EXAM 2 Fall 2013 Version 4
MANAGERIAL ACCOUNTING NAME
Nittany Company sells three products with the following seasonal sales pattern:
Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%
The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:
Product Units Selling Price
A 50,000 $ 8
B 125,000 20
C 62,500 12
1. A sales budget for the First quarter will show total revenue of
A) $ 400,000
B) $985,000
C) $3650,000
D) None of the above.
2. A sales budget for the year will show total revenue of
A) $ 4000,000
B) $237,500
C) $3650,000
D) None of the above.
Answer: First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Product A:
Sales (units) 20,000 15,000 10,000 5,000 50,000
Price × $8 × $8 × $8 × $8 × $8
Sales $160,000 $120,000 $80,000 $40,000 $400,000
Product B:
Sales (units) 37,500 25,000 25,000 37,500 125,000
Price × $20 × $20 × $20 × $20 × $20
Sales $750,000 $500,000 $500,000 $750,000 $2,500,000
Product C:
Sales (units) 6,250 25,000 25,000 6,250 62,500
Price × $12 × $12 × $12 × $12 × $12
Sales $75,000 $300,000 $300,000 $75,000 $750,000
Total $985,000 $920,000 $880,000 $865,000 $3,650,000
3. Perry Company has the following information:
Month Budgeted Sales
March $100,000
April 106,000
May 102,000
June 109,000
July 105,000
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.
A purchases budget for April through June will show an expense of:
A) $ 209,100
B) $190,020
C) $62,880
D) None of the above
Answer: April May June Total
Desired ending inventory $ 18,360 $ 19,620 $ 18,900 $ 18,900
Plus COGS 63,600 61,200 65,400 190,200
Total needed 81,960 80,820 84,300 209,100
Less beginning inventory 19,080 18,360 19,620 19,080
Total purchases $62,880 $62,460 $64,680 $ 190,020
4. Gucci Manufacturing produces two products, Big and Bigger. Gucci expects to sell 10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period. Currently, Gucci has 800 units of Bigger on hand. Bigger requires two labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct labor rate for molding is $20 per molding hour and the direct labor rate for polishing is $25 per polishing hour. The expected number of hours of direct labor for Bigger is:
A) 8,800 hours of molding; 17,600 hours of polishing
B) 11,200 hours of molding; 22,400 hours of polishing
C) 17,600 hours of molding; 8,800 hours of polishing
D) 22,400 hours of molding; 11,200 hours of polishing
Answer: B
Explanation: B) 10,000 + 2,000 - 800 = 11,200
(11,200 × 1) = 11,200 hours of molding; (11,200 × 2) = 22,400 hours of polishing
5. Hewitt Co. budgeted its activity for October 2004 from the following information:
· Sales are budgeted at $750,000. All sales are credit sales and a provision for doubtful accounts is made monthly at the rate of 2 percent of sales.
· Merchandise inventory was $120,000 at September 30, 2004, and an increase of $10,000 is planned for the month.
· All merchandise is marked up to sell at invoice cost plus 50 percent.
· Estimated cash disbursements for selling and administrative expenses for the month are $105,000.
· Depreciation for the month is projected at $25,000.
Hewitt is projecting operating income for October 2004 in the amount of
a. $105,000.
b. $119,000.
c. $129,000.
d. $230,000.
Sales $750.000
Cost of goods sold (500,000) (750,000/Cost +.5 Cost)
Bad debts expense (15,000)
S & A expense (105,000)
Depreciation expense (25,000)
Operating income 105,000
6. The following data have been taken from the budget reports of a merchandising company.
Forty percent of purchases are paid for in cash at the time of purchase, and 30% are paid for in each of the next two months. Purchases for the previous November and December were $150,000 per month. Employee wages are 10% of sales for the month in which the sales occur. Selling and administrative expenses are 20% of the following month's sales. (July sales are budgeted to be $220,000.) Interest payments of $20,000 are paid quarterly in January and April. Brandon's cash disbursements for the month of April would be:
A.$140,000
B.$254,000
C.$200,000
D.$248,000
Cash disbursements for April:
7. The Madona Company makes and sells a product called Product K. Each unit of Product K sells for $24 dollars and has a unit variable cost of $18. The company has budgeted the following data for November:
· Sales of $1,152,200, all in cash.
· A cash balance on November 1 of $48,000.
· Cash disbursements (other than interest) during November of $1,160,000.
· A minimum cash balance on November 30 of $60,000.
If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of $1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November.
The amount of cash needed to be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is:
A.$20,000
B.$21,000
C.$37,000
D.$38,000
Since the company desires an ending cash balance of at least $60,000, the excess of cash available over disbursements is $40,200, and cash must be borrowed in multiples of $1,000, it would appear that the company must borrow at least $21,000. The remainders of the computations establish that this borrowing will suffice, including the interest on the borrowing.
8. The following information is available for the Gabriel Products Company for the month of July:
Static Budget Actual
Units 5,000 5,100
Sales revenue $60,000 $58,650
Variable manufacturing costs $15,000 $16,320
Fixed manufacturing costs $18,000 $17,000
Variable marketing expense $10,000 $10,500
Fixed marketing and administrative expense $12,000 $11,000
The total sales-volume variance for the month of July would be
A. $2,550 unfavorable.
B. $1,350 unfavorable.
C. $700 favorable.
D. $100 favorable.
C $700. F. From the text, I used the formula: Sales Volume Variance for OI = Budgeted Contribution Margin x (Actual units sold – Static units sold). Step1: Calculate CM for the Static Budget: Revenues – VC = CM (60,000 – 15,000 -10,000= 35,000). Per unit CM = 35,000/5000= 7. Step 2: SVV = 7 x (Actual units sold – Static units sold) 7 x (5100 – 5000) = 700. Since we sold more than budgeted, it is a favorable variance.
9. What is the actual sales revenue?
A.$156,000.
B.$169,000.
C.$180,000.
D.$191,000.
First, solve for actual variable marketing & administrative costs = $29,250; Second, add actual contribution margin to the actual variable costs to find actual sales = $169,000
10. What is the sales revenue in the flexible budget?
A.$139,000.
B.$156,000.
C.$169,000.
D.$180,000.
$169,000 (actual sales from previous question) - $13,000 = $156,000
11. What is the flexible budget contribution margin?
A.$39,000.
B.$45,000.
C.$52,000.
D.$58,000.
$156,000 - $91,000 - $26,000 = $39,000
12. What is the master budget sales revenue?
A.$124,000.
B.$148,000.
C.$156,000.
D.$180,000.
($156,000/13,000) = $12 selling price; $12 ´ (13,000 + 2,000) = $180,000
13. What is the master budget contribution margin?
A.$52,000.
B.$47,500.
C.$45,000.
D.$39,000.
$180,000 - $105,000 - $30,000 = $45,000
14. The Reedy Company uses a standard costing system. The following data are available for November:
The actual direct labor rate for November is:
A.$8.80
B.$8.90
C.$9.00
D.$9.20
Labor rate variance = AH(AR - SR)
5,800 hours (AR - $9 per hour) = -$1,160
5,800 hours ´ AR - $52,200 = -$1,160
5,800 hours ´ AR = $51,040
AR = $51,040 ¸ 5,800 hours
AR = $8.80 per hour
Sherwin Chemicals produces commercial strength cleansing supplies. Two of its main products are window cleanser that uses ammonia, and floor cleanser that uses bleach. Information for the most recent period follows:
Product Names / Window Cleaner (ammonia) / Floor Cleaner (bleach)Direct materials information
Standard ounces per unit / 16 oz. / 24 oz.
Standard price per ounce / $0.75 / ?
Actual quantity used per unit / 20 oz. / 22 oz.
Actual price paid for material / $1.00 / $0.90
Actual quantity purchased and used / 1,500 oz. / 2,800 oz..
Price variance / ? / $300 U
Quantity variance / $1,500 U / ?
Flexible budgent variance / ? / $678 F
Number of units produced / 500 / 600
15. What is the direct materials price variance for ammonia?
A) $2,500 favorable
B) $2,500 unfavorable
C) $375 favorable
D) $375 unfavorable
Answer: D
Explanation: D) DM Price Variance = (standard price - actual price) × actual amount purchased
$375 U = ($.75 - $1) × 1,500
16. What is the direct materials flexible budget variance for ammonia?
A) $1,125 unfavorable
B) $1,875 unfavorable
C) $1,125 favorable
D) $1,875 favorable
Answer: B
Explanation: B) DM Price Variance = (standard price - actual price) × actual amount purchased
$375 U = ($.75 - $1) × 1,500
Price variance / $375 / unfavorableQuantity variance / $1,500 / Unfavorable
Direct material flexible budget variance (If both variances are favorable, add them; if both variances are unfavorable, add them; if one variance is favorable and the other is unfavorable, take the difference) / $1,875 / U
17. What is the standard price for bleach?
A) $0.79/oz.
B) $0.88/oz.
C) $0.92/oz.
D) $1.14/oz.
Answer: A
Explanation: A) Price Variance = (Standard Price - Actual Price) × Actual Quantity Purchased
- 300 = (.79 - .9) × 2,800
18. What is the direct material quantity variance for the bleach?
A) $378 favorable
B) $378 unfavorable
C) $978 favorable
D) $978 unfavorable
Answer: C
Explanation: C)
Price variance / $300 / UnfavorableFlexible budget variance / $678 / Favorable
Quantity variance (If both price variance and flexible budget variance are favorable, then take the difference; if both are unfavorable, take the difference; if one is favorable and one is unfavorable, then add) / $978 / favorable
Answer the following questions using the information below:
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:
Actual Budgeted
Production 16,000 units 18,000 units
Machine-hours 7,875 hours 9,000 hours
Variable overhead cost per machine-hour: $31.00 $31.50
19. What is the variable overhead spending variance?
A) $4,500 unfavorable
B) $3,937.50 unfavorable
C) $4,500 favorable
D) $3,937.50 favorable
D) $3,937.50 favorable
Answer: D
Explanation: D) ($31.00- $31.50) × 7,875 mh = $3,937.50 favorable
20. What is the total variable overhead variance?
A) $7,875 unfavorable
B) $3,937.50 f unfavorable
C) $7,875 favorable
D) $3,937.50 f favorable
Answer: C
Explanation: C) Actual variable overhead - Flexible budgeted variable overhead
(7,875 mh × $31.00) - [16,000 × (9,000/18,000) mh × $31.50]
$244,125 - $252,000 = $7,875 favorable
Litchfield Industries gathered the following information for the month ended June 31: The static budget volume is 5,500 units: Overhead flexible budget is:
Number of units / 9,000 / 10,000 / 11,000Budgeted machine hours / 13,000 / 14,500 / 16,000
Budgeted variable overhead costs: / $50,000 / $56,000 / $62,000
Budgeted fixed overhead costs: / $35,750 / $35,750 / $35,750
Actual production was 12,000 units. Actual overhead costs were $28,000 for variable costs and $37,000 for fixed costs. Actual machine hours worked were 16,000 hours.
21. What is the amount of total budgeted machine hours allowed for actual output?
A) 7,975
B) 17,400
C) 17,500
D) 12,000
22. What is the amount of Variable Overhead allocated to production?
A) $35,750
B) $102,950
C) $67,200
D) $145,200
23. What is the fixed overhead production volume variance? (Assume the allocation base for fixed overhead costs is machine hours.)
A) $42,250 unfavorable
B) $42,250 favorable
C) $36,400 unfavorable
D) $36,400 favorable
Explanation: B)
Standard machine hours / 14,500Number of units / 10,000
Standard machine hours per unit produced—same at all levels / 1.45
Budgeted variable overhead costs: / $56,000
Standard machine hours / 14,500
Variable manufacturing overhead per hour—same at all levels / $3.86
Static budget volume / 5,500
Standard machine hours per unit produced—same at all levels / 1.45
Standard machine hours at static budget volume / 7,975
Budgeted fixed overhead costs: / $35,750
Fixed manufacturing overhead per hour at static budget volume (budgeted fixed overhead cost / standard machine hours at static volume) / $4.48
Actual production / 12,000
Standard machine hours per unit produced—same at all levels / 1.45
Machine hours at actual production / 17,400
Variable manufacturing overhead per hour—same at all levels / $3.86
Variable overhead cost / $67,200
Budgeted fixed overhead costs: / $35,750
Flexible budget overhead for actual output / $102,950
Actual production / 12,000
Standard machine hours per unit produced—same at all levels / 1.45
Machine hours at actual production / 17,400
Variable manufacturing overhead per hour—same at all levels / $3.86
Fixed manufacturing overhead at static budget volume / $4.48
Total overhead per hour / $8.34
Standard overhead allocated to production (machine hours × total overhead per hour) / $145,200
Flexible budget overhead for actual output / $102,950
Standard overhead allocated to production / $145,200
Volume variance / $42,250
If flexible budget overhead is less than standard overhead allocated, then favorable, else unfavorable / Favorable