MGMT 640 Financial Decision Making for Managers week HW 9 Quiz Complete Answer

Quiz Session 9 HW

Question 1
Motorcade Company has three service departments (S1, S2, and S3) and two production departments
(P1 and P2). The following data relate to Motorcade’s allocation of service department costs:

Budgeted Costs Nbr of Employees
S1 \$3,400,000 75
S2 2,120,000 50
S3 1,000,000 25
P1 150
P2 225
Service department costs are allocated by the direct method. The number of employees is used as the
allocation base for all service department costs

Calculate the total service department cost allocated to production department P1

Question 2
El Dorado Company has two production plants. Recently, the company conducted an ABM study to determine the cost of activities involved in processing orders for parts at each of the plants. How might an operations manager use this information to manage the cost of processing orders?

Set up an ABC costing system

Identify benchmarks

Compare the cost to process an order at each plant and the nature of the orders to determine if costs are out of control. If out of control, investigate

Close down the plant with the highest cost to increase profits

Question 3
Infinity Designs, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Home and Garden Expo. The exhibit will cost the company \$12,000 for space. At the show, Infinity Designs will present a slide show on a PC, pass out brochures that are printed previously, (the company printed more than needed), and show its portfolio of previous

jobs.

The company estimates that revenue will increase by \$36,000 over the next year as a result of the exhibit. For the previous year, profit was as follows:
Revenue \$201,000
Less:
Design supplies (variable cost) \$17,000
Salary of Samantha Spade (owner) 80,000
Salary of Kim Bridesdale (full time employee) 55,000
Rent 18,000
Utilities 6,000
Depreciation of office equipment 3,600
Travel expenses other than depreciation of autos (variable cost) \$2,400
Depreciation of company cars 9,000

Required:
Calculate the impact of the exhibit on company profit.

Question 4
Each year, Sunshine Motos surveys 7,500 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to Global Associates, who have offered to conduct the survey and summarize results for \$30,900.Craig Sunshine, the president of Sunshine Motors, believes that Global will do a higher-quality job than his company has been doing, but is unwilling to spend more than \$10,000 above the current costs. The head of bookkeeping for Sunshine has prepared the following summary of costs related to the survey in the prior year.
Mailing \$16,400
Printing (done by Lester Print Shop) \$4,500
Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned
(100 hours X \$15) \$1,500
Share of depreciation of computer and software used to track survey responses and summarized results. \$1,100
Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company. \$500
REQUIRED: What is the incremental cost of going outside versus conducting the survey as in the past?

Question 5
Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:

Cost per Unit
Variable costs
Direct material \$920
Direct labor 600

Fixed costs
Depreciation of equipment 500
Depreciation of building 275
Supervisory salaries 300

The company has an offer from Duvall Valves to produce the part for \$2,000 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for \$55,000 per year.
What is the incremental savings of buying the valves? (The answer should be stated in a per-unit format and is a positive number)

Question 6
Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 63,700 pounds of copper. The joint cost related to the operation was \$500,000. Gold sells for \$325 per ounce and copper sells for \$0.85 per pound. Allocate the joint costs using relative weight. With these costs, what is the profit or loss associated with Copper?

Question 7
Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,500 pounds of copper. The joint cost related to the operation was \$500,000. Gold sells for \$325 per ounce and copper sells for \$0.93 per pound. Allocate the joint costs using the relative sales values. With these costs, what is the profit or loss associated with Copper?

Question 8
Common costs

A) are fixed costs that are not directly traceable to an individual product line

B) normally not avoidable

both A and B are true statements

Neither A nor B is a true statement

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