Final Exam: Chapters 1-14 ISV Managerial Accounting, 4e Part Points Name _ Instructor Section # _ Date I II III IV V Total 60 18 19 14 14 125 Score PART I — MULTIPLE CHOICE (60 points) Instructions: Designate the best answer for each of the following questions A responsibility center that incurs costs (and expenses) and generates revenues is classified as a(n) a cost center b revenue center c profit center d investment center The most useful measure for evaluating a manager's performance in controlling revenues and costs in a profit center is a contribution margin b contribution net income c contribution gross profit d controllable margin Ramsey Corporation desires to earn target net income of $90,000 If the selling price per unit is $30, unit variable cost is $24, and total fixed costs are $360,000, the number of units that the company must sell to earn its target net income is a 30,000 b 75,000 c 45,000 d 60,000 Shane Corporation uses a process cost accounting system Given the following data, compute the number of units transferred out during the current period Beginning Work in Process Ending Work in Process Started into Production a b c d 125,000 141,667 145,000 150,000 20,000 units (1/2 complete) 25,000 units (1/3 complete) 150,000 units FE- Test Bank for ISV Managerial Accounting, Fourth Edition Witten Company applies overhead on the basis of machine hours Given the following data, compute overhead applied and the under- or overapplication of overhead for the period: Estimated annual overhead cost $1,200,000 Actual annual overhead cost $1,150,000 Estimated machine hours 300,000 Actual machine hours 280,000 a b c d $1,120,000 applied and $30,000 underapplied $1,200,000 applied and $30,000 overapplied $1,120,000 applied and $30,000 overapplied $1,150,000 applied and neither under- nor overapplied The following data has been collected for use in analyzing the behavior of maintenance costs of Ridell Corporation: Month January February March April May June July Maintenance Costs $121,000 125,000 128,000 159,000 168,000 178,000 181,000 Machine Hours 20,000 23,000 24,000 34,000 36,000 38,000 40,000 Using the high-low method to separate the maintenance costs into their variable and fixed cost components, these components are a $5 per hour plus $20,000 b $5 per hour plus $30,000 c $4 per hour plus $41,000 d $3 per hour plus $61,000 Given the following information for Hett Company, compute the company's ROI: Sales — $1,000,000; Controllable Margin — $120,000; Average Operating Assets — $500,000 a 40% b 50% c 12% d 24% Given the following data for Glennon Company, compute (A) total manufacturing costs and (B) costs of goods manufactured: Direct materials used Direct labor Manufacturing overhead Operating expenses a b c d (A) $310,000 $320,000 $320,000 $330,000 $120,000 50,000 150,000 175,000 (B) $330,000 $310,000 $330,000 $340,000 Beginning work in process Ending work in process Beginning finished goods Ending finished goods $20,000 10,000 25,000 15,000 Final Exam FE- The production cost report shows both quantities and costs Costs are reported in three sections: (1) costs accounted for, (2) unit costs, and (3) costs charged to department The sections are listed in the following order: a (1), (2), (3) b (1), (3), (2) c (2), (1), (3) d (2), (3), (1) 10 The starting point of a master budget is the preparation of the a cash budget b sales budget c production budget d budgeted balance sheet 11 The most useful measure for evaluating the performance of the manager of an investment center is a contribution margin b controllable margin c return on investment d income from operations 12 Which of the following capital budgeting techniques explicitly takes the time value of money into consideration? a Annual rate of return b Internal rate of return c Net present value d Both (b) and (c) above 13 The cost classification scheme most relevant to responsibility accounting is a controllable vs uncontrollable b fixed vs variable c semivariable vs mixed d direct vs indirect Use the following information for questions 14 and 15 Grant Company estimates its sales at 60,000 units in the first quarter and that sales will increase by 6,000 units each quarter over the year It has, and desires, a 25% ending inventory of finished goods Each unit sells for $25 40% of the sales are for cash 70% of the credit customers pay within the quarter The remainder is received in the quarter following sale 14 Cash collections for the third quarter are budgeted at a $1,017,000 b $1,476,000 c $1,773,000 d $2,052,000 15 Production in units for the third quarter should be budgeted at a 73,500 b 69,000 c 91,500 d 72,000 FE- Test Bank for ISV Managerial Accounting, Fourth Edition 16 Stine Company incurs the following costs in producing 50,000 units of product: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $100,000 50,000 100,000 300,000 An outside supplier has offered to supply the 50,000 units at $7.00 each All of Stine's related variable costs, but only $200,000 of the fixed costs would be eliminated if the offer is accepted Acceptance will result in a a savings of $200,000 b loss of $100,000 c savings of $100,000 d loss of $200,000 17 Finney Company has a production process where two products result from a joint processing procedure; both can be sold immediately or processed further Given the following additional per unit information, determine which of the products should be processed further Product A B a b c d Allocated Joint Cost $100 60 Selling Price $200 100 Additional Processing Cost $180 50 New Selling Price $400 160 A B Both Neither 18 A flexible budget a is also called a static budget b can be considered a series of related static budgets c can be prepared for sales or production budgets, but not for an operating expense budget d typically uses an activity index different from that used in developing the predetermined overhead rate 19 Carey Company's equipment account increased $800,000 during the period; the related accumulated depreciation increased $60,000 New equipment was purchased at a cost of $1,400,000 and used equipment was sold at a loss of $40,000 Depreciation expense was $200,000 Proceeds from the sale of the used equipment were a $420,000 b $500,000 c $560,000 d $640,000 20 Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively? a b c d Liquidity Inventory turnover Current ratio Receivables turnover Quick ratio Profitability Inventory turnover Inventory turnover Return on assets Payout ratio Solvency Times interest earned Debt to total assets Times interest earned Return on assets Final Exam FE- 21 A company’s planned activity level for next year is expected to be 100,000 machine hours At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Indirect materials Indirect labor Factory supplies $60,000 80,000 10,000 Fixed Depreciation $25,000 Taxes 5,000 Supervision 20,000 A flexible budget prepared at the 90,000 machine hours level of activity would allow total manufacturing overhead costs of a $135,000 b $180,000 c $185,000 d $150,000 22 A company developed the following per unit materials standards for its product: gallons of direct materials at $5 per gallon If 4,000 units of product were produced last month and 12,500 gallons of direct materials were used, the direct materials quantity variance was a $1,500 favorable b $2,500 unfavorable c $1,500 unfavorable d $2,500 favorable 23 The standard direct labor cost for producing one unit of product is direct labor hours at a standard rate of pay of $8 Last month, 5,000 units were produced and 24,500 direct labor hours were actually worked at a total cost of $180,000 The direct labor quantity variance was a $4,000 unfavorable b $6,000 unfavorable c $6,000 favorable d $4,000 favorable *24 Smythe Company applies overhead to products based on direct labor hours Manufacturing overhead at the expected normal level of activity is $50,000 per month plus $5 per direct labor hour During June, actual manufacturing overhead costs amounted to $85,000 when 6,100 actual direct labor hours were worked The standard number of direct labor hours that should have been worked for the output achieved was 6,000 direct labor hours The overhead controllable variance for June was a $4,500 unfavorable b $3,400 favorable c $5,000 unfavorable d $5,000 favorable 25 Under the time-and-material-pricing approach, the charges for any particular job include each of the following except the a labor charge b charge for materials c material loading charge d overhead charge FE- Test Bank for ISV Managerial Accounting, Fourth Edition 26 The transfer pricing approach that does not reflect the selling division’s true profitability is the a cost-based approach b market-based approach c negotiated price approach d time-and-material-pricing approach Use the following information for questions 27 and 28 Robot Toy Company manufactures two products: X-O-Tron and Mechoman Robot’s overhead costs consist of setting up machines, $200,000; machining, $450,000; and inspecting, $150,000 Additional information on the two products is: Direct labor hours Machine setups Machine hours Inspections X-O-Tron 15,000 600 24,000 800 Mechoman 25,000 400 26,000 700 27 Overhead applied to Mechoman using traditional costing is a $320,000 b $384,000 c $416,000 d $500,000 28 Overhead applied to X-O-Tron using activity-based costing is a $300,000 b $384,000 c $416,000 d $480,000 29 An appropriate cost driver for an assembling cost pool is the number of a purchase orders b setups c parts d direct labor hours 30 Which of the following is included in the cost of goods manufactured under absorption costing but not under variable costing? a Direct materials b Variable factory overhead c Fixed factory overhead d Direct labor Final Exam FE- PART II — MATCHING (18 points) Instructions: Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided No term should be used more than once A B C D E F G H I J K L M Activity-based costing Annual rate of return Budgetary control Contribution margin Contribution margin ratio Controllable costs Absorption costing Cost accounting Cost centers Cost of capital Equivalent units of production Fixed costs Free cash flow N O P Q *R *S T U V W X Y Z Job cost sheet Noncontrollable costs Non-value-added activity Operating budgets Overhead controllable variance Overhead volume variance Physical units Process cost systems Product costs Profit center Value-added activity Variable costs Variances Costs that a manager has the authority to incur within a given period of time A form used to record the costs chargeable to a job A responsibility center that incurs costs and also generates revenues The difference between overhead budgeted for standard hours allowed and overhead incurred The amount of revenue remaining after deducting variable costs Used to apply costs to similar products that are mass produced in a continuous fashion Costs that vary in total directly and proportionately with changes in the activity level The differences between actual costs and standard costs Determines profitability of a capital expenditure by dividing expected net income by the average investment 10 The rate a company must pay to obtain funds from creditors and stockholders 11 Costs that are an integral part of producing the finished product 12 Allocates overhead to multiple cost pools and assigns the cost pools to products by means of cost drivers 13 Involves the measuring, recording, and reporting of product costs 14 A measure of the work done during the period, expressed in fully completed units 15 A costing approach in which all manufacturing costs are charged to the product 16 Increase the worth of a product or service to customers 17 The amount of cash from operations after deducting capital expenditures and cash dividends paid 18 Individual budgets that culminate in a budgeted income statement FE- Test Bank for ISV Managerial Accounting, Fourth Edition PART III — VARIANCE ANALYSIS (19 points) The Olson Company developed the following standard costs for its product in 2008: Direct materials Direct labor Manufacturing overhead Variable Fixed Standard Cost Card (5 pounds @ $4 per pound) (4 hours @ $8 per hour) (4 hours @ $4 per hour) (4 hours @ $3 per hour) Unit Standard Cost $20 32 16 12 $80 The company planned to work 100,000 direct labor hours and produce 25,000 units of product in 2008 Actual results for 2008 are as follows:     24,000 units of product were produced Actual direct materials purchased and used during the year amounted to 122,000 pounds at a cost of $475,800 Actual direct labor costs were $779,000 for 95,000 direct labor hours worked Total actual manufacturing overhead incurred amounted to $685,500 Instructions Calculate the following variances showing all computations supporting your answers Indicate if the variances are favorable (F) or unfavorable (U) (a) Direct materials price and direct materials quantity variances (b) Direct labor price and direct labor quantity variances *(c) Overhead controllable and overhead volume variances Final Exam FE- PART IV — RATIO ANALYSIS (14 points) The condensed financial statements of Jenner Corporation for 2008 are presented below Jenner Corporation Balance Sheet December 31, 2008 Assets Current assets Cash and short-term investments Accounts receivable Inventories Total current assets Property, plant, and equipment (net) Total assets Jenner Corporation Income Statement For the Year Ended December 31, 2008 $ 30,000 70,000 140,000 240,000 760,000 $1,000,000 Revenues Expenses Cost of goods sold Selling and administrative expenses Interest expense Total expenses Income before income taxes Income tax expense Net income $2,000,000 960,000 740,000 50,000 1,750,000 250,000 100,000 $ 150,000 Liabilities and Stockholders' Equity Current liabilities $ 100,000 Long-term liabilities 350,000 Stockholders' equity 550,000 Total liabilities and stockholders' equity $1,000,000 Additional data as of December 31, 2007: Inventory = $100,000; Total assets = $800,000; Stockholders' equity = $450,000 Instructions: Compute the following ratios for 2008 showing supporting calculations (a) Current ratio = _ (b) Debt to total assets ratio = _ (c) Times interest earned = _ (d) Inventory turnover = (e) Profit margin = (f) Return on stockholders' equity = (g) Return on assets = _ FE- 10 Test Bank for ISV Managerial Accounting, Fourth Edition PART V — MISCELLANEOUS MANAGERIAL MINI-PROBLEMS (14 points) Carson Corporation manufactures paper shredding equipment You are requested to "audit" a sampling of computations made by Carson's internal accountants via your independent recalculation of the information Instructions: Compute the requested information for each of the following independent situations (present supporting calculations) (a) Carson uses a process costing system 2,000 units were in process at the beginning of the period, 60% complete 20,000 units were started into production during the period; 1,000 were in process at the end of the period, 60% complete Compute equivalent units for conversion costs (b) Carson sells each unit for $500 Variable costs per unit equal $300 Total fixed costs equal $800,000 Carson is currently selling 5,000 units per period and would like to earn net income of $400,000 Compute: (1) break-even point in dollars; (2) sales units necessary to attain desired income; and (3) margin of safety ratio for current operations (1) Break-even point = $ (2) Desired sales = _ units (3) Margin of safety = _% Final Exam FE- 11 Solutions — Final Exam: Chapters 1-14 PART I — MULTIPLE CHOICE (60 points) c d b c a d 10 11 12 d c d b c d 13 14 15 16 17 18 a c a c c b 19 20 21 22 23 *24 a c c b d c 25 26 27 28 29 30 d a d c c c PART II — MATCHING (18 points) *4 F N W R D 10 U Y Z B J 11 12 13 14 15 V A H K G 16 X 17 M 18 Q PART III — VARIANCE ANALYSIS (19 points) (a) Direct materials price and direct materials quantity variances Direct materials price variance (122,000 × $3.90) – (122,000 × $4.00) = MPV $475,800 – $488,000 = $12,200 F Direct materials quantity variance (122,000 × $4.00) – (120,000 × $4.00) = MQV $488,000 – $480,000 = $8,000 U (b) Direct labor price and direct labor quantity variances Direct labor price variance (Actual Hours × Actual Rate) – (Actual Hours × Standard Rate) = LPV (95,000 × $8.20) – (95,000 × $8) = LPV $779,000 – $760,000 = $19,000 U Direct labor quantity variance (Actual Hours × Standard Rate) – (Standard Hours × Standard Rate) = LQV (95,000 × $8) – (96,000 × $8) = LQV $760,000 – $768,000 = $8,000 F *(c) Overhead controllable variance Actual overhead Budgeted overhead — 24,000 × = Variable Fixed — 100,000 × $3 = Overhead volume variance Budgeted overhead (see above) Overhead applied (96,000 × $7) $685,000 96,000 × $4 $384,000 300,000 684,000 $ 1,500 U $684,000 672,000 $ 12,000 U FE- 12 Test Bank for ISV Managerial Accounting, Fourth Edition PART IV — RATIO ANALYSIS (14 points) (a) $240,000 Current ratio = ———— = 2.40:1 $100,000 (b) $450,000 Debt to total assets ratio = ————— = 45% $1,000,000 (c) $300,000 Times interest earned = ———— = times $50,000 (d) $960,000 Inventory turnover = ————— = times $120,000 (e) $150,000 Profit margin = ————— = 7.5% $2,000,000 (f) $150,000 Return on stockholders' equity = ———— = 30% $500,000 (g) $150,000 Return on assets = ———— = 16.7% $900,000 PART V — MISCELLANEOUS MANAGERIAL MINI-PROBLEMS (14 points) (a) Units transferred out (20,000 + 2,000 – 1,000) Ending work in process (1,000 × 60%) Equivalent units for conversion costs (b) $800,000 (1) Break-even point = ———— = $2,000,000 .4 $800,000 + $400,000 (2) Desired sales = —————————— = 6,000 units 200 $500,000 (3) Margin of safety = —————— = 20% $2,500,000 21,000 600 21,600 ... Return on assets = _ FE- 10 Test Bank for ISV Managerial Accounting, Fourth Edition PART V — MISCELLANEOUS MANAGERIAL MINI-PROBLEMS (14 points) Carson Corporation... the third quarter should be budgeted at a 73,500 b 69,000 c 91,500 d 72,000 FE- Test Bank for ISV Managerial Accounting, Fourth Edition 16 Stine Company incurs the following costs in producing... labor charge b charge for materials c material loading charge d overhead charge FE- Test Bank for ISV Managerial Accounting, Fourth Edition 26 The transfer pricing approach that does not reflect