College of Administration and Finance Sciences
Assignment (1)
Deadline: 02/03/2024 @ 23:59
Course Name: Managerial Accounting Student’s Name:
Course Code: ACCT322
Student’s ID Number:
Semester: 2nd-23-24
CRN:
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name: Dr. Ashfaque Ahmed
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q.1 Compute and complete the following table as per the value given in the box. (2 Marks)
Output
Total Fixed Cost
Total Variable Cost
Total Cost
200
300
400
150,000
20,000
500
600
Answer:
Output
Total Fixed Cost
Total Variable Cost
Total Cost
Q2. Briefly Explain with example in your words (2 marks)
1. Job Costing
2. ABC Costing
Answer:
Students’ answer may be different depending upon Explanation. (DON’T COPY THE
ANSWER FROM OTHER STUDENT)
College of Administration and Finance Sciences
Q.3- Global MNCs manufactures sports items. The material used in for one sports item cost
$ 45. The Global MNCs establish and rents a manufacturing factory for a monthly rent of
$ 475.
(3 Marks)
You are required to.
Prepare a table showing the Total Fixed Cost, Total Variable cost, Total Cost and Average
Fixed Cost, Average Variable Cost, and Average Cost for three different levels of production.
(No. of units at three different levels can be chosen by you).
Every student should choose different level. Do not copy and paste the same unit/number.
Solution. This is just a model SOLUTION. Students’ answer may be different depending upon
their assumption.
Level
TFC
TVC
TC
AFC
AVC
AC
Q. 4 -The total cost of production for the last six Months for Noor Bicycles is as follows.
Use the high-low method find out.
1. Variable cost per unit,
2. Fixed cost
3. Total cost, if production in the July will be 5000 units.
(3 Marks)
Month
January
February
March
April
May
June
Units
3,560
3,800
4,000
3,600
3,200
3,040
Total Cost
$242,400
$252,000
$260,000
$244,000
$228,000
$221,600
Answer:
Q. 5 A few costs and measures of activity are listed below. (5 marks)
Required:
Fill the correct cost in the column mentioned below as per information which indicates whether
College of Administration and Finance Sciences
the cost is Direct / Indirect /Fixed or Variable with respect to the possible measure of activity
listed below.
Cost Description
Possible measure of
activity / cost object
Cost of direct material used to make tables
and chairs in the office
Units produced
Cost of COVID vaccine produced in the KSA
Vaccine production
Cement/ steel /sand/ other material use to
build a house/office
Office or home
Electricity cost for lulu hypermarket for
selling products or production /producer
Selling product to the
people
Deprecation cost for lulu hypermarket on all
kinds of fixed assets or any constructions
A particular location or
hypermarket
Buying a photocopier for the production unit
For the office use
Paying any kind of incentive or commission
for salesperson in MNCs
Paying in SR or $
Paying salary to the driver at home for
working on the monthly basis
Working for whole family
Internet and water bills paid for the
warehouse on the accrual basis
Monthly accrual payment
Driver’s salary paid for the finished goods
Transporting to the market
for the sale
Fixed or Variable cost /
Direct / or Indirect cost
REVIEW 1
Multiple choice type Questions.
1.
The budget method that maintains a constant twelve-month planning horizon by
adding a new month on the end as a current month is completed is called a(n):
A. Operating budget
B. Capital budget
C. Master budget
D. Continuous budget
2.
A company should use process costing, rather than job order costing, if:
A. production is only partially completed during the accounting period
B. the product is manufactured in batches only as orders are received
C. the product is composed of mass-produced homogeneous units
D. the product goes through several steps of production
3.
Which of the following does the efficiency variance measure?
A. the difference between the quantity used by the company and the quantity used by its
competitors
B. the change in quantities used over time
C. the difference between actual and standard quantity used
D. how quickly materials are processed into finished goods
4.
Which of the following is not considered to be a benefit of participative budgeting?
A. Managers at lower and middle levels have better knowledge of the requirements for
achieving the tasks.
B. When managers set their own targets for the budgets, top management does not need
to be concerned with the overall profitability of operations.
C. Individual’s at all organizational levels are recognized as being part of a team, which
results in greater support for the organization.
D. Managers are held responsible for reaching their goals and cannot easily shift
responsibility by blaming unrealistic goals set by others
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5. Costs which are always relevant in decision making are those costs which are:
A. Variable
B. Avoidable
C. Sunk
D. Fixed
6. Which of the following costs is often important in decision-making, but is omitted
from conventional accounting records?
A. Fixed cost.
B. Sunk cost.
C. Opportunity cost.
D. Indirect cost.
7. The difference between total sales in dollars and total variable expenses is called:
A. Net operating income.
B. Net profit.
C. The gross margin.
D. The contribution margin
8. Turnover is computed by dividing average operating assets into:
A. Invested capital.
B. Total assets.
C. Net operating income.
D. Sales.
9. A static budget:
A. Should be compared to actual costs to assess how well costs were controlled.
B. Should be compared to a flexible budget to assess how well costs were controlled.
C. Is valid for only one level of activity.
D. Represents the best way to set spending targets for managers.
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10. Which of the following would be considered a cash outflow in the investing activities
section of the statement of cash flows?
A. Dividends paid to the company’s own stockholders.
B. Payment of interest to a lender.
C. Purchase of equipment.
D. Retirement of bonds payable.
11. Which of the following will not result in an increase in the residual income, assuming
other factors remain constant?
A. An increase in sales.
B. An increase in the minimum required rate of return.
C. A decrease in expenses.
D. A decrease in operating assets.
12. Under the indirect method of determining net cash provided by operating activities on
the statement of cash flows, which of the following would be subtracted from net
income?
A. a decrease in accounts receivable
B. an increase in accrued liabilities
C. a decrease in accounts payable
D. an increase in dividend payments to stockholders
13. Under variable costing, costs that are treated as period costs include:
A. Only fixed manufacturing costs
B. Both fixed and variable manufacturing costs
C. All fixed costs
D. Only fixed selling and administrative costs
14. A general rule in relevant cost analysis is:
A. variable costs are always relevant
B. fixed costs are always irrelevant
C. differential future costs and revenues are always relevant
D. depreciation is always irrelevant
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15. When computing standard cost variances, the difference between actual and standard
price multiplied by actual quantity yields a(n):
A. Combined price and quantity variance.
B. Efficiency variance.
C. Price variance.
D. Quantity variance
16. ……………….is used to compute the quantity variance:
A. The standard rate.
B. The standard quantity.
C. The standard price.
D. Standards.
17. Which department should usually be held responsible for an unfavorable materials
price variance?
A. Production.
B. Materials Handling.
C. Engineering.
D. Purchasing.
18. Difference between actual quantity and standard quantity is known as:
A. Standard Price per Unit.
B. Price Variance.
C. Quantity Variance.
D. Standard Quantity per Unit.
19. The general model for calculating a price variance is:
A. Actual quantity of inputs × (actual price – standard price).
B. B) Standard price × (actual quantity of inputs – standard quantity allowed for output).
C. (Actual quantity of inputs at actual price) – (standard quantity allowed for output at
standard price).
D. Actual price × (actual quantity of inputs – standard quantity allowed for output).
20. ………….is the net operating income that an investment center earns above the
minimum required return on the investment in operating assets.
A. Margin.
B. Net operating income.
C. Return on investment.
D. Residual income.
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21. ………….should not be used to evaluate a cost center.
A. Residual income.
B. Margin.
C. Return on investment.
D. Net operating income.
22. Two or more products produced from a common input are called …………….
A. Avoidable cost.
B. Joint costs
C. Joint products.
D. None of the above
23. The statement of cash flows:
A. Serves as a replacement for the income statement and balance sheet
B. Explains the change in the cash balance at one point in time.
C. Explains the change in the cash balance for one period of time.
D. None of the above
24. In a statement of cash flows, receipts from sales of property, plant, and equipment should
be classified as a (n):
A. Operating activity.
B. Financing activity.
C. Investing activity.
D. None of the above
25.Which of the following is not a benefit of budgeting.
A. It uncovers potential bottlenecks.
B. It coordinates the activities of the entire organization.
C. It thinks about and plans for the future.
D. It reduces the need for tracking actual cost activity.
5
From the following choose the correct Answer
1. Which of the following would NOT be treated as a product cost for external financial
reporting purposes?
a. Depreciation on a factory building
b. Salaries of factory workers
c. Indirect labor in the factory
d. Advertising expenses
2. The salary paid to the maintenance supervisor in a manufacturing plant is an example
of:
a. Product cost = No; Manufacturing Overhead cost = Yes
b. Product cost = Yes; Manufacturing Overhead cost = No
c. Product cost = Yes; Manufacturing Overhead cost = Yes
d. Product cost = No; Manufacturing Overhead cost = No
3. Which of the following statements is correct regarding the activity-based costing
system?
a. It is not as accurate or precise as traditional costing systems.
b. It uses separate indirect cost allocation rates for each activity.
c. It accumulates overhead costs by processing departments.
d. It is less complex and, therefore, less costly than traditional systems.
4. Which of the following will result in an unfavorable direct labor cost variance?
a. when actual direct labor hours exceed standard direct labor hours
b. when actual direct labor hours are less than standard direct labor hours
c. when the actual direct labor rate exceeds the standard direct labor rate
d. when the actual direct labor rate is less than the standard direct labor rate
5. Mohammed currently works at Best Falafel but is thinking of quitting his job to attend
college full time next semester. Which of the following would be considered an
opportunity cost of attending college?
a. Mohammed’s lost wages from Best Falafel
b. The cost of commuting to the university
c. The cost of textbooks
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d. The cost of tuition
6. The net present value of a proposed investment is negative. Therefore, the discount rate
used must be:
a. Less than the minimum required rate of return
b. Greater than the minimum required rate of return
c. Less than the project’s internal rate of return
d. Greater than the project’s internal rate of return
7. .…………. are also called relevant costs.
a. Joint cost.
b. Special order.
c. Avoidable costs.
d. Sunk cost.
7
8. Which of the following three statements are correct?
I. A profit center has control over both cost and revenue.
II. An investment center has control over invested funds, but not over costs and
revenue.
III. A cost center has no control over sales
a. Only I
b. Only II
c. Only I and III
d. Only I and II
9. A process costing system:
a. uses a separate Work in Process account for each processing department.
b. uses a single Work in Process account for the entire company
c. uses a separate Work in Process account for each type of product produced
d. does not use a Work in Process account in any form
10. The length of time required to recover the initial cash outlay for a project is
determined by using the:
a. Discounted cash flow method
b. The payback method
c. The net present value method
d. The simple rate of return method
11. A decrease in the discount rate:
a. will increase present values of future cash flows
b. is one way to compensate for greater risk in a project
c. will reduce present values of future cash flows
d. responses a and b are both correct
12. The formula for the gross margin percentage is:
a. (Sales – cost of goods sold) / cost of goods sold
b. (Sales –cost of goods sold)/sales
c. Net income/cost of goods sold
d. Net income/sales
8
13. In a statement of cash flows, which of the following would be classified as an
operating activity?
a. The purchase of equipment
b. Dividends paid to the company’s own common stockholders
c. Tax payments to governmental bodies
d. The cash paid to retire bonds payable
14. When there is a production constraint, a company should emphasize the products
with:
a. the highest unit contribution margins
b. the highest contribution margin ratios
c. The highest contribution margin per unit of the constrained resource
d. the highest contribution margins and contribution margin ratios
15. In a sell or process further decision, which of the following costs are relevant?
I.
A variable production cost incurred prior to the split-off point
II.
An avoidable fixed production cost incurred after the split-off point.
a. Only I
b. Only II
c. Both I and II
d. Neither I nor II
16. At the breakeven point
a. Sales will be equal to variable costs plus target profit
b. Sales will be equal to variable costs plus fixed costs
c. Sales will be equal to fixed costs plus target profit
d. Fixed costs will be equal to variable costs
9
17. Segment margin is sales minus:
a. variable expenses
b. traceable fixed expenses
c. variable expenses and common fixed expenses
d. variable expenses and traceable fixed expenses
18. ………….attempt to determine which of many alternative investment projects would
be the best for the company to accept.
a. net present value
b. preference decisions
c. payback period
d. Screening decisions
19. A continuous (or perpetual) budget:
a. is prepared for a range of activity so that the budget can be adjusted for changes in
activity.
b. is a plan that is updated monthly or quarterly, dropping one period and adding
another.
c. is a strategic plan that does not change.
d. is used in companies that experience no change in sales.
20. A portion of the total fixed manufacturing overhead cost incurred during a period
may:
a. be excluded from cost of goods under absorption costing
b.
be charge as a period cost with the remainder deferred under variable costing
c.
never be excluded from cost of goods sold under absorption costing
d. never be excluded from cost of goods sold under variable costing
10
REVIEW 3
From the following choose the correct Answer
23.
Conversion cost consists of which of the following?
a. Manufacturing overhead cost
b. Direct materials and direct labor cost
c. Direct labor cost
d. Direct labor and manufacturing overhead cost.
24.
The nursing station on the fourth floor of Central Hospital is responsible for the care
of orthopedic surgery patients. The costs of prescription drugs administered by the nursing
station to patients should be classified as:
a. direct patient costs.
b. indirect patient costs.
c. overhead costs of the nursing station.
d. period costs of the hospital.
25.
For which situation below would an organization be more likely to use a process
costing system rather than a job order costing system:
a. A shop that restores old cars to “showroom” quality
b. A paper mill that processes wood pulp into large rolls of paper
c. A framing shop that builds picture frames to order for individual customers
d. An airplane manufacturer
26.
Which of the following statements is true of the behavior of total variable costs, within
the relevant range?
a. They will decrease as production increases.
b. They will remain the same as production levels change.
c. They will decrease as production decreases.
d. They will increase as production decreases.
11
27.
The capital budgeting method that recognizes the time value of money by discounting
cash flows over the life of the project, using the company’s required rate of return as the discount
rate is called the:
a. Simple rate of return method
b. The net present value method
c. The financing method
d. The payback method
28.
Which one of the following statements about the payback method of capital budgeting
is correct?
a. the payback method does not consider the time value of money
b. The payback method considers cash flows after the payback has been reached
c. The payback method uses discounted cash flow techniques
d. The payback method will lead to the same decision as other methods of capital
budgeting.
29.
Which of the following are valid reasons for eliminating a product line?
I. The product line’s contribution margin is negative.
II. The product line’s traceable fixed costs plus its allocated common corporate costs are less
than its contribution margin.
a. onlyI
b. Only
c. Both I and II
d. Neither I nor II
30.
In computing the margin in a ROI analysis, which of the following is used?
a. Sales in the denominator
b. Net operating income in the denominator
c. Average operating assets in the denominator
d. Residual income in the denominator
12
REVIEW 4
From the following chose the correct Answer
(25 marks)
21. All other things the same, which of the following would increase residual income?
a. increase in average operating assets
b. Decrease in average operating assets
c. Increase in minimum required return
d. Decrease in net operating income
22. Which of the following would be added to net income in the operating activities
section of a statement of cash flows prepared using the indirect method?
a. an increase in accounts receivable
b. an increase in accounts payable
c. an increase in common stock
an increase in bonds payable
2) ……………. is computed by multiplying the standard quantity or hours by the standard
price or rate.
A) Revenue variance.
B) Materials quantity variance.
C) The standard cost per unit.
D) Spending variances.
4) Difference between actual price and standard priceis known as:
A) Standard Price per Unit.
B) Price Variance.
C) Quantity Variance.
D) Standard Quantity per Unit.
6)……….encourages managers to make profitable investments that would be rejected by
managers using ROI.
A) Residual income.
B) Margin.
C) Return on investment.
D) Net operating income.
13
11) A segment whose manager has control over costs, revenues, and investments in operating
assets is known as:
A) Cost center.
B) Decentralized organization.
C) Investment center.
D) Balanced scorecard.
12) ………………is the involvement by a company in more than one of the steps from
securing basic raw materials to the production and distribution of a finished product.
A) Vertical integration.
B) Split-off point.
C) Constraint.
D) Bottleneck
14) The point in the manufacturing process where each joint product can be recognized as a
separate product is called……….
A) The vertical integration.
B) The special order.
C) The avoidable costs.
D) The split-off point.
16) ……….is a cost that can be eliminated (in whole or in part) as a result of choosing one
alternative over another.
A) Avoidable cost.
B) Split-off point.
C)Joint products.
D) Joint cost.
19) Ladabouche Corporation’s total current assets are $390,000, its noncurrent assets are
$630,000, its total current liabilities are $330,000, its long-term liabilities are $420,000, and
its stockholders’ equity is $270,000. The current ratio is closest to:
A) 0.85
B) 0.79
C) 1.18
D)
0.62
Current ratio = Current assets ÷ Current liabilities
= $390,000 ÷ $330,000 = 1.18
14
20) …………………………involves comparing two or more years’ financial data for a single
company.
A) Horizontal analysis
B) Financial leverage.
C)Trend analysis.
D) Trend percentages.
22) A company’s current assets divided by its current liabilities is known as the……
A) Acid-test ratio.
B) Working capital.
C) Current ratio.
D) Accounts receivable turnover.
23)……………focuses on the relationships among financial statement items at a given point in
time
A) Horizontal analysis
B) Financial leverage.
C) Trend analysis.
D) Vertical analysis.
25) A ………..is a one-time order that is not considered part of the company’s normal
ongoing business.
A) Avoidable cost.
B) Split-off point.
C)Joint products.
D) Special order.
Q6.
Which of the following is classified as a direct labor cost?
a. Wages of assembly-line workers = No; Wages of a factory supervisor = No
b. Wages of assembly-line workers = Yes; Wages of a factory supervisor = Yes
c. Wages of assembly-line workers = No; Wages of a factory supervisor = Yes
*d. Wages of assembly-line workers = Yes; Wages of a factory supervisor = No
Q8.
The cost of direct materials cost is classified as a:
a. Period cost = Yes; Product cost = Yes
b. Period cost = No; Product cost = No
c. Period cost = Yes; Product cost = No
*d. Period cost = No; Product cost = Yes
Q9.
Goods that have been started in the manufacturing process but are not yet complete are
included in:
a. the Finished Goods Inventory account.
*b. the Work-in-Process Inventory account.
c. the Raw Materials Inventory account.
d. the Cost of Goods Sold account.
15
Q10.
Which of the following is a part of manufacturing overhead?
a. Cost of raw materials
b. Wages of assembly line workers
*c. Factory insurance
d. Depreciation on office furniture
REVIEW 12
From the following choose the correct Answer (25 marks)
31.
Which of the following characteristics applies to process costing, but does not apply to
job order costing?
a. the need for averaging
b. the use of equivalent units of production
c. separate, identifiable jobs
d. the use of predetermined overhead rates
16
32. Overapplied manufacturing overhead occurs when:
a. applied overhead exceeds actual overhead
b. applied overhead exceeds estimated overhead
c. actual overhead exceeds estimated overhead
d. budgeted overhead exceeds actual overhead
33. In activity-based costing, unit product costs computed for external financial reports
include manufacturing overhead computed by:
a. multiplying the predetermined overhead rate by the direct labor-hours required per unit
of the product.
b. multiplying the activity rate for each cost pool by the direct labor-hours required per
unit of the product.
c. multiplying the activity rate for each cost pool by the corresponding amount of activity
required per unit of the product.
d. tracing the manufacturing overhead cost to the product.
REVIEW 13
17
Q.1 Seroka Corporation estimates that its variable manufacturing overhead is
$6.90 per machine-hour and its fixed manufacturing overhead is $745,290 per
period.
If the denominator level of activity is 9,000 machine-hours, the fixed element in
the predetermined overhead rate would be:
A. $6.90
B. $89.71
C. $690.00
D. $82.81
Q.3Hardy, Inc., has budgeted sales in units for the next five months as follows:
June 8200 Unit
July 6300 Unit
Aug 4700 Unit
Sep 3600 Unit
Oct 2600 Unit
Past experience has shown that the ending inventory for each month should be
equal to 20% of the next month’s sales in units. The inventory on May 31
contained 1,640 units. The company needs to prepare a production budget for
the next five months.
The total number of units produced in July should be:
A. 7,240 units
B. 6,620 units
C. 6,300 units
D. 5,980 units
Q.4 Oscarson Midwifery’s cost formula for its wages and salaries is $2,720 per
month plus $351 per birth. For the month of September, the company planned
for activity of 121 births, but the actual level of activity was 119 births. The
actual wages and salaries for the month was $43,380. The wages and salaries in
the planning budget for September would be closest to:
A) $45,191
B) $43,380
C) $44,489
D) $44,109
Q.5 Bargas Framing’s cost formula for its supplies cost is $2,240 per month plus
$6 per frame. For the month of May, the company planned for activity of 808
frames, but the actual level of activity was 810 frames. The actual supplies cost
18
for the month was $7,090. The supplies cost in the flexible budget for May
would be closest to:
A) $7,088
B) $7,090
C) $7,106
D) $7,100
Q.6 The economic impact of the inability to reach a target denominator level of
activity would best be measured by:
A. the amount of the volume variance.
B. the contribution margin lost by failing to meet the target denominator level of
activity.
C. the amount of the fixed manufacturing overhead budget variance.
D. the amount of the variable overhead efficiency variance.
Q.7 Overhead is applied to work in process in a standard costing system by:
A. multiplying actual hours times the predetermined rate.
B. multiplying standard hours allowed for the output of the period times the
predetermined rate.
C. multiplying actual hours times the actual rate.
D. multiplying standard hours allowed for the output of the period times the actual
rate.
19
Q.8 Raybould Corporation has provided the following data concerning its most
important raw material, compound M31P:
Stander cost per liter…………………………$33.30
Standard quantity, liters per unit output……..5.5
Cost of Material Purchase in June per liter…..$34.20
Material Purchase in June quantity in liters…..1500
When recording the purchase of materials, Raw Materials would be:
A. credited for $49,950.
B. credited for $51,300.
C. debited for $49,950.
D. debited for $51,300.
Q.9 Which of the following is not an operating asset?
A. Cash
B. Inventory
C. Plant equipment
D. Common stock
Q.11 Cung Inc. has some material that originally cost $68,400. The material has
a scrap value of $30,100 as is, but if reworked at a cost of $1,400, it could be
sold for $30,800. What would be the incremental effect on the company’s overall
profit of reworking and selling the material rather than selling it as is as scrap?
A. -$69,100
B. -$700
C. $29,400
D. -$39,000
Q.13 You have deposited $5,188 in a special account that has a guaranteed
interest rate. If you withdraw $1,400 at the end of each year for 7 years, you will
completely exhaust the balance in the account. The guaranteed interest rate is
closest to:
A. 13%
B. 27%
C. 19%
D. 89%
Q.14 All of the following should be recorded in the operating activities section
of the statement of cash flows EXCEPT:
A. a decrease in inventory.
B. the total credits to the accumulated depreciation account.
C. a decrease in prepaid expenses.
D. a purchase of equipment in exchange for cash.
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Q.15 During the year the balance in the Inventory account increased by $4,000.
In order to adjust the company’s net income to a cash basis using the direct
method on the statement of cash flows, it would be necessary to:
A. subtract the $4,000 from the sales revenue reported on the income statement.
B. add the $4,000 to the sales revenue reported on the income statement.
C. subtract the $4,000 from the cost of goods sold reported on the income
statement.
D. add the $4,000 to the cost of goods sold reported on the income statement.
Q.16 A drop in the market price of a firm’s common stock will immediately
affect its:
A. return on common stockholders’ equity.
B. current ratio.
C. dividend payout ratio.
D. dividend yield ratio.
Q. 18 Variable cost:
a. increases on a per unit basis as the number of units produced increases.
b. remains constant on a per unit basis as the number of units produced increases
c. remains the same in total as production increases.
d. decreases on a per unit basis as the number of units produced increases
Q. 19 In a job-order costing system, direct labor cost is ordinarily debited to:
a. Manufacturing Overhead
b. Cost of good sold
c. Finished goods
d. work-in-progress
Q.20 In a job-order costing system, the use of direct materials that have been
previously purchased is recorded as a debit to:
a. Raw Materials inventory
b. Work in Process inventory
c. Finished Goods inventory
d. Manufacturing Overhead.
Q.21 providing the power required to run production equipment is an example
of :
a. Unit-level activity
b. Batch-level activity
c. Product-level activity
d. Facility-level activity
21
Q.22 Machining a part for a car axle is an example of a:
a. Unit-level activity
b. Batch-level activity
c. Product-level activity
d. Facility-level activity
Q.24 The FIFO method provides a major advantage over the weighted-average
method in that:
a. the calculation of equivalent units is less complex under the FIFO method.
b. the FIFO method treats units in the beginning inventory as if they were started
and completed during the current period.
c. the FIFO method provides measurements of work done during the current
period
d. the weighted-average method ignores units in the beginning and ending work
in process inventories.
Q.25 Break-even analysis assumes that:
a. total costs are constant
b. the average fixed expense per unit is constant
c. the average variable expense per unit is constant
d. variable expenses are nonlinear
.2 The Cox Company uses standard costing. The following data are available for
April:
Actual quantity of direct materials
used …………………………………………
Standard price of direct materials…..
Material quantity variance …………….
12,20
0
$4
$2,00
0
gallons
per gallon
unfavorab
le
The standard quantity of material allowed for April production is:
A) 14,200 gallons
B) 12,700 gallons
C) 11,700 gallons
D) 10,200 gallons
22
Q.3 Rameriz Company erred in selecting a denominator activity and chose a
much higher level than was realistic. This error would most likely result in a
large:
A. favorable variable overhead efficiency variance.
B. favorable fixed manufacturing overhead budget variance.
C. unfavorable overhead volume variance.
D. unfavorable fixed manufacturing overhead budget variance.
Q.4 In a standard cost system, the volume variance will be unfavorable when:
A. actual hours are greater than the denominator hours.
B. the standard hours allowed for the output of the period are less than the
denominator hours.
C. the standard hours allowed for the output of the period are greater than the
actual hours incurred.
D. actual hours are less than the
denominator hours.
Q.5 Stanfa Corporation’s standard wage rate is $10.50 per direct labor-hour
(DLH) and according to the standards, each unit of output requires 8.0 DLHs. In
January, 3,700 units were produced, the actual wage rate was $10.80 per DLH,
and the actual hours were 25,280 DLHs. In the journal entry to record the
incurrence of direct labor costs in January, the Work in Process entry would
consist of a:
A. debit of $310,800.
B. credit of $273,024.
C. credit of $310,800.
D. debit of $273,024.
23
Q.7 Company had stockholder’s equity of $160,000, net operating income of
$16,000 and sales of $100,000. The turnover was 0.5. The return on investment
(ROI) was:
A. 10%
B. 9%
C. 8%
D. 7%
Q.9Sohr Corporation processes sugar beets that it purchases from farmers. Sugar
beets are processed in batches. A batch of sugar beets costs $50 to buy from
farmers and $15 to crush in the company’s plant. Two intermediate products,
beet fiber and beet juice, emerge from the crushing process. The beet fiber can
be sold as is for $20 or processed further for $19 to make the end product
industrial fiber that is sold for $58. The beet juice can be sold as is for $41 or
processed further for $23 to make the end product refined sugar that is sold for
$58.
How much profit (loss) does the company make by processing the intermediate
product beet juice into refined sugar rather than selling it as is?
A. $(71)
B. $(6)
C. $(39)
D.
$(21)
Q.10 Virani Corporation has entered into a 8 year lease for a piece of equipment.
The annual payment under the lease will be $2,000, with payments being made
at the beginning of each year. If the discount rate is 9%, the present value of the
lease payments is closest to:
A. $8,030
B. $12,066
C. $16,000
D. $14,679
24
Q.13 Wesi Corporation prepares its statement of cash flows using the direct
method. Which of the following should Wesi classify as an operating activity on
its statement?
A. Option A
B. Option B
C. Option C
D. Option D
Q.15 At the beginning of the year, a company’s current ratio is 2.2. At the end of
the year, the company has a current ratio of 2.5. Which of the following could
help explain the change in the current ratio?
A. An increase in inventories.
B. An increase in accounts payable.
C. An increase in property, plant, and equipment.
D. An increase in bonds payable.
Q.18 Which of the following formulas is used to calculate the contribution
margin ratio?
a. (Sales – Fixed expenses) ÷ Sales
b. (Sales – Cost of goods sold) ÷ Sales
c. (Sales – Variable expenses) ÷ Sales
d.(Sales – Total expenses) ÷ Sales
Q.19 Selling and administrative expenses are considered to be:
a. a product cost under variable costing
b. a product cost under absorption costing
c. part of fixed manufacturing overhead under variable costing
d. a period cost under variable costing
25
Q.21 In January, one of the processing departments at Seidl Corporation had
ending work in process inventory of $35,000. During the month, $111,000 of
costs were added to production and the cost of units transferred out from the
department was $86,000. In the department’s cost reconciliation report for
January, the cost of beginning work in process inventory for the department
would be:
a. 51000
b. 10000
c. 76000
d. 60000
Q.22 In a job-order costing system, indirect materials that have been previously
purchased and that are used in production are recorded as a debit to:
a. Work in Process inventory.
b. Manufacturing Overhead
c. Finished Goods inventory
d. Raw material
Q.24 Personnel administration is an example of a:
a. Unit-level activity
b. Batch-level activity
c. Product-level activity
d. Facility-level activity
Q.25 The Pacific Company manufactures a single product. The following data
relate to the year just completed:
Variable Cost Per Unit
Production ……………………$43
Selling and Administration……$15
Fixed Cost in total:
Production ……………………$145000
Selling and Administration……$95000
During the last year, 5,000 units were produced and 4,800 units were sold.
There were no beginning inventories.
Under absorption costing, the cost of goods sold for the year would be:
a. $ 206400
b. $ 345600
c. $ 278400
d. $360000
26
(Section-II)
Short Essay type Questions
Q1.Explain the concept of Cost Volume Profit Analysis (C V P)?
Answer
COST VOLUME PROFIT ANALYSIS (C V P) is a systematic method of examining the
relationship between changes in the volume of output and changes in total sales revenue,
expenses (costs) and net profit. In other words, it is the analysis of the relationship existing
amongst costs, sales revenues, output and the resultant profit.
To know the cost, volume and profit relationship, a study of the following is essential:
(1) Marginal Cost Formula
(2) Break-Even Analysis Marginal Costing and Cost Volume Profit Analysis
(3) Profit Volume Ratio (or) PN Ratio
(4) Profit Graph
(5) Key Factors and
(6) Sales Mix Objectives of Cost Volume Profit Analysis
Q2. What are the criticisms of ROI?
Answer
–
In the absence of the balanced scorecard, management may not know how to increase
ROI.
–
Managers often inherit many committed costs over which they have no control.
–
Managers evaluated on ROI may reject profitable investment opportunities.
27
Q3. Define a master budget and demonstrate an understanding of the relationship between the
various components of a master budget?
Answer
Master budget is defined as management’s strategic plan for the future of the company. Every
aspect of the company operations is projected and documented for future predictions. The basic
components of master budget includes all of the other budgets including the fallowing.
•
•
•
•
•
•
•
•
•
•
Sales budget
Production budget
Direct labor budget
Manufacturing budget
Selling budget
General and Administrative expense budget
Capital budgets
Cash budgets
Budgeted income Statement
Budgeted Balance sheet
The components of master budget are interconnected, which means that numbers from one
component budget flow to another one. For example, sales budget numbers are used in schedule
of cash receipts from customers and unless the sales budget is prepared, we are unable to prepare
schedule of receipts from customers because of lack of information.
Q4. The Casket Division of Rosencranz Corporation had average operating assets of $150,000
and net operating income of $27,800 in March. The company uses residual income to evaluate
the performance of its divisions, with a minimum required rate of return of 17%.
Required:
What was the Casket Division’s residual income in March?
Answer
Q5.Define payback period ?what is the formula used to compute the payback period ?
Answer
The payback period is the length of time that it takes for a project to recover its initial cost out
of the cash receipts that it generates.
When the annual net cash inflow is the same each year, the fallowing formula can be used to
compute the payback period:
Payback period = Investment required ÷ Annual net cash inflow
28
(Section-III)
Long Answer Question.
Q1. Explain the purpose of the statement of cash flows and discuss the differences between
operating, investing and financing activities.
Answer
The statement of cash flows highlights the major activities that impact cash flows and, hence,
affect the overall cash balance. The Purpose of the Statement of Cash Flows to check the
fallowing
1. Are cash flows sufficient to support ongoing operations?
2. Will the company have to borrow money to make needed investments?
3. Can we pay debts?
4. Can we pay dividends?
5. Why is there a difference between net income and net cash flow?
Differences between operating, investing and financing activities are
Operating activities involve the day-to-day business activities that generate operating income.
Examples are production and purchase of merchandise, the sale of goods to customers and the
expenditures to administer the business.
Investing activities generally include those transactions that affect long-term assets. They
also include the purchase and sale of short-term investments other than cash equivalents and
trading securities and lending and collecting from notes receivable.
Financing activities include those transactions and events that affect long-term liabilities and
equity. They also include borrowing and repaying principle amounts of both long and shortterm notes.
29
Q2.Perfect automobiles is a division of a major corporation. The following data are for the
latest year of operations:
you are Required to copute the fallowing for Perfect automobiles
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
Answer
a. Margin = Net operating income ÷ Sales = $1,319,700 ÷ $24,900,000 = 5.3%
b. Turnover = Sales ÷ Average operating assets = $24,900,000 ÷ $6,000,000 =
4.2
c. ROI = Net operating income ÷ Average operating assets = $1,319,700 ÷
$6,000,000 = 22.0%
30
(Section-II) Short Essay type Questions.
Q1. What items are included in manufacturing overhead?
Answer
Manufacturing overhead includes all manufacturing costs except direct materials and direct
labor. These costs cannot be easily traced to specific units produced (also called indirect
manufacturing cost, factory overhead, and factory burden).
Manufacturing overhead includes indirect materials that are part of the finished product, but
that cannot be easily traced to it. It includes indirect labor costs that cannot be conveniently
traced to the creation of products.
Other examples of manufacturing overhead include: maintenance and repairs on production
equipment, heat and light, property taxes, depreciation and insurance on manufacturing
facilities, etc.
Q4.ALOMARI Fabrics Company manufactures a range of products. The company has the
capacity to produce 70,000 units per year, and is currently producing and selling 50,000 units
per year. The following information relates to current production:
Sale price per unit
SAR100
Variable costs per unit:
Manufacturing
50
Marketing and administrative
10
Total fixed costs:
Manufacturing
SAR 350,000
Marketing and administrative
SAR 150,000
If a special sales order is accepted for 5,000 units at a price of SAR 95 per unit, and if the
order requires both variable manufacturing and variable marketing as well as administrative
costs, and incremental fixed costs of SAR 200,000, what will be the impact on operating
income? Answer:
Operating income decreases by SAR 25,000
Explanation:
Sales (5,000*95)
SAR 475,000
Less: Variable costs
Manufacturing
250,000
Marketing and administrative 50,000
Increase in operating income
300,000
SAR 175,000
Change in Operating income = SAR 175,000 –SAR 200,000 (Incremental fixed costs)
= (SAR 25,000)
31
Q5.The following data for April has been provided by NOURAN Corporation.
Denominator level of activity
Budgeted fixed manufacturing overhead costs
Actual level of activity
Standard machine-hours allowed for the actual
output
Actual fixed manufacturing overhead costs
8,800
SAR 178,640
9,200
9,300
Machine-hours
Machine-hours
Machine-hours
SAR 172,980
Required: compute the budget variance for April?
Answer
Budget variance = Actual fixed overhead – Budgeted fixed overhead cost = SAR 172,980 –
SAR 178,640 = SAR5,660 F
(Section-III)
Essay type Questions.
Q1.A study has been conducted to determine if Product A should be dropped. Sales of the
product total SAR 200,000 per year; variable expenses total SAR 140,000 per year. Fixed
expenses charged to the product total SAR 90,000 per year. The company estimates that SAR
40,000 of these fixed expenses will continue even if the product is dropped.
Required:
What is the effect on the company’s overall net operating income if product A is dropped?
Answer:
Keep the product
Drop the product
Difference
SAR 200,000
SAR 0
SAR (200,000)
Variable expenses
140,000
0
140,000
Contribution margin
60,000
0
(60,000)
Fixed manufacturing expenses
90,000
40,000
50,000
Sales
Net operating income (loss)
SAR (30,000)
SAR (40,000)
SAR (10,000)
Net operating income would decline by SAR 10,000 if Product A was dropped.
32
Q2.ALSAIF is a division of a major corporation. The following data are for the latest year of
operations:
Sales……………………………………………………………………
SAR 24,900,000
Nest operating income…………………………………………………
SAR 1,319,700
Average operating assets………………………………………………
SAR 6,000,000
The company s minimum required rate of return……………………..
12%
Required:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
d. What is the division’s residual income?
Answer:
a. Margin = Net operating income ÷ Sales = SAR 1,319,700 ÷ SAR 24,900,000 = 5.3%
b. Turnover = Sales ÷ Average operating assets = SAR 24,900,000 ÷ SAR 6,000,000 = 4.2
c. ROI = Net operating income ÷ Average operating assets = SAR 1,319,700 ÷ SAR
6,000,000 = 22.0%
d. Residual income = Net operating income – Average operating assets × Minimum required
rate of return = SAR 1,319,700 – SAR 6,000,000 × 12% = SAR 1,319,700 – SAR 720,000 =
SAR 599,700
33
(Section-II)
Short Essay type Questions.
Q2.
Costs associated with two alternatives, code-named R and S, being considered by LINA
Corporation are listed below:
SUPPLIES COSTS
POWER COSTS
INSPECTION COSTS
ASSEMBLY COSTS
ALTERNATIVE R
SAR 73,000
ALTERNATIVE S
SAR 68,000
SAR 19,000
SAR 29,000
SAR 42,000
SAR 19,000
SAR 39,000
SAR 31,000
Required:
1. Define relevant cost, relevant benefit?
2. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
Answer:
1.
A relevant cost is a cost that differs between alternatives.
A relevant benefit is a benefit that differs between alternatives.
2. Supplies costs………. Relevant, since costs differ between alternatives
Power costs…………. Not relevant since the costs do not differ between alternatives
Inspection costs……… Relevant, since costs differ between alternatives
Assembly costs……… Relevant, since costs differ between alternatives
Q3.If operating income is SAR 58,000, average operating assets are SAR 250,000, and the
minimum required rate of return is 20%, what is the residual income?
Answer:
Average operating assets x required rate of return = 250,000 x .2 = 50,000
Operating income – Required income = $58,000 – $50,000 = $8,000
34
Q4.The management of ALHUSSAIN Corporation is considering a project that would
require an initial investment of SAR 165,500 and would last for 4 years. The annual net
operating income from the project would be SAR 27,000, including depreciation of SAR
20,000. At the end of the project, the scrap value of the project’s assets would be SAR
5,500.
Required: Determine the payback period of the project. Show your work!
(Ignore income taxes in this problem)
Answer
Net operating income:
SAR 27,000
Add: Noncash deduction for depreciation:
Annual net cash inflow:
SAR 47,000
SAR 20,000
Payback period = Investment required ÷ Annual net cash inflow
= SAR 165,500 ÷ SAR 47,000 = 3.52 years
Q5.Shown below is the sales forecast for FEDA Inc. for the first four months of the coming
year.
Jan
Feb
Mar
Apr
Cash sales
SAR 15,000
SAR 24,000
SAR 18,000
SAR 14,000
Credit sales
SAR 100,000
SAR 120,000
SAR 90,000
SAR 70,000
On average, 50% of credit sales are paid for in the month of the sale, 30% in the month
following sale, and the remainder are paid two months after the month of the sale.
Required:
Assuming there are no bad debts, calculate the expected cash inflow in March?
Answer:
Cash inflow for March:
March cash sales
March credit sales collected in March (90,000*50%)
February credit sales collected in March (120,000*30%)
January credit sales collected in March (100,000*20%)
Total cash inflow in March
SAR 18,000
SAR 45,000
SAR 36,000
SAR 20,000
SAR119,000
35
(Section-III)
Essay type Questions.
Q1.SEEMA Company reports the following:
Net operating income
Average operating assets
Sales
Operating expenses
Required:
$ 42,000
$ 240,000
$ 600,000
$ 520,000
What is the ROI, Margin and turnover Ratio of SEEMA Company?
Answer
ROI= Margin x Turnover
Margin= Net operating income / Sales
Margin = 42000/ 600000
Margin =7%
Turnover= Sales / Average operating assets
Turnover = 600000/240000
Turnover= 2.5
ROI= Margin x Turnover
ROI= 7% x 2.5
ROI= 17.5%
Or
ROI= Net operating income/ Average operating assets x100
ROI= 42000/240000 x100
ROI= 17.5%
36
Q 2.PUJA Corporation makes a product that uses a material with the quantity standard of 9.5
kilos per unit of output and the price standard of SAR 4.00 per kilo. In July the company
produced 7,000 units using 68,850 kilos of the direct material. During the month the company
purchased 73,600 kilos of the direct material at SAR 3.70 per kilo. The direct materials
purchases variance is computed when the materials are purchased.
Required:
a) Compute the materials quantity variance for July.
b) Compute the materials price variance for July.
Answer:
SQ = 7,000 units × 9.5 kilos per unit = 66,500 kilos
Materials quantity variance = (AQ – SQ) SP
= (68,850 kilos – 66,500 kilos)* $4.00 per kilo
= (2,350 kilos) * $4.00 per kilo = $9,400 U
Materials price variance = AQ (AP – SP)
= 73,600 kilos * ($3.70 per kilo – $4.00 per kilo)
= 73,600 kilos * (-$0.30 per kilo) = $22,080 F
(Section-II)
Short Essay type Questions.
Q3.What are the Advantages of Self-Imposed Budgets?
Answer
A. Individuals at all levels of the organization are viewed as members of the team whose
judgments are valued by top management.
B. Budget estimates prepared by front-line managers are often more accurate than
estimates prepared by top managers.
C. Motivation is generally higher when individuals participate in setting their own goals
than when the goals are imposed from above.
D. A manager who is not able to meet a budget imposed from above can claim that it was
unrealistic. Self-imposed budgets eliminate this excuse.
37
Q1 Iles Industries is a division of a major corporation. The following data are for the latest
year of operations. What is the division’s residual income?
Solution: Residual income = Net operating income – Average operating assets × Minimum
required rate of return
= $2,553,480 – $6,000,000 × 16% = $2,553,480 – $960,000 = $1,593,480
Q2 Guitian Corporation produces and sells a single product. The company’s contribution
format income statement for June appears below:
Required:
Redo the company’s contribution format income statement assuming that the company sells
5,700 units.
Answer
Q1. Define relevant cost, relevant benefit?
Answers
A relevant cost is a cost that differs between alternatives.
A relevant benefit is a benefit that differs between alternatives.
38
(Section-II)
Short Essay type Questions. Each Question carries 3 marks (5 X 3 = 15)
Q1.Define a budget and explain how a flexible budget affect profit planning.
Answer
A budget is a detailed quantitative plan for acquiring and using financial and other resources
over a specified forthcoming time period.
Flexible Budgets affect profit planning because of fallowing Characteristics
1. May be prepared for any activity
level in the relevant range.
2. Show costs that should have been
incurred at the actual level of
activity, enabling “apples to apples”
cost comparisons.
3. Help managers control costs.
4. Improve performance evaluation.
Q4.Universal Corporation’s total current assets are $270,000, its noncurrent assets are
$610,000, its total current liabilities are $170,000, its long-term liabilities are $400,000, and
its stockholders’ equity is $310,000.you are Required toCompute the company’s current ratio.
Answer
Current ratio = Current assets ÷ Current liabilities = $270,000 ÷ $170,000 = 1.59
39
(Section-III)
Long Answer Question. Question carries 5 marks (2 x 5 = 10)
Q2.Gilde Industries is a division of a major corporation. Last year the division had total sales
of $23,380,000, net operating income of $2,828,980, and average operating assets of
$7,000,000. The company’s minimum required rate of return is 12%.
Required:
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)?
Answer:
a. Margin = Net operating income ÷ Sales = $2,828,980 ÷ $23,380,000 = 12.1%
b. Turnover = Sales ÷ Average operating assets = $23,380,000 ÷ $7,000,000 = 3.3
c. ROI = Net operating income ÷ Average operating assets = $2,828,980 ÷ $7,000,000 =
40.4%
Q1.
Explain the following costs briefly?
1. Variable Cost
2. Fixed Cost
3. Opportunity Cost
4. Sunk Cost
Answer
A variable cost varies, in total, in direct proportion to changes in the level of activity.
A fixed cost is constant within the relevant range. In other words, fixed costs do not change for
changes in activity that fall within the relevant range.
Opportunity cost is the potential benefit that is given up when one alternative is selected over
another. These costs are not usually entered into the accounting records of an organization, but
must be explicitly considered in all decisions.
A sunk cost is a cost that has already been incurred and that cannot be changed by any decision
made now or in the future. Since sunk costs cannot be changed and therefore cannot be
differential costs, they should be ignored in decision-making.
40
Q3.
A number of costs are listed below.
Required:
For each item above, indicate whether the cost is direct or indirect with respect to the cost
object listed next to it.
Answer
1. Wood used to build a home; A particular home; Direct
2. Cost of testing equipment in a computer manufacturing facility; A particular personal
computer; Indirect
3. Cost of heating an outpatient clinic at a hospital; The outpatient clinic; Direct
4. Supervisor’s wages in a computer manufacturing facility; A particular personal computer;
Indirect
5. Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray) Department;
Direct
6. Cost of tongue depressors used in an outpatient clinic at a hospital; The outpatient clinic;
Direct
Monthly depreciation on construction tools used to build a home; A particular home; Indirect
8. Cost of wiring used in making a personal computer; A particular personal computer;
Indirect
9. Cost of a measles vaccine administered at an outpatient clinic at a hospital; The outpatient
clinic; Direct
10. Cost of heating a hotel run by a chain of hotels; A particular hotel guest; Indirect
41
Q4.
Abdullah Manufacturing Company completed Job 120 last month. The cost details of Job 120
are shown below:
Direct labor cost
Direct materials cost
Machine hours used
Direct labor hours
Predetermined overhead allocation rate per direct labor
hour
$2,040
$90
5
75
$34
Calculate the total job cost for Job 407.
Answer:
Direct labor cost
$2,040
Direct materials cost
90
Manufacturing overhead
($34 × 75 direct labor hours = $2,550) 2,550
Job cost of Job 120
$4,680
Q11.
Aaron Company estimates direct labor costs and manufacturing overhead costs for the coming
year to be $800,000 and $500,000, respectively. Aaron allocates overhead costs based on
machine hours. The estimated total labor hours and machine hours for the coming year are
16,000 hours and 10,000 hours, respectively. What is the predetermined overhead allocation
rate?
Answer:
Predetermined overhead allocation rate = Total estimated overhead costs ÷ Total estimated
quantity of the overhead allocation base
Predetermined overhead allocation rate = $500,000 ÷ 10,000 machine hours = $50.00 per
machine hour
REVIEW 8
Q1. Give reasons why you need a budget. Have you ever been involved in the
budget process at your organization/or at home? If so, describe your role and
responsibilities. What aspects of the budget process might you change where you
work or at home, if you had the opportunity?
Answer: These are some guidelines but student answers will vary
42
Students have to embed course material concepts, principles, and theories, which require
supporting citations, along Students answer. Students need to reply to this question by giving
reasons why we should create and stick to a budget:
Example:
We should not just have a budget; we need a budget. Running a business or department without
a budget is like trying to drive a car while wearing a blindfold. We need to plan our budget for
several reasons:To ensure we’re covered during seasons of unstable revenue in your business.
• So that resources are allocated appropriately for business growth and development, which
enables each department and team to know the outcome that is expected.
• Budgeting paves a way to strategize the long-term and short-term revenue goals for the
organization.
• It creates a financial roadmap that will facilitate savings and ensure that you don’t spend
the money you don’t have.
• In case of emergency, your business doesn’t suffer a financial loss. Cash in the bank will
keep things going. Also students need to reply to the other questions post answers to this
43
Q3.AlAli corp is preparing its cash budget for April. The budgeted beginning cash
balance is $19,000. Budgeted cash receipts total $105,000 and budgeted cash
disbursements total $98,000. The desired ending cash balance is $50,000. The
company can borrow up to $120,000 at any time from a local bank, with interest
not due until the following month.
Required:
Prepare the company’s cash budget for April in good form. Make sure to indicate
what borrowing, if any, would be needed to attain the desired ending cash
balance.
Answer:
44
REVIEW 9
Q2.Aldene Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in units
vary from month to month. The company’s variable costs per unit and total fixed costs have
been constant from month to month.
Required:
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
Answer:a. Variable costing income statement
b. Absorption costing income statement
45
Q4.The standards for product J42 call for 3.6 feet of a raw material that costs $14.00 per feet.
Last month, 5,500 feet of the raw material were purchased for $76,175. The actual output of
the month was 1,260 units of product J42. A total of 4,800 feet of the raw material were used
to produce this output.
Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
c. Prepare journal entries to record the purchase and use of the raw material during the month.
(All raw materials are purchased on account.)
Answer:
a. Materials price variance = (AQ × AP) – (AQ × SP)
= $76,175 – (5,500 feet × $14 per foot)
= $76,175 – $77,000 = $825 F
b. Materials quantity variance = (AQ – SQ) SP
= (4,800 feet – 4,536 feet*) $14 per foot
= (264 feet) $14 per foot = $3,696 U
*3.6 feet per unit × 1,260 units = 4,536 feet
c. Journal entries to record the purchase and use of the raw material:
Record the purchase of the raw material:
Record the use of the raw material:
46
REVIEW 10
Q1.Discuss the differences between operating, investing and financing activities, then
describe the cash flows between a company and its stakeholders.
Answer
Operating activities involve the day-to-day business activities that generate operating income.
Examples are production and purchase of merchandise, the sale of goods to customers and the
expenditures to administer the business. Investing activities generally include those
transactions that affect long-term assets. They also include the purchase and sale of short-term
investments other than cash equivalents and trading securities and lending and collecting from
notes receivable. Financing activities include those transactions and events that affect longterm liabilities and equity. They also include borrowing and repaying principle amounts of
both long and short-term notes.
Cash flows are generated by a company’s productive assets that were purchased through
either issuing debt or raising equity. These assets generate revenues through the sale of goods
and services. A portion of this revenue is then used to pay wages and salaries to employees,
pay suppliers, pay taxes, and pay interest on the borrowed money. The leftover money,
residual cash, is then either reinvested back in the business or is paid out to shareholders in
the form of dividends.
47
Q2. ALHAMD Watch Company manufactures two product lines—digital watches and analog
watches. Income statement data for the most recent year follow:
Total
Digital Watches Analog Watches
Sales revenue
$850,000
$500,000
$350,000
Variable expenses
(530,000)
(250,000)
(280,000)
Contribution margin
$320,000
$250,000
$70,000
Fixed expenses
(180,000)
(90,000)
(90,000)
Operating income (loss)
$140,000
$160,000
$(20,000)
Assuming fixed costs remain unchanged, and that there would be no adverse effect on other
sales, what will be the effect of dropping the Analog Watches line on the operating income of
the company?
Answer:
Operating income will decrease by $70,000:
Explanation:
Expected decrease in revenue:
$(350,000)
Expected decrease in total variable costs:
$280,000
Expected decrease in Fixed costs:
0
Expected decrease in total costs:
280,000
Expected decrease in operating income
$(70,000)
48
Q4. Creative Yachting Fabrics Company manufactures sails for sailboats. The company has
the capacity to produce 35,000 sails per year, and is currently producing and selling 25,000
sails per year. The following information relates to current production:
Sale price per unit
$175
Variable costs per unit:
Manufacturing
60
Marketing and administrative
20
Total fixed costs:
Manufacturing
$700,000
Marketing and administrative
$300,000
If a special sales order is accepted for 5,500 sails at a price of $150 per unit, and if the order
requires both variable manufacturing and variable marketing as well as administrative costs,
and incremental fixed costs of $400,000, what will be the impact on operating income?
Answer:
Operating income decreases by $15,000
Explanation:
Sales
$825,000
Less: Variable costs
Manufacturing
330,000
Marketing and administrative110,000
440,000
Increase in operating income
$385,000
Change in Operating income = $385,000 – $400,000 (Incremental fixed costs) = ($15,000)
49
Q5.Costs associated with two alternatives, code-named M and N, being considered by
ALOTHMAN Corporation are listed below:
ALTERNATIVE M
ALTERNATIVE N
SUPPLIES COSTS
SAR 63,000
SAR 58,000
POWER COSTS
SAR 39,000
SAR 39,000
INSPECTION COSTS
SAR 19,000
SAR 29,000
ASSEMBLY COSTS
SAR 32,000
SAR 21,000
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
Answer:
a. Supplies costs………. Relevant, since costs differ between alternatives
Power costs…………. Not relevant since the costs do not differ between
alternatives
Inspection costs……… Relevant, since costs differ between alternatives
Assembly costs……… Relevant, since costs differ between alternatives
b.
Alternative M
Alternative N
Differential
Supplies costs
SAR 63,000
SAR 58,000
SAR (5,000)
Power costs
SAR 39,000
SAR 39,000
0
Inspection costs
SAR 19,000
SAR 29,000
10,000
Assembly costs
SAR 32,000
SAR 21,000
(11,000)
Total
SAR 153,000
SAR 147,000
(6,000)
50
Q4.
Heavey Fabrication is a division of a major corporation. Last year the division had total
sales of $21,120,000, net operating income of $2,006,400, and average operating assets
of $6,000,000. The company’s minimum required rate of return is 12%.
Required:
What is the division’s return on investment (ROI)?
Answer
ROI = Net operating income ÷ Average operating assets = $2,006,400 ÷ $6,000,000 =
33.4%
Q5.
Madrazo Corporation uses residual income to evaluate the performance of its divisions.
The minimum required rate of return for performance evaluation purposes is 19%. The
Games Division had average operating assets of $410,000 and net operating income of
$86,000 in June.
Required:
What was the Games Division’s residual income in June?
Answer
51
Section-II
Short Answer Questions
Q.1compute the number Ending WIP Inventory for the month of February 2016
from the following information: Department A had 4,000 units in beginning
WIP and started 46,000 units this month whereas 34,000 units were complete.
Answer.
Ending WIP Inventory = Beginning WIP + Started Units – Completed
Units
= 4,000 + 46,000 – 34,000
Ending WIP Inventory = 16,000
Q.2 Limon Corporation is considering a project that would require an initial
investment of $204,000 and would last for 6 years. The incremental annual
revenues and expenses for each of the 6 years would be as follows:
Sales
$230000
Less Variable Exp
64000
Contribution margin =
166000
Less Fixed Expenses
Salaries
30000
Rent
25000
Depreciation
32000
Total Fixed Expenses = 87000
Net Operating Income=
79000
At the end of the project, the scrap value of the project’s assets would be
$12,000. Required: Determine the payback period of the project. Show your
work
Answer
Net operating Income
$79000
Add Non cash deduction for depreciation
32000
Annual Net Cash Inflow (Total)
$111000
Payback period = Investment required ÷ Annual net cash inflow
= $204,000 ÷ $111,000 = 1.84 years
Q.3 During January, Agron Clinic plans for an activity level of 2,500 patientvisits. The clinic uses the following revenue and cost formulas in its budgeting,
where q is the number of patient-visits:
52
Revenue: $51.50q
Personnel expenses: $33,800 + $16.60q
Medical supplies: $700 + $7.40q
Occupancy expenses: $10,900 + $2.10q
Administrative expenses: $4,300 + $0.40q
Required: Prepare the clinic’s planning budget for January.
Agron Clinic
Planning Budget
For the Month Ended January 31
Budgeted patient-visits (q) ……………………………
Revenue ($51.50q) ………………………………………
Expenses:
Personnel expenses ($33,800 + $16.60q) ……….
Medical supplies ($700 + $7.40q) …………………
Occupancy expenses ($10,900 + $2.10q) ……….
Administrative expenses ($4,300 + $0.40q) ……
Total expense ……………………………………………..
Net operating income …………………………………..
2,500
$128,750
75,300
19,200
16,150
5,300
115,950
$12,800
Q.4 Rama manufacturing Company the capacity to produce 17,500 Chairs each
month; current monthly production is 17,000 Chairs. The company normally
charges $85 per Chair. Cost data for the current level of production are shown
below:
Variable Costs
Direct Materials
$525000
Direct Labor
$325000
Selling Expenses
$30000
Fixed Costs
Manufacturing
$325000
Administration Expenses $165000
The company has just received a special one-time order for 600 medals at $75
each. For this particular order, no variable selling and administrative costs
would be incurred. This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
(3 Marks)
Answer:
Only the direct materials and direct labor costs are relevant in this decision. To
make the decision, we must compute the average direct materials and direct labor
cost per unit.
53
Direct Materials
$525000
Direct Labor
$325000
Total=
$850000
Current Monthly Production
17000 Chairs
Average Direct material and direct labor Cost per Unit= $50
Since the price on the special order is $75 per Chair and the relevant cost is only
$50, the company would earn a profit of $25 per Chair. Therefore, the special
order should be accepted.
Q.5 Plotz Corporation’s net cash provided by operating activities was $59,000;
its net income was $67,000; its income taxes were $29,000; its capital
expenditures were $44,000; and its cash dividends were $13,000.
Required:
Determine the company’s free cash flow.
AnswerFree cash flow = Net cash provided by operating activities – Capital
expenditures – Dividends
= $59,000 – $44,000 – $13,000 = $2,000
54
Section-III
Long Answers
Q.1 Excerpts from Stepney Corporation’s most recent balance sheet (in thousands
of dollars) appear below:
Particulars
Year -2 (amount in
$)
260
260
140
60
720
190
Year-1 (amount in $)
Current Assets: Cash
120
Account Receivable
270
Inventory
140
Prepaid Exp
70
Total Current Assets
600
Current Labilities: A/c
190
Payable
Accrued Labilities
100
90
Notes Payable, Short Term
70
60
Total Current Labilities
360
340
Sales on account during the year totaled $1,440 thousand. Cost of goods sold
was $890 thousand.
Required:
Compute the following for Year 2:
a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.
55
Answer
a. Working capital = Current assets – Current liabilities = $720 – $360 =
$360
b. Current ratio = Current assets ÷ Current liabilities = $720 ÷ $360 =
2.00
c. Acid-test ratio = (Cash + Marketable securities + Accounts receivable +
Short-term notes receivable) ÷ Current liabilities = ($260 + $0 + $260 =
$520) ÷ $360 = $520 ÷ $360 = 1.44
d. Average accounts receivable balance = ($260 + $270) ÷ 2 = $265
Accounts receivable turnover = Sales on account ÷ Average accounts
receivable balance
= $1,440 ÷ $265 = 5.43
e. Average collection period = 365 days ÷ Accounts receivable turnover
= 365 days ÷ 5.43 = 67.2 days
f. Average inventory balance = ($140 + $140) ÷ 2 = $140
Inventory turnover = Cost of goods sold ÷ Average inventory balance =
$890 ÷ $140 = 6.36
g. Average sale period = 365 days ÷ Inventory turnover (see above)
= 365 days ÷ 6.36 = 57.4 days
Q.2 Complete the following table.
(5 Marks)
Output
100
150
200
250
300
Answer:
Total Fixed Cost
Total Variable Cost
Total Cost
Output
Total Fixed Cost
100
10,000
150
10,000
75,000
85,000
200
10,000
100,000
110,000
250
10,000
125,000
135,000
300
10,000
150,000
160,000
75,000
10,000
Total Variable
Total Cost
Cost
50,000
60,000
56
REVIEW 14
Section-II
Short Answer Questions
Q.1Heningburg Corporation’s total current assets are $250,000, its noncurrent
assets are $530,000, its total current liabilities are $160,000, its long-term
liabilities are $370,000, and its stockholders’ equity is $250,000.
Required:
Compute the company’s working capital. Show your work!
Answer
Working capital excess of Current Assets over Current liabilities
Working capital = Current assets – Current liabilities = $250,000 – $160,000 =
$90,000
Q.3The management of Fowkes Corporation is considering a project that would
require an initial investment of $331,000 and would last for 8 years. The annual
net operating income from the project would be $54,000, including depreciation
of $40,000. At the end of the project, the scrap value of the project’s assets
would be $11,000.
Required:
Determine the payback period of the project. Show your work!
Answer
Net Operating Income …………………………..$54000
Add Non Cash Deduction for Depreciation……….40000
Annual Net Cash inflow…………………………..$94000
Payback period = Investment required ÷ Annual net cash inflow
= $331,000 ÷ $94,000 = 3.52 years
57
Q.4 Data from Paynter Corporation’s most recent balance sheet appear below:
Preferred Stock………………………………….$100,000
Common Stock……………………………………200,000
Additional Paid in Capital (Common Stock)………210,000
Retained Earnings…………………………………430,000
Total Stockholders; equity……………………….$940,000
A total of 100,000 shares of common stock and 20,000 shares of preferred stock
were outstanding at the end of the year.
Required:
Compute the book value per share. Show your work!
Answer: Book value per share = (Total stockholders’ equity – Preferred stock) ÷
Number of common shares outstanding = ($840,000 + $0) ÷ 100,000 shares =
$8.40 per share
Long Answer Questions
Q.1 During February, Poetker Corporation budgeted for 29,000 customers, but
actually served 28,000 customers. Revenue should be $4.70 per customer
served. Wages and salaries should be $31,700 per month plus $1.50 per
customer served. Supplies should be $0.80 per customer served. Insurance
should be $8,400 per month. Miscellaneous expenses should be $7,400 per
month plus $0.40 per customer served.
Required: Prepare the company’s flexible budget for February based on the
actual level of activity for the month.
Answer:
Poetker Corporation
Flexible Budget
For the Month Ended February 28
Actual customers served (q) …………..
28,000
Revenue ($4.70q) …………………………
$131,600
Expenses:
Wages and salaries ($31,700 +
$1.50q) ……………………………………..
73,700
Supplies ($0.80q)………………………….
22,400
Insurance ($8,400) ………………………..
8,400
Miscellaneous ($7,400 + $0.40q) ……
18,600
Total expense ……………………………….
123,100
Net operating income ……………………
$8,500
58
Q.2 Break-even equation. Fill in the blanks. Abdullah Company given following
details find out missing Information.
Givens
Price per
Visit
Number of Contribution Fixed Cost Net
Visits
Income
SR. 85
Variable
cost Per
Visit
—-
3000
SR. 220000
SR. 70
—SR. 78
SR. 20
SR. 35
SR. 55
—3250
2500
SR. 250000
———
Number of Contribution Fixed Cost Net
Visits
Income
SR. 85
Variable
cost Per
Visit
SR. 12
3000
SR. 220000
SR. 70
SR. 20
5000
SR. 250000
SR.112
SR. 78
SR. 35
SR. 55
3250
2500
SR. 250000
SR. 57500
—-
SR.
100000
SR.130000 —SR.165000 SR. 85000
SR. 60000 —-
Ans.
Price per
Visit
SR.
SR.
120000
100000
SR.130000 SR.
120000
SR.165000 SR. 85000
SR. 60000 SR. (2500)
59
REVIEW 15
CASE STUDY
You are a new manager of Fashion Alley Est., a distributor of bracelets to various
retail outlets. You have to prepare Sales, excepted cash, and purchase budgets for
the upcoming second quarter so that management will see the benefits that can be
gained from your budget. Below is detailed information.
The company sells different styles of bracelets, but the selling priceeach style is
same $10/piece. Actual sales of earrings for the last three months and budgeted
sales for the next six months follow
Jan-2017 (actual) -20,000
June -2017 (budget) – 50,000
Feb-2017 (actual) -26,000
July -2017 (budget) – 30,000
March-2017 (actual) – 40,000August -2017 (budget) – 28,000
April-2017 (budget) – 65,000September-2017 (budget) – 25,000
May-2017 (budget) – 100,000
The concentration of sales before and during May is due to Mother’s Day.
Sufficient inventory should be on hand at the end of each month to supply 40%
of the bracelets sold in the following month.
Suppliers are paid $4 for a pair of bracelets. One-half of a month’s purchases is
paid for in the month of purchase; the other half is paid for in the following month.
All sales are on credit, with no discount, and payable within 15 days. The
company has found, however, that only 20% of a month’s sales are collected in
the month of sale. An additional 70% is collected in the following month, and the
remaining 10% is collected in the second month following sale. Bad debts have
been negligible.
Prepare a below budgets for the three-month period ending June 30.
Question -1.
60
a. A sales budget, by month and in total.(1-Marks)
b. A schedule of expected cash collections from sales, by month and in total.(2Marks)
c. A merchandise purchases budget in units and in dollars. Show the budget by
month and in total.(2-Marks)
Answer:
1. a. Sales budget:
April
May
June
Budgeted unit sales ……. 65,000
100,000
50,000
Selling price per unit …..
× $10
× $10
× $10
Total sales…………………. $650,000 $1,000,000 $500,000
b. Schedule of expected cash collections:
February sales (10%) …. $ 26,000
March
sales
(70%, 10%) ……………. 280,000 $ 40,000
April
sales
(20%, 70%, 10%) ……. 130,000 455,000
May
sales
(20%, 70%) …………….
200,000
June sales (20%) ………..
Total cash collections …. $436,000 $695,000
c. Budgeted merchandise purchases:
Budgeted unit sales ……. 65,000
100,000
Add desired ending
inventory* ………………
40,000
20,000
Total needs ……………….. 105,000 120,000
Less
beginning
inventory ………………..
26,000
40,000
Required purchases …….
79,000
80,000
Cost of purchases at $4
per unit ………………….. $316,000 $320,000
Quarter
215,000
× $10
$2,150,000
$ 26,000
320,000
$ 65,000
650,000
700,000
100,000
$865,000
900,000
100,000
$1,996,000
50,000
215,000
12,000
62,000
12,000
227,000
20,000
42,000
26,000
201,000
$168,000
$ 804,000
*40% of the next month’s unit sales.
61
Question 2-In the year 2017, Season International Company had sales of 8,500
units and production of 11,000 units. Other information includesDirect manufacturing laborSAR18,750
Fixed administrative expenses10,000
Fixed manufacturing overhead20,000
Direct materials
15,000
Variable selling expenses 10,000
Variable manufacturing overhead 10,000
There was no beginning inventory.
A. Assume the company uses absorption costing- (2 Marks)
iCompute the ending finished goods inventory.
iiCompute the cost of goods sold
B. Assume the company uses Variablecosting- (2 Marks)
iCompute the ending finished goods inventory.
iiCompute the cost of goods sold
C. If the units produced and unit sales are equal, which method would you
expect to show the highernet operating income, variable costing or
absorption costing? Why? (1 Marks)
Answer:Absorption
Variable
Direct materials
SAR 15,000
SAR 15,000
Direct manufacturing labor
18,750
18,750
Variable manufacturing overhead10,000
10,000
Fixed manufacturing overhead20,000
0
TotalSAR 63,750
SAR 43,750
Unit costs:
63,750/11000 unitsSAR 5.795
43,750/11000 unitsSAR 3.977
A-Ending inventory: i: 2,500 units x 5.795 SAR 14487.5
Cost of goods sold:–ii: 8,500 x 5.795
SAR 49257.5
B-Ending inventory- i: 2,500 units x 3.977 SAR 9942.5
Cost of goods sold: ii: 8,500 x 3.977
SAR 33804.5
C-If production and sales are equal, net operating income should be the same
under absorption and variable costing. When production equals sales,
inventories do not increase or decrease and therefore under absorption costing
fixed manufacturing overhead cost cannot be deferred in inventory or released
from inventory.
62
REVIEW 16
Q1. What do you mean by decentralization? Discuss it advantages and disadvantages. Given
your Opinion, if you are manager in an organization, then you go to take step for
decentralization?
(3 Marks)
Answer: These are some guidelines but student answers will vary
Decentralization is the process of distributing or dispersing functions, powers, people or things
away from a central location or authority. While centralization, especially in the governmental
sphere, is widely studied and practiced, there is no common definition or understanding of
decentralization. The meaning of decentralization may vary in part because of the different
ways it is applied.
Benefits ofDecentralization: Top management freed to concentrateon strategy, Lower-level
decisions often based on better information, Lower-level managers can respond quickly to customers,
Lower-level managers gain experience in Decision making, Decision-making authority leads to job
satisfaction
Disadvantages of Decentralization: May be difficult to spread innovative ideas in the organization.
May be a lack of coordination among autonomous managers., Lower-level managers may make
decisions without seeing the “big picture.” Lower-level manager’s objectives may not be those of the
organization.
63
Revision ch 1 to 5
Chapter 01 Managerial Accounting and Cost Concepts
Product costs include direct materials, direct labor, and manufacturing overhead.
Period costs include all selling costs and administrative costs.
• Cost Driver A measure of what causes the incurrence of a variable cost
• Cost Classifications for Predicting Cost Behavior (Variable & Fixed)
• Mixed Costs Y = a + bX
• Fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour,
and your monthly activity level is 2,000 kilowatt hours, what is the amount of your
utility bill? Y = $40 + ($0.03 × 2,000)
• Opportunity Cost The potential benefit that is given up when one alternative is
selected over another.
• Sunk Costs Sunk costs have already been incurred and cannot be changed now or in
the future.
• Cost estmaton methods
• Analysis at the account level requires examinaton of accountng records and categorizaton of costs into fxed, variable, and
mixed. Past costs are then used to predict future costs; however, the costs can easily be updated with expected input price
changes.
• .The high-low method is a specifc type of the two-point method in which the highest and lowest data points are chosen for
the slope and intercept calculatons.
• In September 2017, Ahmed Co. incurred total cost of SAR 29,000 and made 3,100 units.
• In December 2017, it produced 1,600 units and total costs were SAR 20,000.
• What are the total fxed cost and average variable cost?
•
• Engineered estmates require an analysis of the underlying use of resources (direct materials and direct labor) to predict
future costs.
• Least square Regression analysis is usually used with the analysis at the account level method, specifcally for those costs
that are not defnitely identfed as fxed or variable. This method uses many data points to ft a trend line with a
mathematcal calculaton that minimizes the squared error of each
• observaton.
Chapter 02 Job Order Costing
Job-order costng systems are used when:
1. Many diferent products are produced each period.
2. Products are manufactured to order.
3. The unique nature of each order requires tracing or allocatng costs to each job, and maintaining cost
records for each job.
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period
begins.
• Estimated total manufacturing
overhead cost for the coming period
• Estimated total units in the
allocation base for the coming period
• Underapplied overhead exists when the amount of overhead applied to jobs during the period using the
predetermined overhead rate is less than the total amount of overhead actually incurred during the period
Overapplied overhead exists when the amount of overhead applied to jobs during the period using the
predetermined overhead rate is greater than the total amount of overhead actually incurred during the
period.
• Dobrinski Corporaton bases its predetermined overhead rate on the estmated laborhours for the upcoming year.
• At the beginning of the most recently completed year, the company estmated the laborhours for the upcoming year at 13,000 labor-hours.
• The estmated variable manufacturing overhead was $2.35 per labor-hour and the
estmated total fxed manufacturing overhead was $156,130.
Required:
Compute the company’s predetermined overhead rate.
• Estmated total manufacturing overhead = $156,130 a ($2.35 per labor-hour s 13,000
labor-hours) = $186,680
• Predetermined overhead rate = Estmated total manufacturing overhead ÷ Estmated
total amount of the allocaton base
• = $186,680 ÷ 13,000 labor-hours = $14.36 per labor-hour
The entry to dispose of the underapplied or
overapplied manufacturing overhead cost for the
month would include:
• The balance on March 1 in the Raw Materials inventory account was:
• Beginning raw materials inventory a Purchases of raw materials Ending raw materials inventory = Raw materials used in producton
•
Beginning raw materials inventory a $27,000 – $7,500 = $28,000
Beginning raw materials inventory = $28,000 – $27,000 a $7,500 =
$8,500
Ch 3 Activity-Based Costing
Plantwide Overhead Rate A single overhead rate used throughout an entire factory.
• Direct labor has often been used as the allocation base for overhead because:
• 1.
• 2.
• 3.
Direct labor information was already being recorded.
Direct labor was a large component of product costs.
Managers believed direct labor and overhead costs
were highly correlated.
ABC improves the accuracy of product costng by:
1.
Increasing the number of cost pools used to accumulate overhead costs.
2.
Using actvity cost pools that are more homogeneous than departmental cost pools.
3.
Assigning overhead costs using actvity measures that cause those costs, rather than relying
solely on direct labor hours.
• An ABC system can help identfy areas where the company can beneft
from improving its current processes
• Actvity-Based Management
Focuses on managing actvites to eliminate waste and reduce delays and defects
• Drewniak Corporaton has provided the following data from its actvity-based costng
system:
• The company makes 430 units of product O37W a year, requiring a total of 690 machinehours, 40 orders, and 10 inspecton-hours per year. The product’s direct materials cost is
$35.72 per unit and its direct labor cost is $29.46 per unit.
According to the actvity-based costng system, the unit product cost of product O37W is
closest to:
• Actvity rates from Qiuattrone Corporaton’s actvity-based costng system are listed below.
The company uses the actvity rates to assign overhead costs to products:
• Last year, Product F76D included the following actvites: 2 customer orders, 434 assembly
hours, and 20 batches. How much overhead cost would be assigned to Product F76D using
the actvity-based costng system?
Ch 4 Process Costing
• The actvites performed in a processing department are performed uniformly on all
units of producton. Furthermore, the output of
a processing department must be homogeneous.
Products in a process costng environment typically fow in a sequence from one
department to another.
Equivalent units are the product of the number of partially completed units and
the percentage completion of those units.
• The weighted-average method . . .
1. Makes no distinction between work done in prior or current periods.
2. Blends together units and costs from prior and current periods.
• The FIFO method (generally considered more accurate than the weighted-average
method) difers from the weighted-average method in two ways
1. The computation of equivalent units.
2. The way in which the costs of beginning inventory are treated
SABIC Corp. had the following for March (in SAR):
Beginning fnished goods inventory
6,820,400
Ending fnished goods inventory
Cost of goods sold
7,230,900
12,875,000
Calculate the cost of goods manufactured for March.
Answer:
Cost of goods sold
12,875,000
Add Ending fnished goods inventory
7,230,900
Less Beginning fnished goods inventory
(6,820,400)
Cost of goods manufactured for March.
SAR 13,285,500
A Company had 7,200 units in its assembly department at the beginning of the month and 4,500 units in the
assembly department at the end of the month. 97,000 units were completed during the month.
How many units were started by the assembly department during the month?
94,300 (97,000a4,500 – 7200)
Abid Ltd. uses a process costng system for its sole processing department.
There were 4,000 units in beginning WIP inventory for March and 60,000 units were started in March. The
beginning WIP units were 75% complete and the 7,500 units in ending WIP were 60% complete. All materials
are added at the start of processing.
Required:
a) Compute the no. of units started & completed.
b) Compute the EUP for DM and CC using FIFO and WA methods.
c) Calculate total manufacturing cost/EUP under both methods, if the following details are available:
FIFO
WA
Direct Material Cost
Conversion Cost
Answer:
SAR 150,000
SAR 250,000
SAR 300,000
SAR 600,000
• Grosseiller Corporaton uses the weighted-average method in its process
costng system. This month, the beginning inventory in the frst processing
department consisted of 900 units. The costs and percentage completon of
these units in beginning inventory were:
A total of 6,400 units were started and 5,200 units were transferred to the
second processing department during the month. The following costs were
incurred in the frst processing department during the month:
The ending inventory was 65% complete with respect to materials and 15% complete with
respect to conversion costs
The cost of ending work in process inventory in the frst processing department according to
the company’s cost system is closest to:
• Begin 900 a Started
6400- C& T 5200 =2100
• XYZ Inc. has provided the following data concerning the Assembly Department for the
month of April. The company uses the weighted-average method in its process costng.
• During the month, 4,800 units were completed and transferred from the Assembly
Department to the next department.
Required:
Determine the cost of ending work in process inventory and the cost of units transferred out
of the department during April using the weighted-average method.
Ch 5Cost-Volume-Proft Relationships
• Describe volume, revenues, costs, and profts:
• Values at breakeven or target proft:
• Units sold
• Revenues
• Variable, fxed, and total costs *
• Sensitvity of results to changes in:
• Levels of actvity
• Cost functon
• Selling price
• Sales mix
• Indiference point between alternatves
• Feasibility of planned operatons
Assist with plans and decisions such as:
• Budgets
• Product emphasis
• Selling price
• Producton or actvity levels
• Employee work schedules
• Raw material purchases
• Discretonary expenditures such as advertsing
• Proportons of fxed versus variable costs
• Monitor operatons by comparing expected and actual:
• Volumes, revenues, costs, and profts
• Proftability risk
Variable expenses per unit = Variable
expenses ÷ Quantity sold
= $175,000 ÷ 7,000 units = $25 per
unit
Selling price per unit = Sales ÷
Quantity sold
= $315,000 ÷ 7,000 units = $45 per
unit
Unit CM = Selling price per unit Variable expenses per unit
= $45 per unit – $25 per unit = $20 per
unit
Proft = Unit CM × Q – Fixed expenses
CM ratio = Contribution margin ÷ Sales
= $500,000 ÷ $800,000 = 0.625
Dollar sales to break even = Fixed expenses ÷ CM ratio
= $400,000 ÷ 0.625 = $640,000
Margin of safety in dollars = Total actual sales – Break-even sales
= $800,000 – $640,000 = $160,000
Margin of safety percentage = Margin of safety in dollars ÷ Total actual sales
= $160,000 ÷ $800,000 = 0.20
• The following is Allison Corporaton’s contributon format income statement
for last month:
• The company has no beginning or ending inventories. The company produced
and sold 10,000 units last month. What is the company’s degree of operatng
leverage?
• Degree of operatng leverage = Contributon margin ÷ Net operatng income
= $500,000 ÷ $100,000
=5.0
Revision ch 1 to 5
Chapter 01 Managerial Accounting and Cost Concepts
Product costs include direct materials, direct labor, and manufacturing
overhead.
Period costs include all selling costs and administrative costs.
• Cost Driver A measure of what causes the incurrence of a variable cost
• Cost Classifications for Predicting Cost Behavior (Variable & Fixed)
• Mixed Costs Y = a + bX
• Fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour,
and your monthly activity level is 2,000 kilowatt hours, what is the amount of
your utility bill? Y = $40 + ($0.03 × 2,000)
• Opportunity Cost The potential benefit that is given up when one alternative is
selected over another.
• Sunk Costs Sunk costs have already been incurred and cannot be changed now or
in the future.
• Cost estimation methods
• Analysis at the account level requires examination of accounting records and categorization of costs into fixed,
variable, and mixed. Past costs are then used to predict future costs; however, the costs can easily be
updated with expected input price changes.
• .The high-low method is a specific type of the two-point method in which the highest and lowest data points
are chosen for the slope and intercept calculations.
• In September 2017, Ahmed Co. incurred total cost of SAR 29,000 and made 3,100 units.
• In December 2017, it produced 1,600 units and total costs were SAR 20,000.
• What are the total fixed cost and average variable cost?
•
• Engineered estimates require an analysis of the underlying use of resources (direct materials and direct
labor) to predict future costs.
• Least square Regression analysis is usually used with the analysis at the account level method, specifically for
those costs that are not definitely identified as fixed or variable. This method uses many data points to fit a
trend line with a mathematical calculation that minimizes the squared error of each
• observation.
A partial listing of costs incurred at Starr Corporation during June appears below:
Product costs consist of direct materials, direct labor, and manufacturing overhead:
Required:
a. What is the total amount of product cost listed above? Show your work.
b. What is the total amount of period cost listed above? Show your work.
b. Period costs consist of all costs other than product costs:
Whitman Corporation, a merchandising company, reported sales of 7,400 units for May
. Contribution Format Income Statement
at a selling price of $677 per unit. The cost of goods sold (all variable) was $441 per unit
and the variable selling expense was $54 per unit. The total fixed selling expense was
$155,600. The variable administrative expense was $24 per unit and the total fixed
administrative expense was $370,400.
Required:
b. Traditional Format Income Statement
a. Prepare a contribution format income statement for May.
b. Prepare a traditional format income statement for May.
Chapter 02 Job Order Costing
Job-order costing systems are used when:
1. Many different products are produced each period.
2. Products are manufactured to order.
3. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost
records for each job.
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the
period begins.
• Estimated total manufacturing
overhead cost for the coming period
• Estimated total units in the
allocation base for the coming period
• Underapplied overhead exists when the amount of overhead applied to jobs during the period using the
predetermined overhead rate is less than the total amount of overhead actually incurred during the
period
Overapplied overhead exists when the amount of overhead applied to jobs during the period using the
predetermined overhead rate is greater than the total amount of overhead actually incurred during the
period.
• Dobrinski Corporation bases its predetermined overhead rate on the
estimated labor-hours for the upcoming year.
• At the beginning of the most recently completed year, the company
estimated the labor-hours for the upcoming year at 13,000 labor-hours.
• The estimated variable manufacturing overhead was $2.35 per labor-hour
and the estimated total fixed manufacturing overhead was $156,130.
Required:
Compute the company’s predetermined overhead rate.
• Estimated total manufacturing overhead = $156,130 + ($2.35 per laborhour × 13,000 labor-hours) = $186,680
• Predetermined overhead rate = Estimated total manufacturing overhead ÷
Estimated total amount of the allocation base
• = $186,680 ÷ 13,000 labor-hours = $14.36 per labor-hour
Lund Company applies manufacturing overhead to jobs using a predetermined overhead
rate of 75% of direct labor cost. Any underapplied or overapplied manufacturing
overhead cost is closed out to Cost of Goods Sold at the end of the month. During
March, the following transactions were recorded by the company:
*$20,000 direct labor cost × 75% of direct labor cost = $15,000
The entry to dispose of the underapplied or overapplied
manufacturing overhead cost for the month would
include:
The Cost of Goods Manufactured for March was:
• The balance on March 1 in the Raw Materials inventory account was:
• Beginning raw materials inventory + Purchases of raw materials Ending raw materials inventory = Raw materials used in production
•
Beginning raw materials inventory + $27,000 – $7,500 = $28,000
Beginning raw materials inventory = $28,000 – $27,000 + $7,500 =
$8,500
Hirschman Corporation has provided the following data for the month of April:
Required:
Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods
Sold in good form.
Ch 3 Activity-Based Costing
Plantwide Overhead Rate A single overhead rate used throughout an entire factory.
• Direct labor has often been used as the allocation base for overhead because:
• 1. Direct labor information was already being recorded.
• 2. Direct labor was a large component of product costs.
• 3. Managers believed direct labor and overhead costs
were highly correlated.
ABC improves the accuracy of product costing by:
1.
Increasing the number of cost pools used to accumulate overhead costs.
2.
Using activity cost pools that are more homogeneous than departmental cost pools.
3.
Assigning overhead costs using activity measures that cause those costs, rather than relying
solely on direct labor hours.
• An ABC system can help identify areas where the company can benefit
from improving its current processes
• Activity-Based Management
Focuses on managing activities to eliminate waste and reduce delays and defects
• Drewniak Corporation has provided the following data from its activity-based costing
system:
• The company makes 430 units of product O37W a year, requiring a total of 690 machinehours, 40 orders, and 10 inspection-hours per year. The product’s direct materials cost is
$35.72 per unit and its direct labor cost is $29.46 per unit.
According to the activity-based costing system, the unit product cost of product O37W is
closest to:
• Activity rates from Quattrone Corporation’s activity-based costing system are listed below.
The company uses the activity rates to assign overhead costs to products:
•
• Last year, Product F76D included the following activities: 2 customer orders, 434 assembly
hours, and 20 batches. How much overhead cost would be assigned to Product F76D using
the activity-based costing system?
Ch 4 Process Costing
• The activities performed in a processing department are performed
uniformly on all units of production. Furthermore, the output of
a processing department must be homogeneous.
Products in a process costing environment typically flow in a sequence
from one department to another.
Equivalent units are the product of the number of partially completed
units and the percentage completion of those units.
• The weighted-average method . . .
1. Makes no distinction between work done in prior or current periods.
2. Blends together units and costs from prior and current periods.
• The FIFO method (generally considered more accurate than the weightedaverage method) differs from the weighted-average method in two ways
1. The computation of equivalent units.
2. The way in which the costs of beginning inventory are treated
SABIC Corp. had the following for March (in SAR):
Beginning finished goods inventory
6,820,400
Ending finished goods inventory
7,230,900
Cost of goods sold
12,875,000
Calculate the cost of goods manufactured for March.
Answer:
Cost of goods sold
12,875,000
Add Ending finished goods inventory
7,230,900
Less Beginning finished goods inventory
(6,820,400)
Cost of goods manufactured for March.
SAR 13,285,500
A Company had 7,200 units in its assembly department at the beginning of the month and 4,500 units in the
assembly department at the end of the month. 97,000 units were completed during the month.
How many units were started by the assembly department d…
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