Exam 2 – Chapter 7 & 8 questions - Texas Tech University



Managerial Accounting Acct 2301 Summer II 2008 Exam 2 – Version 1

Name: ‘

There are 25 questions on this exam. Select the best answer for each question and fill your answer in on your scantron. Good Luck!

1. Addison Restaurant is opening for business in a new shopping center. Mathew Hill, the owner, is preparing a sales budget for the next three months. After consulting with friends in the same business, Mr. Hill estimated July revenues to be $32,000. He expects revenues to increase 5 percent per month in August and September. Mr. Hill also expects 60% of sales to be cash and 40% of sales to be on account. Sales on account are expected to be collected as follows: 40% in the month of sale and 60% in the month following the month of sale. What is the expected total cash collections for August?

July August

Sales $32,000 $33,600

Credit (40%) $12,800 $13,440

Cash $20,160

Collections: Cash Sales + Collected on Acct (40% of Aug & 60% of July credit sales)

July Credit Sales = $12,800 * 60% = $7,680

August Credit Sales = $13,440 * 40% = $5,376

Total Collections = $20,160 + 7,680 + 5,376 = $33,216

a. $13,056

b. $33,216

c. $25,536

d. $33,600

e. None of the above

2. Hair Fashion is a hair salon. It planned to provide 120 hair color treatments during December. Each treatment was planned to require 0.5 hours of labor at the standard price (cost) of $15 per hour. The salon actually provided 125 treatments. The actual labor price (cost) was $14.80 per hour. The labor price variance was $15 favorable. What was the actual number of labor hours used per treatment?

Flexible Actual

SP * AQ AP * AQ

$15 * X $14.80 * X

Flex – Actual = Variance

$15X - $14.80X = $15

$0.20X = $15

X = 75

AQ = X * 125 treatments = 75

X = 0.60 dlh

a. 0.50 hours

b. 0.60 hours

c. 0.70 hours

d. 0.80 hours

e. There is insufficient information to determine.

3. Camacho Company had a favorable direct materials price variance of $2,500 and a favorable total direct materials variance of $1,000. What was the direct materials usage variance?

Price Variance = Flex – Actual

Total Variance = Static – Actual

Usage Variance = Static – Flex

SO….Usage Variance + Price Variance = Total Variance

X + $2,500 F = $1,000 F

X = $1,500 U

a. $3,500 favorable

b. $3,500 unfavorable

c. $1,500 favorable

d. $1,500 unfavorable

e. None of the above

4. Cream Delight, Inc. makes ice cream that it sells in 5-gallon containers to retail ice cream parlors. During 2008, the company planned to make 100,000 containers of ice cream. It actually produced 97,000 containers. The actual and standard quality and cost of sugar per container follows:

| |Standard |Actual |

|Quantity of materials per container |2 pounds |2.1 pounds |

|Price per pound |$0.39 |$0.40 |

|Cost per container |$0.78 |$0.84 |

What is the materials usage variance?

Static Flexible

SP * SQ SP * AQ

$0.39 * (2 * 97,000) $0.39 * (2.1 * 97,000)

$75,660 $79,443

$3,783 U

a. $3,783 unfavorable

b. $3,783 favorable

c. $1,443 unfavorable

d. $1,443 favorable

e. None of the above

5. Kain Drugstores, Inc. sells prescription drugs, over-the-counter drugs, and some groceries. The purchasing manager is preparing the purchases budget for the first quarter of 2008. Kain desires to maintain an ending inventory balance equal to 20% of the following month’s cost of goods sold. The company as projected to following cost of goods sold for the quarter:

January February March

Budgeted COGS $40,000 $35,000 $48,000

What is the company’s budgeted purchases for February?

COGS + End Inventory – Beg Inventory = Purchases

$35,000 + 9,600 – 7,000 = $37,600

a. $37,600

b. $36,600

c. $32,400

d. $44,600

e. None of the above

6. Estrada Automotive Company manufactures an engine designed for motorcycles and markets the product using its own brand name. Although Estrada has the capacity to produce 28,000 engines annually, it currently produces and sells only 25,000 units per year. The engine normally sells for $650 per unit, with no quantity discounts. The unit-level costs to produce the engine are $200 for direct materials, $150 for direct labor, and $60 for indirect manufacturing costs. Estrada expects total annual product- and facility- level costs to be $500,000 and $750,000, respectively. Estrada has received a special order from a new customer seeking to buy 1,000 engines for $460. How much will Estrada’s income increase or decrease if the special is accepted?

Add’l Revenue = 1,000 * $460 $460,000

Add’l Costs = 1,000 * 200 -200,000

1,000 * 150 -150,000

1,000 * 60 - 60,000

Add’l Income $50,000

a. Income will increase by $50,000

b. Income will decrease by $450,000

c. Income will increase by $110,000

d. Income will decrease by $110,000

e. None of the above

7. The Carthage Company makes a product that is expected to use 2 hours of labor per unit of product at a cost of $12 per hour. At the beginning of the year, the company expected to produce 10,000 units, but sales were higher than expected and 12,000 units had to be produced. The actual labor cost was $11 per hour and 2.25 hours of labor was used on each unit. What was the company’s labor usage variance?

Static Flexible

SP * SQ SP * AQ

$12 * (2 * 12,000) $12 * (2.25 * 12,000)

$288,000 $324,000

$324000 – 288,000 = $36,000 U

a. $36,000 unfavorable

b. $36,000 favorable

c. $84,000 unfavorable

d. $84,000 favorable

e. None of the above

8. The Cox Company currently produces the keyboards for its 50,000 computers for $5 per unit. The company could purchase the keyboards for $8 per unit. If Cox purchases the keyboards the company could rent the excess space in their factory for $3,000 per month. If Cox continues producing the keyboards, what is the company’s annual opportunity cost?

$3,000 * 12 = $36,000

a. $150,000

b. $147,000

c. $ 36,000

d. $300,000

e. None of the above

9. Smiles, Inc., makes and sells skateboards. Smiles currently makes the 60,000 wheels used annually in its skateboards, but has the opportunity to purchase the wheels from a reliable manufacturer. The costs of making the wheels follow.

|Materials (60,000 units * $4.50) |$270,000 |

|Labor (60,000 units * $2.50) | 150,000 |

|Salary of wheel production supervisor | 95,000 |

|Rental cost of equipment used only to make wheels | 55,000 |

|Allocated portion of corporate-level facility-sustaining costs | 40,000 |

|Total cost to make 60,000 wheels |$610,000 |

(The wheel production supervisor would be let go (fired) if the wheels were purchased.)

At what price would Smiles be indifferent to purchasing versus making the wheels?

To make: $270,000 + 150,000 + 95,000 + 55,000 = $570,000

$570,000 / 60,000 = $9.50

a. $6.10

b. $9.50

c. $11.25

d. $13.75

e. None of the above

10. Howell’s Grocery Store has three departments, meat, canned food, and produce, each of which has its own manager. All departments are housed in a single store. Recently, the product department has been suffering a net loss and is expected to continue doing so. Last year’s income statement follow.

| |Meat |Canned Food |Produce |

| |Department |Department |Department |

|Sales |$650,000 |$580,000 |$420,000 |

|Cost of Goods Sold |( 270,000) |( 330,000) |( 260,000) |

|Gross Margin |$380,000 |$250,000 |$160,000 |

|Department Manager’s Salary |( 42,000) |( 30,000) |( 35,000) |

|Rent on Store Lease (allocated) |( 80,000) |( 80,000) |( 80,000) |

|Store Utilities (allocated) |( 20,000) |( 20,000) |( 20,000) |

|Other facility-level expenses (allocated) |( 98,000) |( 98,000) |( 98,000) |

|Net Income (Loss) |$140,000 |$ 22,000 |$ (73,000) |

How much would Howell’s net income increase or decrease if the produce department was eliminated?

NI w/ all 3 departs = 140 + 22 – 73 = $89,000

NI w/ only meat & canned food =

$1,230,000 Sales

( 600,000) COGS

( 72,000) Dept Manager Salary

( 240,000) Rent

( 60,000) Utilities

( 294,000) Other

( $36,000) LOSS

89,000 – (36,000) = $125,000

a. Increase by $73,000

b. Decrease by $160,000

c. Decrease by $98,000

d. Decrease by $125,000

e. None of the above

11. Bester Fishing Tours, Inc. owns a boat that originally cost $98,000. Currently the boat’s net book value is $25,000, and its expected remaining useful like is four years. Bester has an opportunity to purchase for $72,000 a replacement boat that is extremely fuel efficient and would save the company $12,000 per year in fuel costs. Bester could sell the old boat, which is fully paid for and in good condition for only $32,000. What is Bester’s sunk cost?

a. $86,000

b. $72,000

c. $25,000

d. $98,000

e. None of the above

12. What is the principal reason direct labor hours no longer constitute an effective base for allocating indirect costs in many modern manufacturing companies?

a. U.S. labor laws

b. International treaty agreements

c. Workers are not as productive as they used to be

d. Automation

e. All of the above

13. The controller for White Laundry Services prepared the following list of expected operating expenses for February.

|Budgeted S & A Expenses |January |February |March |

|Equipment Depreciation |$ 6,000 |$ 6,000 |$ 6,000 |

|Salary Expense | 2,900 | 2,700 | 3,050 |

|Cleaning Supplies | 1,000 | 940 | 1,100 |

|Insurance Expense | 600 | 600 | 600 |

|Equip Maintenance Expense | 500 | 500 | 500 |

|Leases Expense | 1,600 | 1,600 | 1,600 |

|Miscellaneous Expense | 400 | 400 | 400 |

|Total S&A Expense |$13,000 |$12,740 |$13,250 |

All expenses requiring cash payments except salary expense and insurance are paid for in the month incurred. Salary is paid in the month following its incursion. The annual insurance premium is paid in advance on January 1. What is the total budgeted cash payments for Selling & Administrative Expenses in February?

$2,900 + 940 + 0 + 500 + 1,600 + 400 = $6,340

a. $6,940

b. $6,140

c. $12,340

d. $6,340

e. None of the above

14. Blair Imports, Inc. sells goods imported from the Far East. Using the second quarter’s sales budget, Steve Lang is trying to complete the schedule of cash receipts for the quarter. The company had accounts receivable of $430,000 on April 1 which were collected normally. Blair Imports normally collects 30% of sales on account in the same month of sale and the remaining 68% in the month following the month of sale and the remaining 2% is deemed uncollectible and written off in the month following the month of sale.

|Sales Budget |April |May |June |

|Cash Sales |$120,000 |$132,000 |$124,000 |

|Sales on Account | 480,000 | 568,000 | 500,000 |

|Total Budgeted Sales |$600,000 |$700,000 |$624,000 |

What is Blair’s Accounts Receivable balance on May 31st?

$568,000 * 70% = $397,600

a. $170,400

b. $506,400

c. $397,600

d. $638,400

e. None of the above

15. Activity-based costing would be most appropriate in which of the following circumstances?

a. When a company makes multiple products, all of which place an equal demand on the consumption of overhead costs.

b. When a company makes the same quantity of a single product on a monthly basis.

c. When a company produces multiple products that require the consumption of an equal amount of materials and labor, but different amounts of overhead.

d. When a company makes different quantities of a single product on a monthly basis.

e. None of the above

16. Which of the following activity costs should be ignored when making a decision regarding whether to eliminate a product line assuming the company has all of its operations in one facility?

a. Product-level cost

b. Facility-level cost

c. Unit-level cost

d. Batch-level cost

e. All of the above are relevant

17. Johnson Company developed the following static (master) budget at the beginning of the company’s accounting period:

8000 8200

Revenue (8,000 units) $16,000 $16,400

Variable Costs ( 4,000) ( 4,100)

Contribution Margin $12,000 $12,300

Fixed Costs ( 4,000) ( 4,000)

Net Income $ 8,000 $ 8,300

If actual production totals 8,200 units, the flexible budget would show net income of

a. $16,400

b. $ 4,000

c. $ 4,100

d. $ 8,300

e. None of the above

18. Static and flexible budgets are similar in that

a. They both are prepared for multiple activity levels.

b. They both concentrate solely on costs.

c. They both are based on the same per unit standard amounts and the same fixed costs.

d. They both use the same number of units.

e. None of the above

19. When are variances labeled as favorable?

a. When standard costs are less than actual costs

b. When actual costs are less than standard costs

c. When expected sales are greater than actual sales

d. When actual sales are less than expected sales

e. None of the above are favorable.

20. The Betsey Company expected to sell 40,000 units at a price of $22 each at the beginning of the year. But market research showed that they couldn’t compete with competitors at that sales price. At the end of the year 46,000 units had been sold for $20 each. What was the company’s total sales variance for the year?

Static Actual

SP * SQ AP * AQ

$22 * 40,000 $20 * 46,000

$880,000 $920,000

$920 – 880 = $40,000

a. $40,000 unfavorable

b. $40,000 favorable

c. $92,000 favorable

d. $92,000 unfavorable

e. None of the above

21. The Roberts Company is preparing a cash budget for its first quarter as follows:

| |January |February |March |

|Cash Receipts from Sales |$100,000 |$120,000 |$135,000 |

|Cash Payments for Inventory | 60,000 | 72,000 | 81,000 |

|Cash Payments for S, G, & A Exp | 50,000 | 58,000 | 62,000 |

The cash balance on January 1st is zero. The company requires an ending cash cushion of $10,000 at the end of each month. If Roberts fails to meet the cash cushion then it borrows on its line of credit with the bank. (There were no borrowings before January.) Interest is paid at a rate of 2% in the month following the borrowing. How much interest expense does Roberts incur in March?

First off, you have to determine how Roberts has borrowed from the bank.

In January: 0 (beg bal) + 100,000 – 60,000 – 50,000 = (10,000), so have to borrow $20,000 to have a $10,000 ending balance.

In February: $10,000 (beg balance) + 120,000 – 72,000 – 58,000 = 0, so have to borrow another $10,000 to have desired ending balance balance.

So at end of Feb, owe the bank $30,000 (10,000 + 20,000).

Pay interest in March of: $30,000 * 2% = $600

a. $0

b. $200

c. $400

d. $600

e. None of the above

22. The Big Product Company provides the following per unit standard cost data:

Direct Materials (3 gallons @ $5 per gallon) $15.00

Direct Labor (2 hours @ $12 per hour) $24.00

During the period, the company produced and sold 26,000 units incurring the following costs:

Direct Materials 75,000 gallons @ $4.90 per gallon

Direct Labor 47,500 hours @ $12.05 per hour

The materials price variance was

Flexible Actual

SP * AQ AP * AQ

$5 * 75,000 $4.90 * 75,000

$375,000 $367,500

$375,000 – 367,500 = $7,500 F

a. $22,500 favorable

b. $22,500 unfavorable

c. $ 7,500 unfavorable

d. $ 7,500 favorable

e. None of the above

23. Lyle Company makes two types of cell phones. Handy is a thin, pocket-sized phone that is easy to carry around. Action is a palm-size phone convenient to hold while the user is talking. During its most recent accounting period, Lyle incurred $300,000 of quality-control costs. Quality-control is performed on each batch of phones. Recently Lyle established an activity-based costing system, which involved classifying its activities into four categories. Each of the categories and appropriate cost drivers follow:

| |Direct Labor Hours |Number of Batches |Number of Engineers |Number of Square Feet |

|Handy |26,000 |38 |10 |37,000 |

|Action |24,000 |22 | 5 |83,000 |

|Totals |50,000 |60 |15 |120,000 |

How much of the quality-control cost should be allocated to the Action phones using activity-based costing? (Round to the nearest dollar)

$300,000 / 60 = $5,000 per batch

$5,000 * 22 = $110,000

a. $110,000

b. $100,000

c. $144,000

d. $207,500

e. None of the above

24. Fritz Sporting Goods Inc. produces indoor treadmills. The company allocates its overhead costs using activity-based costing. The costs and cost drivers associated with the four overhead activity cost pools follow:

|Activities |Unit Level |Batch Level |Product Level |Facility Level |

|Cost |$1,000,000 |$500,000 |$300,000 |$900,000 |

|Cost Driver |12,500 labor hours |50 setups |% of use |15,000 units |

Producing 5,000 units of PFT200, one of the company’s five products, took 4,000 labor hours, 25 setups, and consumed 30 percent of the product-sustaining activities. How much total overhead would be allocated to the PFT200 using activity-based costing?

Unit = $1,000,000 / 12,500 = $80 * 4,000 = $320,000

Batch = $500,000 / 50 = $10,000 * 25 = 250,000

Product Level = $300,000 * 30% = 90,000

Facility Level = $900,000 / 15,000 = $60 * 5,000 300,000

TOTAL $960,000

a. $960,000

b. $900,000

c. $320,000

d. $250,000

e. None of the above

25. Hand L. Barr Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period Hand L. Barr Company made 7,000 steel bars and 3,000 titanium bars. Setup costs amounted to $120,000. Ten batches were run for the steel handle bars and five batches were run for the titanium handle bars. How much setup cost should be allocated to the titanium handle bars if the company uses an activity-based costing system? (Round to the nearest dollar.)

$120,000 / 15 (total batches) = $8,000 per batch

$8,000 * 5 = $40,000

a. $60,000

b. $40,000

c. $80,000

d. $0

e. None of the above

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download