________________budgeting incorporates continuous improvement into budgeted amounts.
8) _______________ accounting is concerned primarily with external reporting to investors, creditors, and government authorities
9) _________________ and ______________________ combined are referred to as prime costs.
10) _____________________ is the assignment of direct costs to the chosen cost object.
Part 3. Direct Labor Budget
Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 20,000 units of Big and 10,000 units of Bigger. Shamokin plans on having an ending inventory of 4,000 units of Big and 2,000 units of Bigger. Currently, Shamokin has 1,000 units of Big in its inventory and 800 units of Bigger. Each product requires two labor operations: molding and polishing. Product Big requires one hour of molding time and one hour of polishing time. Product Bigger requires one hour of molding time and two hours of polishing time. The direct labor rate for molders is $20 per molding hour, and the direct labor rate for polishers is $25 per polishing hour.
Required:
Using Excel, prepare a direct labor budget in hours and dollars for each product.
Part 4. Balanced Scorecard
Please identify the 4 measures of the balanced scorecard and provide a real life example of how they may interrelate.
Part 5. Cost-Volume-Profit Problem
Sarah's T-Shirts business makes and sells tie dyed and embroidered T-Shirts. Sales information for the last year is shown below. During the year, Sarah's fixed manufacturing costs were $40,000 and fixed Selling and Administrative costs were $50,000.
|
Tie Dyed
|
Embroidered
|
|
Sales units
|
15,000
|
8,000
|
|
Unit price
|
$12
|
$18
|
|
Variable manufacturing cost/unit
|
$7
|
$9
|
|
Sales commission (% sales)
|
10%
|
15%
|
Prepare using Excel an Income Statement in Contribution Margin format for Sarah's business. Calculate breakeven units and revenue for her total business.
Part 6. ABC Problem
Royal Financial Services (RFS) provides front end loan origination services for a number of banks who process and maintain loan portfolios. RFS accepts applications from customers and processes them through closing of the loan agreement before turning the loan over to customer banks. RFS is paid regardless of whether the loan closes or not. RFS currently services three types of loans - residential mortgages, auto loans, and personal unsecured loans. RFS has no cost accounting system so total operating expenses are simply allocated to each product line based on revenue.
For the year just ended, RFS reported financial results as follows:
|
Income Statement
|
Mortgage
|
Auto
|
Personal
|
Total
|
|
Annual Volume of Loans
|
1500
|
6000
|
4000
|
11500
|
|
Origination Fee/Unit
|
$350
|
$200
|
$115
|
|
|
Total Revenues
|
$525,000
|
$1,200,000
|
$460,000
|
$ 2,185,000
|
|
Operating Expense
|
$504,673
|
$1,153,538
|
$442,189
|
$ 2,100,400
|
|
Profit
|
$ 20,327
|
$ 46,462
|
$ 17,811
|
$ 84,600
|
|
Profit % Revenue
|
3.9%
|
3.9%
|
3.9%
|
3.9%
|
RFS management is concerned about the overall low profitability of the business and has asked you to apply activity based analysis in order to give RFS a better understanding of relative product profitability. After extensive interviewing of staff and analysis of RFS's cost structure, you determine there are four primary activities that RFS performs, with cost drivers and total cost as follows:
|
Activities
|
Activity Driver
|
Mortgage
|
Auto
|
Personal
|
Total Cost
|
|
Accept applications
|
# pages per application
|
4
|
3
|
1
|
616,000
|
|
Obtain credit referrals
|
# credit sources/applic.
|
2
|
2
|
1
|
332,500
|
|
Do loan analysis
|
# hours analysis/applic.
|
3
|
2
|
1
|
656,000
|
|
Close loan
|
# hours to close loan
|
4
|
2
|
1
|
495,900
|
You determine that the application processing and loan analysis activities are performed using internal RFS resources while the credit and closing activities are performed primarily by external credit agencies and law offices on a per transaction basis (e.g. $X per credit check, $Y per closing hour). You also learn 70% of the mortgages end up being closed (the remainder are not approved after loan analysis); 80% of auto loans close and 90% of personal loans close.
You also identify a key external measure of how well RFS is performing versus the industry. While RFS does not bear the cost of defaults, their customers do track RFS performance and use it to negotiate future origination fee rates.
|
|
Mortgage
|
Auto
|
Personal
|
|
Default rate experienced by loan processor
|
2%
|
1%
|
6%
|
|
Industry average
|
2%
|
3%
|
4%
|
Assignment
A. Based on the above information, use activity based costing to assess the total and per unit profitability of RFS's three loan products
B. Write a brief memo (maximum 1 page, double spaced, font 12) to RFS management summarizing the results of your analyses. Make specific recommendations to RFS to improve business profitability.