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ACCT 505 Final Exam

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1. (TCO D) Topple Company produces a single product. Operating data for the company
and its absorption costing income statement for the last year are presented below.
Units in beginning inventory

2,000

Units produced

9,000

Units sold

10,000

Sales

$100,000

Less cost of goods sold:


Beginning inventory

12,000

Add cost of goods manufactured

54,000

Goods available for sale

66,000

Less ending inventory

6,000

Cost of goods sold

60,000

Gross margin

40,000

Less selling and admin. expenses

28,000

Net operating income

$12,000

Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals
$18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per
unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing.
Comment on the differences between the absorption costing and the variable costing
income statements. (Points : 30)
Question 2. 2. (TCO I) (Ignore income taxes in this
problem.) Simpson Beauty Products Corporation is
considering the production of a new conditioning shampoo
that will require the purchase of new mixing machinery.
The machinery will cost $700,000, is expected to have a
useful life of 10 years, and is expected to have a salvage
value of $70,000 at the end of 10 years. The machinery
will also need a $45,000 overhaul at the end of Year 5. A
$60,000 increase in working capital will be needed for this
investment project. The working capital will be released at
the end of the 10 years. The new shampoo is expected to


generate net cash inflows of $150,000 per year for each
of the 10 years. Simpson's discount rate is 18%.
Required:
Part A: What is the net present value of this investment
opportunity?
Part B: Based on your answer to (a) above, should
Simpson go ahead with the new conditioning shampoo?
(Points : 30)
Question 3. 3. (TCO A) The following data (in thousands of
dollars) have been taken from the accounting records of
the Maroon Corporation for the just-completed year.

Sales

1,700

Raw materials inventory, beginning

50

Raw materials inventory, ending

25

Purchases of raw materials

210

Direct labor

360

Manufacturing overhead

330

Administrative expenses

400

Selling expenses

200

Work-in-process inventory, beginning

120

Work-in-process inventory, ending

150

Finished goods inventory, beginning

80

Finished goods inventory, ending

120

Use the above data to prepare (in thousands of dollars) a


schedule of Cost of Goods Manufactured and a Schedule
of Cost of Goods Sold for the year. In addition, what is the
impact on the financial statements if the ending finished
goods inventory is overstated or understated? (Points :
25)
Question 4. 4. (TCO F) Walker Corporation is preparing its
cash budget for November. The budgeted beginning cash
balance is $43,000. Budgeted cash receipts total
$117,000 and budgeted cash disbursements total
$122,000. The desired ending cash balance is $55,000.
The company can borrow up to $100,000 at any time from
a local bank, with interest not due until the following
month.

Required:
Prepare the company's cash budget for November in good
form. Make sure to indicate what borrowing, if any, would
be needed to attain the desired ending cash balance
(Points : 25)
Question 5. 5. (TCO F) Bella Lugosi Holdings, Inc. (BLH),
has collected the following operating information for its
current month's activity. Using this information, prepare a
flexible budget analysis to determine how well BLH
performed in terms of cost control.

Actual Costs
Incurred
Activity level (in
units)

Static
Budget

5,250

5,178

Indirect materials

$24,182

$23,476

Utilities

$22,356

$22,674

Administration

$63,450

$65,500

Rent

$65,317

$63,904

Variable costs:

Fixed costs:

(Points : 25)
Question 6. 6. (TCO H) Lindon Company uses 10,000 units
of Part Y each year as a component in the assembly of
one of its products. The company is presently producing
Part Y internally at a total cost of $100,000 as follows.
Direct materials............................................... $20,000
Direct labor...................................................... 40,000
Variable manufacturing overhead...................... 16,000
Fixed manufacturing overhead.......................
24,000
Total costs.......................................................100,000
An outside supplier has offered to provide Part Y at a price
of $10 per unit. If Lindon stops producing the part
internally, one third of the fixed manufacturing overhead
would be eliminated.
Required: Should Lindon Company make or buy the part?
Prepare a make-or-buy analysis showing the annual


advantage or disadvantage of accepting the outside
supplier's offer. (Points : 30)
Question 7. 7. (TCO B) Sandler Corporation bases its
predetermined overhead rate on the estimated machine
hours for the upcoming year. Data for the upcoming year
appear below.

Estimated machine hours

75,000

Estimated variable
manufacturing overhead

$4.50

Estimated total fixed


manufacturing overhead

$825,0
00

per
machine
hour

The actual machine hours for the year turned out to be


77,000.
Required:
Compute the company's predetermined overhead rate.
(Points : 25)