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Management Accounting questions: Imperial Products, Audio Labs, Hi-Tech Fiberglass Fabricators Inc., Raynor Manufacturing and more...

I have about 10 Multiple Choice questions, if you answer the questions please provide me with detailed work so I can understand how the problem was solved.

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This information is common for questions 1 and 2:

Imperial Products has a budget of $600,000 in 20x1 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $40,000 in variable costs. The new method will require $12,000 in training costs and $80,000 in annual equipment costs. Management is willing to adjust the budget for an amount equal to the cost of the new equipment. The budget includes a production level of 100,000 units. Appraisal costs for the year are budgeted at $400,000. The new prevention procedures will save appraisal costs of $20,000. Internal failure costs average $10 per failed unit of finished goods. The internal failure rate is expected to be 2 percent of all completed items, but the proposed changes will cut the internal failure rate in half. Internal failure units are destroyed. External failure costs average $36 per failed unit, and external failures average 2 percent of units sold. The new procedures will reduce this rate by 80 percent.

1. How much do external failure costs change if the new prevention procedures fulfill
expectations?

a. $57,024 decrease
b. $57,600 increase
c. $57,600 decrease
d. $72,000 decrease
e. none of the above

2. Assume management offers to implement the new procedures if they take place as
anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes caused by the new prevention procedures?

a. $ 52,000
b. $ (5,024)
c. $ (57,024)
d. $ (35,024)
e. none of the above

This information is common for questions 3 and 4:

Audio Labs collected the following information on the cost of producing 20,000 speaker units:

Direct materials
Direct labor
Variable overhead
Fixed overhead - (purchasing, receiving, and setups) Fixed overhead - amortization

$32 per unit
4 per unit
16 per unit
8 per unit
12 per unit

Cartunes has offered to sell Audio the speakers for $64 each.

Audio Labs has an option to make 10,000 CD units to sell to Stereo Sound Studios at $64 each. Costs incurred in production include:

Direct materials
Direct labor
Variable overhead (power, utilities)

3. Which of the two products should Audio Labs use its facilities to produce?

a. produce speakers
b. buy speakers and do not produce CD players
c. buy speakers and produce CD players for Stereo Sound Studios d. buy speakers and indifferent to CD players
e. none of the above

4. What is the opportunity cost of making speakers if Audio Labs has the capacity to produce both items?

a. $160,000 lost profit
b. $80,000 profit increase
c. $40,000 profit increase
d. zero
e. none of the above

$24 per unit
4 per unit
16 per unit

This information is common for questions 5, 6, and 7:

John, owner of Hi-Tech Fiberglass Fabricators Inc., is interested in using the reciprocal allocation method. The following data from operations have been collected for analysis.

Budgeted manufacturing overhead costs: Plant Maintenance- PM (Support Dept.) Data Processing--- DP (Support Dept.)
Machining M (Operating Dept.)
Capping C (Operating Dept.)
$350,000
$ 75,000 $225,000 $125,000

Service furnished:
By Plant Maintenance (budgeted labor hours)
Data Processing 3,500
Machining 5,000
Capping 8,200

By Data Processing (budgeted computer time)
Plant Maintenance 600
Machining 3,500
Capping 600

5. Which of the following linear equations represents the complete reciprocated cost of the
Data Processing department?

a. DP = $75,000 + (600/4,800)PM
b. DP = $75,000 + (3,500/16,700)PM
c. DP = $75,000 x (600/4,800) + $350,000 x (3,340/16,700)
d. PM = $350,000 + (600/16,700)DP
e. none of the above
6. What is the Machining department's 20xl allocation of both service departments respectively, if their complete reciprocated costs were $375,000 for Plant Maintenance and $100,000 for Data Processing?
a. $112,275 and $ 74,468
b. $131,250 and $ 84,375
c. $281,250 and $ 12,500
d. $337,500 and $200,000
e. none of the above

7. What is the Capping department's total cost for 20xl if both service departments are allocated using the complete reciprocated cost method, and their costs for the year are $375,000 for Plant Maintenance and $100,000 for Data Processing?

a. $ 12,766
b. $ 184,132
c. $ 196,898
d. $ 321,898
e. none of the above

8. Raynor Manufacturing purchases rough-cut trees and processes them up to the splitoff point, where two products (paper and pencil casings) are obtained. The products are then sold to an independent company that markets and distributes them to retail outlets. In October, Raynor processed 50 trees and had the following production and sales:

Production: Sales:

30,000 sheets of paper and 30,000 pencil casings (no scrap) 29,000 sheets of paper at $0.04 per page
30,000 pencil casings at $0.10 per casing

Cost of purchasing 50 trees and processing them up to the splitoff point to yield 30,000 sheets of paper and 30,000 pencil casings is $1,500.

Opening inventories are nil; ending inventory amounts reflect 1,000 sheets of paper in stock.

What are the approximate joint costs assigned to the paper ending inventory if joint costs are allocated using the sales value at splitoff method?

a. $ 14.29
b. $ 50.00
c. $ 435.00
d. $ 750.00
e. $ 915.00

9. First Image has a plant capacity of 80,000 units per month. Unit costs at capacity are:

Direct materials
Direct labor
Variable overhead
Fixed overhead
Marketing - fixed Marketing/distribution - variable

$2.00 3.00 1.50 1.50 3.50 1.80

Current monthly sales are 78,000 units at $12.60 each. Computer Output Management has contacted First Image about purchasing 2,000 units at $12.00 each. Current sales would not be affected by the special order. What will First Image's change in profits be if the order is accepted?

a. $ 7,400 increase
b. $ 8,600 increase
c. $11 ,000 increase
d. $16,600 increase
e. none of the above

10. The demand for Ballard Glass Company's products varies, ranging from 10 to 20
windows a day, with an average of 15. John Ballard works eight hours a day, five days a week. Each order is for one window, which takes 26 minutes to install. The company plans to add doors to its product line and anticipates that it will sell an average of five doors per day. Each door takes 12 minutes to install.

Ballard is concerned with increased customer waiting time if it adds doors. To offset this concern, it can hire a part-time employee. This will decrease window installation time to 20 minutes and door installation time to 10 minutes; it will also increase the cost of windows from $10 to $12, and of doors from $6 to $7.50. Since Ballard is giving customers faster service, it will increase its prices from $17 to $20 for windows, and from $10 to $12 for doors.

What is the expected daily revenue with and without doors, respectively, assuming average sales units are used and it hires a part-time employee if doors are sold?

a. $230 and $170
b. $260 and $200
c. $360 and $255
d. $315 and $300
e. $400 and $340

Solution Preview

This information is common for questions 1 and 2:

Imperial Products has a budget of $600,000 in 20x1 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $40,000 in variable costs. The new method will require $12,000 in training costs and $80,000 in annual equipment costs. Management is willing to adjust the budget for an amount equal to the cost of the new equipment. The budget includes a production level of 100,000 units. Appraisal costs for the year are budgeted at $400,000. The new prevention procedures will save appraisal costs of $20,000. Internal failure costs average $10 per failed unit of finished goods. The internal failure rate is expected to be 2 percent of all completed items, but the proposed changes will cut the internal failure rate in half. Internal failure units are destroyed. External failure costs average $36 per failed unit, and external failures average 2 percent of units sold. The new procedures will reduce this rate by 80 percent.

1. How much do external failure costs change if the new prevention procedures fulfill
expectations?

a. $57,024 decrease
b. $57,600 increase
c. $57,600 decrease
d. $72,000 decrease
e. none of the above
Numbers of units with external failure = 100,000*2%=2000
Current cost of external failure = 2000*$36=$72000
Change in external cost = 80%*$72000=$57600 decresae
Answer c

2. Assume management offers to implement the new procedures if they take place as
anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes caused by the new prevention procedures?

a. $ 52,000
b. $ (5,024)
c. $ (57,024)
d. $ (35,024)
e. none of the above

Savings in variable cost = 40000
Savings in appraisal cost = 20000
Savings in internal failure = 100000*2%*$10*0.5=10000
Savings in external failure = 57600
Total Savings = 127600

Net change = 127600 - 12000 - 80000 = 35600
Answer e none of these
This information is common for questions 3 and 4:

Audio Labs collected the following information on the cost of producing 20,000 speaker units:

Direct materials
Direct labor
Variable overhead
Fixed overhead ...

Solution Summary

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