Name:___________________ Cost Accounting Exam III Week Seven I. Theory Questions. For each of the questions listed below, provide a response within the body of the test itself. Be thorough, yet concise. 1. What are some ways that customers affect a firm’s costs? 2. What is the objective of joint cost allocation? 3. When would you advise a firm to use direct intervention to set transfer prices? II. Problem Material. 1. The following represents the financial information of Trovatore Corporation, a manufacturer of electronic components, for two months: Required a. Classify these items into prevention, appraisal, internal failure, or external failure costs. b. Calculate the ratio of the prevention, appraisal, internal failure, and external failure costs to sales for March and April. 2. Computer Information Services is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Carol Birch, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. Birch assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. -- Required: Allocate the service department costs to the user departments using the step method. 3. Meredith Motor Works has just acquired a new Battery Division. The Battery Division produces a standard 12volt battery that it sells to retail outlets at a competitive price of $20. The retail outlets purchase about 600,000 batteries a year. Since the Battery Division has a capacity of 1,000,000 batteries a year, top management is thinking that it might be wise for the company's Automotive...
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