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The Islamic University of Gaza
Faculty of Commerce
Department of Accounting
Advanced Managerial Accounting.
First Term Final Exam (2013/2014).
Master for Accounting and Finance
Master of Business Administration.
Please read the following instructions before answering the questions:
(a)
(b)
(c)
(d)
(e)
Time Allowed for this exam: Three hours.
Answer Eight Questions only.
For each Question 6.25 Mark.
Use the provided answer book.
Insert your name and student No. below.
Student Name……………………………………………………
Student No………………………………………………………
Prof. Salem Abdalla Helles
5 Jan., 2014
Question No. (1)
Ali's Shop sells only coffee and cake. Ali estimates that every time he
sells one cake, he sells four cups of coffee. The budgeted cost information
for Ali's products for 2013 follows:
Selling price
Product ingredients
Hourly sales staff (cost per unit)
Packaging
Coffee
$2.50
$0.25
$0.50
$0.50
Cake
$3.75
$0.50
$1.00
$0.25
Fixed Costs
Rent on store and equipment
$5,000
Marketing and advertising cost
$2,000
Required:
1. How many cups of coffee and how many cakes must Ali sell in
order to break even assuming the sales mix of four cups of coffee
to one cake, given previously?
2. If the sales mix is four cups of coffee to one cake, how many units
of each product does Ali need to sell to earn operating income after
tax of $28,000, while tax rate 20%?
3. Assume that Ali decides to add the sale of hot chocolates to his
product mix. The selling price for chocolates is $3.00 and the
related variable costs are $0.75. assuming a sales mix of three cups
of coffee to two cakes to one chocolate, how many units of each
product does Ali need to sell in order to break even?
Question No. (2)
On December 1, 2012, the Gaza Wholesale Co. is attempting to project
cash receipts and disbursements through January 31, 2013. On this latter
date, a note will be payable in the amount of $100,000. This amount was
borrowed in September to carry the company through the seasonal peak
in November and December.
Selected general ledger balances on December 1 are as follows:
Cash
Inventory
Accounts payable
$ 88,000
65,200
136,000
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Sales terms call for a 3% discount if payment is made within the first 10
days of the month after sale, with the balance due by the end of the month
after sale. Experience has shown that 50% of the billings will be collected
within the discount period, 30% by the end of the month after purchase,
and 14% in the following month. The remaining 6% will be uncollectible.
There are no cash sales.
The average selling price of the company's products is $100 per
unit. Actual and projected sales are as follows:
October actual
November actual
December estimated
January estimated
February estimated
$ 280,000
320,000
330,000
250,000
240,000
Total estimated for year ending June 30, 2013
$2,400,000
All purchases are payable within 15 days. Approximately 60% of the
purchases in a month are paid that month, and the rest the following
month. The average unit purchase cost is $80. Target ending inventories
are 500 units plus 10% of the next month's unit sales.
Total budgeted marketing, distribution, and customer-service costs
for the year are $600,000. Of this amount, $120,000 are considered fixed
(and include depreciation of $30,000). The remainder varies with sales.
Both fixed and variable marketing, distribution, and customer-service
costs are paid as incurred.
Required: Prepare a cash budget for December 2012 and January 2013.
Supply supporting schedules for collections of receivables; payments for
merchandise; and marketing, distribution, and customer-service costs.
Question No. (3)
Palestine Company (PC) manufactures ceramic vases. It uses its standard
costing system when developing its flexible-budget amounts. In April
2013, 2,000 finished units were produced. The following information
relates to its two direct manufacturing cost categories: direct materials
and direct labor.
Direct materials used were 4,400 kilograms (kg). the standard
direct materials input allowed for one output unit 2 kilograms at $15 per
kilogram. PC purchased 5,000 kilograms of materials at $16.50 per
kilogram, a total of $82,500.
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Actual direct labor-hours were 3,250, at a total cost of $66,300.
Standard labor time allowed is 1.5 hours per output unit, and the standard
direct labor cost is $20 per hour.
Required: Calculate the direct materials and the direct labor variances.
Question No. (4)
Top-Spin carbon-fiber machine project is a nonprofit organization and
that the expected additional operating cash inflows are $130,000 in years
1 through 5 and , the net initial investment is $392,500 (new machine,
$390,000 plus additional working capital, $9,000 minus terminal disposal
value of old machine, $6,500). A five year useful life, no terminal
disposal value, and an 8% Required Rate of Return.
Required: Calculate the following:
1234-
Net present value.
Internal rate of return.
Payback Period.
Accounting rate of return
Question No. (5)
Home Run Sports (HRS) manufactures and sells baseballs. Assume
production equals sales. Budget data for February 2013 are as follows:
Current assets
Long-term assets
Total assets
Production output
Target Return on Investment (ROI)
Fixed costs
Variable cost
$ 400,000
600,000
$1,000,000
200,000 baseballs per month
30%
$400,000 per month
$4 per baseball
Required:
1. Compute the minimum selling price per baseball necessary to
achieve the target ROI of 30%.
2. Using the selling price from requirement 1, separate the target ROI
into its two components Margin and Turnover.
3. Compute the Residual (RI) of the HRS for February 2011, using
the selling price from requirement 1. HRS uses a required rate of
return of 12% on total assets when computing RI.
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4. In addition to his salary, Saed Ahmed, the manager of HRS,
receives 3% of the monthly RI as a bonus. Compute Saed's bonus.
Why do you think Saed is rewarded using both salary and a
performance-based bonus? Saed does not like bearing risk.
Question No. (6)
Air Products and Chemicals Company is considering building a new
lights –out facility and has gathered the following information:
Purchase price $ 600,000
Salvage value $ 100,000
Desired payback period 3 years
Minimum rate of return 15%
The cash flow estimates are as follows:
Year
Cash
Cash
inflows
outflows
1
2
3
4
Total
Required:
$ 500,000
450,000
400,000
350,000
$1,700,000
$260,000
240,000
220,000
200,00
$920,000
Net
Cash
inflows
$240,000
210,000
180,000
150,000
$780,000
Projected
Net Income
$115,000
90,000
60,000
35,000
$300,000
1) Analyze the company's investment in the new facility using (a) the net
present value method, (b) the payback period method, and (c) the
accounting rate of return method.
2) Summarize your findings from requirement 1, and recommend a
course of action.
Question No. (7)
The cordless phone manufacturing division of a Denver-based consumer
electronics company uses activity-based costing. For simplicity, assume
that its accountants have identified only the following three activities and
related cost drivers for indirect production costs:
Activity
Materials handling
Engineering
Power
Cost Driver
Direct-materials cost
Engineering change notices
Kilowatt hours
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Three types of cordless phones are produced: SA2, SA5, and SA9.
Direct costs and cost-driver activity for each product for a recent month
are as follows:
SA2
Direct-materials cost
$25,000
Direct-labor cost
$4,000
Kilowatt hours
50,000
Engineering change notices
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Indirect production cost for the month was:
SA5
$50,000
$1,000
200,000
5
SA9
$125,000
$3,000
150,000
2
Materials handling
$ 8,000
Engineering
20,000
Power
16,000
Total indirect production cost $44,000
1- Compute the indirect production cost allocated to each product
with the activity-based costing system.
2- Suppose all indirect production costs had been allocated to
products in proportion to their direct-labor costs. Compute the
indirect production costs allocated to each product.
3- In which product costs, those in number 1 or those in number 2, do
you have the most confidence? Why?
Question No. (8)
MW Company makes a cologne called Allure. The standard cost for one
bottle of Allure is as follows.
Standard
Manufacturing Cost Elements Quantity ×
Price
×
Direct materials
6 oz.
$ 0.90
×
Direct labor
0.5 hrs.
$12.00
×
Manufacturing overhead
0.5 hrs.
$ 4.80
During the month, the following
manufacturing 10,000 bottles of Allure.
transactions
=
=
=
=
Cost
$5.40
6.00
2.40
$13.80
occurred in
1. 58,000 ounces of materials were purchased at $1.00 per ounce.
2. All the materials purchased were used to produce the 10,000
bottles of Allure.
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3. 4,900 direct labor hours were worked at a total labor cost of $
56,350.
4. Variable manufacturing overhead incurred was $15,000 and fixed
overhead incurred was $ 10,400.
The manufacturing overhead rate of $4.80 is based on a normal
capacity of 5,200 direct labor hours. The total budget at this capacity is $
10,400 fixed and $ 14,560 variable.
Required:
(a) Compute the total variance and the variance for direct material
and direct labor elements.
(b) Compute the total variance for manufacturing overhead.
Question No. (9)
BC has four operating divisions. The budgeted revenues and expenses for
each division for 2013 follows:
Division
A
$630,000
550,000
120,000
B
$632,000
620,000
135,000
C
$960,000
765,000
144,000
D
$1,240,000
925,000
210,000
Sales
Cost of goods sold
Selling, general, and
administrative expenses
$(40,000)
$(123,000)
$51,000
$105,000
Operating income/loss
Further analysis of costs reveals the following percentages of variable
costs in each division:
90%
80%
90%
85%
Cost of goods sold
Selling, general, and
50%
50%
60%
60%
administrative expenses
Closing down any division would result in savings of 40% of the fixed
costs of that division.
Top management is very concerned about the unprofitable
divisions (A and B) and is considering closing them for the year.
1- Calculate the increase or decrease in operating income if BC closes
division A.
2- Calculate the increase or decrease in operating income if BC closes
division B.
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Question No. (10)
WB Company produces three products, A110, B382, and C657. Unit data
for the three products follows:
Product
A110 B382 C657
$84
$56
70
Selling price
Variable costs:
Direct materials
24
15
9
Labor and other costs
28
27
40
Quantity of BS per unit
8 lb. 5 lb. 3 lb.
All three products use the same direct material, BS. The demand for the
products far exceeds the direct materials available to produce the
products. BS costs $3 per pound and a maximum of 5,000 pounds is
available each month. Westford must produce a minimum of 200 units of
each product.
Required: How many units of product A110, B382, and C657 should
WB produce?
Question No. (11)
Phoenix Partners provides management consulting services to
government and corporate clients. Phoenix has two support departmentsadministrative services (AS) and information system (IS)-and two
operating departments-government consulting (GOVT) and corporate
consulting (CORP). For the first quarter of 2012, Phoenix's cost records
indicate the following:
SUPPORT
AS
IS
Budgeted overhead costs $600,000 $2,400,000
before
any
interdepartmental
cost
allocations
Support work supplied by 25%
AS (budgeted head count)
Support work supplied by 10%
IS (budgeted computer
time)
OPERATING
GOVT
CORP
Total
$8,756,000 $12,452,000 $24,208,000
40%
35%
100%
30%
60%
100%
Required: Allocate the two support (service) departments' costs to the
two operating departments using the Step- down method.
Good Luck
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