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Islamic Univ.

of Gaza Advanced Managerial Accounting


Faculty of Commerce
Accounting Department Prof. Salem Helles
Thursday 22/5/2008
Final Exam
Name: ____________________________________ Std No.______________

Question One:-
Gaza Farms produces strawberries and raspberries. Annual fixed costs are $
15,600. The cost driver for variable costs is pints of fruit produced. The variable cost is
$ .75 per pint of strawberries and $ .95 per pint of raspberries. Strawberries sell for $
1.10 per pint, raspberries for $ 1.45 per pint. Two pints of strawberries are produced for
every pint of raspberries.

1- Compute the number of pints of strawberries and the number of pints of raspberries
produced and sold at the break-even point.
2- Suppose only strawberries are produced and sold. Compute the break-even point in
pints.
3- Suppose only raspberries are produced and sold. Compute the break-even point in
pints.

Question Two:-
Saed Salem owns and operates a restaurant. Her fixed costs are $ 21,000 per
month. He serves luncheons and dinners. The average total bill (excluding tax and tip)
is $ 19 per customer. Salem's present variable costs average $ 10.60 per meal.

1- How many meals must he serve to attain a profit before taxes costs $ 8,400 per
month?
2- What is the break-even points in number of meals served per month?
3- Salem's rent and other fixed costs rise to a total of $ 29,925 per month and
variable costs also rise to $ 12.50 per meal. If increases her average price to $ 23,
how many meals must she serve to make $ 8,400 profit per month?
4- Assume the same situation described in number 3. Giraud's accountant tells her
she may lose 10% of her customers if she increases her prices. If this should
happen, what would be Giraud's profit per month? Assume that the restaurant had
been serving 3,500 customers per month.
5- Assume the same situation described in number 4. To help offset the anticipated
10% loss of customers, Giraud hires a pianist to perform for four hours cash night
for $ 2,000 per month. Assume that this would increase the total monthly meals
from 3,150 to 3,450. Would Giranud's total profit change? By how much?

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Question Three:-
Saed's Toy store is on regent street in Ramallah. It has a magic department near
the main door. Suppose that management is considering dropping the magic
department, which has consistently shown an operating loss. The predicted income
statements, in thousands of pounds (), follow (for ease of analysis, only three product
lines are shown):
General Electronic Magic
Total
Merchandise Products Department
Sales 6,000 5,000 400 600
Variable expenses 4,090 3,500 200 390
Contribution margin 1,910 (32%) 1,500 (30%) 200(50%) 210 (35%)
Fixed expenses
(compensation, depreciation, property
taxes, insurance, etc.)
Operating income 1,110 750 50 310
800 750 150 (100)
The 310,000 of magic department fixed expenses include the compensation of
employees of 100,000. These employees will be released if the magic department is a
bandoned. All of the magic department's equipment is fully depreciated, so none of the
310,000 pertains to such items.
Furthermore, disposal values of equipment will be exactly offset by the costs of
removal and remodeling.
If the magic department is dropped, the manager will use the vacated space for
either more general merchandise or more electronic products. The expansion of general
merchandise would not entail hiring any additional salaried help, but more electronic
products would require an additional person at an annual cost of 25,000. The manager
thinks that sales of general merchandise would increase by 300,000; electronic
products, by 200,000. the manager's modest predictions are partially based on the fact
that she thinks the magic department has helped lure customers to the store and thus
improved overall sales. If the magic department is closed, that lure would be gone.
Should the magic department be closed? Explain, showing computations.

Question Four:-
The Mussina Chemical Company produced three joint products at a joint cost of $ 117,000.
These products were processed further and sold as follows.
Chemical Product Sales Additional Processing Costs
A $ 230,000 $ 190,000
B 330,000 300,000
C 175,000 100,000
The company has had an opportunity to sell at split off directly to other processors. If
that alternative had been selected, sales would have been A, $ 54,000; B, $ 28,000; and
C, $ 54,000.
The company expects to operate at the same level of production and sales in the
forthcoming year.
Consider all the available information, and assume that all costs incurred after
split off are variable.
1- Could the company increase operating income by altering its processing decisions? If
so, what would be the expected overall operating income?
2- Which products should be processed further and which should be sold at split off?
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Question Five:-
From a particular joint process, Edgerton company produces three products, A, P
and C. Each product may be sold at the point of split off or processed farther. Additional
processing requires no special facilities, and production costs of further processing are
entirely variable and traceable to the products involved. In 2004, all three products were
processed beyond split on joint production costs for the year were $ 72,000. Sales
values and costs needed to evaluate Edgerton's 2004 production policy follow:
Addition Costs and Sales
Values if Proceeded Further
Net Realizable Value
Product Units Produced Sales Values Added Costs
(Sales Values) at Split Off
A 6,000 $ 25,000 $ 42,000 $ 9,000
B 4,000 41,000 45,000 7,000
C 2,000 24,000 32,000 8,000
Answer the following multiple-choice questions:
1- For units of C, the unit production cost most relevant to a sell process further
decision is (a) $5, (b) $12, (c) $4, (d) $9.
2- To maximize profits, Edgerton should subject the following produce additional
processing (a) A only, (b) A, B, and C, (c) B and C only, (d) C only.

Question Six:-
Quantrill Furniture Mart plans inventory levels (at cost) at the end of each month
as follows: May, $ 250,000; June, $ 220,000; July, $ 270,000; August, $ 400,000. Cost
of goods sold is 60% of sales.
Purchases in April were $ 250,000; in May, $ 180,000. A given month's purchases
are paid as follows: 10% during that month; 80% the next month; and the final 10% the
next month.
Prepare budget schedules for June, July, and August for purchases and for
disbursements for purchases.

Question Seven:-
Consider the following data (in thousands):
Division
A B C
Average invested capital $ 1,000 $ 600 $ 900
Revenue 3,600 1,800 9,000
Income 180 126 90
1- For each division, compute the return on sales, the capital turnover, and the return
on investment (ROI).
2- Which division is the best performer? Explain.
3- Suppose each division is assessed an imputed interest rate of 10% on invested
capital. Compute the residual income for each division. Which division is the best
performer based on residual income? Explain.

Good Luck
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