Managerial Accounting
Final Exam Review: Chp 7, 8, 10, 11 & 12
Question Sheet
1. The following information was provided by PEG Inc. for 2014. The company sells products to
professional landscapers
Total
Per Unit
Sales
$ 200,000
$50
Variable Expenses
110,000
27.5
Contribution Margin
90,000
22.5
Fixed Expenses
50,000
Net Income before tax
40,000
PEG Inc. had average operating assets of $100,000 for the year 2014
Required: Consider each of the following unrelated assumptions
a. Calculate the company’s ROI for the year 2014.
b. Using lean production the company was able to reduce the average level of inventory by
$20,000. The funds will be used to pay off company’s liabilities. What effect would this have
on the company’s ROI?
c. $7,000 worth of inventory carried on the books was scrapped and written off as a loss. What
effect would this have on the company’s ROI?
d. What would be the company’s residual income if minimum rate of return required is 15%
2.
BRIK Ltd determined that the manufacturing plant has produced 2,000 units for the month of
January 2015. Variances are to be closed to cost of goods sold on a monthly basis. The following
information was provided by BRIK Ltd
Standards:
Standard Hours
Standard Price
Direct Material
2 units
$5 per unit
Direct Labour
0.75hours
15 per hour
Variable Overhead (based on
0.48 hours
$1.2 per hour
machine hours)
Actuals:
 Worked 1,200 direct labour hours at a cost of $14 per hour
 5,000 units of material was purchased at a cost of $4.1
 Beginning raw material for the month was zero
 4,300 units of material was used into production
 $1,300 worth of variable overhead costs was incurred; 1,000 machine hours were
recorded.
Prepared by: Charanjit Singh
Managerial Accounting
Final Exam Review: Chp 7, 8, 10, 11 & 12
Question Sheet
Required:
a. Compute material, labour and variable overhead variance
b. State what would be the overall net favourable or unfavourable variance for the month of
January 2015
c. Assume that BRIK Ltd. had budgeted cost of goods sold to be $30,000 for January. What
would BRIK Ltd. report as its actual cost of goods sold?
d. Explain one possible reason on why quantity varianceis favourable or unfavourable?
3. Marc Inc. produces a product using standard costing system where manufacturing overhead is
applied into production based on machine hours. The following information was provided by the
manager for the overhead costs that should be incurred at an activity level of 15,000 machine
hours and their operating results for the year
Fixed manufacturing overhead
Variable manufacturing overhead
Total manufacturing overhead
$65,000
18,500
83,500
Standard machine hours allowed
Actual machine hours worked
Actual variable manufacturing overhead
Actual fixed manufacturing overhead
13,000
11,000
$22,000
$62,000
At the end of the year the company’s manufacturing overhead accounting contained applied
costs of $72,280 and actual costs of $67,060
Required
a. Calculate the predetermined overhead rate and calculate its variable and fixed cost
elements.
b. Calculate variable and fixed overhead variance
c. Using the above calculations show whether the overhead account would be underapplied or
overapplied
Prepared by: Charanjit Singh
Managerial Accounting
Final Exam Review: Chp 7, 8, 10, 11 & 12
Question Sheet
4. Zeek Ltd. produces a sells a custom cell phone and tablet cases. The following costs and revenue
were incurred by the company for their first year of operations.
Units produced
25,000
Units sold
20,000
Selling price/per unit
$50
Selling and Admin Expenses
Variable
Total Fixed
Manufacturing costs
Direct Labour
Direct Material
Variable manufacturing overhead
Total fixed manufacturing overhead
$7 / per unit
$150,000
$6 per unit
$15 per unit
$5
$220,000
Required
a. Calculate the unit product cost using absorption costing and variable costing
b. Prepare income statement using absorption costing and variable costing
5. Moore Inc. was considering coming up with a new product for his gaming store. The following
information was gathered.
Expected units to be produced and sold each year
25,000 units
Estimated selling and admin expenses
$70,000
Unit product cost
$30
Desired ROI
9.8%
Estimated investment required by Riders Inc.
$450,000
Required
a. Compute the markup the company will have to use to achieve the desired ROI (use
absorption costing approach)
b. Compute the markup the company will have to use to achieve the desired ROI (use variable
costing approach). Assume that 65% of the selling and admin expenses are fixed. The unit
product cost includes $8 of fixed manufacturing overhead.
c. Calculate target selling price using variable and absorption approach.
Prepared by: Charanjit Singh
Managerial Accounting
Final Exam Review: Chp 7, 8, 10, 11 & 12
Question Sheet
6. Williams Ltd. manufactures and sells heavy duty equipment needed by construction workers in
Canada. The manager claims that the equipment needed to make nail guns has been totally
depreciated or worn out. The manager has to make a decision whether he should rent a new
equipment so the nail guns can be produced internally, which would cost $150,000 per year or
he should purchase the nail guns from an outside supplier for $19 each and discontinue
production of nail guns internally.
With the activity level as 50,000 units, the cost of producing the nail guns internally with the old
equipment is:
Direct Material
$7
Direct Labour
10
Variable Overhead
1.90
Fixed overhead (includes $2 of depreciation, $1.6 for supervision 8.60
and $5 of general company overhead)
Total Cost
$27.50
According to the manufacturer the new equipment will reduce direct labour ad variable costs by
20%. Supervision costs ($80,000 per year) and direct materials per unit will not be affected by
the new equipment. The new equipment’s capacity would be 80,000 units per year. The general
overhead will be unaffected.
Required
a. Assume that 50,000 units are needed for the year. State which course of action would be a
better idea? (Show calculations)
7. Rem Company has two major products in its business line. Product 1 and Product 2. The
company has a traditional costing system in which overhead is applied based on direct labour
hours. Data regarding the two products is as follows:
Product 1
Product 2
Direct Material per unit
$7
$5.5
Direct Labour per unit
$24
$19
Direct labour hours per unit
0.2 DLHs
0.1 DLHs
Annual Output
10,000
30,000
The company estimates overhead to be $400,000 and direct labour hours to be 18,000 for the
upcoming year.
Required
a. Calculate the unit cost for each product (1 and 2) under traditional costing system
b. The company is considering changing from traditional costing system to ABC system. The
following activity cost pools:
Prepared by: Charanjit Singh
Managerial Accounting
Final Exam Review: Chp 7, 8, 10, 11 & 12
Question Sheet
Activity measures
Estimated overhead Product 1
Supporting direct labour hours $300,000
3,000
Quality review
75,000
120
Product testing
15,000
90
Calculate the unit cost for each product under ABC system
Product 2
8,000
110
90
Concept Questions
1. What is decentralization? Give one advantage and disadvantage
2. Explain any two criticisms of ROI
3. Explain what is a balanced scorecard? State its three strategies to outperform
competitors
4. What types of costs should not be assigned to products in ABC system?
5. State the 5 steps to implement ABC system
6. Explain two advantages of using standard costs for evaluating control
Prepared by: Charanjit Singh