Midterm Solution ACC9811 Fall 2012(1)

# Midterm Solution ACC9811 Fall 2012(1) - Zicklin School of...

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1 Zicklin School of Business, Baruch College, CUNY ACC 9811. Managerial Accounting Midterm Solutions: Fall 2012 1 [5 points]. We make high-end designer clothing for numerous global brands. We use normal absorption costing, with overhead (OH) applied on the basis of direct labor hours (DLHs). At the end of 2011, we had underapplied overhead. Which of the following statements is correct? A. Estimated 2011 DLHs were greater than actual 2011 DLHs; B. Estimated 2011 Total OH was greater than Actual 2011 Total OH; C. Actual 2011 Total OH was greater than Applied 2011 Total OH; D. Estimated 2011 Total OH was greater than Applied 2011 Total OH; E. None of the above. The answer is C. This is the definition of underapplied OH. 2 [5 points]. Which statement(s) about the volume bias are correct? A. Firms using estimated levels of allocation bases in the denominator of the OH rate equations almost always suffer from the volume bias; B. A major reason for the volume bias is that not all costs are proportional to volume; C. Because of the volume bias, managers frequently over-price new, niche products and services, harming their firms’ new-product introduction efforts; D. Even single-product firms can suffer from the volume bias; E. All of the above statements about the volume bias are correct. The answer is B – volume bias happens because batch-level and product-level costs are not proportional to volume . None of the other options are correct: the problem in A is the death-spiral problem (note that many ABC firms use estimated levels of allocation bases like setups or deliveries while solving the volume bias); C is wrong – it is high-volume products that are frequently over-prices; D is wrong – the volume bias can only take place when some of one product’s costs are erroneously allocated to another product. 3 [10 points]. Patrizia Pepe is an Italian maker and seller of high-end designer shoes and accessories. Currently, we have approximately 15 products. For each activity below, indicate the level in the hierarchy of costs: - Advertising a specific accessory in a fashion magazine. Product Level. - Performaing quality-control analysis of each pair of shoes prior to shipment. Unit Level. - Advertising the Patrizia Pepe brand in fashion magazines. Facility Level (equivalently, Organization Sustaining, or just Sustaining). - Designing a new product, to be offered in the future. Product Level. - Training our brand managers to use our activity-based-costing system. Facility Level (equivalently, Organization Sustaining, or just Sustaining).

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