Practice Final Exam for AC 225 Managerial Accounting

Answers will be released on FRIDAY.

NOTE: These questions will give you practice on answering questions in the format of the final exam, which has 60 to 70 multiple choice questions. You should not depend on reviewing these specific questions alone to review all of the topics on the Final Exam Review also posted in D2L.

Chapter 1

1. Managerial Accounting and Financial Accounting differ in the following way:

  1. Financial Accounting emphasizes forecasts of future performance.
  2. Financial Accounting summarizes information for the company as a whole.
  3. Financial Accounting is private information for company managers
  4. Financial Accounting emphasizes timeliness over precision.

Discussion: Managerial accounting emphasizes providing information about segments and products within a company, rather than the company as a whole. Financial accounting creates financial statements that must present all components under common control.

2. Common users of managerial accounting reports include the following:

  1. Operations manager and loan officer
  2. Chief financial officer and public shareholder
  3. Public shareholder and loan officer
  4. Chief financial officer and operations manager

Discussion: Managerial accounting is used by company insiders. Loan officers work for a bank. Shareholders are the external owners of a business.

3. The management function of controlling is carried out through the use of

  1. A performance report that compares budgeted to actual results.
  2. A reconciliation of the beginning and ending retained earnings balances.
  3. A schedule of cash collections and cash payments
  4. A forecast of next period’s production.

Discussion: The control function is evaluating the results of company actions. Only A involves both measuring results and comparison to determine whether the results are favorable or unfavorable.

4. Management accounting is used by

  1. Human resource employees who need to plan hiring
  2. Marketing employees who make decisions on profit achievable through an advertising campaign
  3. Accounting employees who make budget recommendations.
  4. All of the above.

5. The CMA certification requires

  1. A rigorous professional exam only
  2. Experience in Financial management only.
  3. A rigorous professional exam and experience in financial management only.
  4. An accounting degree and a rigorous professional exam and experience in financial management.

Discussion: Individuals with any college major can become Certified Management Accountants.

6. Guidelines for ethical behavior for management accountants require

  1. Management accountants maintain professional competence.
  2. Management accountants disclose confidential information to competitors.
  3. Management accountants eliminate all potential limitations before communicating recommendations.
  4. Management accountants ignore conflicts of interest.

Discussion: Competence is one ethical value in the Institute of Management Accountants ethical standards. Management accountants maintain confidentiality unless disclosure is required by law. Full disclosure of limitations is required, but no one can eliminate all limitations on recommendations. Management accountants disclose conflicts of interest.

7. Institute of Management Accountants supports ethical practices by

  1. Staffing an ethics hotline for its members
  2. Representing its members in legal cases
  3. Investigating corporate ethical lapses
  4. Requiring members to report unethical conduct to their supervisors.

Discussion: The Institute of Management Accountants has an ethical hotline to provide an objective consultation to members.

Chapter 2

1. The wages of factory maintenance personnel would usually be considered to be a

  1. Direct labor cost
  2. Manufacturing overhead cost
  3. Administrative cost
  4. Selling cost

Discussion: Maintenance is an indirect labor cost, which is a part of manufacturing overhead.

2. Conversion costs include

  1. Manufacturing overhead costs
  2. Direct material costs
  3. Sales commission costs
  4. Advertising costs

Discussion: Conversion costs include the product costs of direct labor and manufacturing overhead.

3. Which of the following costs is an example of a period rather than a product cost?

  1. Depreciation on production equipment
  2. Salaries of salespersons
  3. Wages of production machine operators
  4. Insurance on production equipment

Discussion: A, C, and D are product costs; salaries within selling & administrative costs are period costs.

4. Last month 10,000 units of a product were manufactured, and the total cost per unit was $60. At this level of production the variable cost is $30 per unit and the fixed cost is $30 per unit. If 10,500 units are manufactured the next month, and the costs remain within the same relevant range,

  1. Total variable cost will remain unchanged.
  2. Fixed costs will increase in total
  3. Variable cost per unit will increase
  4. Total cost per unit will decrease

Discussion: Numerically the unchanging fixed cost is $30 * 10,000 = $300,000. The cost for 10,500 units = 10,500 units * $30 variable cost + fixed cost of $300,000 = $315,000 + $300,000 = $615,000. The total cost per unit is $615,000 / 10,500 units = $58.57. Alternatively, when production increases, fixed costs PER UNIT decrease because the same fixed cost is spread over more units, so total cost per unit will decrease.

5. The following costs were incurred in September:

Direct materials$39,000

Direct labor 23,000

Manufacturing overhead 17,000

Selling expenses 14,000

Administrative expenses 27,000

Prime costs during the month totaled

  1. $79,000
  2. $120,000
  3. $62,000
  4. $40,000

Discussion: Prime costs ae direct labor and direct material costs.

6. ABC Corporation sells its product for $195.70 per unit. In 2015 the company had total sales in units of 6,000. The total costs were the following:

Variable cost of sales $457,800

Fixed cost of sales 100,000

Variable selling & administrative costs 108,500

Fixed selling & administrative costs 512,400

What is the best estimate of the total contribution margin?

  1. $4,600
  2. $507,800
  3. $607,900
  4. $616,400

Discussion: Total Contribution Margin = Total Sales – Total Variable Costs; Total Sales = 195.70 * 6000 = 1174200. Total Variable Costs = 457,800 + 108,500 = 566,300. Contribution Margin = 1171200-566300 = 607,900

7. Supply costs atABC Corporation's chain of gyms are listed below:

Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to estimate the variable and fixed components of this cost, those estimates would be closest to:

  1. $2.44 per client-visit; $28,623 per month
  2. $1.33 per client-visit; $12,768 per month
  3. $0.79 per client-visit; $19,321 per month
  4. $0.75 per client-visit; $19,826 per month


Client Visit / Supply Cost
High: June / 12,088 visits / $28,892
Low: August / 11,193 visits / $28,221
Difference / 895 visits / $671

Variable cost per client visit = 671/895 = $.75per client visit

Fixed Cost for supplies per month = 28,892-12,088 *.75 = 19826

8.Buckeye Company has provided the following data for maintenance cost:

2014 2015

Machine hours 12,500 15,000

Maintenance cost $27,000 $31,000

The best estimate of the cost formula for maintenance would be:

  1. $21,625 per year plus $0.625 per machine hour
  2. $7,000 per year plus $0.625 per machine hour
  3. $7,000 per year plus $1.60 per machine hour
  4. $27,000 per year plus $1.60 per machine hour

Discussion: Difference in Machine hours = 2,500; Difference in Maintenance: $4,000; Maintenance cost per machine hour = $4,000 / 2,500 = 1.60 per machine hour; Fixed Cost of maintenance = 27000 – 1.60*12,500=7,000

Use the following information for questions 9 and 10.

Chaffee Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 33,000 calls in a month, the costs of operating the helpline total $742,500.

9. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 34,800 calls in a month? (Assume that this call volume is within the relevant range.)

  1. $742,500
  2. $783,000
  3. $704,095
  4. $762,750

Discussion: From the initial data, the cost per call is $742,500/33,000 = $22.48; Therefore the cost at 34,800 calls would be $22.48*34,800=78472

10.To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 36,100 calls in a month? (Assume that this call volume is within the relevant range.)

  1. $21.54
  2. $20.57
  3. $21.34
  4. $22.50

Discussion: See above.

Chapter 3

1. In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:

  1. Manufacturing Overhead to be overapplied.
  2. The Cost of Goods Manufactured to be understated.
  3. The debits to the Manufacturing Overhead account to be understated.
  4. The ending balance in Work in Process to be overstated.

Discussion: If indirect labor is omitted from the predetermined overhead rate, then the predetermined overhead rate is too low. (C) is correct because Cost of Goods Manufactured is increased by the amount of overhead applied. So if overhead applied is too low, then Cost of Goods Manufactured would be too low. (A) would be true if the predetermined overhead rate were too high. (D) could be true if predetermined overhead rate were too high. (C) refers to the increases in Manufacturing Overhead when overhead is incurred. It decreases as it is applied to jobs based on the predetermined overhead rate, so it is the credits to Manufacturing Overhead that could be effected by this error.

2. In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to:

  1. Raw Materials inventory.
  2. Finished Goods inventory.
  3. Work in Process inventory.
  4. Manufacturing Overhead.

Discussion: A debit increases an asset account. When direct materials are used Raw Materials inventory decreases and Work in Process increases.

3. In a job-order costing system, indirect materials that have been previously purchased and that are used in production are recorded as a debit to:

  1. Work in Process inventory.
  2. Manufacturing Overhead.
  3. Finished Goods inventory.
  4. Raw Materials inventory.

Discussion: Indirect materials increase manufacturing overhead and decrease Raw Materials Inventory.

4.Overapplied manufacturing overhead occurs when:

  1. applied overhead exceeds actual overhead.
  2. applied overhead exceeds estimated overhead.
  3. actual overhead exceeds estimated overhead.
  4. budgeted overhead exceeds actual overhead

Discussion: While estimated overhead or budgeted overhead is used to calculate the predetermined manufacturing overhead rate, overhead is then applied based on the actual direct labor hours (or machine hours etc.). So if the overhead applied is more than the actual overhead incurred, then overhead is overapplied.

5. Wert Corporation uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. Last year, the company's estimated manufacturing overhead was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was:

  1. overapplied by $60,000
  2. underapplied by $60,000
  3. overapplied by $40,000
  4. underapplied by $44,000

Discussion: The predetermined manufacturing overhead rate is $1,200,000 in overhead over direct labor cost of 50,000 direct labor hours * $12 per hour: 1,200,000 / (12*50,000)=1200000/600,000=2.

So the manufacturing overhead applied would have been 650,000*2=$1,300,000. However the actual overhead is $1,240,000. $1,300,000- $1,240,000=$60,000 overapplied

6. Hayne Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the most recently completed year appear below:

The predetermined overhead rate for the recently completed year was closest to:

  1. $7.89
  2. $30.95
  3. $24.52
  4. $32.41

Discussion: predetermined overhead rate = estimated total overhead / estimated machine hours = $465,880 / 19,000 = 24.52

7. The following data have been recorded for recently completed Job 674 on its job cost sheet. Direct materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked on the job. The direct labor wage rate is $14 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for the job on its job cost sheet would be:

  1. $2,967
  2. $2,487
  3. $2,068
  4. $5,112

Discussion: Total Job Cost = 2,039 + 32*14+15*175=2039+448+2625=5,112

8. Hults Corporation has provided data concerning the company's Manufacturing Overhead account for the month of November. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $75,000 and the total of the credits to the account was $57,000. Which of the following statements is true?

  1. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $75,000.
  2. Actual manufacturing overhead incurred during the month was $57,000.
  3. Manufacturing overhead applied to Work in Process for the month was $75,000.
  4. Manufacturing overhead for the month was underapplied by $18,000.

Discussion: The $75,000 is the actual amount of manufacturing incurred; $57,000 is the amount of overhead applied. The difference between these two is the amount of overhead that is UNDERapplied, since actual overhead is less than overhead applied by $75,000-$57,000=$18,000

9. Wedd Corporation had $35,000 of raw materials on hand on May 1. During the month, the company purchased an additional $68,000 of raw materials. During May, $92,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $5,000. The debits to the Work in Process account as a consequence of the raw materials transactions in May total:

  1. $92,000
  2. $0
  3. $68,000
  4. $87,000

Discussion: The decrease to Raw Materials Inventory is $92,000. This is made up of both direct materials and indirect materials. Since indirect materials are $5,000, then direct materials, which would be a debit to Work in Process, is 92,000-5,000=87,000.

10. Lietz Corporation has provided the following data concerning manufacturing overhead for January:

The company's Cost of Goods Sold was $369,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?

  1. Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $392,000
  2. Manufacturing overhead was underapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $346,000
  3. Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $346,000
  4. Manufacturing overhead was overapplied by $23,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $392,000

Discussion: If Manufacturing overhead is underapplied, then Cost of Goods Sold is too low and will increase; If Manufacturing overhead is overapplied, then Cost of Goods Sold is too high and will decrease. This is a case in which manufacturing overhead is overapplied.

Chapter 5

1. The break-even point in unit sales is found by dividing total fixed expenses by:

  1. the contribution margin ratio.
  2. the variable expenses per unit.
  3. the sales price per unit.
  4. the contribution margin per unit.

Discussion: breakeven point in units = fixed expenses/ contribution margin per unit. If one is computing breakeven point in dollars of sales = fixed expenses / contribution margin RATIO.

2. The break-even point in unit sales increases when variable expenses:

  1. increase and the selling price remains unchanged.
  2. decrease and the selling price remains unchanged.
  3. decrease and the selling price increases.
  4. remain unchanged and the selling price increases.

Discussion: Since breakeven in sales = fixed expenses / contribution margin ratio breakeven in sales increases when the contribution margin gets smaller. Contribution margin gets smaller when variable expenses increase and the selling price is the same or smaller. Selections B, C, and D increase the contribution margin ratio.

3. The amount by which a company's sales can decline before losses are incurred is called the:

  1. contribution margin.
  2. degree of operating leverage.
  3. margin of safety.
  4. contribution margin ratio.

Discussion: Definition.

4. The degree of operating leverage can be calculated as:

  1. contribution margin divided by sales.
  2. gross margin divided by net operating income.
  3. net operating income divided by sales.
  4. contribution margin divided by net operating income.

Discussion: Definition

5. Mancuso Corporation has provided its contribution format income statement for January. The company produces and sells a single product.

If the company sells 3,100 units, its total contribution margin should be closest to:

  1. $27,045
  2. $181,000
  3. $162,400
  4. $173,600

Discussion: Contribution Margin per unit = 162,400/2900 = 56. So if there are 3100 units sold, then contribution margin = 3100 * 56=173,600

6.Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, the amount of sales in units will have to be (rounded):

  1. 1,486 units
  2. 3,467 units
  3. 1,040 units
  4. 2,600 units

Discussion: The equations set up from this problem are the following:

Net Operating income = contribution margin – fixed expenses

Net Operating Income = 35%*90*sales in units – 46800.

Net Operating Income = 15% * 90* sales in units

So setting these equal and solving

35%*90*sales in units -46800=15%*90*sales in units

31.5 sales in units – 46800=13.5*sales in units

18 sales in units = 46800

Sales in units = 2600

7.Darth Company sells three products. Sales and contribution margin ratios for the three products follow:

Given these data, the contribution margin ratio for the company as a whole would be:

  1. 25%
  2. 75%
  3. 33.3%
  4. it is impossible to determine from the data given.

Discussion: Contribution margin for company as a whole = Total Contribution Margin / Total Sales

Total Contribution Margin = .45 * 20000 + .4 * 40000 + .15 * 100000 = 9000+16000+15000=40000

Total Sales = 20000+40000+100000=160000

Overall contribution margin ratio = 40000/160000=25%

8.Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company's net operating income should increase by:

  1. $28,800
  2. $64,000
  3. $8,800
  4. $31,200

Discussion: Incremental income= incremental contribution margin-incremental fixed expenses

Incremental contribution margin = (1-.36) * 80000=.64*80000= 51200

Incremental fixed cost = 20,000

Incremental income = 51200-20000=31200

9. Olis Corporation sells a product for $130 per unit. The product's current sales are 28,900 units and its break-even sales are 25,721 units. What is the margin of safety in dollars?

  1. $413,270
  2. $3,343,730
  3. $2,504,667
  4. $3,757,000

Discussion: Margin of Safety (in dollars) = sales above breakeven = (28,900-25,721)*$130=$413,270

10. Balbuena Corporation produces and sells two products. Data concerning those products for the most recent month appear below:

The fixed expenses of the entire company were $15,630. If the sales mix were to shift toward Product K87W with total sales dollars remaining constant, the overall break-even point for the entire company:

  1. would not change.
  2. would increase.
  3. would decrease.
  4. could increase or decrease

Discussion:Which product is more profitable? Product K87W has a contribution margin ratio of (17000-7650)/17000= 55%; Product I57P has a contribution margin ration of (19000-9270)/19000=49%. So if the company has a sales mix shift toward K87W it is toward the higher profit margin product and the company will have a lower breakeven point.