NEW YORK UNIVERSITY
Leonard N. Stern School of Business
Final Exam Version C
C10.0002 Principles of Managerial Accounting
Spring 2004
Answer all questions of this examination in the exam booklet provided.
Points Distribution:
Part A
Multiple Choice
54 points
Part B
Question 1
20
Question 2
20
Question 3
6
46
Total
100 points
Part A - Multiple Choice
1
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.
2.
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
3.
The salary of the president of a manufacturing company would be
classified as which of the following?
a. Product cost
b. Period cost
c. Manufacturing overhead
d. Direct labor
4
Which one of the following costs should NOT be considered a
direct cost of serving a particular customer who orders a
customized personal computer by phone directly from the
manufacturer?
a. the cost of the hard disk drive installed in the computer.
b. the cost of shipping the computer to the customer.
c. the cost of leasing a machine on a monthly basis that
automatically tests hard disk drives before they are
installed in computers.
d. the cost of packaging the computer for shipment.
5
Which one of the following costs should NOT be considered an
indirect cost of serving a particular customer at a Dairy
Queen fast food outlet?
a. the cost of the hamburger patty in the burger they ordered.
b. the wages of the employee who takes the customer's order.
c. the cost of heating and lighting the kitchen.
d. the salary of the outlet's manager.
6
Micro Computer Company has set up a toll-free telephone line
for customer inquiries regarding computer hardware produced by
the company. The cost of this toll-free line would be
classified as which of the following?
a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost
7
Prime cost consists of direct materials combined with:
a. direct labor.
b. manufacturing overhead.
c. indirect materials.
d. cost of goods manufactured.
8
Jawara Company uses the weighted-average method in its process
costing system. Operating data for the Painting Department for
the month of April appear below:
Units
7,300
Beginning work in process inventory ...
Transferred in from the prior
department during April
............ 65,600
Units completed ............ ............67,300
Ending work in process inventory ......
5,600
Percentage
complete
10%
80%
What were the equivalent units of production for conversion
costs in the Painting Department for April?
a. 65,600
b. 71,780
c. 70,520
d. 69,980
e. None of the above
9
The Assembly Department started the month with 3,500 units in
its beginning work in process inventory. An additional units
47,200 were transferred in from the prior department during
the month to begin processing in the Assembly Department.
There were 3,600 units in the ending work in process inventory
of the Assembly Department. How many units were transferred to
the next processing department during the month?
a. 50,700
b. 47,300
c. 47,100
d. 54,100
e. None of the above
10
Kelsh Company uses a predetermined overhead rate based on
machine hours to apply manufacturing overhead to jobs. The
company has provided the following estimated costs for next
year:
Direct materials .................. $10,000
Direct labor ......................
30,000
Sales commissions .................
40,000
Salary of Marketing supervisor ....
20,000
Indirect materials ................
4,000
Advertising expense ...............
8,000
Rent on factory equipment .........
40,000
Kelsh estimates that 5,000 direct labor hours and 10,000
machine hours will be worked during the year. The
predetermined overhead rate per hour will be:
a. $6.80.
b. $4.40.
c. $3.40.
d. $8.20.
11
Paul Company used a predetermined overhead rate during the year
just completed of $3.50 per direct labor hour, based on an
estimate of 22,000 direct labor hours to be worked during the
year. Actual overhead cost and activity during the year were:
Actual manufacturing overhead cost incurred ..
Actual direct labor hours worked .............
The undera. $13,000
b. $10,500
c. $2,500
d. $2,500
12
$90,000
25,000
or overapplied overhead for the year would be:
underapplied.
overapplied.
overapplied.
underapplied.
CROW Company has the following estimated costs for the next
year:
Direct materials ..................... $ 4,000
Direct labor .........................
20,000
Rent on factory building .............
15,000
Sales salaries .......................
25,000
Depreciation on factory equipment ....
Indirect labor .......................
Production supervisor’s salary .......
8,000
10,000
12,000
CROW Company estimates that 20,000 labor hours will be worked
during the year. If overhead is applied on the basis of direct
labor hours, the overhead rate per hour will be:
a. $2.25.
b. $3.25.
c. $3.45.
d. $4.70.
13
The Samuelson Company uses a job-order cost system. The
following data were recorded for June:
Job Number
476
June 1st
Work in Process
Inventory
$ 900
Added During June
Direct
Direct
Materials
Labor
$
600
$ 800
Overhead is charged to production at 70% of the direct
materials cost.
Samuelson’s Work in Process inventory balance on June 30 was:
a. $6,450.
b. $2,860.
c. $2,300.
d. $2,720.
14
The predetermined overhead rate for manufacturing overhead was
$4.00 per direct labor-hour. The estimated labor rate was $5.00
per hour. If the estimated direct labor cost was $75,000, what
was the estimated manufacturing overhead?
a. $ 15,000
b. $ 60,000
c. $ 75,000
d. $300,000
15
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. $8,000
b. $12,500
c. $11,250
d. $10,000
16
Calculate the cost of goods completed and transferred to the
finished goods inventory.
Beginning Work in Process............. $175
Direct labor cost incurred............ 300
Manufacturing overhead applied ....... 250
Direct materials used................. 125
Ending Work in Process................ 200
a.
b.
c.
d.
e.
$ 650
$1,025
$1,150
$1,175
None of the above
17
Setting up equipment is an example of a:
a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Organization-sustaining activity.
18
Overhead allocation based on volume alone:
a. is a key aspect of the activity-based costing model.
b. will systematically overcost high-volume products and
undercost
low-volume products.
c. will systematically overcost low-volume products and
undercost
high-volume products.
d. must be used for external financial reporting.
PART B.
1. Jetty Company produces a single product. The cost of producing and
selling a single unit of this product at the company's normal
activity level of 70,000 units per month is as follows:
Direct materials ........................
Direct labor ............................
Variable manufacturing overhead .........
Fixed manufacturing overhead ............
Variable selling & administrative expense
Fixed selling & administrative expense ..
$29.60
5.80
2.50
17.20
1.80
6.70
The normal selling price of the product is $72.90 per unit. An order
has been received from Alomo Corporation of Italy for 2,000 units to
be delivered during the current month at a special discounted price of
$66.10 each. This order would have no effect on the company's normal
sales and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be $1.10
less per unit on this order than on normal sales. Direct labor is a
variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required
by the overseas should the order be accepted? By how much would
this special order increase (decrease) the company's net operating
income for the month if it accepted?
b. Suppose there is not enough idle capacity to produce all of the
units for the overseas customer and accepting the special order
would require cutting back on production of 1,300 units for
regular customers. What is the minimum acceptable price per unit
for the special order?
2. Aholt Company makes 40,000 units per year of a part it uses in the
products it manufactures. The unit product cost of this part is
computed as follows:
Direct materials .................
Direct labor .....................
Variable manufacturing overhead ..
Fixed manufacturing overhead .....
Unit product cost ..............
$11.30
22.70
1.20
24.70
$59.90
An outside supplier has offered to sell the company all of these
parts it needs for $46.20 a unit. If the company accepts this offer,
the facilities now being used to make the part could be used to make
more units of a product that is in high demand. The additional
contribution margin on this other product would be $264,000 per year.
$21.90 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside
supplier. This fixed manufacturing overhead cost would be applied to
the company's remaining products.
Required:
a. How much of the unit product cost of $59.90 is relevant in the
decision of whether to make or buy the part?
b. What is the net total dollar advantage (disadvantage) of
purchasing the part rather than making it?
c. What is the maximum amount the company should be willing to pay an
outside supplier per unit for the part if the supplier commits to
supplying all 40,000 units required each year?
3. Consider the following production and cost data for two products, L
and C:
Maximum Demand per month
Contribution margin per unit .......
Machine set-ups needed per unit ....
Product L
10,000
$130
10 set-ups
Product C
6,000
$120
8 set-ups
The company can only perform 65,000 machine set-ups each month.
Required:
a. Determine optimum production levels of products L and C needed to
maximize profits.
b. Determine the annual profit associated with this optimum output
level if total fixed costs are $500,000 per month.
NEW YORK UNIVERSITY
Leonard N. Stern School of Business
Final Exam Version C
C10.0002 Principles of Managerial Accounting
Spring 2004
Answer all questions of this examination in the exam booklet provided.
Points Distribution:
Part A
Multiple Choice
54 points
Part B
Question 1
20
Question 2
20
Question 3
6
46
Total
100 points
Part A - Multiple Choice
1
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.
2.
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
3.
The salary of the president of a manufacturing company would be
classified as which of the following?
a. Product cost
b. Period cost
c. Manufacturing overhead
d. Direct labor
4
Which one of the following costs should NOT be considered a
direct cost of serving a particular customer who orders a
customized personal computer by phone directly from the
manufacturer?
a. the cost of the hard disk drive installed in the computer.
b. the cost of shipping the computer to the customer.
c. the cost of leasing a machine on a monthly basis that
automatically tests hard disk drives before they are
installed in computers.
d. the cost of packaging the computer for shipment.
5
Which one of the following costs should NOT be considered an
indirect cost of serving a particular customer at a Dairy
Queen fast food outlet?
a. the cost of the hamburger patty in the burger they ordered.
b. the wages of the employee who takes the customer's order.
c. the cost of heating and lighting the kitchen.
d. the salary of the outlet's manager.
6
Micro Computer Company has set up a toll-free telephone line
for customer inquiries regarding computer hardware produced by
the company. The cost of this toll-free line would be
classified as which of the following?
a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost
7
Prime cost consists of direct materials combined with:
a. direct labor.
b. manufacturing overhead.
c. indirect materials.
d. cost of goods manufactured.
8
Jawara Company uses the weighted-average method in its process
costing system. Operating data for the Painting Department for
the month of April appear below:
Units
7,300
Beginning work in process inventory ...
Transferred in from the prior
department during April
............ 65,600
Units completed ............ ............67,300
Ending work in process inventory ......
5,600
Percentage
complete
10%
80%
What were the equivalent units of production for conversion
costs in the Painting Department for April?
a. 65,600
b. 71,780
c. 70,520
d. 69,980
e. None of the above
9
The Assembly Department started the month with 3,500 units in
its beginning work in process inventory. An additional units
47,200 were transferred in from the prior department during
the month to begin processing in the Assembly Department.
There were 3,600 units in the ending work in process inventory
of the Assembly Department. How many units were transferred to
the next processing department during the month?
a. 50,700
b. 47,300
c. 47,100
d. 54,100
e. None of the above
10
Kelsh Company uses a predetermined overhead rate based on
machine hours to apply manufacturing overhead to jobs. The
company has provided the following estimated costs for next
year:
Direct materials .................. $10,000
Direct labor ......................
30,000
Sales commissions .................
40,000
Salary of Marketing supervisor ....
20,000
Indirect materials ................
4,000
Advertising expense ...............
8,000
Rent on factory equipment .........
40,000
Kelsh estimates that 5,000 direct labor hours and 10,000
machine hours will be worked during the year. The
predetermined overhead rate per hour will be:
a. $6.80.
b. $4.40.
c. $3.40.
d. $8.20.
11
Paul Company used a predetermined overhead rate during the year
just completed of $3.50 per direct labor hour, based on an
estimate of 22,000 direct labor hours to be worked during the
year. Actual overhead cost and activity during the year were:
Actual manufacturing overhead cost incurred ..
Actual direct labor hours worked .............
The undera. $13,000
b. $10,500
c. $2,500
d. $2,500
12
$90,000
25,000
or overapplied overhead for the year would be:
underapplied.
overapplied.
overapplied.
underapplied.
CROW Company has the following estimated costs for the next
year:
Direct materials ..................... $ 4,000
Direct labor .........................
20,000
Rent on factory building .............
15,000
Sales salaries .......................
25,000
Depreciation on factory equipment ....
Indirect labor .......................
Production supervisor’s salary .......
8,000
10,000
12,000
CROW Company estimates that 20,000 labor hours will be worked
during the year. If overhead is applied on the basis of direct
labor hours, the overhead rate per hour will be:
a. $2.25.
b. $3.25.
c. $3.45.
d. $4.70.
13
The Samuelson Company uses a job-order cost system. The
following data were recorded for June:
Job Number
476
June 1st
Work in Process
Inventory
$ 900
Added During June
Direct
Direct
Materials
Labor
$
600
$ 800
Overhead is charged to production at 70% of the direct
materials cost.
Samuelson’s Work in Process inventory balance on June 30 was:
a. $6,450.
b. $2,860.
c. $2,300.
d. $2,720.
14
The predetermined overhead rate for manufacturing overhead was
$4.00 per direct labor-hour. The estimated labor rate was $5.00
per hour. If the estimated direct labor cost was $75,000, what
was the estimated manufacturing overhead?
a. $ 15,000
b. $ 60,000
c. $ 75,000
d. $300,000
15
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. $8,000
b. $12,500
c. $11,250
d. $10,000
16
Calculate the cost of goods completed and transferred to the
finished goods inventory.
Beginning Work in Process............. $175
Direct labor cost incurred............ 300
Manufacturing overhead applied ....... 250
Direct materials used................. 125
Ending Work in Process................ 200
a.
b.
c.
d.
e.
$ 650
$1,025
$1,150
$1,175
None of the above
17
Setting up equipment is an example of a:
a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Organization-sustaining activity.
18
Overhead allocation based on volume alone:
a. is a key aspect of the activity-based costing model.
b. will systematically overcost high-volume products and
undercost low-volume products.
c. will systematically overcost low-volume products and
undercost high-volume products.
d. must be used for external financial reporting.
PART B.
1. Jetty Company produces a single product. The cost of producing and
selling a single unit of this product at the company's normal
activity level of 70,000 units per month is as follows:
Direct materials ........................
Direct labor ............................
Variable manufacturing overhead .........
Fixed manufacturing overhead ............
Variable selling & administrative expense
Fixed selling & administrative expense ..
$29.60
5.80
2.50
17.20
1.80
6.70
The normal selling price of the product is $72.90 per unit. An order
has been received from Alomo Corporation of Italy for 2,000 units to
be delivered during the current month at a special discounted price of
$66.10 each. This order would have no effect on the company's normal
sales and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be $1.10
less per unit on this order than on normal sales. Direct labor is a
variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required
by the overseas customer. Should the order be accepted? By how much
would this special order increase (decrease) the company's net
operating income for the month if it accepted?
b. Suppose there is not enough idle capacity to produce all of the
units for the overseas customer and accepting the special order
would require cutting back on production of 1,300 units for regular
customers. What is the minimum acceptable price per unit for the
special order?
Answer:
a.
Variable cost per unit on normal sales:
Direct materials ........................
Direct labor ............................
Variable manufacturing overhead .........
Variable selling & administrative expense
Variable cost per unit on normal sales
$29.60
5.80
2.50
1.80
$39.70
Variable cost per unit on special order:
Normal variable cost per unit ...........
Reduction in variable selling & admin. ..
Variable cost per unit on special order
$39.70
1.10
$38.60
Selling price for special order ...........
Variable cost per unit on special order ...
Unit contribution margin on special order
Number of units in special order ..........
Increase (decrease) in net operating income
$66.10
38.60
27.50
2,000
$55,000
b. The opportunity cost is just the contribution margin on
normal sales:
Normal selling price per unit .............
$72.90
Variable cost per unit on normal sales ....
39.70
Unit contribution margin on normal sales ..
$33.20
Minimum acceptable price:
Unit contribution margin on normal sales ..
Displaced normal sales ....................
Lost contribution margin displaced sales ..
Total variable cost on special order ......
Total Incremental cost of special order
Number of units in special order ..........
Minimum acceptable price on special order
$33.20
1,300
$43,160
$77,200
$120,360
2,000
$60.18
2. Aholt Company makes 40,000 units per year of a part it uses in the
products it manufactures. The unit product cost of this part is
computed as follows:
Direct materials .................
Direct labor .....................
Variable manufacturing overhead ..
Fixed manufacturing overhead .....
Unit product cost ..............
$11.30
22.70
1.20
24.70
$59.90
An outside supplier has offered to sell the company all of these
parts it needs for $46.20 a unit. If the company accepts this offer,
the facilities now being used to make the part could be used to make
more units of a product that is in high demand. The additional
contribution margin on this other product would be $264,000 per year.
$21.90 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside
supplier. This fixed manufacturing overhead cost would be applied to
the company's remaining products.
Required:
a. How much of the unit product cost of $59.90 is relevant in the
decision of whether to make or buy the part?
Direct materials ................. $11.30
Direct labor .....................
22.70
Variable manufacturing overhead ..
1.20
Avoidable Overhead................... 2.80
Avoidable Outlay Cost
$38.00
Avoidable Overhead = Fixed manufacturing overhead - Continued fixed
mfg Overhd [(24.70x40,000)$988,000 - $876,000($21.90x40,000) = $2.8
40,000
b. What is the change in income of purchasing the part rather than
making it?
Avoidable Cost (Gross Savings) $38(40,000u)
$1,520,000
Purchase Cost
($46.2x40,000u)
1,848,000
Excess of Purchase over Make
328,000
Less Profit from use of Freed up capacity
264,000
Net Change in income
-$64,000
c. What is the maximum amount the company should be willing to pay an
outside supplier per unit for the part if the supplier commits to
supplying all 40,000 units required each year?
($1,520,000+$264,000)/40,000= $1,784,000/40,000 = $44.6
3. Consider the following production and cost data for two products, L
and C:
Maximum Demand per month
Contribution margin per unit .......
Machine set-ups needed per unit ....
Product L
10,000
$130
10 set-ups
Product C
6,000
$120
8 set-ups
The company can only perform 65,000 machine set-ups each month.
Required:
e. Determine optimum production levels of products L and C needed to
maximize profits. 6,000 of C and 1,700 of L
(CM/setup:L-$13; C-$15: Produce up to 6,000 of C and use the
remaining 17,000 setups (65,000-(6,000x8)) to produce 1,700
(17,000/10) units of L
f. Determine the annual profit associated with this optimum output
level if total fixed costs are $500,000 per
month.$5,292,000=($720,000($120x6,000)+221,000(130x1,700)$500,000)