BSA 2202- STRATEGIC COST MANAGEMENT

PRELIM DEPARTMENTAL EXAMINATION REVIEWER

1. Which of the following would not be considered a value-added activity in the

preparation of a tax return?
a. printing a copy of the return for the client
b. printing a copy of the return for the IRS
c. installing tax software
d. checking for accuracy

2. When a firm redesigns a product to reduce the number of component parts, the firm is
a. increasing consumer value.
b. increasing the value added to the product.
c. decreasing product variety.
d. decreasing non-value-added costs.

3. Which of the following is typically regarded as a cost driver in traditional accounting

practices?
a. number of purchase orders processed
b. number of customers served
c. number of transactions processed
d. number of direct labor hours worked

4. In activity-based costing, cost reduction efforts are directed at specific

a. cost categories.
b. cost pools.
c. processes.
d. cost drivers

5. Cost allocation bases in activity-based costing should be

a. cost drivers.
b. value-added activities.
c. activity centers.
d. processes.
6. In a cost of production report using process costing, transferred-in costs are similar to
the
a. cost of material added at the beginning of production.
b. conversion cost added during the period.
c. cost transferred out to the next department.
d. cost included in beginning inventory.

7. Material is added at the beginning of a process in a process costing system. The

beginning Work in Process Inventory for the process was 30 percent complete as to
conversion costs. Using the FIFO method of costing, the number of equivalent units of
material for the process during this period is equal to the
a. beginning inventory this period for the process.
b. units started this period in the process.
c. units started this period in the process plus the beginning Work in Process
Inventory.
d. units started and completed this period plus the units in ending Work in
Process Inventory.

8. A process costing system

a. cannot use standard costs.
b. restates Work in Process Inventory in terms of completed units.
c. accumulates costs by job rather than by department.
d. assigns direct labor and manufacturing overhead costs separately to units
of production.

9. If normal spoilage is detected at an inspection point within the process (rather than at
the end), the cost of that spoilage should be
a. included with the cost of the units sold during the period.
b. included with the cost of the units completed in that department during the
period.
c. allocated to ending work in process units and units transferred out based
on their relative values.
d. allocated to the good units that have passed the inspection point.
10. For product life cycle costing, R&D costs are
a. expensed as incurred.
b. capitalized and allocated over the life cycle.
c. deducted as period costs.
d. charged to specific departments as incurred.

11. Which of the following areas offers an opportunity to eliminate waste?

a. raw material and labor
b. space and production time
c. recordkeeping and working capital
d. all of the above

12. The process of _________ occurs when equipment is programmed to stop when a
certain situation arises.
a. Throughput
b. Automation
c. Backflushing
d. information sharing

13. ____________________ may involve relocation or plant modernization by a vendor.

a. Focused factory arrangements
b. Economic order quantity
c. Multiprocess handling
d. Activity-based management

14. According to JIT philosophy,

a. inventories of finished goods always should be available to meet customer
demand.
b. push-through manufacturing flows are the most efficient.
c. maintaining inventories wastes resources and frequently covers up poor
work or other problems.

d. long production runs and large production lot sizes take advantage of
economies of scale.
15. Which of the following add customer value?
a. setup time
b. storage time
c. idle time
d. processing time

Phelps Company

Phelps Company produces 50,000 units of Product Q and 6,000 units of Product Z
during a period. In that period, four set-ups were required for color changes. All units of
Product Q are black, which is the color in the process at the beginning of the period. A
set-up was made for 1,000 blue units of Product Z; a set-up was made for 4,500 red
units of Product Z; a set-up was made for 500 green units of Product Z. A set-up was
then made to return the process to its standard black coloration and the units of Product
Q were run. Each set-up costs $500.

16. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the
department, what is the approximate per-unit set-up cost for Product Z?
a. $.010.
b. $.036.
c. $.040.
d. None of the responses are correct.

17. Refer to Phelps Company. Assume that Phelps Company has decided to allocate
overhead costs using levels of cost drivers. What would be the approximate per-unit
set-up cost for the blue units of Product Z?
a. $.04.
b. $.25.
c. $.50.
d. None of the responses are correct.
 Lafayette Savings and Loan

Lafayette Savings and Loan had the following activities, traceable costs, and
physical flow of driver units:

Traceable Physical flow of

Activities Costs Driver Units

Open new accounts $50,000 1,000 accounts

Process deposits 36,000 400,000 deposits
Process withdrawals 15,000 200,000 withdrawals
Process loan applications 27,000 900 applications

The above activities are used by the Jennings branch and the Crowley branch:

Jennings Crowley

New accounts 200 400

Deposits 40,000 20,000
Withdrawals 15,000 18,000
Loan applications 100 160

18. Refer to Lafayette Savings and Loan. What is the cost per driver unit for new account
activity?
a. $0.09 c. $30.00
b. $0.075 d. $50.00
 Hazel Company uses activity-based costing. The company produces two products:
coats and hats. The annual production and sales volume of coats is 8,000 units and of
hats is 6,000 units. There are three activity cost pools with the following expected
activities and estimated total costs:

Activity Estimate Expected Expected

Cost Pool d Activity Activity
Cost Coats Hats Total
Activity 1 $20,000 100 400 500
Activity 2 $37,000 800 200 1,000
Activity 3 $91,200 800 3,000 3,800

19. Refer to Hazel Company. Using ABC, the cost per unit of coats is approximately:

a. $2.40 c. $ 6.60
b. $3.90 d. $10.59

20. Refer to Hazel Company. Using ABC, the cost per unit of hats is approximately:

a. $2.40 c. $12.00
b. $3.90 d. $15.90

Smithson Company

Smithson Company produces two products (A and B). Direct material and labor costs
for Product A total $35 (which reflects 4 direct labor hours); direct material and labor
costs for Product B total $22 (which reflects 1.5 direct labor hours). Three overhead
functions are needed for each product. Product A uses 2 hours of Function 1 at $10 per
hour, 1 hour of Function 2 at $7 per hour, and 6 hours of Function 3 at $18 per hour.
Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively. Smithson
produces 800 units of A and 8,000 units of B each period.
 21. Refer to Smithson Company If total overhead is assigned to A and B on the basis of
units produced, Product A will have an overhead cost per unit of
a. $ 88.64.
b. $123.64.
c. $135.00.
d. None of the responses are correct.

22. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units
produced, Product B will have an overhead cost per unit of
a. $84.00.
b. $88.64.
c. $110.64.
d. None of the responses are correct.

23. Kerry Company makes small metal containers. The company began December with 250
containers in process that were 30 percent complete as to material and 40 percent
complete as to conversion costs. During the month, 5,000 containers were started. At
month end, 1,700 containers were still in process (45 percent complete as to material
and 80 percent complete as to conversion costs). Using the weighted average method,
what are the equivalent units for conversion costs?
a. 3,450
b 4,560
c. 4,610
d. 4,910

24. Mehta Company Co. uses a FIFO process costing system. The company had 5,000
units that were 60 percent complete as to conversion costs at the beginning of the
month. The company started 22,000 units this period and had 7,000 units in ending
Work in Process Inventory that were 35 percent complete as to conversion costs. What
are equivalent units for material, if material is added at the beginning of the process?
a. 18,000
b. 22,000
c. 25,000
d. 27,000
 Ryan Company

Ryan Company adds material at the start to its production process and has the following
information available for March:

Beginning Work in Process Inventory

(40% complete as to conversion) 7,000 unit
s
Started this period 32,000 unit
s
Ending Work in Process Inventory
(25% complete as to conversion) 2,500 unit
s
Transferred out ?

25.Refer to Ryan Company. Compute the number of units started and completed in March.
a. 29,500
b. 34,500
c. 36,500
d. 39,000

Maxwell Company

Maxwell Company adds material at the start of production. The following production
information is available for June:

Beginning Work in Process Inventory

(45% complete as to conversion) 10,000 units

Started this period 120,000 units

Ending Work in Process Inventory
(80% complete as to conversion) 8,200 units
 Beginning Work in Process Inventory
Costs:
Material $24,500
Conversion 68,905

Current Period Costs:

Material $ 75,600
Conversion 130,053

26. Refer to Maxwell Company. How many units must be accounted for?
a. 118,200
b. 128,200
c. 130,000
d. 138,200

Cherub Co.
Beginning inventory (30% complete 700 unit
as to Material B and 60% complete s
for conversion)
Started this cycle 2,000 unit
s
Ending inventory (50% complete as 500 unit
to Material B and 80% complete for s
conversion)

Beginning inventory costs:

Material A
$14,270
Material B 5,950
Conversion 5,640
 Current Period costs:

Material A $40,000

Material B 70,000

Conversion 98,100

Material A is added at the start of production, while Material B is added uniformly

throughout the process.

27. Refer to Cherub Company. Assuming a weighted average method of process costing,
compute EUP units for Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,240 and 2,700, respectively

28. Refer to Cherub Company Assuming a FIFO method of process costing, compute EUP
units for Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,450 and 2,880, respectively

29. Refer to Cherub Company Assuming a weighted average method of process costing,
compute EUP for conversion.
a. 2,600
b. 2,180
c. 2,000
d. 2,700
30. A firm estimates that its annual carrying cost for material X is $.30 per lb. If the firm
requires 50,000 lbs. per year, and ordering costs are $100 per order, what is the EOQ
(rounded to the nearest pound)?
a. 5,774 lbs.
b. 4,082 lbs.
c. 1,732 lbs.
d. 1,225 lbs.

31.A company has estimated its economic order quantity for Part A at 2,400 units for the
coming year. If ordering costs are $200 and carrying costs are $.50 per unit per year,
what is the estimated total annual usage?
a. 6,000 units
b. 28,800 units
c. 7,200 units
d. 2,400 units

Douglas Corporation

Douglas Corporation operates its factory 300 days per year. Its annual consumption of
Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y and
its lead time is 12 business days.

32. Refer to Douglas Corporation. What is the order point for Material Y?
a. 10,000 gallons
b. 38,000 gallons
c. 48,000 gallons
d. 58,000 gallons

33. Atkins Corporation consumes 1,200,000 gallons of Material Y per year. Its order quantity
is 30,000 gallons. It maintains a safety stock of 10,000 gallons and its annual carrying
costs are $0.25 per gallon per year. If the ordering cost is $20 per order, what are the
total annual ordering costs?

a. 600
b. 800
c. 8,300
d. 1,200
 Rawson Corporation

Rawson Corporation’s order quantity for Material T is 5,000 lbs. If the company
maintains a safety stock of T at 500 lbs., and its order point is 1,500 lbs.

34. Refer to Rawson Corporation. What is the lead time assuming daily usage is 50 lbs.?
a. 30 days
b. 100 days
c. 10 days
d. 20 days

35. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average
inventory (taking into account the safety stock) is 8,000 pounds. What is the apparent
order quantity?
a. 16,000 lbs.
b. 6,000 lbs.
c. 10,000 lbs.
d. 21,000 lbs.
ANSWER KEY:

1. C
2. D
3. D
4. D
5. A
6. A
7. D
8. B
9. D
10. B
11. D
12. B
13. B
14. C
15. D

ANSWER KEY: (PROBLEMS)

16. B
Total setup cost: $500 x 4 = $2,000

$2,000/56,000 = $0.0357

17. C
Setup cost for blue units = $500.00

Number of blue units produced =

1,000

$500/1,000 = $.50

18.D
$50,000 / 1,000 = $50.00 per
account
19. C
Activity Cost Allocation Cost per Unit
1 $20,000 * 100/500 = $ 4,000 / 8,000 $0.50
2 $37,000 * 800/1,000 = $29,600 / 8,000 3.70
3 $91,200 * 800/3,800 = $19,200 / 8,000 2.40
Total Cost per Unit 6.60

20. D
Activity Cost Allocation Cost per Unit
1 $20,000 * 400/500 = $ 16,000 / 6,000 $2.67
2 $37,000 * 200/1,000 = $ 7,400/ 6,000 1.23
3 $91,200 * 3,000/3,800 = $72,000 / 6,000 12.00
Total Cost per Unit 15.90

21. A
Total Overhead
Product A Function Hourly Rate Hours Total

1 $ 10 2 $ 20
2 $ 7 1 $ 7
3 $ 18 6 $ 108
Totals 9 $ 135

Product B Function Hourly Rate Hours Total

1 $ 10 1 $ 10

2 $ 7 8 $ 56
3 $ 18 1 $ 18
Totals 10 $ 84
 OH/Unit Units Total
Produced
$ 135 800 $ 108,000
$ 84 8000 $ 672,000
$ 780,000
Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.090909091 $ 70,909.09 800 $ 88.64
(800/8800)

22. B
See #21 for Total Overhead Computations
Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.909090909 $ 709,090.91 8000 $ 88.64
(8000/8800)

23. D
Beginning Work in Process 250 40% 100
+ Completion of Units in Process 250 60% 150
+ Units Started and Completed 3,300 100% 3,300
+ Ending Work in Process 1,700 80% 1,360
Equivalent Units of Production 4,910

24. B
The material is added at the beginning of the process; therefore there are 22,000
equivalent units of material.

25. A
Units started this period 32,000
Less: Ending Work in Process 2,500
Units started and completed this period 29,500
26. C
Beginning Work in Process 10,000
Units Started 120,000
Total Units 130,000

27. B
Weighted Average Material A Material B
Beginning Work in Process 700 700
Units Started and Completed 1500 1500
Ending Work in Process 500 250
EUP Materials 2700 2450

28. C
FIFO Material A Material B
Beginning Work in Process 0 490
Units Started and Completed 1500 1500
Ending Work in Process 500 250
EUP Materials 2000 2240

29. A
Weighted Average
Beginning Work in Process 700
Units Started and Completed 1500
Ending Work in Process 400
2600

30. A
EOQ =
EOQ = 5,774 lbs.
31. C
EOQ = 2,400 units =
AU = 7,200 units

32. D
Order point = (Daily use * Lead time) + Safety Stock
= (4,000 * 12) + 10,000
= 58,000 gallons

33. B
Annual ordering costs = (1,200,000/30,000) *
$20
= 40 orders * $20
= $800

34. D
Order point = (Daily use * Lead time) + Safety Stock
1,500 = (50 * LT) + 500
1,000 = (50 * LT)
20 = LT

35. B
(8,000 - 5,000) lbs * 2 = 6,000
lbs.