DeVry Chicago ACCT 349 HW WK4

07 Jul DeVry Chicago ACCT 349 HW WK4

1. A _ ___ is a formal method of making a choice, often involving both quantitative and qualitative analysis.
2. In a one-time-only special order decision, the relevant costs are the _ __ costs that _ ___ between the “accept” and “reject” alternatives.
3. In management decisions, outcomes that are difficult to measure accurately in numerical terms are called _ __ factors.
4. Producing goods or providing services within the organization rather than purchasing the same goods or services from outside vendors is called _ _.
5. ______ is the contribution to operating income that is forgone (given up) by not using a limited resource in its next-best alternative use.
6. In equipment replacement decisions, an item that is always irrelevant is the____.
7. (Appendix) ______ is an optimization technique used to maximize the objective function when there are multiple constraints.

True-False
1. In general, all variable costs are relevant to decisions, and all fixed costs are irrelevant to decisions.
2. Past (historical) costs are always irrelevant to decisions but they can be helpful in predicting future costs.
3. A car rental company is comparing two makes of cars to decide which one to purchase for its fleet. Miles per gallon of fuel consumption is a qualitative factor in this decision.
4. Assuming sufficient idle production capacity is available, a one-time-only special order should not be accepted at a selling price below the total manufacturing cost per unit.
_ 5. Opportunity costs do not entail cash receipts or disbursements.
6. Incremental cost and differential cost have the same meaning.
7. In deciding among three alternatives for the sale of units held in finished goods inventory, the manager should regard past cost of the inventory as irrelevant, whether or not the inventory is obsolete.
8. If there is an inconsistency between the decision model and the performance evaluation model in a decision to keep or replace some “old” equipment, the manager’s choice tends to be influenced more by the decision model.
9. (Appendix) The LP model is not applicable to situations where there are more than three constraints.
10. (Appendix) The area of feasible solutions in an LP graphic solution shows the boundaries of those combinations of the two products that satisfy all constraints.

Multiple Choice
1. (CPA) Light Company has 2,000 obsolete light fixtures that were manufactured at a cost of $30,000. If the fixtures are reworked for $10,000, they can be sold for $18,000. Alternatively, the fixtures can be sold for $3,000 to a jobber. Assuming the fixtures are reworked and sold, the opportunity cost is:

2. (CPA) The manufacturing capacity of Jordan Company’s facilities is 30,000 units of a product per year. A summary of operating results for the year ended December 31, 2010, is as follows:
Revenues,
18,000 units $100 $1,800,000
Variable costs 990,000
Contribution margin 810,000
Fixed costs 495,000
Operating income $ 315,000

A foreign distributor has offered to buy 15,000 units at $90 per unit during 2011. Assume all of Jordan’s costs will have the same behavior patterns in 2011 as in 2010. If Jordan accepts this offer and rejects 3,000 units of business from regular customers so as not to exceed its capacity, total operating income for 2009 is:
3. (CPA) Gata Co. plans to discontinue a division with a $48,000 contribution margin, and allocated fixed costs of $96,000, of which $42,000 cannot be eliminated. What is the effect on Gata’s operating income of discontinuing this division?

4. Which one of the following items is relevant to an equipment replacement decision?
b. Disposal value of the old equipment

5. (CPA) Maxwell Company has an opportunity to acquire a new machine to replace one of its old machines. The new machine costs $90,000 and has an estimated useful life of five years, with a zero terminal disposal value. Variable operating costs are $100,000 per year. The old machine has a book value of $50,000 and a remaining life of five years. Its disposal value now is $5,000 but would be zero after five years. Variable operating costs are $125,000 per year. Considering the five years in total, but ignoring time value of money and income taxes, what is the difference in operating income by replacing the old machine?

6. (Appendix, CMA adapted) Pleasant Valley Company makes two products, ceramic vases (V) and ceramic bowls (B). Each vase requires two pounds of direct materials and three hours of direct manufacturing labor. Each bowl requires two pounds of direct materials and one hour of direct manufacturing labor. During the next production week, 100 pounds of direct materials and 60 hours of direct manufacturing labor are available to make vases and bowls. Each pound of direct material costs $4 and each hour of direct manufacturing labor costs $10. All manufacturing overhead is fixed and is estimated to be $200 per week for this production process. Pleasant Valley sells vases for $50 each and bowls for $35 each. The objective function for total contribution margin is:

7. Using the information in question 6, one of the constraints is:

 

 

 

Review Exercises
1. Edgewood Corporation has 1,440 machine-hours of plant capacity available during a particular period for manufacturing two products with the following characteristics:
T L
Selling price $42 $75
Variable cost per unit $20 $25
Units that can be manufactured per machine-hour 8 3
Demand in units 13,500 6,000

Compute the number of available machine-hours that should be used to manufacture each product.

2. (CMA) Richardson Motors uses ten units of Part T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is as follows:
Direct materials $ 2,000
Materials handling
(20% of direct material costs) 400
Direct manufacturing labor 16,000
Manufacturing overhead
(150% of direct manufacturing labor cost) 24,000
Total manufacturing cost $42,400

Materials handling, a separate cost category that is not included in manufacturing overhead, represents those direct variable costs of the Receiving Department that are allocated to direct materials and purchased components on the basis of their cost. Richardson’s annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson’s reliable vendors, offers to supply T305 at a unit price of $30,000. Assume Richardson Motors could rent out all its idle production capacity for $50,000 per month.

Compute how much Richardson’s monthly cost of T305 increases/decreases if the company purchases the
ten units from Simpson Castings.

3. (CPA) Bradshaw Manufacturing Company is reviewing the profitability of the company’s four products and the potential of several proposals for improving the profitability of the product mix. An income statement and other data follow:
Total Product W Product X Product Y Product Z
Revenues $62,600 $10,000 $18,000 $12,600 $22,000
Cost of goods sold 44,274 4,750 7,056 13,968 18,500
Gross margin 18,326 5,250 10,944 (1,368) 3,500
Operating costs 12,012 1,990 2,976 2,826 4,220
Operating income $ 6,314 $ 3,260 $ 7,968 $ (4,194) $ (720)
Units sold  1,000 1,200 1,800 2,000
Selling price  $ 10.00 $ 15.00 $ 7.00 $ 11.00
Variable cost of goods sold per unit  $ 2.50 $ 3.00 $ 6.50 $ 6.00
Variable operating cost per unit  $ 1.17 $ 1.25 $ 1.00 $ 1.20
Each of the following proposals is to be considered independently. Consider only the product changes
stated in each proposal; the production and sales levels of the other products remain the same.
a. Compute the effect on operating income if Y is dropped.

b. Compute the total effect on operating income if Y is dropped and a resulting loss of customers causes a decrease of 200 units in the production and sales of X.

 

c. Assume the area of the plant in which W is manufactured can easily be adapted to the production of Z, but changes in quantities produced necessitate changes in selling prices. Compute the total effect on operating income if production of W is reduced to 500 units (to be sold at $12 each) and production of Z is increased to 2,500 units (to be sold at $10.50 each).

 

Chapter 13
1. An organization’s ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors is the strategy called ____.
2. The ____ translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy.
3. The fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction is called _____.
4. A __ ____ is a diagram that describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationships with each other in the financial, customer, internal business process, and learning and growth perspectives.
5. In subdividing the change in operating income from 2010 to 2011 into components, the ______ component measures the change in operating income attributable solely to the change in the quantity of output sold from 2010 to 2011.
6. _ ___ costs result from a cause-and-effect relationship between the cost driver, output, and the (direct or indirect) resources used to produce that output.
7. _ ____ is an integrated approach of configuring processes, products, and personnel to match costs to the activities that need to be performed to operate effectively and efficiently in the present and future.
8. (Appendix) The ratio of the quantity of output produced to the costs of all input used based on current period prices is called _ ___.

True-False
1. The balanced scorecard has separate columns for objectives, initiatives, performance measures, target performance, and actual performance.
2. The balanced scorecard gets its name because it balances short-run and longrun financial performance measures in a single report.
3. Under the strategy of product differentiation, the financial perspective of a well-designed balanced scorecard focuses on how much operating income results from charging premium selling prices.
4. The cause-and-effect relationship built into the balanced scorecard is that gains in learning and growth lead to improvements in internal business processes, which in turn lead to higher customer satisfaction and market share, and finally result in superior financial performance.
5. In a well-designed balanced scorecard, many financial performance measures serve as leading indicators of future nonfinancial performance.
6. Successful reengineering efforts involve changing roles and responsibilities, eliminating unnecessary activities and tasks, using information technology, and developing employee skills.
_ 7. A well-designed balanced scorecard uses only objective financial and nonfinancial performance measures.
8. The most noteworthy aspect of engineered costs is that managers are seldom confident that the “correct” amounts are being spent.
_ 9. (Appendix) The lower the inputs for a given quantity of output or the higher the output for a given quantity of inputs, the higher the level of productivity.
10. (Appendix) Fluctuations in input prices affect partial productivity measures.

Multiple Choice
1. Brand loyalty is associated closely with:
b. product differentiation but not cost leadership.
2. The percentage of manufacturing processes with real-time feedback is a performance measure under which perspective in the balanced scorecard?
d. Learning and growth perspective

3. Reengineering relates to which perspective in the balanced scorecard?
c. Internal business process perspective
4. In analyzing the change in a company’s operating income from one year to the next, which effect(s) is computed for the price-recovery component?
Revenue             Cost
Effect              Effect

 

5. Nesbitt Company analyzed the change in its operating income from 2010 to 2011 into three components as follows:
Growth component                                         $684,000 favorable
Price-recovery component                              604,000 unfavorable
Productivity component                                  450,000 favorable

If operating income is $1,050,000 in 2011, operating income in 2010 is:

 

6. Drummond Enterprises had an increase in its operating income from 2010 to 2011 of $200,000. Two of the three factors accounting for the increase are:
Change due to cost leadership                              $498,500 favorable
Change due to product differentiation                  454,500 unfavorable
The third factor to complete this analysis is:

 

7. (Appendix, CMA) Fabro Inc. produced 1,500 units of Product RX-6 last week. The inputs for
this production are:
450 pounds of Material A at a cost of $1.50 per pound
300 pounds of Material Z at a cost of $2.75 per pound
300 labor-hours at a cost of $15.00 per hour
The total factor productivity for Product RX-6 is:

 

Review Exercises
1. The following information is from the Solution to the Featured Exercise, pp.172-173:
Castleton Company’s strategy is cost leadership.
Change in operating income due to growth component $ 64,800 F
Change in operating income due to price-recovery component 82,320 F
Change in operating income due to productivity component 11,840 F
Change in operating income from 2010 to 2011 $158,960 F
During 2011 the unit sales for Castleton’s fertilizer product, Turfgro, increased by 4% (from 10,000 tons in 2010 to 10,400 tons in 2011). A trade association reports the industry market size for this type of fertilizer increased by 3% in 2011. The increase in Turfgro’s market share (that is, its unit sales grew by more than the 3% growth in industry market size) and the increase in its selling price are due to customers perceiving this product to be a superior fertilizer.

a. Compute the change in operating income from 2010 to 2011 that is due to three factors: industry market size, product differentiation and cost leadership.

b. How successful has Castleton been in implementing its cost leadership strategy for Turfgro? Explain.

2. (Appendix) Vander Lind Industries makes a chemical product using direct materials and direct manufacturing labor, which are partial substitutes for each other. The company reported the following data for the last two years of operations:
2010 2011
Output units 8,500 10,200
Direct materials used (in kilograms) 5,700 7,000
Direct material cost per kilogram $3.20 $3.00
Direct manufacturing labor-hours used 700 800
Wages per labor-hour $14 $15
Manufacturing capacity in output units 12,000 11,500
Manufacturing overhead costs $15,000 $14,950
Manufacturing overhead costs per unit of capacity $1.25 $1.30

a. Compute the partial productivity ratios for each input for each year, and compute the change in partial
productivity for each input from 2010 to 2011.

 

b. Compute the change in total factor productivity from 2010 to 2011.

 

 

Chapter19
Review Questions and Exercises
1. __ _____ quality refers to how closely the characteristics of a product or service meet the needs and wants of customers.
2. __ _______ quality is the performance of a product or service relative to its design and product specifications.
3. Costs of quality (COQ) are classified into which four categories? ______
4. The time it takes from the time a customer places an order for a product or service to the time the product or service is delivered to the customer is called _ ___.
5. __ ____ is the time it takes from the time an order is received by the Manufacturing Department to the time a finished good is produced.
6. An operation in which the work required to be performed approaches or exceeds the capacity available to do it is called a ______.
7. Under the theory of constraints, throughput margin equals _____.

True-False
1. Costs of quality incurred to detect which of the individual units of a product do not conform to specifications are called internal failure costs.
2. All the costs of quality entail cash outflows.
3. Costs of quality are incurred across the entire value chain.
4. Statistical quality control often uses Pareto diagrams to distinguish random variation from nonrandom variation in an operating process.
5. A Pareto diagram helps to identify the potential causes of product failure.
6. Customer-response time is an example of a nonfinancial measure of performance used in quality-improvement programs.
7. Average waiting time is inversely related to the amount of unused capacity.
8. Considering only quantitative factors, it may be undesirable to introduce a new product that has a positive contribution margin, even though machine capacity is available.
9. It is undesirable to have unused capacity at the bottleneck operation in a manufacturing plant.

Multiple Choice
1. (CMA adapted) The costs of rework in a quality-improvement program are categorized as:
b. internal failure costs.

2. (CMA) The costs of using statistical quality control in a quality-improvement program are categorized as:
e. appraisal costs.

3. (CMA) All of the following costs are generally included in a costs of quality report except:
b. forgone contribution margin on lost sales.

4. (CMA) The following selected line items are from the Cost of Quality Report for Watson Company for May.
Cost
Rework $ 725
Equipment maintenance 1,154
Product testing 786
Product repair 695
Watson’s total prevention and appraisal costs for May are:

5. John’s Custom Shirts has variable demand. Historically, demand has ranged from 20 to 40 shirts a day with an average of 30. John works 8 hours a day, 5 days a week. Each order he receives is to custom print one shirt and each shirt takes 12 minutes to print. The average waiting time (rounded to nearest tenth of a minute) is:

6. Ashmore Company has two production departments, Cutting and Finishing. The Cutting Department is constrained by the speed of the cutting machines. The Finishing Department is constrained by the speed of the workers. The Finishing Department normally waits on work coming from the Cutting Department. Each department works an 8-hour day. If the Cutting Departmentwere to begin work 2 hours earlier than the Finishing Department each day (thereby working a 10-hour day), the two departments would finish their work at about the same time. Not only would this change eliminate the bottleneck, but also it would increase production by 40 finished units per day. The number of units in finished goods inventory would remain the same. It costs $400 to operate the Cutting Department 2 more hours per day. The contribution margin is $15 per unit. If the Cutting Department operates 10 hours per day, the total production per day is:

7. Using the information in question 6, and assuming the Cutting Department operates 10 hours per day, the total contribution margin per day:

8. Which of the following is not an action in managing bottleneck operations under the theory of constraints?

 

Review Exercises
1. Palmateer Company manufactures two products, C and P. Pertinent information is as follows:
Product C Product P
Selling price $90 $100
Market demand per week 100 units 50 units
Direct material costs $45 $40
Time required to produce one unit:
Operation 1 18 minutes 10 minutes
Operation 2 15 minutes 30 minutes
Operation 3 10 minutes 5 minutes
Operation 4 12 minutes 10 minutes
Each operation has a capacity of 2,400 minutes per week.

What production schedule for C and P maximizes Palmateer’s weekly throughput margin? Show your computations.

2. Huntington Industries makes an electronic component in two departments, Machining and Assembly. The capacity per month is 30,000 units in the Machining Department and 20,000 units in the Assembly Department. The only variable cost of the product is direct material of $100 per unit. All direct material cost is incurred in the Machining Department. All other costs of operating the two departments are fixed costs. Huntington can sell as many units of this electronic component as it produces at a selling price of $300 per unit.

Assuming any defective units produced in either department must be scrapped:
a. Compute the loss that occurs if a defective unit is produced in the Machining Department.

b. Compute the loss that occurs if a defective unit is produced in the Assembly Department.

c. How do your answers in parts (a) and (b) relate to the theory of constraints? Explain.