Exam161.10.doc
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Prof. Salem A Helles Accounting Department Final Exam Date:! "an. #!$!
Advanced Managerial Accounting
Faculty of Commerce Master of %usiness Administration Administration Master of Accounting and Finance
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A&S'E( E)*H+ ,-ES+)&S &/0: 12.3 Mar4 for eac5 ,uestion6
,uestion ,uestion ne: ne: Gaza Company is studying a project that would have an eightyears life and require a $2,4, investment in equipment! "t the end of eight years, the project would terminate and the equipment would have no salvage value! #he project would provide net operating income each year as follows Sales ............................... ......... 78!!!8!!! %ess varia&le e'penses ( ((( ),*, Contri9ution margin $8#!!8!!! %ess fi'ed e'penses "dvertising, salaries, and other fi'ed fi'ed out-ofout-of-poc+ poc+et et costs costs !!!!!!!! !!!!!!!!!!!! !!!!!! $, $ , epr eprec ecia iati tion on !!!! !!!!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! !!!! ., . , +otal fixed expenses .................... $8!!!8!!! &et operating income !!!!!!!!!!!!!!!!!! 7#!!8!!! #he company/s discount rate is )20 (euired: )- Compute the project/s project/s net present present value! value! 1s the the project accepta&le! 2- ind the the project/s internal internal rate of of return to to the nearest whole whole percent! percent! .- Compute Compute the the project/s project/s pay&a pay&ac+ c+ period! period! 4- Compute Compute the project/ project/ss accounting accounting rate rate of return! return! ,uestion +;o : Gaza arms produces straw&erries and rasp&erries! "nnual fi'ed costs are $ )3,! #he cost driver for varia&le costs is pints of fruit produced! #he varia&le cost is $!3 per pint of straw&erries and $ !53 per pint of rasp&erries! 6traw&erries sell for $ )!) per pint, rasp&erries for $ )!43 per pint! #wo pints of straw&erries are produced for every pint of rasp&erries! (euired: )- Compute Compute the the num&er num&er of pints pints of straw& straw&errie erriess and the num&er num&er of of pints pints of rasp&erries produced and sold at the &rea+-even point! 2- 6uppose 6uppose only only straw&er straw&erries ries are produ produced ced and sold! sold! Comput Computee the &rea+&rea+even point in pints!
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.- 6uppose only rasp&erries are produced and sold! Compute the &rea+even point in pints!
,uestion +5ree %G 7roducts mar+ets two computer games " and 8! " contri&ution format income statement for a recent month for the two games appears &elow " 8 #otal 6ales $., $, $), %ess varia&le e'penses 2, 3, , Contri&ution margin $), $2, ., %ess fi'ed e'penses 24, 9et operating income $, :(euired !Compute the overall contri&ution margin :C;< ratio for the company !) !Compute the overall &rea+-even point for the company in sales dollars !2 !Compute the &rea+- even point for each computer games in sales dollars !. ,uestion Four G Company ma+es two products, 7) and 72! ata regarding the two products follow
7) 72
Direct /a9or< Hours per -nit
Annual Production
!* !4
), units 4, units
"dditional information a&out the company follows !a! 7) require $.2 in direct materials per unit, and 72 require $)* &! ! #he direct la&or wage rate is $)3 per hour !c! 7) are more comple' to manufacture than 72 and they require special equipment :d! The ABC system has the following activity cost pools =stimated "ctivity >verhead "ctivity Cost 7ool "ctivity ;easure #otal 7) 72 cost ;achine setups 9um&er of setups $2, 4 ) . 6pecial processing ;achine-hours $2, 3, 3, General factory irect la&or-hours $*), 24, *, ), (euired: !Compute the activity rate for each activity cost pool !) etermine the unit cost of each product according to the "8C system, including !2 !direct materials and direct la&or 7age # of 2
,uestion Five: ?onderful@ 9ot only did our salespeople do a good jo& in meeting the sales &udget this year, &ut our production people did a good jo& in controlling costs as well,A said, president of ;8 Company! A>ur $)*,. overall manufacturing cost variance is only )!20 of the $),3., standard cost of products made during the year! #hat/s well within the .0 parameter set &y management for accepta&le variances! 1t loo+s li+e everyone will &e in line for a A! &onus this year #he company produces and sells a single product! #he standard cost card for the product follows Standard Cost Card = Per -nit $)!5 irect materials, 2 feet at $*!43 per foot 22!4 irect la&or, )!4 direct la&or-hours at $) per direct la&or-hour! .!3 Baria&le overhead, )!4 direct la&or-hours at $2!3 per direct la&or-hour!
*!4
i'ed overhead, )!4 direct la&or-hours at $ per direct la&or-hour!
73$.#!
Standard cost per unit
#he following additional information is availa&le for the year just completed !a! #he company manufactured ., units of product during the year &! " total of 4, feet of material was purchased during the year at a cost of $*!33 per foot! "ll of this material was used to manufacture the ., units! !#here were no &eginning or ending inventories for the year c! #he company wor+ed 4.,3 direct la&or-hours during the year at a direct !la&or cost of $)3!* per hour d! >verhead cost is applied to products on the &asis of standard direct la&orhours! ata relating to manufacturing overhead costs follow .3, enominator activity level :direct la&or-hours< $2), 8udgeted fi'ed overhead costs :from the fle'i&le &udget< $)*, "ctual varia&le overhead costs $2)),* "ctual fi'ed overhead costs (euired: !Compute the direct materials price and quantity variances for the year !) !Compute the direct la&or rate and efficiency variances for the year !2 or manufacturing overhead, compute the following !. !#he varia&le overhead spending and efficiency variances for the year !a !#he fi'ed overhead &udget and volume variances for the year & ! 7age of 2
#otal the variances you have computed, and compare the net amount with the $)*,. mentioned &y the president! o you agree that &onuses should &e given !to everyone for good cost control during the year ='plain
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,uestion Six A1 +now headquarters wants us to add that new product line,A said, manager of 8illings Company/s >ffice 7roducts ivision! A8ut 1 want to see the num&ers &efore 1 ma+e any move! >ur division/s return on investment :D>1< has A!led the company for three years, and 1 don/t want any letdown 8illings Company is a decentralized wholesaler with five autonomous divisions! #he divisions are evaluated on the &asis of D>1, with year-end &onuses given to the divisional managers who have the highest D>1s! >perating results for the company/s >ffice 7roducts ivision for the most recent year are given &elow
$),, !!!!!!!!!!!!6ales (((((((((((((((((!!((( ,, !!!!!!!!!!!!!!!!!!!!Baria&le e'penses ((((((((((( (( ?8!!!8!!! ................. Contri9ution margin >>>>>>>>>>> > .,2, !!!!!!!!!!!!!!!!!!! i'ed e'penses ((((((((((((((( 7@!!8!!! .................. &et operating income >>>>>>>>> >> $4,, ivisional operating assets ((((((( ( #he company had an overall return on investment :D>1< of )30 last year :considering all divisionsffice 7roducts ivision has an opportunity to add a new product line that would require an additional investment in operating assets of $),,! #he cost and revenue characteristics of the new product line per year would &e $2,, !!!!!!!!!!!!!!6ales (((((((((((((((((!!((( 0 of sales !!!!!!!!!!!!!!!!!Baria&le e'penses (((((((( ((((( $4, !!!!!!!!!!!!!!!!!!!!!!! i'ed e'penses ((((((((((((((( (euired: Compute the >ffice 7roducts ivision/s D>1 for the most recent yearE also !) !compute the D>1 as it would appear if the new product line is added 1f you were in ;anager/s position, would you accept or reject the new product !2 !line ='plain 6uppose that the company/s minimum required rate of return on operating assets !. !is )20 and that performance is evaluated using residual income a! Compute the >ffice 7roducts ivision/s residual income for the most recent yearE also compute the residual income as it would appear if the new product line is !added &! Fnder these circumstances, if you were in ;anager/s position, would you accept !or reject the new product line ='plain
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,uestion Seven: 8ed 8ath, a retailing company, has two departments, Hardware and %inens! " recent monthly contri&ution format income statement for the company follows epartment #otal Hardware %inens 6ales $4,, $.,, $),, Baria&le e'penses ),., 5, 4, Contri&ution margin 2,, 2,), , i'ed e'penses 2,2, ),4, *, &et operating income 1loss6 7 3!!8!!! 7 2!!8!!! 17#!!8!!!6
" study indicates that $.4, of the fi'ed e'penses &eing charged to %inens are sun+ costs or allocated costs that will continue even if the %inens epartment is dropped! 1n addition, the elimination of the %inens epartment will result in a )0 !decrease in the sales of the Hardware epartment (euired: 1f the %inens epartment is dropped, what will &e the effect on the net operating income of the Company as a whole
,uestion Eig5t: Gaza Company has limited funds availa&le for investment and must ration the funds among five competing projects! 6elected information on the five projects follows %ife of the 1nternet Date 1nvestment 9et 7resent 7roject project of Deturn Dequired Balue :years< :percent< " ((!!(! $), $44,.2. )*0 8 ((!!(! $).3, $42, )2 )0 C ((!!(! $), $.3,.3 20 ((!!(! $)3, $.*,). . 220 = ((((! $)3, $:*,5< *0
#he net present values a&ove have &een computed using a )0 discount rate! #he company wants your assistance in determining which project to accept first! second, !and so forth! #he company/s investment funds are limited (euired: !Compute the project profita&ility inde' for each project !) 1n order of preference, ran+ the five projects in terms of !2 !a! 9et present value 7age 3 of 2
&! ! 7roject profita&ility inde' !c! 1nternal rate of return ?hich ran+ing do you prefer ?hy !. ,uestion &ine: #he administrator of Al;afa Hospital would li+e a cost formula lin+ing the administrative costs involved in admitting patients to the num&er of patients admitted during a month! #he admitting department/s costs and the num&er of patients admitted during the immediately preceding eight months are given in the following ta&le
Mont5
;ay Iune Iuly "ugust 6eptem&er >cto&er 9ovem&er ecem&er
&um9er of patients Admitted ),* ),5 ), ), ),3 ),. ),) ),3
Admitting Department Cost $)4, $)3,2 $)., $)4, $)4,. $).,) $)2,* $)4,
(euired: Fse the high-low method to esta&lish the fi'ed and varia&le components of !) !admitting costs !Compute admitting department cost if num&er of patient is )4 !2 ,uestion +en: Computer 6ales, 1nc!, 6ells Computer supplies! ;anagement is planning its cash needs for the second quarter! #he company usually has to &orrow money during this quarter to support pea+ sales, which occur during ;ay! #he following information has &een assem&led to assist in preparing a cash &udget for the quarter "! 8udgeted monthly income statements for "pril- Iuly are "pril ;ay Iune Iuly 6ales((((((!! $ , $ 5, $ 3, $ 4, Cost of goods sold(((! 42, ., .3, 2*, Gross ;argin(((((!! )*, 2, )3, )2, %ess operating e'penses - 6elling e'pense(! 5, )2, 2, 3), - "dministrative e'penseJ 43, 32, 4), .*, #otal e'penses((( )24, )2, )., *5, 9et income((! $ 3, $ 5*, $ 4, $ .),
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J 1ncludes $ 2, depreciation each month! 8! 6ales are 20 for cash and *0 on account, C! 6ales on account are collected over a three- month period in the following ratio )0 collected in the month of sale, 0 collected in the first month following the month of sale, the remaining 20 collected in the second month following the month of sale! e&ruaryKs sales totaled $2,, and ;archKs sales totaled $., ! 1nventory purchases are paid for within )3 days! #herefore, 30 of a monthKs inventory purchases are paid for in the month of purchase! #he remaining 30 is paid in the following month! "ccounts paya&le at ;arch .) for inventory purchases during ;arch total $)2, =! "t the end of each month, inventory must &e on hand equal to 20 of the cost of the merchandise to &e sold in the following month! #he merchandise inventory at ;arch .) is $ *4, ! ividends of $ 45, will &e declared and paid in "pril! G! =quipment costing $), will &e purchased for cash in ;ay! H! #he cash &alance at ;arch .) is $32,, the company must maintain a cash &alance of at least $4, at all times! 1! #he company can &orrow from its &an+ as needed to &olster the cash account! 8orrowings and repayments must &e in multiples of $),! "ll &orrowings ta+e place at the &eginning of a month, and all repayments are made at the end of a month! #he annual interest rate is )20! Compute interest on whole months :)L)2, 2L)2, and so forth> %FCM
7age 2 of 2
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