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Managerial Accounting

Final Exam
Part I
Chippen Corporation manufactures furniture, including tables. Selected costs are
given below:
1. The tables are made of wood that costs $100 per table
2. The tables are assembled by workers, at a wage cost of $40 per table
3. Workers making the tables are supervised by a factory supervisor who is paid
$38,000 per year
4. Electrical costs are $2 per machine hour. Four machine hours are required to
produce a table
5. The depreciation on the machines used to make the tables totals $10,000 per
year
6. The salary of the president of the company is $100,000 per year
7. The company spends $25,000 per year to advertise its products
8. Salespersons are paid a commission of $30 for each table sold
9. Instead of producing the tables, the company could rent its factory space for
$50,000 per year
Required:
Variabl
e Cost

1.
2.
3.
4.
5.
6.
7.
8.
9.

Fixed
Cost

Period
(Selling &
Administrati
ve) Cost

X
X

Produ
ct
Cost
Direct
Labor

Product
Cost
Manufacturi
ng
Overhead

Sun
k
Cost

Opportuni
ty Cost

X
X

X
X
X

X
X
X
X
X

Product
Cost
Direct
Materia
ls
X

X
X
X
X

Part II
Bieker & Cie of Altdorf, Switzerland, makes furniture using the latest automated
technology. The company uses a job-order costing system and applies
manufacturing overhead cost to products on the basis of machine hours. The
currency in Switzerland is the Swiss franc, which is denoted by Sfr. The following
estimates were used in preparing the predetermined overhead rate at the beginning
of the year:
Machine Hours
Manufacturing overhead cost

75,000
Sfr900,000

During the year, a glut of furniture on the market resulted in cutting back production
and a buildup of furniture in the companys warehouse. The companys cost records
revealed the following actual cost and operating data for the year:
Machine Hours
Manufacturing Overhead Cost
Inventories at year end:
Raw Materials
Work in process
Finished goods sold
Cost of Goods Sold

60,000
Sfr850,000
Sfr 30,000
Sfr100,000
Sfr500,000
Sfr 1,400,000

Required:
1. Compute the companys predetermined overhead rate
Companys predetermined overhead rate = Sfr900,000 / 75,000 = Sfr 12
per machine hour
2. Compute the underapplied or overapplied overhead
Actual Manufacturing overhead cost
Applied manufacturing overhead cost (60,000 x 12)
Underapplied overhead

= Sfr 850,000
= Sfr 720,000
= Sfr 130,000

3. Assume that the company closes any underapplied or overapplied overhead


directly to Cost of Goods Sold. Prepare the appropriate journal entry.
Cost of goods sold
Sfr 130,000 Dr.
Manufacturing Overhead
Sfr 130,000 Cr.

Part III
Luxguard Home Paint Company produces exterior latex paint, which it sells in one
gallon containers. The company has two processing departments Base Fab and
Finishing. White paint which is used as a base for all the companys paints, is mixed
from raw ingredients in the Base Fab Department. Pigments are then added to the
basic white paint, the pigmented paint is squirted under pressure into one gallon
containers, and the containers are labeled and packed for shipping in the Finishing
Department. Information relating to the companys operations for April follow:
Production Data:
Units (gallons) in process, April 1: materials 100% complete,
conversion 60% complete
Units (gallons) started into production during April
Units (gallons) completed and transferred to the Finishing
Department
Units (gallons) in process, April 30: materials 50% complete,
conversion 25% complete
Cost Data:
Work in process inventory, April 1:
Materials
Conversion
Cost added during April:
Materials
Conversion

30,000
420,000
370,000
80,000

$92,000
$58,000
$851,000
$995,000

Required:
Using the chart below, prepare a cost reconciliation report for April:

Equivalent Units of Production


Units transferred to the next department
Ending work in process inventory
Equivalent units of production

Materials
370,000
40,000
410,000

Conversion
370,000
20,000
390,000

Materials
$92,000
$851,000
$943,000
410,000
$2.30

Conversion
$58,000
$995,000
$1,053,000
390,000
$2.70

Costs per Equivalent Unit


Costs of beginning work in process inventory
Costs added during the period
Total Cost
Equivalent units of production
Cost per equivalent unit

Costs of Ending Work in Process Inventory and the Units Transferred Out:
Materials
Conversio Total
n
Ending Work in Process Inventory:
Equivalent units of production
40,000
20,000
$146,000
Cost per equivalent unit
$2.30
$2.70
Cost of ending work in process
$92,000
$54,000
inventory
Units Completed and Transferred Out:
Units transferred to the next
370,000
370,000
$1,850,000
department
$2.30
$2.70
Cost per equivalent unit
$851,000
$999,000
Cost of units completed and transferred
out
Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory
Costs added to production during the period
Total cost to be accounted for
Costs accounted for as follows:
Cost of ending work in process inventory
Cost of units transferred out
Total cost accounted for

$150,000
$1,846,000
$1,996,000
$146,000
$1,850,000
$1,996,000

Part IV
The administrator of Azalea Hills Hospital would like a cost formula linking the
administrative costs involved in admitting patients to the number of patients
admitted during a month. The admitting departments costs and the number of
patients admitted during the immediately preceding eight months are given in the
following table:
Month
May
June
July
August
September
October
November
December

Number of Patients
Admitted
1,800
1,900
1,700
1,600
1,600
1,300
1,100
1,500

Admitting Department
Costs
$14,700
$15,200
$13,700
$14,000
$14,300
$13,100
$12,800
$14,600

Required:
1. Use the high low method to establish the fixed and variable components of
admitting costs.
Detail
Number of patients admitted
admitting department costs
High activity level
1,900
$15,200
Low activity level
1,100
$12,800
Change
800
$2,400
Variable Cost = $2,400 / 800 = $3 per patient day
Fixed cost = $15,200 ($3 x 1,900)

= $9,500

2. Express the fixed and variable components of admitting costs as a cost formula
in the form
Y = a + bX
Y = $9,500 + $3 X

Part V
Voltar Company manufactures and sells a specialized cordless telephone for high
electromagnetic radiation environments. The companys contribution format
income statement for the most recent year is given below:

Sales (20,000 units)


Variable Expenses
Contribution Margin
Fixed Expenses
Net Operating Income

Total

Per Unit

$1,200,000
900,000
300,000
240,000
$
60,000

$60
45
$15

Percent of
Sales
100%
?%
?%

Required:
1. Compute the companys CM ratio and variable expense ratio.
CM Ratio = $15 / $60 = 25%
2. Compute the companys breakeven point in both units and sales dollars.
Breakeven point in units = Fixed cost / CM per unit = $240,000 / $15 =
16,000 units
Breakeven point in sale dollars = Fixed cost / CM ratio = $240,000 / 25% =
$960,000
3. Assume that sales increase by $400,000 next year. If cost behavior patterns
remain unchanged by how much will the companys net operating income increase?
Increase in operating income = $400,000 x 25% = $100,000
4. Refer to the original data. Assume that next year management wants the
company to earn a profit of at least $90,000. How many units will have to be sold
to meet this target profit?
Units sold to meet this target profit = ($240,000 + $90,000) / $15 = 22,000
units
5. In an effort to increase sales and profits, management is considering the use of a
higher quality speaker. The higher quality speaker would increase variable costs by
$3 per unit, but management could eliminate one quality inspector who is paid a
salary of $30,000 per year. The sales manager estimates that the higher quality
speaker would increase annual sales by at least 20%

a. Assuming that the changes are made as described above, prepare a projected
contribution format income statement for next year.

Sales (24,000 units)


Variable Expenses
Contribution Margin
Fixed Expenses
Net Operating Income

Total

Per Unit

$1,440,000
$1,152,000
$288,000
$210,000
$78,000

$60
$48
$12

Percent of
Sales
100%
80%
20%

Part VI:
Dexter Corporation produces and sells a single product, a wooden hand loom for
weaving small items such as scarves. Selected cost and operating data relating to
the product are given below:
Selling price per unit
Manufacturing Costs:
Variable per unit produced:
Direct materials
Direct Labor
Variable overhead
Fixed per year
Selling and administrative costs:
Variable per unit sold
Fixed per year

$50

Units
Units
Units
Units

0
10,000
8,000
2,000

$11
$6
$3
$120,000
$4
$70,000

in beginning inventory
produced during the year
sold during the year
in ending inventory

Required:
1) Assume the company uses absorption costing
a) Compute the unit product cost
Direct Material
= $11
Direct Labor
= $6
Variable Manufacturing Overhead
= $3
Fixed manufacturing overhead ($120,000/10,000) = $12
Cost per unit

= $32

b) Prepare an income statement


Sales (8,000 x $32)
= $400,000
Less: Cost of goods sold (8,000 x $32) = $256,000
Gross Margin
= $144,000
Selling & administrative expenses = $102,000
(8,000 x $4 + $70,000)
Net operating income

= $42,000

2) Assume the company uses variable costing


a) Compute the unit product cost
Direct Material
Direct Labor
Variable Manufacturing Overhead

= $11
= $6
= $3

Cost per unit

= $20

b) Prepare an income statement


Sale
(8,000 x $50)
= $400,000
Variable Expenses:
Variable cost of goods sold (8,000 x $20)
= $160,000
Variable selling & administrative expenses (8,000 x $4) = $32,000
Total variable expenses
= $192,000
Contribution Margin
= $208,000
Fixed Expenses:
Fixed Manufacturing overhead
= $120,000
Fixed selling and administrative expenses
= $70,000
Total Fixed Expenses
= $190,000
Net operating Income
= $18,000
3. Reconcile the variable costing and absorption costing net operating income
Variable costing net operating income
=
$18,000
Add: Fixed Manufacturing overhead cost deferred in inventory (2,000 x
$12) = $24,000
Absorption Costing net operating income (loss)
= $42,000

Part VII:
Ferris Corporation makes a single product a fire resistant commercial filing cabinet
that it sells to office furniture distributors. The company has a simple ABC system
that it uses for internal decision making. The company has two overhead
departments whose costs are listed below:
Manufacturing Overhead
Selling and administrative overhead
Total overhead costs

$500,000
300,000
$800,000

The companys ABC system has the following activity cost pools and activity
measures:
Activity Cost Pool
Assembling units
Processing orders
Supporting customers
Other

Activity Measure
Number of units
Number of orders
Number of customers
Not applicable

Costs assigned to the Other activity cost pool have no activity measure, they
consist of the costs of unused capacity and organization sustaining costs neither
of which are assigned to orders, customers, or the product.
Ferris Corporation distributes the costs of manufacturing overhead and of selling
and administrative overhead to the activity cost pools based on employee
interviews, the results of which are reported below:
Distribution of Resource Consumption Across Activity Cost Pools
Assembling
Processing
Supporting Other
Units
Orders
Customers
Manufacturing
50%
35%
5%
10%
Overhead
Selling and
10%
45%
25%
20%
Administrative
Overhead
Total Activity
1,000 units
250 orders
100
customers

Total
100%
100%

Required:
1. Using the chart provided, perform the first stage allocation of overhead costs to
the activity cost pools.

Manufacturing
Overhead
Selling &
Administrative
Expense
Total Cost

Assembling
Units

Processin
g Orders

Other

Total

$175,000

Supportin
g
Customer
s
$25,000

$250,000

$50,000

$30,000

$135,000

$75,000

$60,000

$500,00
0
$300,00
0

$280,000

$310,000

$100,000

$110,000

$800,00
0

2. Using the chart provided below, compute the activity rates for the activity cost
pools.
Activity Cost Pools
Assembling Units
Processing Orders
Supporting Customers

Total Cost
$280,000
$310,000
$100,000

Total Activity
1,000
250
100

Activity Rate
$280 per unit
$1,240 per order
$1,000 per
customer

3. OfficeMart is one of Ferris Corporations customers. Last year, OfficeMart


ordered filing cabinets four different times. OfficeMart ordered a total of 80 filing
cabinets during the year. Using the chart provided below, show the overhead costs
attributable to Office Mart.
Activity Cost Pools
Assembling Units
Processing Orders
Supporting Customers
Total ABC Cost

Activity Rate
$280
$1,240
$1,000

Activity
80 units
4 units
1

ABC Cost
$22,400
$4,960
$1,000
$28,360

4. The selling price of a filing cabinet is $595. The cost of direct materials is $180
per filing cabinet and direct labor is $50 per filing cabinet. Using the chart provided
below, determine the customer margin of OfficeMart.
Sales ($595 x 80)
Costs:
Direct Materials ($180 x 80)
Direct labor ($50 x 80)
Total ABC Cost
Customer Margin

$47,600
$14,400
$4,000
$28,360

$45,760
$1,840

Part VII
Mynor Corporation manufactures and sells a seasonal product that has peak sales in
the third quarter. The following information concerns operations for Year 2 the
coming year and for the first two quarters of Year 3.
a) The companies single product sells for $8 per unit. Budgeted sales
for the next six quarters are as follows (all sales are on credit):
Year 2
Year 2
Year 2
Year 2
Year 3
Quarter
Quarter
Quarter
Quarter
Quarter
1
2
3
4
1
Budgeted 40,000
60,000
100,000
50,000
70,000
Unit
Sales

in units
Year 3
Quarter
2
80,000

b) Sales are collected in the following pattern: 75% in the quarter the sales are
made, and the remaining 25% in the following quarter. On January 1, Year 2,
the companys balance sheet showed $65,000 in accounts receivable, all of
which will be collected in the first quarter of the year. Bad debts are
negligible and can be ignored.
c) The company desires an ending finished goods inventory at the end of each
quarter equal to 30% of the budgeted unit sales for the next quarter. On
December 31, Year 1, the company had 12,000 units on hand.
Required:
1. Prepare a sales budget:
Year 2
Quarter 1
Budgeted
40,000
Unit Sales
Selling price $8
per unit
Total Sales
$320,000

Year 2
Quarter 2
60,000

Year 2
Quarter 3
100,000

Year 2
Quarter 4
50,000

Year

$8

$8

$8

$8

$480,000

$800,000

$400,000

$2,000,000

2. Prepare the schedule of expected cash collections:


Year 2
Year 2
Year 2
Quarter 1 Quarter
Quarter
2
3
Accounts Receivable,
$65,000
beginning balance
First quarter sales
$240,000
$80,000
Second quarter sales
Third quarter sales
Fourth quarter sales

$360,000

$120,00
0
$600,00
0

250,000

Year 2
Quarter
4

Year
$65,000

$200,00
0
$300,00

$320,00
0
$480,00
0
$800,00
0
$300,00

Total Cash Collections

$305,000

$440,000

$720,00
0

0
$500,00
0

0
$1,965,0
00

3. Prepare the production budget


Year 2
Year 2

Quarte Quarte
r1
r2
Budgeted
40,000
60,000
Unit Sales
Add Desired
18,000
30,000
ending
finished
goods
inventory
Total needs
58,000
90,000
Less
beginning
finished
goods
inventory
Required
production

Year 2

Quarte
r3
100,000

Year 2

Quarte
r4
50,000

15,000

21,000

115,000

71,000

12,000

18,000

30,000

15,000

46,000

72,000

85,000

56,000

Year

250,0
00
21,00
0

271,0
00
12,00
0

259,0
00