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Spring 2010 Professor Reza Espahbodi Introduction to Managerial Accounting ACCT 202, Exam III Name _________________________ For a total of 100 possible points, answer all multiple-choice questions and problems in the space provided on the examination. For multiple-choice questions, select only one, the best, answer. For problems, you must use proper format, label your work and show your calculations to receive credit. DO NOT use any of your own scratch paper. Hand in all paper when finished. You may use your calculator.
Multiple-choice questions (1.5 points each): 1 Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following? a. Product cost. b. Manufacturing overhead. c. Period cost. d. Administrative cost. 2 Conversion cost consists of which of the following? a. Manufacturing overhead cost. b. Direct materials and direct labor cost. c. Direct labor cost. d. Direct labor and manufacturing overhead cost. 3 The following information was provided by Grand Company for the year just ended: Beginning finished goods inventory $130, Ending finished goods inventory 125, Sales 500, Gross margin 100, The cost of goods sold for the year was: a. $400, b. $95, c. $104, d. $395, 4 Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost. If Job 107 shows $10,000 of manufacturing overhead applied, how much was the direct labor cost on the job? a. $8, b. $12, c. $11, d. $10,
8 Ogden Company uses the weighted-average method in its process costing system. Information for the month of January concerning Department A, the first stage of the company’s production process, follows: Materials Conversion Cost Work in process, beginning $ 8,000 $ 6, Current added during January $40,000 $32, Equivalent units of production 100,000 95, Cost per equivalent unit $ 0.48 $ 0. Units completed and transferred to the next department 90,000 units Work in process, ending 10,000 units Materials are added at the beginning of the process. The ending work in process is 50% complete with respect to conversion costs. What cost would be recorded for the units completed and transferred out? a. $79, b. $88, c. $70, d. $36, 9 An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? a. $2, b. $ c. $2, d. $1, 10 Bell Company has provided the following data for maintenance costs: April May Machine hours incurred 12,000 16, Maintenance cost incurred $24,000 $26, Using the high-low method, the cost formula for maintenance cost would be: a. $2.00 per machine hour. b. $1.625 per machine hour. c. $18,000 plus $0.50 per machine hour. d. $24,000 plus $0.50 per machine hour.
11 The following information relates to Clyde Corporation, which produced and sold 50,000 units last month. Sales $850, Manufacturing costs: Fixed 210, Variable 140, Selling and administrative expenses: Fixed 300, Variable 45, There were no beginning or ending inventories. Production and sales next month are expected to be 40,000 units. The company's unit contribution margin next month should be: a. $16. b. $ 3. c. $ 7. d. $13. 12 The following is last month's contribution format income statement: Sales (15,000 units) $1,500, Less variable expenses 900, Contribution margin 600, Less fixed expenses 500, Net income $ 100, What is the company's margin of safety in dollars? a. $100, b. $600, c. $1,500, d. $250, 13 A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same net income as was earned last year? a. 23, b. 33, c. 30, d. 13,
17 What is the net income for the month under absorption costing? a. $3, b. ($14,100) c. $12, d. $8, 18 Bridget Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 2,000 units and of Product B is 3, units. There are three activity cost pools, with estimated total cost and expected activity as follows: Activity Estimated Expected Activity Cost Pool Cost Product A Product B Total Activity 1 $9,000 400 350 750 Activity 2 $12,000 100 400 500 Activity 3 $48,000 400 1,200 1, The overhead cost per unit of Product A under activity-based costing is closest to: a. $6. b. $9. c. $8. d. $13. 19 Barley Enterprises has budgeted unit sales for the next four months as follows: October 4,800 units November 5,800 units December 6,400 units January 5,200 units The ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on September 30 was below this level and contained only 600 units. The total units to be produced in October is: a. 4,530. b. 5,070. c. 5,670. d. 5,890.
Use the information below to answer the following two questions. The LaGrange Company had the following budgeted sales for the first half of the current year: Cash Sales Credit Sales January $70,000 $340, February 50,000 190, March 40,000 135, April 35,000 120, May 45,000 160, June 40,000 140, The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled: Collections on sales: 60% in month of sale 30% in month following sale 10% in second month following sale The accounts receivable balance on January 1 of the current year was $70,000, of which $50,000 represents uncollected December sales and $20,000 represents uncollected November sales. 20 The total cash collected by LaGrange Company during January would be: a. $410, b. $254, c. $344, d. $331, 21 What is the budgeted accounts receivable balance on June 1 of the current year? a. $56, b. $64, c. $76, d. $132, 22 Portsche Snow Removal's cost formula for its vehicle operating cost is $2,310 per month plus $317 per snow-day. For the month of November, the company planned for activity of 18 snow-days, but the actual level of activity was 20 snow-days. The actual vehicle operating cost for the month was $8,730. The activity variance for vehicle operating cost in November would be closest to: a. $714 U. b. $714 F. c. $634 F. d. $634 U.
27 Which one of the following variances is MOST controllable by a production supervisor? a. Material price variance. b. Material quantity (usage) variance. c. Fixed overhead volume variance. d. Variable overhead spending (rate) variance. 28 Web Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of machine hours. During February, the company used a denominator activity of 80,000 machine hours in computing its predetermined overhead rate. However, only 75,000 standard machine hours were allowed for the month's actual production. If the fixed overhead volume variance for February was $6,400 unfavorable, then the total budgeted fixed overhead cost for the month was: a. $96, b. $102, c. $100, d. $98, 29 Assuming that sales and net income remain the same, a company's return on investment will: a. Increase if operating assets increase. b. Decrease if operating assets decrease. c. Decrease if turnover decreases. d. Decrease if turnover increases. 30 Consider the following three statements: I. A profit center has control over both cost and revenue. II. An investment center has control over invested funds, but not over costs and revenue. III. A cost center has no control over sales. Which statement(s) is/are correct? a. Only I. b. Only II. c. Only I and III. d. Only I and II. 31 More Company has two divisions, L and M. During July, the contribution margin in Division L was $60,000. The contribution margin ratio in Division M was 40% and its sales were $250,000. Division M's segment margin was $60,000. The common fixed expenses were $50,000 and the company net income was $20,000. The segment margin for Division L was: a. $ b. $10, c. $50, d. $60,
32 Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 30%. Net income for the company was $20,000 and traceable fixed costs for the two plants totaled $50,000. Johnson Company's common fixed costs for last year were: a. $50, b. $70, c. $40, d. $90, 33 Sales and average operating assets for Company P and Company Q are given below: Sales Average Operating Assets Company P $20,000 $ 8, Company Q $50,000 $10, What is the margin that each company will have to earn in order to generate a return on investment of 20%? a. 12% and 16%. b. 50% and 100%. c. 8% and 4%. d. 2.5% and 5%. 34 The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was: a. $20, b. $l8, c. $ 5, d. $ 2, 35 Which of the following is not an effective way of dealing with a production constraint (i.e., bottleneck)? a. Reduce the number of defective units produced at the bottleneck. b. Pay overtime to workers assigned to the bottleneck. c. Pay overtime to workers assigned to work stations located after the bottleneck in the production process. d. Subcontract work that would otherwise required use of the bottleneck.
39 Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows: Direct materials $ Direct labor 8 Variable manufacturing overhead 3 Fixed manufacturing overhead 10 Unit product cost $ An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be: a. $3 advantage. b. $1 advantage. c. $1 disadvantage. d. $4 disadvantage. 40 Consider the following production and cost data for two products, L and C: Product L Product C Contribution margin per unit $130 $ Machine set-ups needed per unit 10 set-ups 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, b. $975, c. $910, d. $1,820, 41 Neu Company is considering the purchase of an investment that has a positive net present value based on a discount rate of 12%. The internal rate of return would be: a. zero. b. 12%. c. greater than 12%. d. less than 12%.
42 A project's net present value, ignoring income tax considerations, is affected by: a. The net book value of an asset that is replaced. b. The depreciation on an asset that is replaced. c. The depreciation to be taken on assets used directly on the project. d. Proceeds from the sale of an asset that is replaced. 43 The payback method of capital budgeting takes into account: All Cash Flows over Time Value Life of Project of Money a. No Yes b. No No c. Yes No d. Yes Yes
- (8 points) Financial data for Beaker Company for last year appear below: Average operating assets $230, Investment in Cedar Company 70, Ending cash 20, Sales 414, Operating income 62, The company paid dividends of $2,100 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company. Required: a. Compute the company's margin, turnover, and return on investment for last year. b. The Board of Directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year? c. Do you recommend that the Board use residual income to measure performance of Beaker’s management? Why?
- (6 points) The following data have been extracted from the year-end reports of two companies – Company X and Company Y: Company X Company Y Sales $800,000? Net operating income $ 56,000? Average operating assets? $125, Margin? 4% Turnover? 6 Return on investment 14%? Required: Fill in the missing data on the above table.
- (13 points) Tranter, Inc. is considering a project that would have a five-year life and would require a $260,000 investment in equipment, and an additional $20,000 in working capital. At the end of five years, the project would terminate and the equipment would be sold for $10,000. The working capital also will be released for use elsewhere. The project would provide net income each year as follows: Sales $400, Less variable expenses 220, Contribution margin 180, Less fixed expenses: Fixed out-of-pocket cash expenses $100, Depreciation 30,000 130, Net income $ 50, All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 12%. Required: a. Compute the project's net present value. b. Compute the project's payback period. c. Compute the project's simple rate of return. d. Should Tranter invest in this project? Why? Periods 10% 12% 14% 1 0.909 0.893 0. 2 0.826 0.797 0. 3 0.751 0.712 0. 4 0.683 0.636 0. 5 0.621 0.567 0. Present Value of $ Periods 10% 12% 14% 1 0.909 0.893 0. 2 1.736 1.690 1. 3 2.487 2.402 2. 4 3.170 3.037 2. 5 3.791 3.605 3. Present Value of an Annuity of $
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