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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

Fixed

Period

Product

Produ

Product

Sun

Opportuni

e Cost

Cost

(Selling &

Cost –

ct

Cost –

k

ty Cost

Administrati

Direct

Cost –

Manufacturi

Cost

ve) Cost

Materia

Direct

ng

ls

Labor

Overhead

1.

X

X

2.

X

X

3.

X

X

4.

X

X

5.

X

X

X

6.

X

X

7.

X

X

8.

X

X

9.

X

Part II Bieker & Cie of Altdorf, Switzerland, makes furniture using the latest automated

technology.

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:

The company uses a job-order costing system and applies

Machine Hours

75,000

Manufacturing overhead cost

Sfr900,000

During the year, a glut of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:

Machine Hours

60,000

Manufacturing Overhead Cost

Sfr850,000

Inventories at year end:

 

Raw Materials Work in process Finished goods sold

Sfr 30,000

Sfr100,000

Sfr500,000

Cost of Goods Sold

Sfr 1,400,000

Required:

1. Compute the company’s predetermined overhead rate

Company’s 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 company’s 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 company’s operations for April follow:

Production Data:

Units (gallons) in process, April 1: materials 100% complete, conversion 60% complete

30,000

Units (gallons) started into production during April

420,000

Units (gallons) completed and transferred to the Finishing Department

370,000

Units (gallons) in process, April 30: materials 50% complete, conversion 25% complete

80,000

Cost Data:

Work in process inventory, April 1:

 

Materials

$92,000

Conversion

$58,000

Cost added during April:

 

Materials

$851,000

Conversion

$995,000

Required:

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

Equivalent Units of Production

 

Materials

Conversion

Units transferred to the next department

370,000

370,000

Ending work in process inventory

40,000

20,000

Equivalent units of production

410,000

390,000

Costs per Equivalent Unit

 

Materials

Conversion

Costs of beginning work in process inventory

$92,000

$58,000

Costs added during the period

$851,000

$995,000

Total Cost

$943,000

$1,053,000

Equivalent units of production

410,000

390,000

Cost per equivalent unit

$2.30

$2.70

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 Cost per equivalent unit Cost of ending work in process inventory

40,000

20,000

$146,000

$2.30

$2.70

$92,000

$54,000

Units Completed and Transferred Out:

     

Units transferred to the next department Cost per equivalent unit Cost of units completed and transferred

out

370,000

370,000

$1,850,000

$2.30

$2.70

$851,000

$999,000

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

$150,000

$1,846,000

$1,996,000

Costs accounted for as follows:

 

Cost of ending work in process inventory Cost of units transferred out Total cost accounted for

$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 department’s costs and the number of patients admitted during the immediately preceding eight months are given in the following table:

Month

Number of Patients Admitted

Admitting Department Costs

May

1,800

$14,700

June

1,900

$15,200

July

1,700

$13,700

August

1,600

$14,000

September

1,600

$14,300

October

1,300

$13,100

November

1,100

$12,800

December

1,500

$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 company’s contribution format income statement for the most recent year is given below:

 

Total

Per Unit

Percent of

 

Sales

Sales (20,000 units)

$1,200,000

$60

100%

Variable Expenses

900,000

45

?%

Contribution Margin

300,000

$15

?%

Fixed Expenses

240,000

 

Net Operating Income

$

60,000

Required:

1. Compute the company’s CM ratio and variable expense ratio.

CM Ratio = $15 / $60 = 25%

2. Compute the company’s 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 company’s 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.

 

Total

Per Unit

Percent of

 

Sales

Sales (24,000 units)

$1,440,000

$60

100%

Variable Expenses

$1,152,000

$48

80%

Contribution Margin

$288,000

$12

20%

Fixed Expenses

$210,000

Net Operating Income

$78,000

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

$50

Manufacturing Costs:

 

Variable per unit produced:

Direct materials Direct Labor Variable overhead Fixed per year

$11

$6

$3

$120,000

Selling and administrative costs:

 

Variable per unit sold Fixed per year

$4

$70,000

Units in beginning inventory

0

Units produced during the year

10,000

Units sold during the year

8,000

Units in ending inventory

2,000

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)

Cost per unit

= $32

b) Prepare an income statement

Sales (8,000 x $32)

Less: Cost of goods sold (8,000 x $32)

= $144,000

Selling & administrative expenses = $102,000 (8,000 x $4 + $70,000)

Gross Margin

= $400,000

= $256,000

Net operating income

= $42,000

= $12

2) Assume the company uses variable costing

a)

Compute the unit product cost

Direct Material

= $11

Direct Labor

= $6

Variable Manufacturing Overhead

= $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 Fixed Expenses:

= $208,000

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

$500,000

Selling and administrative overhead

300,000

Total overhead costs

$800,000

The company’s ABC system has the following activity cost pools and activity measures:

Activity Cost Pool

Activity Measure

Assembling units

Number of units

Processing orders

Number of orders

Supporting customers

Number of customers

Other

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

Total

Units

Orders

Customers

Manufacturing

50%

35%

5%

10%

100%

Overhead

Selling and

10%

45%

25%

20%

100%

Administrative

Overhead

Total Activity

1,000 units

250 orders

100

 

customers

Required:

1. Using the chart provided, perform the first stage allocation of overhead costs to

the activity cost pools.

 

Assembling

Processin

Supportin

Other

Total

Units

g Orders

g

Customer

s

Manufacturing

$250,000

$175,000

$25,000

$50,000

$500,00

Overhead

0

Selling &

$30,000

$135,000

$75,000

$60,000

$300,00

Administrative

0

Expense

Total Cost

$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

Total Cost

Total Activity

Activity Rate

Assembling Units

$280,000

1,000

$280 per unit

Processing Orders

$310,000

250

$1,240 per order

Supporting Customers

$100,000

100

$1,000 per

 

customer

3. OfficeMart is one of Ferris Corporation’s 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

Activity Rate

Activity

ABC Cost

Assembling Units

$280

80 units

$22,400

Processing Orders

$1,240

4 units

$4,960

Supporting Customers

$1,000

1

$1,000

Total ABC Cost

$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)

$47,600

Costs:

   

Direct Materials ($180 x 80) Direct labor ($50 x 80) Total ABC Cost

$14,400

$4,000

$28,360

$45,760

Customer Margin

$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 in units for the next six quarters are as follows (all sales are on credit):

 

Year 2 – Quarter

Year 2 – Quarter

Year 2 – Quarter

Year 2 – Quarter

Year 3 – Quarter

Year 3 – Quarter

1

2

3

4

1

2

Budgeted

40,000

60,000

100,000

50,000

70,000

80,000

Unit

Sales

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 company’s 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

Year 2 – Quarter 2

Year 2 – Quarter 3

Year 2 – Quarter 4

Year

Budgeted

40,000

60,000

100,000

50,000

250,000

Unit Sales

Selling price

$8

$8

$8

$8

$8

per unit

Total Sales

$320,000

$480,000

$800,000

$400,000

$2,000,000

2. Prepare the schedule of expected cash collections:

 

Year 2 – Quarter 1

Year 2 – Quarter

Year 2 – Quarter

Year 2 – Quarter

Year

2

3

4

Accounts Receivable, beginning balance

$65,000

$65,000

First quarter sales

$240,000

$80,000

$320,00

 

0

Second quarter sales

$360,000

$120,00

$480,00

 

0

0

Third quarter sales

$600,00

$200,00

$800,00

0

0

0

Fourth quarter sales

$300,00

$300,00

 

0

0

Total Cash Collections

$305,000

$440,000

$720,00

$500,00

$1,965,0

 

0

0

00

3. Prepare the production budget

 

Year 2

Year 2

Year 2

Year 2

Year

Quarte

Quarte

Quarte

Quarte

r 1

r 2

r 3

r 4

Budgeted

40,000

60,000

100,000

50,000

250,0

Unit Sales

00

Add Desired

18,000

30,000

15,000

21,000

21,00

ending

0

finished

goods

inventory

Total needs

58,000

90,000

115,000

71,000

271,0

 

00

Less

12,000

18,000

30,000

15,000

12,00

beginning

0

finished

goods

inventory

Required

46,000

72,000

85,000

56,000

259,0

production

00