ACCT 505 WEEK 8: FINAL EXAM GUIDE

ACCT 505 WEEK 8: FINAL EXAM GUIDE ACCT 505 WEEK 8: FINAL EXAM GUIDE 1. (TCO E) Complying with regulations is a(n) (Points : 5) batch-level activity. product-level activity. unit-level activity. organization sustaining activity. 2. (TCO G) Given the following data, what would ROI be? Sales $90,000 Net operating income $18,000 Contribution margin $40,000 Average operating assets $100,000 Stockholder's equity $250,000 (Points : 5) 7.2% 20.0% 18.0% 44.4% Page 2 1. (TCO C) Madlem, Inc., produces and sells a single product whose selling price is $120.00 per unit and whose variable expense is $46.20 per unit. The company's fixed expense is $405,900 per month. Required: Determine the monthly breakeven in either unit or total dollar sales. Show your work! (Points : 25) Monthly Break Even Unit = Fixed Cost/(Sale Price - Variable Cost per unit) Monthly Break Even Unit = 405,900/(120-46.20) Monthly Break Even Unit = 5,500 Units Monthly Break Even in total dollar sales = Fixed Cost/contribution margin ratio Contribution margin ratio = (Sale Price - Variable Cost per unit)/Sale Contribution margin ratio = (120-46.20)/120Contribution margin ratio =61.5% Monthly Break Even in total dollar sales = /61.5% Monthly Break Even in total dollar sales = 660,000 2. (TCO B) Loxham Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for materials 80% Percent complete for conversion 15% Units started into production during the month 6,000 Units transferred to the next department during the month 5,400 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 Ending work in process: Units in ending work-in-process inventory 1,000 Percentage complete for materials 80% Percentage complete for conversion 30% Required: Calculate the equivalent units for conversion for the month in the first processing department. (Points : 25) Units in beginning work in process inventory = 400 x 20% = 80 Units completed & transferred to the next department = 5,400 Units in ending work in process inventory = 1,000 x 80% = 800 Total Equivalent units for materials for the month = 6,280 units Page 3Question 1.1. (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory 2,000 Units produced 9,000 Units sold 10,000 Sales $100,000 Less cost of goods sold: Beginning inventory 12,000 Add cost of goods manufactured 54,000 Goods available for sale 66,000 Less ending inventory 6,000 Cost of goods sold 60,000 Gross margin 40,000 Less selling and admin. expenses 28,000 Net operating income $12,000 Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30) Sales $100,000 Less : Variable Cost of Goods Sold Opening Inventory (2,000 X $4) $8,000 Cost of Goods Manufactured (9,000 X $4) $36,000 Goods Available For Sale $44,000 Less : Closing Inventory (1,000 X $4) $ 4,000 ($40,000) Contribution $60,000 Less : Variable Selling & Admin Cost (10,000 X $1) ($10,000) $50,000 Less Fixed Expenses Fixed Factory OHD ($18,000) Fixed Selling & Admin Cost (28,000 – 10,000) ($18,000) Net Operating Income $ 14,000 The difference in the net operating income in both variable costing and absorption costing is due to the difference in closing inventory valuation. In variable costing method, closing inventory is values at variable cost only while in absorption costing the inventory is valued at a higher price because it includes portion of fixed cost. 2. (TCO I) (Ignore income taxes in this problem.) Bill Anders retires in 8 years. He has $650,000 to invest and is considering a franchise for a fast-food outlet. He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs. Other outlets in the fast-food chain have an annual net cash inflow of about $160,000. Mr. Anders would close the outlet in 8 years. He estimates that the equipment could be sold at that time for about 10% of its original cost. Mr. Anders' required rate of return is 16%. Required: Part A: What is the investment's net present value when the discount rate is 16%? Part B: Refer to your calculations. Is this an acceptable investment? Why or why not? (Points : 30) PART A Part A: Year Initial Working Net cash Salvage Cash 16% PVCF Investment capital Inflow Value Inflow PVIF0 ($500,000) ($150,000) ($650,000) 1.0000 ($650,000) 1 $160,000 $160,00 0.8621 $137,931 2 $160,000 $160,000 0.7432 $118,906 3 $160,000 $160,000 0.6407 $102,505 4 $160,000 $160,000 0.5523 $ 88,367 5 $160,000 $160,000 0.4761 $ 76,178 6 $160,000 $160,000 0.4104 $ 65,671 7 $160,000 $160,000 0.3538 $ 56,613 8 $150,000 $160,000 $50,000 $360,000 0.3050 $109,809 ________ NPV $105,980 PART B Part B: The project is an acceptable investment since the NPV is positive. 3. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year. Sales 1,300 Raw materials inventory, beginning 25 Raw materials inventory, ending 30 Purchases of raw materials 250 Direct labor 350 Manufacturing overhead 500 Administrative expenses 300 Selling expenses 250 Work in process inventory, beginning 150 Work in process inventory, ending 100Finished goods inventory, beginning 80 Finished goods inventory, ending 110 Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25) Schedule of cost of Goods Manufactured Work in Process - Beginning 150 Raw Material Inventory - Beginning 25 Purchases 250 _____ Total Material Available 275 Less: Raw Material Inventory - Ending (30) _____ Material Used 245 Direct Labor 350 Manufacturing overhead 500 ______ Manufacturing cost added 1,095 _____________________ Total Manufacturing cost 1,245 Less: Work In Process - Ending Inventory (100) _____________________ Cost of Goods Manufactured 1,145------------------------------------------------------------------------------------------- Schedule of cost of Goods Sold Finished Goods Inventory - Beginning 80 Cost of goods manufactured 1,145 ____________ Total Goods available 1,225 Less: Finished goods Inventory - Ending 110 ____________ Cost of goods Sold 1,115 ------------------------------------------------------------------------------------------- The impact on the financial statements if the ending finished goods inventory is overstated will be that the net income will be overstated. However, if the ending inventory is understated the net income will be understated. 4. (TCO F) Walker Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $43,000. Budgeted cash receipts total $117,000 and budgeted cash disbursements total $122,000. The desired ending cash balance is $55,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for November in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance(Points : 25) Cash Budget for November Beginning Cash balance $ 43,000 Cash Receipts $117,000 Loan from Bank $ 17,000 ____________ Total Cash Available $177,000 Less: Cash Disbursement $122,000 ____________ Ending Cash Balance $ 55,000 It would necessary to borrow $17,000. 5. (TCO F) The following overhead data are for a department of a large company. Actual Costs Incurred Static Budget Activity level (in units) 800 750 Variable costs: Indirect materials $6,850 $6,600 Electricity $1,312 $1,275 Fixed costs: Administration $3,570 $3,700 Rent $3,320 $3,200 Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department. (Points : 25) Actual Flexible Variance Incurred Budget 800 800 F F F UnF Variable cost per unit 8.8 1.76. (TCO H) Lindon Company uses 7,500 units of Part Y each year as a component in the assembly of one of its products. The company is presently producing Part Y internally at a total cost of $119,000 as follows. Direct materials $26,000 Direct labor 28,000 Variable manufacturing overhead 20,000 Fixed manufacturing overhead 45,000 Total costs $119,000 An outside supplier has offered to provide Part Y at a price of $12 per unit. If Lindon stops producing the part internally, one third of the fixed manufacturing overhead would be eliminated. Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer. Please state clearly whether the part should be made or bought and share your work. (Points : 30) Inhouse outsource New Direct Materials $ 26,000.00 Direct Labor $ 28,000.00 VC $ 20,000.00 Fixed $ 45,000.00 $ 30,000.00 Total $ 119,000.00 $ 90,000.00 $ 120,000.00 Per unit $ 15.87 $ 12.00 $ 16.00 This is a no go for the outsource has total cost will now be $120,000 if order is not accepted : Total cost = 26000 + 28000 + 20000 + 45000= $ if order is accepted : Direct material 26000 Direct Labour 28000 Variable manufacturing overhead 20000 Fixed manufacturing overhead[45000* (1-1/3)] 30000 Total Cost If the Lindon Company accepts the order from the outsider supplier, then it will be able to reduce the cost of making Product Y from $15000 [($ - $)] Therefore, internally production should be stopped, and Lindon Company should accept the order of outsider 7. (TCO B) Wahr 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 35,000. The estimated variable manufacturing overhead was $7.25 per labor hour and the estimated total fixed manufacturing overhead was $585,000. The actual labor hours for the year turned out to be 33,000. Required: Compute the company's predetermined overhead rate for the recently completed year. (Points : 25) Predetermined rate = Total manufacturing overheads/Activity level = $585,000/35,000 labor hours = $16.71 per direct labor hou