Faculty of Commerce
Dept. of Accounting
Managerial Accounting / Managerial Accounting
Date:
Mr. Salah Shubair
Med- term Exam
Student Name: ……………………………………………………..…………Student No.………………………….
Question One: (10 points)
1. CC Company sells 100,000 wrenches for $12 a unit. Fixed costs are $ 300,000 and net income is $ 200,000. What should be reported as variable expenses in the CVP income statement?
a) $ 700,000
b) $ 900,000
c) $500,000
d) $1,000,000
2. GA Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25% If Gosssen will break even at this level of sales, what are the fixed costs?
a) $100,000
b) $160,000
c) $200,000
d) $300,000
3. Marshall company had actual sales of $ 600, 000 when break –even sales were $ 420, 000. What is the margin of safety ratio?
a) 25%
b) 30%
c) 33
d) 45%
4. GB Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income of $ 268,000. How many units must it sell at $12 per unit to achieve its target net income?
a) 51,429 units
b) 128,000 units
c) 76,571 units
d) 21,176 units
5. MA Corporation has fixed costs of $ 150.000 and variable costs of $ 9 per unit. If sales price per unit is $ 12. What is break –even sales in dollars?
a) $ 200,000
b) $ 450,000
c) $ 480,000
d) $600,000
Q.1 Multiple Choice (10 Points)
1 / 2 / 3 / 4 / 5A / C / B / B / D
Q.2 MATCHING ( 5points)
Match the items in the two columns below by entering the appropriate code letter in the space provided.
A. Managerial accounting F. Work in process inventory
B. Financial accounting G. Direct materials
C. Planning H. Manufacturing overhead
D. Directing I. Period costs
E. Controlling J. Value chain
_____ 1. The cost of products that are partially complete.
_____ 2. The function of keeping activities in accordance with plans.
_____ 3. Primarily concerned with internal users and reports pertain to subunits of the entity.
_____ 4. Materials that can be physically and directly associated with manufacturing a product.
_____ 5. The function of setting goals and objectives.
_____ 6. Indirect costs of manufacturing a product.
_____ 7. Primarily concerned with external users and reports pertain to the entity as a whole.
_____ 8. Costs that are noninventoriable
_____ 9. All business processes associated with providing a product or service.
_____ 10. The function of coordinating diverse activities to produce a smooth-running operation
Answers to Matching
1. F 6. H
2. E 7. B
3. A 8. I
4. G 9. J
5. C 10. D
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Q.3 Pederson Enterprises produces giant stuffed bears. Each bear consists of $12 of variable costs and $9 of fixed costs and sells for $45. A wholesaler offers to buy 8,000 units at $14 each, of which Pederson has the capacity to produce. Pederson will incur extra shipping costs of $1 per bear. Instructions
Determine the incremental income or loss that Pederson Enterprises would realize by accepting the special order
Incremental revenue (8,000 × $14) $112,000
Incremental variable costs ($12 × 8,000) (96,000)
Incremental shipping costs ($1× 8,000) (8,000)
Incremental profit if special order accepted $ 8,000
Q.4 Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided the following unit costs for its commercial clocks:
Direct materials $100
Direct labor 140
Variable overhead 80
Fixed overhead (40% avoidable) 150
Instructions
Prepare an incremental analysis which shows the effect of the make-or-buy decision.
Incremental Analysis Incremental Effect
Cost to buy (1,200 × $420) $(504,000)
Cost savings:
Savings of DM $100 × 1,200 = $120,000
Savings of DL $140 × 1,200 = 168,000
Savings of VOH $80 × 1,200 = 96,000
Savings of FOH 40% × $150 × 1,200 = 72,000
Total cost savings + 456,000
Incremental net cost to buy $ (48,000)
Q.5 Harris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines:
Old Machine New Machine
Original purchase cost $340,000 $370,000
Accumulated depreciation 230,000 —
Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions
Determine whether the company should purchase the new machine.
Retain Replace Net Income
Equipment Equipment Increase/(Decrease)
Cost savings $ -0- $425,000 (A) $425,000
New machine cost -0- (370,000) (370,000)
Proceeds from sale of old machine $ -0- 8,000 8,000
Net incremental net income $ -0- $ 63,000 $ 63,000
(A) $85,000 × 5 = $425,000.
The company should purchase the new machine because there will be an increase in net income of $63,000.
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