Managerial Accounting Midterm Exam 2 PDF

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Name: Number: KADİR HAS UNIVERSITY FACULTY OF MANAGEMENTBA 220 MANAGERIAL ACCOUNTING SPRING 2019 MIDTERM EXAM IIPART I. MULTIPLE CHOICE QUESTIONS (2 pts. each, total 40 pts.) An activity-based overhead rate is computed as follows: a. actual overhead divided by actual use of cost drivers. b. estimate...

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KADİR HAS UNIVERSITY FACULTY OF MANAGEMENT BA 220 MANAGERIAL ACCOUNTING SPRING 2019 MIDTERM EXAM II PART I. MULTIPLE CHOICE QUESTIONS (2 pts. each, total 40 pts.) 1. a. b. c. d.

An activity-based overhead rate is computed as follows: actual overhead divided by actual use of cost drivers. estimated overhead divided by actual use of cost drivers. actual overhead divided by estimated use of cost drivers. estimated overhead divided by estimated use of cost drivers.

2. a. b. c. d.

To use activity-based costing, it is necessary to know the cost driver for each activity cost pool. estimated use of cost drivers per activity. estimated use of cost drivers per product. all of the above.

3. a. b. c. d.

Which of the following is not an example of an activity cost pool? Setting up machines Machining Inspecting Machine hours

4. The last step in activity-based costing is to a. assign overhead costs to products, using overhead rates determined for each cost pool. b. compute the activity-based overhead rate per cost driver. c. identify and classify the activities involved in the manufacture of specific products, and allocate overhead to cost pools. d. identify the cost driver that has a strong correlation to the activity cost pool. 5. a. b. c. d.

Which would be an appropriate cost driver for the purchasing activity cost pool? Machine setups Purchase orders Machine hours Inspections

6. a. b. c. d.

Which of the following is not a cost classification? Mixed Multiple Variable Fixed

7. a. b. c. d.

Cost behavior analysis applies to retailers. wholesalers. manufacturers. all entities.

8. An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: Unit Variable Cost Unit Fixed Cost a. Increases Decreases b. Remains constant Remains constant c. Decreases Remains constant d. Remains constant Decreases

9. a. b. c. d.

Contribution margin is always the same as gross profit margin. excludes variable selling costs from its calculation. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. equals sales revenue minus variable costs.

10. a. b. c. d.

A fixed cost is a cost which varies in total with changes in the level of activity. remains constant per unit with changes in the level of activity. varies inversely in total with changes in the level of activity. remains constant in total with changes in the level of activity.

11. a. b. c. d.

The CVP income statement classifies costs as variable or fixed and computes contribution margin. by function and computes a contribution margin. as variable or fixed and computes gross margin. by function and computes a gross margin.

12. a. b. c. d.

Cost-volume-profit analysis is the study of the effects of changes in costs and volume on a company’s profit. cost, volume, and profit on the cash budget. cost, volume, and profit on various ratios. changes in costs and volume on a company’s profitability ratios.

13. a. b. c. d.

The contribution margin ratio is sales divided by contribution margin. sales divided by fixed expenses. sales divided by variable expenses. contribution margin divided by sales.

14. a. b. c. d.

The required sales in units to achieve a target net income is (sales + target net income) divided by contribution margin per unit. (sales + target net income) divided by contribution margin ratio. (fixed cost + target net income) divided by contribution margin per unit. (fixed cost + target net income) divided by contribution margin ratio.

15. a. b. c. d.

The margin of safety i is expected sales divided by break-even sales. expected sales less break-even sales. actual sales less expected sales. expected sales less actual sales.

16. a(n) a. b. c. d.

A revenue that differs between alternatives and makes a difference in decision-making is called

17. a. b. c. d.

The process of evaluating financial data that change under alternative courses of action is called double entry analysis. contribution margin analysis. incremental analysis. cost-benefit analysis.

sales revenue. incremental revenue. unavoidable revenue. irrelevant revenue.

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18. a. b. c. d.

Incremental analysis would be appropriate for acceptance of an order at a special price. a retain or replace equipment decision. a sell or process further decision. All of these answers are correct.

19. a. b. c. d.

Costs that will differ between alternatives and influence the outcome of a decision are sunk costs. unavoidable costs. relevant costs. product costs.

20. a. b. c. d.

In incremental analysis, costs are not relevant if they change between alternatives. all costs are relevant if they change between alternatives. only fixed costs are relevant. only variable costs are relevant.

PART II. PROBLEMS (60 points) 1. Randel Manufacturing has five activity cost pools and two products (a budget tape vacuum and a deluxe tape vacuum). Information is presented below: (14 pts.) Activity Cost Pool Ordering and Receiving Machine Setup Machining Assembly Inspection

Cost Driver Est. Overhead Orders $ 130,000 Setups 297,000 Machine hours 1,000,000 Parts 1,600,000 Inspections 300,000

Cost Drivers by Product Budget Deluxe 600 400 500 400 150,000 100,000 1,200,000 800,000 550 450

Instructions Compute the overhead cost per unit for each product. Production is 700,000 units of Budget and 200,000 units of Deluxe. Round your answer to the nearest cent. Solution Activity Cost Pool Ordering & Receiving Machine Setup Machining Assembly Inspection

Est. Overhead ÷ $ 130,000 297,000 1,000,000 1,600,000 300,000

Total Est. Activity = 1,000 orders 900 setups 250,000 mach. hours 2,000,000 parts 1,000 inspections

Budget Cost Activity Cost Pool Driver × Ordering & Receiving 600 Machine Setup 500 Machining 150,000 Assembly 1,200,000 Inspection 550

Rate $130 330 4 .80 300

Cost = Assigned $ 78,000 165,000 600,000 960,000 165,000 $1,968,000 ÷ 700,000 $2.81 per unit

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Overhead Rate $130/order $330/setup $4/machine hour $.80/part $300/inspection

Deluxe Cost Cost Driver × Rate = Assigned 400 $130 $ 52,000 400 330 132,000 100,000 4 400,000 800,000 .80 640,000 450 300 135,000 $1,359,000 ÷ 200,000 $6.80 per unit

2. Determine the missing amounts. (12 pts.)

$165

Unit Contribution Margin A.

Contribution Margin Ratio B.

$600

C.

$150

D.

E.

F.

$440

40%

Unit Selling Price

Unit Variable Costs

$300

1 . 2 . 3 . Solution A. B. C. D. E.

F. 0% = CM ratio, then 60% = variable cost percentage; $1,100 × 60% = $660 r $1,100 – $440 = $660 3. Seaver Corporation manufactures mountain bikes. It has fixed costs of $4,140,000. Seaver’s sales mix and contribution margin per unit is shown as follows: (12 pts.) Green Brown Blue

Sales Mix 25% 45% 30%

Contribution Margin $120 $ 60 $ 40

Instructions Compute the number of each type of bike that the company would need to sell in order to break even under this product mix. Solution

Green Brown Blue

Sales Mix 25% 45% 30%

× × × ×

Contribution Margin $120 $ 60 $ 40

Total break-even sales = $4,140,000 ÷ $69 = 60,000 bikes Sales Mix 25% × 60,000 Green Brown 45% × 60,000 Blue 30% × 60,000

= = =

Weighted-Average Contribution Margin $30 $27 $12 $69

15,000 bikes 27,000 bikes 18,000 bikes

4. Larkin Company produces golf discs which it normally sells to retailers for $6 each. The cost of manufacturing 25,000 golf discs is: (12 pts.) Materials Labor Variable overhead Fixed overhead Total

$ 10,000 30,000 20,000 40,000 $100,000

Larkin also incurs 5% sales commission ($0.30) on each disc sold. 4

Rudd Corporation offers Larkin $4.25 per disc for 3,000 discs. Rudd would sell the discs under its own brand name in foreign markets not yet served by Larkin. If Larkin accepts the offer, its fixed overhead will increase from $40,000 to $43,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order. Instructions (a) Prepare an incremental analysis for the special order. (b) Should Larkin accept the special order? Why or why not? Solution (a) Revenues Materials Labor Variable overhead Fixed overhead Sales commissions Net income

Reject Order $ -0-0-0-0-0-0$ -0-

Accept Order $12,750 (1,200) (3,600) (2,400) (3,000) -0$ 2,550

Net Income Effect $12,750 (1,200) (3,600) (2,400) (3,000) -0$ 2,550

(b)

5. Cannon Co. has a unit selling price of $500, variable cost per unit $300, and fixed costs of $240,000. (10 pts.) Instructions Compute the break-even point in units and in sales dollars. Solution $500X − $300X − $240,000 = 0 BEP in units = X = 1,200 units BEP in dollars = Cash 686 BONUS: TRUE-FALSE STATEMENTS (10 pts.) 1. ─── ABC is generally more costly to implement than traditional costing. 2. ─── A fixed cost remains constant in total and on a per unit basis at various levels of activity. 3. ─── Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers. 4. ─── A variable cost remains constant per unit at various levels of activity. 5. ─── If volume increases, all costs will increase. 6. ─── The break-even point in sales is variable costs divided by the weighted-average contribution margin ratio. 7. ─── If fixed costs are €100,000 and weighted-average unit contribution margin is €50, then the breakeven point in units is 2,000 units. 8. ─── The CVP income statement classifies costs as variable or fixed and computes a contribution margin. 9. ─── In incremental analysis, total fixed costs will always remain constant under alternative courses of action. 5

10. ─── An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.

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