ANSWER EIGHT QUESTIONS ONLY: (7.5 Mark for Each Question)

بسم الله الرحمن الرحيم
Prof. Salem A Helles /
Advanced Managerial Accounting / Faculty of Commerce
Final Exam
Date: Sat. 22.01.2011 / Accounting Department
MBA & Master of Accounting and Finance
الرقم الجامعي : / اسم الطالب :

ANSWER EIGHT QUESTIONS ONLY: (7.5 Mark for each Question)

Question One:

GD Company is a retailer that is preparing its budget for the upcoming fiscal year. Management hasprepared the following summary of its budgeted cash flows:

1st Quarter / 2nd Quarter / 3rd Quarter / 4th Quarter
Total cash receipts / $180,000 / $330,000 / $210,000 / $230,000
Total cash disbursements / $260,000 / $230,000 / $220,000 / $240,000

The company's beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company's cash budget for the upcoming fiscal year.

Question Two:

MPs, Inc., manufactures auto accessories. One of the company's products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are:

Total / Per Set of Covers
Direct materials / $42,560 / $22.40
Direct labor / $17,100 / 9.00
Variable manufacturing overhead
(based on direct labor-hours) / $6,840 / 3.60
$35.00

During August, the factory worked only 2,800 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month:

Total / Per set of Covers
Direct materials (12000 Yards) / $45,600 / $22.80
Direct labor / $18,200 / 9.10
Variable manufacturing overhead / $7000 / 3.50
$35.40

At standard, each set of covers should require 5.6 yards of material. All of the materials purchased during the month were used in production.

Required:

Compute the following variances for August:

1.The direct materials price and quantity variances.

2.The direct labor rate and efficiency variances.

3.The variable overhead rate and efficiency variances.

Question Three:

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

Division A / Division B / Division C
Sales / $12,000,000 / $14,000,000 / $25,000,000
Average operating assets / $3,000,000 / $7,000,000 / $5,000,000
Net operating income / $600,000 / $560,000 / $800,000
Minimum required rate of return / 14% / 10% / 16%

Required:

1.Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.

2.Compute the residual income for each division.

3.Assume that each division is presented with an investment opportunity that would yield a 15% rate of return.

a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why?

b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?

Question Four:

The RC Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

Total / Dirt Bikes / Mountain Bikes / Racing Bikes
Sales / $300,000 / $90,000 / $150,000 / $60,000
Variable manufacturing
and selling expenses / 120,000 / 27,000 / 60,000 / 33,000
Contribution Margin / 180,000 / 63,000 / 90,000 / 27,000
Fixed expenses:
Advertising, traceable / 30,000 / 10,000 / 14,000 / 6,000
Depreciation of special
equipment / 23,000 / 6,000 / 9,000 / 8,000
Salaries of product-line
managers / 35,000 / 12,000 / 13,000 / 10,000
Allocated common fixed
expenses* / 60,000 / 18,000 / 30,000 / 12,000
Total fixed expenses / 148,000 / 46,000 / 66,000 / 36,000
Net operating income (loss) / $32,000 / $17,000 / $24,000 / $(9,000)
* Allocated on the basis of sales dollars

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out .

Required:

1.Should productionand sale of the racing bikes be discontinued? Explain. Show computations to support your answer.

2.Recast the above data in a format that would be more usable to management in assessing the long-run profitability of the various product lines .

Question Five:

MC distributes a single product. The Company's sales and expenses for last month follow:

Total / Per Unit
Sales / $450,000 / $30
Variable expenses / 180,000 / 12
Contribution margin / 270,000 / 18
Fixed expenses / 216,000
Net operating income / $ 54,000

Required:

What is the monthly break-even point, in units sold and in sales dollars?
What is the total contribution margin at the break-even point?
How many units would have to be sold each month to earn a target profit after tax of $90,000 while tax rate 20%?
Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.
What is the company's CM ratio? If sales increase by $50,000 per month. And there is no change in fixed expenses by how much would you expect monthly net operating income to increase?

Question Six:

The Gaza Fruit Farm has always hired workers to pick its annual cherry crop.Ahmad Ali, the farm manager, has just received information on a cherry picking machine that is being purchased by many, fruit farms. The machine is a motorized device that shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the cherries into bins. Mr. Ahmadhas gathered the following information to decide whether a cherry picker would be a profitable investment for the Gaza Fruit Farm.

a.Currently, the farm is paying an average of $40,000 per year to workers to pick thecherries.

b.The cherry picker would cost $94,500, and it would have an estimated 12-year usefullife. The farm uses straight-line depreciation on all assets and considers salvage value in computing depreciation deductions. The estimated salvage value of the cherry picker is $4,500.

c.Annual out-of-pocket costs associated with the cherry picker would be: cost of an operatorand an assistant, $14,000; insurance, $200; fuel, $1,800; and a maintenance contract, $3,000.

Required:

1.Determine the annual savings in cash operating costs that would be realized if the cherry picker were purchased.

2.Compute the simple rate of return expected from the cherry picker. Would the cherry picker be purchased if Gaza Fruit Farm's required rate of return is 16%?

3.Compute the payback period on the cherry picker. The Gaza Fruit Farm will not purchase equipment unless it has a payback period of five years or less. Would the cherry picker be purchased?

4. Compute (to the nearest whole percent) the internal rate of return promised by the cherry picker. Based on this computation, does it appear

that the simple rate of return is an accurate guide in investment decisions?

السؤال السابع :-

ا) لا تختلف نقطة تماثل التكاليف عن نقطة تماثل السعر . "ناقش العبارة السابقة" ؟

ب) يَستخدم قسم خدمات النقل بوزارة الإسكان والأشغال العامة (200,000) لتر من السولار خلال السنة ويتم شراء اللتر الواحد بسعر (1$) ويتم تخرينها بمستودع خاص بالوزارة ويتكلف إصدار أمر شراء السولار (60$) . تكاليف التخزين تقدر بحوالى (0.06$) لكل لتر في السنة وعدد أيام العمل في السنة تقدر بحوالي 250 يوم ، وفترة التوريد هي 5 أيام .

ويستخدم السولار بمعدل ثابت تقريباً إلا أنه قد تحدث بعض التقلبات في بعض الحالات وللحماية من آثار نفاذ المخزون خلال الظروف الطارئة تقوم الوزارة بالاحتفاظ بمخزون أمان يكفي لمدة 15 يوم عمل .

المطلــــوب :-

حساب كمية الطلب المثلى من السولار لقسم خدمات النقل .
تحديد نقطة إعادة الطلب .
تحديد إجمالي تكلفة المخزون السنوي للقسم .

Question Eight:

The administrator of Alwafa 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 Cost
May / 1,800 / $14,700
June / 1,900 / $15,200
July / 1,700 / $13,700
August / 1,600 / $14,000
September / 1,500 / $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.

2. Compute admitting department cost if number of patient is 1200.

Question Nine:

Faculty of commerce has two service departments and two operating departments. Selected data on the four departments are presented below:-

Service Depts. / Operating Depts.
Administration / Computer Services / Accounting / Finance
Departmental costs before allocations / $180,000 / $90,000 / $190,000 / $900,000
Number of employees / 15 / 5 / 20 / 80
Number of PCs / 12 / 20 / 18 / 102

The Faculty of Commerce allocates service department costs by the step method in the following order : Administration ( number of employees) and Computer Services (number of personal computers PCs ). The Faculty makes no distinction between fixed and variable service department costs.

Required : Using the Step Method , allocate the service department costs to the operating department.

Question Ten: FG Company makes two products, P1 and P2. Data regarding the two products follow:

DirectLabor Hours per Unit / Annual Production
P1 / 0.80 / 10,000 units
P2 / 0.40 / 40,000 units

Additional information about the company follows:

a. P1 require $32 in direct materials per unit, and P2 require $18.

b. The direct labor wage rate is $15 per hour.

c. P1 are more complex to manufacture than P2 and they require special equipment.

d. The ABC system has the following activity cost pools:

Estimated Overhead cost / Activity
Activity Cost Pool / Activity Measure / Total / P1 / P2
Machine setups / Number of setups / $72,000 / 400 / 100 / 300
Special processing / Machine-hours / $200,000 / 5,000 / 5,000 / -
General factory / Direct labor-hours / $816,000 / 24,000 / 8,000 / 16,000

Required:

Compute the activity rate for each activity cost pool.
Determine the unit cost of each product according to the ABC system, including direct materials and direct labor.

GOOD LUCK