Test Bank Fundamentals of Cost Accounting, 7th Edition by Lanen, Maher
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Answers Included
Chapter 01 7e
1) Carley Incorporated incurs many types of costs in its operations. Place the number of the
appropriate stage in the value chain in Column 2 in the blank next to each cost in Column 1.
Cost Stage in the Value Chain
Transportation costs to ship vans to 1. Customer Service
customers
Labor costs for factory workers 2. Distribution
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Overtime costs for scientists working on 3. Research &
new engine technology Development
Utilities cost for the design testing 4. Marketing
center
Costs to survey customers about their 5. Production
satisfaction
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Costs to sponsor a sporting event 6. Design
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2) SuperMax is an integrated provider of genetically engineered corn. Many types of costs
are incurred in its operations. Place the number of the appropriate stage in the value chain in
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Column 2 in the blank next to each cost in Column 1.
Cost Stage in the Value
Chain
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Warehouse costs to store seed awaiting 1. Customer Service
shipment to customers
Utility costs for seed mill 2. Distribution
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Equipment costs in genetics laboratory 3. Research &
Development
Labor costs to staff help-line call center 4. Marketing
Costs to prepare advertising campaign in 5. Production
national agriculture magazine
Costs to contract with growers to provide 6. Design
seed
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3) Travon's Limo Service provides transportation services in and around Bentonville. Its
profits have been declining, and management is planning to add a package delivery service that
is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery
vehicles from the local dealer is $60,000 per year. The present manager will continue to
supervise all services. However, labor and utilities costs will increase by 40% and rent and other
costs will increase by 15% when the package delivery service is added.
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Travon’s Limo Service
Annual Income Statement
Before Expansion
Sales Revenue $ 960,000
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Costs:
Vehicle Leases $ 400,000
Labor 290,000
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Utilities 50,000
Rent 100,000
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Other Costs 60,000
Manager’s Salary 120,000
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Total Costs 1,020,000
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Operating Profit (Loss) $ (60,000)
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a. Prepare a report of the differential costs and revenues if the delivery service is added.
b. Should management start up the delivery service? Explain your answer.
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4) Morris Incorporated is a management consulting firm that specializes in management
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training programs. Tackle Manufacturing Incorporated has approached Morris to contract for
management training for a one-year period. Last year's income statement for Morris is as
follows:
Sales Revenue $ 360,000
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Costs:
Labor $ 120,000
Equipment Lease 12,000
Rent 24,000
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Utilities 8,400
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Supplies 23,600
Other Costs 14,400
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Manager’s Salary 80,000
Total Costs 282,400
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Operating Profit (Loss) $ 77,600
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To satisfy the Tackle contract, another part-time trainer will need to be hired at $42,000.
Supplies will increase by 12% and other costs will increase by 15%. In addition, new equipment
will need to be leased at a cost of $2,500.
a. What are the differential costs that would be incurred if the Tackle contract is signed?
b. If Tackle will pay $55,000 for one year, should Morris accept the contract? Explain your
answer.
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5) The Arielle Company reported the following results for the manufacture and sale of one
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of its products known as Controllers during the most recent year.
Sales (6,500 Controllers at $130 each) $ 845,000
Cost of sales 390,000
Distribution costs 65,000
Advertising expense 275,000
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Salaries 25,000
Building costs 145,000
Operating loss $ (55,000)
The Arielle Company is trying to determine whether or not to discontinue the manufacture and
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sale of Controllers. The operating results reported above for last year are expected to continue in
the foreseeable future if the product is not dropped. The building costs represent the costs of
production facilities and equipment that the Controllers product shares with other products
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produced by Arielle. If the Controllers product were dropped, there would be no change in the
building costs of the company. Management has determined that discontinuing the manufacture
and sale of Controllers will have no effect on the company's other product lines. Determine the
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change in operating profits that will happen if the manufacture and sale of Controllers is
discontinued.
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6) The management of Parachute Corporation is considering dropping product ABC123.
Data from the company's accounting system appear below:
Sales $ 260,000
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