School Year 2020-2021

Managerial Accounting (BCOR 225)

Final Exam, Fall 2020
(Professors: Dr. Karim Mhedhbi & Dr. Yosr Guirat/ Groups: 2; 5; 6; 10 and 11)

SOLUTION AND GRAGING

Points (40 points) Observations

PART 1. Activity Based Costing 12
MCQ 1 1
MCQ 2 1
MCQ 3 1
MCQ 4 1
Exercise 8
PART 2. Cost-Volume-Profit 28
MCQ 1 1
MCQ 2 1
MCQ 3 1
MCQ 4 1
Exercise 24

Page | 1
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

Part 1. Activity-Based Costing (12 pts/40 pts)

I. Multiple Choice Questions: Underline the right answer (4 pts)

1. The first step in activity-based costing is to (1 pt)

A. Assign overhead costs to products, using overhead rates determined for each
cost pool.
B. Compute the activity-based overhead rate per cost driver.
C. Identify and classify the activities involved in the manufacture of specific
products, and allocate overhead to cost pools. X
D. Identify the cost driver that has a strong correlation to the activity cost pool.

2. An activity-based overhead rate is computed as follows: (1 pt)

A. Actual overhead divided by actual use of cost drivers.

B. Estimated overhead divided by actual use of cost drivers.
C. Actual overhead divided by estimated use of cost drivers.
D. Estimated overhead divided by estimated use of cost drivers. X

3. To use activity-based costing, it is necessary to know the (1 pt)

A. cost driver for each activity cost pool.

B. expected use of cost drivers per activity.
C. expected use of cost drivers per product.
D. all of the above. X

4. Which of the following is true of activity-based costing? (1 pt)

A. More cost pools. X

B. Same base as traditional costing.
C. Less costly to use.
D. Eliminates arbitrary allocations.

Page | 2
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

II. Exercise (8 pts)

The firm DLP uses the same raw material to produce two articles “R” and “T”. It has applied
traditional costing system to allocate overhead to its products. The company is now considering
the Activity Based Costing with the objective to enhance the way of computing the cost of its
products.
The company provides the following information about the two products for the year 2020.

R T
Total number of units produced 30,000 24,000
Selling price/Unit ($) 18 28
Raw material usage (kg) per unit 4 6
Direct labor hours/unit 0.2 0.3
Total number of machine runs 32 24
Total number of purchase orders 48 56
Total number of deliveries 96 60

Other information:

- The price of direct raw material per unit was $2.40/kg.

- The direct labor cost per hour was $29.60.
- The annual overhead costs were as follows: machine running costs: $185,900; cost of
purchase orders: $96,000; and delivery costs: $108,600.

Required:

1. Compute the cost per unit for the two products “R” and “T” under the traditional costing
system, using the direct labor cost as the base for assignments. (3 pts)

2. Calculate the cost per unit for each product using the ABC costing system, using the three
following activities: machine runs; purchase orders and deliveries. (3 pts)

3. Using your computations, explain the effect of applying the ABC on managers’ decision
regarding costs and profitability of each product. (2 pts)

Page | 3
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

Answer:

1. The cost per unit for each product under the traditional system (3 pts)
- Total annual overhead cost:
Machine running cost $185,900
Cost of purchase orders 96,000
Delivery costs 108,600
Total Manufacturing Cost: $390,500

- The manufacturing overhead rate = Total Manufacturing cost/Total direct labor hours
cost
= 390,500/ (30,000*0.2*29.60+24,000*0.3*29.60) = 390,500/(177,600+213,120)
= 390,500/390,720
= 0.999 = 1

R T
Direct labor cost/Unit 0.2*29.60 =5.92$ 0.3*29.60 = 8.88$
Direct material cost/Unit 4*2.4 = 9.6$ 6*2.4 = 14.4$
Manufacturing overhead/Unit 1*0.2*29.6 = 5.92$ 1*0.3*29.6 = 8.88$
Total cost/Unit $21.44 $32.16

2. The cost per unit under ABC (3 pts)

Cost pools Cost drivers Cost per activity R T

Machine runs 185,900 56 runs $3319.64/run 106,228.48 79,671.36
(32+24) (3319.64*32) (3319.64*24)

Purchase orders 96,000 104 orders $923.07/order 44,307.36 51,691.92

(48+56) (923.07*48) (923.07*56)

Deliveries 108,600 156 deliveries $696.15/delivery 66,830.4 41,769

(96+60) (696.15*96) (696.15*60)

Total MOV 390,500 217,366.24 173,132.28

N. of Units 30.000 24.000
MOV/Unit $7.24 $7.21

R T
Direct labor cost/Unit 0.2*29.60 =5.92 0.3*29.60 = 8.88
Direct material cost/Unit 4*2.4 = 9.6 6*2.4 = 14.4
Manufacturing overhead/Unit 7.24 7.21
Total cost/Unit (ABC) $22.76 $30.49

Page | 4
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

3. Comparison traditional costing/ABC (2 pts)

Price/Unit Cost/Unit (TC) Cost/Unit (ABC)

R 18 $21.44 Loss of 3.44$/unit $22.76 Loss of 4.76$/unit
(21.44-18) (22.76-18)
T 28 $32.16 Loss of 4.16$/unit $30.49 Loss of 2.49$/unit
(32.16-28) (30.49-28)
1. For “R”, the cost under ABC is overstated.
2. For “T”, the cost under ABC is understated.
3. ABC provides more accurate loss for the two products. Under these circumstances, the
company should revise its selling prices for the two “R” and “T” in order to reach a positive
income and maintain its activity. The unit selling price for each article should be higher than
the cost per unit.

Page | 5
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

Part 2. Cost-Volume-Profit (28 pts/40 pts)

I. Multiple Choice Questions: Underline the right answer (4 pts)

1. Firms operating at 100% capacity (1 pt)

A. are common.
B. are the exception rather than the rule. X
C. have no fixed costs.
D. have no variable costs.

2. If a firm increases its activity level, (1 pt)

A. costs should remain the same.

B. most costs will rise.
C. no costs will remain the same.
D. some costs will change, others will remain the same. X

3. Which of the following is not a cost classification? (1 pt)

A. Mixed.
B. Multiple. X
C. Variable.
D. Fixed.

4. The relevant range of activity refers to the (1 pt)

A. geographical areas where the company plans to operate.

B. activity level where all costs are curvilinear.
C. levels of activity over which the company expects to operate. X
D. level of activity where all costs are constant.

Page | 6
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

II. Exercise (24 pts)

ABS Industries developed the following information for its product:

Sales price $100 per unit
Variable cost of goods sold $56 per unit
Fixed cost of goods sold $1300,000
Variable selling expense 20% of sales price
Variable administrative expense $4.00 per unit
Fixed selling expense $800,000
Fixed administrative expense $600,000
For the year ended December 31st, 2019, ABS produced and sold 200,000 units of product.
Required:

1. Prepare a CVP income statement using the contribution margin format for ABS
Industries for 2019. (8 pts)

2. What was the company's break-even point in units in 2019? (Use the contribution
margin technique) (8 pts)

3. What was the company's margin of safety in dollars in 2019? (8pts)

Answer:

1. The CVP income statement (8 pts)

ABS INDUSTRIES
Income Statement
For the Year Ended December 31st, 2019
——————————————————————————————————————————
Sales .................................................................................................. $20,000,000
Variable expenses
Cost of goods sold ....................................................................... $11,200,000
Administrative............................................................................. 800,000
Selling expenses .......................................................................... 4,000,000
Total variable expenses ............................................................... 16,000,000
Contribution margin .......................................................................... 4,000,000
Fixed expenses
Cost of goods sold ....................................................................... 1,300,000
Selling......................................................................................... 800,000
Administrative............................................................................. 600,000
Total fixed expenses .................................................................... 2,700,000
Net income ........................................................................................ $1,300,000

Page | 7
 School Year 2020-2021, Managerial Accounting (BCOR 225) , Mid-Term Exam, Fall 2020

2. Break-even point units in 2019 (8 pts)

Variable costs per unit Unit contribution margin

Cost of goods sold $56 Sales price $100
Administrative 4 Variable cost 80
Selling 20 Contribution margin $20
$80

The break-even point in units = Total fixed costs/ CM

= $2,700,000 ÷ $20 = 135,000 units to break even.

3. Margin of safety in dollars (8 pts)

Actual sales $20,000,000

Break-even sales (135,000 × $100) 13,500,000

Margin of safety $6,500,000

Page | 8