Final EXAM

COURSE TITLE: MANAGERIAL ACCOUNTING

PROFESSOR NAME: ZOUHOUR LAHMAR LADHARI
Term: Fall
Date: December 18th, 2018
Time:1.30 - 3.30 pm

Grade/100 Supervisors Signature

INSTRUCTIONS

1. Books and notes Not allowed.

2. Calculators are Allowed.
3. Cell phones are Not allowed.

Statement of Academic Integrity

MSB does not condone academic fraud, an act by a student that may result in a false academic
evaluation of that student or of another student. Without limiting the generality of this
definition, academic fraud occurs when a student commits any of the following offences:
plagiarism or cheating of any kind, use of books, notes, mathematical tables, dictionaries or
other study aid unless an explicit written note to the contrary appears on the exam, to have
in his/her possession cameras, tape recorders, cell phones, or any other communication device
which has not been previously authorized in writing.

Statement to be signed by the student:

I have read the text on academic integrity and I pledge not to have committed or
attempted to commit academic fraud in this examination.

Signature: ______________________________________

Note: an examination copy or booklet without that signed statement will not be graded
and will receive a final exam grade of zero.

Important notes:
- Make sure your handwriting is clear and readable.
- Only clear, neat and readable answers are considered.

Mediterranean School of Business 1

Problem 1 (35 points)
Kauli Company produces cellular phones. It has just completed an order for 10,000 phones placed by
Stay Connect, Ltd. Kauli recently shifted to an activity based costing system, and its controller is
interested in the impact that the ABC system had on the Stay Connect order. Data for the order of
Stay Connect (10,000 phones) are as follows:
Direct materials: $40,520; direct labor hours: 260. The direct labor pay rate per hour is $22.
Under Kauli’s traditional costing system, overhead costs were assigned at a rate of $60 per direct
labor hour.
Data for activity-based costing for the Stay Connect order are as follows:

Activity Usage
Activity overhead
Activity Cost Driver (Number of cost driver
rate
for the order)
Electrical
$20 per engineering
engineering design Engineering hours 20 engineering hours
hour
48 tests
Product testing Number of tests $25 per test

Assembly Direct labor hours $18 per direct labor 260 direct labor hours
10,000 packages
Packaging Number of packages $0.04 per package

Required:
1. Use the traditional costing approach to compute the total cost of the Stay Connect order.
Compute the cost per unit.
2. Calculate the manufacturing overhead cost under the ABC costing system.
3. Use ABC to compute the total cost of the Stay Connect order. Compute the cost per unit.
4. Explain the difference between the unit cost calculated under the two systems.

Mediterranean School of Business 2

Problem 2 (20 points)
Power Brite Painting Company specializes in refurbishing exterior painted surfaces. The company
controller generated the following data about the utilities costs for the year 2017.

Month Hours worked Utilities Costs

January 800 $3,630
February 740 3,000
March 980 4,140
April 1,240 4,820
May 1,320 5,360
June 960 4,300
July 880 3,950
August 1,100 4,130
September 680 2,980
October 1,110 4,460
November 900 4,000
December 920 4,100
Total 11,630 $48,870

Required:
1. Using the high-low method, separate mixed costs into their variable and fixed
components. Use the hours worked as the activity level.
2. Suppose you conducted a least squares regression and obtained the following results:

R square 0.9043
Intercept 870.73
x variable 1 3.3036

Put these results into a linear equation format (y = a + bx) and explain what each component
means.
3. Which of the results, requirement 1 or 2, should the manager use to estimate the utilities costs
for the upcoming year? Argue your answer.
4. Why can actual utilities costs vary from the amount computed using the utilities cost formula.

Mediterranean School of Business 3

 Problem 3 (35 points)
I. McLennon Company produces water pumps, the controller has prepared the budget for the
coming year. It indicates that only 70,000 units of water pumps will be produced and sold. The
entire budget (based on 70,000 units produced and sold) is as follows:

Sales (70,000 units at $4 per unit) $280,000

Less cost of goods produced (based on production of 70,000 units):

Direct materials (variable) $70,000
Direct labor (variable) 35,000
Variable overhead costs 52,500
Fixed overhead costs 87,500

Total manufacturing cost 245,000

Gross margin $ 35,000
Less selling and administrative expenses:
Selling (fixed) $25,000
Administrative (fixed) 35,000

Total selling and administrative expenses 60,000

Operating income (loss) ($ 25,000)

Required:
1.1 Given the budgeted selling price and cost data, how many units would McLennon have to sell
to break even? (Hint: Be sure to consider selling and administrative expenses.)
1.2 What would be the operating income if the company sells 100,000 units? Use the Unit
Contribution Margin (UCM) to answer this question.
II. The company is considering producing air filters as a new product (in addition to the water
pumps). This will increase the fixed costs by $25,000. The variable cost per unit (for the air filters)
is $3 and the selling price is $9. The product mix is 60% for water pumps and 40% for air filters.
2.1. How many units should the company sell to breakeven, under the assumption of selling water
pumps and air filters?
2.2. Compute the number of units the company should sell to earn a profit of $95,000.

Mediterranean School of Business 4

Problem 4 (10 points)
Antiquities, Ltd., produces antique-looking books. Management has just received a request for a
special order for 1,500 custom books and must decide whether to accept it. Venus Company, the
purchaser, is offering to pay $20.00 per book. The regular sales price is $28. The following
information about unit costs is related to the production of the special order:

Direct materials per unit $7.00

Direct labor 2.50
Variable manufacturing overhead 4.00
Total variable cost 13.5
Fixed manufacturing overhead 2.5
Total cost $16

Required:
1. Assume Antiquities, Ltd. has excess capacity, compute the incremental profit (or
loss) from accepting the special order.
2. Should Antiquities, Ltd. accept the special order?
3. What would change if Antiquities, Ltd. is operating at full capacity? (Hint: no
calculations are required for this question).

Mediterranean School of Business 5