Notes:

- These questions are meant to prepare you for the final exam. Deal with all of them with
due diligence. However, the contents covered here are not exhaustive. Hence, you are
advised to cover EVERY topic that you find in the materials (ppt) and supplement your
readings with the texts you have been provided with.
- This is not exactly how questions will appear in the final exam.
- Those of you who have not been present during the presentations of your group
assignments or have not handed over the assignments are advised to contact me ASAP.

1. Thurgood Devices uses activity-based costing to allocate overhead costs to customer

orders for pricing purposes. Many customer orders are won through competitive bidding.
Direct material and direct manufacturing labor costs are traced directly to each order.
Thurgood’s direct manufacturing labor rate is $20 per hour. The company reports the
following yearly overhead costs:

Thurgood has established four activity cost pools:

Paul Moeller, Thurgood’s controller, has prepared the following estimates for distribution of the
overhead costs across the four activity cost pools:

Order 448200 required $4,550 of direct materials, 80 direct manufacturing labor-hours, and one
custom design.
a. Allocate the overhead costs to each activity cost pool. Calculate the activity rate for each
pool.
b. Determine the cost of Order 448200.

2. Tri-County Cable Services, Inc., is organized with three segments: Metro, Suburban, and
Outlying. Data for these segments for the year just ended follow.

In addition to the expenses listed above, the company has $45,000 of common fixed
expenses.

Required: Prepare a segmented income statement for Tri-County Cable Services, Inc. Use
the contribution format.

3. Reisen Travel offers helicopter service from suburban towns to John F. Kennedy
International Airport in New York City. Each of its 10 helicopters makes between 1,000
and 2,000 round-trips per year. The records indicate that a helicopter that has made 1,000
round-trips in the year incurs an average operating cost of $350 per round-trip, and one
that has made 2,000 round-trips in the year incurs an average operating cost of $300 per
round-trip.
a. Using the high-low method, estimate the linear relationship y = a + bX , where y is the
total annual operating cost of a helicopter and X is the number of round-trips it makes
to JFK airport during the year.
b. Give examples of costs that would be included in a and in b.
c. In the coming year, Reisen Travel expects each helicopter to make, on average, 1,200
round-trips in the coming year. Each Helicopter has the capacity to carry 5
passengers. The fee per person per one way trip is $50. Average occupation is 80% of
capacity and number of trips is the only driver. What is the budgeted operating
income for next year? (Use the relationship obtained in (a) above.)
4. A company has observed that a 90% learning curve ratio applies to all labour related
costs each time a production doubles. It is anticipated that 16 units will be manufactured
during 1999. Direct labour cost for the 1st unit amounts to 1,000 hours at $8 per hour.
Required:
a. Total labour and labour-related costs to manufacture 160 units of output.
b. Average cost of (a) the first 40 units produced (b) the first 80 units, (c) the first 10
units.
5. Discuss the different methods of transfer pricing along with their pros and cons. Explain
situations where they may (not) be appropriate. Provide examples if necessary.
6. Distinguish between discretionary and committed fixed costs and discuss the importance
of this categorization from cost management perspective.
7. Medical Instruments uses a manufacturing costing system with one direct-cost category
(direct materials) and three indirect-cost categories:
a. Setup, production order, and materials-handling costs that vary with the number of
batches
b. Manufacturing-operations costs that vary with machine-hours
c. Costs of engineering changes that vary with the number of engineering changes made

In response to competitive pressures at the end of 2010, Medical Instruments used value-
engineering techniques to reduce manufacturing costs. Actual information for 2010 and
2011 is as follows:

The management of Medical Instruments wants to evaluate whether value engineering

has succeeded in reducing the target manufacturing cost per unit of one of its products,
HJ6, by 10%. Actual results for 2010 and 2011 for HJ6 are as follows:

1. Calculate the manufacturing cost per unit of HJ6 in 2010.

2. Calculate the manufacturing cost per unit of HJ6 in 2011.
3. Did Medical Instruments achieve the target manufacturing cost per unit for HJ6 in
2011? Explain.
8. Superior Motor Company makes electric cars and has only two products, the Simplegreen
and the Superiorgreen. To produce the Simplegreen, Superior Motor employed assets of
$13,500,000 at the beginning of the period, and $13,400,000 of assets at the end of the
period. Other costs to manufacture the Simplegreen include the following:

a. Direct materials $3,000 per unit

b. Setup $1,300 per setup-hour
c. Production $415 per machine-hour
 General administration and selling costs total $7,340,000 for the period. In the current
period, Superior Motor produced 10,000 Simplegreen cars using 6,000 setup-hours and
175,200 machine-hours. Superior Motor sold these cars for $12,000 each.

a. Assuming that Superior Motor defines investment as average assets during the period,
what is the return on investment for the Simplegreen division?
b. Calculate the residual income for the Simplegreen if Superior Motor has a required
rate of return of 12% on investments.
9. Following is a random-order listing of perspectives, strategic objectives, and performance
measures for the balanced scorecard.

Required:
a. For each perspective, select those strategic objectives from the list that best relate to
it.
b. For each strategic objective, select the most appropriate performance measure(s) from
the list.
10. What difficulties (issues) arise when the performance of divisions (investment centers) of
a company operating in different countries is compared? Discuss.