Faculty of Commerce
Dept. of Accounting
Master in Accounting & Finance / / Advanced Managerial Accounting
Date: 08/01/2012
Prof. Salem Abdalla Helles
Master of Business Administration
Final Exam First Term (2011/2012)
Student Name: ……………………………………………………..…………Student No.………………………….
ANSWER ONLY EIGHT QUESTIONS: (For each Question 7.5 Mark)
Question One:
TF Products, Inc., produces a broad line of sports equipment and uses a standard cost system for control purposes. Last year the company produced 8,000 varsity footballs. The standard costs associated with this football, along with the actual costs incurred last year, are given below (per football):
StandardCost / Actual
Cost
Direct materials:
Standard: 3.7 feet at $5.00 per football…… / $18.50
Actual: 4.0 feet at $4.80 per football……... / $19.20
Direct labor:
Standard: 0.9 hour at $7.50 per hour ……. / 6.75
Actual: 0.8 hour at $8.00 per hour …….... / 6.40
Variable manufacturing overhead:
Standard: 0.9 hour at $2.50 per hour ……. / 2.25
Actual: 0.8 hour at $2.75 per hour ……… / 2.20
Total cost per football …………………… / $27.50 / $27.80
The president was elated when he saw that actual costs exceeded standard costs by only $0.30 per football. He stated, "I was afraid that our unit cost might get out of hand when we gave out those raises last year in order to stimulate output. But it's obvious our costs are well under control." There was no inventory of materials on hand to start the year. During the year, 32,000 feet of materials were purchased and used in production.
Required:
a. For direct materials: Compute the price and quantity variances for the year.
b. For direct labor: Compute the rate and efficiency variances.
c. Compute the variable overhead spending and efficiency variances
d. Was the president correct in his statement that "our costs are well
under control"? Explain.
Question Two:
Financial data for JDP, Inc., for last year follow:
JDP, Inc.Balance Sheet / Ending
Balance / Beginning
Balance
Assets
Cash ……………………………………… / $120,000 / $140,000
Accounts receivable ……………………… / 530,000 / 450,000
Inventory …………………………………. / 380,000 / 320,000
Plant and equipment, net …………………. / 620,000 / 680,000
Total assets ……………………………….. / $1,650,000 / $1,590,000
Liabilities and Stockholders' Equity
Accounts payable ………………………… / $310,000 / $360,000
Long-term debt …………………………... / 1,050,000 / 1,070,000
Stockholders' equity ……………………... / 290,000 / 160,000
Total liabilities and stockholders' equity ... / $1,650,000 / $1,590,000
JDP, Inc.
Income Statement
Sales ……………………………………… / $4,050,000
Selling and administrative expenses ……... / 3,645,000
Net operating income ……………………. / 405,000
Interest and taxes:
Interest expense ………………………… / $150,000
Tax expense …………………………….. / 110,000 / 260,000
Net Income ………………………………. / $145,000
Required:
1- Compute the company's margin, turnover, and return on investment (ROI) for last year.
2- The board of directors of JDP, Inc., has set a minimum required return of 15%. What was the company's residual income last year?
Question Three:
BA Company manufactures three products: A, B and C. The selling price, variable costs, and contribution margin for one unit of each product follow:
ProductA / B / C
Selling price ……………………………. / $180 / $270 / $240
Less variable expenses:
Direct materials …………………………. / 24 / 72 / 32
Other variable expenses ………………… / 102 / 90 / 148
Total variable expenses …………………… / 126 / 162 / 180
Contribution margin ……………………. / $54 / $108 / $60
Contribution margin ratio ………………… / 30% / 40% / 25%
The same raw material is used in all three products. BA Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier's plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.
Required:
1- Compute the amount of contribution margin that will be obtained per pound of material used in each product.
2- Which orders would you recommend that the company work on next week-the orders for product A, product B, or product C? Show computations.
Question Four:
DS Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $350,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:
Product / Selling price / Quarterly OutputA …………………..….. / $16 per pound / 15,000 pounds
B ………………….…… / $8 per pound / 20,000 pounds
C ………………………. / $25 per gallon / 4,000 gallons
Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:
Product / AdditionalProcessing Costs / Quarterly Output
A …………………..….. / $63,000 / $20 per pound
B ………………….…… / $80,000 / $13 per pound
C ………………………. / $36,000 / $32 per gallon
Required:
Which product or products should be sold at the split-off point and which product or products should be processed further? Show computations.
Question Five:
A) LK Products is investigating the purchase of a piece of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company's required rate of return is 20% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher quality output.
Required:
What dollar value per year would these intangible benefits have to make the equipment an acceptable investment?
B) The MDS has made an investment in video and recording equipment that costs $106,700. The equipment is expected to generate cash inflows of $20,000 per year.
Required:
How many years will the equipment have to be used in order to provide the company with 10% return on its investment?
Question Six:
The RMC Company specializes in preparing Arabian dinners that it freezes and ships to restaurants in the Gaza area. When a diner orders an item, the restaurant heats and serves it. The budget data for 2011 are:
ProductChicken / Beef
Selling price to restaurant / $5 / $7
Variable expenses / 3 / 4
Number of units / 250,000 / 125,000
The company prepares the items in the same kitchens, delivers them in the same trucks, and so forth .Therefore, decisions about the individual products do not affect the fixed costs of $735,000.
Required:
1. Compute the planned net income for 2011.
2. Compute the break-even point in units, assuming that the company maintains its planned sales mix.
3. Compute the break-even point in units if the company sells only chicken.
4. Compute the degree of operating leverage and if sales increase by 5%, net income will increase by how much?
5. If the company sell 400,000 units, what is the margin of safety?
Question Seven:
The Palestine Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were:
Month / Guest- days ofOccupancy / Custodial Supplies
Expense
March / 4,000 / $7,500
April / 6,500 / $8,250
May / 8,000 / $10,500
June / 10,500 / $12,000
July / 12,000 / $13,500
August / 9,000 / $10,750
September / 7,500 / $9,750
Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days.
Required:
l. Using the high-low method, estimate a cost formula for custodial supplies
expense.
2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days?
Question Eight:-
Gaza Farms Company produces strawberries and raspberries. Annual fixed costs are $ 15,600. The cost driver for variable costs is pints of fruit produced. The variable cost is $ 0.75 per pint of strawberries and $0.95 per pint of raspberries. Strawberries sell for $ 1.10 per pint, raspberries for $ 1.45 per pint. Two pints of strawberries are produced for every pint of raspberries.
Required:
1- Compute the number of pints of strawberries and the number of pints of raspberries produced and sold at the break-even point.
2- Suppose only strawberries are produced and sold.
3- How many pints would the Company have to sell in order to achieve a target net income of $5400.
Question Nine:
FG Company makes two products, P1 and P2. Data regarding the two products follow:
Direct Labor- Hours per Unit / Annual ProductionP1 / 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 / ActivityActivity 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:
1. Compute the activity rate for each activity cost pool.
2. Determine the unit cost of each product according to the ABC system, including direct materials and direct labor.
Question Ten:
Gaza Company is studying a project that would have an eight- years life and require a $2,400,000 investment in equipment. At the end of eight years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:
Sales ...... $3,000,000
Less variable expenses … ……… 1,800,000
Contribution margin 1,200,000
Less fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs ...... $700,000
Depreciation ...... 300,000
Total fixed expenses ...... 1,000,000
Net operating income ...... $200,000
The company's discount rate is 12%
Required:
1- Compute the project's net present value. Is the project acceptable.
2- Find the project's internal rate of return to the nearest whole percent.
3- Compute the project's payback period.
4- Compute the project's accounting rate of return.
Good Luck
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