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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 2 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. 3 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. 4 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 5 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 13 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. 6 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. 7 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 8