www.LionTutors.com ACCTG 211 – Final Exam – Practice Exam Solutions 1. D – Total fixed costs because total fixed costs and total costs are equal when zero units are produced. 2. D – The purchase of new testing equipment for ensuring the quality of the watches because this cost is only incurred if the company goes forward with producing the watches. 3. B -­‐ Fixed cost per unit will decrease as production increases since fixed costs are now allocated over more units. 4. C -­‐ Although total variable costs are based off of production level, variable cost per unit will remain the same even as production levels change. 5. B m = ($12,000 -­‐ $9,000) / (1,500 – 1,000) = $6 per call y = $6x + b $12,000 = $6(1,500) + b b = $3,000 y = $6x + $3,000 y = $6(1,200) + $3,000 y = $10,200 6. B – Negative $5,800 VC per unit = $0.24 + $0.14 + $0.22 = $0.60 CM per unit = $0.70 – $0.60 = $0.10 Operating profit = 50,000($0.10) – $10,800 = –$5,800 7. A m = 220,000-­‐110,000/50,000-­‐20,000 = 3.67 Y= mx + b 220,000 = 3.67(50,000) + b b= 36,500 8. B CM/unit = Sales Price/Unit – VC/unit 16 – (4 +5 + {2 x .5}) = 6/unit 9. C CM ratio= CM/Sales CM= Sales – Variable Costs CM= 1,000,000 – 400,000 CM= 600,000 CM ratio= 600,000/1,000,000 = 0.60 = 60% 10. C CM = $45 -­‐ $32 = $13 BE units = $104,000/$13 = 8,000 11. C CM Ratio = $13 / $45 = .2888889 BE dollars = $104,000/ .2888889 = $360,000 12. B – we think we can sell 5,000 units and we only need to sell 2,045 units to BE so we will accept the project. BE units = $45,000 / $22 = 2,045 13. A CM = $50 -­‐ $20 = $30 Sales in units = ($13,500 + $12,000)/ $30 = 850 14. C Profit = $50(10,000) -­‐ $20(10,000) -­‐ $50,000 = $250,000 15. B BE units = FC / CM per unit 10,000 = $550,000 / CM per unit CM per unit = $55 16. C CM = $30 -­‐ $10 = $20 BE units = FC / CM per unit BE units = $30,000 / $20 = 1,500 17. B CM ratio = $20 / $30 = 0.666667 BE dollars = $30,000 / 0.666667 = $45,000 18. C CM per unit= Sales Price-­‐ Variable Cost per unit Variable Costs= 500,000 x .8= 400,000 400,000/80,000= $5 per unit CM/unit= $12 -­‐ $5= $7 19. B Fixed Costs = 500,000 x .2 =100,000 Fixed Costs per unit = 100,000/80,000 units sold = $1.25 20. B 80,000 units = ($100,000 + Profit) / $7 Profit = $460,000 21. D Profit Margin= Net Profit/Net Sales $460,000 / $960,000= .479 = 47.9% 22. C – They are unchanged because unavoidable fixed costs do not go away when a segment is dropped. 23. C – Think about your contribution margin equations when answering this problem. The best thing to do is make up numbers and plug them into the equation to see what happens. In this case you will see that if FC are cut in half, your BE point will also be cut in half. 24. A – This will lower your CM which causes BE to increase 25. A CML = $50 CMs = $30 Weighted CM = (1/5)($50) + (4/5)($30) = $34 26. B CM large = $60 CM large ratio = $60/$80 = .75 CM small = $35 CM small ratio = $35/$50 = .7 Weighted CM ratio = (2/5)(.75) + (3/5)(.7) = .72 Breakeven sales dollars = $950/.72 = $1,319 27. B – Cost incurred after the split-­‐off point 28. B -­‐ This is a relevant cost since it differs between two alternatives. Any cost that does not differ between alternatives or is considered a sunk cost is considered irrelevant. 29. D -­‐ This is a sunk cost because it has already been incurred and will not be relevant when making a decision. 30. A Machine A’s relevant costs= 14,000 + 500= 14,500 Machine B’s relevant costs= 13,500 + 1,250= 14,750 31. A – Note that we include the fixed costs in this calculation because they are traceable to the project which means we only incur them if we accept the project. If it said that our fixed costs would be the same if we accepted or rejected the project, we would not include the fixed costs in the calculation. Revenue = $9 x 20,000 = $180,000 Total Costs= [($2 + $3) x 20,000] + $75,000= 175,000 Profit = $180,000-­‐ $175,000= $5,000 32. B – Emphasizes the amount of income earned over the life of the project 33. B Variable Manufacturing Cost Per Unit = $36,000 / 12,000 units = $3 Profit = ($12 -­‐ $3) x 1,000 = $9,000 34. D Incremental revenue per unit = $12.50 Incremental cost per unit = $2DM + $5DL + $3VOH + $.50 additional VC = $10.50 Incremental profit per unit = $12.50 -­‐ $10.50 = $2 Total profit = $2 x 2,000 units = $4,000 35. C Full product cost = ($2)(1 mil) + $1.8 mil = $3.8 mil Desired profit = $7 mil x 0.20 = $1.4 mil Cost-­‐plus price = $3.8 mil + $1.4 mil = $5.2 mil Per unit price = $5.2 mil / 1 mil = $5.20 36. B Revenue at market price = $12 x 300,000 = $3.6 mil Desired profit = $10 mil x 0.08 = $0.8 mil Full target cost = $3.6 mil -­‐ $0.8 mil = $2.8 mil 37. A Actual cost = ($7)(300,000) + $200,000 = $2.3 mil 38. A – We want to produce the product with the highest CM per machine hour. 39. D – The only thing that will not change if we drop this product line is the $15,000 in unavoidable fixed costs. Thus, this company should keep this product line even though it is showing a $5,000 operating loss. 40. B 41. C Standard CM per hour = $11 x 100 units = $1,100 per hour Deluxe CM per hour = $13 x 55 units = $715 per hour Since we have unlimited demand we will produce all standard units Total CM = $1,100 per hours x 1,000 hours = $1,100,000 42. A Segment margin divisions 1 and 3 = $2,500 + $5,000 = $7,500 Net income = $7,500 -­‐ $2,000 = $5,500 43. B New CM division 3 = $8,000 – ($8,000 x .3) = $5,600 Segment margin division 3 = $5,600 -­‐ $3,000 = $2,600 Segment margin division 1 and 3 = $2,500 + $2,600 = $5,100 Net income = $5,100 -­‐ $2,000 = $3,100 44. A Total segment margin w/o division 2 = $2,500 + $5,000 = $7,500 Net Income = $7,500 -­‐ $2,500 -­‐ $2,000 = $3,000 45. A Cost to buy = $6 Cost to make = $3 + $3 + $1 46. B Direct costs = $3 + $3 = $6 Mark up = $6 x 1.20 = $7.20 47. C Make = ($10 + $15 + $8)(35,000) = $1,155,000 Buy = ($30)(35,000) = $1,050,000 Buying will save you $105,000 if you buy the goods from the outside company. Note that we did not need to include the $420,000 in fixed overhead because it is an irrelevant cost. We consider it to be an irrelevant cost because our company will have this cost it is makes or buys the widgets so we do not need to include it in our calculations; however, if you did you would still get the same answer because you would just add $420,000 to the cost of making and buying so the difference would be the same. 48. C We need to compare the incremental revenue to the incremental cost of processing further to determine if we should sell as is or process further: A incremental revenue = $20 A incremental cost = $30 *Sell A as is B incremental revenue = $30 B incremental cost = $10 *Process B further 49. D Cost of making = $2,000 + $3,000 + $1,000 + $8,000 = $14,000 Cost of buying = $9,000 + ($8,000 -­‐ $5,000) = $12,000 * When we buy the packets we will not incur the direct materials, direct labor or variable MOH expenses because we are not making the packets; however, we will still have $3,000 in fixed overhead expenses ($8,000 -­‐ $5,000) because the problem says we only save $5,000 in fixed costs. Increased profit from buying = $2,000 50. C The most we would be willing to pay to buy the packets is the total of the amount it would cost us to make them ourselves: $14,000 = Price paid to printer + $3,000 Price paid to printer = $11,000 51. B Unrefined sales = $50 x 63,000 = $3,150,000 Unrefined profit = $3,150,000 -­‐ $2,200,000 = $950,000 Net refined sales price = $75 -­‐ $5 -­‐ $2 = $68 Refined sales = $68 x 54,000 = $3,672,000 Refined profit = $3,672,000 -­‐ $2,200,000 = $1,472,000 Profit increase = $1,472,000 -­‐ $950,000 = $522,000 52. C The payback period is defined as the amount of time that is required for a company to receive cash flows equal to that of the amount of the investment. In this case, the company receives $675 in cash flows its first three years. Since the company needs $900 to recover the amount of its investment, it needs $225 in Year 4 to attain that. The company receives $450 in year 4, and since 225 is half of 450, it will be able to pay back its investment in 3.5 years. 53. B – It takes 3 years for the company to recover the initial investment of $100,000. 54. A Annual depreciation expense = $100,000 / 5 years = $20,000 AAR = ($25,000 -­‐ $20,000) / $100,000 = 0.05 = 5% 55. B Annual depreciation expense = ($100,000 -­‐ $20,000) / 5 years = $16,000 AAR = ($25,000 -­‐ $16,000) / $100,000 = 0.09 = 9% 56. C NPV = PV cash inflows – PV cash outflows NPV = $10.7 mil -­‐ $8.9 mil = $1.8 mil 57. C – The NPV is positive 58. B In order for this to be an equitable, the Present Value of the annuities must be equal to the lump sum received the first year. In order to do this, you find the factor of the PVoa for five years at 8%, which is 3.99. Multiply that by 4,000 to find the present value of the annuities to be $15,960. 59. A PV inflows = $40,000 x 4.36 = $174,400 NPV = $174,400 -­‐ $150,000 = $24,400 60. B – It is better to reject the lump sum cash flow if the present value of the alternative annuities exceeds the amount of the lump sum. 61. A COGAS = 1,000 x $5 + 4,500 x $7 + 2,500 x $6 = $51,500 COGS = 2,500 x $6 + 3,500 x $7 = $39,500 Ending Inventory = $51,500 -­‐ $39,500 = $12,000 62. C To solve this problem we need to find the NPV of each project NPV #1 = -­‐$20,000 + (0.91)($15,000) + (0.83)($10,000) + (0.75)($2,000) = $3,450 NPV #2 = -­‐$20,000 + (0.91)($9,000) + (0.83)($17,000) + (0.75)($1,000) = $3,050 NPV #3 = -­‐$20,000 + (0.91)($12,000) + (0.83)($16,000) = $4,200 NPV #4 = -­‐$20,000 + (0.91)($9,000) + (0.83)($19,000) = $3,960 63. D – Both B and C