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Test Bank Fundamentals of Cost Accounting, 7th Edition by Lanen, Maher A+
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Created By: A SolutionTest Bank Fundamentals of Cost Accounting, 7th Edition
by Lanen, Maher A+
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 customers 1. Customer Service
Labor costs for factory workers 2. Distribution
Overtime costs for scientists working on new engine 3. Research &
technology Development
Utilities cost for the design testing center 4. Marketing
Costs to survey customers about their satisfaction
5. Production
Costs to sponsor a sporting event 6. Design
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
Column 2 in the blank next to each cost in Column 1.
Cost Stage in the Value
Chain
Warehouse costs to store seed awaiting shipment to 1. Customer Service
customers
Utility costs for seed mill 2. Distribution
Equipment costs in genetics laboratory 3. Research &
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,Created By: A Solution
Development
Labor costs to staff help-line call center 4. Marketing
Costs to prepare advertising campaign in national 5. Production
agriculture magazine
Costs to contract with growers to provide seed 6. Design
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,Created By: A Solution
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.
Travon’s Limo Service Annual
Income Statement
Before Expansion
Sales Revenue $ 960,000
Costs:
Vehicle Leases $ 400,000
Labor 290,000
Utilities 50,000
Rent 100,000
Other Costs 60,000
Manager’s Salary 120,000
Total Costs 1,020,000
Operating Profit (Loss) $ (60,000)
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.
4) Morris Incorporated is a management consulting firm that specializes in management
training programs. Tackle Manufacturing Incorporated has approached Morris to contract for
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management training for a one-year period. Last year's income statement for Morris is as
follows:
Sales Revenue $ 360,000
Costs:
Labor $ 120,000
Equipment Lease 12,000
Rent 24,000
Utilities 8,400
Supplies 23,600
Other Costs 14,400
Manager’s Salary 80,000
Total Costs 282,400
Operating Profit (Loss) $ 77,600
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.
5) The Arielle Company reported the following results for the manufacture and sale of one
of its products known as Controllers during the most recent year.
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