COST ACCOUNTING QUIZ

1) All costs incurred beyond the splitoff point that are assignable to one or more individual
products are called: 1) _______

A) byproduct costs
B) joint costs
C) main costs
D) separable costs

2) When a product is the result of a joint process, the decision to process the product past the
splitoff point further should be influenced by the: 2) _______
A) total amount of the joint costs
B) portion of the joint costs allocated to the individual products
C) extra revenue earned past the splitoff point
D) extra operating income earned past the splitoff point

3) In evaluating different alternatives, it is useful to concentrate on: 3) _______

A) variable costs
B) fixed costs
C) total costs
D) relevant costs

4) One-time-only special orders should only be accepted if: 4) _______

A) incremental revenues exceed incremental costs
B) differential revenues exceed variable costs
C) incremental revenues exceed fixed costs
D) total revenues exceed total costs

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned
tomatoes. During the summer of 20X5, the joint costs of processing the tomatoes were $420,000.
There was no beginning or ending inventories for the summer. Production and sales value
information for the summer is as follows:

Sales Value at
Product Cases Separable Costs Selling Price
Splitoff Point
Catsup 100,000 $6 per case $3.00 per case $28 per case
Juice 150,000 8 per case 5.00 per case 25 per case
Canned 200,000 5 per case 2.50 per case 10 per case

Required:
Determine the amount allocated to each product if the estimated net realizable value method is
used, and compute the cost per case for each product.

Special Order. Louisville Corporation produces baseball bats for kids that it sells for $32 each. At
capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats
are as follows:

Cost per bat Total Cost

Direct Materials $12 $600,000

Direct manufacturing labor 3 150,000

Variable manufacturing overhead 1 50,000

Fixed manufacturing overhead 5 250,000

Variable selling expenses 2 100,000

Fixed Selling expenses 4 200,000

Total Costs $27 $1,350,000

1. Suppose Louisville is currently producing and selling 40,000 bats. At this level of production and
sales, its fixed costs are the same as given in the table above. Ripkin Corporation wants to place
a one-time special order for 10,000 bats at $25 each. Louisville will incur no variable selling costs
for this special order. Should Louisville accept this one-time special order? Show your
calculations.
2. Now suppose Louisville is currently producing and selling 50,000 bats. If Louisville accepts
Ripkin’s offer it will have to sell 10,000 fewer bats to its regular customers. (a) On financial
considerations alone, should Louisville accept this one-time special order? Show your
calculations. (b) On financial considerations alone, at what price would Louisville be indifferent
between accepting the special order and continuing to sell to its regular customers at $32 per
bat. (c) What other factors should Louisville consider in deciding whether to accept the one-time
special order?
1) A price-bidding decision for a one-time-only special order includes an analysis of all: 1)
_______
A) manufacturing costs
B) cost drivers related to the product
C) direct and indirect variable costs of each function in the value chain
D) fixed manufacturing costs

2) Target pricing: 2) _______

A) is used for short-term pricing decisions
B) is one form of cost-based pricing
C) estimates are based on customers' perceived value of the product
D) relevant costs are all variable costs

3) Successful reengineering involves: 3) _______

A) cutting across functional lines to focus on the entire business process
B) redefining the roles and responsibilities of employees
C) using information technology
D) All of these answers are correct.

4) All of the following relate to the balanced scorecard's learning and growth perspective
EXCEPT: 4) _______
A) How do we achieve greater employee satisfaction?
B) What new products do we create?
C) How do we provide information systems with updated technology?
D) How will we motivate and empower our employees?

Following a strategy of product differentiation, Ernsting Corporation makes a high-end computer

monitor, CM12. Ernsting Corporation presents the following data for the years 20X3 and 20X4:

20X3 20X4
Units of CM12 produced and sold 5,000 5,500
Selling price $400 $440
Direct materials (pounds) 15,000 15,375
Direct materials costs per pound $40 $44
Manufacturing capacity for CM12 (units) 10,000 10,000
Conversion costs $1,000,000 $1,100,000
Conversion costs per unit of capacity $100 $110
 Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs $360,000 $362,500
Selling and customer-service capacity cost per customer $6,000 $6,250

Ernsting Corporation produces no defective units but it wants to reduce direct materials usage
per unit of CM12 in 20X4. Manufacturing conversion costs in each year depend on production
capacity defined in terms of CM12 units that can be produced. Selling and customer-service
costs depend on the number of customers that the customer and service functions are designed to
support. Ernsting Corporation has 46 customers in 20X3 and 50 customers in 20X4. The industry
market size for high-end computer monitors increased 5% from 20X3 to 20X4.

Required:

a. What is the revenue effect of the price-recovery component?

b. What is the cost effect of the price-recovery component?

c. What is the net effect on operating income as a result of the price-recovery component?

d. What is the net effect on operating income as a result of the productivity component?