431 Ch. 10-12
With a constraining resource, managers should choose the product with the ________.
highest contribution margin per unit of the constraining resource
Goodness-of-fit measures how well the predicted values in a cost estimating equation ________.
match the actual cost observations
A cost function is a ________.
mathematical description of how a cost changes with changes in the level of an activity relating to that cost
Unit cost data can most mislead decisions by ________.
not computing unit costs at the same output level
The cost to be predicted and managed is referred to as the ________.
dependent variable
When analyzing the change in operating income, the strategy component of productivity ________.
will report a large positive amount when a company has successfully pursued the cost leadership strategy
If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the ________.
total variable cost of producing the product
In a strategy map, a strategic objective where many ties spur out from it resulting in the achievement of many strategic objectives is called:
trigger point
As a result of learning curve, ________.
unit costs decrease as productivity increases and the unit-cost function behaves nonlinearly
Managers can reduce capacity-based fixed costs by measuring and managing ________.
unused capacity
An organization that is using the product differentiation approach would most likely do which of the following?
use innovative research and development and develop effective promotional campaigns to increase customer loyalty and charge higher prices
Quantitative analysis methods estimate cost functions ________.
using a formal mathematical method to fit cost functions to past data observations
Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?
variable cost
When evaluating a make−or−buy decision, which of the following needs to be considered?
alternative uses of the production capacity
When deciding to lease a new cutting machine or continue using the old machine, the irrelevant cost is ________.
$50,000, cost of the old machine 11.6-2
Strategic Analysis of Profitability of King Philip Company: Income Statement Amounts in 2017 Revenue and Cost Effects of Growth Component in 2018 Revenue and Cost Effects of Price−Recovery Component in 2018 Cost Effect of Productivity Component in 2018 Income Statement Amounts in 2018 Revenues ($) $41,000 $7,000 F $1,400 U (b) (e) Costs 23,500 (a) 800 U (c) 26,100 Operating income $17,500 $2,500 F $2,200 U $2,700 F (d) What is the revenue effect of the productivity component (b)?
$0 12.4-25a
Trusted Products Company makes a household appliance with model number L800. The goal for 2018 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of L800 units that can be produced. The industry market size for appliances increased 15% from 2017 to 2018. The following additional data are available for 2017 and 2018: 2017 2018 Units of L800 produced and sold 30,000 34,500 Selling price $350 $335 Direct materials (square feet) 90,000 88,500 Direct materials costs per square foot $31 $33 Manufacturing capacity for L800 (units) 37,500 36,000 Total conversion costs $450,000 $432,000 Conversion costs per unit of capacity $20 $20 What is the revenue effect of the growth component?
$1,575,000 F 12.4-20a
Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one−time−only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $150 Direct labor 100 Manufacturing support 115 Marketing costs 65 Fixed costs: Manufacturing support 185 Marketing costs 85 Total costs 700 Markup (40%) 280 Targeted selling price $980 What is the change in operating profits if the one−time−only special order for 1,000 units is accepted for $550 a unit by Crandle?
$120,000 increase in operating profits 11.2-27a
Trusted Products Company makes a household appliance with model number L800. The goal for 2018 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of L800 units that can be produced. The industry market size for appliances increased 5% from 2017 to 2018. The following additional data are available for 2017 and 2018: 2017 2018 Units of L800 produced and sold 37,000 38,850 Selling price $380 $365 Direct materials (square feet) 90,000 87,000 Direct materials costs per square foot $31 $32 Manufacturing capacity for L800 (units) 46,250 44,750 Total conversion costs $1,156,250 $1,118,750 Conversion costs per unit of capacity $25 $25 What is the cost effect of the growth component for direct materials?
$139,500 U 12.4-21a
In 2017, Commodity Inc., processor of whole grain flour, had the capacity to produce 11,000,000 pounds of product at a conversion cost per pound of $0.30. The conversion cost per pound was $0.25 in 2016 (the previous year). The direct material cost per pound for both years was $0.06 per pound and in 2017, Commodity Inc. produced 10,400,000 pounds while actual production for the previous year was 9,800,000 pounds. What was the cost of unused capacity in 2017?
$180,000 12.5-9a
Variable cost per labor−hour is $0.88 Fixed cost is $19,500. Machine hours during the period are 100.Calculate the total cost for 380 labor hours.
$19,834 10.3-4a
South Coast Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations. Sales (5,500 microwave ovens) $5,500,000 Cost of goods sold 869,000 Store manager's salary per year 160,000 Operating costs per year 175,000 Advertising and promotion per year 28,440 Commissions (4.8% of sales) 264,000 What are the estimated total costs if South Coast's store expects to sell 8,400 units next year?
$2,093,840 10.3-21a
Strategic Analysis of Profitability of King Philip Company: Income Statement Amounts in 2017 Revenue and Cost Effects of Growth Component in 2018 Revenue and Cost Effects of Price−Recovery Component in 2018 Cost Effect of Productivity Component in 2018 Income Statement Amounts in 2018 Revenues ($) $41,000 $13,000 F $1,300 U (b) (e) Costs 28,500 (a) 500 U (c) 31,900 Operating income $12,500 $7,900 F $1,800 U $2,200 F (d) What is the cost effect of the productivity component (c)?
$2,200 F 12.4-26a
Excellent Manufacturers Inc. has a current production level of 20,000 units per month. Unit costs at this level are: Direct materials $0.25 Direct labor 0.44 Variable overhead 0.17 Fixed overhead 0.21 Marketing − fixed 0.23 Marketing/distribution − variable 0.40 Current monthly sales are 18,000 units. Jax Company has contacted Excellent about purchasing 1,510 units at $2.50 each. Current sales would NOT be affected by the one−time−only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
$2,476.40 increase in operating profits 11.2-28a
Taunton Company uses the high−low method to estimate its cost function. The information for 2017 is provided below: Machine−hours Labor Costs Highest observation of cost driver 2,500 $300,000 Lowest observation of cost driver 1,500 $228,000 What is the estimated total cost when 1,300 machine−hours are used?
$213,600 10.4-25a
A segment has the following data: Sales $650,000 Variable costs 366,000 Fixed costs 335,500 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments?
$284,000 decrease 11.6-7a
Altec Services Corporation has relevant costs of $42 per unit to manufacture 1,020 units of Part A. A current supplier offers to make Part A for $34 per unit. Alternatively, the company can rent out the capacity for $30,000. If capacity is constrained, the opportunity cost of buying Part A from the supplier is ________.
$30,000 11.3-27a
Striker 44 Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 13,000 units of this part are as follows: Direct materials $88,000 Direct labor 127,000 Variable factory overhead 56,000 Fixed factory overhead 135,000 Total costs $406,000 Of the fixed factory overhead costs, $58,000 is avoidable. Assuming no other use of their facilities, the highest price that McMurphy should be willing to pay for 13,000 units of the part is ________.
$329,000 11.2-46a
A product cost is composed of the following: Direct materials $10.00 Direct labor $5.00 Manufacturing overhead $9.00 The product sells for $90.00 and a 10% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $2.25 per unit. What is the full cost of the product?
$35.25 11.2-23a
Strategic Analysis of Profitability of King Philip Company: Income Statement Amounts in 2017 Revenue and Cost Effects of Growth Component in 2018 Revenue and Cost Effects of Price−Recovery Component in 2018 Cost Effect of Productivity Component in 2018 Income Statement Amounts in 2018 Revenues ($) $37,000 $7,000 F $2,800 U (b) (e) Costs 21,500 (a) 700 U (c) 23,900 Operating income $15,500 $2,700 F $3,500 U $2,600 F (d) What is the cost effect of the growth component (a)?
$4,300 U 12.4-24a
At the Wild Cat Group Company, the cost of the library and information center has always been charged to the various departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information center costs. Total library and information center costs are $209,000. Department A B C Number of employees 170 535 145 Number of engineers 10 75 35 If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
$41,800 10.3-12a
Crandle Manufacturers Inc. is approached by a potential new customer to fulfill a one−time−only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $130 Direct labor 80 Manufacturing support 125 Marketing costs 75 Fixed costs: Manufacturing support 135 Marketing costs 75 Total costs 620 Markup (50%) 310 Targeted selling price $930 What is the contribution margin per unit?
$520 11.2-25a
Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials $49 Direct labor 36 Variable overhead 33 Fixed overhead 34 Total costs $152 Crayola Technologies Inc. has contacted Rubium with an offer to sell 6,000 of the subassemblies for $142 each. Rubium will eliminate $88,000 of fixed overhead if it accepts the proposal. What are the relevant costs for Rubium?
$796,000 11.3-23a
W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for 1,000 units are as follows: Direct materials $44,000 Direct labor 11,500 Variable overhead costs 33,500 Fixed overhead costs 22,000 Total costs $111,000 It is estimated that 8% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $92.75 per unit. If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total ________.
$90,760 11.3-13a
Put the following steps in order for using the high-low method of estimating a cost function: A = Identify the cost function B = Calculate the constant C = Calculate the slope coefficient D = Identify the highest and lowest observed values
A D C B
John's 8−year−old Chevrolet Trail Blazer requires repairs estimated at $11,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5−year−old used Jeep Grand Cherokee instead for $11,000 cash. Sherry estimated the following costs for the two cars: Trail Blazer Grand Cherokee Acquisition cost $25,000 $11,000 Repairs $11,000 — Annual operating costs (Gas, maintenance, insurance) $2,580 $2,100 What should John do? What are his savings in the first year?
Buy the Grand Cherokee; $480 11.2-10a
Which of the following statements is true of strategic analysis of operating income?
Change in operating income from one period to any future period can be subdivided into product differentiation, cost leadership, and growth components.
Which of the following is not true about the cause-and-effect criterion when estimating a cost function?
Correlation of variables proves cause-and-effect.
Which of the following statements is true of choosing cost drivers under activity-based costing?
Cost drivers are independent variables.
What is the term for an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control?
Cost leadership
Which of the following statements best define a product differentiation strategy?
It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors.
Which of the following statements best relates to the balanced scorecard's learning and growth perspective?
How will we empower our employees?
Why is choosing the correct cost driver to estimate indirect manufacturing costs important?
Identifying the wrong driver can lead management to incorrect and costly decisions
Engineered costs ________.
are from physically observable activities and have a repetitive relationship with output
Which of the following statements is true of a linear cost function?
It presents variable cost as a slope coefficient.
Kitchens Sales Inc. is approached by Mr. Louis Cifer, a new customer, to fulfill a large one−time−only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Direct materials $550 Direct labor 368 Variable manufacturing support 58 Fixed manufacturing support 126 Total manufacturing costs 1,102 Markup (50%) 551 Targeted selling price $1,653 Kitchens Sales inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $65 per unit. The average marketing cost of Kitchens Sales product is $180 per order. Which of the following costs is NOT considered to calculate the minimum acceptable price of a one−time−only special order?
Marketing Costs 11.2-32a
A.C. Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below. Small Medium Large Unit selling price $440 $640 $1,210 Unit costs: Variable manufacturing (250) (280) (530) Fixed manufacturing (60) (140) (280) Fixed selling and administrative (80) (95) (130) Unit profit $50 $125 $270 Demand in units 150 130 150 Machine−hours per unit 60 50 150 The maximum machine−hours available are 6,300 per week. Which of the three product models should be produced first if management incorporates a short−run profit maximizing strategy?
Medium Appliance 11.4-16a
Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $57 $62 $80 Direct materials 10 10 10 Direct labor ($13 per hour) 13 13 26 Variable support costs ($8 per machine−hour) 8 16 16 Fixed support costs 10 10 10 Which model has the greatest contribution margin per machine−hour?
Model X 11.4-8a
Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $54 $64 $72 Direct materials 6 6 6 Direct labor ($13 per hour) 13 13 26 Variable support costs ($4 per machine−hour) 4 8 8 Fixed support costs 12 12 12 If there is excess capacity, which model is the most profitable to produce?
Model Y 11.4-9a
Which of the following is a measure of the balanced scorecard's customer perspective?
Number of client complaints
A company has three products possible products that it can produce in a machine intensive production process. capacity is constrained by the number of hours the machines can run during a period and the products are so popular that all units produced will be sold. Here is additional information: Product A Product B Product C Contribution per unit $20 $30 $40 Machine hours per unit 2.5 3.25 4.5 Which of the following would be an accurate conclusion based on these facts?
Product B should be emphasized if the goal is to maximize contribution margin.
Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model Y Model Z Selling price $57 $66 $71 Direct materials 7 7 7 Direct labor ($17 per hour) 17 17 34 Variable support costs ($5 per machine−hour) 5 12 10 Fixed support costs 12 12 12 How can Lisa Dynondo encourage her salespeople to promote the more profitable model?
Provide higher sales commissions for items with the greatest contribution margin per constrained resource.
Which of the following statements shows a difference between simple regression and multiple regression?
Simple regression uses only one dependent and one independent variable, whereas multiple regression uses one dependent and more than one independent variable.
Relevant data in a make−or−buy decision of a part include which of the following?
Some portion of fixed costs that would be saved if the product is outsourced
Which of the following is a step to overcome problems related to data collection for estimating cost function?
The analyst should remove the inflationary effects.
Which of the following statements is true of a balanced scorecard?
The balanced scorecard reduces managers' emphasis on short-run financial performance.
Which of the following is true in a decision to keep or replace existing equipment?
The disposal value of the old equipment is relevant.
Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.
The only relevant item are the costs as they differ between alternatives
Which of the following is not true with regards to relevant costs and relevant revenues?
They are sunk costs and historical revenues
Which of the following statements is of true engineered costs?
They have a detailed, physically observable, and repetitive relationship with output.
Which of the following statements is true of discretionary costs?
They have high level of uncertainty.
Which of the following statements is a possible pitfall while implementing a balanced scorecard?
Top management ignoring nonfinancial measures when evaluating employee performance.
Successful implementation of a product differentiation strategy will result in ________.
a large favorable growth and price-recovery components
Which of the following is not a nonlinear cost function?
a step cost function
Which of the following best describes a step variable-cost function?
a step cost function in which cost remains the same over narrow ranges of the level of activity in each relevant range
Assuming previous year's production capacity was adequate to produce current year output, the cost effect of growth for fixed costs is calculated by multiplying the difference between ________ by price per unit of capacity in the previous year.
actual units of capacity in previous year and actual units of capacity in previous year
The revenue effect of price recovery is calculated by multiplying the difference in selling price (current year minus the previous year) by ________.
actual units sold in the current year
Which of the following is NOT an engineered cost?
advertising costs for a new product that the factory will start producing
The conference method estimates cost functions ________.
based on analysis and opinions gathered from various departments
Which of the following minimizes the risks of outsourcing?
building close partnerships with the supplier
The account analysis method estimates cost functions ________.
by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis
When analyzing the change in operating income, the strategy component of price-recovery ________.
compares the change in output price with the changes in input prices
When using the high-low method, the two observations used are the high and low observations of the ________.
cost driver
What is a plausible explanation of a cost function that has a slope coefficient of $30 for purchases of 1 to 1,000 units and $25 for production of 1,100 −2,000 units, and $20 for production of 2,001 − 3,000 units.
economies of scale allowing for lower cost purchases with larger orders
All of the following are examples of quantitiatve factors except
employee morale
The gross margin percentage is an example of the ________ measure of a balanced-scorecard.
financial perspective
Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity − enough excess capacity to accept the order?
fixed manufacturing costs
Which of the following is a relevant cost to be included in a make−or−buy decision?
fixed salaries that will not be incurred if the part is outsourced
When deciding whether to discontinue a segment of a business, relevant costs include ________.
future administrative costs that can be eliminated
In general, profit potential of an organization decreases with ________.
greater competition and stronger potential entrants
Which of the following are potential problems managers face in relevant−cost analysis?
incorrect assumptions such as all variable costs are relevant and all fixed costs are not
Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75−cent price increase, demand is expected to fall by 7,000 units. Current Projected Demand 78,000 units 71,000 units Selling price $9.25 $10.00 Incremental cost per unit $5.80 $5.80 If the price increase is implemented, operating profit is projected to ________.
increase by $29,100 11.1-5a
The slope of the line of regression is the ________.
rate at which the dependent variable varies
When there is an excess capacity, it makes sense to accept a one−time−only special order for less than the current selling price if ________.
incremental revenues exceed incremental costs
Conversion costs are an example of ________.
indirect engineered costs
Which of the following focuses on these five factors: competitors, potential entrants to the market, equivalent products, bargaining power of customers, and bargaining power of suppliers?
industry analysis
When analyzing the change in operating income, the strategy component of growth ________.
isolates the change attributed solely to an increase in the quantity of units sold
Successful implementation of a cost leadership strategy will result in ________.
large favorable productivity and growth components
Which of following is a firm's risk of outsourcing the production of a part?
leakage of intellectual property
The employee turnover rates is an example of the ________ measure of a balanced-scorecard.
learning and growth perspective
An experience curve ________.
measures the decline in cost per unit as production decreases for various value-chain functions such as marketing as production increases
The ideal database for estimating cost functions contains ________.
numerous cost driver observations
If a company does not use one of its limited resources in the best possible way, the lost contribution to income could be called a(n) ________.
opportunity cost
Which of the following would be considered in a make−or−buy decision?
potential rental income from space occupied by the production area
The cost effect of productivity for variable costs is calculated by multiplying the difference in actual input units used to produce current year output and units of input required to produce current year output in previous year by the ________.
price per input unit of current year
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 is ________.
reengineering
When analyzing the change in operating income, the strategy component of price-recovery will increase when ________.
selling prices are increased
Each of the following are true of relevant information except:
significant past investment amounts are relevant to decision making
Which of the following is not true about one−time−only special orders?
special orders would be accepted if they result in an increase in the contribution margin regardless of capacity and long−term implications
A cost driver should be measurable and have an economically plausible relationship with the dependent variable which means:
that the relationship is based on a cause-and-effect criterion and makes economic sense to management
Which cost estimation method would involve analyzing direct labor subsidiary accounts and classifying costs as as variable, fixed, or mixed to derive cost estimation formulas?
the account analysis method
M & G TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations. Sales (1,200 televisions) $1,200,000 Cost of goods sold 540,000 Store manager's salary per year 108,000 Operating costs per year 216,000 Advertising and promotion per year 24,000 Commissions (3% of sales) 36,000 Which cost estimation method is being used by M & G TV and Appliance Store?
the account analysis method 10.3-17a
Which of the following is not correct about the balanced scorecard?
the balance scorecard increases management's emphasis on short-term results
At the Spring Valley Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs. Total personnel department costs are $287,000. Department A B C Number of employees 55 280 210 Number of new hires 30 15 11 Which cost estimation method is being used by Spring Valley Company?
the conference method 10.3-10a
With a step fixed-cost function ________.
the cost remains the same over wide ranges of the activity in each relevant range
Which of the following is NOT a discretionary cost?
the cost to train factory general managers to use a new activity based management system
Which of the following is a learning-curve model?
the cumulative average-time learning model and the incremental unit-time learning model
Based on the theory of constraints, investments equal ________.
the sum of material costs in direct materials, work−in−process, and finished goods inventories; R&D costs; and capital costs of equipment and buildings
Quantum Company uses the high−low method to estimate the cost function. The information for 2017 is provided below: Machine−hours Labor Costs Highest observation of cost driver 400 $20,000 Lowest observation of cost driver 100 $8,000 What is the estimated cost function for the above data?
y = 4,000 + 40x 10.4-20a
The Connors Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Connors Company has heard about a method of measuring cost functions called the high−low method and has decided to use it in this situation. Cost Hours $24,360 5,800 $26,500 6,100 $34,800 7,850 $42,360 13,000 $38,800 9,400 What is the cost function?
y = $9,860+ $2.50X 10.4-29a
Which of the following functions represents the least total cost assuming the number of units is equal in each case?
y = 120+ 3X 10.1-12a
Place the following steps from the five−step decision process in order: A = Obtain information including historical costs B = Evaluate performance to provide feedback C = Make decisions choosing among alternatives D = Make predictions about the future E = Identify the problem and uncertainties
E, A, D, C, B
________ are the subdivisions of income that management accountants use for the strategic analysis of operating income.
Growth, price-recovery and productivity components
A company's balanced scorecard measures yield, order-delivery time, cycle time, and errors as part of which of the following perspectives?
Internal-business-process
Which of the following statements is true of the internal-business-process perspective of a balanced scorecard?
Internal-business-process improvement targets are often determined after benchmarking against an organization's main competitors standards.
A plot of cost driver data and cost data may show all but the following:
cause-and-effect relationship
