School Year 2015-2016, Spring Term

Managerial Accounting (BCOR 225)

FINAL EXAM – SOLUTION

I. MULTIPLE CHOICE QUESTIONS (1 pt x 12 Q = 12 pts)

1. A process cost system would be used for all of the following products except
A. chemicals
B. computer chips
C. motion pictures (1pt)
D. soft drinks
2. Differences between a job order cost system and a process cost system include all of the
following except the
A. documents used to track costs
B. point at which costs are totaled
C. unit cost computations
D. flow of costs (1pt)
3. Equivalent units are calculated by
A. multiplying the percentage of work done by the equivalent units of output
B. dividing physical units by the percentage of work done
C. multiplying the percentage of work done by the physical units (1pt)
D. dividing equivalent units by the percentage of work done

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4. An activity that has a direct cause-effect relationship with the resources consumed is a(n)
A. cost driver (1pt)
B. overhead rate
C. cost pool
D. product activity
5. An “Ordering and Receiving Materials” cost pool would most likely have as a cost driver:
A. machine hours
B. number of setups
C. number of purchase orders (1pt)
D. number of inspection tests
6. A cost which remains constant per unit at various levels of activity is a
A. variable cost (1pt)
B. fixed cost
C. mixed cost
D. manufacturing cost
7. Sales mix is not important to managers when different products have substantially
different contribution margins.
A. True
B. False (1pt)
8. When a company has limited resources to manufacture products, it should manufacture
those products which have the highest contribution margin per unit
A. True
B. False (1pt)
9. In CVP analysis, the term "cost"
A. includes only manufacturing costs.
B. means cost of goods sold.
C. includes manufacturing costs plus selling and administrative expenses. (1pt)
D. excludes all fixed manufacturing costs.

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10. Two costs at BBA Company appear below for specific months of operation.

Month Amount Units Produced

Delivery costs September $ 40,000 40,000
October 55,000 60,000
Utilities September $ 84,000 40,000
October 126,000 60,000
Which type of costs are these?

A. Delivery costs and utilities are both variable.

B. Delivery costs and utilities are both mixed.
C. Utilities are mixed and delivery costs are variable.
D. Delivery costs are mixed and utilities are variable. (1pt)

11. Cost structure

A. refers to the relative proportion of selling expenses versus administrative expenses.

B. refers to the relative proportion of fixed versus variable costs that a company incurs.
(1pt)
C. refers to the relative proportion of selling and administrative expenses versus cost of
goods sold.
D. refers to the relative proportion of contribution margin versus sales.

12. The degree of operating leverage

A. does not provide a reliable measure of a company’s earnings volatility.

B. cannot be used to compare companies.
C. is computed by dividing total contribution margin by net income. (1pt)
D. measures how much of each sales dollar is available to cover fixed expenses.

I. EXERCICES : 28 pts ( 2 pts X B. Ex (13, 14, 18, 19, 20 et 21) + 4 pts X Ex (15, 16, 17, 22)

13. In the month of April, a department had 40,000 units in beginning work in process that were
90% complete. During April, 120,000 units were transferred into production from another

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department. At the end of April there were 50,000 units in ending work in process that were
90% complete. Materials are added at the beginning of the process, while conversion costs are
incurred uniformly throughout the process.
Instruction
How many units were transferred out of the process in April?
Answer 2pts

Units in beginning WIP + Units transferred from another department = Units in Ending WIP +
Units transferred out/April
Units transferred out/April = (Units in beginning WIP + Units transferred from another
department) - Units in Ending WIP
= 40 000 + 120 000 – 50 000
= 110 000 Units

14. In the Shaping Department of XYZ Company the unit materials cost is $8.00 and the unit
conversions cost is $10.00. The department transferred out 70,000 units and had 12,500 units in
ending work in process 90% complete.
Instruction
If all materials are added at the beginning of the process, calculate the total cost to be
assigned to the ending work in process.
Answer 2pts

Cost of EWIP = 12 500 * 8 + 12 500 * 10 * 0.9

= 100 000 + 112 500
= $212, 500

15. CL Company provided the following information:

Units in beginning work in process 10,000
Units started into production 250,000
Units in ending work in process 60,000
Percent complete for conversion costs in
ending work in process 50%
Total costs (Costs to be accounted for):
Direct materials $195,000

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 Direct labor $270,600
Overhead $166,400

Instructions
A. Compute equivalent units of production for materials and for conversion costs
(materials are added at the beginning of the process)
B. Determine the production cost per unit
Answer 4 pts

A. Compute equivalent units of production for materials and for conversion costs (materials
are added at the beginning of the process) 2pts

Units completed = 10, 000 + 250, 000 – 60 000 = 200 000 units

Equivalent units/ Materials = 200, 000 + 60, 000 = 260 000 units

Eq units/Conversion = 200, 000 + 60 000 * 0.5 = 230 000 units

B. Determine the production cost per unit 2pts

Production cost/unit = Materials cost/unit + Conversions cost/unit

= 195, 000 (Direct materials)/260 000 + (270, 600 + 166, 400) (Direct labor and Overhead)/
230, 000
= 0.75 + 1.9
= $ 2.65

16. AMS Industries has the following overhead costs and cost drivers. Direct labor hours are
estimated at 300,000 for the year.

Activity Cost Pool Cost Driver

Est. Overhead Expected use of cost
drivers per activity
Ordering and Receiving Orders $ 240,000 1000 orders
Machining Machine hours 3,000,000 250,000 MH
Assembly Parts 2,400,000 2,000,000 parts
Inspection Inspections 600,000 1000 inspections

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Instructions
A. If overhead is applied using traditional costing based on direct labor hours, compute the
overhead rate under traditional system
B. Calculate overhead rates under Activity Based Costing.
Answer
A. If overhead is applied using traditional costing based on direct labor hours, compute the
overhead rate under traditional system 2pts

Overhead rate under traditional system = Est Overhead/Expected operating activity

= 6 240 000/ 300 000

= $20.8
B. Calculate overhead rates under Activity Based Costing. 2pts

Activity Cost Pool Cost Driver Est. Overhead Cost Driver Rate in $
Ordering and Receiving Orders $ 240,000 1000 orders 240
Machining Machine hours 3,000,000 250,000 MH 12
Assembly Parts 2,400,000 2,000,000 parts 1.2
Inspection Inspections 600,000 1000 inspections 600

17. XV Company incurs $680,000 overhead costs each year in its three main departments, setup
($80,000), machining ($440,000), and packing ($160,000). The setup department performs 800
setups per year, the machining department works 10,000 hours per year, and the packing
department packs 1,500 orders per year. Information about XV’s two products is as follows:

Product XV1 Product XV2

% of setups 50% 50%
% of Machining hours 60% 40%
% of Orders packed 70% 30%
Number of products manufactured 1000 800

Instructions
Using ABC:
A. Compute overhead rates for each activity

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 B. How much overhead is assigned to Product XV1?
Answer

A. Compute overhead rates for each activity 2pts

Activity Cost Pool Driver Est. Overhead Cost Driver Rate in $

Setup N. of setups $80, 000 800 setups 100
Machining Machine hours 440 000 10,000 MH 44
Packing N. of orders packed 160, 000 1,500 OP 106,66

B. How much overhead is assigned to Product XV1? 2pts

Overhead assigned to Product XV 1:

$80,000 * 0.5 + $440,000 * 0.6 + $160,000 * 0.7

= $ 40 000 + 264 000 + 112 000

= $416 000

2nd Method

Overhead assigned to Product XV 1:

800*50%*100 + 10000*60%*44 + 1500*70%*106.66 = 415 993 $ (more or less, depending on

rounding)

18. For FFC Company, sales are $1,200,000, fixed expenses are $400,000, and the
contribution margin ratio is 35%.

Instruction
What is net income?
Answer 2pts

CMR = (sales – VC)/Sales

VC =Sales -CMR*Sales = 1 200 000 – 0.35*1 200 000 = 780 000

Net Income =Sales – VC – FC = 1 200 000 – 780 000 – 400 000

= 20 000 $

19. FK Industries has fixed costs of $200,000 and variable costs are 80% of sales.
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Instruction
How much will FK report as sales when its net income equals $20,000?

Answer 2pts

NI = Sales – VC – FC = Sales – 80%*Sales – FC = 20% Sales - FC

Sales =(NI+FC)/20% = 1 100 000 $

20. HGT Manufacturing’s cost of goods sold is $210,000 variable and $120,000 fixed. The
company’s selling and administrative expenses are $150,000 variable and $180,000 fixed.
Instruction
If the company’s sales are $740,000, what is its contribution margin?
Answer 2pts

CM = Sales – VC = 740 000 – 150 000 – 210 000 = 380 000 $

21. For WW Corporation, sales is $600,000 (3,000 units), fixed expenses are $180,000, and
the contribution margin per unit is $80.

Instructions

A. What is the margin of safety in dollars?

B. What is the margin of safety ratio?
Answer 2pts

A. What is the margin of safety in dollars? 1 pt

CMRatio = (80 * 3000)/ 600 000 = 40%

BEP in dollars = FC/CMRatio = 180 000 /40% = 450 000 $

Margin of safety = 600,000 - 450 000 = 150 000 $

B. What is the margin of safety ratio? 1 pt

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Margin of safety ratio = 150 000 / 600 000 = 25%

22. MRV Co. had a net loss of $200,000 in 2015 when the selling price per unit was $22, the variable
costs per unit were $16, and the fixed costs were $500,000. Management expects per unit data and total
fixed costs to be the same in 2016. Management has set a goal of earning net income of $160,000 in
2016.

Instruction

A. Compute the units sold in 2015.

B. Compute the number of units that would have to be sold in 2016 to reach
management's desired net income level.
C. Assume that MRV Co. sells the same number of units in 2016 as it did in 2015. What
would the selling price have to be in order to reach the target net income?
Answer 4 pts

A. Compute the units sold in 2015. 1 pt

Fixed costs – Net loss $500,000 – $200,000

Units sold in 2015 = = =
Contribution margin per unit $22 - $16

= $300,000 ÷ $6

= 50,000 units

B. Compute the number of units that would have to be sold in 2016 to reach management's
desired net income level. 1.5 pts

Fixed costs + Net income $500,000 + $160,000

(b) Units sold in 2016 = =
Contribution margin per unit $22 - $16

= $660,000 ÷ $6

= 110,000 units

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C. Assume that MRV Co. sells the same number of units in 2016 as it did in 2015. What would
the selling price have to be in order to reach the target net income? 1.5 pts

Variable costs + Fixed costs + Net income

Selling price needed in 2013 =
50,000 units

50,000 *16 + $500,000 + $160,000

Selling price needed in 2016 =
50,000 units

= $1,460,000 ÷ 50,000

= $29.2

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