ACG 2071 Final Assessment

ACG 2071 Final Assessment

1. In your own words, identify and describe the five different responsibility centers and provide one example of each.


2. Provide three examples of something that an organization might want to measure and a performance measurement that could be utilized in each example.


3. Explain how target costing differs from traditional cost-based pricing methods.

Problems.

1. Kristen Roper oversees her company's largest and most profitable investment center. She has asked you, as her staff accountant, to compute the center's ROI, residual income, and EVA for the month of August 2014, using the following information (rounded to two decimal places): 5 points each – 15 total.

August 2014 Pretax operating income $300,000
August 2014 sales 450,000
Assets at July 31, 2014 500,000
Assets at August 31, 2014 510,000
August 2014 income taxes 90,000
Current liabilities at August 31, 2014 250,000
Cost of capital 19%
Desired ROI 52%




2. Truman Company assembles products from a group of interconnecting parts. The company produces some of the parts and buys some from outside vendors. The vendor for Part Y has just increased its price by 35%, to $5 per unit for the first 5,000 units and $4.50 per additional unit ordered each year. The company uses 7,500 units of Part Y each year. Unit costs if the company makes the part are as follows:

Direct materials $1.75
Direct labor 1.00
Variable overhead 2.00
Variable selling costs for the assembled product 2.00

Should Truman Company continue to purchase Part Y or begin making it? 5 points.




3. The supervisor of a facility has $500,000 to spend on new equipment to improve operations. How should the company proceed if the company’s minimum rate of return is 14 percent and it is considering the following proposals? 5 points.

Rate of Capital
Proposal Return Investment
P 10% $ 300,000
Q 18% 450,000
R 16% 50,000
S 12% 400,000
T 14% 400,000
Total $1,600,000




4. Pixie Industries has recently patented a new product called Stardust. The following annual information was developed by the company's controller for use in price determination: 5 points each - 10 total.

Variable production costs $930,000
Fixed overhead 310,000
Selling expenses 210,000
General and administrative expenses 115,000
Desired profit 171,000

Annual demand for the product is expected to be 500,000 bottles. Round answers to nearest two decimal places.

a. Compute the projected unit cost for one bottle of Stardust.
b. Prepare the formulas for computing the markup percentage and the selling price for one bottle using the gross margin pricing method.



5. Tyler, Inc. is in the process of developing a transfer price for a part produced by Department A and used by other departments in manufacturing various products. Unit costs for the part are as follows: 5 points each – 10 total.

Cost Categories Unit Cost
Direct materials $8.10
Direct labor 7.00
Variable overhead 4.50
Fixed overhead 4.40
Profit markup (30 percent of cost) ?

Department B can purchase the part from an outside supplier at $29.50 per unit.

a. Develop the cost-plus transfer price for the part.
b. What should be the transfer price? Support your answer.



6. Consider the following data for Sue Company: 5 points each – 20 total.

Net sales $14,000
Costs of quality:
Prevention 800
Appraisal 1,000
Internal failure 400
External failure 600

Compute the following quality ratios for Sue Company: a. Total costs of quality as a percentage of sales
b. Ratio of costs of conformance to total costs of quality
c. Ratio of costs of nonconformance to total costs of quality
d. Costs of nonconformance as a percentage of sales



7. The following data pertain to the past six months for Ridge Company: 5 points each – 20 total.

Lake Orange Polk
County County County Company
Division Division Division Totals
Sales $1,125,000 $1,050,000 $1,200,000 $3,375,000
Appraisal costs $ 18,640 $ 11,160 $ 18,900 $ 48,700
External failure costs 18,100 22,600 12,100 52,800
Internal failure costs 16,400 21,900 14,300 52,600
Prevention costs 16,660 10,140 28,100 54,900
Total costs of quality $ 69,800 $ 65,800 $ 73,400 $ 209,000

Evaluate the three divisions' programs by:
a. Computing the costs of conformance and the costs of nonconformance of each division.
b. Computing conformance, nonconformance, and total quality costs as a percentage of sales for each division.
c. Identifying the division that is developing the strongest quality program.
d. Identifying the division that has been slowest to react to the management directive of TQM?

Defend your answers. Round percentages to two places beyond the decimal point.