Unit Exercise Questions ON Managerial Accounting

Unit Exercise Questions ON Managerial Accounting

Unit 1

Question 1  (Total: 18 marks)

The following information was taken from the accounting records of Dunbar Mifflin Company in 2018.

Beginning of 2018 Ending of 2018

Direct materials inventory 135,000 83,000

Work-in-process inventory 185,000 154,000

Finished-goods inventory 255,000 216,000

Purchases of direct materials 270,000

Direct manufacturing labor 225,000

Indirect manufacturing labor 103,000

Plant insurance 11,000

Depreciation-plant, building, and equipment 48,000

Plant utilities 29,500

Repairs and maintenance-plant 13,500

Equipment leasing costs 66,800

Marketing, distribution, and customer-service costs 129,500

General and administrative costs 72,500

Required:

1. Prepare a schedule of cost of goods manufactured.

Question 2 (Total: 38 marks)

Following are the account balances for the DC Company in 2018:

Beginning of 2018 Ending of 2018

Direct materials inventory 26,500 27,000

Work-in-process inventory 30,500 28,400

Finished-goods inventory 16,500 22,100

Purchases of direct materials 79,000

Direct manufacturing labor 24,500

Indirect manufacturing labor 18,600

Plant insurance 7,900

Depreciation-plant, building, and equipment 11,800

Repairs and maintenance-plant 3,500

Marketing, distribution, and customer-service costs 87,900

General and administrative costs 26,500

Required:

Prepare a schedule for the cost of goods manufactured for 2018.

2. Revenues for 2018 was $425,000. Prepare the income statement for 2018.

Question 3 (Total: 30 marks)

Identify if the following costs are “product” or “period” costs:

Question 4 (Total: 14 marks)

The Trump International Hotel & Tower is a five-star hotel located in downtown Toronto. The hotel’s operations vice president would like to replace the hotel’s legacy computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, consume less power than the old computer terminals, and provide additional security, since they can be viewed only from a restrictive angle. The new computer displays would not require any new wiring. However, the hotel’s chef believes the funds would be better spent on a new bulk freezer for the kitchen.

Required:

Classify each item as a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel displays. If none of the categories apply for a particular item, select “None”.

Unit 2

Question 1 (Total: 36 marks)

The following costs are attributed to the Gandalf and Company:

Gandalf and Company used a 120% predetermined overhead rate based on direct labour cost.

Required:

Calculate the cost of goods manufactured.

3. What was the cost of goods sold before adjusting for any under or over applied overhead?
4. By how much was manufacturing overhead cost under or over applied?
5. Prepare a summary journal entry to close any under or over applied manufacturing overhead cost to cost of goods sold. Is such an entry appropriate in this situation? Why or why not?

Question 2 (Total: 20 marks)

The weighted-average method is used by the Cardiff and Company. Below you will find information provided by the Heating department for the month of March:

Required:

Cardiff and Company using the weighted-average method, all materials at the first process:

1. The equivalent units (EUs) of production for materials.
2. The cost per equivalent unit for conversion.
3. The total cost assigned to units transferred out of the Heating Department during March.
4. The cost assigned to work-in-process inventory as of March 31.

Question 3 (Total: 30 marks)

Paddle Place manufactures paddles and tables. In December, the two production departments had budgeted allocation bases of 3,100 machine-hours in Paddle and 6,900 direct manufacturing labor-hours in Table. The budgeted manufacturing overheads for the month were $51,200 and $56,900, respectively. For Project X, the actual costs incurred in the two departments were as follows:

Project X incurred 900 machine-hours in Paddle and 200 manufacturing labor-hours in Table. The company uses a budgeted overhead rate for applying overhead to production.

Required:

1. Determine the budgeted manufacturing overhead rate for each department.
2. Prepare the journal entries for Paddle department.
3. What is the total cost of Project X?

Question 4 (Total: 14 marks)

Identify the following situations as “job-order costing” or “process costing”?

Unit 3

Question 1 (Total: 20 marks)

For its overhead costs, the wholesale distributor Janz Company uses activity-based costing. In terms of the company’s annual overhead costs and its activity-based costing system the following data has been provided:

Distribution of Resource Consumption:

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs. Shown below is the amount of activity for the year:

Required:

Compute the activity rates for the Filling Orders and Product Support activity cost pools

Question 2 (Total: 30 marks)

Lojay Company produces custom covers for the air conditioning units of homes and businesses. For its overhead costs the company uses an activity-based costing system. The following data has been provided by the Lojay company regarding its annual overhead costs and its activity cost pools:

Distribution of Resource Consumption:

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

Required:

1. Prepare the first-stage allocation of overhead costs to the activity cost pools
2. Compute the activity rates for the Making Covers and Job Support activity cost pools
3. Prepare a revenue report where making 50 yards of covers and DM and DL cost of $950, and revenue is $2,500

Question 3 (Total: 30 marks)

Tuggs Corporation manufactures two products, Racket and Table. Table, having been developed as an attempt to enter a market closely related to that of Racket, has been recently created. Of the two products Table is the more complex one thus requiring two and a half hours of direct labour time per unit to manufacture, compared to one hour of direct labour time for Racket. Table is produced on an automated production line.

On the basis of direct labour hours Overhead is currently assigned to the products. The company

estimated it would incur $364,000 in manufacturing overhead costs and produce 4,900 units of Table and 22,100 units of Racket during the current year. Unit costs for materials and direct labour are as follows:

Required:

1. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.
2. The company’s overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

Determine the unit product cost of each product for the current year using the data above and an activity-based costing approach.

Question 4 (Total: 20 marks)

Gandalf and Company makes Golf Equipment for the retailers around the world.  Below you will find a number of activities and cost at Gandalf Corporation. Please list the activity as either, “Batch”, “Unit”, “Product” or “Organization-sustaining”.

Unit 4

Question 1 (Total: 26 marks)

Dundar Mifflin manufactures and sells three products: X, Y, and Z. Annual fixed costs are $515,250 and data about the three products follow for 2017.

Required:

1. Determine the breakeven point
2. The management expects sales to increase by 9% in 2018. What is the expected operating income in 2018?

Question 2 (Total: 24 marks)

Dundar Mifflin makes electronic product for the RCMP. The following data is for the first six months:

Required:

1. Use the high-low method to estimate the cost formula
2. Estimate the total overhead cost at an activity level of 48,000 machine hours, using the separate estimates you obtained for its components.

Question 3 (Total: 30 marks)

Costco has recently started to take the customer orders over the web site.  Following is the past data for first six month:

Required:

1. Using the high-low method, estimate the variable cost per Web site hit and the monthly fixed costs.
2. Determine the cost equation to estimate the customer Web site expenses for Costco Online.
3. If Costco expects 9,500 Web site hits for July, what are their anticipated costs for July?

Question 4 (Total: 20 marks)

Gandalf and Company makes table tennis equipment for the retailers around the world. Below is listed a number of activities and cost at Gandalf Corporation. Please list the activities as one of the following: fixed, mixed, contribution, cost behavior, variable, curvilinear, account analysis, regression analysis.

Unit 5

Question 1 (Total: 40 marks)

Stark and Company would like to evaluate one of the product lines that they sell to the defense department. Every month the Stark and Company produce an identical number of units, although the sales in units differ from month to month.

Required:

1. Under variable costing, identify the unit product cost for the month.
2. What is the unit product cost for the month under absorption costing?
3. Prepare an income statement for the month using the contribution format and the variable costing method.
4. Prepare an income statement for the month using the absorption costing method.

Question 2 (Total: 12 marks)

The following information pertains to Death Star Corporation for a period:

Required:

1. Assume the unit standard costs data for the beginning and ending inventories remained constant during the period. What was the total standard cost of the ending inventory under absorption costing?

Question 3

DC-Marvel would like to evaluate one of the product lines that they sell to defense department. Every month the company produces an identical number of units, although the sales in units differ from month to month.

Required:

Compute the Contribution Margin.

Compute the Operating Income under Variable Costing.

Prepare a reconciliation from your Operating Income under Variable Costing to Operating Income under Absorption Costing. Show the differences between each method.

Question 4 (Total: 18 marks)

Stark and Company’s has following cost data:

Required:

2. Determine the total prevention costs?
3. Determine total appraisal costs?
4. Determine the total internal failure costs?

Unit 6

Question 1 (Total: 30 marks)

For the second quarter of the following year Cloaks Company has projected sales and production in units as follows:

Cash-related production costs are budgeted at $7 per unit produced. Of these production costs, 35% are paid in the month in which they are incurred and the balance in the next month. $95,000 per month will account for Selling and administrative expenses. On January 31 the accounts payable balance totals $185,000, which will be paid in February.

All units are sold on account for $13 each. Cash collections from sales are budgeted at 55% in the month of sale, 25% in the month following the month of sale, and the remaining 20% in the second month following the month of sale. On January 1 accounts receivable totaled $500,000 ($90,000 from November’s sales and the remaining from December).

Required:

1. Prepare a schedule for each month showing budgeted cash disbursements for Cloaks Company.
2. Prepare a schedule for each month showing budgeted cash receipts for Cloaks Company.

Question 2 (Total: 36 marks)

A merchandising firm by the name of Star Wars Enterprises, had an inventory of 42,000 units on March 31, and it had accounts receivable totaling $83,500. Sales, in units, have been budgeted as follows for the next four months:

To be enforced in April, Star Wars board of directors has established a policy that states that the inventory at the end of each month should contain 35% of the units required for the following month’s budgeted sales. $2.5 is the selling price per unit. One-Quarter of sales are paid for by customers in the month of the sale; the balance is collected in the following month.

Required:

1. Prepare a merchandise purchases budget showing how many units should be purchased for

each of the months April, May, and June.

24. Prepare a schedule of expected cash collections for each of the months April, May, and June.

Question 3 (Total: 24 marks)

Fonsey Corporation, a merchandising company, has provided the following budget data:

Collections from customers are normally 65% in the month of sale, 22% in the month following the sale, and 11% in the second month following the sale. It is expected that the balance be uncollectible. Fonsey pays for purchases in the month following the purchase. Cash disbursements for expenses other than merchandise purchases are expected to be $13,300 for May. Fonsey’s cash balance on May 1 was $21,500.

Required:

1. Compute the expected cash collections during May.
2. Compute the expected cash balance on May 31.

Question 4

Five years ago, Phil Coulson left his position at a large company to start Coulson Spy Solutions Co. (CSS), a software design and tracking company. CSS’s first product was a unique software package that seamlessly integrates networked PCs. Robust sales of this initial product permitted the company to begin development of other software products and to hire additional personnel. The staff at CSS quickly grew from three people working out of Phil’s basement to more than 70 individuals working in leased spaces at an industrial park. Continued growth led Coulson to hire seasoned marketing, distribution, and production managers and an experienced accountant.

Recently, Coulson decided that the company had become too large to run on an informal basis and that a formalized planning and control program centered around a budget was necessary. Coulson asked the accountant, Maria Hill, to work with him in developing the initial budget for CSS.

Coulson forecasted sales revenues based on his projections for both the market growth for the initial software and successful completion of new products. Hill used this data to construct the master budget for the company, which she then broke down into departmental budgets. Coulson and Hill met a number of times over a three-week period to hammer out the details of the budgets.

When Coulson and Hill were satisfied with their work, the various departmental budgets were distributed to the department managers with a cover letter explaining CSS’s new budgeting system. The letter requested everyone’s assistance in working together to achieve the budget objectives. Several of the department managers were displeased with how the budgeting process was undertaken. In discussing the situation among themselves, they felt that some of the budget projections were overly optimistic and not realistically attainable.

Required:

1. How does the budgeting process Coulson and Hill used at CSS differ from recommended practice?
2. What are the behavioural implications of the way Coulson and Hill went about preparing the master budget?

Unit 7

Question 1 (Total: 20 marks)

When analyzing the total variable overhead cost variance into both spending and efficiency variances, it is often assumed that direct labour hours is the sole cost driver.

Required:

1. Explain if direct labour costs could ever be a better cost driver of variable overhead costs than direct labour hours.
2. How is the standard variable overhead rate different from the standard labour rate in variance analysis? Please explain.

Question 2 (Total: 14 marks)

CLAW Corporation is a manufacturer of industrial equipment, located in Toronto, Ontario. CLAW has a standard costing system based on direct labour hours (DLHs) as the measure of activity. Data from the company’s flexible budget for manufacturing overhead are given below:

The following data pertains to operations for the most recent period:

Required:

1. What was the total predetermined overhead rate?
2. How much overhead was applied to products during the period?

Question 3 (Total: 30 marks)

For the Win (FTW) Corporation uses a standard costing system in the creation of awards and trophies. The Manufacturing overhead costs are applied to products on the basis of machine time.

Required:

1. Unfortunately, due to accounting glitches in FTW’s software, several numbers and labels have been omitted from the analysis of fixed overhead below. Supply the missing numbers and labels to help FTW out:

29. Next, assume that 6 minutes of machine time is standard per unit of production. How many units were actually produced in the situation above?
30. Once again, assume that 6 minutes of machine time is standard per unit of production. How many units of production were assumed when the predetermined application rate for fixed overhead was established?

Question 4

Orville Company’s standard and actual costs per unit are provided below for the most recent period. During this time period 400 units were actually produced.

For simplicity, assume there was no inventory of materials at the beginning or end of the period.

Required:

Given the information above, compute the following variances. Also indicate if the variances are favorable or unfavorable.

1. Materials price variance
2. Materials quantity variance
3. Direct labour rate variance
4. Direct labour efficiency variance
5. Variable overhead spending variance
6. Variable overhead efficiency variance