MGMT 640 Financial Decision Making for Managers Final Exam Part 2 Answer

Final Exam Part 2

Question 1
Maxx Inc. has provided the following data from its activity-based costing system:
Activity Cost Pools Total Cost Total Activity
Designing products $377,200 6,600 product design hours
Setting up batches $52,678 7366 batch set-ups
Assembling products $25,122 4,018 assembly hours
The activity rate for the “designing products” activity cost pool is:

Question 2
Sasha Company allocates the estimated $184,800 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows:
Department Employees
Accounting 4
Production 35
Sales 13
How much of the accounting department costs will be allocated to the production?

Question 3 0 / 1 point
Medusa Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet which the production department occupies within the factory. Information about the departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll (S1) $148,000 2 2,000
Maintenance (S2) $220,000 8 64,000
Molding (P1) 71 100,000
Finishing (P2) 49 60,000
Packaging (P3) 21 40,000
Medusa uses the direct method to allocate costs. Round all answers to the nearest dollar.
What amount of the payroll department costs will be allocated to the molding department?

Question 4
The Manassas Company has 55 obsolete keyboards that are carried in inventory at a cost of $9,600. If these keyboards are upgraded at a cost of $7,600, they could be sold for $18,700. Alternatively, the keyboards could be sold “as is” for $7,800. What is the net advantage or disadvantage of re-working the keyboards?

Question 5
Ritz Company sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping and Rand has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected and shipped. The final cost pool is used for general operations and supervision of the department and the cost driver is the number of shipments. Information about the department is summarized below:
Cost Pool Total Costs Cost Driver Annual Activity
Packaging and shipping $169,500 Number of boxes shipped 21,400 boxes
Final inspection $195,900 Number of individual items shipped 96,400 items
General operations and supervision $82,000 Number of orders 9,300 orders
During the period, the Far East sales office generated 659 orders for a total of 6,160 items. These orders were shipped in 1,345 boxes. What amount of shipping department costs should be allocated to these sales?

Question 6
Baller Financial is a banking services company that offers many different types of checking accounts. The bank has recently adopted an activity-based costing system to assign costs to their various types of checking accounts. The following data relate to the money market checking accounts, one of the popular checking accounts, and the ABC cost pools:
Annual number of accounts = 56,000 accounts Checking account cost pools:
Cost Pool Cost Cost Drivers
Returned check costs $2,710,000 Number of returned checks
Checking account reconciliation costs 51,000 Number of account reconciliation requests
New account setup 640,000 Number of new accounts
Copies of cancelled checks 378,000 Number of cancelled check copy requests
Online banking web site maintenance 187,000 Per product group (type of account)

Annual activity information related to cost drivers:
Cost Pool All Products Money Market Checking
Returned check 200,000 returned checks 18,000
Check reconciliation costs 378,000 checking account 420
New accounts 56,000 new accounts 15,000
Cancelled check copy requests 98,000 cancelled check 60,000
Web site costs 5 types of accounts 1

Calculate the overhead cost per account for the Money Market Checking.

Question 7
Sosa Company has $39 per unit in variable costs and $1,900,000 per year in fixed costs. Demand is estimated to be 138,000 units annually. What is the price if a markup of 35% on total cost is used to determine the price?

Question 8
Bob’s Company sells one product with a variable cost of $5 per unit. The company is unsure what price to charge in order to maximize profits. The price charged will also affect the demand. If fixed costs are $100,000 and the following chart represents the demand at various prices, what price should be charged in order to maximize profits?
Units Sold Price
30,000 $10
40,000 $9
50,000 $8
60,000 $7





Question 9
A retailer purchased some trendy clothes that have gone out of style and must be marked down to 30% of the original selling price in order to be sold. Which of the following is a sunk cost in this situation?

the original selling price

the anticipated profit

the original purchase price

the current selling price

Question 10 0 / 1 point
Carlton Products Company has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability. Results appear below:
Cost Pool Annual Cost Cost Driver Annual Driver Quantity

Processing electronic orders $1,000,000 Number of orders 500,000
Processing non-electronic orders $2,000,000 Number of orders 400,000
Picking orders $3,000,000 Number of different products ordered 800,000
Packaging orders $1,500,000 Number of items ordered 50,000,000
Returns $2,000,000 Number of returns 50,000
If all costs were assigned to customers based on the number of items ordered, what would be the cost per item ordered?

Question 11
Costa Company has a capacity of 40,000 units per year and is currently selling 35,000 for $400 each. Barton Company has approached Costa about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Costa $20 per unit when compared to the normal packaging cost. Normally, Costa has a variable cost of $280 per unit. The annual fixed cost of $2,000,000 would be unaffected by the special order. What would be the impact on profits if Costa were to accept this special order?

Profits would increase $40,000.

Profits would increase $60,000.

Profits would decrease $200,000.

Profits would increase $80,000

Question 12
A company has $7.80 per unit in variable costs and $3.60 per unit in fixed costs at a volume of 50,000 units. If the company marks up total cost by 0.55, what price should be charged if 57,000 units are expected to be sold?

Question 13
Customer profitability analysis might result in:

dropping some customers that are unprofitable.

lowering price or offering incentives to profitable customers.

giving incentives to all customers to place orders online.

All of the above.

Question 14
The Estrada Company uses cost-plus pricing with a 0.44 mark-up. The company is currently selling 100,000 units. Each unit has a variable cost of $3.70. In addition, the company incurs $195,000 in fixed costs annually. If demand falls to 77,700 units and the company wants to continue to earn a 0.44 return, what price should the company charge?

Question 15
A new product is being designed by an engineering team at Golem Security. Several managers and employees from the cost accounting department and the marketing department are also on the team to evaluate the product and determine the cost using a target costing methodology. An analysis of similar products on the market suggests a price of $121.00 per unit. The company requires a profit of 0.28 of selling price. How much is the target cost per unit?

Question 16
A company using activity based pricing marks up the direct cost of goods by 0.24 plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $7.80 per order placed; $3.60 per separate item ordered; $25.40 per return. A customer places 5 orders with a total direct cost of $3,000, orders 299 separate items, and makes 8 returns. What will the customer be charged?

Question 17
A law firm uses activity-based pricing. The company’s activity pools are as follows:
Cost Pool Annual Estimated Cost Cost Driver Annual Driver Quantity

Consultation 198,000 Number of consultations 80 consultations
Administrative Costs 140,000 Admin labor hours 9,400 labor hours
Client Service 96,000 Number of clients 110 clients
The firm had two consultations with this client and required 130 administrative labor hours. What additional costs will be charged to this customer?

Question 18
The Break-Even point is the

number of units sold that allow the company to neither a profit nor a loss

number of units sold that allow the company to pay labor their wages

dollar revenues that allows the firm to pay the required rate of return to its investors

dollar profits that allows the firm to pay the required rate of return to its investors

Question 19
Which of the following is not part of the Process of Cost Allocation

Select an allocation base to relate the cost pools to the cost objectives

Form cost pools

Identify the cost objectives

Allocate revenues to different products of the firm

Question 20
Opportunity costs are:

Never incremental costs

Always incremental costs

Sometimes sunk costs

Greater than sunk costs

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MGMT 640 Financial Decision Making for Managers Final Exam Part 2 Answer