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Final Exam Review Problems
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 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.
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?
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
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
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 ______________________
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?
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.
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.
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.
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.
String in Dollars
Cork Center in
Units
Cork Center in
Dollars
Leather Panels
in Units
Leather Panels
in Dollars
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?
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?
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.
What is the difference in the Net Operating Income (Net Annual Cost Savings) between the two
options?
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:
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.
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?
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 $_____________________________
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
Account Amount
Materials Used
April
Inventory Beginning Ending Account Amount
Raw Materials 22,141 Purchases 20,636
Account Amount
Materials Used
Miss Zo’s has the following information for the past two jobs they have done:
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.
Pops
If actual overhead for these 2 jobs was $1,300, has the overhead been over or under allocated and
by how much?
things to know
how do product cost move through the account and through company.
The relevant range= refers to a specific activity level that is bounded by a minimum and
maximum amount. Within the designated boundaries, certain revenue or expense levels can
be expected to occur. Outside of that relevant range, revenues and expenses will likely differ
from the expected amount. The concept of the relevant range is particularly useful in two
forms of analysis, which are : budgeting and cost accounting.
Selling and admin cost=is reported on the income statement as the sum of all direct and indirect
selling expenses and all general and administrative expenses, includes the costs to sell and
deliver products or services, in addition to the costs to manage the company.
product costs= are only incurred if products are acquired or produced
period costs= are associated with the passage of time. Thus, a business that has no
production or inventory purchasing activities will incur no product costs, but will still incur
period costs.
Manufacturing costs= are the costs of materials plus the costs to convert the materials into products.
All manufacturing costs must be assigned to the units produced in order for a company's
Variable cost= is a company's cost that is associated with the amount of goods or services it
produces. A company's variable cost increases and decreases with its production volume. When
production volume goes up, the variable costs will increase.
Fixed cost=Unlike the variable cost, a company's fixed cost does not vary with the volume of
production. It remains the same even if no goods or services are produced, and therefore, cannot
be avoided.
Cost driver= Examples of cost drivers are as follows: Direct labour hours Number of
customer contacts, Number of engineering change orders issued, Number of machine hours
used, Number of product returns from customers
Activity-based costing= uses several cost pools, organized by activity, to allocate overhead
costs. The idea is that activities are required to produce products—activities such as purchasing
materials, setting up machinery, assembling products, and inspecting finished products.
Steps Identify costly activities required to complete products.
2 Assign overhead costs to the activities identified in step 1.
3 Identify the cost driver for each activity.
4 Calculate a predetermined overhead rate for each activity.
5 Allocate overhead costs to products.
Why do company have desried ending inventory?= Desired ending inventory is intended to
provide some cushion in the event thatproblems develop in production or sales increase
unexpectedly
Not only in order to ensure your actual stocks match with your sales and purchases over the
course of the the accounting period, but also because this is often required in the case of an
audit.Whether your ending inventory matches with your financial transactions can indicate how
well your business has stuck to its budget and can be useful for determining whether there are
any glaring problems with production costs.it is also important to a business because ending
inventory carries over to the new accounting period. An inaccurate measure of stock value would
then continue to have financial implications into the new accounting period.
Cost volume analysis=CVP analysis provides managers with the advantage of being able to answer
specific pragmatic questions needed in business analysis. Questions such as what the company's
breakeven point is help managers project how future spending and production will contribute to the
success or failure of the company
Another major benefit of CVP analysis is that it provides a detailed snapshot of company activity.
This includes everything from the costs needed to produce a product to the amount of the product
produced.
Dissavatage=Limited for Multi-Product Operations
The difference between ideal and practical standards is Most managers feel that ideal
standards discourage even the most diligent workers. Variances from ideal standards have
little meaning. Practical standards can signal abnormal conditions and be used in forecasting
cash flows and in planning stocks.
Relevant cost= is a managerial accounting term that describes avoidable costs that are incurred
when making business decisions. The concept of relevant cost is used to eliminate unnecessary
data that could complicate the decision-making process. As an example, relevant cost is used to
determine whether to sell or keep a business unit.
If the manufacturing overhead cost applied to work in process is more than the manufacturing
overhead cost actually incurred during a period, the difference is known as over-applied
manufacturing overhead. On the other hand; if the manufacturing overhead cost applied to work in
process is less than the manufacturing overhead cost actually incurred during a period, the
difference is known as under-applied manufacturing overhead.
1. Direct materials. Add the total cost of materials purchases in the period to the cost of
beginning inventory, and subtract the cost of ending inventory. The result is the cost of
direct materials incurred during the period.
2. Direct labor. Compile the cost of all direct manufacturing labor incurred during the period,
including the cost of related payroll taxes. The result is the cost of direct labor.
3. Overhead. Aggregate the cost of all factory overhead incurred during the period. This
includes such costs as production salaries, facility rent, repairs and maintenance, and
equipment depreciation.
4. Add together the totals derived from the first three steps to arrive at total manufacturing
cost.
CONTRIBUTION STATEMENT
PRODUCTION BUDGET
Computationally
- Be able to calculate materials used
- Cost of good manu
- Finished goods
- Gogs
Understand mathematically how total cost works (per unit and overall basis)
R-squared =is a goodness-of-fit measure for linear regression models. This statistic indicates the
percentage of the variance in the dependent variable that the independent variables explain
collectively. R-squared measures the strength of the relationship between your model and the
dependent variable on a convenient 0 – 100% scale
ROI =equals
net operating income divided by average operating assets times 100. For example, if your small
business has $30,000 in net operating income and $100,000 in average operating assets, your
ROI would be $30,000 divided by $100,000 times 100, which is 30 percent.