Managerial Accounting Final Exam Winter 2007 Student Number: __________________________ Pledge: On my honor I have neither given or received

d help on this exam. I understand that any violation of the University Honor Policy will result in an automatic zero on this exam, and that I will be subject to all sanctions available under the University's Honor Policy. Part I - Multiple Guess Select your points: 225 _______
1. B 2. D 3. C 4. D 5. C 6. A 7. A 8. B 9. A 10. D 11. B 12. B 13. A 14. B 15. C

200 ______

175 _______
16. A 17. D 18. C 19. B 20. A 21. C 22. B 23. B 24. A 25. D 26. C 27. D 28. C 29. C 30. D

1.

Costs that are always relevant in decision-making are: A) variable costs. B) avoidable costs. C) sunk costs. D) fixed costs. Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. A cost that is not relevant is: A) direct materials. B) variable overhead. C) fixed overhead that will be avoided if the special offer is accepted. D) common fixed overhead that will continue if the special offer is not accepted. To maximize total contribution margin, a firm faced with a production constraint should: A) promote those products having the highest unit contribution margins. B) promote those products having the highest contribution margin ratios. C) promote those products having the highest contribution margin per unit of constrained resource. D) promote those products having the highest contribution margins and contribution margin ratios. The opportunity cost of making a component part in a factory with no excess capacity is the: A) variable manufacturing cost of the component. B) fixed manufacturing cost of the component. C) cost of the production given up in order to manufacture the component. D) net benefit foregone from the best alternative use of the capacity required. Which one of the following costs would not be considered an indirect cost of serving a particular customer at a Pizza Hut franchise? A) The salary of the franchise's manager. B) The cost of the tables and chairs used to furnish the restaurant. C) The cost of the dough used to make the pizza that is ordered. D) The cost of lighting and heating the restaurant. Which of the following statements is (are) true? A) Companies that produce many different products or services are more likely to use job-order costing systems than process costing systems. B) Job-order costing systems are used by service firms and process costing systems are used by manufacturers. C) Costs are traced to departments and then allocated to units of product when job-order costing is used. D) All of the above.

2.

3.

4.

5.

6.

7.

The Precision Company used a predetermined overhead rate last year of $3 per

direct labor hour, based on an estimate of 24,000 direct labor hours to be worked during the year. Actual costs and activity during the year were: Actual manufacturing overhead cost incurred Actual direct labor hours worked A) B) C) D) 8. $3,000 underapplied. $3,000 overapplied. $12,000 underapplied. $12,000 overapplied. $84,000 27,000

Consider the following production and cost data for two products, L and C: Contribution margin per unit Machine set-ups needed per unit Product L $130 10 set-ups Product C $120 8 set-ups

The company can only perform 65,000 machine set-ups each period due to limited skilled labor and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period? A) $845,000. B) $975,000. C) $910,000. D) $1,820,000.

Use the following to answer questions 9-11: The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be shipped at the end of the month at a selling price of $7 each. The company has a production capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, the company is selling 80,000 jigs per month through regular channels at a selling price of $11 each. For these regular sales, the cost for one jig is: Variable production cost Fixed production cost Variable selling expense $4.6 0 1.80 1.00

If the special order is accepted, Immanuel will not incur any selling expense; however, it will incur shipping costs of $0.30 per unit.

9.

If Immanuel accepts this special order, the change in the monthly net operating income will be a: A) $12,600 increase. B) $14,400 increase. C) $3,600 increase. D) $1,800 increase. At what selling price per unit should Immanuel be indifferent between accepting or rejecting the special offer? A) $7.40 B) $7.70 C) $6.40 D) $4.90 Suppose that regular sales of jigs total 85,000 units per month. All other conditions remain the same. If Immanuel accepts the special order, the change in monthly operating income will be: A) $14,400 increase. B) $7,200 increase. C) $3,600 decrease. D) $5,400 decrease. Variable cost: A) increases on a per unit basis as the number of units produced increases. B) remains constant on a per unit basis as the number of units produced increases. C) remains the same in total as production increases. D) decreases on a per unit basis as the number of units produced increases. Which of the following statements regarding fixed costs is incorrect? A) Expressing fixed costs on a per unit basis usually is the best approach for decision-making. B) Fixed costs expressed on a per unit basis will react inversely with changes in activity. C) Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of the relevant range. D) Fixed costs frequently represent long-term investments in property, plant, and equipment. Setting up equipment is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Facility-level activity.

10.

11.

12.

13.

14.

15.

Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that: A) expense A has remained unchanged. B) expense B has decreased. C) expense A has decreased. D) expense B has increased.

Use the following to answer questions 16-18: The following is Allison Corporation's contribution format income statement for last month: Sales $800,00 0 Less variable expenses 300,00 0 Contribution margin 500,000 Less fixed expenses 400,00 0 Net income $100,00 0 The company has no beginning or ending inventories. The company produced and sold 10,000 units last month. 16. What is the company's contribution margin ratio? A) 62.5% B) 160.0% C) 500% D) 20% If sales increase by 200 units, by how much should net income increase? A) $16,000 B) $5,000 C) $2,000 D) $10,000 E) None of the above How many units would the company have to sell to attain target profits of $120,000? A) 10,800 B) 12,000 C) 10,400 D) 11,200 E) None of the above

17.

18.

Use the following to answer questions 19-21: Bryan Company employs a standard cost system in which direct materials inventory is carried at standard cost. Bryan has established the following standards for the prime costs of one unit of product: Standard Standard Standard Quantity Price Cost Direct materials 6.0 pounds $ 3.50/pound $21.00 Direct labor 1.3 hours $11.00/hour 14.30 $35.30 During March, Bryan purchased 165,000 pounds of direct material at a total cost of $585,750. The total factory wages for March were $400,000, 90 percent of which were for direct labor. Bryan manufactured 25,000 units of product during March using 151,000 pounds of direct material and 32,000 direct labor hours. 19. The price variance for the direct material acquired by the company during March is: A) $7,550 favorable. B) $8,250 unfavorable. C) $7,550 unfavorable. D) $8,250 favorable. The direct material quantity variance for March is: A) $3,500 unfavorable. B) $3,550 favorable. C) $3,500 favorable. D) $3,550 unfavorable. The direct labor rate variance for March is: A) $ 8,000 favorable. B) $48,000 unfavorable. C) $ 8,000 unfavorable. D) $48,000 favorable. Beaver Company used a predetermined overhead rate last year of $2 per direct labor hour, based on an estimate of 25,000 direct labor hours to be worked during the year. Actual costs and activity during the year were: Actual manufacturing overhead cost incurred Actual direct labor hours worked The under- or overapplied overhead last year was: A) $1,000 underapplied. B) $1,000 overapplied. C) $3,000 overapplied. D) $2,000 underapplied. $47,000 24,000

20.

21.

22.

23.

Under Lamprey Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. During January, Lamprey's transactions included the following: Direct materials issued to production Indirect materials issued to production Manufacturing overhead cost incurred Manufacturing overhead cost applied Direct labor cost incurred $ 90,000 8,000 125,000 113,000 107,000

Lamprey Company had no beginning or ending inventories. What was the cost of goods manufactured for January? A) $302,000 B) $310,000 C) $322,000 D) $330,000 E) None of the above Use the following to answer questions 24 and 25: Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct laborhours per unit. The total estimated overhead for next period is $98,785. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:

Activity Cost Pool Activity 1 Activity 2 General Factory Total

Estimated Overhead Costs $30,528 $17,385 $50,872 $98,785

Expected Activity Product Product B Total A 1,000 600 1,60 0 1,700 200 1,90 0 510 660 1,17 0

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.) 24. The overhead cost per unit of Product B under the traditional costing system is closest to: A) $50.66. B) $5.49. C) $26.09. D) $11.45. The overhead cost per unit of Product B under the activity-based costing system is closest to: A) $50.66. B) $26.09. C) $35.28. D) $38.16. An unfavorable labor efficiency variance indicates that: A) The actual labor rate was higher than the standard labor rate. B) The labor rate variance must also be unfavorable. C) Actual labor hours worked exceeded standard labor hours for the production level achieve. D) Overtime labor was used during the period. E) None of the above. A favorable labor rate variance indicates that A) actual hours exceed standard hours. B) standard hours exceed actual hours. C) the actual rate exceeds the standard rate. D) the standard rate exceeds the actual rate. E) None of the above.

25.

26.

27.

28.

If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur? A) Favorable labor efficiency variance. B) Favorable labor rate variance. C) Unfavorable labor efficiency variance. D) Unfavorable labor rate variance. E) None of the above. The following are budgeted data:

29.

One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following months production needs. Purchases of raw materials for February should be: A) 19,600 pounds B) 20,400 pounds C) 18,400 pounds D) 18,600 pounds E) None of the above. 30. Douglas Company plans to sell 24,000 units of Product A during July and 30,000 units during August. Sales of Product A during June were 25,000 units. Past experience has shown that end-of-month inventory should equal 3,000 units plus 30% of the next months sales. On June 30 this requirement was met. Based on these data, how many units of Product A must be produced during the month of July? A) 28,800 B) 22,200 C) 24,000 D) 25,800 E) None of the above.

Part II - PROBLEMS
Select your points: 225 _______ 200 ______ 175 _______

There are SIX problems. You must work problem # 1 and at least THREE additional problems. You may work them all if you wish. The more you work the less weight assigned to each problem. Please clearly label your answers. 3 additional problems 45 points each 4 additional problems 34 points each 5 additional problems 27 points each

Required - 65 points 1. The Central Valley Company is a merchandising firm that sells a single product. The company's revenues and expenses for the last three months are given below: Central Valley Company Comparative Income Statement For the Second Quarter
April May 6,000 $1,080,000 660,000 420,000 46,000 50,000 115,000 9,000 40,000 260,000 $ 160,000 June 5,250 $ 945,000 577,500 367,500 41,500 50,000 103,750 9,000 40,000 244,250 $ 123,250

Sales in units Sales revenue Less cost of goods sold Gross Margin Less operating expenses: Shipping expense Advertising expense Salaries and commissions Insurance expense Depreciation expense Total operating expenses Net income Required:

4,500 810,000 495,000 315,000 37,000 50,000 92,500 9,000 40,000 228,500 86,500

a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each expense. b. Compute the company's total contribution margin for May. c. Calculate the breakeven sales in units and in dollars. Sales in units Sales revenue Less cost of goods sold Gross Margin Less operating expenses: Shipping expense Advertising expense Salaries and commissions Insurance expense Depreciation expense B. Units
Sales Variable Cost Variable Fixed

$180 110

0 0

6 0 15 0 0

10,000 50,000 25,000 9,000 40,000 6,000 1,080,000

180

COGS Shipping Salaries Contribution Margin

660,000 36,000 90,000

294,000

110 6 15 49

C. Units
Sales Variable Cost COGS Shipping Salaries Contribution Margin

2,734.69 492,244 300,816 16,408 41,020

134,000

180 110 6 15 49

Fixed Shipping Advertising Salary Insurance Depreciation Total Fixed Net Income

10,000 50,000 25,000 9,000 40,000 134,000 (0)

2.

Production and cost data for the month of February for Process A of the Packer Manufacturing Company follow: Production record: Units in process, February 1 (100% complete with respect to materials; 25% complete with respect to conversion cost) New units started in process Units completed Units in process, February 28 (100% complete with respect to materials; 1/3 complete with respect to conversion cost) Cost record: Work in process inventory, February 1: Materials Conversion Costs for February: Materials issued Conversion Total cost to be accounted for

2,000 8,000 7,000 3,000

$600 100

$ 700 2,560 1,500 $4,760

The company uses the weighted-average cost method in its process costing system. Required: a. Calculate the equivalent units and unit costs for February for materials and for conversion costs. Equivalent Units Materials: 10,000
b.

Eq. Units Conversion: 8,000

Determine the amount of cost that should be assigned to the ending work in process and transferred to finished goods. Ending WIP: 1,148 Finished Goods: 3,612

Work in Progress Units Percent Beginning Units 2,000 7,000 Transferred out Materials Labor Overhead Complete 100% Materials 7,000

Equivalent Uni Conversion 7,000

Percent Started into production 8,000 3,000 Ending Units Materials Conversion Complete 100% 33% Materials 3,000

Equivalent Uni Conversion 1000

10,000 10,000 Both sides must equal!

Total Equivalent Units

10,000

8,000

Work in Progress Costs Material s $600

Beginning Costs Total $700

Conversion $100 3,612 Transferred out

Started into production Total Total 4,060 4,760 2,560 3,160 10,000 $0.316 1,500 1,600 8,000 $0.20 Cost per equivanent unit 0 1,148 4,760 Ending WIP Note A

Equivalent units Total $0.52

3. Albert Manufacturing Company manufactures a single product. The standard cost of one unit of this product is: Direct materials: 6 feet at $1.50 Direct labor: 1 hour at $6.75 Variable overhead: 1 hour at $4.50 Total standard variable cost per unit $ 9.00 6.75 4.50 $20.25

During the month of October, 6,000 units were produced. Selected cost data relating to the months production follow: Material purchased: 60,000 feet at $1.43 Material used in production: 38,000 feet Direct labor: ? hours at $ ? per hr. Variable overhead cost incurred Variable overhead efficiency variance $85,800 $41,925 $30,713 $ 2,250 U

There was no beginning inventory of raw materials. The variable overhead rate is based on direct labor-hours. Required (INDICATE FAVORABLE or UNFAVORABLE!) a. For direct materials, compute the price and quantity variances for the month. Price Variance: 4,200 F Quantity Variance: 3,000 U

b. For direct labor, compute the rate and efficiency variances for the month. Rate Variance: 1,950 F
c.

Efficiency Variance:_ 3,375 U

For variable overhead compute the spending variance for the month. 1,067 U

4.

The following data (in thousands of dollars) have been taken from the accounting records of Larsen Corporation for the just completed year. Manufacturing overhead is applied on the basis of direct labor costs. The company had estimated direct labor cost in the amount of $100, and total manufacturing overhead of $200. Sales Purchases of raw materials Direct labor Administrative expenses Selling expenses Raw materials inventory, beginning Raw materials inventory, ending Work in process inventory, beginning $860 $150 $110 $130 $180 $ 40 $ 80 $ 20

Work in process inventory, ending Finished goods inventory, beginning Finished goods inventory, ending

$ 80 $ 80 $150

Assume that there is no over or under-applied overhead. Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form.
b.

Compute the Cost of Goods Sold. _____________________

c. Using data from your answers above as needed, prepare an Income Statement in good form. You may prepare a diagram instead of a schedule to answer these questions! Answer:
a. Schedule of cost of goods manufactured Direct materials: Raw materials inventory, beginning Add: Purchases of raw materials Raw materials available for use Deduct: Raw materials inventory, ending Raw materials used in production Direct labor Manufacturing overhead Total manufacturing cost Add: Work in process inventory, beginning Deduct: Work in process inventory, ending Cost of goods manufactured b. Computation of cost of goods sold Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct: Finished goods inventory, ending Cost of goods sold c. Income statement Sales Less: Cost of goods sold Gross margin Less: Administrative expenses Less: Selling expenses Net income $860 300 560 130 180 $250 $ 80 370 450 150 $300 $ 40 150 190 80 110 110 210 430 20 450 80 $370

5.

Mateo Company's average cost per unit is $1.425 at the 16,000 unit level of activity and $1.38 at the 20,000 unit level of activity. Assume that all of the activity levels mentioned in this problem are within the relevant range. Required: Predict the following items for Mateo Company: a. Variable cost per unit. ______________ b. Total fixed cost per period. ________________ c. Total expected costs at the 18,000 unit level of activity: ________________

Answer:
High level of activity (20,000 units $1.38) Low level of activity (16,000 units $1.425) Change a. $4,800 4,000 units = $1.20 per unit variable cost $27,600 24,000 $ 3,600 $21,600 3,600 $25,200 Cost $27,600 22,800 $ 4,800 Units 20,000 16,000 4,000

b. Total cost at the high level Less variable element ($1.20 20,000 units) Fixed element c. Variable cost ($1.20 18,000 units) Fixed cost Total cost

6.

Prepare a cash flow statement for 2002 using the indirect method.

Balance Sheet
For year ending December 31 ($ 000's) Assets Cash & Equivalents Net Receivables Inventory Total Current Assets Net Plant, Property & Equipment TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Total Current Liabilities Long Term Debt EQUITY Common Stock Retained Earnings TOTAL EQUITY TOTAL LIABILITIES & EQUITY 2001 1,000 5,000 6,000 12,000 16,000 28,000 5,000 6,000 11,000 7,000 6,000 4,000 10,000 28,000 2002 4,000 6,000 5,000 15,000 17,000 32,000 7,000 5,000 12,000 5,000 7,000 8,000 15,000 32,000 Change 3,000 1,000 (1,000) 3,000 1,000 4,000 2,000 (1,000) 1,000 (2,000) 1,000 4,000 5,000 4,000

Income Statement
For year ending December 31 ($ 000's) Sales Cost of Goods Sold Gross Profit Selling, General, & Admin. Depreciation Operating Profit Interest Expense Taxable Income Total Income Taxes Net Income 2001 45,000 28,000 17,000 4,000 2,000 11,000 3,000 8,000 2,500 5,500 2002 50,000 30,000 20,000 5,000 3,000 12,000 3,000 9,000 3,000 6,000 Change 5,000 2,000 3,000 1,000 1,000 1,000 0 1,000 500 500

Cash Flow Statement

For year ending December 31

Cash flow from operations: Net Income Depreciation expense Net Receivables Inventory Accounts Payable Accrued expense Operating cash flow Cash flow from investing activities: Gross Plant, Property & Equipment Investing cash flow Cash flow from investing activities: Common Stock Long Term Debt Dividends Financing cash flow Change in cash Beginning cash Ending cash $

2002 6,000 3,000 (1,000) 1,000 2,000 (1,000) $ 10,000 (4,000) (4,000)

1,000 (2,000) (2,000) (3,000) 3,000 1,000 4,000