ANKITASTIC TUTORING SERVICES

EXAM SOLUTIONS
13G ACCT 27 --- Introductory
Managerial Accounting
ANSWER

Malton Mills, Inc. is a large producer of men's and women's clothing. The company
uses standard costs for all of its products. The standard costs and actual costs per
unit of product for a recent period are given below for one of the company's product
lines:

  Standard Cost Actual Cost

Standard: 4.0 metres at $5.40 per metre $21.60  
Actual: 4.4 metres at $5.05 per metre   $22.22
Direct Labour:    
Standard: 1.6 hours at $6.75 per hour $10.80  
Actual: 1.4 hours at $7.30 per hour   $10.22
Variable Overhead:    
Standard: 1.6 hours at $2.70 per hour $4.32  
Actual: 1.4 hours at $3.25 per hour ______ _$4.55
Total Cost per Unit $36.72 $36.99
During this period, the company produced 4,800 units of this product. A comparison
of standard and actual costs for the period on a total cost basis is given below:

Actual Costs: 4,800 units at $36.99 $177,552

Standard Costs: 4,800 units at $36.72 $176,256
Difference in Cost-Unfavorable $1,296
There was no inventory of materials on hand at the beginning of the period. During
the period, 21,120 meters of materials were purchased, all of which were used in
production.
Required:
a)  Compute  direct materials price and quantity variances 
b) Compute direct labor rate and efficiency variances 
c) Compute variable overhead spending and efficiency variances. 

Answer
 
a. For direct materials, compute the price and quantity variances for the period
I. Gather all the relevant data given in the problem relating to direct materials.
  Standard Cost Actual Cost
Direct materials 4.0 metres at $5.40 per metre 4.4 metres at $5.05 per metre
 
Unit produced = 4,800 units
II. Determine the materials price and quantity variance as follows:
A. Materials price variance
Materials price variance = (Actual price - Standard price) * Actual quantity
Materials price variance = ($5.05 - 5.40) * 21,120
Materials price variance = (0.35) * 21,120
Materials price variance = $7,392 Favourable
Note: The actual quantity is computed as follows: (Units produced * Actual number
of metres per unit = 4,800 * 4.4 = 21,120.)
 
B. Materials quantity variance
Materials quantity variance = (Actual quantity - Standard quantity) * Standard price
Materials quantity variance = (21,120 - 19,200) * $5.40
Materials quantity variance = 1,920 * $5.40
Materials quantity variance = $10,368 Unfavorable
Notes: The standard quantity is computed as follows: (Units produced * Standard
number of metres per unit = 4,800 * 4.0 = 19,200)

 The actual quantity is already computed above.

b. For direct labour, compute the rate and efficiency variances

I. Gather all the relevant data given in the problem relating to direct labour.
  Standard Cost Actual Cost
Direct Labour 1.6 hours at $6.75 per hour 1.4 hours at $7.30 per hour
 
Unit produced = 4,800 units
II. Determine the labour rate and efficiency variance as follows:
A. Direct labour rate variance
Labour rate variance = (Actual rate - Standard rate) * Actual hours
Labour rate variance = ($7.30 - 6.75) * 6,720
Labour rate variance = $0.55 * 6,720
Labour rate variance = $3,696 Unfavourable
Note: The actual hours is computed as follows: (Units produced * Actual labour
hours per unit = 4,800 * 1.4 = 6,720)
 
B. Direct labour efficiency variance
Labour efficiency variance = (Actual hours - Standard hours) * Standard rate
Labour efficiency variance = (6,720 - 7,680) * $6.75
Labour efficiency variance = 960 * 6.75
Labour efficiency variance = $6,480 Favourable
Note: Standard hours is computed as follows: (Units produced * Standard labour
hours per unit = 4,800 * 1.6 = 7,680)
 
c. For variable overhead, compute the spending and efficiency variances. 
I. Gather all the relevant data given in the problem relating to variable overhead.
  Standard Cost Actual Cost
Variable Overhead 1.6 hours at $2.70 per hour 1.4 hours at $3.25 per hour
 
Unit produced = 4,800 units
II. Determine the variable spending and efficiency variance as follows:
A. Variable overhead spending variance 
Variable overhead spending variance = (Actual variable overhead rate - Standard
overhead rate) * Actual hours
Variable overhead spending variance = ($3.25 - 2.70) * 6,720
Variable overhead spending variance = 0.55 * 6,720
Variable overhead spending variance = $3,696 Unfavourable
Note: The actual hours is computed as follows: (Units produced * Actual variable
overhead hours per unit = 4,800 * 1.4 = 6,720)
Variable overhead efficiency variance = (Actual hours - Standard hours) * Standard
rate
Variable overhead efficiency variance = (6,720 - 7,680) * $2.70
Variable overhead efficiency variance = 960 * 2.70
Variable overhead efficiency variance = $2,592 Favourable
Note: Standard hours is computed as follows: (Units produced * Standard variable
overhead hours per unit = 4,800 * 1.6 = 7,680)
 

During the past year, Pettay Enterprises had the following fixed costs:
Fixed manufacturing costs  $448,000
Fixed marketing costs  $172,000
Fixed administrative costs  $72,000
The company also had the following variable costs:
Variable manufacturing
costs  $568,000
Variable marketing costs  $148,000
Variable administrative
costs  $112,000
 During the year, the company produced and sold 240,000 units of the product at a
selling price of $28.00 per unit.  The company had no inventory at the beginning of
the year
Given that,
Units produced and sold = 2.40,000 units
Selling price per unit = $28
Variable costs :-
Variable manufacturing costs = $568,000
Variable marketing costs = $148,000
Variable administrative costs = $112,000
Fixed costs :-
Fixed manufacturing costs = $448,000
Fixed marketing costs = $172,000
Fixed administrative costs = $72,000
Contribution margin income statement Amount ($) Amount ($)
Units produced and sold 2,40,000
Sales ($28 * units sold) 672,00,000
Less: Variable cost :
Variable manufacturing costs (i) 568,000
Variable administrative costs (ii) 112,000
Variable marketing costs (iii) 148,000
Total variable cost (i+ii+iii) 828000
Contribution margin (sales - total variable costs) 66372000
Fixed manufacturing overheads (iv) 448,000
Fixed administrative costs (v) 72,000
Fixed marketing costs(vi) 172,000
Total fixed costs (iv+v+vi) 692000
Net income (contribution margin - total fixed
65680000
costs)
Net income = $65680000

Caldan  Company is a manufacturing firm that uses job-order costing. At the

beginning of the year, the company's inventory balances were as follows:
 Raw materials $52,000,  Work in Progress $94,000, Finished goods $266,000

The company applies overhead to jobs using a predetermined overhead rate based
on machine hours. At the beginning of the year, the company estimated that it would
work 62,000 machine hours and incur $496,000 in manufacturing overhead cost. The
following transactions were recorded for the year:

a.) Raw materials purchased: $822,000.

b.) Raw materials requisitioned for use in production: $818,000 ($776,000 direct and
$42,000 indirect).
c.) The following employee costs were incurred:
Direct labor $290,000, Indirect labor $122,000, Administrative Salaries $380,000. 
d.) Selling costs: $296,000.
e.) Factory utility costs: $24,000.
f.) Depreciation for the year: $242,000, of which $228,000 is related to factory
operations and $14,000 is related to selling and administrative activities.
g.) Manufacturing overhead was applied to jobs. The actual level of activity for the
year was 58,000 machine hours.
h.) Cost of goods manufactured for the year: $1,566,000.
i.) Sales for the year: $2,214,000; the costs on the job cost sheets of the goods that
were sold: $1,536,000.
j.) The balance in the Manufacturing Overhead account was closed out to Cost of
Goods Sold.
Required: . Prepare a schedule of cost of goods manufactured and mention
whether the manufacturing overhead under- or overapplied? If so , by how much?

Schedule of Cost of Goods Manufactured

Direct Material $776,000
Direct Labor $290,000
Manufacturing Overhead Applied (58,000 x $8) $464,000
$1,530,00
Total Manufacturing Costs
0
Add: Beginning Work in Process Inventory $94,000
Less: Ending Work in Process Inventory(Bal
$58,000
Fig.)
$1,566,00
Cost of Goods Manufactured
0
Predetermined overhead rate = Estimated total manufacturing overhead/Estimated
total machine hours
Predetermined overhead rate = $496,000/62,000 =$8
Applied Overhead
Applied manufacturing overhead (58,000 x $464,00
$8) 0
Actual overhead
Indirect materials $42,000
$122,00
Indirect labour
0
Factory utility $24,000
$228,00
Depreciation - factory
0
$416,00
Total actual overhead
0
Overapplied Overhead $48,000

MCQ

F5 Within the relevant range, what is the difference between variable costs and fixed
costs?

a.
Variable costs per unit are constant and fixed costs per unit fluctuate.

b.
Total variable costs and total fixed costs are constant.

c.
Variable costs per unit fluctuate and fixed costs per unit remain constant.

d.
Total variable costs and total fixed costs fluctuate.
Feedback
The correct answer is: Variable costs per unit are constant and fixed costs per unit
fluctuate.

F4 What is the outcome if the cost of goods sold is greater than the cost of goods
manufactured?

a.

Work-in-process inventory has decreased during the period.

b.

Total manufacturing costs must be greater than cost of goods manufactured.

c.

Finished goods inventory has decreased during the period.

d.

Finished goods inventory has increased during the period.

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The correct answer is: Finished goods inventory has decreased during the period.

Question 3
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F11 Setting up equipment is an example of an activity at which of the following levels?

a.

Product-level activity.
b.

Organization-sustaining activity.

c.

Unit-level activity.

d.

Batch-level activity.

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The correct answer is: Batch-level activity.

Question 4
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F16 If a worker drops the raw material during production and the raw material must be
discarded, which variance is directly impacted?

a.

Materials price variance

b.

Materials efficiency variance

c.

Labor price variance

d.

Labor efficiency variance

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The correct answer is: Materials efficiency variance

Question 5
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F13 The equivalent units of production (weighted-average method) for a department are:

a.

Equivalent units to complete beginning work in process inventory plus units started and
completed during the period plus equivalent units in ending work in process inventory

b.

The equivalent units in the department's ending work in process inventory.

c.

The number of units transferred to the next department

d.

The number of units transferred to the next department (or to finished goods) plus the
equivalent units in the department's ending work in process inventory.

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The correct answer is: The number of units transferred to the next department (or to finished
goods) plus the equivalent units in the department's ending work in process inventory.
Question 6
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F25 Akron Laser Wash sells deluxe car washes for $15 per customer. Variable costs are $9 per
wash. Fixed costs are $40,000 per month. What is Akron Laser Wash's contribution margin
ratio?

a.

6%

b.

40%

c.

250%

d.

60%

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The correct answer is: 40%

Question 7
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F7 In a job-order costing system, when a job remains incomplete at the end of a period, how
is the amount of overhead cost that has been applied to that job treated?

a.

It is part of the ending balance of the Work in Process inventory account.

b.

It is deducted on the Income Statement as overapplied overhead.

c.

It is transferred to Finished Goods.

d.

It is closed out to Cost of Goods Sold.

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The correct answer is: It is part of the ending balance of the Work in Process inventory
account.

Question 8
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F17 A company receives an unusually high number of orders in a month. To produce all of
the orders within the scheduled dates of delivery, the company pays employees an extra $10
per hour for every hour of overtime the employees work. Which variance is directly
impacted?

a.
Labor efficiency variance

b.

Materials efficiency variance

c.

Labor price variance

d.

Materials price variance

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The correct answer is: Labor price variance

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F3 What would be the classification of the transportation costs incurred by a manufacturing
company to ship its product to its customers?

a.

Administrative cost.

b.

Product cost.

c.
Period cost.

d.

Manufacturing overhead.

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The correct answer is: Period cost.

Question 10
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F30 Which of the following is irrelevant when making a decision?

a.

The cost of an asset that the company is considering replacing

b.

The expected increase in contribution margin of one product line as a result of a decision to
drop a separate unprofitable product line

c.

The cost of further processing a product that could be sold as is

d.

Fixed overhead costs that differ among alternatives

Feedback
The correct answer is: The cost of an asset that the company is considering replacing

F26 Which of the following best describes an "opportunity cost"?

a.

Costs that were incurred in the past and cannot be changed

b.

Expected future costs that differs among alternatives

c.

Benefits foregone by not choosing an alternative course of action

d.

The distribution of all products to be sold

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The correct answer is: Benefits foregone by not choosing an alternative course of action

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F10 If a company uses two different unit cost figures to cost transfers from one department
to another under a process costing system, then which of the following statements is
reasonable to assume?

a.

The weighted-average cost method is being used.

b.

Processing centres are arranged in a sequential pattern.

c.

The FIFO cost method is being used.

d.

There was no beginning work-in-process inventory.

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The correct answer is: The FIFO cost method is being used.

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F8 Once the break-even point is reached, which of the following statements is true?

a.

Operating income will increase by the unit contribution margin for each additional item sold.

b.

The contribution margin ratio begins to decrease.

c.

The total contribution margin changes from negative to positive.

d.

Variable expenses will remain constant in total.

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The correct answer is: Operating income will increase by the unit contribution margin for
each additional item sold.

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F21 Managers can quickly forecast the total contribution margin by multiplying the projected

a.

sales revenue by the unit contribution margin.

b.

sales revenue by the contribution margin ratio.

c.

sales units by the contribution margin ratio.

d.

sales units by the variable cost ratio.

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The correct answer is: sales revenue by the contribution margin ratio.

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F12 Which of the following is true about process costing?

a.

Unit costs are computed by job on the job cost sheet

b.

Costs are accumulated by individual job, regardless of the accounting period during which
the work is done.

c.

The department production report is the key document showing the accumulation and
disposition of costs by a department.

d.

All units of product are different.

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The correct answer is: The department production report is the key document showing the
accumulation and disposition of costs by a department.

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F20 What is it called when managers look at the size of the variances between actual results
and budgeted amounts in order to determine which variances should be investigated?

a.

Management by decision

b.

Management by exception

c.

Management by variance

d.

Management by budget

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The correct answer is: Management by exception

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F22 Which of the following represents the excess of the selling price per unit of a product
over the variable cost of obtaining and selling each unit?

a.

Operating income

b.
Net income

c.

Unit contribution margin

d.

Gross margin

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The correct answer is: Unit contribution margin

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F23 Contribution margin ratio is computed by dividing

a.

contribution margin by sales revenue.

b.

sales revenue by contribution margin.

c.

operating income by contribution margin.

d.

contribution margin by operating income.

Feedback
The correct answer is: contribution margin by sales revenue.

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F19 The performance report for which of the following responsibility centres would typically
include revenues and costs?

a.

Revenue centre

b.

Sales center

c.

Profit centre

d.

Cost center

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The correct answer is: Revenue centre

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F1 Which of the following best describes the function of managerial accounting within an
organization?

a.

It is required by regulatory bodies such as the Ontario Securities Commission.

b.

It places more emphasis on precision of data than financial accounting does.

c.

It has its primary emphasis on the future.

d.

It focuses on the organization as a whole, rather than on the organization's segments.

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The correct answer is: It has its primary emphasis on the future.

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F27 Which of the following best describes a "relevant cost"?
a.

Cost of developing, producing, and delivering a product or service

b.

Costs that were incurred in the past and cannot be changed

c.

A factor that restricts production or sales of a product

d.

Expected future costs that differs among alternatives

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The correct answer is: Expected future costs that differs among alternatives

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F24 On a contribution margin income statement, to what is contribution margin equal?

a.

Fixed expenses plus variable expenses

b.

Sales revenues minus fixed expenses

c.
Sales revenues minus variable expenses

d.

Fixed expenses minus variable expenses

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The correct answer is: Sales revenues minus variable expenses

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F9 The contribution margin ratio always increases when which of the following occurs?

a.

Fixed Costs increase.

b.

Variable expenses as a percentage of sales decrease.

c.

Break-even point increases.

d.

Variable expenses as a percentage of sales increase.

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The correct answer is: Variable expenses as a percentage of sales decrease.

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F2 For internal uses, managers are more concerned with receiving information that achieves
which of the following standards?

a.

Relevant, flexible, and timely.

b.

Completely accurate and precise.

c.

Completely objective and verifiable.

d.

Relevant, completely accurate, and precise.

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The correct answer is: Relevant, flexible, and timely.

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F6 Which of the following companies is most likely to use a job-order costing system rather
than a process costing system?
a.

Crude oil refinery

b.

Shipbuilder

c.

Candy maker

d.

Fast food restaurant

Feedback
The correct answer is: Shipbuilder

F14 Which of the following statements best defines an operation costing system?

a.

It is identical to a process costing system except that actual manufacturing overhead costs
are traced to units of product.

b.

It is identical to a job-order costing system except that actual manufacturing overhead costs
are traced to units of product.

c.

It is the same as a process costing system except that direct materials costs are accounted
for in the same way as in job-order costing system.

d.
It is the same as a job-order costing system except that direct materials costs are accounted
for in the same way as in a process costing system.

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The correct answer is: It is the same as a process costing system except that direct materials
costs are accounted for in the same way as in job-order costing system.

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F15 Worker recreational facilities are examples of costs that would ordinarily be considered
to be incurred at which of the following activity levels?

a.

Unit-level activity.

b.

Batch-level activity.

c.

Product-level activity.

d.

Organization-sustaining activity.

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The correct answer is: Organization-sustaining activity.

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F18 Custom Tile Works budgeted 2.5 hours of direct labor per unit at $12.20 per hour to
produce 520 hand-painted mosaic tiles. The 520 tiles were completed using 1,400 hours of
direct labour at $12.50 per hour. What is the direct labor price variance?

a.

$390 favorable

b.

$390 unfavorable

c.

$420 favorable

d.

$420 unfavorable

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The correct answer is: $420 unfavorable

Question 32
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F28 Which of the following best describes "contribution margin per unit"?
a.

Sales price per unit minus variable cost unit

b.

Sales price per unit minus fixed and variable costs per unit

c.

Units sold time contribution margin ratio

d.

Sales price per unit minus fixed cost per unit

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The correct answer is: Sales price per unit minus variable cost unit

Question 33
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F29 Expected future data that differs among alternative courses of action are referred to as

a.

predictable information.

b.

irrelevant information.

c.
historical information.

d.

relevant information.

Feedback
The correct answer is: relevant information.