Test Bank And Solutions_
Accounting For Decision Making And Control 10th Edition
By Jerold Zimmerman (Author)
All Chapters 1-14| Latest Edition With Verified Solutions
From: [Bestmaxsolutions.stuvia
,Chapter: 1 Introduction
Chapter: 2 The Nature of Costs
Chapter: 3 Opportunity Cost of Capital and Capital Budgeting
Chapter: 4 Organizational Architecture
Chapter: 5 Responsibility Accounting and Transfer Pricing
Chapter: 6 Budgeting
Chapter: 7 Cost Allocation: Theory
Chapter: 8 Cost Allocation: Practices
Chapter: 9 Absorption Cost Systems
Chapter: 10 Criticisms of Absorption Cost Systems: Incentive to Overproduce
Chapter: 11 Criticisms of Absorption Cost Systems: Inaccurate Product Costs
Chapter: 12 Standard Costs: Direct Labor and Materials
Chapter: 13 Overhead and Marketing Variances
Chapter: 14 Management Accounting in a Changing Environment
,1-1: Accounting and Control
The controller of a small private college is complaining about the amount of work
she is required to do at the beginning of each month. The president of the university
requires the controller to submit a monthly report by the fifth day of the following month.
The monthly report contains pages of financial data from operations. The controller was
heard saying, "Why does the president need all this information? He probably doesn't read
half of the report. He's an old English professor and probably doesn't know the difference
between a cost and a revenue."
Required:
a. What is the probable role of the monthly report?
b. What is the controller's responsibility with respect to a president who doesn't
know much accounting?
2-1 : Fixed, Variable, and Average Costs
Midstate University is trying to decide whether to allow 100 more students into the
university. Tuition is $5000 per year. The controller has determined the following schedule
of costs to educate students:
Number of Students Total Costs
4000 $30,000,000
4100 30,300,000
4200 30,600,000
4300 30,900,000
The current enrollment is 4200 students. The president of the university has calculated the
cost per student in the following manner: $30,600,000/4200 students = $7286 per student.
The president was wondering why the university should accept more students if the tuition
is only $5000.
1
, Test Bank and Solutions
Required:
a. What is wrong with the president's calculation?
b. What are the fixed and variable costs of operating the university?
2-2 : The Elements of Cost Volume Profit
The M Company’s variable costs are 75% of the sales price per unit and their fixed
costs are $240,000. If the company earned $60,000 in selling 150,000 units, what was
the sales price per unit?
2-3 : Opportunity Costs
The First Church has been asked to operate a homeless shelter in part of the church.
To operate a homeless shelter the church would have to hire a full time employee for
$1,200/month to manage the shelter. In addition, the church would have to purchase $400
of supplies/month for the people using the shelter. The space that would be used by the
shelter is rented for wedding parties. The church averages about 5 wedding parties a month
that pay rent of $200 per party. Utilities are normally $1,000 per month. With the homeless
shelter, the utilities will increase to $1,300 per month.
What is the opportunity cost to the church of operating a homeless shelter in the
church?
2-4 : Fixed and Variable Costs
The university athletic department has been asked to host a professional basketball
game at the campus sports center. The athletic director must estimate the opportunity cost
of holding the event at the sports center. The only other event scheduled for the sports
center that evening is a fencing match that would not have generated any additional costs
or revenues. The fencing match can be held at the local high school, but the rental cost of
the high school gym would be $200. The athletic director estimates that the professional
basketball game will require 20 hours of labor to prepare the building. Clean-up depends
on the number of spectators. The athletic director estimates the time of clean-up to be equal
to 2 minutes per spectator. The labor would be hired especially for the basketball game
and would cost $8 per hour. Utilities will be $500 greater if the basketball game is held at
the sports center. All other costs would be covered by the professional basketball team.
Required:
a. What is the variable cost of having one more spectator?
b. What is the opportunity cost of allowing the professional basketball team to use
the sports center if 10,000 spectators are expected?
2
, Test Bank and Solutions
c. What is the opportunity cost of allowing the professional basketball team to use
the sports center if 12,000 spectators are expected?
2-5 : Opportunity Cost of Attracting Industry
The Itagi Computer Company From Japan is looking to build a factory for making
DVD burners in the United States. The company is concerned about the safety and well-
being of its employees and wants to locate in a community with good schools. The
company also wants the factory to be profitable and is looking for subsidies from potential
communities. Encouraging new business to create jobs for citizens is important for
communities, especially communities with high unemployment.
Wellville has not been very well since the shoe factory left town. The city officials
have been working on a deal with Itagi to get the company to locate in Wellville. Itagi
officials have identified a 20 acre undeveloped site. The city has tentatively agreed to buy
the site for $50,000 for Itagi and not require any payment of property taxes on the factory
by Itagi for the first five years of operation. The property tax deal will save Itagi
$3,000,000 in taxes over the five years. This deal was leaked to the local newspaper. The
headlines the next day were: "Wellville Gives Away $3,000,000+ to Japanese Company".
Required:
a. Do the headlines accurately describe the deal with Itagi?
b. What are the relevant costs and benefits to the citizens of Wellville of making this
deal?
2-6 : Cost, Volume, Profit Analysis
With the possibility of the US Congress relaxing restrictions on cutting old growth,
a local lumber company is considering an expansion of its facilities. The company believes
it can sell lumber for $0.18/board foot. A board foot is a measure of lumber. The tax rate
for the company is 30 percent. The company has the following two opportunities:
• Build Factory A with annual fixed costs of $20 million and variable costs of
$0.10/board foot. This factory has an annual capacity of 500 million board feet.
• Build Factory B with annual fixed costs of $10 million and variable costs of
$0.12/board foot. This factory has an annual capacity of 300 million board feet.
Required:
a. What is the break-even point in board feet for Factory A?
3
Accounting For Decision Making And Control 10th Edition
By Jerold Zimmerman (Author)
All Chapters 1-14| Latest Edition With Verified Solutions
From: [Bestmaxsolutions.stuvia
,Chapter: 1 Introduction
Chapter: 2 The Nature of Costs
Chapter: 3 Opportunity Cost of Capital and Capital Budgeting
Chapter: 4 Organizational Architecture
Chapter: 5 Responsibility Accounting and Transfer Pricing
Chapter: 6 Budgeting
Chapter: 7 Cost Allocation: Theory
Chapter: 8 Cost Allocation: Practices
Chapter: 9 Absorption Cost Systems
Chapter: 10 Criticisms of Absorption Cost Systems: Incentive to Overproduce
Chapter: 11 Criticisms of Absorption Cost Systems: Inaccurate Product Costs
Chapter: 12 Standard Costs: Direct Labor and Materials
Chapter: 13 Overhead and Marketing Variances
Chapter: 14 Management Accounting in a Changing Environment
,1-1: Accounting and Control
The controller of a small private college is complaining about the amount of work
she is required to do at the beginning of each month. The president of the university
requires the controller to submit a monthly report by the fifth day of the following month.
The monthly report contains pages of financial data from operations. The controller was
heard saying, "Why does the president need all this information? He probably doesn't read
half of the report. He's an old English professor and probably doesn't know the difference
between a cost and a revenue."
Required:
a. What is the probable role of the monthly report?
b. What is the controller's responsibility with respect to a president who doesn't
know much accounting?
2-1 : Fixed, Variable, and Average Costs
Midstate University is trying to decide whether to allow 100 more students into the
university. Tuition is $5000 per year. The controller has determined the following schedule
of costs to educate students:
Number of Students Total Costs
4000 $30,000,000
4100 30,300,000
4200 30,600,000
4300 30,900,000
The current enrollment is 4200 students. The president of the university has calculated the
cost per student in the following manner: $30,600,000/4200 students = $7286 per student.
The president was wondering why the university should accept more students if the tuition
is only $5000.
1
, Test Bank and Solutions
Required:
a. What is wrong with the president's calculation?
b. What are the fixed and variable costs of operating the university?
2-2 : The Elements of Cost Volume Profit
The M Company’s variable costs are 75% of the sales price per unit and their fixed
costs are $240,000. If the company earned $60,000 in selling 150,000 units, what was
the sales price per unit?
2-3 : Opportunity Costs
The First Church has been asked to operate a homeless shelter in part of the church.
To operate a homeless shelter the church would have to hire a full time employee for
$1,200/month to manage the shelter. In addition, the church would have to purchase $400
of supplies/month for the people using the shelter. The space that would be used by the
shelter is rented for wedding parties. The church averages about 5 wedding parties a month
that pay rent of $200 per party. Utilities are normally $1,000 per month. With the homeless
shelter, the utilities will increase to $1,300 per month.
What is the opportunity cost to the church of operating a homeless shelter in the
church?
2-4 : Fixed and Variable Costs
The university athletic department has been asked to host a professional basketball
game at the campus sports center. The athletic director must estimate the opportunity cost
of holding the event at the sports center. The only other event scheduled for the sports
center that evening is a fencing match that would not have generated any additional costs
or revenues. The fencing match can be held at the local high school, but the rental cost of
the high school gym would be $200. The athletic director estimates that the professional
basketball game will require 20 hours of labor to prepare the building. Clean-up depends
on the number of spectators. The athletic director estimates the time of clean-up to be equal
to 2 minutes per spectator. The labor would be hired especially for the basketball game
and would cost $8 per hour. Utilities will be $500 greater if the basketball game is held at
the sports center. All other costs would be covered by the professional basketball team.
Required:
a. What is the variable cost of having one more spectator?
b. What is the opportunity cost of allowing the professional basketball team to use
the sports center if 10,000 spectators are expected?
2
, Test Bank and Solutions
c. What is the opportunity cost of allowing the professional basketball team to use
the sports center if 12,000 spectators are expected?
2-5 : Opportunity Cost of Attracting Industry
The Itagi Computer Company From Japan is looking to build a factory for making
DVD burners in the United States. The company is concerned about the safety and well-
being of its employees and wants to locate in a community with good schools. The
company also wants the factory to be profitable and is looking for subsidies from potential
communities. Encouraging new business to create jobs for citizens is important for
communities, especially communities with high unemployment.
Wellville has not been very well since the shoe factory left town. The city officials
have been working on a deal with Itagi to get the company to locate in Wellville. Itagi
officials have identified a 20 acre undeveloped site. The city has tentatively agreed to buy
the site for $50,000 for Itagi and not require any payment of property taxes on the factory
by Itagi for the first five years of operation. The property tax deal will save Itagi
$3,000,000 in taxes over the five years. This deal was leaked to the local newspaper. The
headlines the next day were: "Wellville Gives Away $3,000,000+ to Japanese Company".
Required:
a. Do the headlines accurately describe the deal with Itagi?
b. What are the relevant costs and benefits to the citizens of Wellville of making this
deal?
2-6 : Cost, Volume, Profit Analysis
With the possibility of the US Congress relaxing restrictions on cutting old growth,
a local lumber company is considering an expansion of its facilities. The company believes
it can sell lumber for $0.18/board foot. A board foot is a measure of lumber. The tax rate
for the company is 30 percent. The company has the following two opportunities:
• Build Factory A with annual fixed costs of $20 million and variable costs of
$0.10/board foot. This factory has an annual capacity of 500 million board feet.
• Build Factory B with annual fixed costs of $10 million and variable costs of
$0.12/board foot. This factory has an annual capacity of 300 million board feet.
Required:
a. What is the break-even point in board feet for Factory A?
3
