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# Achievement Test 4: Chapters 7-8 Name ___________________________

Managerial Accounting, 6e Instructor ________________________
Section # _________ Date __________

Part I II III IV V Total

Points 20 10 26 20 24 100

Score

PART I — MULTIPLE CHOICE (20 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. Danolin Signs is bidding on painting buildings in a large apartment complex. The
company has gathered the following information:
Estimated wages of 8 painters for the project \$14,040
Estimated labor hours for the entire company 16,000
Estimated cost of fringes 15% of labor
Desired profit margin per direct labor hour \$12
Expected number of units to be produced and sold 800
The cost of paint and other materials is \$9,400. The average hourly wage per
employee is \$18 per hour with 780 hours estimated for the project. The overhead rate
is 20% of total labor cost (including fringes.) The material loading charge is 10%. How
much is the bid price if time-and-material pricing is used?
a. \$38,135
b. \$28,735
c. \$39,075

____ 2. What is a relevant cost?
a. It is a sunk cost.
b. It is a past cost.
c. It is a cost that differ across alternatives.
d. It is an opportunity cost.

____ 3. The Cookie Division of Kaboodle Foods manufactures home-style cookies which are
sold for \$4 per box. Its variable cost is \$1.50 per box, and its fixed cost per unit is
\$0.90. Management would like the Mixing Division to transfer 20,000 boxes of cookies
to another division within the company to be used to make snack pack lunches. The
Cookie Division has available capacity to produce the 20,000 boxes for the Mixing
division. What is the minimum transfer price the Cookie Division should accept for
a. \$4.00
b. \$1.50
c. \$2.40
d. \$3.20

If Bride-To-Be decides to buy instead of making the cakes. Which one of the following is used to determine the selling price when cost-plus pricing is used? a.AT4.6% d. \$65 b. Selling price = cost + (markup percentage × variable costs) ____ 7. Costs for producing one cake appear below: Direct materials \$11 Direct labor 24 Variable overhead 16 Fixed overhead 14 An outside supplier has offered to produce the cakes for \$66 per cake. 30. \$51 d.2 Test Bank for Managerial Accounting. 44% b. The following information is provided by Garden Gears for a new product it recently introduced: Total unit cost \$50 Desired ROI per unit \$22 Target selling price \$72 How much is Garden Gears’ percentage of markup on cost? a. 35% c. Selling price = cost + (markup percentage × cost) c. 55% c. 28% ____ 5. Selling price = fixed costs + (markup percentage × variable costs) b. \$35 ____ 6. 69. \$66 c. 100% d.4% . what is the maximum price it would be willing pay? a. 60% b. Selling price = variable costs + (markup percentage × fixed costs) d. Bride-To-Be produces three-tier wedding cakes. Landau Gears provides the following cost information related to its production of its primary product: Per Unit Variable manufacturing cost \$12 Fixed manufacturing cost 8 Variable selling and administrative expenses 2 Fixed selling and administrative expenses 3 Desired ROI per unit 7 What is the markup percentage assuming that Landau Gears uses absorption costing? a. Sixth Edition ____ *4.

the cost is known and works to achieve an acceptable market price. b. T F 5. T F 2. T F 1. Quality of products from the supplier PART II — TRUE/FALSE (10 points) Instructions: Designate whether each of the following statements is true or false by circling the T or F. T F 4. Management would like the Molding Division to transfer 15. A company should process further as long as the incremental costs of further production exceed the incremental revenue of further production. ____ 9.000 of these molds to another division within the company at a price of \$23. Loss of customers due to eliminating a product line c. \$23 b. T F 3. the market price is known and works to achieve an acceptable cost. Joint costs are all costs incurred prior to the point at which two products are separately identified. \$40 d. Customer perceptions due to a change in pricing d.3 ____ 8. What is the minimum transfer price the Molding Division should accept? a. Achievement Test 4 AT4. the desired profit is known and works to achieve an acceptable cost. Target costing assumes a. The Molding Division of White Corporation manufactures plastic molds and then sells them to customers for \$40 per unit. the desired profit is known and works to achieve an acceptable market price. A sunk cost is the potential benefit that may be obtained by following an alternative course of action. d. c. and its fixed cost per unit is \$5. The cost to buy the part or product b. \$20 c. The Molding Division is operating at full capacity. Its variable cost is \$15 per unit. Sunk costs are relevant costs that differ across alternatives. Which one of the following is a qualitative factor as it relates to make-or-buy decisions? a. variable cost is defined as the variable cost of units sold internally. \$25 ____ 10. . In the minimum transfer price formula.

or can be processed further by injecting solid foam which insures the tires will never become flat.000 Cost of goods sold was 75% variable and 25% fixed. the company reported the following operating results for 16.000 Gross profit 800.00 each.000 units.00. Sales \$2.000 can openers at \$85 each from a foreign company. B.00 per tire. Acceptance of the special order would result in \$1.40 each. Zane Wheels produces lawn mower tires in batches of 1.000 Cost of goods sold 1.000 Net income \$ 380.200 at a cost of \$2.000 Operating expenses 420. Instructions Prepare an incremental analysis for the special order.AT4. Lansing Manufacturers produces can openers. Sixth Edition PART III — INCREMENTAL ANALYSIS (26 points) This problem consists of two independent mini-problems. A. . Instructions Compute the incremental income from further production of one batch of solid foam tires.600 per batch.200. Operating expenses were 60% variable and 40% fixed. Lansing receives a special order for 2.000. The can openers normally sell for \$112. The additional processing costs total \$6. For the first six months of 2014. In July of 2014.000 of shipping costs but no increase in fixed operating expenses.4 Test Bank for Managerial Accounting. The tires can be sold without further processing for \$5. The solid foam tires can be sold for \$11. while operating at 80% of plant capacity.

and total cost per unit. What is the markup percentage.50 Fixed manufacturing cost \$1. The following data relate to this product for a budgeted volume of 10.000 Lanahan uses cost-plus pricing to set its target selling price. Per Unit Total Direct materials \$ 30 Direct labor 25 Variable manufacturing overhead 15 Fixed manufacturing overhead \$200.50 Variable selling and administrative expenses \$1. 3. Instructions Compute each of the following for the new product: 1. . Total variable cost per unit. The markup on total unit cost is 25%. What is the markup percentage.000 Variable selling and administrative expenses 10 Fixed selling and administrative expenses 110. backpacks: Per Unit Variable manufacturing cost \$12. assuming that Big Time Bags uses variable costing? PART V — COST-PLUS PRICING (24 points) Lanahan Corporation is in the process of setting a selling price for a new product it has just designed. assuming that Big Time Bags uses absorption costing? B. Desired ROI per unit. total fixed cost per unit. 2. Achievement Test 4 AT4. Target selling price.80 Desired ROI per unit \$4.5 *PART IV — PRODUCT COSTING (20 points) Big Time Bags provides the following information related to the production of its primary product.30 Fixed selling and administrative expenses \$1.60 A.000 units.

1. F 4.75)** (31.80 B. B 2. F 2.00 – \$5.000 Fixed costs from special order (1.500) Contribution margin from special order 26.000 × . C 6. A 4. C 10.000 × \$56. C 5.50 + \$1. Revenue from special order (2.50 \$4. = 55.60 + \$1.80 A. B 8.50 + \$1.60 + \$1.000 ÷ 16.75 = \$900.000 ÷ 16. F 5.50 + \$1.30 . D PART II — TRUE/FALSE (10 points) 1. = 57. A 9.000 \$900.000 *\$1.000 units = \$15. T PART III — INCREMENTAL ANALYSIS (26 points) A.30 + \$1.200 incremental revenue Incremental costs of further processing = \$6.0% \$12.AT4.00) = \$7.600 = \$600 B. Sixth Edition Solutions — Achievement Test 4: Chapters 7-8 PART I — MULTIPLE CHOICE (20 points) 1.25)* (112.000 Variable CGS costs from special order (2.500) Variable operating expenses from special order (2.200 × (\$11. T 3.25 variable CGS per unit **420.6 = \$252.000 units = \$56.600 Incremental income from further processing = \$7. A 3. C 7.75 variable operating expenses per unit PART IV — PRODUCT COSTING (20 points) \$4.000 \$252.6 Test Bank for Managerial Accounting.000 × .200 – \$6.2% \$12.000 × \$15.000) Net income from special order \$ 25.200.000 × \$85) \$170.

000 = 11 Fixed cost per unit \$31 Total cost per unit: \$80 + \$31 = \$111 2.000 ÷ 10.000 ÷ 10.75 Target selling price \$138. Total cost per unit \$111.000 = \$20 Fixed selling and administrative expenses 110.75 3.75 . Achievement Test 4 AT4. Direct materials \$30 Direct labor 25 Variable manufacturing overhead 15 Variable selling and administrative expenses 10 Variable cost per unit \$80 Budgeted Cost Total Costs Volume Per Unit Fixed manufacturing overhead \$200.7 PART V — COST-PLUS PRICING (24 points) 1.00 Markup × 25% Desired ROI per unit \$27. Total cost per unit \$111.00 Desired ROI per unit 27.