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NEW YORK UNIVERSITY
Leonard N. Stern School of Business
Final Exam Version C
C10.0002 Principles of Managerial Accounting
Spring 2004
Answer all questions of this examination in the exam booklet provided.
Points Distribution:
Part A
Multiple Choice 54 points
Part B
Question 1 20
Question 2 20
Question 3 6 46
Total 100 points
Part A - Multiple Choice
|1 |Conversion cost consists of which of the following? |
| |a. Manufacturing overhead cost. |
| |b. Direct materials and direct labor cost. |
| |c. Direct labor cost. |
| |d. Direct labor and manufacturing overhead cost. |
|2. |Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of |
| |the following? |
| |a. Product cost |
| |b. Manufacturing overhead |
| |c. Period cost |
| |d. Administrative cost |
|3. |The salary of the president of a manufacturing company would be classified as which of the following? |
| |a. Product cost |
| |b. Period cost |
| |c. Manufacturing overhead |
| |d. Direct labor |
|4 |Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a |
| |customized personal computer by phone directly from the manufacturer? |
| |a. the cost of the hard disk drive installed in the computer. |
| |b. the cost of shipping the computer to the customer. |
| |c. the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in |
| |computers. |
| |d. the cost of packaging the computer for shipment. |
|5 |Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen |
| |fast food outlet? |
| |a. the cost of the hamburger patty in the burger they ordered. |
| |b. the wages of the employee who takes the customer's order. |
| |c. the cost of heating and lighting the kitchen. |
| |d. the salary of the outlet's manager. |
|6 |Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the|
| |company. The cost of this toll-free line would be classified as which of the following? |
| |a. Product cost |
| |b. Manufacturing overhead |
| |c. Direct labor |
| |d. Period cost |
|7 |Prime cost consists of direct materials combined with: |
| |a. direct labor. |
| |b. manufacturing overhead. |
| |c. indirect materials. |
| |d. cost of goods manufactured. |
|8 |Jawara Company uses the weighted-average method in its process costing system. Operating data for the Painting Department for |
| |the month of April appear below: |
| |Percentage |
| |Units complete |
| |Beginning work in process inventory ... 7,300 10% |
| |Transferred in from the prior |
| |department during April ............ 65,600 |
| |Units completed ............ ............67,300 |
| |Ending work in process inventory ...... 5,600 80% |
| | |
| |What were the equivalent units of production for conversion costs in the Painting Department for April? |
| |a. 65,600 |
| |b. 71,780 |
| |c. 70,520 |
| |d. 69,980 |
| |e. None of the above |
|9 |The Assembly Department started the month with 3,500 units in its beginning work in process inventory. An additional units |
| |47,200 were transferred in from the prior department during the month to begin processing in the Assembly Department. There |
| |were 3,600 units in the ending work in process inventory of the Assembly Department. How many units were transferred to the |
| |next processing department during the month? |
| |a. 50,700 |
| |b. 47,300 |
| |c. 47,100 |
| |d. 54,100 |
| |e. None of the above |
|10 |Kelsh Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company |
| |has provided the following estimated costs for next year: |
| |Direct materials .................. $10,000 |
| |Direct labor ...................... 30,000 |
| |Sales commissions ................. 40,000 |
| |Salary of Marketing supervisor .... 20,000 |
| |Indirect materials ................ 4,000 |
| |Advertising expense ............... 8,000 |
| |Rent on factory equipment ......... 40,000 |
| | |
| |Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours will be worked during the year. The predetermined |
| |overhead rate per hour will be: |
| |a. $6.80. |
| |b. $4.40. |
| |c. $3.40. |
| |d. $8.20. |
|11 |Paul Company used a predetermined overhead rate during the year just completed of $3.50 per direct labor hour, based on an |
| |estimate of 22,000 direct labor hours to be worked during the year. Actual overhead cost and activity during the year were: |
| | |
| |Actual manufacturing overhead cost incurred .. $90,000 |
| |Actual direct labor hours worked ............. 25,000 |
| | |
| |The under- or overapplied overhead for the year would be: |
| |a. $13,000 underapplied. |
| |b. $10,500 overapplied. |
| |c. $2,500 overapplied. |
| |d. $2,500 underapplied. |
|12 |CROW Company has the following estimated costs for the next year: |
| |Direct materials ..................... $ 4,000 |
| |Direct labor ......................... 20,000 |
| |Rent on factory building ............. 15,000 |
| |Sales salaries ....................... 25,000 |
| |Depreciation on factory equipment .... 8,000 |
| |Indirect labor ....................... 10,000 |
| |Production supervisor’s salary ....... 12,000 |
| | |
| |CROW Company estimates that 20,000 labor hours will be worked during the year. If overhead is applied on the basis of direct |
| |labor hours, the overhead rate per hour will be: |
| |a. $2.25. |
| |b. $3.25. |
| |c. $3.45. |
| |d. $4.70. |
|13 |The Samuelson Company uses a job-order cost system. The following data were recorded for June: |
| | |
| |June 1st Added During June |
| |Work in Process Direct Direct |
| |Job Number Inventory Materials Labor |
| |476 $ 900 $ 600 $ 800 |
| | |
| |Overhead is charged to production at 70% of the direct materials cost. |
| | |
| |Samuelson’s Work in Process inventory balance on June 30 was: |
| |a. $6,450. |
| |b. $2,860. |
| |c. $2,300. |
| |d. $2,720. |
|14 |The predetermined overhead rate for manufacturing overhead was $4.00 per direct labor-hour. The estimated labor rate was $5.00 |
| |per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing overhead? |
| |a. $ 15,000 |
| |b. $ 60,000 |
| |c. $ 75,000 |
| |d. $300,000 |
| | |
|15 |Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost. If Job 107 shows $10,000 of manufacturing |
| |overhead applied, how much was the direct labor cost on the job? |
| |a. $8,000 |
| |b. $12,500 |
| |c. $11,250 |
| |d. $10,000 |
|16 |Calculate the cost of goods completed and transferred to the finished goods inventory. |
| | |
| |Beginning Work in Process............. $175 |
| |Direct labor cost incurred............ 300 |
| |Manufacturing overhead applied ....... 250 |
| |Direct materials used................. 125 |
| |Ending Work in Process................ 200 |
| | |
| |a. $ 650 |
| |b. $1,025 |
| |c. $1,150 |
| |d. $1,175 |
| |e. None of the above |
|17 |Setting up equipment is an example of a: |
| |a. Unit-level activity. |
| |b. Batch-level activity. |
| |c. Product-level activity. |
| |d. Organization-sustaining activity. |
|18 |Overhead allocation based on volume alone: |
| |a. is a key aspect of the activity-based costing model. |
| |b. will systematically overcost high-volume products and undercost |
| |low-volume products. |
| |c. will systematically overcost low-volume products and undercost |
| |high-volume products. |
| |d. must be used for external financial reporting. |
| | |
PART B.
|1. Jetty Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity |
|level of 70,000 units per month is as follows: |
| |
|Direct materials ........................ $29.60 |
|Direct labor ............................ 5.80 |
|Variable manufacturing overhead ......... 2.50 |
|Fixed manufacturing overhead ............ 17.20 |
|Variable selling & administrative expense 1.80 |
|Fixed selling & administrative expense .. 6.70 |
|The normal selling price of the product is $72.90 per unit. An order has been received from Alomo Corporation of Italy for 2,000 units to be|
|delivered during the current month at a special discounted price of $66.10 each. This order would have no effect on the company's normal |
|sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.10 less|
|per unit on this order than on normal sales. Direct labor is a variable cost in this company. |
|Required: |
|a. Suppose there is ample idle capacity to produce the units required by the overseas should the order be accepted? By how much would this |
|special order increase (decrease) the company's net operating income for the month if it accepted? |
| |
| |
|b. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would |
|require cutting back on production of 1,300 units for regular customers. What is the minimum acceptable price per unit for the special order?|
2. Aholt Company makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
Direct materials ................. $11.30
Direct labor ..................... 22.70
Variable manufacturing overhead .. 1.20
Fixed manufacturing overhead ..... 24.70
Unit product cost .............. $59.90
An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year.
$21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
|How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part? |
| |
|What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? |
| |
|What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying |
|all 40,000 units required each year? |
3. Consider the following production and cost data for two products, L and C:
Product L Product C
Maximum Demand per month 10,000 6,000
Contribution margin per unit ....... $130 $120
Machine set-ups needed per unit .... 10 set-ups 8 set-ups
The company can only perform 65,000 machine set-ups each month.
Required:
a. Determine optimum production levels of products L and C needed to maximize profits.
b. Determine the annual profit associated with this optimum output level if total fixed costs are $500,000 per month.
NEW YORK UNIVERSITY
Leonard N. Stern School of Business
Final Exam Version C
C10.0002 Principles of Managerial Accounting
Spring 2004
Answer all questions of this examination in the exam booklet provided.
Points Distribution:
Part A
Multiple Choice 54 points
Part B
Question 1 20
Question 2 20
Question 3 6 46
Total 100 points
Part A - Multiple Choice
|1 |Conversion cost consists of which of the following? |
| |a. Manufacturing overhead cost. |
| |b. Direct materials and direct labor cost. |
| |c. Direct labor cost. |
| |d. Direct labor and manufacturing overhead cost. |
|2. |Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of |
| |the following? |
| |a. Product cost |
| |b. Manufacturing overhead |
| |c. Period cost |
| |d. Administrative cost |
|3. |The salary of the president of a manufacturing company would be classified as which of the following? |
| |a. Product cost |
| |b. Period cost |
| |c. Manufacturing overhead |
| |d. Direct labor |
|4 |Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a |
| |customized personal computer by phone directly from the manufacturer? |
| |a. the cost of the hard disk drive installed in the computer. |
| |b. the cost of shipping the computer to the customer. |
| |c. the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in |
| |computers. |
| |d. the cost of packaging the computer for shipment. |
|5 |Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen |
| |fast food outlet? |
| |a. the cost of the hamburger patty in the burger they ordered. |
| |b. the wages of the employee who takes the customer's order. |
| |c. the cost of heating and lighting the kitchen. |
| |d. the salary of the outlet's manager. |
|6 |Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the|
| |company. The cost of this toll-free line would be classified as which of the following? |
| |a. Product cost |
| |b. Manufacturing overhead |
| |c. Direct labor |
| |d. Period cost |
|7 |Prime cost consists of direct materials combined with: |
| |a. direct labor. |
| |b. manufacturing overhead. |
| |c. indirect materials. |
| |d. cost of goods manufactured. |
|8 |Jawara Company uses the weighted-average method in its process costing system. Operating data for the Painting Department for |
| |the month of April appear below: |
| |Percentage |
| |Units complete |
| |Beginning work in process inventory ... 7,300 10% |
| |Transferred in from the prior |
| |department during April ............ 65,600 |
| |Units completed ............ ............67,300 |
| |Ending work in process inventory ...... 5,600 80% |
| | |
| |What were the equivalent units of production for conversion costs in the Painting Department for April? |
| |a. 65,600 |
| |b. 71,780 |
| |c. 70,520 |
| |d. 69,980 |
| |e. None of the above |
|9 |The Assembly Department started the month with 3,500 units in its beginning work in process inventory. An additional units |
| |47,200 were transferred in from the prior department during the month to begin processing in the Assembly Department. There |
| |were 3,600 units in the ending work in process inventory of the Assembly Department. How many units were transferred to the |
| |next processing department during the month? |
| |a. 50,700 |
| |b. 47,300 |
| |c. 47,100 |
| |d. 54,100 |
| |e. None of the above |
|10 |Kelsh Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company |
| |has provided the following estimated costs for next year: |
| |Direct materials .................. $10,000 |
| |Direct labor ...................... 30,000 |
| |Sales commissions ................. 40,000 |
| |Salary of Marketing supervisor .... 20,000 |
| |Indirect materials ................ 4,000 |
| |Advertising expense ............... 8,000 |
| |Rent on factory equipment ......... 40,000 |
| | |
| |Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours will be worked during the year. The predetermined |
| |overhead rate per hour will be: |
| |a. $6.80. |
| |b. $4.40. |
| |c. $3.40. |
| |d. $8.20. |
|11 |Paul Company used a predetermined overhead rate during the year just completed of $3.50 per direct labor hour, based on an |
| |estimate of 22,000 direct labor hours to be worked during the year. Actual overhead cost and activity during the year were: |
| | |
| |Actual manufacturing overhead cost incurred .. $90,000 |
| |Actual direct labor hours worked ............. 25,000 |
| | |
| |The under- or overapplied overhead for the year would be: |
| |a. $13,000 underapplied. |
| |b. $10,500 overapplied. |
| |c. $2,500 overapplied. |
| |d. $2,500 underapplied. |
|12 |CROW Company has the following estimated costs for the next year: |
| |Direct materials ..................... $ 4,000 |
| |Direct labor ......................... 20,000 |
| |Rent on factory building ............. 15,000 |
| |Sales salaries ....................... 25,000 |
| |Depreciation on factory equipment .... 8,000 |
| |Indirect labor ....................... 10,000 |
| |Production supervisor’s salary ....... 12,000 |
| | |
| |CROW Company estimates that 20,000 labor hours will be worked during the year. If overhead is applied on the basis of direct |
| |labor hours, the overhead rate per hour will be: |
| |a. $2.25. |
| |b. $3.25. |
| |c. $3.45. |
| |d. $4.70. |
|13 |The Samuelson Company uses a job-order cost system. The following data were recorded for June: |
| | |
| |June 1st Added During June |
| |Work in Process Direct Direct |
| |Job Number Inventory Materials Labor |
| |476 $ 900 $ 600 $ 800 |
| | |
| |Overhead is charged to production at 70% of the direct materials cost. |
| | |
| |Samuelson’s Work in Process inventory balance on June 30 was: |
| |a. $6,450. |
| |b. $2,860. |
| |c. $2,300. |
| |d. $2,720. |
|14 |The predetermined overhead rate for manufacturing overhead was $4.00 per direct labor-hour. The estimated labor rate was $5.00 |
| |per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing overhead? |
| |a. $ 15,000 |
| |b. $ 60,000 |
| |c. $ 75,000 |
| |d. $300,000 |
| | |
|15 |Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost. If Job 107 shows $10,000 of manufacturing |
| |overhead applied, how much was the direct labor cost on the job? |
| |a. $8,000 |
| |b. $12,500 |
| |c. $11,250 |
| |d. $10,000 |
|16 |Calculate the cost of goods completed and transferred to the finished goods inventory. |
| | |
| |Beginning Work in Process............. $175 |
| |Direct labor cost incurred............ 300 |
| |Manufacturing overhead applied ....... 250 |
| |Direct materials used................. 125 |
| |Ending Work in Process................ 200 |
| | |
| |a. $ 650 |
| |b. $1,025 |
| |c. $1,150 |
| |d. $1,175 |
| |e. None of the above |
|17 |Setting up equipment is an example of a: |
| |a. Unit-level activity. |
| |b. Batch-level activity. |
| |c. Product-level activity. |
| |d. Organization-sustaining activity. |
|18 |Overhead allocation based on volume alone: |
| |a. is a key aspect of the activity-based costing model. |
| |b. will systematically overcost high-volume products and undercost low-volume products. |
| |c. will systematically overcost low-volume products and undercost high-volume products. |
| |d. must be used for external financial reporting. |
| | |
PART B.
|1. Jetty Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity |
|level of 70,000 units per month is as follows: |
| |
|Direct materials ........................ $29.60 |
|Direct labor ............................ 5.80 |
|Variable manufacturing overhead ......... 2.50 |
|Fixed manufacturing overhead ............ 17.20 |
|Variable selling & administrative expense 1.80 |
|Fixed selling & administrative expense .. 6.70 |
|The normal selling price of the product is $72.90 per unit. An order has been received from Alomo Corporation of Italy for 2,000 units to be|
|delivered during the current month at a special discounted price of $66.10 each. This order would have no effect on the company's normal |
|sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.10 less|
|per unit on this order than on normal sales. Direct labor is a variable cost in this company. |
|Required: |
|a. Suppose there is ample idle capacity to produce the units required by the overseas customer. Should the order be accepted? By how much |
|would this special order increase (decrease) the company's net operating income for the month if it accepted? |
| |
| |
|b. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would |
|require cutting back on production of 1,300 units for regular customers. What is the minimum acceptable price per unit for the special order?|
|Answer: |
|a. |
|Variable cost per unit on normal sales: |
|Direct materials ........................ $29.60 |
|Direct labor ............................ 5.80 |
|Variable manufacturing overhead ......... 2.50 |
|Variable selling & administrative expense 1.80 |
|Variable cost per unit on normal sales $39.70 |
| |
|Variable cost per unit on special order: |
|Normal variable cost per unit ........... $39.70 |
|Reduction in variable selling & admin. .. 1.10 |
|Variable cost per unit on special order $38.60 |
| Selling price for special order ........... $66.10 |
|Variable cost per unit on special order ... 38.60 |
|Unit contribution margin on special order 27.50 |
|Number of units in special order .......... 2,000 |
|Increase (decrease) in net operating income $55,000 |
|b. The opportunity cost is just the contribution margin on normal sales: |
|Normal selling price per unit ............. $72.90 |
|Variable cost per unit on normal sales .... 39.70 |
|Unit contribution margin on normal sales .. $33.20 |
|Minimum acceptable price: |
| |
|Unit contribution margin on normal sales .. $33.20 |
|Displaced normal sales .................... 1,300 |
|Lost contribution margin displaced sales .. $43,160 |
|Total variable cost on special order ...... $77,200 |
|Total Incremental cost of special order $120,360 |
|Number of units in special order .......... 2,000 |
|Minimum acceptable price on special order $60.18 |
2. Aholt Company makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
Direct materials ................. $11.30
Direct labor ..................... 22.70
Variable manufacturing overhead .. 1.20
Fixed manufacturing overhead ..... 24.70
Unit product cost .............. $59.90
An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year.
$21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
|How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part? |
| |
|Direct materials ................. $11.30 |
|Direct labor ..................... 22.70 |
|Variable manufacturing overhead .. 1.20 |
|Avoidable Overhead................... 2.80 |
|Avoidable Outlay Cost $38.00 |
| |
|Avoidable Overhead = Fixed manufacturing overhead - Continued fixed mfg Overhd( [(24.70x40,000)$988,000 - $876,000($21.90x40,000) = $2.8 |
|40,000 |
| |
|What is the change in income of purchasing the part rather than making it? |
|Avoidable Cost (Gross Savings) $38(40,000u) $1,520,000 |
|Purchase Cost ($46.2x40,000u) 1,848,000 |
|Excess of Purchase over Make 328,000 |
|Less Profit from use of Freed up capacity 264,000 |
|Net Change in income -$64,000 |
| |
|What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying |
|all 40,000 units required each year? |
|($1,520,000+$264,000)/40,000= $1,784,000/40,000 = $44.6 |
3. Consider the following production and cost data for two products, L and C:
Product L Product C
Maximum Demand per month 10,000 6,000
Contribution margin per unit ....... $130 $120
Machine set-ups needed per unit .... 10 set-ups 8 set-ups
The company can only perform 65,000 machine set-ups each month.
Required:
e. Determine optimum production levels of products L and C needed to maximize profits. 6,000 of C and 1,700 of L
(CM/setup:L-$13; C-$15: Produce up to 6,000 of C and use the remaining 17,000 setups (65,000-(6,000x8)) to produce 1,700 (17,000/10) units of L
f. Determine the annual profit associated with this optimum output level if total fixed costs are $500,000 per month.$5,292,000=($720,000($120x6,000)+221,000(130x1,700)-$500,000)
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