Name___________________________________ ID No.

__________________

Part I: - Choose the correct answer and write the letter of your choice on the
separate answer book attached at the end of the question paper ( 20 marks)

1. Which of the following does not appear on the balance sheet of a manufacturing company?
A. Finished goods inventory
B. Work in process inventory
C. Cost of goods manufactured
D. Raw materials inventory
2. Financial and managerial accounting are similar in that both
A. Have the same primary users
B. Produce general purpose reports
C. Have reports that are prepared quarterly and annually
D. Deal with economic events of an enterprise
3. For a manufacturing company, which of the following is an example of a period cost rather than a
product cost
A. Depreciation on factory equipment
B. Wages of salespersons
C. Wages of machine operators
D. Insurance on factory equipment
4. If the cost of goods manufactured is less than the cost of goods sold, which of the following is
correct?
A. Finished goods inventory has increased
B. Work in process inventory has increased
C. Finished goods inventory has decreased
D. Work in process inventory has decreased

5. Hollern Combines,Inc. has $10,000 of ending finished goods inventory as of December 31, 2014. If
beginning finished goods inventory was $5,000 and cost of goods sold was $ 20,000, how much
would Hollern report for cost of goods manufactured?
A. $ 22,500 C. $25,000
B. $ 5,000 D. $ 15,000
6. If the amount of cost of goods manufactured during a period exceeds the amount of total
manufacturing costs for the period, then
A. Ending work in process inventory is greater than or equal to the amount of beginning work in
process inventory
B. Ending work in process inventory is greater than the amount of beginning work in process
inventory
C. Ending work in process inventory is to the cost of goods manufactured
D. Ending work in process inventory is less than the amount of beginning work in process inventory
7. Financial statements for external users can be described as
A. User-specific
B. General-purpose
C. Special-purpose
D. Managerial reports

1|Page
8. Managerial accounting information
A. Pertains to the entity as a whole and is highly aggregated
B. Pertains to subunits of the entity and may be very detailed
C. Is prepared only once a year
D. Is constrained by the requirements of generally accepted accounting principles

9. The work in process inventory account had a beginning balance of $4,200 on February 1. During
February, the cost of direct materials used was $29,000 and direct labor cost applied to production
was $3,000. $3,600 of overhead is applied. If the cost of finished goods manufactured was $ 34,100,
compute the balance in the work in process inventory account at the end of February.
A. $ 1,500 C. $ 9,900
B. $ 2,100 D. $5,700

10. It is often called that Flexible budgets are preferable to static/master budgets. This is mainly
due to flexible budgets;
A. Show expenses that should have occurred at the actual level of activity
B. May be prepared for any activity level with in the relevant range
C. Reveal variances due to good cost control or lack of cost control
D. Improve performance evaluation
E. A, B, and C
F. All

11. If the total manufacturing costs are greater than the cost of goods manufactured, which of the
following is correct?
A. Finished goods inventory has increased
B. Work in process inventory has increased
C. Finished goods inventory has decreased
D. Work in process inventory has decreased

12. Which of the following does not describe accounting?

A. Language of business
B. Is an end rather than a means to an end
C. Useful for decision making
D. Used by business, government, nonprofit organizations, and individuals
E. None

13. External users of financial accounting information include all of the following except;
A. Investors
B. creditors
C. Line managers
D. General public
E. None

2|Page
14. Which of the following are important factors in ensuring the integrity of accounting information?
A. Institutional factors, such as standards for preparing information
B. Professional organizations, such as the American Institute of CPAs
C. Competence, judgment, and ethical behavior of individual accountants
D. All of the above
15. Which of the following journal entries is required to close the income summary account of a
profitable company?
A. Debit income summary, credit retained earnings
B. Credit income summary, debit retained earnings
C. Debit income summary, credit capital stock
D. Debit income summary, debit capital stock
16. The following data are available from the annual report of Evergreen, Inc.:
Current assets ………………... $ 480,000
Average total assets ……… 2,000,000
Average total equity………… 800,000
Current liabilities ……………. 300,000
Operating income……………… 240,000
Which of the following statements are correct?
A. The return on equity exceeds the return on assets
B. The current ratio is 0.625 to 1
C. Working capital is $ 1,700,000
D. None

17. In a manufacturing company, the costs debited to the work in process inventory account represent:
A. Direct materials used, direct labor, and manufacturing over head
B. Cost of finished goods manufactured
C. Period costs and product costs
D. None
18. Which of the following is considered as irrelevant information for decision-making?
A. Expected costs and revenues that differ among alternative courses of action
B. Opportunity costs
C. Sunk costs
D. B and C
E. Out of pocket costs
F. None
19. Budgeting helps/benefits an organization in all of the following except;
A. Enhancing managerial responsibly
B. Coordination of activities
C. Assignment of decision-making responsibility
D. Performance evaluation
E. None
20. Which of the following is the first step in the preparation of master budget?
A. Raw materials purchase budget
B. Production budget
C. Sales budget
D. Cash budget
E. Operating expenses budget

Page 3 of 6
Part II Workout the following problems by showing the necessary steps and
computations (40 marks)
1. Forest Outfitters is a retailer that is preparing its budget for the upcoming fiscal year. Management
has prepared the following summary of its budgeted cash flows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Total cash receipts . . . . . . . . . . . . . $340,000 $670,000 $410,000 $470,000
Total cash disbursements . . . . . . . . $530,000 $450,000 $430,000 $480,000

The company’s beginning cash balance for the upcoming fiscal year will be $50,000. The company
requires a minimum cash balance of $30,000 and may borrow any amount needed from a local bank at a
quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and
may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any
principal at the time it is repaid.
Required: Prepare the company’s cash budget for the upcoming fiscal year.

2. The administrator of Black Lion 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:

Number of Admitting
Month Patients Admitted Department Costs
May . . . . . . . . . . . . . . . 1,800 $14,700
June . . . . . . . . . . . . . . 1,900 $15,200
July . . . . . . . . . . . . . . 1,700 $13,700
August . . . . . . . . . . . . 1,600 $14,000
September . . . . . . . . . 1,500 $14,300
October . . . . . . . . . . . . 1,300 $13,100
November . . . . . . . . . . 1,100 $12,800
December . . . . . . . . . . 1,500 $14,600
Required:

A. Use the high-low method to estimate the fixed and variable components of admitting costs.
B. Express the fixed and variable components of admitting costs as a cost formula in the form of
Y = a + bx.

Page 4 of 6
3. Sport Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three
of the company’s most popular models appear below.

Required: Make analysis and state your decision based on the following cases;

A. The total time available on the plastic injection-molding machine is the constraint in the production
process. Which product would be the most profitable use of this constraint? Which product would
be the least profitable use of this constraint?

B. A severe shortage of plastic pellets has required the company to cut back its production so much
that the plastic injection-molding machine is no longer the bottleneck. Instead, the constraint is the
total available pounds of plastic pellets. Which product would be the most profitable use of this
constraint? Which product would be the least profitable use of this constraint?
C. Which product has the largest unit contribution margin? Why wouldn’t this product be the most
profitable use of the constrained resource in either case?

4. AKIYA PLC is nine month old since established to manufacture different parts of a manual
Irrigation pump. The company owners failed to maintain a formal accounting record for the
nine months of operation with the presumption that the volume of activity is small and can
thus be effectively administered by them. Lately, they have discovered the importance of
maintaining an accounting record.
Assume that the firm hires you as management accountant and your first duty is to prepare a six-
month income statement covering the period from January, to June 30, 2016 to know the operating
performance which enable the firm to apply for short-term loan request from commercial
bank. The company management is capable of supplying actual data on some items but the rest are
estimates. You are given the following actual data.
1. Net Sales for the first six month is Br. 240,000
2. Inventory, January 1
Direct material --------------- Br. 12,000
Work in process -------------- 8,800
Finished goods ---------------- 28,500
3. The gross margin is fairly estimated at 40% of sales, and direct labor is estimated to be
one third of conversion cost or one fourth of prime cost.
4. The period cost is totally estimated at 54,000 and marketing cost is estimated to be 40%.
5. A physical count of all inventories made as of June 30 reveals the following.
Direct material --------------- Br. 9,000
Work in process -------------- 7,500
Finished goods ------------- 52,000
Required;
1. Calculate the cost of goods sold
Page 5 of 6
 2. Calculate the cost of goods manufactured
3. Calculate the direct labor cost
4. Calculate the direct material cost
5. Calculate the Manufacturing overhead cost
6. Prepare a six-month income statement covering the period from January 1 to June 30, 2016

5. BEKA 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
Management is anxious to increase the company’s profit and has asked for an analysis of a number of
items.
Required:
A. Compute the company’s CM ratio and variable expense ratio.
B. Compute the company’s break-even point in both units and sales dollars.
C. 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? Use the CM ratio to compute
your answer.
D. 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?
E. Refer to the original data. Compute the company’s margin of safety in both dollar and
percentage form and make interpretations.

6. Royal Company manufactures 20,000 units of part R-3 each year for use on its production line. At
this level of activity, the cost per unit for part R-3 is:
Direct materials . . . . . . . . . . . . . . . . . . . . $ 4.80
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . 7.00
Variable manufacturing overhead . . . . . . .. 3.20
Fixed manufacturing overhead . . . . . . . . . . 10.00
Total cost per part . . . . . . . . . . . . . . . . . . . $25.00
An outside supplier has offered to sell 20,000 units of part R-3 each year to Royal Company for $23.50
per part. If Royal Company accepts this offer, the facilities now being used to manufacture part R-3
could be rented to another company at an annual rental income of $150,000. However, Royal Company
has determined that $6 per unit of the fixed manufacturing overhead being applied to part R-3 would
continue even if part R-3 were purchased from the outside supplier.
Required: Prepare computations showing how much profits will increase or decrease if the outside
supplier’s offer is accepted and state the best decision based on your analysis.

Page 6 of 6