Cost Accounting questions

1. Burch Company has $12,000 cash at the beginning of June and
anticipates $30,000 in cash receipts and $34,500 in cash disbursements.
Burch Company maintains a cash balance of $10,000 at the end of each
month. The firm has an agreement with its bank to borrow or repay funds
necessary to maintain the required ending balance. As of May 31 the
company owes $15,000 to the bank. The balance of the loan on June 30
will be:

a. $7,500

b. $12,500

c. $17,500

d. $19,500

e. $25,000



2. A retailer, in business for over 50 years, has developed the
following regression model from the past 60 months of operating data:

Monthly sales dollars = 50,000 + 4.70A+30B -1,0000X

Where:

A = number of customers

B = advertising dollars in month

X = 1 if a winter month

X = 0 if other months

An appropriate interpretation of this model is that:

a. the business is seasonal, generating higher sales in winter months
than other months.

b. advertising is not cost effective.

c. within the relevant range, each additional customer will make a
purchase of $4.70 on average.

d. sales are always expected to be at least $50,000.

3. A firm derives the following cost relationship from a regression
analysis of monthly manufacturing overhead cost:

C = $80,000 + $12M

C = monthly manufacturing overhead cost; M = machine hours

The standard error of estimate of the regression is $6,000. The standard
time required to manufacture one 6-unit case of the product is 4 machine
hours. The firm applies manufacturing overhead to production on the
basis of machine hours; normal annual production is 50,000 cases. If
scheduled production during April is 5,000, then the estimated variable
manufacturing overhead cost for that month is:

$ 80,000

$240,000

$320,000

$360,000

4. OutlyTech Corp. expects to sell 24,000 telephone switches. Fixed
costs are $12,150,000; unit sales price is $4,190; and unit variable
costs are $1,440. The firm's margin of safety in sales dollars is:

$71,108,113

$76,577,990

$82,047,826

$87,517,661

Please answer questions 5-8 using the following information:

Daley Company manufactures computer monitors. The following is a summary
of basic cost

and revenue data.

Per unit Percent

Sales price $580 100

Variable costs (348) (60)

Daley is currently selling 700 monitors per month. Fixed costs total
$96,000.

5. The breakeven point is:

276 units

414 units

420 units

440 units

6 Daley's margin of safety ratio if 700 units are sold is:

a. 39.43%

b. 40.86%

c. 60.6%

d. 62.86%

7 Daley's operating income at a sales level of 700 units is:

a. $ 66,400

b. $ 97,200

c. $162,400

d. $193,800

8 Daley's operating leverage, based on sales of 700 units, is:

a. 0.667

b. 1.691

c. 1.446

d. 2.446

9. Morris & Son Garden Center's policy is to have 20% of the next
month's sales on hand at the end of the current month. Projected sales
for August, September and October are 15,000 units, 10,000 units, and
20,000 units, respectively. How many units must be purchased in
September?

7,000

10,000

11,000

12,000

14,000

10. Starra Corporation maintains ending inventory for each month at 40%
of the next month's sales. It predicted the following sales for the
first four months of the coming year.

January February March April

Sales (Units) 1,560 1,820 1,950 1,560



How many units should be purchased in February?

1,092

1,768

1,820

1,872

2,600

11. Juro Supply forecasts purchases of 12,200 units in June. It sells
each unit for $10.50. The firm has 1,000 units on hand on June 1. The
desired ending inventory on June 30th is to be 20% higher than beginning
inventory. Total dollar sales for June is expected to be:

$119,700

$126,000

$128,100

$130,200

12 Allen Co.'s sales are 10% cash and 90% on credit. Credit sales are
collected as follows: 30% in month of sale, 50% the next month, 20% in
the following month. On 12/31, the accounts receivable balance is
$54,000, of which $12,000 is from November sales. Total sales for
January are budgeted to be $100,000. Cash receipts budgeted for January
total:

$70,000

$70,400

$74,000

$79,000

13. A boat costs $108,00 and, uninsured, was wrecked the first day it
was used. It either can be disposed for $11,000 cash and replaced with a
similar boat costing $110,000, or rebuilt for $98,000 and be brand new
as far as operating characteristics and looks are concerned. The net
relevant cost of replacing the boat is:

$ 87,000

$ 97,000

$ 99,000

$110,000

14 The relevant cost of rebuilding the boat described in question #35
is:

a. $ 97,000

b. $ 98,000

c. $ 99,000

d. $110,000

15. Omaha Plating Corporation is considering purchasing a machine for
$1,500,000. will generate a net after-tax income of $100,000 per year
for 15 years. The firm will use straight-line depreciation for the new
machine over 10 years with no residual value. What is the payback period
for the new machine?

a. 4 years

b. 5 years

c. 6 years

d. 10 years

e. 15 years



Please answer questions 16 and 17 using the following information:

Carmino Company is considering an investment in an asset that generates
net after-tax income of $6,000 at the end of each year of its four-year
life. The asset has no salvage value. The firm is in the 40% tax
bracket. The book values of the investment at the beginning of each year
are:

Year 1 - $30,000; Year 2 - $15,000; Year 3 - $7,500; Year 4 - $3,750

16. The asset's book rate of return on average investment is:

a. 12%

b. 27%

c. 36%

d. 43%

17. The amount of after-tax net cash inflow from the asset in Year 3 is:


$ 6,000

$ 7,500

$ 8,100

$13,500