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ACC 5120 Final Exam Guide:

Time and Location: April 18 – April 21, 3-hour frame, Moodle

1. There will be 50 multiple-choice questions at 2 points each. Some multiple-choice questions


have multiple parts, please read the questions carefully.
2. The exam is open on April 18th at 12:01 am and will be closed on April 21st at 11:59 pm. You
can do the exam at any time during the open period but please keep in mind that the clock will
be ticking once you start. You are given two attempts for the exam and the highest grade is
taken.
3. For exams given on Moodle, you will need pen/pencils, scratch pad, financial calculator,
notes, and textbook. If there are any issues or questions concerning Moodle or anything
technology related, you can call 1-248- 370-4566 or 1-248-805-1625 and assistance will be
available Monday through Friday from 9:00 a.m. to 8:00 p.m.
4. Some sample questions are presented below, and more are presented in “Winter ACC 5120
final sample questions” pdf file. Although some of the sample questions are short problem
formats, they are good practices for multiple choice format as well.

Final Exam Review:

Chapter 7 (12 questions):

a. Examples of Cost of Quality four categories: Prevention, appraisal, internal failure, external
failure
b. Benefits of structural change: e.g., decrease in inventory carrying cost.
c. Theory of Constraints

Chapter 8 (8 questions):

a. Total-life-cycle costing: 3 stages:



Research, development and engineering cycle

Manufacturing cycle

Post-sale service and disposal cycle

b. Target costing:

Target sales revenue, target profit margin, and target cost (target revenue – target profit
margin)

Change in profit margin due to the change in market price/ new target cost (refer to
Chapter 8 supplementary HW: Steven Corporation fishing poles)

Chapter 9: RIP

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Chapter 10 (12 questions):
a. Level 1: Total variance
b. Level 2: planning and flexible budget variance, understand how to derive flexible budget
c. Level 3: quantity/price variance (material var.) and efficiency/rate variance (labor var.)
d. Cash budget

e.g.

The following information pertains to the October operating budget for Flockhart Corporation.
∙ Budgeted sales for October $100,000 and November $200,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $10,000 each month.
∙ Beginning accounts receivable (October 1) $20,000.
∙ Beginning inventory (October 1) $14,000.
∙ Beginning accounts payable (October 1) $60,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month's cost of goods sold (COGS).
∙ No loans are outstanding on October 1

For October, budgeted cash collections are:


A) $20,000.
B) $60,000.
C) $80,000.
D) None of the above is
correct. Answer: C
Explanation: C) (October $100,000 × 60% = $60,000) + (Beginning accounts receivable
$20,000) = $80,000

At the end of October, budgeted accounts receivable is:


A) $20,000.
B) $40,000.
C) $60,000.
D) None of the above is
correct. Answer: B
Explanation: B) October $100,000 × 40% = $40,000

For October, budgeted cost of goods sold is:


A) $20,000.
B) $30,000.
C) $40,000.
D) None of the above is
correct. Answer: D
Explanation: D) 100,000 × (1 - 30%) = $70,000

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For October, budgeted net income is:
A) $20,000.
B) $30,000.
C) $40,000.
D) None of the above is
correct. Answer: A
Explanation: A) Sales $100,000 - COGS $70,000 - Administrative costs $10,000 = $20,000

For October, budgeted cash payments for purchases are:


A) $14,000.
B) $60,000.
C) $70,000.
D) None of the above is
correct. Answer: B
Explanation: B) Beginning accounts payable $60,000

At the end of October, budgeted ending inventory is:


A) $20,000.
B) $28,000.
C) $40,000.
D) None of the above is
correct. Answer: B
Explanation: B) November sales $200,000 × (1 - 30%) = $140,000 COGS × 20% = $28,000

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Chapter 11 – Transfer Pricing (11 questions):

a. Organizational structure: centralization vs. decentralization


b. Segment margin and how the changes would affect to the corporate as a whole.
e.g.

The management accountant for Tony's Skateboard Company has prepared the
following segmented income statement for each of its three product lines.
Jammer Cruise Flight Total
Sales $400,000 $250,000 $350,000$1,000,000
Variable expenses 260,000 150,000 190,000 600,000
Contribution margin 140,000 100,000 160,000 400,000
Other costs 20,000 30,000 20,000 70,000
Segment margin 120,000 70,000 140,000 330,000
Allocated avoidable costs 30,000 30,000 20,000 80,000
Segment income 90,000 40,000 120,000 250,000
Allocated corporate costs 50,000 50,000 50,000 150,000
Corporate profit $40,000 $(10,000) $70,000 $100,000

Required:
a. Do you recommend dropping the Cruise product line? Why or why not?

b. If the Jammer product line had been discontinued, the short-term effect on corporate
profits would be a decrease of what amount?

c. Assume that the Flight product line has been discontinued and long-term capacity has had
time to adjust. The projected long-term effect of this action on annual corporate profits would be
a decrease of what amount?

d. Assume that an advertising campaign could increase revenues for any of the products by
$15,000. To maximize corporate profits, which product line should receive the advertising
dollars? Why?

e. How would you change the format of the segment margin statement above to make it more
understandable?
Answer:
a. No, I would not recommend dropping the Cruise product line because the $70,000
segment margin indicates that this product line contributes $70,000 toward corporate costs and
profits. Also, segment income is $40,000 (positive) which includes all available costs.

b. If the Jammer product line were discontinued, corporate profits would immediately decrease
by $140,000, the amount reported for the contribution margin.

c. If the Flight product line were discontinued and long-term capacity has had time to adjust,
corporate profits would decrease by $120,000, the amount reported for the segment income.

d. To maximize corporate profits, the Flight product line should receive the advertising dollars

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because it has a contribution margin of approximately 46%, the highest contribution margin of
the three product lines.

e. The current segment margin statement could be made more understandable if the allocated
corporate costs were only listed under the company total column, and they were not part of the
computation for each product line segment. It is obvious that the corporate costs are arbitrarily
allocated equally to each product line and arbitrary allocations do not aid in decision making.
.
c. Transfer pricing

e.g.

The Crandon Mill has two divisions. The Cutting Division prepares timber at its sawmills. The
Assembly Division prepares the cut lumber into finished wood for the furniture industry. During
the year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000. All the
lumber was transferred to the Assembly Division where additional operating costs of $6 per
cord were incurred. The 600,000 boardfeet of finished wood were sold for $2,500,000.

Required:
a. Determine the operating income for each division if the transfer price from Cutting
to Assembly is at cost, $11 a cord.
b. Determine the operating income for each division if the transfer price is $9 per cord.
c. Since the Cutting Division sells all of its wood internally to the Assembly Division, does the
manager care what price is selected? Why? Should the Cutting Division be a cost center or a
profit center under the circumstances?
Answer:
a.
Cutting Assembly
Revenue $660,000* $2,500,000
Cost of services:
Incurred $ 660,000 $ 360,000
Transferred-in 0 660,000
Total $ 660,000 $1,020,000

Operating income $0 $1,480,000


* 60,000 cords × $11 = $660,000
b.
Cutting Assembly
Revenue $540,000* $2,500,000
Cost of service
Incurred $ 660,000 $ 360,000
Transferred-in 0 540,000
Total $ 660,000 $ 900,000

Operating income (loss) $(120,000) $1,600,000


* 60,000 cords × $9 = $540,000

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c. The manager of Cutting cares about the transfer price if the division is a profit center but not if
it is a cost center. Under the circumstances, the division probably should be a cost center and it
should not worry about the profit it pretends to make by selling to another division.

Chapter 11 – Performance measure (7 questions):

a. ROI – ROS and Asset turnover


b. Economic value added
c. Residual income

e.g.

Department income totals $200,000, investment in the department is $2,000,000, and the
company's cost of capital is 8%.

Required:
a. Calculate the return on investment (ROI).

b. Calculate economic value added.

c. Assume there is a capital project that requires a $200,000 investment for a $18,000 return.
Would the department manager be more likely to accept the project if department performance
was evaluated using ROI or economic value added? Why?
Answer:
a. ROI is 10% ($200,000 department income / $2,000,000 investment in the department).

b. Economic value added is $40,000 [$200,000 income - $160,000 ($2,000,000 × 8%)].

c. By accepting the proposed project, the department's ROI will be reduced by 0.1% to 9.9%.
The department manager being evaluated on ROI will probably reject the $200,000
investment proposal even though the investment exceeds the company's 8% cost of capital.
New ROI of 9.9% = $218,000 segment income / $2,200,000 investment in the segment.
By accepting the proposed project, the economic value added will be increased to $42,000, an
increase of $2,000. The department manager being evaluated on economic value added will
probably choose to accept the investment since it increases economic value added for the
department. New economic value added is $42,000 [$218,000 actual income - $176,000
($2,200,000 × 8%) cost of capital].