Managerial Accounting

Final Exam
Part I
Chippen Corporation manufactures furniture, including tables. Selected costs are
given below:

1. The tables are made of wood that costs $100 per table
2. The tables are assembled by workers, at a wage cost of $40 per table
3. Workers making the tables are supervised by a factory supervisor who is paid
$38,000 per year
4. Electrical costs are $2 per machine hour. Four machine hours are required to
produce a table
5. The depreciation on the machines used to make the tables totals $10,000 per
year
6. The salary of the president of the company is $100,000 per year
7. The company spends $25,000 per year to advertise its products
8. Salespersons are paid a commission of $30 for each table sold
9. Instead of producing the tables, the company could rent its factory space for
$50,000 per year

Required:
Variabl Fixed Period Product Produ Product Sun Opportuni
e Cost Cost (Selling & Cost – ct Cost – k ty Cost
Administrati Direct Cost – Manufacturi Cost
ve) Cost Materia Direct ng
ls Labor Overhead
1. X X
2. X X
3. X X
4. X X
5. X X X
6. X X
7. X X
8. X X
9. X
Part II
Bieker & Cie of Altdorf, Switzerland, makes furniture using the latest automated
technology. The company uses a job-order costing system and applies
manufacturing overhead cost to products on the basis of machine hours. The
currency in Switzerland is the Swiss franc, which is denoted by Sfr. The following
estimates were used in preparing the predetermined overhead rate at the beginning
of the year:

Machine Hours 75,000

Manufacturing overhead cost Sfr900,000

During the year, a glut of furniture on the market resulted in cutting back production
and a buildup of furniture in the company’s warehouse. The company’s cost records
revealed the following actual cost and operating data for the year:

Machine Hours 60,000

Manufacturing Overhead Cost Sfr850,000
Inventories at year end:
Raw Materials Sfr 30,000
Work in process Sfr100,000
Finished goods sold Sfr500,000
Cost of Goods Sold Sfr 1,400,000

Required:
1. Compute the company’s predetermined overhead rate

Company’s predetermined overhead rate = Sfr900,000 / 75,000 = Sfr 12

per machine hour

2. Compute the underapplied or overapplied overhead

Actual Manufacturing overhead cost = Sfr 850,000

Applied manufacturing overhead cost (60,000 x 12) = Sfr 720,000
Underapplied overhead = Sfr 130,000

3. Assume that the company closes any underapplied or overapplied overhead

directly to Cost of Goods Sold. Prepare the appropriate journal entry.

Cost of goods sold Sfr 130,000 Dr.

Manufacturing Overhead Sfr 130,000 Cr.
Part III
Luxguard Home Paint Company produces exterior latex paint, which it sells in one
gallon containers. The company has two processing departments – Base Fab and
Finishing. White paint which is used as a base for all the company’s paints, is mixed
from raw ingredients in the Base Fab Department. Pigments are then added to the
basic white paint, the pigmented paint is squirted under pressure into one gallon
containers, and the containers are labeled and packed for shipping in the Finishing
Department. Information relating to the company’s operations for April follow:

Production Data:
Units (gallons) in process, April 1: materials 100% complete, 30,000
conversion 60% complete
Units (gallons) started into production during April 420,000
Units (gallons) completed and transferred to the Finishing 370,000
Department
Units (gallons) in process, April 30: materials 50% complete, 80,000
conversion 25% complete

Cost Data:
Work in process inventory, April 1:
Materials $92,000
Conversion $58,000
Cost added during April:
Materials $851,000
Conversion $995,000

Required:
Using the chart below, prepare a cost reconciliation report for April:
 Equivalent Units of Production
Materials Conversion
Units transferred to the next department 370,000 370,000
Ending work in process inventory 40,000 20,000
Equivalent units of production 410,000 390,000

Costs per Equivalent Unit

Materials Conversion
Costs of beginning work in process inventory $92,000 $58,000
Costs added during the period $851,000 $995,000
Total Cost $943,000 $1,053,000
Equivalent units of production 410,000 390,000
Cost per equivalent unit $2.30 $2.70

Costs of Ending Work in Process Inventory and the Units Transferred Out:
Materials Conversio Total
n
Ending Work in Process Inventory:
Equivalent units of production 40,000 20,000 $146,000
Cost per equivalent unit $2.30 $2.70
Cost of ending work in process $92,000 $54,000
inventory
Units Completed and Transferred Out:
Units transferred to the next 370,000 370,000 $1,850,000
department $2.30 $2.70
Cost per equivalent unit $851,000 $999,000
Cost of units completed and transferred
out

Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory $150,000
Costs added to production during the period $1,846,000
Total cost to be accounted for $1,996,000
Costs accounted for as follows:
Cost of ending work in process inventory $146,000
Cost of units transferred out $1,850,000
Total cost accounted for $1,996,000
Part IV
The administrator of Azalea Hills Hospital would like a cost formula linking the
administrative costs involved in admitting patients to the number of patients
admitted during a month. The admitting department’s costs and the number of
patients admitted during the immediately preceding eight months are given in the
following table:

Month Number of Patients Admitting Department

Admitted Costs
May 1,800 $14,700
June 1,900 $15,200
July 1,700 $13,700
August 1,600 $14,000
September 1,600 $14,300
October 1,300 $13,100
November 1,100 $12,800
December 1,500 $14,600

Required:

1. Use the high low method to establish the fixed and variable components of
admitting costs.
Detail Number of patients admitted
admitting department costs
High activity level 1,900 $15,200
Low activity level 1,100 $12,800
Change 800 $2,400

Variable Cost = $2,400 / 800 = $3 per patient day

Fixed cost = $15,200 – ($3 x 1,900) = $9,500

2. Express the fixed and variable components of admitting costs as a cost formula
in the form
Y = a + bX

Y = $9,500 + $3 X
Part V
Voltar Company manufactures and sells a specialized cordless telephone for high
electromagnetic radiation environments. The company’s contribution format
income statement for the most recent year is given below:

Total Per Unit Percent of

Sales
Sales (20,000 units) $1,200,000 $60 100%
Variable Expenses 900,000 45 ?%
Contribution Margin 300,000 $15 ?%
Fixed Expenses 240,000
Net Operating Income $ 60,000

Required:

1. Compute the company’s CM ratio and variable expense ratio.

CM Ratio = $15 / $60 = 25%

2. Compute the company’s breakeven point in both units and sales dollars.

Breakeven point in units = Fixed cost / CM per unit = $240,000 / $15 =

16,000 units

Breakeven point in sale dollars = Fixed cost / CM ratio = $240,000 / 25% =

$960,000

3. Assume that sales increase by $400,000 next year. If cost behavior patterns
remain unchanged by how much will the company’s net operating income increase?

Increase in operating income = $400,000 x 25% = $100,000

4. Refer to the original data. Assume that next year management wants the
company to earn a profit of at least $90,000. How many units will have to be sold
to meet this target profit?

Units sold to meet this target profit = ($240,000 + $90,000) / $15 = 22,000
units

5. In an effort to increase sales and profits, management is considering the use of a

higher quality speaker. The higher quality speaker would increase variable costs by
$3 per unit, but management could eliminate one quality inspector who is paid a
salary of $30,000 per year. The sales manager estimates that the higher quality
speaker would increase annual sales by at least 20%
a. Assuming that the changes are made as described above, prepare a projected
contribution format income statement for next year.

Total Per Unit Percent of

Sales
Sales (24,000 units) $1,440,000 $60 100%
Variable Expenses $1,152,000 $48 80%
Contribution Margin $288,000 $12 20%
Fixed Expenses $210,000
Net Operating Income $78,000
Part VI:
Dexter Corporation produces and sells a single product, a wooden hand loom for
weaving small items such as scarves. Selected cost and operating data relating to
the product are given below:

Selling price per unit $50

Manufacturing Costs:
Variable per unit produced:
Direct materials $11
Direct Labor $6
Variable overhead $3
Fixed per year $120,000
Selling and administrative costs:
Variable per unit sold $4
Fixed per year $70,000

Units in beginning inventory 0

Units produced during the year 10,000
Units sold during the year 8,000
Units in ending inventory 2,000

Required:
1) Assume the company uses absorption costing
a) Compute the unit product cost

Direct Material = $11

Direct Labor = $6
Variable Manufacturing Overhead = $3
Fixed manufacturing overhead ($120,000/10,000) = $12

Cost per unit = $32

b) Prepare an income statement

Sales (8,000 x $32) = $400,000

Less: Cost of goods sold (8,000 x $32) = $256,000
Gross Margin = $144,000
Selling & administrative expenses = $102,000
(8,000 x $4 + $70,000)

Net operating income = $42,000

2) Assume the company uses variable costing
a) Compute the unit product cost

Direct Material = $11

Direct Labor = $6
Variable Manufacturing Overhead = $3

Cost per unit = $20

b) Prepare an income statement

Sale (8,000 x $50) = $400,000

Variable Expenses:
Variable cost of goods sold (8,000 x $20) = $160,000
Variable selling & administrative expenses (8,000 x $4) = $32,000
Total variable expenses = $192,000
Contribution Margin = $208,000
Fixed Expenses:
Fixed Manufacturing overhead = $120,000
Fixed selling and administrative expenses = $70,000
Total Fixed Expenses = $190,000
Net operating Income = $18,000

3. Reconcile the variable costing and absorption costing net operating income

Variable costing net operating income =

$18,000
Add: Fixed Manufacturing overhead cost deferred in inventory (2,000 x
$12) = $24,000

Absorption Costing net operating income (loss)

= $42,000
Part VII:
Ferris Corporation makes a single product – a fire resistant commercial filing cabinet
– that it sells to office furniture distributors. The company has a simple ABC system
that it uses for internal decision making. The company has two overhead
departments whose costs are listed below:

Manufacturing Overhead $500,000

Selling and administrative overhead 300,000
Total overhead costs $800,000

The company’s ABC system has the following activity cost pools and activity
measures:

Activity Cost Pool Activity Measure

Assembling units Number of units
Processing orders Number of orders
Supporting customers Number of customers
Other Not applicable

Costs assigned to the “Other” activity cost pool have no activity measure, they
consist of the costs of unused capacity and organization sustaining costs – neither
of which are assigned to orders, customers, or the product.

Ferris Corporation distributes the costs of manufacturing overhead and of selling

and administrative overhead to the activity cost pools based on employee
interviews, the results of which are reported below:

Distribution of Resource Consumption Across Activity Cost Pools

Assembling Processing Supporting Other Total
Units Orders Customers
Manufacturing 50% 35% 5% 10% 100%
Overhead
Selling and 10% 45% 25% 20% 100%
Administrative
Overhead
Total Activity 1,000 units 250 orders 100
customers
Required:
1. Using the chart provided, perform the first stage allocation of overhead costs to
the activity cost pools.

Assembling Processin Supportin Other Total

Units g Orders g
Customer
s
Manufacturing $250,000 $175,000 $25,000 $50,000 $500,00
Overhead 0
Selling & $30,000 $135,000 $75,000 $60,000 $300,00
Administrative 0
Expense
Total Cost $280,000 $310,000 $100,000 $110,000 $800,00
0

2. Using the chart provided below, compute the activity rates for the activity cost
pools.

Activity Cost Pools Total Cost Total Activity Activity Rate

Assembling Units $280,000 1,000 $280 per unit
Processing Orders $310,000 250 $1,240 per order
Supporting Customers $100,000 100 $1,000 per
customer

3. OfficeMart is one of Ferris Corporation’s customers. Last year, OfficeMart

ordered filing cabinets four different times. OfficeMart ordered a total of 80 filing
cabinets during the year. Using the chart provided below, show the overhead costs
attributable to Office Mart.

Activity Cost Pools Activity Rate Activity ABC Cost

Assembling Units $280 80 units $22,400
Processing Orders $1,240 4 units $4,960
Supporting Customers $1,000 1 $1,000
Total ABC Cost $28,360

4. The selling price of a filing cabinet is $595. The cost of direct materials is $180
per filing cabinet and direct labor is $50 per filing cabinet. Using the chart provided
below, determine the customer margin of OfficeMart.

Sales ($595 x 80) $47,600

Costs:
Direct Materials ($180 x 80) $14,400
Direct labor ($50 x 80) $4,000
Total ABC Cost $28,360 $45,760
Customer Margin $1,840
Part VII
Mynor Corporation manufactures and sells a seasonal product that has peak sales in
the third quarter. The following information concerns operations for Year 2 – the
coming year – and for the first two quarters of Year 3.

a) The companies single product sells for $8 per unit. Budgeted sales in units
for the next six quarters are as follows (all sales are on credit):
Year 2 – Year 2 – Year 2 – Year 2 – Year 3 – Year 3 –
Quarter Quarter Quarter Quarter Quarter Quarter
1 2 3 4 1 2
Budgeted 40,000 60,000 100,000 50,000 70,000 80,000
Unit
Sales

b) Sales are collected in the following pattern: 75% in the quarter the sales are
made, and the remaining 25% in the following quarter. On January 1, Year 2,
the company’s balance sheet showed $65,000 in accounts receivable, all of
which will be collected in the first quarter of the year. Bad debts are
negligible and can be ignored.

c) The company desires an ending finished goods inventory at the end of each
quarter equal to 30% of the budgeted unit sales for the next quarter. On
December 31, Year 1, the company had 12,000 units on hand.

Required:
1. Prepare a sales budget:
Year 2 – Year 2 – Year 2 – Year 2 – Year
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Budgeted 40,000 60,000 100,000 50,000 250,000
Unit Sales
Selling price $8 $8 $8 $8 $8
per unit
Total Sales $320,000 $480,000 $800,000 $400,000 $2,000,000

2. Prepare the schedule of expected cash collections:

Year 2 – Year 2 – Year 2 – Year 2 – Year
Quarter 1 Quarter Quarter Quarter
2 3 4
Accounts Receivable, $65,000 $65,000
beginning balance
First quarter sales $240,000 $80,000 $320,00
0
Second quarter sales $360,000 $120,00 $480,00
0 0
Third quarter sales $600,00 $200,00 $800,00
0 0 0
Fourth quarter sales $300,00 $300,00
 0 0
Total Cash Collections $305,000 $440,000 $720,00 $500,00 $1,965,0
0 0 00
3. Prepare the production budget
Year 2 Year 2 Year 2 Year 2 Year
– – – –
Quarte Quarte Quarte Quarte
r1 r2 r3 r4
Budgeted 40,000 60,000 100,000 50,000 250,0
Unit Sales 00
Add Desired 18,000 30,000 15,000 21,000 21,00
ending 0
finished
goods
inventory
Total needs 58,000 90,000 115,000 71,000 271,0
00
Less 12,000 18,000 30,000 15,000 12,00
beginning 0
finished
goods
inventory
Required 46,000 72,000 85,000 56,000 259,0
production 00