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201510 ACC315-O Cost Accounting

Chapters 13, 14, & 15

Question 1

Takita Manufacturing Company manufactures parts for the television industry. One of its
products that currently sells for $160 is now facing a new competitor that offers the same
product for $140. The parts currently cost Takita $130. Takita believes it must reduce its price
to $140 to stay competitive. What is the target cost of the product if Takita desires a 25%
profit on sales dollars?
Selected Answer:
Target cost = competitive price - desired profit
Target cost = $140 - $35 = $105

Question 2

TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including
boat engines. The component is purchased by OEM (Original Equipment Manufacturers)
such as Mercury and Honda, for use in the larger and more powerful outboards. The units
sell for $660, and sales volume averages 32,000 units per year. Recently, TwoShaft's
major competitor lowered the price of the equivalent part to $590. The market was very
competitive, and TwoShaft realized it had to meet the new price or lose significant market
share. The controller assembled the following data for the most recent year:

The target cost for maintaining current market share and profitability is (round to nearest


Unit cost is currently $466.6125 = $14,931,600 / 32,000

The current profit per item is $193.3875 = $660 - 466.6125
The target cost to meet the competitive price is: $590 - 193.3875 = $396.6125,
a reduction of $70 from the current cost.

Question 3

Electronic Component Company (ECC) is a producer of high-end video and music

equipment. ECC currently sells its top of the line "ECC" DVD player for a price of $250. It
costs ECC $210 to make the player. ECC's main competitor is coming to market with a
new DVD player that will sell for a price of $220. ECC feels that it must reduce its price to
$220 in order to compete. The sales and marketing department of ECC believes the
reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD
players per year. Irrespective of the competitor's price, what is EEC's required selling
price if the target profit is 25% of sales and current costs cannot be reduced?

Selected Answer:
Price = full manufacturing cost / (1 - desired gross margin percentage)
Price = $210 / 1 - .25
Price = $210 / .75
Price = $280

Question 4

Richardson Corp produces a single product: fireproof safety deposit boxes for home use. The
budget going into the current year anticipated a selling price of $55 per unit. Because of
competitors pressures, the company had to cut selling prices by 10% during the year.
Budgeted variable costs per unit are $32 and budgeted total fixed costs are $156,000 for the
year. Anticipated sales volume for the year was 10,000 units. Actual sales volume was 5%
less than budget. What waa the sales price variance for the year?
Selected Answer:
$55 x 10% = $5.5 x 10,000 units = $55,000
$550,000 - $495,000 = $55,000

Question 5

This is information concerning Johnston Co.'s direct materials costs. The actual purchase
price per pound of direct materials is:

Selected Answer:
2850 lbs x 6.45 = $18,382.50
$18,382.50 - $855 = $17,527.50
$17,527.50 / 2850 lbs = $6.15/lb

Question 6

Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board

used in digital equipment, Flex 10. Information concerning its operation in June is as

The standard cost per pound of PPS is:

Selected Answer:
$224,640 + $21,600 = $246,240
$246,240 / 39,000 lbs = $6.31/lb

Question 7

Lawton Inc. uses a standard cost systm to apply overhead costs to units produced. Practical
capacity for the plant is defined as 50,000 machine-hours per year, which represents 25,000
units of output. Annual budgeted fixed overhead costs are $250,000 and the budgeted variable
overhead cost rate is $4 per unit. Factory overhead costs are applied on the basis of standard
machine-hours allowed for units produced. Budgeted and actual output for the year was
20,000 units, which took 41,000 machine-hours. Actual fixed overhead costs for the year
amounted to $245,000 while the actual variable overhead cost per unit was $3.90. What was
the fixed overhead spending (budget)variance for the year and the fixed overhead production

volume variance for the year?


Fixed overhead spending (budget) variance = $245,000 - $250,000 =

Fixed overhead production volume variance = 41,000 - 50,000 = 9,000F

Question 8

The following budget data pertain to the Machining Department of Yolkenverst Co.:
The company prepared the budget at 85% of the maximum capacity level. The
department uses machine hours as the basis for applying standard factory overhead
costs to production. The standard fixed overhead application rate for the Machining
Department is:

Selected Answer:
1) Budget fixed factory OH = $433,500
2) (60,000 x 0.85) x 2.5/mh = $127,500
3) 433,500 / 127,500 = $3.40/MH

Question 9

Look at information from the previous question.....The budgeted total factory overhead for
the Machining Department is:

Selected Answer:
1) budget total OH = budget fixed OH + budget variable OH
2) budget fixed OH = $433,500
3) budget variable OH = $3.60/mh x 127,500 = $459,000

4) Budget total factory OH = $433,500 + $459,000 = $892,500

Question 10

The following information is available from Thinnews Co., a company that uses machine
hours to apply factory overhead:
The total actual variable factory overhead cost incurred during the year was:

Selected Answer:
$24,000 - 10,000 = $14,000