Exam 5: Understanding the Management Process

Blue Ridge Company currently manufactures 40,000 valves each year for use in one of its products. At this 40,000-unit level, the cost per unit for one of these valves is: An outside vendor has offered to sell 40,000 of the valves to Blue Ridge for $31 per valve. If Blue Ridge accepts this offer, the factory space being used to produce the valves could be leased to another company at an annual rental of $144,000. However, Blue Ridge has determined that 60% of the fixed overhead applied to the valves would continue to be incurred even if the valves were purchased from the outside vendor. What is the amount of financial advantage or disadvantage of accepting the offer from the outside vendor?

Lee Manufacturing uses a standard cost system with overhead applied based on direct labor hours. The manufacturing budget for the production of 5,000 units for the month of May included the following information. During May, 6,000 units were produced and the direct labor efficiency variance was $1,500 unfavorable. Based on this information, the actual number of direct labor hours used in May was:

LaBelle Corporation has assembled the data below regarding one of the raw materials used in its manufacturing process. Based on the data provided, compute the material price variance for the period.

The Vulcan Mold and Iron Company has assembled the following data regarding the use of direct labor in its fabricating department. Based on the data provided, compute the labor rate variance for the period.

Trend analysis improves on gap analysis by examining performance over multiple time periods.

Christopher Akers is the chief executive officer of SBL Inc., a masonry contractor. The financial statements have just arrived showing a $3,000 loss on the new stadium job that was budgeted to show a $6,000 profit. Actual and budget information relating to the materials for the job are as follows. Which one of the following is a correct statement regarding the stadium job for SBL?

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW. Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is: Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer? -Supervisory salaries are an avoidable cost if Reliance purchases the valves from Kennametal.

A materials purchasing manager recently generated a favorable materials price variance by taking advantage of a "deal" on a batch of substandard quality raw material in "as is" condition. Much of the material was found to be unusable. The manager's behavior likely resulted in:

Keep It Safe, Inc., manufactures a popular protective case for mobile telephones. Each case requires 0.5 grams of a titanium alloy to provide necessary strength. The standard price of the alloy is $100 per gram. In the most recently concluded month, Keep It Safe purchased and used 2,000 grams of the alloy to produce 3,800 cases. The total cost of the alloy purchased was $210,000. What was the material usage variance for the month?

The Mason and Dixon Candle Company has assembled the data below regarding two of the raw materials it uses in its candle-making process. Required: Compute the price and usage variances for each of the raw materials. Indicate whether each variance is favorable or unfavorable.

A Pareto chart is useful in identifying the most pressing of a number of performance problems facing an entity.

Current business segment operations for Whitman, a mass retailer, are presented below. Management is contemplating the discontinuance of the restaurant segment since "it is losing money." If this segment is discontinued, $30,000 of its fixed costs will be eliminated. In addition, Merchandise and Automotive sales will decrease 5% from their current levels. What will Whitman's total contribution margin be if the restaurant segment is discontinued?

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW. Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is: Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer? -The depreciation of the equipment is a sunk cost that is irrelevant to the make-or-buy decision.

Standards developed with reference to the performance of external organizations are termed:

Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each month for use in production. The facilities now being used to produce Part 730 have fixed monthly overhead costs of $150,000, and a theoretical capacity to produce 60,000 units per month. If Aril were to buy Part 730 from an outside supplier, the facilities would be idle and 40% of fixed costs would continue to be incurred. There are no alternative uses for the facilities. The variable production costs of Part 730 are $11 per unit. Fixed overhead is allocated based on planned production levels. If Aril Industries continues to use 30,000 units of Part 730 each month, it would realize a net benefit by purchasing Part 730 from an outside supplier only if the supplier's unit price is less than:

Van Dusen Corporation produces several products from processing one ton of a mineral called Gummo. The material and processing costs for one ton of Gummo total $90,000, 10% of which is allocated to product Zeppo. One ton of Gummo yields 5,000 units of Zeppo which can be sold at this point for $15 per unit. Alternatively, Zeppo can be further processed into 5,000 units of a product called Chico at a total cost of $15,000 and then sold for $20 per unit. What is the financial advantage (or disadvantage) of further processing Zeppo into Chico?

Hyde Products, Inc., produces three grades of leather fabric: economy, standard, and luxury, which are used in automobile seating. Based on the following report of profitability in the past year, the company is considering eliminating its economy line. All fixed costs in the report are common and have been allocated based on yards of fabric sold. If the economy grade of leather is dropped, how would the profitability of the standard grade be affected?

Van Dusen Corporation produces several products from processing one ton of a mineral called Gummo. The material and processing costs for one ton of Gummo total $90,000, 30% of which is allocated to product Zeppo. One ton of Gummo yields 5,000 units of Zeppo, which can be sold at this point for $15 per unit. Alternatively, Zeppo can be further processed into a product called Chico at a total cost of $15,000 and then sold for $20 per unit. Of the cost and price information, which is irrelevant to the decision to sell Zeppo or further process it into Chico?

A Pareto analysis will indicate:

Bowser Corporation produces compressors for automobile air conditioning units. The standard quantity of labor allowed per compressor is 10 minutes and the standard wage rate is $30 per hour. In March, the company produced 20,000 compressor units using 3,200 hours of labor at a total wage cost of $102,400. What was the labor efficiency variance for March?