University of Tunis, Tunis Business School

School Year 2013-2014, Spring Term, Managerial Accounting (BCOR 225)

FINAL EXAM
SOLUTION

1. Which of the following is not typical of traditional costing systems?

D. Use of multiple cost drivers to allocate overhead. 2 pts

2. Activity-based costing:

A. allocates overhead to activity cost pools, and it then assigns the overhead to products and
services by means of cost drivers. 2 pts
3. Two of the activity cost pools for ABC Company are (a) machining ($650,000) and (b)
inspections ($84,000). Possible cost drivers are direct labor hours (3,100), machine hours
(25,000), square footage (4,000), and number of inspections (400).

Instructions
Compute the overhead rate for each activity. 4 pts
Overhead rate for machining: 650 000/25 000 = $26
Overhead rate for inspections: 84 000/400 = $210

4. SND manufactures a wide variety of holiday and seasonal decorative items. Seasonal’s
activity-based costing overhead rates are:

- Purchasing: $190 per order

- Storing: $1 per square foot/day
- Machining: $50 per machine hour
- Supervision: $2.5 per direct labor hour

The Snow Man project involved three purchase orders, 2,000 square feet/days, 30 machine
hours, and 20 direct labor hours. The cost of direct materials on the job was $38,000 and the
direct labor rate is $15 per hour.

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Instructions

Determine the total cost of the Snow Man project.

The total cost for Snow Man project: DM costs + DL costs + Ov costs
= 38 000 + 20 * 15 + (3*190 + 2000*1 + 50*30 + 2.5*20)
= 38 000 + 300 + 570 + 2 000 + 1 500 + 50
= $42 420 4 pts
5. FG Industries produces flash drives for computers, which it sells for $20 each. Each flash drive
costs $12 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March
were $2 per unit for a total of $1,000 for the month.
How much is the contribution margin ratio?
CMR = P-VC/P
= 20 - 12/ 20
= 8/20
= 40% 4 pts
6. Fixed costs are $500,000 and the variable costs are 60% of the unit selling price.
What is the break-even point in dollars?
BEP in dollars = FC/CMR
= 500 000/P-0.6P/P
= 500 000/1-0.6
= 500 000/0.4
= $1250,000 4 pts
7. Gall, Inc. is planning to sell 1200, 000 units for $3 per unit. The contribution margin ratio is
20%.
If Gall, Inc. will break even at this level of sales, what are the fixed costs?
BEP in dollars = FC/CMR
FC = BEP in dollars * CMR
FC = 1200,000 * 3 * 20%
FC= $720 000 4 pts

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8. RS Corporation sells radios for $75 per unit. The fixed costs are $500,000 and the variable
costs are 50% of the selling price. As a result of new automated equipment, it is anticipated that
fixed costs will increase by $100,000 and variable costs will be 50% of the selling price.
Compute the new break-even point in units.
BEP in units = FC/(P-VC)
= 600 000/ (75 - 37.5)
= 600 000/37.5
= 16 000 units 4 pts
9. The following monthly data are available for XL Industries which produces only one product
which it sells for $25 each. Its unit variable costs are $12, and its total fixed expenses are
$24,000. Actual sales for the month of April totaled 3,000 units.
Instructions
Compute the margin of safety in dollars for the company for April. 8 pts
Margin of safety = Actual Sales - Sales at BEP
Sales at BEP = FC/(P-VC/P)
= 24 000/(25-12/25)
= 24 000/0.52
= $46154
Margin of safety = (25*3000) - 46 154
= 75 000 - 46 154
= $28 846
10. In 2012, ST Inc. had a break-even point of $400,000 based on a selling price of $5 per unit
and fixed costs of $120,000. In 2013, the selling price and variable costs per unit did not change,
but the break-even point increased to $450,000.
Instructions 8 pts
A. Compute the contribution margin ratio and the variable cost per unit for 2012.
B. Using the contribution margin ratio, compute the increase in fixed costs for 2013.
A. 1. BEP in dollars = FC/CMR
CMR_2012 * BEP in dollars = FC

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CMR_2012 = FC/BEP in dollars = 120 000 / 400 000 = 30%
B.2. CMR_2012 = (P-VC)/P
CMR_2012 * P = P - VC
VC = P - (CMR_2012*P)
= 5 - (30%*5) = 5- 1.5
VC = $3.5
B. BEP in dollars = FC / CMR
FC = BEP in dollars * CMR
FC = 450 000 * 30%
FC_2013 = $135 000
In 2013, there is an increase at fixed costs for $15 000 (135 000 - 120 000)
11. MV Co. had a net loss of $150,000 in 2013 when the selling price per unit was $20, the
variable costs per unit were $14, and the fixed costs were $600,000. Management expects per
unit data and total fixed costs to be the same in 2014. Management has set a goal of earning
net income of $150,000 in 2014.
Instructions 8 pts
A. Compute the units sold in 2013.
B. Compute the number of units that would have to be sold in 2014 to reach management's
desired net income level.
A. Units sold in 2013
Profit = P*Q - VC*Q - FC = Q (P-VC) - FC
Q sold_2013 = (Profit + FC)/(P - VC) = (-150 000 + 600 000) / (20 - 14) = 450 000/6 = 75 000
units
B. Taget net income = P*Q - VC*Q - FC = Q (P-VC) - FC
Q_2014 = (Target net income + FC)/(P - VC)
= (150 000 + 600 000)/(20 - 14) = 750 000/6 = 125 000 units
12. In 2013, ZW sold 6,000 units at $1000 each. Variable expenses were $500 per unit, and

fixed expenses were $500,000. The same selling price is expected for 2014. ZW is tentatively

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planning to invest in equipment that would increase fixed costs by 40%, while decreasing
variable costs per unit by 40%.
What is ZW’s break-even point in units for 2014?
BEP in units_2014 = FC / (P - VC) = (500 000 + 500 000*40%)/(1000 - (500 - 500*40%)
= 700 000 /(1000 - 300)
= 700 000 / 700
= 1000 Units 4 pts
13. BK Corporation has a weighted-average unit contribution margin of $60 for its two
products, Standard and Supreme. Expected sales for BK are 60,000 Standard and 80,000
Supreme. Fixed expenses are $2,700,000.
How many Standards would BK sell at the break-even point?

BEP in units = FC/CM = 2 700 000 /60 = 45 000 units

Standards sold by BK at BEP = 45 000 * (60 000 /(60 000 + 80 000)
= 45 000 * 43% = 19 350 units 4 pts

14. MC Industries has two divisions—Standard and Premium. Each division has hundreds of
different types of tennis racquets and tennis products. The following information is available:

Standard Division Premium Division Total

Sales $200,000 $300,000 $500,000
Variable costs $140,000 $180,000 $320,000
Contribution margin $60,000 $120,000 $180,000

Knowing that fixed costs are $160,000 what is the weighted-average contribution margin
ratio?

Weighted-average contribution margin ratio = (Sales mix_Stand * CMR_Stand) + (Sales

mix_Pre * CMR_Pre)
= (200 000/500 000)*(60 000/200 000) + (300 000/500 000)*(120 000/300 000)
= 36% 4 pts

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15. Which of the following will always be a relevant cost?

C. Variable cost 2 pts

16. SPQ, Inc. produces several models of clocks. An outside supplier has offered to produce the
commercial clocks for $840 each. SPQ needs 2,400 clocks annually.

SPQ has provided the following unit costs for its commercial clocks:

Direct materials $200

Direct labor 280
Variable overhead 160
Fixed overhead (50% avoidable) 300

Instructions 8 pts

Prepare an incremental analysis which shows the effect of the make-or-buy decision.
Costs to buy = 2400 * 840 = $2016,000
Total costs savings = 200 * 2 400 + 280 * 2400 + 160 * 2400 + 300*2400*0.5 = $1896, 000
Incremental net cost to buy = 2016 000 - 1896 000 = $120 000
It's better for this company to make clocks instead of buying them.
17. Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the
copy clerk has not been able to process all the necessary copies within the regular work week.
Management is considering updating the copier machine with a faster model.

Current Copier New Model

Original purchase cost $20,000 $40,000

Accumulated depreciation 16,000 —
Estimated operating costs (annual) 14,000 5,200
Useful life 5 years 5 years

If sold now, the current copier would have a salvage value of $2,000. If operated for the
remainder of its useful life, the current machine would have zero salvage value. The new
machine is expected to have zero salvage value after five years.

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Instructions 8 pts

A. Prepare an analysis to show whether the company should retain or replace the machine.
B. What do you suggest to the company based on the result found?

Retain Machine Replace Machine Increase (Decrease)

Operating costs 14 000 * 5 = 70 000 5 200 * 5 = 26 000 44 000

New machine cost 0 40 000 (40 000)
Salvage value (2000) 2 000
Totals 70 000 64 000 6 000

The current copier should be replaced. The incremental analysis shows that net income for
the five-year period will be $3,000 higher by replacing the current copier.
18. A standard which represents an efficient level of performance that is attainable under
expected operating conditions is called a(n)

D. normal standard 2 pts

19. The cost of freight-in

A. is to be included in the standard cost of direct materials 2 pts

20. A manufacturing company would include setup and downtime in their direct

D. labor quantity standard 2 pts

21. XT’s standard quantities for 1 unit of product include 4 pounds of materials and 3 labor
hours. The standard rates are $4 per pound and $14 per hour. The standard overhead rate is
$16 per direct labor hour.

Determine the total standard cost of XT’s product.

Total standard cost = SP_DM * SQ_DM + SP_DL * SQ_DL + SP_Ov * SQ_Ov
= 4*4 + 3*14 + 16*3
= $106 4 pts
22. The per-unit standards for direct labor are 4 direct labor hours at $30 per hour. If in
producing 3,600 units, the actual direct labor cost was $96,000 for 6,000 direct labor hours
worked, calculate the total direct labor variance.

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Total direct labor variance = AH*AR - SH*SR
= 96 000 - (3 600 * 4 * 3)
= - 336 000 Favourable 4 pts
23. CLK Company manufactures a product with a standard direct labor cost of two hours at
$36.00 per hour. During April, 4,000 units were produced using 8,400 hours at $36.60 per hour.
Compute the labor price variance for April.

Labor price variance = (Actual Rate * Actual Hours) - (Standard Rate * Actual Hours)
= (8400*36.6) - (36*8400)
= 5040 Unfavourable 4 pts

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