Managerial Accounting
Final Exam Review: Business Administration & Applied Accounting
Question Sheet
1. The following information was provided by PEG Inc. for 2014. The company sells products to
professional landscapers
__________
Total Per UnitSales $ 200,000 $50Variable Expenses 110,000 27.5Contribution Margin 90,000 22.5Fixed Expenses 50,000Net Income before tax 40,000PEG Inc. had average operating assets of $100,000 for the year 2014
çjed: Consider each of the following unrelated assumptions
a. Calculate the company’s ROl for the year 2014.
b. Using lean production the company was able to reduce its level of inventory by $20,000. The
funds will be used to pay off company’s liabilities. What effect would this have on the
company’s ROl?
c. $7,000 worth of inventory carried on the books was scrapped and written off as a loss. What
effect would this have on the company’s ROl?
d. What would be the company’s residual income if minimum rate of return required is 15%
2. BRIK Ltd determined that the manufacturing plant has produced 2,000 units for the month of
January 2015. Variances are to be closed to cost of goods sold on a monthly basis. The following
information was provided by BRIK Ltd
Standards:
Standard Hours Standard PriceDirect Material 2 units $5 per unitDirect Labour 0.75hours 15 per hourVariable Overhead (based on 0.48 hours $1.2 per hourmachine hours) [Actuals:
• Worked 1,200 direct labour hours at a cost of $14 per hour
• 5,000 units of material was purchased at a cost of $4.1
• Beginning raw material for the month was zero
• 4,300 units of material was used into production
• $1,300 worth of variable overhead costs was incurred; 1,000 machine hours were
recorded.
Prepared by: Charanjit Singh
Required:
a. Compute material, labour and variable overhead variance
b. State what would be the overall net favourable or unfavourable variance for the month of
January 2015
c. Assume that BRIK Ltd. had budgeted cost of goods sold to be $30,000 for January. What
would BRIK Ltd. report as its actual cost of goods sold?
d. Explain one possible reason on why quantity variance is favourable or unfavourable?
3. Marc Inc. produces a product using standard costing system where manufacturing overhead is
applied into production based on machine hours. The following information was provided by the
manager for the overhead costs that should be incurred at an activity level of 15,000 machine
hours and their operating results for the year
Fixed manufacturing overhead $65,000
Variable manufacturing overhead 18,500
Total manufacturing overhead 83,500
Standard machine hours allowed 13,000
Actual machine hours worked 11,000
Actual variable manufacturing overhead $22,000
Actual fixed manufacturing overhead $62,000
At the end of the year the company’s manufacturing overhead accounting contained applied
costs of $72,280 and actual costs of $67,060
Required
a. Calculate the predetermined overhead rate and calculate its variable and fixed cost
elements.
b. Calculate variable and fixed overhead variance (refer to information in part (a)>
c. Show how $72,280 applied costs figure was computed in the manufacturing overhead
account.
d. Using the above calculations show whether the overhead account would be under applied
or over applied. Support your answer by showing calculations
e. Explain why the volume variance would be unfavourable?
Prepared by: Charanjit Singh
4. Moore Inc. was considering coming up with a new product for his gaming store. The following
information was gathered. -
Expected units to be produced and sold each year 25,000 units
Estimated selling and admin expenses $70,000Unit product cost j $30Desired ROt [ 9.8%
Estimated investment required by Riders Inc. [$450,000
Required
a. Compute the mark-up the company will have to use to achieve the desired ROl (use
absorption costing approach)
b. Compute the mark-up the company will have to use to achieve the desired ROl (use variable
costing approach). Assume that 65% of the selling and admin expenses are fixed. The unit
product cost includes $8 of fixed manufacturing overhead.
c. Calculate target selling price using variable and absorption approach.
5. Williams Ltd. manufactures and sells heavy duty equipment needed by construction workers in
Canada. The manager claims that the equipment needed to make nail guns has been totally
depreciated or worn out. The manager has to make a decision whether he should rent a new
equipment so the nail guns can be produced internally, which would cost $150,000 per year or
he should purchase the nail guns from an outside supplier for $19 each and discontinue
production of nail guns internally.
With the activity level as 50,000 units, the cost of producing the nail guns internally with the old
equipment is:
Direct Material $7
_____________
Direct Labour
_________________________________
10Variable Overhead 1.90Fixed overhead (includes $2 of depreciation, $1.6 for supervision 8.60and $5 of general company overhead)
_________
Total Cost $27.50
______________
According to the manufacturer the new equipment will reduce direct labour ad variable costs by
20% Supervision costs ($80,000 per year) and direct materials per unit will not be affected by
the new equipment The new eqwpment’s capacity would be 80,000 units per year. The general
overhead will be unaffected
red
a, Assume that 50,000 units are needed for the year. State which course of action would be a
better idea? (Show calculations)
Prepared by: Charanjit Singh
6. ABC Sports manufactures round, square and rectangular trampolines. The data on the past sales
and expenses for the month are as follows
Sales
Less: Variable Expenses
Contribution Margin
Less: Fixed Expenses
Advertising
Amortization
Production linesupervisors
General factory overhead
Rectangular
$360,000150,000
210,000
65,000
35,000
6,000
72,000
__________
32000
a. Should the production and sale of the round trampolines be discontinued? Show
calculations
b. Recast the data for the round trampoline department in an appropriate format that would
be more useable to management in assessing the long term profitability of the department
Concept Questions1. What is decentralization? Give one advantage and disadvantage
2. Explain any two criticisms of ROl
3. Explain what is a balanced scorecard? State its three strategies to outperform competitors
4. What types of costs should not be assigned to products in ABC system?
5 State the 5 steps to implement ABC system
6 Explain two advantages of using standard costs for evaluating control
Round
$140,00070,000
70,000
10,000
30,000
12,000
_____Square
$500,000180,000
320,000
100,000
40,000
7,000
100,00030,000
Net income (loss) (12,000)
______
73,000
_______
Management is concerned about the continued losses of the
and one of the managers has recommended that ABC should
segment. The special equipment used to produce the products has no resale value.
Required:
round trampolines department
consider discontinuing the
Prepared by: Charanjit Smgh
For Applied Accounting Student Only (Chapter 4)
7. AJ Company distributes custom cell phone cases to retailers that sell for $20 per unit. Fixed
expenses for the year totalled $90,000 with variable expenses $14 per unit. According to the
previous year records the company sold 13,500 units.
Required
a. Calculate breakeven in dollar sales and unit sales
b. Calculate how operating income should be effected if sales increase $70,000 in the following
year and fixed expenses increase by $8,000
c. The management department provided us with the following changes:
- $35,000 increase in fixed expenses
- There will be a decrease of 10% in selling price
- Unit sales are expected to be doubled from the previous year.
Prepare a contribution format Income statement, degree of operating leverage and state
whether this change should be implemented.
Prepared by: Charanjit Singh
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