CORDILLERA CAREER DEVELOPMENT COLLEGE

College of Accountancy
Buyagan, Poblacion, La Trinidad, Benguet

MAS Pre-Board 2
N.B. Please convert all Dollar signs into Peso signs.
1. Domneil Jan Corp. has the following data:

Normal capacity 40,000

Practical capacity 45,000
Budgeted production 30,000
Actual production 35,000
Actual sales ($20 per unit) 32,000
Standard variable production cost per unit $12
Budgeted fixed production costs $135,000
There were no variable cost variances for the year. Fixed costs incurred were equal to the budgeted amount.
There were no beginning inventories and no selling or administrative expenses.
1. Compute the absorption costing income if fixed costs per unit are determined using normal capacity.
2. Compute the absorption costing income if fixed costs per unit are determined using practical capacity.
3. Compute the absorption costing income if fixed costs per unit are determined using budgeted
production.
4. Compute the variable costing income.

2. Domdale Jan Co. has the opportunity to introduce a new product. Domdale Jan expects the project to sell for
$40 and to have per-unit variable costs of $27 and annual cash fixed costs of $1,500,000. Expected annual
sales volume is 200,000 units. The equipment needed to bring out the new product costs $3,500,000, has a
four-year life and no salvage value, and would be depreciated on a straight-line basis. Domdale Jan's cutoff
rate is 10% and its income tax rate is 40%.

5. Find the increase in annual after-tax cash flows for this opportunity.
6. Find the payback period on this project.
7. Find the NPV for this project.

3. Domjae Shire Co. is considering the purchase of a machine. Data are as follows:

Cost $160,000

Useful life 10 years

Annual straight-line depreciation $ ???

Expected annual savings in cash
operation costs $ 33,000
Domjae's cutoff rate is 12% and its tax rate is 40%.
8. Compute the annual net cash flows for the investment.
9. Compute the NPV of the project.
10. Compute the IRR of the project.
4. Jane Company is considering replacing a machine that has the following characteristics.

Book value $200,000

Remaining useful life 4 years
Annual straight-line depreciation $ ???
Current market value $160,000
The replacement machine would cost $300,000, have a four-year life, and save $37,500 per year in cash
operating costs. It would be depreciated

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using the straight-line method. The tax rate is 40%.

11. Find the net investment required to replace the existing machine.
12. Compute the increase in annual income taxes if the company replaces the machine.
13. Compute the increase in annual net cash flows if the company replaces the machine.
5. Marlyn Company had the following results in June.

Planned Actual
-------- --------
Sales $160,000 $162,500
Variable costs at $5 per unit 100,000 102,500
-------- --------
Contribution margin $ 60,000 $ 60,000
======== ========

Planned sales were 20,000 units, actual sales were 20,500 units.

14. Find the sales price variance. Indicate F or U

15. Find the sales volume variance. Indicate F or U

6. Following are data about Rita Co.'s two service departments and two operating departments.

Service Depts. Operating Depts.

-------------- ---------------
A B X Y
------- ------ ------ ------
Direct costs $400 $600 $2,000 $3,000
Services performed by Dept. A 30% 30% 40%
Services performed by Dept. B. 20% 70% 10%

16. Rita allocates costs of its service departments using the direct method of allocation. Find the total cost
that will be allocated to each of the operating departments.

17. Rita allocates the costs of its service departments using the step-down method, beginning with Dept. A.
Find the total amount of cost that will be allocated to each of the operating departments.

18. Rita allocates costs of its service departments using the reciprocal method of allocation. Find the total
cost that will be allocated to each of the operating departments.

7. Andrea Company has two major segments with the following information:

Upstate Downstate Total_

Annual revenue $200,000 $600,000 $800,000
Annual salesperson salaries $30,000 $45,000 $75,000
Number of customers 50 75 125
Miles driven 80,000 40,000

The business also has overhead costs as follows:

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Cost pool Cost in pool Cost driver__________
Travel $ 36,000 miles driven
Entertainment 144,000 number of customers
Administrative 150,000 salaries
--------
Total $330,000

19. Allocate the overhead costs to the segments based on sales revenue.
20. Determine the income of each segment.
21. Allocate the overhead costs to the segments using ABC.
22. Determine the income of each segment under ABC.

7. The statistician of Sheila, Inc. has developed the following prediction equation for costs, using observations
from 25,000 to 60,000 machine hours.

Y = $146,374 + $4.892X, r-squared = .86, standard error = $28,638

 Y = total repair cost, X = machine hours

23. Find the predicted repair cost at 50,000 machine hours.

24. Will repair cost at zero machine hours be $146,374? yes no Circle the correct answer.

25. About 68% of the time, repair cost should be within what amount of the predicted value?

8. Sabino Company sells three products. Planned results for next year follow.

Product
A B C
---- ---- ----
Selling price $10 $8 $4
Variable cost 4 6 1
--- --- ---
Contribution margin $6 $2 $3
=== === ===
Sales mix in dollars 25% 25% 50%

Fixed costs are $500,000.

26. Compute the weighted-average contribution margin percentage.

27. Compute the sales (in $) required to earn a $100,000 profit.

28. Suppose now that the sales mix, in UNITS, is 25%, 25%, 50%. Determine the weighted-average
contribution-margin per unit.

29. Determine the total unit sales needed to earn $100,000.

9. Asterio Company has sales of $350,000, variable costs of $200,000, and fixed costs of $125,000. Asterio has
an effective tax rate of 40%.

30. Compute the break-even point.

31. Compute Asterio's sales needed to earn a $75,000 after-tax profit.

32. Compute the sales Asterio would need to earn a 15% after-tax return on sales.
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10. Elpedio Company expects the following results, without considering any of the changes described below.

Product A Product B Total

--------- --------- ------
Sales $1,000 $3,000 $4,000
Variable costs 400 1,000 1,400
----- ----- -----
Contribution margin $ 600 $2,000 $2,600
Fixed costs - avoidable (200) (300) (500)
- unavoidable (500) (1,000) (1,500)
----- ------ -----
Profit (loss) $ (100) $ 700 $ 600
===== ====== ======

The unavoidable costs are allocated based on unit sales of 1,000 A and 2,000 B. An exporter has offered
$0.80 per unit for 200 units of A.

33. Find the change in income if Elpedio accepts the order, assuming no loss of regular sales.

34. The managers believe that if they accept the special order, they will lose some sales at the regular price.
Determine the number of units they could lose before the order became unprofitable.
 35. The managers believe that they will lose 80 units at the regular price if they accept the order. Calculate
the price they must charge for the special order to increase income by $50.

11. Mila Company has the following sales budget.

January $200,000
February $240,000
March $300,000
April $360,000

Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in the following month.
Mila keeps inventory equal to double the coming month's budgeted sales requirements. It pays for
purchases 80% in the month of purchase and 20% in the month after purchase. Inventory at the beginning
of January is $190,000. Mila has monthly fixed costs of $30,000 including $6,000 depreciation. Fixed
costs requiring cash are paid as incurred.

36. Compute budgeted cash receipts in March.

37. Compute budgeted accounts receivable at the end of March.

38. Compute budgeted inventory at the end of February.

39. Compute budgeted purchases in February.

40. March purchases are $290,000. Compute budgeted cash payments in March to suppliers of goods.

41. Compute budgeted accounts payable for goods at the end of February.

42. Cash at the end of February is $45,000. Cash disbursements are not required for anything other than
payments to suppliers and fixed costs. Compute the budgeted cash balance at the end of March.