The Balanced Scorecard has four dimensions, which are customer

1. The Balanced Scorecard has four dimensions, which are customer, perspective
financial perspective, happy duck perceptive, and corporate risk perspective.
_________TRUE

_________FALSE

2. Using residual income as a performance measure for investment centers can lead to
the underinvestment problem.
_________TRUE

_________FALSE

3. Using traditional costing leads to undercosting of high volume products.
_________TRUE

_________FALSE

4. Purchase of poor quality materials will generally result in a favorable materials price
variance and an unfavorable labor efficiency variance.
_________TRUE

_________FALSE

5. Direct material efficiency variable costs change proportional to output.
_________TRUE

_________FALSE

6. ABC costing uses activities as allocation base to allocate manufacturing overhead.
_________TRUE

_________FALSE

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7. The production manager is usually held responsible for the labor efficiency variance.
_________TRUE

_________FALSE

8. All other things the same, a decrease in average operating assets will decrease return
on investment (ROI).
_________TRUE

_________FALSE

Multiple choice questions (3 pts each)
Please write your answer in the blank provided.
_______ 1. A study has been conducted to determine if one of the departments in
Parry Company should be discontinued. The contribution margin in the department is
$50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is
estimated that $40,000 of these fixed expenses could be eliminated if the department
is discontinued. These data indicate that if the department is discontinued, the
company's overall net operating income would:
A. decrease by $25,000 per year
B. increase by $25,000 per year
C. decrease by $10,000 per year
D. increase by $10,000 per year

_______ 2. The customer service department of a residential remodeling company
would most likely be evaluated as a:
A.
B.
C.
D.
E.

cost center.
revenue center.
profit center.
investment center.
contribution center.

2

_______ 3. Barber Corporation uses an imputed interest rate of 13% in the calculation
of residual income. Division Alpha, which is part of Barber, had invested capital of
$1,200,000 and an ROI of 16%, On the basis of this information, Alphas residual
income was:

A.
B.
C.
D.
E.

$24,960
$36,000
$156,000
$192,000
some other amount

3

_______ 4. A company's average operating assets are $220,000 and its net operating
income is $44,000. The company invested in a new project, increasing average assets
to $250,000 and increasing its net operating income to $49,550. What is the project's
residual income if the required rate of return is 20%?

A. ($450)
B. $450
C. $600
D. ($600)

_______ 5. Misemer Corporation is developing standards for its products. One
product requires an input that is purchased for $57.00 per kilogram from the supplier.
By paying cash, the company gets a discount of 8% off this purchase price. Shipping
costs from the supplier's warehouse amount to $3.60 per kilogram. Receiving costs
are $0.26 per kilogram. The standard price per kilogram of this input should be:

A. $57.70
B. $56.30
C. $65.42
D. $57.00

_______

6. Which of the following statements is true?

A. A traditional volume-based system based on direct labor generally undercosts
high volume product lines.
B. In a traditional volume-based costing system based on direct labor, low volume
products generally subsidize high volume products.
C. An activity-based costing system generally undercosts low-volume, complex
product lines.
D. A traditional volume-based costing system based on direct labor generally
undercosts low-volume, complex product lines.

4

_______ 7. In October, 5,000 meters of raw material were purchased at an actual cost
of $4.50 per meter. During October, 4,850 meters of the raw material were used to
produce 2,400 units of the completed product. Standards call for 2 meters of the raw
material for each unit of the completed product. The standard price of the raw
material is $4.70 per meter. The materials variances for October were:

A. Choice A
B. Choice B
C. Choice C
D. Choice D

_______

8. Given the following information:

Standard wage rate per direct labor hour
Actual wage rate per direct labor hour
Standard inputs allowed/unit of output
Actual units of input
Actual units of output
The rate variance for direct labor is:
A.
B.
C.
D.
E.

$40,000 favorable
$40,000 unfavorable
$38,000 favorable
$38,000 unfavorable
$20,000 favorable

5

Direct Labor
$10
$11
2 hrs.
38,000 hrs.
20,000 units

_______ 9. Gary, Inc., applies manufacturing overhead at the rate of $40 per machine
hour. Budgeted machine hours for the current period were anticipated to be 70,000;
however, a lengthy strike resulted in actual machine hours being worked of only
55,000. Budgeted and actual manufacturing overhead figures for the year were
$2,800,000 and $2,150,000, respectively. On the basis of this information, the
company's year-end overhead was:
A. overapplied by $50,000.
B. underapplied by $50,000.
C. overapplied by $600,000.
D. underapplied by $600,000.
E. overapplied by $650,000.

_______ 10.
Metro Corporation uses a predetermined overhead rate of $20 per
machine hour. In deriving this figure, the company's accountant used:

A.

a denominator of budgeted machine hours for the current accounting period.

B.

a denominator of actual machine hours for the current accounting period.

C.

a denominator of actual machine hours for the previous accounting period.

D.

a numerator of budgeted machine hours for the current accounting period.

E.

a numerator of actual machine hours for the current accounting period.

6

_______ 11.Misemer Corporation is developing standards for its products. One
product requires an input that is purchased for $57.00 per kilogram from the supplier.
By paying cash, the company gets a discount of 8% off this purchase price. Shipping
costs from the supplier's warehouse amount to $3.60 per kilogram. Receiving costs
are $0.26 per kilogram. The standard price per kilogram of this input should be:

A. $57.70

B. $56.30

C. $65.42

D. $57.00

_______ 12.
Which of the following is not a broad, cost classification category
typically used in activity-based costing?

A.

Unit-level.

B.

Batch-level.

C.

Product-sustaining level.

D.

Facility-level.

E.

Management-level.

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_______ 13.
Anola Company has two products: A and B. The company uses
activity-based costing. The estimated total cost and expected activity for each of the
company's three activity cost pools are as follows:

Activity
Cost Pool
Activity 1. . .
Activity 2. . .
Activity 3. . .

Estimated
Expected Activity
Cost
Product A Product B
$18,000
300
200
$16,000
500
100
$27,000
600
300

Total
500
600
900

The activity rate under the activity-based costing system for Activity 3 is closest to:
A.

$30.00

B.

$30.50

C.

$90.00

D.

$67.78

_______ 14.
Which of the following budgets is prepared at the end of the
budget-construction cycle?

A.

Sales budget.

B.

Production budget.

C.

Budgeted financial statements.

D.

Cash budget.

E.

Beer and party
budget.

8

_______ 15.
In October, 5,000 meters of raw material were purchased at an
actual cost of $4.50 per meter. During October, 4,850 meters of the raw material were
used to produce 2,400 units of the completed product. Standards call for 2 meters of
the raw material for each unit of the completed product. The standard price of the raw
material is $4.70 per meter. The materials variances for October were:

A. Choice A

B. Choice B

C. Choice C

D. Choice D

_______

16.

Given the following information:

Standard wage rate per direct labor hour
Actual wage rate per direct labor hour
Standard inputs allowed/unit of output
Actual units of input
Actual units of output
The rate variance for direct labor is:

A. $40,000 favorable
B.

$40,000 unfavorable
9

Direct Labor
$10
$11
2 hrs.
38,000 hrs.
20,000 units

C.

$38,000 favorable

D. $38,000 unfavorable
E.

$20,000 favorable

Problems You MUST show your work to receive credit for your answers
and to receive partial credit. Please try to be as neat and organized as
possible.

Problem 1:
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for
the next four months as follows:

The company is now in the process of preparing a production budget for the second
quarter. Past experience has shown that end-of-month inventory levels must equal 10% of
the following months sales. The inventory at the end of March was 6,200 units.
Required:
Prepare a production budget for the second quarter; in your budget, show the number of units to
be produced each month and for the quarter in total.

Problem 2:
Activity-Based Costing as an Alternative to Traditional Product Costing
Siegel Company manufactures a product that is available in both a deluxe model and a
regular model. The company has manufactured the regular model for years. The deluxe
model was introduced several years ago to tap a new segment of the market. Since
introduction of the deluxe model, the company's profits have steadily declined and

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management has become increasingly concerned about the accuracy of its costing system.
Sales of the deluxe model have been increasing rapidly.
Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the
current year, the company has estimated that it will incur $900,000 in manufacturing
overhead cost and produce 5,000 units of the deluxe model and 40,000 units of the
regular model. The deluxe model requires two hours of direct labor time per unit, and the
regular model requires one hour. Material and labor costs per unit are as follows:

Required:
1. Using direct labor-hours as the base for assigning overhead cost to products,
compute the predetermined overhead rate. Using this rate and other data from the
problem, determine the unit product cost of each model.

2. Management is considering using activity-based costing to apply manufacturing
overhead cost to products for external financial reports. The activity-based costing
system would have the following four activity cost pools:

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Determine the predetermined overhead rate (pool or activity rate) for each of the
four activity cost pools.
3. Using the predetermined overhead rates you computed in part (2) above, compute
the unit product cost of each model (direct materials, direct labor, and
manufacturing overhead).

Problem 3:
Kyota, a major automobile manufacturer located in San Antonio, Texas, makes cars,
SUVs and light Trucks. For the past 15 years, Kyota has been known for producing
quality vehicles and producing most components (tires, radios, interiors, engines, etc) in
house.
Last year, Kyota began offering the global positioning systems (GPS) in all vehicles.
Automobiles with GPS devices were sold for $1,000 more than vehicles without. During
the year 15,000 GPS devices were made internally by the satellite technology division of
Kyota (15,000 units is the maximum GPS devices that can be produced in 1 year). The
unit costs of the GPS are as follows:
Direct materials
Direct labor
Variable OH
Allocated fixed OH
Variable marketing
Fixed marketing

$110
$200
$ 10
$ 5
$ 0.50
$ 0.50

Recently, Kyota has been faced with tight profit margins and intense competition (many
of their competitors have begun offering employee discounts to all customers!!). Sany,
an electronics manufacturer has approached Kyota and offered to manufacture all of the
GPS devices for $315 dollars per unit plus shipping charges of $200 per thousand units.

If Kyota accepts the offer it will have no alternative use for the satellite technology
department, therefore, the department will be closed.
The GPS production supervisor (who is a direct descendant of the company
founder and whose salary makes up 5% of direct labor costs) will be transferred to
a Kyota warehouse where he watches TV all day and does not replace any other
employees. All other employees will be laid off.
Variable overhead costs will be eliminated.
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In addition, variable marketing costs will be eliminated.
Fixed marketing costs, however, will be reduced by 50%.
Allocated fixed overhead costs cannot be eliminated if production is outsourced.

Required:
Should Kyota accept the offer from Sany to produce all GPS devices (support your
answer with an analysis of each option)?

Problem 4:
You have just retired as CEO of a fortune 500 corporation. You have very found
memories of your days at Drexel University and particularly of your ACCT 116
managerial accounting class. When offered the chance to become the new president of
Drexel University you jump at the opportunity. As president one of your first steps is to
implement a balanced score card for Drexel.
Required:
A. What are the four dimensions of the Balanced Scorecard (in general form as
found in management accounting textbooks)?

B. Name two examples of how you could measure the customer perspective in the
Balanced Scorecard for an academic institution like Drexel University?

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C. Discuss whether measures that are used in a Balanced Scorecard need to be
related to a companys strategy. Be specific.

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