Managerial AccountingAcct 2301Fall 2006Exam 2

NAME ______

1. Assume you are a product manager for a large, profit-seeking, manufacturing firm. Specifically, you manage ‘product #3’. Information about the firm’s product costs is provided below:

Product #1 / Product #2 / Product #3
Direct Materials / $140,000 / $ 70,000 / $90,000
Direct Labor / $210,000 / $130,000 / $60,000
Overhead / ? / ? / ?

The three products use 4,200; 3,250; and 3,000 direct labor hours (respectively). Overhead costs are determined based on a single cost driver. Which of the following cost drivers would you select?

  1. Direct Materials Dollars – 30% to Product #3
  2. Direct Labor Dollars – 15% to Product #3
  3. Total Direct Costs – 21% to Product #3
  4. Direct Labor Hours – 29% to Product #3
  5. Machine Hours – No info given
  1. Red Raider Manufacturing Co. produces two products. The products’ identified costs are as follows:

Product AProduct B

Direct Materials$10,000$15,000

Direct Labor$25,000$30,000

# of Units Produced10,00012,000

Overhead0.75 * $25,000 = 18,750

Rate = $41,250 / $55,000 = 0.75

The company’s overhead costs of $41,250 are allocated based on labor cost. What is the total production cost of Product A? (Round to the nearest dollar.)

  1. $51,500Total Production Cost:
  2. $18,750DM $10,000
  3. $53,750DL 25,000
  4. $67,500OH 18,750
  5. None of the above $53,750
  1. Masked Rider Incorporated paid its annual property tax of $25,000 on its manufacturing facility in January. The company expects to make 50,000 units of product during the year. During January, 3,500 units of product were produced. How much property tax cost should be allocated to January?
  2. $2,000$25,000 / 50,000 * 3,500 = $1,750
  3. $17,500
  4. $1,750
  5. $25,000
  6. None of the above
  1. Great Manufacturing Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production on a monthly basis. At the end of the accounting period it was determined that actual overhead cost was more than estimated overhead cost and that the actual volume was the same as the estimated volume. Based on this information alone,
  2. Products were priced accurately during the accounting period.
  3. Products were overpriced during the accounting period.
  4. Products were underpriced during the accounting period.
  5. The answer cannot be determined from the information provided.
  6. None of the above
  1. Lily’s Clothiers has three departments: Men’s, Women’s, and Children’s. The store incurred $6,000 of utility costs in 2006. Lily is trying to allocate the cost between the three departments. She has identified the following potential cost drivers:

Men’sWomen’sChildren’s

Labor Dollars$15,000$25,000$20,000

# of Employees 3 6 5

Square Footage1,2002,6002,200

# of Sales Transactions100,000150,000125,000

Using the most appropriate cost driver, how much utility cost should be allocated to the Children’s department? (Round to the nearest whole dollar.)

  1. $2,200Square footage is the most appropriate cost driver.
  2. $2,000$6,000 / 6,000 sq ft = $1 * 2200 = $2200
  3. $2,143
  4. $2,600
  5. None of the above
  1. Production workers at Elliot Manufacturing Company provided 1,400 hours of labor in January and 1,100 hours in February. Elliot expects to use 15,600 hours of labor during the year and expects to pay an annual insurance premium of $39,000 sometime in March. How much insurance cost should be allocated to products made in February? (Round to the nearest dollar.)
  2. $3,250$39,000 / 15,600 = 2.50 * 1100 = $2,750
  3. $2,500
  4. $3,500
  5. $2,750
  6. None of the above

Use the following information to answer the next three questions:

Coldwater Company produces two automotive parts, carburetors and air filters. Both products are made in the same manufacturing facilities but are produced under different processes. The company uses activity based costing in an effort to accurately allocate production costs. The cost accountant for the company provided information about the activities used to produce the company’s products. The activities were organized into the following overhead cost categories. The most appropriate cost driver for each category is also provided.

Category / Estimated Cost / Cost Driver / Carburetors / Air Filters
Unit-Level / $1,200,000 / Labor Hours / 1,800 / 1,400
Batch-Level / $44,000 / Set-ups / 40 / 60
Product-Level / $90,000 / Storage Space / 4,000 sq feet / 8,000 sq feet
Facility-Level / $200,000 / Machine Hours / 15,000 / 25,000
  1. The amount of batch-level cost that should be allocated to the carburetor product line is
  2. $26,400$44,000 / 100 = $440 * 40 = $17,600
  3. $19,250
  4. $28,500
  5. $17,600
  6. None of the above
  1. The amount of total overhead that should be allocated to the air filters product line is: (Round to the nearest dollar.)
  2. $736,400Unit Level = 1400/3200 * $1,200,000 = $525,000
  3. $797,600Batch Level = 60 / 100 * $44000 = $26,400
  4. $800,000Product Level = 8000 / 12000 * $90,000 = 60,000
  5. $815,000Facility Level = 25000 / 40000 * $200,000 = 125,000
  6. None of the aboveTotal = $736,400
  1. Relative to ABC costing, using direct labor hours as the allocation base would cause the following:
  2. Air filters will be overcosted.
  3. Carburetors will be overcosted.
  4. Air filters and carburetors will be undercosted.
  5. Only carburetors will be undercosted.
  6. None of the above
  1. Selected information about the “average product” from four single-factory manufacturing companies follows. All four companies currently use direct labor hours as their cost driver.

Company 1 / Company 2 / Company 3 / Company 4
Direct Material / $ 400 / $ 300 / $ 400 / $ 300
Direct Labor / $ 350 / $ 320 / $ 330 / $ 340
Overhead / $ 400 / $ 400 / $ 200 / $ 800
# of unique Products / 1 / 4 / 4 / 1

Select the best answer to the following question: Which company would benefit most from an Activity-based Costing system?

a.Company 1

b.Company 2 – Has more then one product & has most amount of OH out of companies that have more than one product

c.Company 3

d.Company 4

e.None of the companies would benefit more than the others.

11. Alcoa manufactures different types of aluminum. The company has always used machine hours to allocate overhead to its two primary product lines, sheet-rolled aluminum and structural aluminum. The manufacture of both lines has been machine intensive. Due to problems with sheet-rolled automation, the company began using “rolling specialists” (most of whom are former steelworkers) to improve production quality. The rolling specialist effectively hand-roll the metal with a quality level that machine technology cannot achieve. The rolling specialist initiative was so successful that Alcoa hired thousands of former steelworkers to improve sheet-rolled aluminum quality. Comparing the pre-rolling specialist time to the post-rolling specialist time, if Alcoa continues to use machine hours as the overhead allocation base for both lines, what is the likely result?

a.Overhead cost will be allocated equally between the two lines.

b.More overhead cost will be allocated to the sheet-rolled line.

c.More overhead cost will be allocated to the structural line.

d.Total overhead costs will become strategic.

e.None of the above.

12. The Phone Store, Inc. (PSI) plans to open a retail store on June 1. PSI expects sales on account in June to be $50,000. Cash sales for June are expected to be $10,000. The company expects a growth rate of 20% during July and 20% during August. PSI normally collects 50% of accounts receivable in the month of sale, 40% in the month following sale and 10% in the second month following sale. What is the amount of accounts receivable that would appear on the August 31st balance sheet?

  1. $65,000June - $50,000; 50% June, 40% July, 10% Aug
  2. $36,000July - $60,000 = 50% July, 40% Aug, 10% Sept
  3. $42,000Aug - $72,000 = 50% Aug, 40% Sept, 10% Oct
  4. $66,000Anything collected after Aug is A/R @ Aug 31st
  5. None of the above10% * $60,000 = $6,600

50% * $72,000 = $36,000

Total $42,000

13. Which of the following would not be included in the cash budget?

  1. Cash collections from sales
  2. Cash payments for selling and administrative expenses
  3. Cost of goods sold
  4. Interest expense
  5. None of the above

14. Vostok Company showed the following expected total sales:

MonthSales

May$60,000*40% = 24,000 30% May, 65% June

June$45,000*40% = 18,000 30% June, 65% July

July$55,000*40% = 22,000 30% July, 65% Aug

August$50,000*40% = 20,000 30% Aug, 65% Sept

The company expects 40% of its sales to be on account (credit sales). Credit sales are collected as follows: 30% in the month of sale, 65% in the month following the sale with the remainder being uncollectible. The total cash inflows from the collection of receivables in July would be:

  1. $22,00065% * $18,000 = 11,700
  2. $5,40030% * $22,000 = 6,600
  3. $13,500Total = 18,300
  4. $18,300
  5. None of the above

15. The Simko Company (a wholesale distributor) is in the process of preparing a purchases budget for the second quarter of the 2006 year. Forecasts of sales for the second quarter follow:

April14,900 units

May13,500 units

June16,200 units

Cost of goods sold is expected to be $8 per unit. Simko would like to have ending inventory each month equal to 15% of the following month’s predicted sales. What are the total budgeted purchases for May?

  1. $127,440COGS ($8 * 13,500)$108,000
  2. $109,560+ End Inv. (.15*16200 * 8)+ 19,440
  3. $111,240- Beg. Inv. (.15 * 13500 * 8)- 16,200
  4. $13,905= Purchases=111,240
  5. None of the above

16. Purchases on account are given below:

JANUARY / FEBRUARY / MARCH
$150,000 / $160,000 / $170,000

80% of each month’s purchases will be paid in the month of purchase and the remaining 20% will be paid during the following month. How much will the cash payments be in February?

  1. $128,000$160,000 * 80% = $128,000
  2. $158,000$150,000 * 20% = $ 30,000
  3. $160,000Total = $158,000
  4. $190,000
  5. None of the above

17. The Zullo Company expects to begin operating on January 1. The Company’s master budget contained the following operating expense items for January.

Salary Expense$20,000

Sales Commissions 10,000

Utilities 1,200

Depreciation on Store Equip. 2,000

Rent 2,400

Miscellaneous 600

Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash paid for operating expenses during the month of January is

  1. $24,200
  2. $34,200
  3. $36,200
  4. $26,200
  5. None of the above

18. ABC Company budgeted the following transactions for November 2006:

Total Sales (60% to be collected in month of sale)$180,000

Cash Operating Expenses 105,000

Cash Purchases of Capital Investments 50,000

Cash Repayment on Note Payable 40,000

Depreciation on Equipment 25,000

There was a $35,000 beginning cash balance. Sales for October were $75,000 with 40% expected to be collected in November. How much will the company have to borrow from the bank if they desire to have a $30,000 ending cash balance in November?

  1. $0 $ 35,000
  2. $23,000 30,000 (40% * $75,000)
  3. $22,000 108,000 (60% * $180,000)
  4. $52,000( 105,000)
  5. None of the above( 50,000)

( 40,000)

( 22,000)

Want to have $ 30,000

Must Borrow $ 52,000

19. Schrute Company developed the following static budget at the beginning of the company’s accounting period. 10,000 units 12,000 units

Revenue (10,000 units)$100,000 $120,000

Variable Costs( 40,000) ( 48,000)

Contribution Margin 60,000 72,000

Fixed Costs( 50,000)( 50,000)

Net Income$ 10,000$22,000

If actual production totals 12,000 units, the flexible budget would show net income of

  1. $20,000
  2. $22,000
  3. $30,000
  4. $12,000
  5. None of the above

20. Dunder Incorporated practices just-in-time inventory and makes a product that is expected to use 5 pounds of material per unit. The material has a standard cost of $2.50 per pound. Dunder actually used 7 pounds of material per unit of product made in March. The actual cost of the material was $2 per pound. Based on this information, variances for March would be

SP = $2.50

AP = $2

Price Variance = Favorable

SQ = 5 lbs

AQ = 7 lbs

Volume Variance = Unfavorable

  1. Unfavorable for price and unfavorable for usage
  2. Favorable for price and favorable for usage
  3. Unfavorable for price and favorable for usage
  4. Favorable for price and unfavorable for usage
  5. None of the above

21. The standard amount of materials required to make one unit of Product Q is 4 pounds. Jim’s static budget showed a planned production of 4,000 units. During the period the company actually produced 4,100 units of product. The actual amount of materials used averaged 4.1 pounds per unit. The standard price of material is $1 per pound. Based on this information, the materials usage variance was

StaticFlex

SP * SQSP * AQ

$1 * (4 * 4100)$1 * (4.1 * 4100)

$$16,400$16,810

$410 U

  1. $400 unfavorable
  2. $410 unfavorable
  3. $400 favorable
  4. $410 favorable
  5. None of the above

22. Michael & Scott Company provides the following standard cost data:

Direct material per unit (5 gallons @ $2 per gallon)$10.00

Direct labor per unit (4 hours @ $15 per hour) 60.00

During the period, the company produced and sold 25,000 units incurring the following costs:

Direct materials130,000 gallons @ $1.85 per gallon

Direct labor95,000 hours @ $15.50 per hour

The direct labor price (rate) variance was

FlexActual

SP * AQAP * AQ

$15 * 95,000$15.50 * 95,000

$1,425,000$1,472,500

$47,500 U

  1. $12,500 Unfavorable
  2. $75,000 Favorable
  3. $47,500 Unfavorable
  4. $75,000 Unfavorable
  5. None of the above

23. Pam’s Pottery produces clay pots. At the beginning of the year, Pam expected to sell 1,250 clay pots in March for $12 each. Actual sales for the month were 1,300 pots for $11.20 each. What is the total sales variance for the month?

StaticActual

SP * SQAP * AQ

$12 * 1250$11.20 * 1300

$15,000$14,560

$440 U

  1. $400 Favorable
  2. $440 Unfavorable
  3. $600 Favorable
  4. $1,040 Unfavorable
  5. None of the above

24. The following information is provided by the Dwight Company:

Actual direct labor cost$24,000

Standard direct labor cost$20,000

Direct labor quantity variance$1,000 unfavorable

What is the direct labor price variance?

StaticFlexActual

$20,000$24,000

  1. $4,000 Favorable $ 1,000 U $3,000 U
  2. $5,000 Favorable
  3. $3,000 Unfavorable
  4. $3,000 Favorable
  5. There is not enough information provided.

25. Cedar Furniture provided the following information relevant to its inventory sales and purchases for December 2006 and the first quarter of 2007:

Dec 2007 / Jan 2007 / Feb 2007 / Mar 2007
Cost of Goods Sold / $40,000 / $50,000 / $65,000 / $70,000
Credit Sales / $60,000 / $140,000 / $155,000 / $110,000
Cash Sales / $10,000 / $25,000 / $30,000 / $12,000

Desired ending inventory levels are 20% of the following month’s projected cost of goods sold. Budgeted purchases for January 2007 would be

  1. $63,000COGS$50,000
  2. $40,000+ End Inv. 13,000 (.20 * $65,000)
  3. $53,000- Beg Inv.( 10,000) (.20 * 50,000)
  4. $23,000= Purchases$53,000
  5. None of the above