Exam Revision

Question 1

Without regard to costs, identify two advantages to GianAuto Corporation of continuing to obtain covers from its own Denver Cover plant.

Answer 1

Continuing to obtain covers from its own Denver Cover Plant would allow GianAuto to maintain its current level of control over the quality of the covers and the timing of their delivery. Keeping the Denver Cover Plant open also allows GianAuto more flexibility than purchasing the coverings from outside suppliers. GianAuto could more easily alter the coverings’ design and change the quantities produced, especially if long-term contracts are required with outside suppliers. GianAuto should also consider the economic impact that closing Denver Cover will have on the community and how this might affect GianAuto’s other operations in the region.

Question 2

Identify any four qualitative or quantitative factors not specifically mentioned in the problem that GianAuto should consider before making a decision about closing the plant

Answer 2

a. The disposal value or alternate uses of the building and equipment.
b. Any profit tax implications.
c. The outside supplier’s prices in future years.
d. The cost to manufacture coverings at the Denver Plan in future years.
e. The value of the time Vosilo and his staff would have spent managing the Denver Cover Plant. This time may be spent on other important matters.

Question 3

Mark-up percentage on project life-cycle cost =

Answer 3

Life cycle operating profit

divided by

Total life-cycle cost

Question 4

Q2.3 of the first practice exam

Answer 4

Memorise process

Question 5

Compare and explain the differences in support department cost allocation models

Answer 5

The direct method ignores any services to other support departments. The step-down method partially recognizes support to other service departments.

Question 6

What criteria could determine the sequence for allocating support departments using the step-down method?

Answer 6

Three criteria that could determine the sequence in the step-down method are:

Allocate service departments on a ranking of the % of their total services provided to other service departments.
1 Administrative/HR 25%
2 Information Systems 10%

OR

Allocate service departments on a ranking of the total monetary amount in the service departments.
1 Information Systems $2,400,000
2 Administrative/HR $600,000

Question 7

cost plus approach to pricing v considering demand

Answer 7

3. The cost-plus approach to pricing in requirement 1 does not explicitly consider the effect of prices on demand. The approach in requirement 2 models the interaction between price and demand and determines the optimal level of profitability using concepts of relevant costs. The two different approaches lead to two different prices in requirements 1 and 2. As the chapter describes, pricing decisions should consider both demand or market considerations and supply or cost factors. The approach in requirement 2 is the more balanced approach. In most cases, of course, managers use the cost-plus method of requirement 1 as only a starting point. They then modify the cost-plus price on the basis of market considerations—anticipated customer reaction to alternative price levels and the prices charged by competitors for similar products.

Question 8

Net income =

Answer 8

contribution margin - total fixed costs

Question 9

Contribution margin =

Answer 9

sales revenue - variable expenses

net income + total fixed costs

Question 10

Target income in units

Answer 10

(total fixed costs + target income)/contribution margin per unit

Question 11

Contribution margin =

Answer 11

= Fixed costs + Profit

Question 12

Variable costs =

Answer 12

Sales – Contribution margin

Question 13

Units sold =

Answer 13

Variable costs divided by variable cost per unit

Question 14

Selling price =

Answer 14

Sales divided by units sold

Question 15

Memories costing formulas

Answer 15

JUST GOT MINECRAFT SWITCH, DIABLO 3 SWITCH AND SUPERGIRL BLU RAY SEASONS 1-2 BOX SET 😁

Question 16

Customer sustaining activities

Answer 16

Customer- sustaining activities are those that are undertaken to support individual customers. An example of this activity is the ‘sales visit’ as it is done for each customer.

Question 17

Briefly describe allocation criterion in customer profitability analysis

Answer 17

The costs of sales visit costs are allocated based on the cause-and-effect criterion. The number of visits appears to be the cause of the costs and the more visits done the more visit costs will be incurred.