1. Motorcade
Company has three service departments (S1, S2, and S3) and two production
departments (P1 and P2). The following data relate to Motorcade’s allocation of
service department costs:
Budgeted
Costs #
Employees
S1 $3,240,000 75
S2 $2,720,000 50
S3 $1,000,000 25
P1 150
P2 225
Service department costs are allocated by the direct
method. The number of employees is used as the allocation base for all service
department costs.
Calculate the total service department cost allocated to
production department P1
2. El
Dorado Company has two production plants. Recently, the company conducted an
ABM study to determine the cost of activities involved in processing orders for
parts at each of the plants. How might an operations manager use this
information to manage the cost of processing orders?
a. Set
up an ABC costing system
b. Identify
benchmarks
c. Compare
the cost to process an order at each plant and the nature of the orders to
determine if costs are out of control. If out of control, investigate
d. Close
down the plant with the highest cost to increase profits
3. Infinity
Designs, an interior design company, has experienced a drop in business due to
an increase in interest rates and a corresponding slowdown in remodeling
projects. To stimulate business, the company is considering exhibiting at the
Home and Garden Expo. The exhibit will cost the company $12,000 for space. At
the show, Infinity Designs will present a slide show on a PC, pass out
brochures that are printed previously, (the company printed more than needed),
and show its portfolio of previous jobs.
The company estimates that revenue will
increase by $36,000 over the next year as a result of the exhibit. For the
previous year, profit was as follows:
Revenue
$201,000
Less:
Design supplies (variable cost) $17,000
Salary of Samantha Spade (owner) 80,000
Salary of Kim Bridesdale (full time employee) 55,000
Rent 18,000
Utilities 6,000
Depreciation of office equipment 3,600
Printing of advertising materials 700
Advertising in Middleton Journal 2,500
Travel exp. other than depreciation of autos (variable cost) $3,000
Depreciation of company cars 9,000
Calculate the impact of the exhibit on
company profit.
4. Each
year, Sunshine Motos surveys 7,500 former and prospective customers regarding
satisfaction and brand awareness. For the current year, the company is
considering outsourcing the survey to Global Associates, who have offered to
conduct the survey and summarize results for $30,900.Craig Sunshine, the
president of Sunshine Motors, believes that Global will do a higher-quality job
than his company has been doing, but is unwilling to spend more than $10,000
above the current costs. The head of bookkeeping for Sunshine has prepared the
following summary of costs related to the survey in the prior year.
Mailing $16,800
Printing (done by Lester Print
Shop) $4,500
Salary of Pat Fisher, part-time employee
who stuffed envelopes and summarized data when surveys were returned (100
hours X $15) $1,500
Share of depreciation of computer and
software used to track survey responses and summarized results. $1,100
Share of electricity/phone/etc. based on
square feet of space occupied by Pat Fisher vs. entire company. $500
REQUIRED: What is the incremental cost
of going outside versus conducting the survey as in the past?
5. Howell
Corporation produces an executive jet for which it currently manufactures a
fuel valve; the cost of the valve is indicated below:
Variable
Costs Cost per Unit
Direct Material $960
Direct Labor 600
Variable Overhead 300
Fixed
Costs
Depreciation Equipment 500
Depreciation Buildings 275
Supervisory Salary 300
The company has an offer from Duvall Valves to produce
the part for $2,000 per unit and supply 1,000 valves (the number needed in the
coming year). If the company accepts this offer and shuts down production of
valves, production workers and supervisors will be reassigned to other areas.
The equipment cannot be used elsewhere in the company, and it has no market
value. However, the space occupied by the production of the valve can be used
by another production group that is currently leasing space for $55,000 per
year.
What is the incremental savings of buying the valves?
(The answer should be stated in a per-unit format and is a positive number).
6. Landmark
Coal operates a mine. During July, the company obtained 500 tons of ore, which
yielded 250 pounds of gold and 63,700 pounds of copper. The joint cost related
to the operation was $500,000. Gold sells for $325 per ounce and copper sells
for $0.85 per pound. Allocate the joint
costs using relative weight. With these costs, what is the profit or loss
associated with Copper?
7. Landmark
Coal operates a mine. During July, the company obtained 500 tons of ore, which
yielded 250 pounds of gold and 63,700 pounds of copper. The joint cost related
to the operation was $500,000. Gold sells for $325 per ounce and copper sells
for $0.91 per pound. Allocate the joint
costs using the relative sales values. With these costs, what is the profit or
loss associated with Copper?
8. Common
costs
a. Are fixed costs that are not directly
traceable to an individual product line
b. Normally not avoidable
c. Both A and B are true
statements
d. Neither A nor B is a true
statement
