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planned cash inflows and outflows

  1. The Inground Sprinkler Supply sells sprinkler systems suited for large or small yards. The
    company has decided to adopt an activity-based costing system. Last year the company incurred
    $1,000,000 in overhead costs related to the following activities:
    Activity Allocation Base Overhead Cost
    Purchasing number of purchase orders $ 350,000
    Material handling number of shipments received 200,000
    Quality inspection number of inspections 450,000

The activities for large and small yard systems were as follows:

Large Small
purchase orders 15,000 20,000
shipments received 7,500 12,500
inspections 11,500 11,000

If a customer requested a bid on a specially designed sprinkler that would probably require four
inspections, how much quality inspection overhead would you include in the bid?
a. $ 0
b. $40
c. $80
d. $120.
e. $160.

  1. Bubblemania has three product lines – A, B, and C. A B C Total
    Sales $10,000 9,000 12,000 31,000
    Variable costs 4,500 7,000 6,000 17,500
    Contribution Margin 5,500 2,000 6,000 13,500
    Fixed costs 3,500 6,000 3,000 12,500
    Net income 2,000 (4,000) 3,000 1,000

Product line B appears unprofitable, and management is considering discontinuing the line. How
would the discontinuation of Product line B affect net income?
a. increase by $4,000
b. decrease by $4,000
c. increase by $2,000
d. decrease by $2,000
e. increase by $6,000

  1. Coed Novelties manufactures key chains for college bookstores. During 2003, the company
    had the following costs:
    Direct materials used $ 31,000
    Direct labor 18,000
    Factory rent 12,000
    Equipment deprecation – factory 2,000
    Equipment depreciation – office 750
    Marketing expense 2,500
    Administrative expenses 40,000
    35,000 units produced were in 2003. What is the product cost per unit?
    a. approximately $1.24
    b. $1.80
    c. approximately $3.04
    d. $1.40
    e. approximately $1.82