Question

16- Wren Pork Company uses the value basis of allocating joint costs in its production of pork products. Relevant information for the current period follows:

Product		Pounds		Price/lb.
Loin chops		3,000		$	5.00
Ground		10,000			2.00
Ribs		4,000			4.75
Bacon		6,000			3.50

The total joint cost for the current period was $43,000. How much of this cost should Wren Pork allocate to Loin chops?

Multiple Choice

• $0.

• $5,909.

• $8,600.

• $10,750.

• $43,000.

18- Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period:

Office Expenses	Total				Allocation Basis
Salaries	$	30,000			Number of employees
Depreciation		20,000			Cost of goods sold
Advertising		40,000			Net sales

Item	Drilling				Grinding				Total
Number of employees		1,000				1,500				2,500
Net sales	$	325,000			$	475,000			$	800,000
Cost of goods sold	$	75,000			$	125,000			$	200,000

2-

iSooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero salvage value. The market value of the spotter truck is currently $32,000. iSooky can purchase a new spotter truck for $120,000 and receive $31,000 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $25,000 per year over the five-year life of the new spotter truck. The total increase or decrease in income by replacing the current spotter truck with the new truck (ignoring the time value of money) is:

Multiple Choice

• $31,000 decrease

• $36,000 decrease

• $31,000 increase

• $120,000 decrease

• $36,000 decrease

• $36,000 increase

• $120,000 decrease

• $36,000 increase

  5 - Hordel Company needs to determine a markup for a new product. Hordel expects to sell 5,000 units and wants a target profit of $82 per unit. Additional information is as follows:
  

  Variable product cost per unit	$	79
  Variable administrative cost per unit		21
  Total fixed overhead		42,000
  Total fixed administrative		31,000

  
  Using the variable cost method, what markup percentage to variable cost should be used?

  Multiple Choice

• 80.1%

• 98.20%

• 94.1%

• 91.7%

• 96.6%

• 7 - Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

  Multiple Choice

• $45,000 increase.

• $11,250 increase.

• $33,750 increase.

• $7,500 decrease.

• $33,750 decrease.

  9 - Carns Company is considering eliminating its small tools division, which reported an operating loss for the recent year of $85,000. Division sales for the year were $1,310,000 and its variable costs were $1,175,000. The fixed costs of the division were $220,000. If the kitchen division is dropped, 45% of the fixed costs allocated it could be eliminated. The impact on Carns’s operating income from eliminating the small tools division would be:

  Multiple Choice

• $74,200 decrease

• $36,000 decrease

• $220,000 decrease

• $36,000 increase

• $99,000 decrease

Answer 1

Solution 16) Calculation of cost to be allocated to Loin Chops

	Pounds	Price per Pound $	Total Value $ = Pounds x Price per Pound $
Loin chops	3,000	5	15,000
Ground	10,000	2	20,000
Ribs	4,000	4.75	19,000
Bacon	6,000	3.5	21,000
		Total Value =	75000.00

Therefore, cost to be allocated to Loin Chops

= (Value of Loin chops / Total Value) x Total Joint Cost

= ($15,000 / $75,000) x $43,000 = $8,600

Therefore, joint cost to be allocated to Loin Chops is $$8,600. The correct option is $8,600.

Solution 18) Calculation of Rate per Cost Driver as per Activity Based Costing

Office Expenses	Cost $	Cost Driver	Number of Cost Drivers	Rate Per Cost Driver = Cost $ / Number of Cost Drivers
Salaries	30,000.00	Number of Employees	2,500	$12.00 per employee
Depreciation	20,000.00	Cost of Goods sold	2,00,000	$0.10 per cost of goods sold
Advertising	40,000.00	Net Sales	8,00,000	$0.05 per sales
	90,000.00

Calculation of Overheads allocated to the departments as per Activity Based Costing

	Drilling			Grinding
Costs	Number of Activities	Activity Rate $	Cost $	Number of Activities	Activity Rate $	Cost $
Salaries	1000	12.00	12,000.00	1500	12.00	18,000.00
Depreciation	75,000	0.10	7,500.00	1,25,000	0.10	12,500.00
Advertising	3,25,000	0.05	16,250.00	4,75,000	0.05	23,750.00
Total Overhead Cost $	35,750.00			54,250.00

Solution 2)

Depreciation of Existing Spotter Truck

Depreciation as per Straight Line Method = (Cost – Scrap value) / No of years

= ($40,000 - $0) / 5 = $8,000

Loss on the sale of old Spotter truck = Current Book Value - Trade Value

= $40,000 - $31,000 = $9,000

Depreciation of New Spotter Truck

Depreciation as per Straight Line Method = (Cost – Scrap value) / No of years

= ($120,000 - $0) / 5 = $24,000

Reduction in Variable Manufacturing cost by New Spotter Truck = $25,000

Increase or Decrease in Income per year by replacing the current truck = Reduction in Variable Manufacturing cost by New Spotter Truck - Depreciation of New Spotter Truck + Depreciation of Existing Spotter Truck

=$25,000 - $24,000 + $8,000 = $9,000 increase

Therefore, for 5 Years, total increase = $9,000 x 5 = $45,000

But as the Old truck is sold at a loss of $9,000, The total increase or decrease in income for 5 years = $45,000 - $9,000 = $36,000 Increase

Therefore, the correct option is $36,000 Increase.

Solution 5)

	Total $ (5,000 Units)	Per Unit $
Variable Cost
Variable product cost	3,95,000.00	79.00
Variable administrative cost per unit	1,05,000.00	21.00
Total Variable Cost	5,00,000.00	100.00
Fixed Cost
Total fixed overhead	42,000.00	8.40
Total fixed Administrative Cost	31,000.00	6.20
Total Fixed Cost	73,000.00	14.60
Total Cost = Total Variable Cost + Total Fixed Cost	5,73,000.00	114.60
Target Profit	4,10,000.00	82.00
Desired Selling Price	9,83,000.00	196.60

Therefore, Mark up percentage on Variable Cost

= (Desired Selling Price per unit – Variable Cost per unit) / Variable Cost per unit) x 100

= (196.60 – 100) / 100   x 100 = 96.60%

Therefore, the correct option is 96.6%