Business

Final Exam: Problems from your textbook

Complete the following problems from your textbook. The problems must be completed using either Word or Excel.

Question #1 – Problem 3-25 (pp. 131–132)

Question #2 – Problem 6-22 (p. 270)

Question #3 – Problem 9-19 (pp. 403–404)

Question #4 – Problem 11A-9 (pp. 498–499)

Question #5 – Problem 13-21 (pp. 614–615)

Submit your Final Exam to the Dropbox area in the course. For details on using the Dropbox please click the Academic Tools tab above, then Dropbox Guide.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AC505: Advanced Managerial/Cost Accounting

Unit 6 Final Exam

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Final Exam

Question #1 – Problem 3-25 (pp. 131–132)Multiple Departments; Overhead Rates; Underapplied or Overapplied Overhead[LO3, LO5, LO8]

Hobart, Evans, and Nix is a small law firm that employs 10 partners and 12 support persons. The firm uses a job-order costing system to accumulate costs changeable to each client, and it is organized into two departments-the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to change the costs of these departments to its clients. At the beginning of the year, the firm’s management made the following estimates for the year:

 

Department
Research and Development  

Litigation

Research-hour 24,000
Direct attorney-hour 9,000 18,000
Legal forms and supplies $16,000 $5,000
Direct attorney cost $450,000 $900,000
Departmental overhead cost $840,000 $360,000

 

The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct attorney cost.

The costs charged to each client are made up of three elements: legal forms and supplies used, direct attorney cost incurred, and an applied amount of overhead from each department in which work is performed on the case.

Case 418-3 was initiated on February 23 and completed on May 16. during this period, the following costs and time were recorded on the case:

 

Department
Research and Development  

Litigation

Research-hour 26
Direct attorney-hour 7 114
Legal forms and supplies $80 $40
Direct attorney cost $350 $5,700

 

Required:

  1. Compute the predetermined overhead rate used during the year in the Research and Documents Department. Compute the rate used in the Litigation Department.
  2. Using the rates you computed in (1) above, compute the total overhead cost applied to Case 418-3.
  3. what would be the total cost changed in Case 418-3? Show computations by department and in total for the case.
  4. At the end of the year, the firm’s records revealed the following actual cost and operating data for all cases handled during the year:

     

Department
Research and Development  

Litigation

Research-hour 24,000
Direct attorney-hour 9,000 18,000
Legal forms and supplies $16,000 $5,000
Direct attorney cost $450,000 $900,000
Departmental overhead cost $840,000 $360,000

 

Determine the amount of underapplied or overapplied overhead cost in each department for the year.

 

Question #2 – Problem 6-22 (p. 270) Basics of CVP Analysis; Cost Structure[LO1, LO3, LO4, LO5, LO6]

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:

 

Sales (19,500 units x $30 per unit) $585,000
Variable expenses 409,500
Contribution margin 175,500
Fixed expenses 180,000
Net operating loss $(4,500)

 

Required:

  1. Compute the company’s CM ratio and its break-even point in both units and dollars.
  2. The president believes that a $ 16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $ 80,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)
  3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $ 60,000 in the monthly advertising budget, will cause unit sales to double. What will the new contribution format income statement look like if these changes are adopted?
  4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,750?
  5. Refer to the original data. By automating certain operations, the company could reduce variable costs by $ 3 per unit. However, fixed costs would increase by $ 72,000 each month.
    1. Compute the new CM ratio and the new break-even point in both units and dollars.
    2. Assume that the company expects to sell 26,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total, for alternative.)
    3. Would you recommend that the company automate its operations? Explain.

 

Question #3 – Problem 9-19 (pp. 403-404) Cash Budget; Income Statement; Balance Sheet[LO2, LO4, LO8, LO9, LO10]

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

Minden Company

Balance Sheet

April 30

Assets
Cash $9,000
Accounts receivable 54,000
Inventory 30,000
Buildings and equipment, net of depreciation 207,000
Total assets $300,000
Liabilities and Stockholders’ Equity
Account payable $63,000
Note payable 14,500
Capital stock,no par 180,000
Retained earnings 42,500
Total liabilities and stockholders’ equity $300,000

 

The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as stated below:

  1. Sales are budgeted at $ 200,000 for May. Of these sales, 4 60,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the reminder is collected in the following month. All of the april 30 accounts receivable will be collected in May.
  2. Purchases of inventory are expected to total $ 120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of April 30 accounts payable to suppliers will be paid during May.
  3. The May 31 inventory balance is budgeted at $ 40,000.
  4. selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.
  5. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.)
  6. New refrigerating equipment costing $6,500 will be purchased for cash during May.
  7. During May, the company will borrow $20,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

    Required:

    1. Prepare a cash budget for May. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases.
    2. Prepare a budget income statement for May. Use the absorption costing income statement format as shown in schedule 9.
    3. Prepare a budget balance sheet as of May 31.

       

      Question #4 – Problem 11A-9 (pp. 498–499) Comprehensive Standard Cost Variances[LO2, LO3, LO4, LO6]

      “Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,536,000 standard cost of products made during the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.”

      The company produces and sells a single product. The standard cost card for the product follows:

Standard cost card-per unit of product
Direct materials, 2 feet at $8.45 per foot $16.90
Direct labor, 1.4 direct labor hours at $16 per direct labor-hour 22.4
Variable overhead, 1.4 direct-labor hours at $2.50 per direct labor-hour 3.5
Fixed overhead, 1.4 direct labor-hours at $6 per direct labor hour 8.4
Standard cost per unit $51.20

 

The fallowing additional information is available for the year just completed:

  1. The company manufactured 30,000 units of product during the year.
  2. A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.
  3. The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 per hour.
  4. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor-hours) 35,000
Budgeted fixed overhead costs (from the overhead flexible budget) $210,000
Actual variable overhead costs incurred $108,000
Actual fixed overhead costs incurred $211,800

 

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