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2. The pricing method used by services companies, such as home repair services, architectural
firms and automobile repair services is known as:
a. Cost-plus pricing
b. Transfer pricing
c. Target pricing
d. Time & material pricing
3. If the responsibility centre gets more revenue from output, then it is called:
a. Investment centre
b. Cost centre
c. Profit centre
d. Expense centre
6. The standard material cost per kg of raw material is $5.25. The standard material allowed
per unit is 3 Kg. The actual material used per unit is 3.25 Kg. The actual cost per kg is $4.50.
What is the standard cost per output unit?
a. $13.57
b. $14.64
c. $11.22
d. $15.75
Answer:
Standard cost per output unit
= Standard cost per kg of raw material x Standard material allowed per unit
= $5.25 x 3 kg
= $15.75
Answer:
From the above information, segment IV has the biggest ROI, hence, it is the best investment
centre. (note that: ROI = net profit/capital employed)
9. The standard cost card for a product indicates that one unit of the product requires 8
kilograms of a raw material at $0.80 per kilogram. The production of the product in April
was 870 units, but production had been budgeted for 850 units. During April, 8,200
kilograms of the raw material were purchased for $6,888 and 7,150 kilograms of the raw
material were used in production. The material variances for April were:
Answer:
Materials price variance: $328 U
Materials quantity variance: $152 U
10. A company manufacturers a plastic tray. Its standard cost for the direct materials included
in one tray is 2 pounds of material at the standard cost of $3 per pound. The company
produced 100 trays and used 210 pounds of material. The material's actual cost was $3.10
per pound. The direct materials usage or quantity variance is:
Answer:
The good output was 100 trays. The standard pounds of material per tray are 2
pounds. Therefore, the standard pounds of plastic that should have been used for the
good output → 100 x 2 = 200 pounds.
The standard cost of the materials will be 200 std lbs X $3 std cost = $600
The actual pounds used was $210 pounds X $3 std cost = $630.
Quantity variance = $30U (unfavorable, actual > standard)
11. The direct materials price variance for the recent accounting period is $8,000 unfavorable.
The direct material associated with this variance had a standard cost of $200,000. At the
end of the accounting year, the standard cost of the direct material is residing in the
following:
Assuming that the unfavorable variance of $8,000 is a significant (material) amount for this
company, how much of the variance would be charged to the finished goods inventory?
Answer:
Since $50,000 of the $200,000 of standard costs reside in the finished goods
inventory, it is reasonable to assign 50/200 or 25% of the variance to the finished
goods inventory.
12. Refer to no. 8, assuming that the unfavorable variance of $8,000 is an insignificant
(immaterial) amount for this company, what is the maximum amount of the variance that
can be charged to the cost of goods sold?
Answer:
Since the $8,000 unfavorable variance is immaterial in amount, the entire variance
may be assigned to the cost of goods sold.
13. The selling price of a product is $300/unit and the company expects to sell 1,000 units per
year. The company sets a 20% required return on its investment of 1,250,000. What is the
target cost per unit?
a. $60
b. $50
c. $300
d. $250
Answer:
Step 1 → desired profit = 20% x $1,250,000 = $250,000
Step 2 → desired profit per unit = $250,000/1000 units = $250/unit
Step 3 → target cost per unit = $300 - $250 = $50
14. The following are all steps in the implementation of target costing:
1. Calculate target cost
2. Calculate the estimated current cost of production
3. Determine the required profit
4. Decided on a selling price
5. Calculate the target cost gap
Which of the following represent the correct order?
a. 1,2,3,4,5
b. 2,3,4,1,5
c. 4,3,1,2,5
d. 4,5,3,1,2
16. Ace Hardware’s income statement shows that product X’s selling price per unit is $960 and
expected to have a 11% ROI for this year, declining from 15% ROI last year due to PSBB. Its
original investment is $1000. How much is the the cost of product X?
a. $810
b. $110
c. $150
d. $850
Answer:
Markup = 11% x $1,000 = $110
Cost = $960 - $110 = $850
ESSAY #1
Lee Min Ho, a Sales Manager was given the following static budget report for selling expenses in the
Clothing Department of Luna Company for the month of October.
Luna Company
As a result of this budget report, Lee Min Ho was called into the president’s office and congratulated
on his fine sales performance. He was reprimanded, however, for allowing his costs to get out of
control. Lee Min Ho knew something was wrong with the performance report that he had been
given. However, he was not sure what to do, and came to you for advice. Prepare a budget report
based on flexible budget data to help Lee Min Ho!
Answer:
ESSAY #2
The following information is available for Prince Inc’s anticipated annual volume of 500,000
units:
Answer:
ESSAY #3
Second Chance Welding rebuilds spot welders for manufacturers. The following budgeted
cost data for 2017 is available for Second Chance Welding
Answer:
ESSAY #4
Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following
data are available for preparing budgets for Snare for the first 2 quarters of 2017
Answer: