Cost Accounting Exam #1, Fall 2003

Cost Accounting Exam #1, Fall 2003

MULTIPLE CHOICE

1.Your close friend is a shareholder of the company that employs you, a management accountant. The friend asks you for information that is typically available only to company management. Sharing this information with your friend violates the ethical standard of

a.privileged information.

b.independence.

c.integrity.

d.confidentiality.

2.The codes of conduct for integrity include all of the following except

a.avoid actual or apparent conflicts of interest.

b.refusing any gift that would influence the accountant’s action.

c.recognize and communicating professional limitations.

1. communicating information subjectively.

3.Which of the following would be a violation of the Standards of Ethical Conduct for Management Accountants?

a.refusing to perform an accounting technique (e.g. ABC) in which the accountant has little competence.

b.reporting unfavorable departmental information that could result in unfavorable consequences for the departmental manager.

c.withholding unfavorable departmental information that could result in unfavorable consequences for the departmental manager.

1. subverting organizational objectives by reporting illegal actions to legal authorities.
2. more than one of the above would be a violation.

4.Which of the following statements is TRUE?

a.Management accounting plays a vital role in the achievement of company goals and objectives.

b.Management accounting information is used by organization managers at various levels, from front-line employees to the board of directors.

c.Management accounting information tends to be more detailed and future oriented than financial accounting.

d.All of the above are true statements.

5.Classifying a cost as either direct or indirect depends upon

a.the behavior of the cost in response to volume changes.

b.whether the cost is expensed in the period in which it is incurred.

c.whether the cost can be easily identified (traced) with the cost object.

d.whether the cost is avoidable or not in the future.

6.Which of the following statements is TRUE?

a.Management accounting plays a vital role in the achievement of company goals and objectives.

b.Management accounting information is used by organization managers at various levels, from front-line employees to the board of directors.

c.Management accounting information tends to be more detailed and future oriented than financial accounting.

d.All of the above are true statements.

7.A supplier to your company offers to let you, a management accountant, use the supplier’s condo in Cancun. In addition, a major customer offers you season tickets to the 76’rs in their executive suite. Accepting the supplier and customer’s offers violates the ethical standard of

a.competence.

b.independence.

c.integrity.

d.none of the above. Maintaining good relations with the company’s suppliers and customers is important for fulfilling the company’s objectives.

8.If there is a change in the level of the cost driver,

a.fixed and variable costs per unit will change.

b.fixed and variable costs per unit will be the same.

c.fixed costs per unit will be the same and variable costs per unit will change.

d.variable costs per unit will be the same and fixed costs per unit will change.

9.All of the following are approaches to cost estimation EXCEPT

a.the account analysis method.

b.the conference method.

c.the flexible cost analysis method.

d.the industrial engineering method.

10.Simple regression differs from multiple regression in that

a.multiple regression uses all available data to estimate the cost function, whereas simple regression only uses simple data.

b.simple regression is limited to the use of only the dependent variables and multiple regression can use both dependent and independent variables.

c.simple regression uses only one independent variable and multiple regression uses more than one independent variable.

1. simple regression uses only one dependent variable and multiple regression uses more than one dependent variable.

PROBLEM 1

Martha Stuart publishes three types of books; Smut, Textbooks and Classics. The three books are manufactured on separate assembly lines and incurred the following costs:

Smut / Textbooks / Classics / Total
Direct Materials used / $40,000 / $50,000 / $10,000 / $100,000
Direct Labor / $10,000 / $3,000 / $7,000 / $20,000
Indirect costs / ? / ? / ? / $300,000
Units produced / 400 / 500 / 100 / 1,000

Indirect manufacturing costs total $300,000 of which $200,000 are energy costs to operate the machines and $100,000 is for indirect labor.

At present, the publishing company allocates all indirect manufacturing costs based on direct labor costs. However, a recent WCU accounting graduate suggested the company assign the $200,000 of machine energy costs based on machine hours and the remaining $100,000 based on direct labor costs. The Smut product line uses no machines, the textbook product line uses 800 machine hours and the Classics product line uses 200 machine hours.

Required:

1. What is the unit manufacturing cost for each product line using the current method?
2. What is the unit manufacturing cost for each product line using the method suggested by the WCU graduate?
3. Which method do you think is better, the current method or the method suggested by the WCU graduate? Please explain why.

PROBLEM 2

C.F. Martin Guitar Company is interested in determining the cost function of The Taylor Guitar Company, but has only the following cost information for two recent months:

3,000 Units / 4,200 Units
Total Manufacturing costs / $2,188,800 / $2,865,600
Average cost per unit / $729.60 / $682.29

Required:

1. Using the high-low method, compute the cost function for Taylor’s total manufacturing cost.
2. Using the high-low method, estimate the total cost for 4,500 units of output.

Bonus:

Assume Taylor has excess capacity to produce an additional 100 units without increasing fixed costs or marketing costs. What is the minimum price per guitar Taylor could charge to manufacture 100 guitars for Gibson and still maintain the current operating income?

PROBLEM 3

Galbraith makes handmade guitars in direct competition with C.F. Martin. Galbraith just completed its first guitar (i.e., prototype), which took 100 hours to complete and estimates that an 85% cumulative average time learning model would apply to this line of guitars. Dave Matthews is impressed with Galbraith’s guitar and would like to order three guitars. Galbraith will keep the first guitar as a demonstration model for potential new customers.

Required:

1. Calculate the additional time needed to build the three units for Dave Matthews?
2. Calculate the additional time needed to build four more units after completing the order for Dave Matthews.