5. A company using activity based pricing marks up the direct cost of goods by 4
ID: 2455554 • Letter: 5
Question
5.
A company using activity based pricing marks up the direct cost of goods by 40% plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $6.00 per order placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total direct cost of $2,000, orders 300 separate items, and makes 5 returns. What will the customer be charged?
A)
$3,000
B)
$3,900
C)
$5,330
D)
$5,750
6.
Manufacturing overhead is allocated to products based on the number of machine hours required. In a year when 20,000 machine hours were anticipated, costs were budgeted at $125,000. If a product requires 8,000 machine hours, how much manufacturing overhead will be allocated to this product?
A)
$41,667
B)
$31,120
C)
$43,750
D)
$50,000
Use the following information to answer questions 7-8:
The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.
7.
If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
A)
Total fixed costs will increase by $10,500.
B)
Net income will increase by $16,320.
C)
Net income will increase by $26,480.
D)
Total fixed costs will remain the same.
8.
If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?
A)
$189,400
B)
$173,600.
C)
$197,400
D)
$155,680.
9.
Johnson Company manufactures widgets. Old Ham Company has approached Jones with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Jones is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:
Direct material
$44,000
Direct labor
20,000
Manufacturing overhead
60,000
Total
$124,000
The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Jones. The remaining manufacturing overhead will continue whether or not Jones makes the components.
What is the amount of avoidable costs if Jones buys rather than makes the components?
A)
$60,000
B)
$96,000
C)
$124,000
D)
$100,000
5.
A company using activity based pricing marks up the direct cost of goods by 40% plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $6.00 per order placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total direct cost of $2,000, orders 300 separate items, and makes 5 returns. What will the customer be charged?
A)
$3,000
B)
$3,900
C)
$5,330
D)
$5,750
Explanation / Answer
Q. 6. Manufacturing Overhead allocated to product = 8000 * 6.25(NOTE 1) = $ 50000
(NOTE 1) :- Budgeted Manufacturing Overhead per hour = 125000 / 20000 = 6.25
Conclusion :- (D) $ 50000 is the right answer.
Q. 5. Cutomer will be charged $ 3900 which is calculated as below:-
a) Direct costs = 2000 +40%(mark up) = $ 2800
b) Indirect costs = $ 1100
So , the customer will be charged $ 3900 ( $ 2800 + $ 1100).
Conclusion:- (B) $ 3900 is the right answer.
Q . 7. Income Statement
Sales ( 200 * 110)
(-) Variable costs
22000
5400
24200 (NOTE 1)
5940 (NOTE 2)
Contribution
Total monthly contribution ( 16600 * 28) and (18260 * 28)
(-) Fixed costs
16600
464800
76000
18260
511280
96000 (NOTE 3)
Clearly net income will increase by $ 26480. ( 415280 - 388800)
(NOTE 1) Sales( after spending on advertisement) = 200 +10% = 220 * 110 =$ 24200
(NOTE 2) Variable cost ( after spending on advertisement) = 200+10% = 220 * 27 = $ 5940
(NOTE 3) Fixed cost ( after spending on advertisement) = 76000 + 20000 = $ 96000
Conclusion:- The right answer is (C) Net income would increase by $ 26480.
Q . 8. (A) Total costs for the month of february = $ 189400 [ (A) is the right answer ]
Q . 9. The amount of avoidable costs if Jones buys rather than makes the components will be B) $ 96000.
= 44000 + 20000 + 32000
= $ 96000
Cost of Order placed = ( 6 * 10) 60 Cost of Separate items ordered = ( 3 * 300) 900 Cost of return = ( 5 * 28) 140 Total indirect costs 1100
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