Cost Accounting Exam #1, Spring 2004
Multiple Choice
1.The Institute of Management Accountants (IMA)
a.is a voluntary professional organization of management accountants.
b.is a voluntary professional organization of financial accountants.
c.issues standards for management accounting.
d.issues standards for financial accounting.
2.The Institute of Management Accountants (IMA) has adopted a set of standards of ethical conduct which includes codes of conduct regarding all of the following except
a.competence.
b.independence.
c.integrity.
d.confidentiality.
3.A supplier to your company offers to let you, a management accountant, use the supplier’s condo in Cancun for your vacation. Accepting the supplier’s offer
a.does not violates IMA’s ethical code as long as you disclose the gift to your employer.
b.violates the IMA’s ethical standard of independence.
c.violates the IMA’s ethical standard of confidentiality.
d.violates the IMA’s ethical standard of integrity.
4.Your close friend and drinking buddy asks you for information that is typically available only to company management. Sharing this information with your friend violates the ethical standard of
a.privileged information.
b.independence.
c.integrity.
d.confidentiality.
5.The IMA’s standards for integrity include all of the following except
a.avoiding actual or apparent conflicts of interest.
b.refusing any gift that would influence the accountant’s actions.
c.recognizing and communicating professional limitations.
d.communicating information subjectively.
6.Which of the following is not one of the courses of action recommended by the IMA for practitioners of management accounting faced with significant ethical issues.
a.follow the established policies of the organization bearing on the resolution of such conflict.
b.discuss the ethical problems with the individual(s) you believe is involved.
c.discuss the ethical problems with the immediate superior except when it appears that the superior is involved .
d.consult your own attorney as to legal obligations and rights.
Problem 1
Flynn Sporting Goods Co. manufactured 100,000 units in 2003 and reported the following costs:
Sandpaper$ 32,000Leasing costs - plant$ 384,000
Materials handling320,000Depreciation - equipment224,000
Coolants & lubricants22,400Property taxes - equipment32,000
Indirect manufacturing labor275,200Fire insurance - equipment16,000
Direct manufacturing labor2,176,000Direct material purchases3,136,000
Direct materials, 1/1/03384,000Direct materials, 12/31/03275,200
Finished goods, 1/1/03672,000Sales revenue12,800,000
Finished goods, 12/31/031,280,000Sales commissions640,000
Work-in-process, 1/1/0396,000Sales salaries576,000
Work-in-process, 12/31/0364,000Advertising costs480,000
Administration costs800,000
Required:
a.What is the amount of direct materials used during 2003?
b.What is the total manufacturing overhead cost incurred during 2003?
c.What is cost of goods manufactured for 2003?
d.What is cost of goods sold for 2003?
e.What is the gross margin for 2003?
Problem 2
Patrick Ross, the president of Ross’s Wild Game Company, has asked for information about the cost behavior of manufacturing overhead costs. Specifically, he wants to know how much overhead cost is fixed and how much is variable. The following data are the only records available.
MonthMachine-hoursOverhead Costs
February1,700$20,500
March2,80022,250
April 1,00019,950
May2,50021,500
June3,50023,950
Required:
Using the high-low method, determine the overhead cost equation. Use machine-hours as your cost driver.
Problem 3
Schotte Manufacturing Company is considering two different cost drivers (independent variables) to evaluate costs of the packaging department. The most recent results of the two separate regressions (using machine-hours in the first regression and number of packages in the second regression) are as follows:
Machine-hours:
VariableCoefficientStandard Errort-Value
Constant748.30341.202.19
Independent Variable 52.9035.201.50
r2 = 0.33
Number of packages:
VariableCoefficientStandard Errort-Value
Constant242.9075.043.24
Independent Variable5.602.002.80
r2 = 0.73
Required:
a.What are the estimating equations (cost functions) for each cost driver?
b.Which cost driver is best and why?
c.Using the equation for the best driver, what is the estimated cost for an order
requiring 10 machine hours and is shipped in 200 packages?
Problem 4
The Big G’s Picture manufactures various picture frames. Each new employee takes 5 hours to make the first picture frame and 3 hours to make the second. Thus, the learning-curve percentage (assuming the cumulative average method) is 80% ((5+3)/2]/5). The manufacturing overhead charge per hour is $20.
Required:
a.What is the time needed to build 8 picture frames by a new employee using the cumulative average-time method?
b.What is the time needed to produce the 8 picture frames by an experienced employee, who has already completed 8 picture frames?
c.How much manufacturing overhead would be charged to the 8 picture frames if the new employee completes 8 picture frames?
d.How much manufacturing overhead would be charged to the 8 picture frames if the experienced employee completes 8 picture frames?
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