Professional Documents
Culture Documents
RETURN ON INVESTMENT
Return on Investment Computation
Based on Operating Income
1. The following selected data pertain to the belt division of Allen Corp. for last year:
Sales
$500,000
Average operating assets
$200,000
Net operating income
$80,000
Turnover
2.5
Minimum required return
20%
How much is the return on investment? (M)
a. 40%
c. 20%
b. 16%
d. 15%
AICPA, Adapted
2. Harstin Corporation has provided the following data:
Sales
Gross margin
Net operating income
Stockholders' equity
Average operating assets
Residual income
The return on investment for the past year was: (M)
a. 28%.
c. 36%.
b. 20%.
d. 8%.
$625,000
70,000
50,000
90,000
250,000
20,000
G & N 9e
Investment
3. Apple Division of the American Fruit Co. had the following statistics for 2002:
Assets available for use
$1,000,000
Residual income
100,000
Return on investment
15%
If the manager of Apple Division is evaluated based on return on investment, how much would
she be willing to pay for an investment that promises to increase net segment income by
$50,000? (M)
a. $50,000
c. $1,000,000
b. $333,333
d. $500,000
Barfield
Page 1 of 21
Gleim
$1,800,000
10%
$270,000
Barfield
13. Pasta Division of We Make Italian, is evaluated based on residual income generated. For
2002, the Division generated a residual income of $2,000,000 and net income of $5,000,000.
The target rate of return for all divisions of We Make Italian is 20 percent. For 2002, what was
the return on investment for Pasta Division? (M)
a. 40%
c. 20%
b. 13%
d. 33%
Barfield
Return on Investment, Minimum Required Rate of Return & Residual Income
Investment Cost
14. In the X Division of S Co., 2002 segment income exceeded 2002 residual income by $15,000.
Also for 2002, return on investment exceeded the target rate of return by 10 percent. What
was the level of investment in the X Division for 2002? (M)
a. $15,000
b. $100,000
c. $150,000
d. An answer can't be determined from this information.
Barfield
Page 2 of 21
19. Watne Company has two divisions, M and N. Information for each division is as follows:
Net earnings for division
$65,000
Asset base for division
$300,000
Target rate of return
18%
Operating income margin
20%
Weighted average cost of capital
12%
What is EVA for N?
a. $36,000
c. $54,000
b. $29,000
d. $11,000
H&M
15. If Axle sells 16,000 units per year, the return on investment should be: (M)
a. 12%.
c. 16%.
b. 15%.
d. 18%.
20. Family Company has two divisions, Ma and Pa. Information for each division is as follows:
Ma
Pa
Net earnings for division
P20,000
P65,000
Asset base for division
P50,000
P300,000
Target rate of return
15%
18%
Operating income margin
10%
20%
Weighted-average cost of capital
12%
12%
What is the Economic Value Added for Ma and Pa, respectively?
A. P20,000, P36,000
C. P12,500; P11,000
B. P14,000; P29,000
D. P20,000; P29,000
Pol Bobadilla
16. If Axle sells 15,000 units per year, the residual income should be: (M)
a. $30,000.
c. $50,000.
b. $100,000.
d. $10,000.
G & N 9e
17. Suppose the manager of Axle desires an annual residual income of $45,000. In order to
achieve this, Axle should sell how many units per year? (M)
a. 14,500.
c. 18,250.
b. 16,750.
d. 19,500.
G & N 9e
ECONOMIC VALUE-ADDED
EVA Based on Operating Income
18. Division A had the following information:
Asset base in Division A
Net income in Division A
Operating income margin for Division A
Target ROI
Weighted-average cost of capital
What is EVA for Division A?
a. $120,000
b. $96,000
c. $15,000
$800,000
$100,000
20%
15%
12%
d. $4,000
e. $(20,000)
H&M
Segment C
$3,000,000
4,000,000
8,000,000
1,500,000
Page 3 of 21
If the applicable income tax rate and after-tax weighted-average cost of capital for each
segment are 30% and 10%, respectively, the segment with the highest economic value added
(EVA) is (M)
A. Segment A.
C. Segment C.
Gleim
B. Segment B.
D. Not determinable from this information.
23. Assume Avionics Industries reported at year-end that operating income before taxes for the
year equaled $2,400,000. Long-term debt issued by Avionics has a coupon rate equal to 6%,
and its cost of equity is 8%. The book value of the debt currently equals its fair value, and the
book value of the equity capital for Avionics is $900,000 less than its fair value. Current assets
are listed at $2,000,000 and long-term assets equal $9,600,000. The claims against those
assets are in the form of $1,500,000 in current liabilities and $2,200,000 in long-term liabilities.
The income tax rate for Avionics is 30%. What is the economic value added (EVA)? (D)
a. $731,240
c. $1,668,760
b. $948,760
d. $1,680,000
Gleim
Questions 24 thru 26 are based on the following information.
Horngren
Waldorf Company has two sources of funds: long-term debt with a market and book value of $10
million issued at an interest rate of 12%, and equity capital that has a market value of $8
million (book value of $4 million). Waldorf Company has profit centers in the following locations
with the following operating incomes, total assets, and total liabilities. The cost of equity capital
is 12%, while the tax rate is 25%.
Operating Income
Assets
Current Liabilities
St. Louis
$ 960,000
$ 4,000,000
$ 200,000
Cedar Rapids
$1,200,000
$ 8,000,000
$ 600,000
Wichita
$2,040,000
$12,000,000
$1,200,000
24. What is the EVA for St. Louis? (M)
a. $255,740
c. $392,540
b. $327,460
d. $720,000
25. What is the EVA for Cedar Rapids? (M)
a. $135,580
b. $220,000
26. What is the EVA for Wichita? (M)
a. $450,000
b. $1,530,000
CHIANG KAI SHEK COLLEGE
c. $234,000
d. $305,000
c. $414,360
d. $1,115,640
c. $420,000
d. $210,000
Page 4 of 21
c. $400,000
d. $280,000
c. 16.67%
d. 4%
SENSITIVITY ANALYSIS
32. Apple Division of the American Fruit Co. had the following statistics for 2002:
Assets available for use
$1,000,000
Residual income
100,000
Return on investment
15%
If expenses increased by $20,000 in Apple Division, (E)
a. return on investment would decrease.
c. the target rate of return would decrease.
b. residual income would increase.
d. asset turnover would decrease. Barfield
33. Division A had the following information:
Asset base in Division A
$800,000
Net income in Division A
$100,000
Operating income margin for Division A
20%
Target ROI
15%
Weighted-average cost of capital
12%
If the asset base is decreased by $200,000, with no other changes, the return on investment of
Division A will be
a. 100.0%
d. 62.5%
b. 16.7%
e. 20.0%
c. 600.0%
H&M
Comprehensive
Questions 34 through 38 are based on the following information.
AICPA 1186 II-22 to 26
Oslo Co.s industrial photo-finishing division, Rho, incurred the following costs and expenses in
1992:
Variable
Fixed
Direct materials
$200,000
Direct labor
150,000
Factory overhead
70,000
$42,000
General, selling and administrative
30,000
48,000
Totals
$450,000
$90,000
During 1992, Rho produced 300,000 units of industrial photo-prints, which were sold for $2.00
each. Oslos investment in Rho was $500,000 and $700,000 at January 1, 1992 and December
31, 1992, respectively. Oslo normally imputes interest on investments at 15% of average invested
capital.
34. For the year-ended December 31, 1992, Rhos return on average investment was
a. 15.0%
c. 8.6%
b. 10.0%
d. (5.0%)
35. Assume that net operating income was $60,000 and that average invested capital was
$600,000. For the year ended December 31, 1992, Rhos residual income (loss) was
a. $150,000
c. $(45,000)
b. $60,000
d. $(30,000)
36. How many industrial photo-print units did Rho have to sell in 1992 to break-even?
a. 180,000
c. 90,000
b. 120,000
d. 60,000
37. For the year ended December 31, 1992, Rhos contribution margin was
a. $250,000
c. $150,000
b. $180,000
d. $60,000
38. Assume the variable cost per unit was $1.50. Based on Rhos 1992 financial data, and an
estimated 1993 production of 350,000 units of industrial photo-prints, Rhos estimated 1993
total costs and expenses will be
a. $525,000
c. $615,000
b. $540,000
d. $630,000
Page 5 of 21
c. 20.8%
d. 7.5%
c. 20%
d. 7.5%
Gleim
Segment D
$ 90,000
1,800,000
7.5%
$120,000
-
c. $4,800
d. $120,000
c. $4,800
d. $120,000
c. $4,800
d. $120,000
48. Assume that the minimum dollar ROI is $6,750 for Segment C. The minimum percentage of
ROI is
a. 20%
c. 15%
b. 6%
d. 10%
49. In Segment D, the minimum percentage of ROI is
a. 20%
c. 15%
b. 6%
d. 10%
50. In Segment A, the residual income is
a. $200
b. $12,000
c. $(30,000)
d. $4,800
c. $(60,000)
d. $9,000
Page 6 of 21
$500,000
100,000
75,000
50,000
60,000
H&M
54. The data available for the current year are given below:
Whole Co. Division 1 Division 2
Variable mfg. cost of goods sold
$ 400,000 $ 220,000 $ 80,000
Unallocated costs (e.g., presidents salary)
100,000
Fixed costs controllable by Div. Managers
(e.g., advertising, engg supervision costs)
90,000
50,000
40,000
Net revenue
1,000,000
600,000
400,000
Variable selling and administrative costs
130,000
70,000
60,000
Fixed costs controllable by others (e.g.,
depreciation, insurance)
120,000
70,000
50,000
Using the information presented above, the contribution by Division 1 was (M)
a. $190,000
c. $310,000
b. $260,000
d. $380,000
CIA 1186 IV-17
55. A and B are autonomous divisions of a corporation. They have no beginning or ending
inventories, and the number of units produced is equal to the number of units sold. Following
is financial information relating to the two divisions.
A
B
Sales
$150,000
$400,000
Other revenue
10,000
15,000
Direct materials
30,000
65,000
Direct labor
20,000
40,000
Variable factory overhead
5,000
15,000
Fixed factory overhead
25,000
55,000
Variance S&A expense
15,000
30,000
Fixed S&A expense
35,000
60,000
CHIANG KAI SHEK COLLEGE
59. What is the net income for the Barmore Company? (E)
a. $300,000
d. $32,500
b. $162,500
e. $20,500
c. $150,000
60. The variable costs for the South Area for the year were: (M)
a. $230,000.
c. $162,500.
b. $185,000.
d. $65,000.
c. $150,000.
d. $100,000.
61. The total fixed costs (traceable and common) for Canon Company for the year were: (M)
a. $49,000.
c. $24,000.
b. $25,000.
d. $50,000.
c. $200,000.
d. $130,000.
62. What is the net income for the Nauman Company? (E)
a. $600,000
d. $65,000
b. $325,000
e. $41,000
c. $300,000
63. What is the segment margin for Division X? (E)
a. $90,000
d. $160,000
b. $25,000
e. $125,000
c. $1,000
CHIANG KAI SHEK COLLEGE
68. Ieso Company's total fixed expenses for the year were: (M)
a. $40,000.
c. $140,000.
b. $100,000
d. $170,000.
Sensitivity Analysis
Questions 69 through 72 are based on the following information.
CIA 1196 III-97 to 100
The segmented income statement for a retail company with three product lines is presented below:
Total
Product
Product
Product
Company
Line 1
Line 2
Line 3
Volume (in units)
20,000
28,000
50,000
Sales revenue
$2,000,000
$800,000
$700,000
$500,000
Costs & expenses:
Administrative
$ 180,000
$ 60,000
$ 60,000
$ 60,000
Advertising
240,000
96,000
84,000
60,000
Commissions
40,000
16,000
14,000
10,000
Page 8 of 21
Page 9 of 21
Page 10 of 21
Page 11 of 21
Barfield
Comprehensive
Questions 87 and 88 are based on the following information.
RPCPA 0585
Rosas Corporation has several operating divisions. Three divisions are treated as profit centers
and its division managers are free to choose their sources of sale and supply. One of its divisions,
Gumamela Division, manufactures steel containers, 20% of which are sold to Daisy Division and
the balance to outside customers. Inter-divisional sales and purchases are recorded at variable
cost as a transfer price. Based on a full capacity of 150,000 units, the estimated sales and
standard cost data for Gumamela Division for the year 1985 are as follows:
Daisy
Outsiders
Sales
P 900,000
P 9,600,000
Variable costs
(900,000)
(3,600,000)
Fixed costs
(200,000)
(800,000)
Gross margin
P(200,000)
P 5,200,000
Unit sales
30,000
120,000
Gumamela has the option to sell the above 30,000 units to an outside customer at a price of P50
per unit during 1985 on a continuing basis. Daisy in turn may purchase its requirements from an
outside supplier at a price of P60 per unit.
87. Assuming that Gumamela wishes to improve its gross margin, should Gumamela accept the
order of the new customer, and drop its sales to Daisy for 1985 and why? (M)
a. No, because the gross margin from the companys overall viewpoint would decrease by
P300,000.
b. Yes, because Gumamela Divisions gross margin would increase by P300,000.
c. Yes, because Gumamela Divisions gross margin would increase by P600,000.
d. No, because Daisy Divisions gross margin would decrease by P900,000.
88. Assume, however, that Rosa Corporation allows the division managers to negotiate the
transfer price for 1985. The managers agreed on a tentative transfer price of P50 per unit; to
be reduced based on an equal sharing of the additional gross margin to Gumamela resulting
from the sales to Daisy of 30,000 units at P50 per unit. The actual transfer price for 1985
would be (M)
a. P35.50
c. P45.00
b. P40.00
d. P50.00
Page 12 of 21
Page 13 of 21
101. What is the maximum price per wheel that Walsh should be willing to pay Vega? (M)
a. $28
c. $42
b. $41
d. $45
G & N 9e
103. Nita Corps Department 1 produced component C that is used by OZM as a key part.
Production and sales data for component C is as follows:
Capacity
Selling price per wheel to outside customers
Variable costs per wheel when sold to outside customers
12,000 wheels
$45
$30
If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales
commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.
100. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division
would not cut into its sales to outside customers. What should be the lowest acceptable
transfer price from the perspective of the Vega Division? (M)
a. $28
c. $42
b. $30
d. $45
P100
36
24
Nita Corp.s Department II is introducing a new product that will use component C. An outside
supplier has quoted Department II a price of P96 per unit. This represents the usual P100
price less a quantity discount due to the large number of Department IIs requirements.
The Company has transfer price formula of: Transfer price = Variable cost per unit + Lost
contribution margin per unit on outside sales.
Department I has enough excess capacity to handle all of Department IIs needs. For the
overall interest of the company, Department I should (M)
a. Sell to Department II at the same quoted price of P96 per unit.
b. Sell to Department II at minimum price of P60 per unit.
c. Not sell to Department II since it will lose P4 per unit.
d. Sell to Department II at P100 per unit.
RPCPA 1096
Page 15 of 21
104. A company has two divisions, A and B, each operated as a profit center. A charges B $35 per
unit for each unit transferred to B. Other data follows:
As variable cost per unit
As fixed costs
As annual sales to B
As sales to outsiders
$30
10,000
5,000 units
50,000 units
A is planning to raise its transfer price to $50 per unit, Division B can purchase units at $40
each from outsiders, but doing so would idle As facilities now committed to producing units for
B. Division A cannot increase its sales to outsiders. From the perspective of the company as
a whole, from whom should Division B acquire the units, assuming Bs market is unaffected?
(M)
a. Outside vendors.
b. Division A, but only at the variable cost per unit.
c. Division A, but only until fixed costs are covered, then from outside vendors.
d. Division A, despite the increased transfer price.
CIA 1183 IV-5
Effect on Profit
Questions 105 & 106 are based on the following information.
L & H 10e
Alcatraz Division of XYZ Corp. sells 80,000 units of part X to the outside market. Part X sells for
$40, has a variable cost of $22, and a fixed cost per unit of $10. Alcatraz has a capacity to produce
100,000 units per period. Capone Division currently purchases 10,000 units of part X from Alcatraz
for $40. Capone has been approached by an outside supplier willing to supply the parts for $36.
105. What is the effect on XYZ's overall profit if Alcatraz REFUSES the outside price and Capone
decides to buy outside? (M)
a. no change
c. $80,000 decrease in XYZ profits
b. $140,000 decrease in XYZ profits
d. $40,000 increase in XYZ profits
106. What is the effect on XYZ's overall profit if Alcatraz ACCEPTS the outside price and Capone
continues to buy inside? (M)
a. no change
c. $80,000 decrease in XYZ profits
b. $140,000 decrease in XYZ profits
d. $40,000 increase in XYZ profits
15,000 units
$25
$18
$60,000
Division B, another division of the same company, would like to purchase 5,000 units of the
part each period from Division A. Division B is now purchasing these parts from an outside
supplier at a price of $24 each.
Suppose that Division A has ample idle capacity to handle all of Division B's needs without any
increase in fixed costs and without cutting into sales to outside customers. If Division B
continues to purchase parts from an outside supplier rather then from Division A, the company
as a whole will be: (M)
G & N 9e
a. worse off by $30,000 each period.
c. better off by $15,000 each period.
b. worse off by $10,000 each period.
d. worse off by $35,000 each period.
International Transfer Pricing
108. Hancock Manufacturing has one plant located in Italy and another plant located in the U.S.
The Italian plant manufactures a component used in a finished product manufactured at the
U.S. plant. Currently, the Italian plant is operating at 75 percent capacity. In Italy the income
tax rate is 32 percent; in the U.S. the corporate income tax rate is 35 percent.
The market price of the component is $120 and the Italian plants costs to manufacture the
component are as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Which transfer price would be in the best interest of the overall corporation?
a. $60
c. $75
b. $50
d. $120
$30
20
10
15
H&M
Page 16 of 21
109. Pacific Company has three plants: one located in Malaysia, one in India and another plant
located in the Philippines. Both plants manufactures a component used in a finished product
manufactured in the Philippine plant. Currently, both plants are operating at 70% capacity. In
Malaysia the income tax rate is 42% while in India the tax rate is 35%; in the Philippines, the
corporate income tax rate is 40%.
The market price of the component, in peso equivalent, is P100 and the foreign plants costs to
manufacture the component are as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Which transfer price would be in the best interest of the overall corporation?
Pol Bobadilla
A.
B.
C.
Malaysia
P35
P 35
P100
India
P35
P100
P100
P10
20
5
25
D.
P100
P 35
$10
20
5
25
111. What is the maximum transfer price that the U.S. division would be willing to pay?
a. $35
c. $60
b. $55
d. $100
112. Which transfer price would be in the best interest of the overall corporation?
a. $35
c. $60
b. $55
d. $100
Questions 113 thru 115 are based on the following information.
H&M
Hampton Manufacturing has one plant located in Belgium and another plant located in the U.S.
The Belgium plant manufactures a component used in a finished product manufactured at the U.S.
plant. Currently, the Belgium plant is operating at 70 percent capacity. In Belgium the income tax
rate is 30 percent; in the U.S. the corporate income tax rate is 35 percent.
The market price of the component is $140 and the Belgium plants costs to manufacture the
component are as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
$15
25
6
28
113. What is the minimum transfer price that the Belgium division would be willing to accept?
a. $140
c. $68
b. $74
d. $46
114. What is the maximum transfer price that the U.S. division would be willing to pay?
a. $140
c. $68
b. $74
d. $46
115. Which transfer price would be in the best interest of the overall corporation?
a. $140
c. $68
b. $74
d. $46
110. What is the minimum transfer price that the Belgium division would be willing to accept?
a. $35
c. $60
b. $55
d. $100
Page 17 of 21
$50
$20
$60,000
$90,000
10,000 chips
6,000 chips
0 chips
Presently, the Computer Division purchases no chips from the Computer Chips Division, but
instead pays $45 to an external supplier for the 4,000 chips it needs each month.
119. Assume that next month's costs and levels of operations in the Computer and Computer Chip
Divisions are similar to this month. What is the minimum of the transfer price range for a
possible transfer of the super chip from one division to the other?
a. $50
c. $20
b. $45
d. $35
120. Assume that next month's costs and levels of operations in the Computer and Computer Chip
Divisions are similar to this month. What is the maximum of the transfer price range for a
possible transfer of the chip from one division to the other?
a. $50
c. $35
b. $45
d. $30
Page 18 of 21
121. Two possible transfer prices (for 4,000 units) are under consideration by the two divisions: $35
and $40. Corporate profits would be _______ if $35 is selected as the transfer price rather
than $40.
a. $20,000 larger
c. $20,000 smaller
b. $40,000 larger
d. the same
122. If a transfer between the two divisions is arranged next period at a price (on 4,000 units of
super chips) of $40, total profits in the Computer Chip division will
a. rise by $20,000 compared to the prior period.
b. drop by $40,000 compared to the prior period.
c. drop by $20,000 compared to the prior period.
d. rise by $80,000 compared to the prior period.
123. Assume, for this question only, that the Computer Chip Division is selling all that it can
produce to external buyers for $50 per unit. How would overall corporate profits be affected if it
sells 4,000 units to the Computer Division at $45? (Assume that the Computer Division can
purchase the super chip from an outside supplier for $45.)
a. no effect
c. $20,000 decrease
b. $20,000 increase
d. $90,000 increase
Questions 124 thru 126 are based on the following information.
Barfield
The Motor Division of Super Truck Co. uses 5,000 carburetors per month in its production of
automotive engines. It presently buys all of the carburetors it needs from two outside suppliers at
an average cost of $100. The Carburetor Division of Super Truck Co. manufactures the exact type
of carburetor that the Motor Division requires. The Carburetor Division is presently operating at its
capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer at $106
per unit. Its cost structure (on 15,000 units) is:
Variable production costs
Variable selling costs
All fixed costs
$70
10
10
Assume that the Carburetor Division would not incur any variable selling costs on units that are
transferred internally.
124. What is the maximum of the transfer price range for a transfer between the two divisions?
a. $106
c. $90
b. $100
d. $70
CHIANG KAI SHEK COLLEGE
125. What is the minimum of the transfer price range for a transfer between the two divisions?
a. $96
c. $70
b. $90
d. $106
126. If the two divisions agree to transact with one another, corporate profits will
a. drop by $30,000 per month.
b. rise by $20,000 per month.
c. rise by $50,000 per month.
d. rise or fall by an amount that depends on the level of the transfer price.
Questions 127 through 133 are based on the following information.
Gleim
The information was presented as part of Question 6 on Part 4 of the December 1981 CMA
Examination.
PortCo Products is a divisionalized furniture manufacturer. The divisions are autonomous
segments, with each division being responsible for its own sales, costs of operations, working
capital management, and equipment acquisition. Each division serves a different market in the
furniture industry. Because the markets and products of the divisions are so different, there have
never been any transfers between divisions.
The Commercial Division manufactures equipment and furniture that are purchased by the
restaurant industry. The division plans to introduce a new line of counter and chair units that
feature a cushioned seat for the counter chairs. John Kline, the division manager, has discussed
the manufacturing of the cushioned seat with Russ Flegel for a price for 100-unit lots of the
cushioned seat. The following conversation took place about the price to be charged for the
cushioned seats:
Flegel: John, we can make the necessary modifications to the cushioned seat easily. The raw
materials used in your seat are slightly different and should cost about 10% more than those used
in our deluxe office stool. However, the labor time should be the same because the seat
fabrication operation basically is the same. I would price the seat at our regular rate full cost plus
30% markup.
Kline: This is higher than I expected. Russ, I was thinking that a good price would be your
variable manufacturing costs. After all, your capacity costs will be incurred regardless of the job.
Flegel: John, Im at capacity. By making the cushion seats for you, Ill have to cut my production
of deluxe office stools. Of course, I can increase my production of economy office stools. The
labor time freed by not having to fabricate the frame or assemble the deluxe stool can be shifted to
the frame fabrication and assembly of the economy office stool. Fortunately, I can switch my labor
force between these two models of stools without any loss of efficiency. As you know, overtime is
Page 19 of 21
not a feasible alternative in our community. Id like to sell it to you at variable cost, but I have
excess demand for both products. I dont mind changing my product mix to the economy model if I
get a good return on the seats I make for you. Here are my standard costs for the two stools and a
schedule of my manufacturing overhead.
Kline: I guess I see your point, Russ, but I dont want to price myself out of the market. Maybe we
should talk to Corporate to see if they can give us any guidance.
Office Division
Standard Costs and Prices
Deluxe Office Stool
Economy Office Stool
Raw materials
Framing
$ 8.15
$ 9.76
Cushioned seat
Padding
2.40
Vinyl
4.00
Molded seat (purchased)
6.00
Direct labor
Frame fabrication (.5x$7.50/DLH)
3.75
(.5x$7.50/DLH)
3.75
Cushion fabrication
3.75
(.5x$7.50/DLH)
Assembly* (.5x$7.50/DLH)
3.75
(.3x$7.50/DLH)
2.25
Manufacturing
Overhead (1.5DLHx$12.60/DLH)
19.20 (.8DLHx$12.80/DLH)
10.24
Total standard cost
$45.00
$32.00
Selling price (30% markup)
$58.50
$41.60
* Attaching seats to frames and attaching rubber feet.
Office Division
Manufacturing Overhead Budget
Overhead Item
Supplies
Indirect labor
Supervision
Power
Heat and light
Nature
Variable at current market prices
Variable
Nonvariable
Use varies with activity; rates are fixed
Nonvariable light is fixed regardless of production
while heat/airconditioning varies with fuel charges
Amount
$ 420,000
375,000
250,000
180,000
140,000
200,000
1,700,000
575,000
$3,840,000
300,000
$12.80
Answer Key
1. A
2. B
3. B
4. B
5. A
6. B
7. C
8. B
9. B
10. A
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
D
C
D
C
C
D
B
D
B
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
C
B
B
A
C
D
B
D
B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
A
A
B
B
D
A
C
C
C
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
A
E
B
D
B
D
A
C
C
D
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
C
A
C
B
A
B
C
A
B
D
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
D
A
B
B
C
B
C
B
C
D
91. B
92. C
93. C
94. B
95. B
96. C
97. D
98. D
99. A
100. A
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
B
B
E
A
C
C
B
D
E
C
B
B
A
D
B
A
A
D
B
A
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
D
A
D
A
A
D
D
B
C
B
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
D
D
C
B
A
C
C
D
A
A
A
B
C
A
C
A
B
C
D
A
131. B
132. A
133. D
Page 21 of 21