UHV ACC6352 final exam

Question 1

The management accountant for the Katy Market prepared the following segmented income statement for the most current year.

Grocery Bakery Produce Fish/Meat Total

Sales $130,000 $120,000 $80,000$70,000$270,000

Variable expenses 60,000 75,000 45,000 25,000 $205,000

Contribution margin 70,000 45,000 35,000 45,000 $195,000

Other costs 22,000 24,000 25,000 21,000 $92,000

Segment margin 48,000 21,000 10,000 24,000 $103,000

Allocated avoidable costs 6,000 3,000 4,000 5,000 $18,000

Segment income 42,000 18,000 6,000 19,000 $85,000

Allocated corporate costs 13,000 12,000 9,000 7,000 $41,000

Corporate profit $29,000$6,000 ($3,000) $12,000$44,000

(Required)

a) Katy Market is thinking of dropping Produce because it is reporting an operating loss. Assuming the company drops "Produce" and does not replace it, operating income for the firm will:

b) Assuming that "Produce" is discontinued and the space formerly devoted to this line is used for "Grocery", operating income for the company will:

c) Assuming that "Produce" is discontinued and the space formerly devoted to this line is rented for $4,000 per year, operating income for the company will:

Question 2

Katy Co. manufactures large desks for industrial use. Mary Kay, the Vice President for marketing at Katy Co. concluded from market analysis that sales were dwindling for Katy's desks due to aggressive pricing by competitors. Katy's desk sells for $800 whereas the competition's comparable desk sells for $750. Mary determined that a price drop to $750 would be necessary to retain market share and annual sales of 1,000 desks.

Cost data based on sales of 10,000 desks:

Budgeted Actual Actual

Qualtity Qualtity Costs

Direct Materials (pound) 350,000360,000$420,000

Direct Labor (hours) 75,000 80,000 $120,000

Machine Setup (# of setups) 12,000 12,500 $90,000

Mechanical Assembly (machine hours) 400,000380,000$450,000

(Required)

a) The current cost per unit is:

b) The current profit per unit is:

c) If the profit per unit is maintained, the target cost per unit is:

d) In order to reduce costs so as to reach the desired target cost, Katy Co. should also focus on reducing the cost of: Materials, labor and setups are all under budget; mechanical assembly is over budget.

Question 3

The actual information pertains to the month of May. As part of the budgeting process,

Katy Co. developed the following static budget for September. Katy Co. is in the

process of preparing the flexible budget and understanding the results.

Actual Flexible Master

Results Budget Budget

Sales volume (in units) 30,000 25,000

Sales revenues$1,250,000 $1,000,000

Flexible (variable) costs600,000 400,000

Contribution margin 650,000 600,000

Capacity-related (fixed) costs 400,000 350,000

Operating profit $200,000 $250,000

Required:

a) The total variance for operating profit is:

b) The flexible-budget variance for operating profit is:

c) The sales volume variance for the variable cost is:

d) The flexible budget variance for the fixed cost is:

e) Interpret the results based on the causes of the variances.

Question 4

All of the following are true regarding target costing EXCEPT that:

improvements are implemented in small, incremental amounts.

customer input is collected continually throughout the target costing process.

input is requested from suppliers and distributors.

a key goal is to minimize ownership costs over the product's useful life.

Question 5

A favorable cost variance of significant magnitude:

is the result of good planning.

may lead to improved production methods if it is investigated.

indicates that management does not need to be concerned about lax standards.

does not need to be investigated.

Question 6

An understanding of total-life-cycle costs can lead to:

additional costs during the manufacturing cycle.

less need for the evaluation of opportunity costs.

additional costs during the manufacturing cycle.

less need for the evaluation of opportunity costs.

Question 7

After conducting a market research study, Stewart Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $120. The annual target sales volume for interior doors is 20,000. Stewart has a 20% expected return on sales target. What is the target cost?

$1,800,000

$1,920,000

$2,520,000

$2,016,000

Question 8

Segment margin includes:

all costs traceable to the segment.

the segment's share of allocated corporate costs.

the segment's share of allocated unavoidable costs.

All of the above are correct.

Question 9

Place the following steps for the implementation of target costing for a product in order:

A = Derive a target cost

B = Develop a target selling price

C = Perform value engineering

D = Determine target profit margin

B D A C

B A D C

A D B C

A B C D

Question 10

The performance measurement system for employees' compensation should focus on all facets of performance to:

ensure that employees do not sacrifice performance on unmeasured elements.

encourage gaming of the performance indicator.

provide the highest possible level of internal control.

ensure that reporting is complete.

Question 11

The primary goal of transfer pricing is to:

motivate the decision maker to act in the organization's best interests.

obtain a high transfer price for the supplying unit.

obtain a high transfer price for the receiving unit.

agree on a price for external sales.

Question 12

All of the following would likely be classified as cost centers EXCEPT:

maintenance department at local grocery store.

your university's computer center.

surgical department of hospital.

All of the above are cost centers.

Question 13

Which of the following statements is FALSE regarding financial and nonfinancial measures of performance?

A)

B)

C)

Nonfinancial measures may help to anticipate and explain financial results.

Financial measures include aggregate measures.

Nonfinancial measures may help to identify the causes of financial results.

Financial measures are lead indicators of future success.

Question 14

Which of the following could be used to measure the objective of reducing product development cycle time?

potential value of projects in the project pipeline

number of projects delivered on time

number of new projects launched based on customer input

number of failures or returns of new products from customer

Question 15

Deciding how to allocate resources over a product's life cycle usually is:

decided once at the beginning of the product design phase.

not known until the beginning of the manufacturing cycle.

am iterative process over the life of the product.

part of product development.

Question 16

All of the following are true of responsibility centers EXCEPT that they:

operate like a small business.

promote the interests of the larger organization.

coordinate activities with other responsibility centers.

are best used in a centralized organization.

Question 17

Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.

Irr.espective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced?

$280.00

$292.50

$299.00

$308.50

Question 18

The total operating income variance for a period reveals whether a company has achieved:

The sales level budgeted for the period.

An adequate return on investment (assets) during the period.

Control of basic business processes.

Control of total expenses for the period.

The master budgeted operating income for the period.

Question 19

Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products - Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be applied to the Bskin product.

Seventy-five percent of the research and development and selling expenses were traceable to Askin.

Profit before taxes for the Askin product, per life-cycle income statements, is:

$175,000.

$425,000.

$522,500.

$207,500.

$332,500.

Question 20

Victoria Company developed the following standard costs for direct

material and direct labor for one of their major products, the 10-gallon plastic container.

During August, Victoria Company produced and sold 5,000 containers using 490 pounds of

direct materials at an average cost per pound of $32 and 250 direct labor hours at an average

wage of $15.25 per hour.

August's direct labor rate variance was:

$62.50 unfavorable

$62.50 favorable

$71,187.50 favorable

None of the above is correct.

Question 21

If both divisions were presented with an opportunity to invest in a project that is estimated to achieve an ROI of 15%, what will the units likely decide?

Division P will invest; Division Q will not invest.

Division P will invest; Division Q will be indifferent.

Division P will not invest; Division Q will invest.

Division P will be indifferent; Division Q will not invest.

Neither unit will invest in the projects.

Question 22

A flexible-budget variance measures the impact on short-term operating profit of:

Changes in sales volume.

Changes in output during the period.

Differences in sales mix-budgeted versus actual.

Selling price and cost differences-actual versus budgeted.

Selling price, but not cost differences-actual versus budgeted.

Question 23

All of the following would likely be classified as cost centers EXCEPT:

maintenance department at local grocery store.

your university's computer center.

surgical department of hospital.

All of the above are cost centers.

Question 24

Place the five steps in implementing a target costing approach in the proper order:

1 - Determine desired profit

2 - Use kaizen costing and operational control to reduce costs

3 - Determine the market price

4 - Use value engineering to identify ways to reduce product costs

5 - Calculate the target cost at market price less desired profit

3, 2, 1, 4, 5.

2, 5, 4, 1, 3.

4, 5, 1, 3, 2.

3, 1, 5, 4, 2.

5, 3, 2, 1, 4.

Question 25

A plan showing the units of goods expected to be sold and the expected revenue from sales is called the:

Cash budget.

Sales receipts budget.

Selling expense budget.

Cash receipts budget.

Sales budget.

Question 26

If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)?

Option A

Option B

Option C

Option D

Option E

Question 27

The Taguchi Quality Loss Function (QLF) demonstrates that as the quality measure of a product declines, the loss due to quality defects:

Increases as a quadratic function.

Increases as a linear function.

Increases as an exponential function.

Decreases as a quadratic function.

Increases as a step function.

Question 28

"Outsourcing" a cost center is often done to:

Reduce cost and obtain strategic focus.

Increase control over a strategic resource.

Reduce the firm's contractual relationships.

Shift costs within remaining cost centers.

Question 29

The Taguchi Quality Loss Function (QLF) demonstrates that as the quality measure of a product declines, the loss due to quality defects:

Increases as a quadratic function.

Increases as a linear function.

Increases as an exponential function.

Decreases as a quadratic function.

Increases as a step function.

Question 30

Residual income (RI) may be a better measure for financial performance evaluation of an investment center than return on investment (ROI) because:

Problems associated with measuring the investment base are eliminated.

Desirable investment opportunities will not be neglected by high-return divisions.

Only the gross book value of assets needs to be calculated.

Returns do not increase as assets are depreciated.

The arguments over the implicit cost of interest are largely eliminated.

Question 31

David Corporation manufactures a single product that has a cost of $250. The company uses a 60% markup on manufacturing cost to arrive at a selling price of $400, which results in a price that is higher than that of the leading competitors. If David adopts the approach known as target costing, the company will first:

Reduce the 60% markup rate.

Re-engineer the product.

Obtain a better understanding of the competitors' prices.

Reduce the $250 cost.

Change to a markup on life cycle cost rather than manufacturing cost.

Question 32

In a Cost-of-Quality (COQ) reporting framework, costs incurred in conjunction with the measurement and analysis of data to ascertain conformity of products and services to specification are properly classified as:

External failure costs.

Appraisal costs.

Internal failure costs.

Prevention costs.

Value-added costs.

Question 33

The five tasks that follow take place with the concept known as target costing:

1. Use value engineering to identify ways to reduce product cost.

2. Determine the market price.

3. Determine the desired profit.

4. Use kaizen costing and operational control to reduce costs.

5. Calculate the target cost at market price less desired profit.

Which of the following choices depicts the correct sequence of these tasks?

1, 2, 3, 4, 5

2, 3, 5, 1, 4

3, 2, 5, 4, 1

3, 2, 5, 1, 4

5, 3, 2, 4, 1

Question 34

The "risk-averse" manager will be improperly biased to:

Seek out decisions with uncertain outcomes.

Make risky decisions.

Avoid decisions with uncertain outcomes.

Maximize his or her own risk and minimize the company's risk.

Use resources beyond his/her control.

5 points

Question 35

Which of the following is not a characteristic of a lean accounting system?

Calculated costs are used in setting product prices.

Reporting is done frequently (often weekly, or even daily).

Product aggregation-product costs are determined at the value-stream level.

Use of average costs for products in each value stream.

Includes, in the form of box score report, nonfinancial as well as financial performance results.

Question 36

A total variable cost variance (such as for direct materials) can be broken down into separate variances that evaluate:

Price and efficiency.

Units and cost.

Volume and productivity.

Sales-volume versus sales-mix effects.

Efforts and results.

Question 37

SBUs that include the assets they employ as well as profits in the performance evaluation are:

Revenue centers.

Contribution centers.

Profit centers.

Cost centers.

Investment centers.

Question 38

As a strategic issue, "budget slack" could represent a:

Very minor issue in most firms.

Self-correcting problem over several operating periods.

Problem only in a decentralized management environment.

Lower overall level of expected performance than is achievable.

Significant increase in the relative risk aversion of managers.