Final Exam Review Problems

If the total mixed costs for a machine are $44,990 per month and fixed cost portion is $818 and
the cost driver for the cost is 3,272 machine hours. What is the total mixed cost per machine
hour? What is the variable cost per machine hour?

44,990/3,272=$13.75
Total Cost Per Machine Hour $__________13.75____________

44,990-818/3,272=$13.50
Variable Cost Per Machine Hour $_______13.50_____________

The Following Income Statement is for the Month of March:

Sales Revenue $ 1,500,000

Cost of Goods Sold 750,000
Gross Margin 750,000

Selling and Administrative Expenses

Selling 125,000
Administrative 450,000 575,000

Net Operating Income $ 175,000

The company sells each unit for $20 and each unit has a variable cost of $8.75. The variable
selling cost is a 5% commission on the contribution margin. 15% of the administrative costs are
variable, the remaining are fixed.

Prepare a Contribution Approach Income Statement

Sales
-tvc
=cm
-tfc
=net op income

1,500,000/20=75,000
var man=(8.75x75,000)=656,250
var sell=(20-8.75)x75,000x0.05)=42,187.50
var admin=(450,000x0.15)=67,500
total variable cost=765,937.50

fixed=fixed main=(750,000-656,250=93,750
selling=125,000-42187.50,=82,812.50
admin=450,000x0.85=82,812.50
=559,062.50

Super Cola sells all its bottles of soda for $1.25 each. Each bottle of soda has a variable expense
of $0.50 and the company has $650,000 worth of fixed expenses. If the company sells 3,000,000
bottles of soda, what is the total contribution margin? What is the contribution margin ratio?
What is the Net Operating Income?

Cont margin=sales-tvc or units sold(selling price-varcost per unit)

3,00,000(1.25-0.50)
3,00,000(0.75)=2,250,000
Total Contribution Margin ____________2,250,000_____ Contribution Margin Ratio
_____60%________
Cont margin/sales= ratio]
2,250,000/(3,000,000X1.25)=0.60=60%

Net Operating Income _____2,250,000-650,000=1,600,000_______________

Use the Information for Super Cola for the next three Questions.

Super Cola is trying to increase sales and the management team has come up with three options,
for each option determine Net Operating Income.

Option #1:
Increase the Advertising by $100,000, which will increase sales by 10%.
3,000,000x1.10= 3,300,000(1.25-0.50=0.75)
3,300,000x0.75=2,475,000
-tfc 750,000
1,750

Net Operating Income _____________________

Option #2:
Change the formula of the soda, which will raise variable expenses per unit by $0.25 to $0.75
and increase sales by 20%.
3,00,000x1.20
3,600,000(1.25-0.75=0.50)
1,800,000=cm
-650,000
1,150,000

Net Operating Income ______________________

Option #3:
Lower the sales price to $1.00 and increase Advertising by $100,000, which will increase sales
by 35%.

3,000,000x1.35
=4,050,000(1-..50=0.50)
2,025,000
-750,000
1,275,000
Net Operating Income ______________________

What is the Profit Margin Percentage for each option?

Net op income/sales

Option #1 1,725,000/(3,300,000x1.25)=____42%____
Option #2 1,150,000/(3,600,000x1.25)____ 26%_______
Option #3 1,275,000/(4,050,000x1)_______31%_____

Better Living Drug is introducing a new drug that will sell for $10 a pill. Each pill has variable
expenses of $2.50. Better Living is assigning $525,000 of Fixed Expense to this new drug. What
is the Break Even Point in Units and Sales Dollars for this new drug?
525,000+0
(10-2.50)=7.50
=70,000
Break Even Units ___70,000

525,000
(7.50/10)=0.75
Break Even Sales Dollars _700,000___

Better Living wishes to make a profit of $1,000,000 on this new drug. What is the total number
of Units and Sales Dollars required to achieve the desired profit?

Number of Units ___203,334______________

Sales Dollars _______________________
Many Miles Tire Company currently has a Net Operating Income of $100,800 with Operating
Assets of $960,000. The company is interested in purchasing and opening an additional factory.
This new factory will cost the company $350,000 and will increase net operating income by
$38,191. What is the ROI of the company without the new factory? What is the ROI of the
company with the new factory?

ROI without New Factory ___100,800/960,000=0.105=10.5___________________________

ROI with New Factory ___100,800+38,191/960,000+350,000=0.1-

61=10.61____________________________

Based on ROI should Many Miles purchase and open the new factory? __________________

If Many Miles Tire has a Minimum Required Rate of Return of 9.75% what is the Residual
Income without the new factory? What is the Residual Income with the new factory?

100,800-(0.0975x960,000)
Residual Income without new factory ______7,200_____________________
9
(100,800+38,1910)-(0.0975x960,000)
Residual Income with new factory _________11,266____________________

Based on Residual Income should Many Miles purchase and open the new factory?
____yes______

Round The Bases Inc. is preparing a Budget for the 2nd Quarter of the year, the months of April,
May, and June, for the baseballs division. Anticipated sales in balls for the next 4 months are as
follows:
April May June July
46,000 52,000 60,000 69,000
Round the Bases sells each ball for $5.35. Prepare a sales budget in Dollars for each month of the
Quarter and the Quarter as a whole.

April May June Quarter Total

Sales in Dollars 46,000x5.35 52,000x5.35 60,000x5.35 158,000x5.35
=264,100 =278,200 =321,000 =845,300

Experience shows that 35% of sales are collected in cash in the month of the sale, 50% are
collected in cash in the month following the sale, and the final 15% are collected in cash 2
months following the sale. Actual sales in dollars for February were $117,700 and from March
$224,700.
Prepare a Cash Collections Budget for each month of the Quarter and the Quarter as a whole.

April May June Quarter Total

Cash Collected 264,000x0.35 278,200x0.35 321,000x0.35 758,630
from Customers = = =
224,700x0.50 264,100x0.50 278,200x0.50
= = =
117,700x0.15 224,700x0.15 264,100x0.15
=216,140 =254,125 =288,365

Round The Bases desires to have enough inventory at the end of the month for 20% of the next
month’s sales. The inventory at the end of March is 9,310 balls.

Prepare a production budget in units for each month of the Quarter and the Quarter as a whole.
April
Current sales=46,000
Desired ending inventory=52,000x0.2=10,400
Needs=56,400
-9,310

April May June Quarter Total

Production in 47,090 53,600 61,800
Units

Each baseball requires 100 feet of string, 1 cork center, and 2 leather panels. String costs $0.08
per 10 feet, cork centers cost $0.45 each, and each leather panel costs $0.50. Round The Bases
desires to have enough raw materials on hand at the end of the month to make 10% of the
baseballs they need to make the next month. At the end of March there is 480,000 feet of string,
47,000 cork centers, and 95,000 leather panels. At the End of June desired inventory is 692,000
feet of string, 6,920 cork centers, and 13,840 leather panels.

Prepare a Direct Materials Budget in both units and dollars for each raw material, string, cork
centers, and leather panels, for each month in the quarter and the Quarter as a whole.

Needs=47,090x100=4,709,000
Desired end inventory=53,600x100x0.1=536,000
Total needs=5,245,000
-beg inventory=480,000
purchase=4,765,000
price=0.008
purchase$=38,120

April May June Quarter Total

String in Feet

String in Dollars

Cork Center in
Units
Cork Center in
Dollars
Leather Panels
in Units
Leather Panels
in Dollars

Only variances on exam

Scarves made by Warm Neck Company have standard cost material requirements of 4 balls of
yarn. The standard cost of yarn the company uses is $1.25 per ball. If 35,000 scarves are made,
what should the material usage and cost be according to standard costs? If actual material usage
is 140,350 balls of yarn and actual price is $1.30 per ball, what are the price and quantity
variances? Are these variances Favorable or Unfavorable? What is the total variance? Is this
variance Favorable or Unfavorable?

Standard Material Usage =35,000x4=140,000

Standard Material Cost =140,000x1.25=175,000

Price Variance=actual quantity(standard price-actual price)=140,350(1.25-1.30)=7,017.50

Quantity Variance =standard quantity-actual quantity(Xstandard price)
(140,000-140350)1.25=437,50
Total Material Variance= 7,455

Each scarf has a standard labor cost of 7 hours and a standard cost rate of $22.00 per hour. With
35,000 scarves produced, what is the standard cost for direct labor in both hours and dollars? If
actual hours are 244,798 and actual cost was $5,361,076, what are the rate and efficiency
variances? Are the variances Favorable or Unfavorable? What is the total direct labor variance?
Is this variance Favorable or Unfavorable?

Standard Labor Hours 35,000x7-245,000

Standard Labor Cost =

Rate Variance=(actual hours X standard rate)-(actual hours X actual rate)= 24,480

Efficiency Variance =(245,000-244,798) 22= 4,444

Total Direct Labor Variance __________________

Nature’s Shade is considering a new labor saving machine that will dig the holes for the trees
that plants for customers. This new machine will dig the holes for all of the trees that Nature’s
Shade plants and will cost the company $5,000 a year in extra depreciation expense. The
following information shows annual sales with and without the new machine.

Current Without Machine With New Machine

Trees Sold and Planted 5,500 5,500
Selling Price per Tree Planted $360 $360
Direct Materials per Tree $175 $175
Direct Labor per Tree $85 $60
Variable Overhead per Tree $10 $20
Fixed Costs (Common) $306,900 $306,900
Additional Fixed Costs $5,000

What is the difference in the Net Operating Income (Net Annual Cost Savings) between the two
options?
w/o
25x5,500=137,000

w
10x5,500
55,000
+5000
60,000
Net Operating Income Difference $______7750-____________________

Which option has the higher Net Operating Income ___________________________

Should Nature’s Shade invest in the new machine? ______________________

Whisper Fan Company makes 30,000 motors per year for one type of fan it manufactures. The
unit product cost of this part is computed as follows:

Direct Materials Per Motor $15.70

Direct Labor Per Motor 17.50
Variable Manufacturing Overhead Per Unit 4.50
Fixed Manufacturing Overhead Per Unit 14.60
Motor Cost Per Unit $52.30

An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would
be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part
would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company's remaining products.

15,70+17.50+4.50+8.40=46.10X30,000=1,383,000

Should Whisper Fan make or buy the motors for the fans? ___________________
Olive Squisher Oil Company makes two types of Olive Oil, Virgin and Extra Virgin. Both types
of oil must use the same filtration machine before being bottled. Virgin Olive Oil has a
contribution margin of $3.00 per gallon and Extra Virgin Olive Oil has a contribution margin of
$4.75 per gallon. A filtration run of Virgin Oil consists of 560 gallons of oil and takes 2 hours. A
filtration run of Extra Virgin Oil consists of 540 gallons of oil and takes 2.5 hours. If there are 6
extra hours available to filter either Virgin or Extra Virgin Oil, what is the contribution margin of
producing Virgin or Extra Virgin Oil?

Contribution Margin Virgin Oil Filtration $

3/gal x 560gal
2hr
=840 per hour
x 6 hours=
= 5,040

Contribution Margin Extra Virgin Oil Filtration $

4.75/gal X 540gal
2.5hr
=1,026 per hour
x5
=5,130

Which oil should the company produce with the extra time? ______________________

Chomper Dog Bones has a waste product from the construction of rawhide bones. Chomper can
sell this material to other companies as is for $3.50 pound and sell 50,000 pounds. Chomper can
use this waste product to make another type of bone that will sell for $6 per pound and can use
45,000 pounds for this purpose. This processing will cost $2.25 per pound and any extra material
can still be sold for $3.50 per pound. What is the Net Income generated from selling the waste as
is? What is the Net Income generated from processing the waste into the other type of bone?

Net Income from Selling as is $3.50x50,000=175,000

Net Income from Processing into other bone $=6x45,000=270,000

5,000x3.50=17,500
=287,500
Should Chomper Dog Bones sell the waste as is or process further?
Miss Zo’s Chocolate Logs has the following information for the past 2 months, March and April.
Fill in the missing amounts
March
Inventory Beginning Ending Account Amount
Raw Materials 20,817 21,320 Purchases 15,519

Works in 24,899 25,790 Direct Labor 7,508

Process
Finished Goods 10,671 10,860 Manufacturing 2,503
Overhead

Account Amount
Materials Used (beg inv+purch-end inv 20,817+15,519-21,320= 15,016

Cost of Goods Manufactured= beg wip+mat 24,136

used +dl+oh)-end wip
Cost of Goods Sold

April
Inventory Beginning Ending Account Amount
Raw Materials 32,320 22,141 Purchases 20,636

Works in 25,790 25,854 Direct Labor 9,907

Process
Finished Goods 10,860 11,081 Manufacturing 3,303
Overhead

Account Amount
Materials Used (10,860+

Cost of Goods Manufactured (32,961+

Cost of Goods Sold (

What the 2 months totals?

Materials Used ______________________ Cost of Goods Manufactured __________________

Cost of Goods Sold _____________________

Miss Zo’s has the following information for the past two jobs they have done:

Materials Used in Pounds

Job Sugar Chocolate Powdered Milk Flavor X
Logs 9,420 5,765 1,540 490
Pops 10,754 2,645 620 325

Hours Worked
Job/Worker # #57689 #87643 #94765
Logs 40 10 50
Pops 30 70 20

Cost Rates
Material Cost Per Pound Worker # Hourly Rate
Sugar $0.25 57689 $17.00
Chocolate $0.20 87643 $19.00
Powdered Milk $0.40 94765 $21.00
Flavor X $1.20

Estimated labor hours for the quarter is 3,000 and estimated total overhead for the quarter is
$16,500. Miss Zo’s allocates overhead by labor hour.

Calculate the Direct Material Cost, Direct Labor Cost, and Overhead Allocated for each Job
individually and total for each job.

Job Direct Materials Direct Labor Overhead Total Cost

Logs

Pops

If actual overhead for these 2 jobs was $1,300, has the overhead been over or under allocated and
by how much?

Over Allocated or Under Allocated $_________________________

Things to know for final

Comprehensive exam (covers all lectures)

50 MPC (20 connectional, definitions ,2 marks) (30 calculated, 2.5 marks)
4 short answer (4 marks to 20 marks)

things to know
  -what aspects of managerial accounting are different than financial accounting
 how do product cost move through the account and through company.
 Where do overall product cost operate within relevant range
 Know the differences between manufacturing cost, product cost, selling and admin cost,
and period cost.
 Differences between variable and fixed cost, in total and on a per unit basis.
 Why and how to use different overhead cost drivers (why and how you would operate an
activity based operating system
 Why do company’s have desired ending inventory
 What cost volume analysis can analyze and what it cannot
 Know how cost volume profit works
 What practical standards how and why they are better than ideal standards
 Know what relevant costs are, and why they matter
 Know what cm margin is (sales-tvc)
 Know why overhead is either over or under applied.

Computationally
- Direct materials
- Be able to calculate materials used
- Cost of good manu
- Finished goods
- Gogs
Understand mathematically how total cost works (per unit and overall basis)

- How to identify Relevant cost for key or drop decision.

- Be able to do cost volume profit analysis
- Calculate budgeted production, materials, direct labour, cash collection and cash
disbursements.
- Calculate allocated/applied overhead.
- Calculate ROI
- Able to use ROI margin and turnover to calculate sub components (net income,
sales)
- Make a make or buy decision
- Be able to determine the point where make and buy options are equal.(point of
indifference)
- Use high low method on mixed cost to get variable cost per unit and total fixed
cost per period
- Calculate in both unit and dollars, break even and target profit
- Calculate margin of safety.
- Calculate residual income
- Calculate variable cost per unit and CM per unit
- Know what the r squared regression tell us? (how well do actual total cost fit
scenario)
- Identify relevant cost.
- Know how to prepare CM margin income statement (sales-tvc=cm-tfc=net op
income)
- Calculate a change in CM margin if there is a change in a number of units sold.