Sample Final Exam
ACC 32001. The following data refers to the Daniels division of Tippett Inc. Daniels sells variable-speed
drills. The standard drill sells for $ 40, and Daniels plans sales of 30,000 units in 2005.
T
...
Sample Final Exam
ACC 32001. The following data refers to the Daniels division of Tippett Inc. Daniels sells variable-speed
drills. The standard drill sells for $ 40, and Daniels plans sales of 30,000 units in 2005.
Tippett treats Daniels as an investment center with total attributable investment of $
800,000. Daniels' annual fixed costs are $ 200,000. Variable cost per standard drill is $ 24.
The firm's required rate of return on investment is 15%. The manager is evaluated based
on Residual Income.
1.1 What is the planned Return on Investment in 2005?
1.2 A one-time external special order is received to buy from Daniel, 10,000 units of the
standard drill at $30 each. If the order is accepted, Daniels will have to incur additional
annual fixed costs of $30,000. Based on the effect on Residual Income for the first year, will
the manager accept this order?
1.3Effect on RI for first yea Will accept: Yes or No
2. Cierra, Inc. manufactures computer chips. Currently, the costs per unit are as follows:
direct materials $ 1.00
direct labor 10.00
variable manufacturing overhead 5.00
fixed manufacturing overhead 8.00
Total $ 24.00
Chips Corp., has contacted Cierra with an offer to sell to Cierra 10,000 of the chips for $22.00
per chip. If Cierra accepts the proposal, $50,000 of the fixed overhead will be eliminated.
2.1 Should Cierra make or buy the chips? Justify your answer with calculations.3. The Commando Motorcycle Company has decided to become decentralized and
split its operations into two divisions, Motor and Assembly. Both divisions will be
treated as investment centers. The selling price of the Motor division is $200. The
Costs per Motor at this level of production are as follows:
Cost per Motor
Direct labor 50; Direct materials $30
Variable manufacturing overhead 20; Variable selling and administrative 5
Fixed manufacturing overhead 25; Fixed selling and administrative 10;
3.1 Assume that the Motor Division is currently operating at its maximum capacity of
30,000 motors per year. As defined by your textbook, what is the minimum
transfer price in this situation?
3.2 Assume that the Motor Division is currently selling 10,000 motors out of a
capacity of 30,000 motors per year. The Assembly division wants to buy 10,000
motors at a suitable transfer price. As defined by your textbook, what is the
minimum transfer price for these additional motors?
3.3Assume that the Assembly Division has to pay an outside vendor $210 for the
motor. The Assembly Division wants to obtain 10,000 motors from the Motor
Division for free. Determine the incremental impact on Commando Motorcycle
profits of this transaction if the division currently has no idle capacity.4. Variable Costing
Succulent juice Company manufactures and sells premium tomato juice by the gallon. Succulent
just finished its first year of operations. The following data relates to this first year of
operations.
Number of Gallons Produced 80,000
Number of Gallons sold 70,000
Sales Price $3.00/gallon
Unit Product Cost (variable costing) $1.45/gallon
Contribution Margin $84,000
Total Fixed Manufacturing Overhead $?
Total fixed Selling & Administrative $ 25,000
Variable Sales and Administrative $ ?
Inventory value under absorption costing $29,500
Prepare an Income statement for Succulent using the Absorption Costing Method. (Hints: How
many units were in inventory? What was the cost per unit? Why is the CM only $84,000? ).
4.1 Sales
4.2 COGS
4.3 Gross Margin
4.4 Selling and Administrative Costs
4.5 Net Income
4.6 Explain in one or two sentences, the key difference between the net income under Absorption
and the net income under Variable costing. Determine the variable costing net income. Do
not prepare a variable costing income statement.5. Decision Analysis
Karen Galactic, a sales representative for a large chemical company, gets paid a
sales commission, that is, a percentage of her sales. However, she has decided to
spend less time traveling. She is going to spend only 160 hours per month with
her customers. To do this she will have to give up some of her clients. The
following information is from her last full month’s sales activities.
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