ACCT 5301, Sample Exam 3
Part 1. Multiple Choice. Select the best answer for each question and circle the answer.
1. Costs that differ between alternatives are called:
a. sunk costs.
b. irrelevant costs.
c. relevant costs.
d. unavoidable costs.
2. Which of the following is not true of managerial accounting?
a. Managerial accounting is governed by Generally Accepted Accounting Principles (GAAP).
b. Managerial accounting is a process of generating information primarily for internal users.
c. Managerial accounting is more flexible than financial accounting.
d. Managerial accounting is more timely than financial accounting.
3. Companies that manufacture products such as custom-designed decks and pools would most likely use
process costing.
a. True
b. False
4. As volume of production increases (within the relevant range), total fixed cost
a. Remain constant
b. Increase
c. Decrease
d. Cannot be determined from the information given
5. Flubber Corporation produces tires. The selling price per unit is $50 and the variable cost per unit is $20. If
Flubber has fixed costs of $120,000, what is the break even sales in dollars?
a. $200,000
b. $ 4,000
c. $300,000
d. $120,000
6. Carter Company sells Products A and Z in the ratio of 4:1 (4 units of A to one unit of Z). The selling price and variable
cost per unit for each product are shown below:
A
Z
Selling price
$ 10
$15
Variable cost
4
6
Calculate the weighted average contribution margin per unit for the two products combined:
a. $15.00 weighted average per unit
b. $10.00 weighted average per unit
c. $7.50 weighted average per unit
d. $6.60 weighted average per unit
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7. Given the following information for Company A
Contribution margin
$400,000
Fixed costs
350,000
Net income
$ 50,000
and
Company B
$300,000
250,000
$ 50,000
at 100,000 units:
Calculate the operating leverage for Company A and Company B at 100,000 units.
Calculate the operating leverage for Company A and Company B:
Company A
Company B
a.
7
5
b.
14.3%
20%
c.
8
6
d.
12.5%
16.7%
8. Regarding Company A above, if sales increased 2%, what would be the resulting increase in net
income?
a.
$ 3,000
b.
$ 8,000
c.
$ 4,000
d.
$ 1,000
The following information is for the next two questions:
The Column Co. had the following balances in its inventory accounts:
1/1/07
12/31/07
Work-in-process Inventory
20,000
?
Finished goods Inventory
35,000
50,000
Additionally, the following values were calculated for the year:
Raw materials used in production
$ 80,000
Direct labor costs
200,000
Manufacturing overhead (actual and applied)
120,000
Cost of goods manufactured
390,000
9. Ending Work-in-Process Inventory at 12/31/05 is:
a. $10,000
b. $20,000
c. $30,000
d. $50,000
10. Cost of goods sold for the year is:
a. $425,000
b. $390,000
c. $375,000
d. $475,000
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11. Given the following graph:
Y
0
X
Which type of cost behavior is illustrated in the graph?
a. Variable
b. Fixed
c. Step
d. Mixed
12.
Barrus Company makes motors to be used in the production of its power lawn mowers. The manufacturing
cost per motor at this level of activity is as follows:
Direct materials ....................................................................................................................
$9.00
Direct labor ...........................................................................................................................
$8.00
Variable manufacturing overhead ........................................................................................
$3.00
Fixed manufacturing overhead .............................................................................................
$6.00
This motor has recently become available from an outside supplier for $25 per motor. If Barrus decides not to
make the motors, none of the fixed manufacturing overhead would be avoidable as there would be no other use
for the facilities. Should Barrus decide to make or buy the motor, and why?
a
continue to make, as buying from the outside would cost an additional $1 per unit.
b. continue to make, as buying from the outside would cost an additional $5 per unit.
c. buy, as continuing to make the motor would cost an additional $5 per unit.
d. buy, as continuing to make the motor would cost an additional $1 per unit.
13.
Zubber Company manufactures tires. The following information is available for its bicycle tires and truck tires:
Bicycle
Truck
Contribution margin per tire
$2
$10
Machine hours per tire
2
5
Calculate the contribution margin per machine hour for the two types of tires:
Bicycle
Truck
a.
$4
$50
b.
$2
$10
c.
$1
$2
d. None of the above are correct.
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The following information is for the next four questions and pertains to Company B operations for
the year:
$600,00
Sales
0
Net operating income ...........................................................................................................
100,000
Average operating assets ......................................................................................................
400,000
Minimum required rate of
return
15%
14. What is the asset turnover for Company B?
A) 0.25
B) 4
C) 0.67
D) 1.5
15. What is the profit margin for Company B?
A) 25%
B) 16.7%
C) 66.7%
D) 15%
16. What is ROI for Company B for the year ?
A) 400%
B) 25%
C) 11.1%
D) 16.7%
17. What is residual income for Company B for the year?
A) $60,000
B) $40,000
C) $90,000
D) $10,000
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18. Given the following information for Company Alpha:
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Total
Store P
Sales
$600,000
$200,000
Variable expenses .................................................................................................................
384,000
144,000
Contribution margin ..............................................................................................................
216,000
56,000
Traceable fixed expenses ......................................................................................................
168,000
58,000
Segment margin ....................................................................................................................
48,000
($ 2,000)
Common fixed expenses .......................................................................................................
34,000
Net operating income ............................................................................................................
$ 14,000
Store Q
$400,000
240,000
160,000
110,000
$ 50,000
Assume Store P is eliminated, but $40,000 of the traceable fixed costs (supervisor salaries) cannot
be eliminated, and will be transferred to Store Q. What effect will the elimination of Store P
have on total net operating income for Company Alpha?
A) increase by $2,000.
B) increase by $18,000.
C) decrease by by $38,000.
D) decrease by $40,000.
19.Which of the following is not one of the perspectives that is usually examined under the balanced
scorecard approach?
A. Innovation and learning perspective
B. Internal business perspective
C. Creditor perspective
D. Customer perspective
20. What performance measure can be used as an alternative to (or in addition to) return on
investment, and does not cause the same sort of problems that the use of ROI can cause?
A. Asset turnover
B. Profit margin
C. Residual income
D. Return on asets
21. Under traditional cost accounting, assume Product A and Product Z use the same amount of
direct labor hours and have the same cost per direct labor hour for overhead. Under ABC
costing, Product A consumes twice the amount of company resources consumed by Product Z.
When comparing results of the two cost systems for the two products, which of the following
statements is true?
A. The relative costs of Product A and Z are best computed using direct labor hours
B. ABC is a better measure of the product cost for Product A, but traditional costing is a
better measure of the cost for Product Z.
C. Traditional costing is a better measure of the product cost for Product A, but ABC
costing is a better measure of the cost for Product Z.
D. ABC costing gives a better measure of the cost of both products, based on the
resources consumed.
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22. How are direct materials costs treated in activity based costing?
A. The costs are assigned to the different ABC activities, just like overhead costs.
B. The costs are assigned directly to the product, just as they are assigned in traditional
costing.
C. The costs are allocated to different activities based on proportionate direct material
costs.
D. The costs are not assigned to any product, and are categorized with other general and
administrative costs.
II. Classifying cost behavior as fixed or variable. Match the correct cost behavior for each item, and place your
answer to the left of the item. Assume that the following costs relate to a cereal manufacturer and the cost
behavior below relates to total costs for the year.
A. Fixed cost over the relevant range
B. Variable cost over the relevant range
1.
2.
3.
4.
5.
Ingredients to make the cereal (oats and sugar)
Cereal boxes (to package individual units)
Production supervisor’s salary
Depreciation expense on the production facility
Commissions paid to sales staff.
III. Chatanooga Company manufactures and sells toy trains. The selling price is $30 per train, and the variable expenses are
$22 per train. The company's fixed expenses are $400,000 per year. Round any results to the nearest whole unit. Show
your work for partial credit.
1.
Calculate break-even in units:
_________________units
2.
How many units would Chatanooga need to
produce and sell this year in order to make a pretax
operating profit of $100,000?
_________________units
3.
Chatanooga is considering a change in its production machinery
that would decrease variable expenses by $2 per unit,
but increase fixed expenses by $120,000 per year.
Calculate the new break even point in units:
_________________units
4.
At what unit level of activity does the proposed cost
structure in Part 3 have equal total costs to the
original cost structure (where do the two cost functions
intersect)?
5..
_________________units
If Chatanooga is expecting sales to average at least 65,000 units
in the future, should it implement the
changes in part (3)? (Yes or No)
_________________
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IV. High low method. Given the following monthly activity for Winter Company:
Machine hours
Overhead costs
January
100,000
$375,000
February
50,000
$255,000
March
60,000
$295,000
April
70,000
$320,000
A.
Using the high low method, calculate the variable cost per unit: $_________________
B.
Using the high low method, calculate the total fixed costs:
C.
Write the linear equation that Winter Company would use to predict overhead costs (Use the
X, Y notation discussed in class):
$_________________
V. Calculate the required information for the month of October, given the following information.
Sales for the month of
August
1,200 units x $10 = $12,000
September
1,500 units x $10 = $15,000
October
1,600 units x $10 = $16,000
November
1,000 units x $10 = $10,000
December
1,400 units x $10 = $14,000
The company has decided that collections from customers have the following pattern: In a given month, the
company collects 50% of that month's sales, 30% of the previous month's sales, and 20% of the sales which
occurred 2 months earlier.
A. Calculate the cash collections for October:
________________________
B. Calculate the Accounts Receivable balance at Oct. 31: ________________
C. Calculate the units of inventory to be purchased in November, if the company desires to have inventory at
the end of each period equal to 10 percent of the next months sales in units. Purchases:_________________
VI. Piper’s Products uses activity based costing; the company has developed the following cost
drivers:
Machine processing costs
$3 per machine run
Machine set-up costs $1,000 per set up
During 2006, Piper Products processed an order for 5,000 units. Each unit required 2 machine runs,
and the total order will require 7 set-ups.
1.
What total overhead costs would be assigned to this order? $_____________
2.
What overhead cost per unit would be assigned to
each of the 5,000 units in this order?
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$______________
VII. Manufacturing overhead costs. At the beginning of 2007 (its first year of operation), Charlie
Company calculated its predetermined overhead application rate to be $25 per direct labor hour.
During 2007, Charlie Company recorded 10,000 direct labor hours at an average cost of $10 per
direct labor hour. Additionally, Charlie incurred the following manufacturing costs:
Factory utilities
60,000
Depreciation on factory
100,000
Depreciation on factory equipment
70,000
Maintenance on factory equipment
10,000
A.
Calculate the amount of overhead that was applied
to Work-in-process Inventory (WIP) during 2007.
B.
Complete the “T” account below, and calculate the net balance in the Manufacturing
Overhead (MOH) account at the end of the year (before any entry to
transfer the balance to other accounts:
$________________
Manufacturing Overhead
Was overhead over- or under-applied during the year?
C.
________________
Assume the following account balances at 12/31/07 (before any entry to transfer the balance
in MOH): Note that the proportions are 10%, 20%, 70% for possible allocation of MOH
balance.
Work-in-process Inventory
Finished Goods Inventory
Cost of goods sold
$ 20,000
$ 40,000
$140,000
1.
Prepare the journal entry to close the MOH account, assuming that the balance in the
account is material (large), and must be closed to all accounts affected:
2.
Ignore Part 1. Prepare the journal entry to close the MOH account, assuming the
entire amount may be closed to cost of goods sold.
3.
What amount would be reported for COGS
after the entry in Part 2 is posted?
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$________________
VIII. Burl Company produces wood tables in two sizes. The company currently sells the tables as
unfinished furniture. Burl Company is considering additional processing to stain and finish the
tables. The following information is available for the manufacture of the two sizes of unfinished
tables:
Small
Large
Selling price of unfinished table
$ 70
$150
Direct materials
$ 10
$ 20
Direct labor
$ 20
$ 25
Variable overhead
$ 8
$ 10
Fixed overhead
$ 16
$ 18
If Burl Company decides to process further, and apply a stain and finish to the tables, it would be
able to sell the small table for $80, and the large tables for $175. The additional processing would
incur the following costs:
Direct materials
$ 1
$ 2
Direct labor
$ 10
$ 10
Variable overhead
$ 1
$ 2
(Fixed overhead is not affected)
1.
Should Burl stain and finish the small table?
________________
What would be the incremental increase or decrease
per unit on the net income of Burl?
________________
2.
Should Burl stain and finish the large table?
________________
What would be the incremental increase or decrease
per unit on the net income of Burl?
________________
IX. Essays
A. Essay on ROI (6 points on Exam 3). List 2 problems with using ROI as a performance measure for
segment or managers. Your answer should focus on behavior or actions by managers that might be
detrimental to the company as a whole. Give a short explanation or example for each problem. What
alternative measure can be used to counteract these problems?
B Essay on ABC. List 1 advantage and 1 disadvantage to Activity Based Costing. What cost/product
structures are most benefitted from the use of ABC?
C. Essay on Balanced Scorecard. List the 4 categories of the balanced scorecard, and give one
example of a measurement in each category. List 2 advantages that balanced scorecard has over
traditional performance evaluations.
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X Lennox Company makes one product, beach chairs. During May, Lennox Company produced
1,000 beach chairs. The established standard variable costs for one chair follows:
Material: 20 pounds at $ 2.00/pound
Labor: 3 hours at $8.50/hour
Variable mfg. overhead: $5.00/hour (based on direct labor hours)
Actual activity for May:
1. Purchased and used 21,500 pounds of material at a cost of $38,700 (or $1.80 per pound).
2. Payroll for 3,100 direct labor hours amounted to $25,730 (or $8.30 per hour).
3. Actual price for variable manufacturing overhead for May was $15,810 (or $5.10 per direct labor
hour).
For each of the variances below, you should also indicate F (for favorable) or U (for unfavorable).
One point is allocated to each amount, and one point to each variance direction.
Amount
1.
Calculate the Direct Material Price variance:
________
U or F
$_____________
2.
Calculate the Direct Material Quantity variance
_______
$______________
3.
Calculate the Direct Labor Rate (Price) variance:
________
$_____________
4.
Calculate the Direct Labor Efficiency (Quantity)
variance:
________
$_____________
5.
Calculate the Variable Overhead Spending (Price)
variance:
________
$_____________
6.
Calculate the Variable Overhead Efficiency
(Quantity)variance:
________
$_____________
7.
What is one likely reason for the specific combination of the material price variance, material
quantity variance and labor quantity variance above?
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