1. Acct 211
Summer 2014
Final
1. Describe a difference between traditional cost systems and
ABC cost systems.
2. Match the activities to the appropriate level they are grouped
in:
1. processing purchase orders
2. design new products
3. hire a new employee
4. process a unit in the manufacturing process
a. organization sustaining
b. unit level
c. product level
d. batch level
3. Apex’s ABC activity information is as follows:
total cost
total activity
activity rate

2. customer orders
315,000
1000 orders
product design
257,000
200 designs
order size
380,000
20000 machine hours
customer relations
367,500
100 customers
other
490,500
n/a
Compute the activity rate for all applicable activities above.
4. Apex manufactures 2 models of sailboats, the standard and
the deluxe.
standard boat
activity rate
activity
ABC cost allocation
customer order
2 orders

3. product design
0 designs
order size
200 machine hours
customer relations
n/a
deluxe boat
activity
customer order
1 orders
product design
1 designs

4. order size
100 machine hours
customer relations
n/a
Use the activity rate from above in #4 in the activity rate
column. Compute the ABC cost allocation above.
5. What are 2 advantages of budgeting?
6. Why is self-imposed budgeting better than budgets that are
just imposed from top management down?
7. The _________________ budget should always be prepared
first.
8. List 3 different types of budgets.
9. True or False – managers should be punished for missing a
budget target.
10. Why is it important to identify only the relevant costs when
making decisions?
11. Sherri is going to Chicago to see her friend Ryan. She is
trying to decide which is cheaper, driving or riding the train.
Following is a list of costs that Sherri has compiled in relation
to the trip.
Identify which costs are relevant (R).
· _________ Annual straight line depreciation on the car
· _________ Cost of gasoline
· _________ Annual cost of auto insurance and license fee

5. · _________ Maintenance and repairs
· _________ Parking fees at home
· _________ Cost of train ticket
· _________ Reduction in resale value of car due to mileage
used and wear and tear
· _________ Cost of putting dog in kennel while she is gone
· _________ Cost of parking car in Chicago
12. Austin LTD. Manufactures a component that is used in the
fans it produces. A supplier has offered to supply the
component for $25 per part. The annual requirements of Austin
are 20,000 components. Austin’s cost detail of manufacturing
the component is as follows:
per unit
direct materials
$9
direct labor
$5
variable overhead
$1
depreciation of equipment
$3
supervisor's salary
$2
general factory overhead
$10
total

6. $30
It was determined that the special equipment has no resale value
and cannot be used for another process. The factory overhead is
an allocation and would be unaffected by the decision. The
costs above are based on the same 20,000 units that the supplier
would supply.
Should Austin continue to manufacture the component or
purchase it from the outside supplier?
13. Mountain Goat Cycles has just received a request from the
Seattle Police Department to produce 100 specially modified
mountain bikes at $179 each. Mountain Goat Cycles can easily
modify its City Cruiser model to fit the specifications of the
Seattle Police Department. The normal selling price of the City
Cruiser bike is $249 and its unit product cost is $182 as shown
below:
Direct Materials
$86
Direct Labor
$45
Manufacturing Overhead
$51
Total Unit Product Cost
$182
The variable portion of the above manufacturing overhead is $6
per unit. The order would have no effect on the company’s total
fixed manufacturing overhead costs. The special modifications
requested by the Seattle Police Department would require $17
per unit incremental variable costs. In addition, the company
would have to pay a graphics design studio $1,200 to design and
cut stencils that would be used for painting the Police
Department’s logo on the bikes. Currently, Mountain Goat
Cycles is not operating at capacity.
a. Should Mountain Goat Cycles accept the special order?

7. b. Show your calculations to show what effect the order will
have on net income.
c. Would it make a difference if Mountain Goat Cycles was
operating at capacity? Why or why not?
14. The financial information for Chase drug store by business
line is as follows:
total
drugs
cosmetics
housewares
sales
$250,000
$125,000
$75,000
$50,000
variable expenses
$105,000
$50,000
$25,000
$30,000
contribution margin
$145,000
$75,000
$50,000
$20,000

8. fixed expenses
salaries
$50,000
$29,500
$12,500
$8,000
advertising
$15,000
$1,000
$7,500
$6,500
utilities
$2,000
$500
$500
$1,000
depreciation
$5,000
$1,000
$2,000
$2,000
rent
$20,000
$10,000
$6,000
$4,000
insurance
$3,000

9. $2,000
$500
$500
general administrative
$30,000
$15,000
$9,000
$6,000
total
$125,000
$59,000
$38,000
$28,000
net income/ loss
$20,000
$16,000
$12,000
-$8,000
It was determined that the associated salaries, advertising and
insurance would all be eliminated if Chase drops the
housewares segment. The utilities, depreciation, rent and
general and administrative fees are all allocations.
Chase is currently deciding whether the company would benefit
overall if the housewares business line was dropped completely,
since it is losing money consistently each month. Using what
you know about avoidable and unavoidable costs, advise Chase
as their outside consultant as to which is the better business
decision. (Support your work with numbers.)
15. John Boy Lumber cuts logs to create 2 immediate joint

10. products, lumber and sawdust. Unfinished lumber can be sold
as is for $140 or processed further at a sales price of $270.
Sawdust can be sold as is for $40 or processed further for a
sales price of $50. There are joint product costs (costs up to the
split off point) allocated to each of the products – $176 for
lumber and $24 for sawdust. The cost of further processing is
$40 for lumber and $20 for sawdust.
a. Should John Boy Lumber process lumber further or sell the
unfinished lumber as is?
b. Should John Boy Lumber process the sawdust further or sell
it as is?
16. There are 2 types of capital budgeting decisions, screening
decisions and preference decisions. What is the difference
between the two?
17. What is the concept of the time value of money?
18. Why do companies have hurdle rates (or required rates of
return)?
19. What is the cost of capital and why is it used as the hurdle
rate for companies?
20. How are flexible budgets more helpful vs. static or planning
budgets?
21. Warrior Company needs a new processing machine. The
company is considering 2 different machines: machine 0178
and machine 2216. Machine 0178 costs $20,000 and will reduce
operating costs by $5,000 per year. Machine 2216 costs
$15,000 and reduces operating costs by $3,000 per year.
Compute the payback for each machine and determine which
should be selected using the payback method.
22. Westerville Services Company, a division of a golf holding
company, provides various services to operators of golf courses
in Columbus, Ohio. Select financial information concerning the
most recent year appears below:

11. Sales
$10,000,000
Net income
$3,000,000
Average operating assets
$20,000,000
Ignore the impact of income taxes on your calculation.
Compute the return on investment (ROI) for Westerville
Services Company.
23. Ohio Golf Inc. specializes in managing and developing golf
course communities in Ohio and surrounding states.
In the most recent year, the company had a net operating income
of $2,000,000 on sales of $10,000,000. The company’s average
operating assets for the year were $12,000,000 and its minimum
required rate of return is 15% based on the company’s cost of
capital.
Ignore the impact of income taxes on your calculation.
Compute the company’s residual income for the year.
24. Why is it helpful to evaluate residual income when
determining performance and not just focus on ROI?
25. What is target costing? How does it differ from cost plus
pricing?
26. What is decentralization? Describe 2 benefits of
decentralizing.

12. 27. What are the 4 perspectives of the balanced scorecard?
28. Why is it important to focus on lead indicators as well as
lag indicators?