ACCT2230 Practice Questions PDF

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Name_ACCT2230 Mock Exam__________________________________

ESSA ESSAY Y. W Write rite your answer in the space provided or on a separate sheet of paper paper.. 1) Tanner Company's most recent contribution format income statement is presented below:

The company sells its only product for $15 per unit. There were no beginning or ending inventories. Required: a) Compute the company's break-even point in units sold. b) Compute the total variable expenses at the break-even point. c) How many units would have to be sold to earn a target operating income of $9,000? d) The sales manager is convinced that a $6,000 increase in the advertising budget would increase total sales by $25,000. Would you advise the increased advertising outlay? 2) A public accounting firm employs 10 full-time professionals who provide services to clients. All professional labour compensation is traced directly to clients on a per professional labour-hour basis. Any other costs are included in a single indirect-cost pool (same as overhead) and allocated to individual clients according to billable professional labour-hours. Operating costs and data for the year included the following:

Required: a. By how much, if any, was the overhead cost underapplied or overapplied? b. Prepare a summary journal entry to close any underapplied or overapplied overhead cost to a Cost of Services Provided account. c. Explain qualitatively and quantitatively (in as much detail as possible) the source(s) of any underapplied or overapplied overhead cost.

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3) Jackson Painting paints the interiors and exteriors of homes and commercial buildings. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its activity-based costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centres. The results are listed below:

Required: a) Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support activity cost pools by filling in the table below. Round off all calculations to the nearest whole cent.

Painting

Job Support

Production Overhead Office Expense Total b) Prepare a report in good form of a job that involves painting 63 square metres and has direct materials and direct labour cost of $2,070. The sales revenue from this job is $3,500.

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4) On March 31, Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totaling $85,000. Sales, in units, have been budgeted as follows for the next four months:

Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales. The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale; the balance is collected in the following month. Required: a) Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June. b) Prepare a schedule of expected cash collections for each of the months April, May, and June.

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5) Lido Company's standard and actual costs per unit for the most recent period, during which 400 units were actually produced, are given below:

There were no inventory of materials at the beginning or end of the period. Required: From the above information, compute the following variances. Show whether the variance is favourable (F) or unfavourable (U): a) Materials price variance b) Materials quantity variance c) Direct labour rate variance d) Direct labour efficiency variance e) Variable overhead spending variance f) Variable overhead efficiency variance

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6) Financial data for Bingham Company for last year appear below:

The "Investment in Carr Company" on the statement of financial position represents an investment in the stock of another company. Required: a) Compute the company's margin, turnover, and return on investment for last year.

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b) The Board of Directors of Beaker Company have set a minimum required return of 15%. What was the company's residual income last year? 7) Benjamin Signal Company produces products R, J, and C from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $92,000 per year are allocated to the products based on the relative number of units produced. Data for Benjamin's operations for the current year are as follows:

Product R can be processed beyond the split-off point for an additional cost of $26,000 and can then be sold for $105,000. Product J can be processed beyond the split-off point for an additional cost of $38,000 and can then be sold for $117,000. Product C can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000. Required: Which products should be processed beyond the split-off point?

8) (Appendix 13A) Prince Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently. (Ignore income taxes in this problem.) Required: a) Machine A will cost $25,000 and will have a useful life of 15 years. Its salvage value will be $1,000, and cost savings are projected at $3,500 per year. Calculate the machine's net present value. b) How much should Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for eight years? c) Machine C has a projected life of ten years. What is the machine's internal rate of return if it costs $31,296 and will save $6,000 annually in cash operating costs? Would you recommend to Prince Company to purchase Machine C? Explain.

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1) a) Contribution margin ratio = $30,000/$75,000 = 0.40 $36,000/0.40 = $90,000 break-even sales $90,000/$15 = 6,000 units to break even b) Variable expense ratio = $45,000/$75,000 = 0.60 $90,000 sales x 60% variable expense ratio = $54,000 c) ($36,000 + $9,000)/0.40 = $112,500 $112,500/$15 = 7,500 units

Yes, the advertising budget should be increased. 2) a). Amount of underapplied or overapplied overhead costs:

b). Summary journal entry to close underapplied or overapplied overhead costs to Cost of Services Provided account. In this case, overhead costs were overapplied implying a credit balance in the Overhead Control account. This credit has to be transferred to the Cost of Services Provided account to reduce it.

c). Explain qualitatively and quantitatively (in as much detail as possible) the source(s) of any underapplied or overapplied overhead cost. Note that the situation is one of overapplied overhead costs. Qualitative explanations : The predetermined rate ($25 per PLH) was higher than the actual rate of $24 (that is, $1,200,000/50,000). This was caused by the fact that both estimates (costs and professional labour hours) were incorrect. Specifically, number of billable hours increased (25%) more than the overhead costs (20%). Quantitative explanations : One source is the fact that the estimated costs were less than the actual costs by $200,000 (underapplied) while the actual professional labour hours were 10,000 more than the estimated. The latter is an equivalent of $250,000 overapplied (that is, 10,000 × $2.50). The net result is an overapplied of $50,000.

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3) a) Activity rates (costs divided by activity)

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4)

5) a) Materials price variance = AQ(AP - SP) = (2.1 × 400)($1.60 - $1.50) = $84 U b) Materials quantity variance = SP(AQ - SQ) = $1.50((2.1 × 400) - (2.0 × 400)) = $60 U c) Direct labour rate variance = AH(AR - SR) = (1.4 × 400)($6.50 - $6.00) = $280 U d) Direct labour efficiency variance = SR(AH - SH) = $6.00((1.4 × 400) - (1.5 × 400)) = $240 F e) Variable overhead spending variance = AH(AR - SR) = (1.4 × 400)($3.10 - $3.40) = $168 F f) Variable overhead efficiency variance = SR(AH - SH) = $3.40((1.4 × 400) - (1.5 × 400)) = $136 F

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6) a) Operating assets do not include investments in other companies or in undeveloped land.

7) Products R and J should be processed beyond the split-off point. Product C should be sold at split-off. Joint production costs are not relevant to the decision to sell at split-off or to process further.

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8) a)

NPV = $1,860.67. Calculated using the NPV formula of Microsoft Excel. b)

PV of $5,00/year = $26,674.63. Calculated using the NPV formula of Microsoft Excel. Because the present value of the cash inflows is $26,674.63, the company should be willing to pay up to this amount to acquire Machine B. c) The internal rate of return is 14% Calculated using the IRR formula of Microsoft Excel. The machine should be purchased because the internal rate of return is greater than the required rate of return....