MANAGERIAL ACCOUNTING – TRIAL FINAL EXAM – V1

DURATION 120 MINUTES

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Task 1
One-A Production Company is the producer and distributor of grade A metal roofs for residential and
commercial needs. It has the following cost structure for its operations in 2014:
Direct material $9 per unit
Direct labor $7 per unit
Variable overhead:
- Manufacturing costs $4 per unit
- Selling and administrative costs $7 per unit
Fixed overhead:
- Manufacturing costs $10,000
- Selling and administrative costs $6,000
Sales 3,500 units
Unit selling price $30
During 2014, the company produced 4,000 pieces of the metal roofs.

Required:
a. Prepare an income statement for One-A Production Company for the year ended 31 December
2014 using the contribution margin method.
b. The knowledge regarding cost behavior is important to managers. Explain.

Task 2
Saza Laboratories manufactures 30,000 units of G-2 lenses each year for use in the production of its
microscopes. At this level of activity, the cost per unit for G-2 lens is as follows:
Direct materials $3.60
Direct labor 10.00
Variable manufacturing overhead 2.40
Fixed manufacturing overhead 9.00
Total cost per lens $25.00
An external supplier has offered to sell 30,000 of the G-2 lenses to Saza Laboratories for $21 per lens.
If Saza Laboratories accepts this offer, the facilities now being used to manufacture the lens could be
rented to another company at an annual rental of $80,000. Nevertheless, Saza Laboratories has
determined that two-thirds of the fixed manufacturing overhead being applied to G-2 lenses would
continue even if the lenses were purchased from the external supplier.

Required:
a. Prepare computations showing how much profits will increase or decrease if the external
supplier’s offer is accepted.
b. What are the advantages of producing own parts and materials compared to relying on external
suppliers?

Task 3
Mega Truckers Company produces test plugs for use in trailers and military trucks. The company has
recently established a standard cost system to enhance cost control. The standard costs to produce
the test plugs are given below:
Standard cost Requirement per test plug
Direct material $0.50 per gasket 6 gaskets
Direct labor $8 per hour 1.3 hours

During September 2014, the company produced 3,000 test plugs. Production data for September
2014 is as follows:
 Direct material: 25,000 gaskets were purchased at a cost of $0.48 each. 5,000 of these gaskets
were still in inventory at the end of the month.
 Direct labor: 4,000 direct labor hours were worked at a cost of $36,000.

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Required:
a. Compute the following variances for September 2014:
i. Direct materials price and quantity variances.
ii. Direct labor rate and efficiency variances.
b. Prepare a short report on the possible causes of each variance.

Task 4
Crunchee Delight Company produces the best chocolate cookies in town with an average monthly
sale of 2,000 units. Its only fixed expenses comprise of shop rental and payment of staff salary, which
are $30,000 per month. Other information on production is as follows:

Per unit Percent of sales

Selling price $90 100%
Variable expenses $63 70%
Contribution margin $27 30%

The marketing manager is considering two proposals to increase sales next year:
i. The first proposal suggests that spending an additional $5,000 per month for advertising
would increase sales by $9,000.
ii. The second proposal suggests that the use of higher grade cocoa beans in the ingredients
would increase sales by 10% per month. However, the cost of these cocoa beans will increase
by $2 per chocolate cookie.

Required:
a. Prepare and compare the income statement under the current cost structure with the income
statement if the first proposal is adopted. What is the effect of the first proposal on the company’s net
income?
b. What is the effect of the second proposal on the company’s net income?
c. Which proposal should be implemented by the company?

Task 5
The Tubbs Kitchen Manufacturer sells kitchen backsplash and countertops. The company's
accountant has prepared the following sales budget for the first quarter of 2015:

Budgeted sales
January $100,000
February $125,000
March $150,000
Total $375,000

Based on past experience, the following trend in cash collection is expected from its credit sales: 70%
is to be collected in the month of sale, 20% in the month following sale and 6% in the second month
following sale. Uncollectible accounts have averaged 4% of receivables. The company gives a 2%
discount for payments made by customers during the month of sale.

Required:
Prepare a schedule of cash collections from sales by month and in total for the first quarter 2015.

THIS IS THE END OF THE EXAM PAPER

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