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Final Exam: Chapters 1-14 Name ___________________________

ISV Managerial Accounting, 4e Instructor ________________________


Section # _________ Date __________

Part I II III IV V Total

Points 60 18 19 14 14 125

Score

PART I — MULTIPLE CHOICE (60 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. A responsibility center that incurs costs (and expenses) and generates revenues is
classified as a(n)
a. cost center.
b. revenue center.
c. profit center.
d. investment center.

____ 2. The most useful measure for evaluating a manager's performance in controlling
revenues and costs in a profit center is
a. contribution margin.
b. contribution net income.
c. contribution gross profit.
d. controllable margin.

____ 3. Ramsey Corporation desires to earn target net income of $90,000. If the selling price
per unit is $30, unit variable cost is $24, and total fixed costs are $360,000, the
number of units that the company must sell to earn its target net income is
a. 30,000.
b. 75,000.
c. 45,000.
d. 60,000.

____ 4. Shane Corporation uses a process cost accounting system. Given the following data,
compute the number of units transferred out during the current period.
Beginning Work in Process 20,000 units (1/2 complete)
Ending Work in Process 25,000 units (1/3 complete)
Started into Production 150,000 units
a. 125,000
b. 141,667
c. 145,000
d. 150,000
FE- 2 Test Bank for ISV Managerial Accounting, Fourth Edition

____ 5. Witten Company applies overhead on the basis of machine hours. Given the following
data, compute overhead applied and the under- or overapplication of overhead for the
period:
Estimated annual overhead cost $1,200,000
Actual annual overhead cost $1,150,000
Estimated machine hours 300,000
Actual machine hours 280,000
a. $1,120,000 applied and $30,000 underapplied
b. $1,200,000 applied and $30,000 overapplied
c. $1,120,000 applied and $30,000 overapplied
d. $1,150,000 applied and neither under- nor overapplied

____ 6. The following data has been collected for use in analyzing the behavior of main-
tenance costs of Ridell Corporation:
Month Maintenance Costs Machine Hours
January $121,000 20,000
February 125,000 23,000
March 128,000 24,000
April 159,000 34,000
May 168,000 36,000
June 178,000 38,000
July 181,000 40,000
Using the high-low method to separate the maintenance costs into their variable and
fixed cost components, these components are
a. $5 per hour plus $20,000.
b. $5 per hour plus $30,000.
c. $4 per hour plus $41,000.
d. $3 per hour plus $61,000.

____ 7. Given the following information for Hett Company, compute the company's ROI: Sales
— $1,000,000; Controllable Margin — $120,000; Average Operating Assets —
$500,000.
a. 40%
b. 50%
c. 12%
d. 24%

____ 8. Given the following data for Glennon Company, compute (A) total manufacturing costs
and (B) costs of goods manufactured:
Direct materials used $120,000 Beginning work in process $20,000
Direct labor 50,000 Ending work in process 10,000
Manufacturing overhead 150,000 Beginning finished goods 25,000
Operating expenses 175,000 Ending finished goods 15,000
(A) (B)
a. $310,000 $330,000
b. $320,000 $310,000
c. $320,000 $330,000
d. $330,000 $340,000
Final Exam FE- 3

____ 9. The production cost report shows both quantities and costs. Costs are reported in
three sections: (1) costs accounted for, (2) unit costs, and (3) costs charged to
department. The sections are listed in the following order:
a. (1), (2), (3).
b. (1), (3), (2).
c. (2), (1), (3).
d. (2), (3), (1).

____ 10. The starting point of a master budget is the preparation of the
a. cash budget.
b. sales budget.
c. production budget.
d. budgeted balance sheet.

____ 11. The most useful measure for evaluating the performance of the manager of an
investment center is
a. contribution margin.
b. controllable margin.
c. return on investment.
d. income from operations.

____ 12. Which of the following capital budgeting techniques explicitly takes the time value of
money into consideration?
a. Annual rate of return
b. Internal rate of return
c. Net present value
d. Both (b) and (c) above

____ 13. The cost classification scheme most relevant to responsibility accounting is
a. controllable vs. uncontrollable.
b. fixed vs. variable.
c. semivariable vs. mixed.
d. direct vs. indirect.

Use the following information for questions 14 and 15.

Grant Company estimates its sales at 60,000 units in the first quarter and that sales will increase
by 6,000 units each quarter over the year. It has, and desires, a 25% ending inventory of finished
goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay
within the quarter. The remainder is received in the quarter following sale.

____ 14. Cash collections for the third quarter are budgeted at
a. $1,017,000.
b. $1,476,000.
c. $1,773,000.
d. $2,052,000.

____ 15. Production in units for the third quarter should be budgeted at
a. 73,500.
b. 69,000.
c. 91,500.
d. 72,000.
FE- 4 Test Bank for ISV Managerial Accounting, Fourth Edition

____ 16. Stine Company incurs the following costs in producing 50,000 units of product:
Direct materials $100,000
Direct labor 50,000
Variable manufacturing overhead 100,000
Fixed manufacturing overhead 300,000
An outside supplier has offered to supply the 50,000 units at $7.00 each. All of Stine's
related variable costs, but only $200,000 of the fixed costs would be eliminated if the
offer is accepted. Acceptance will result in a
a. savings of $200,000.
b. loss of $100,000.
c. savings of $100,000.
d. loss of $200,000.

____ 17. Finney Company has a production process where two products result from a joint
processing procedure; both can be sold immediately or processed further. Given the
following additional per unit information, determine which of the products should be
processed further.
Allocated Additional New
Product Joint Cost Selling Price Processing Cost Selling Price
A $100 $200 $180 $400
B 60 100 50 160
a. A
b. B
c. Both
d. Neither

____ 18. A flexible budget


a. is also called a static budget.
b. can be considered a series of related static budgets.
c. can be prepared for sales or production budgets, but not for an operating expense
budget.
d. typically uses an activity index different from that used in developing the
predetermined overhead rate.

____ 19. Carey Company's equipment account increased $800,000 during the period; the
related accumulated depreciation increased $60,000. New equipment was purchased
at a cost of $1,400,000 and used equipment was sold at a loss of $40,000.
Depreciation expense was $200,000. Proceeds from the sale of the used equipment
were
a. $420,000.
b. $500,000.
c. $560,000.
d. $640,000.

____ 20. Which of the following combinations presents correct examples of liquidity, profitability,
and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivables turnover Return on assets Times interest earned
d. Quick ratio Payout ratio Return on assets
Final Exam FE- 5

____ 21. A company’s planned activity level for next year is expected to be 100,000 machine
hours. At this level of activity, the company budgeted the following manufacturing
overhead costs:
Variable Fixed
Indirect materials $60,000 Depreciation $25,000
Indirect labor 80,000 Taxes 5,000
Factory supplies 10,000 Supervision 20,000
A flexible budget prepared at the 90,000 machine hours level of activity would allow
total manufacturing overhead costs of
a. $135,000.
b. $180,000.
c. $185,000.
d. $150,000.

____ 22. A company developed the following per unit materials standards for its product: 3
gallons of direct materials at $5 per gallon. If 4,000 units of product were produced last
month and 12,500 gallons of direct materials were used, the direct materials quantity
variance was
a. $1,500 favorable.
b. $2,500 unfavorable.
c. $1,500 unfavorable.
d. $2,500 favorable.

____ 23. The standard direct labor cost for producing one unit of product is 5 direct labor hours
at a standard rate of pay of $8. Last month, 5,000 units were produced and 24,500
direct labor hours were actually worked at a total cost of $180,000. The direct labor
quantity variance was
a. $4,000 unfavorable.
b. $6,000 unfavorable.
c. $6,000 favorable.
d. $4,000 favorable.

____ *24. Smythe Company applies overhead to products based on direct labor hours.
Manufacturing overhead at the expected normal level of activity is $50,000 per month
plus $5 per direct labor hour. During June, actual manufacturing overhead costs
amounted to $85,000 when 6,100 actual direct labor hours were worked. The standard
number of direct labor hours that should have been worked for the output achieved
was 6,000 direct labor hours. The overhead controllable variance for June was
a. $4,500 unfavorable.
b. $3,400 favorable.
c. $5,000 unfavorable.
d. $5,000 favorable.

____ 25. Under the time-and-material-pricing approach, the charges for any particular job
include each of the following except the
a. labor charge.
b. charge for materials.
c. material loading charge.
d. overhead charge.
FE- 6 Test Bank for ISV Managerial Accounting, Fourth Edition

____ 26. The transfer pricing approach that does not reflect the selling division’s true profit-
ability is the
a. cost-based approach.
b. market-based approach.
c. negotiated price approach.
d. time-and-material-pricing approach.

Use the following information for questions 27 and 28.

Robot Toy Company manufactures two products: X-O-Tron and Mechoman. Robot’s overhead
costs consist of setting up machines, $200,000; machining, $450,000; and inspecting, $150,000
Additional information on the two products is:
X-O-Tron Mechoman
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700

____ 27. Overhead applied to Mechoman using traditional costing is


a. $320,000.
b. $384,000.
c. $416,000.
d. $500,000.

____ 28. Overhead applied to X-O-Tron using activity-based costing is


a. $300,000.
b. $384,000.
c. $416,000.
d. $480,000.

____ 29. An appropriate cost driver for an assembling cost pool is the number of
a. purchase orders.
b. setups.
c. parts.
d. direct labor hours.

____ 30. Which of the following is included in the cost of goods manufactured under absorption
costing but not under variable costing?
a. Direct materials
b. Variable factory overhead
c. Fixed factory overhead
d. Direct labor
Final Exam FE- 7

PART II — MATCHING (18 points)


Instructions: Designate the terminology that best represents the definition or statement given
below by placing the identifying letter(s) in the space provided. No term should be used more
than once.
A. Activity-based costing N. Job cost sheet
B. Annual rate of return O. Noncontrollable costs
C. Budgetary control P. Non-value-added activity
D. Contribution margin Q. Operating budgets
E. Contribution margin ratio *R. Overhead controllable variance
F. Controllable costs *S. Overhead volume variance
G. Absorption costing T. Physical units
H. Cost accounting U. Process cost systems
I. Cost centers V. Product costs
J. Cost of capital W. Profit center
K. Equivalent units of production X. Value-added activity
L. Fixed costs Y. Variable costs
M. Free cash flow Z. Variances

____ 1. Costs that a manager has the authority to incur within a given period of time.
____ 2. A form used to record the costs chargeable to a job.
____ 3. A responsibility center that incurs costs and also generates revenues.
____ 4. The difference between overhead budgeted for standard hours allowed and overhead
incurred.
____ 5. The amount of revenue remaining after deducting variable costs.
____ 6. Used to apply costs to similar products that are mass produced in a continuous
fashion.
____ 7. Costs that vary in total directly and proportionately with changes in the activity level.
____ 8. The differences between actual costs and standard costs.
____ 9. Determines profitability of a capital expenditure by dividing expected net income by
the average investment.
____ 10. The rate a company must pay to obtain funds from creditors and stockholders.
____ 11. Costs that are an integral part of producing the finished product.
____ 12. Allocates overhead to multiple cost pools and assigns the cost pools to products by
means of cost drivers.
____ 13. Involves the measuring, recording, and reporting of product costs.
____ 14. A measure of the work done during the period, expressed in fully completed units.
____ 15. A costing approach in which all manufacturing costs are charged to the product.
____ 16. Increase the worth of a product or service to customers.
____ 17. The amount of cash from operations after deducting capital expenditures and cash
dividends paid.
____ 18. Individual budgets that culminate in a budgeted income statement.
FE- 8 Test Bank for ISV Managerial Accounting, Fourth Edition

PART III — VARIANCE ANALYSIS (19 points)


The Olson Company developed the following standard costs for its product in 2008:
Standard Cost Card Unit Standard Cost
Direct materials (5 pounds @ $4 per pound) $20
Direct labor (4 hours @ $8 per hour) 32
Manufacturing overhead
Variable (4 hours @ $4 per hour) 16
Fixed (4 hours @ $3 per hour) 12
$80

The company planned to work 100,000 direct labor hours and produce 25,000 units of product in
2008. Actual results for 2008 are as follows:
 24,000 units of product were produced.
 Actual direct materials purchased and used during the year amounted to 122,000
pounds at a cost of $475,800.
 Actual direct labor costs were $779,000 for 95,000 direct labor hours worked.
 Total actual manufacturing overhead incurred amounted to $685,500.

Instructions
Calculate the following variances showing all computations supporting your answers. Indicate if
the variances are favorable (F) or unfavorable (U).
(a) Direct materials price and direct materials quantity variances.
(b) Direct labor price and direct labor quantity variances.
*(c) Overhead controllable and overhead volume variances.
Final Exam FE- 9

PART IV — RATIO ANALYSIS (14 points)


The condensed financial statements of Jenner Corporation for 2008 are presented below.

Jenner Corporation Jenner Corporation


Balance Sheet Income Statement
December 31, 2008 For the Year Ended December 31, 2008

Assets Revenues $2,000,000


Current assets Expenses
Cash and short-term Cost of goods sold 960,000
investments $ 30,000 Selling and administrative
Accounts receivable 70,000 expenses 740,000
Inventories 140,000 Interest expense 50,000
Total current assets 240,000 Total expenses 1,750,000
Property, plant, and Income before income taxes 250,000
equipment (net) 760,000 Income tax expense 100,000
Total assets $1,000,000 Net income $ 150,000

Liabilities and Stockholders' Equity


Current liabilities $ 100,000
Long-term liabilities 350,000
Stockholders' equity 550,000
Total liabilities and
stockholders' equity $1,000,000

Additional data as of December 31, 2007: Inventory = $100,000; Total assets = $800,000;
Stockholders' equity = $450,000.

Instructions: Compute the following ratios for 2008 showing supporting calculations.

(a) Current ratio = ___________________________________________________________.

(b) Debt to total assets ratio = _________________________________________________.

(c) Times interest earned = ___________________________________________________.

(d) Inventory turnover = ______________________________________________________.

(e) Profit margin = __________________________________________________________.

(f) Return on stockholders' equity = ____________________________________________.

(g) Return on assets = _______________________________________________________.


FE- 10 Test Bank for ISV Managerial Accounting, Fourth Edition

PART V — MISCELLANEOUS MANAGERIAL MINI-PROBLEMS (14 points)


Carson Corporation manufactures paper shredding equipment. You are requested to "audit" a
sampling of computations made by Carson's internal accountants via your independent
recalculation of the information.

Instructions: Compute the requested information for each of the following independent situations
(present supporting calculations).

(a) Carson uses a process costing system. 2,000 units were in process at the beginning of the
period, 60% complete. 20,000 units were started into production during the period; 1,000
were in process at the end of the period, 60% complete. Compute equivalent units for
conversion costs.

(b) Carson sells each unit for $500. Variable costs per unit equal $300. Total fixed costs equal
$800,000. Carson is currently selling 5,000 units per period and would like to earn net
income of $400,000. Compute: (1) break-even point in dollars; (2) sales units necessary to
attain desired income; and (3) margin of safety ratio for current operations.

(1) Break-even point = $________________________________________________.

(2) Desired sales = ___________________________________________ units.

(3) Margin of safety = _____________________________________________%.


Final Exam FE- 11

Solutions — Final Exam: Chapters 1-14

PART I — MULTIPLE CHOICE (60 points)


1. c 7. d 13. a 19. a 25. d
2. d 8. c 14. c 20. c 26. a
3. b 9. d 15. a 21. c 27. d
4. c 10. b 16. c 22. b 28. c
5. a 11. c 17. c 23. d 29. c
6. d 12. d 18. b *24. c 30. c

PART II — MATCHING (18 points)


1. F 6. U 11. V 16. X
2. N 7. Y 12. A 17. M
3. W 8. Z 13. H 18. Q
*4. R 9. B 14. K
5. D 10. J 15. G

PART III — VARIANCE ANALYSIS (19 points)


(a) Direct materials price and direct materials quantity variances.
Direct materials price variance
(122,000 × $3.90) – (122,000 × $4.00) = MPV
$475,800 – $488,000 = $12,200 F

Direct materials quantity variance


(122,000 × $4.00) – (120,000 × $4.00) = MQV
$488,000 – $480,000 = $8,000 U

(b) Direct labor price and direct labor quantity variances.


Direct labor price variance
(Actual Hours × Actual Rate) – (Actual Hours × Standard Rate) = LPV
(95,000 × $8.20) – (95,000 × $8) = LPV
$779,000 – $760,000 = $19,000 U

Direct labor quantity variance


(Actual Hours × Standard Rate) – (Standard Hours × Standard Rate) = LQV
(95,000 × $8) – (96,000 × $8) = LQV
$760,000 – $768,000 = $8,000 F

*(c) Overhead controllable variance


Actual overhead $685,000
Budgeted overhead — 24,000 × 4 = 96,000
Variable × $4
$384,000
Fixed — 100,000 × $3 = 300,000 684,000
$ 1,500 U

Overhead volume variance


Budgeted overhead (see above) $684,000
Overhead applied (96,000 × $7) 672,000
$ 12,000 U
FE- 12 Test Bank for ISV Managerial Accounting, Fourth Edition

PART IV — RATIO ANALYSIS (14 points)


(a) $240,000
Current ratio = ———— = 2.40:1.
$100,000

(b) $450,000
Debt to total assets ratio = ————— = 45%.
$1,000,000

(c) $300,000
Times interest earned = ———— = 6 times.
$50,000

(d) $960,000
Inventory turnover = ————— = 8 times.
$120,000

(e) $150,000
Profit margin = ————— = 7.5%.
$2,000,000

(f) $150,000
Return on stockholders' equity = ———— = 30%.
$500,000

(g) $150,000
Return on assets = ———— = 16.7%.
$900,000

PART V — MISCELLANEOUS MANAGERIAL MINI-PROBLEMS (14 points)


(a) Units transferred out (20,000 + 2,000 – 1,000)................................................ 21,000
Ending work in process (1,000 × 60%)............................................................ 600
Equivalent units for conversion costs....................................................... 21,600

(b) $800,000
(1) Break-even point = ———— = $2,000,000.
.4

$800,000 + $400,000
(2) Desired sales = —————————— = 6,000 units.
200

$500,000
(3) Margin of safety = —————— = 20%.
$2,500,000