Managerial Accounting Comprehensive Exam – Practice ProblemsThe “Big Themes” in managerial accounting are the following: 1. 2. 3. 4. Fixed versus variable costs and the related concept of operating leverage. Product versus period costs. Direct and indirect materials and direct and indirect labor. Manufacturing overhead (MO) – development of the predetermined rate, how MO is allocated to work in process, and what to do with over/underapplied MO (you need to know ONLY the close out to cost of goods sold method). 5. Job order costing. 6. Process costing – using the weighted-average method (you DO NOT need to know the FIFO method) 7. The Contribution Format income statement and Cost-Volume-Profit analysis. 8. Absorption costing versus variable costing. 9. Standard costs and variance analysis. 10. Static versus flexible budgets. 11. Profit planning and budgeting (but you DO NOT need to prepare a master budget for the exam). Practice Problems: 1. Whitman Corporation, a merchandising company, reported sales of 7,400 units for May at a selling price of $577 per unit. The cost of goods sold (all variable) was $411 per unit. Selling expense was a mixed cost with a variable component of $54 per unit and a fixed component of $145,600. Administrative expense was also a mixed cost with a variable component of $24 per unit and a fixed component of $370,400. Finally, the company had $66,000 of depreciation expense. Required: a. Prepare a contribution format income statement for May. 2. Delta Company (Delta) is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year: Month Raw materials Work in process Finished goods Beginning Balance $11,000 $32,000 $108,000 Ending Balance $15,000 $14,000 $123,000 Delta applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 17,000 machine-hours 000 in manufacturing overhead costs. Was manufacturing overhead under applied or over applied? By how much? .000 indirect).000 is related to factory operations and $7. Calculate the predetermined overhead rate for the period. Sales for the year totaled $1. and $157. 4. $69.000 of which $114. Factory utility costs were $29.000 ($376. Raw materials were used in production.000 (don’t’ forget to also account for the cost of goods sold).000 is related to executive office operations.000. Manufacturing overhead was applied to jobs. The following transactions were recorded for the year (assume that all transactions are on account): 1. Completed jobs were transferred from work in process to finished goods. Over/underapplied manufacturing overhead was closed out to cost of goods sold Required: a. 5.000. 8. c. 10. 7. Employee wages were incurred. Raw materials were purchased. What was the Cost of Goods Sold during the period? e. 2. b. 6.000 administrative salaries).000 direct. and $36. The actual level of activity for the year was 15. $416. $556.282. Selling costs were $113. What was the Cost of Goods Manufactured during the period? d.000 machine-hours.000 indirect labor. 3. Prepare journal entries for transactions 1-10 (see attached page). $412. Depreciation for the year was $121.000.000 direct labor.000 ($330. 9.and incur $272. 9. 3. 8. 5. . 10.Delta Company Journal Entries Description 1. 4. 6. 7. Debit Credit 2. Candice has decided to introduce a new product in the durable goods market space. The product can be manufactured using either a capitalintensive or labor-intensive method.700 51. Required: a.3. If management is highly confident that sales will be 140. Calculate the break-even point in units and dollars if Candice uses the: 1.000 units.00 $1. Assuming sales of 140.000. what is the degree of operating leverage if the company uses the: 1. Candice Corporation (Candice) has had record profits the last two years and currently has excess cash to invest in expansion. .700 32. what is your recommendation concerning which manufacturing method should be used? Explain fully.000 Variable manufacturing cost per unit Fixed manufacturing cost per year The company's market research department has recommended a selling price of $30 per unit for the new product. As a result.420. 4. capital-intensive manufacturing method.000 Labor-Intensive $13. capital-intensive manufacturing method.000 units or above for the foreseeable future. the Whizzer: Total $83.000 $11.000 40. The annual fixed selling and administrative expenses of the new product are $200. 2.00 $1. The estimated manufacturing costs of the two methods are as follows: Capital-Intensive $10. labor-intensive manufacturing method. The following monthly data in contribution format are available for the Corinth Company and its only product.000 Per Unit $279 109 $170 Sales Variable costs Contribution margin Fixed costs Net operating income The company produced and sold the same number of Whizzer’s during the month and had no beginning or ending inventory. c.000. The manufacturing method will not affect the quality or sales of the product. labor-intensive manufacturing method. 2. The variable selling and administrative expenses are $2 per unit regardless of how the new product is manufactured. b. d. Magdella Company. Management believes that these actions will increase unit sales by 50 percent.100 ???? 400 $46 $50 $7 $11 $86. Should these changes be made? c.000? 5. What is the product cost per unit for the month under variable costing? b. Prepare a contribution format income statement for the month using variable costing. Management is contemplating the use of plastic gearing rather than metal gearing in the Whizzer.800 $8.000 per month. What is the product cost per unit for the month under absorption costing? c. has provided the following data concerning its most recent month of operations: Selling price per unit Units in beginning inventory Units manufactured Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative $150 0 3. This change would reduce variable costs by $15 per unit. The new packaging costs will increase variable costs by $6 per unit. How much can Corinth spend on the new advertising campaign if they want to make net operating income of $15. .Required (assume that each of the following is based on the original assumptions above): a. which has only one product. Management wants to increase sales and feels this can be done by cutting the selling price by $22 per unit and increasing the advertising budget by $10. sales will increase by 25%. Management believes that by increasing the attractiveness of product packaging along with a new advertising campaign. Prepare an income statement for the month using absorption costing.100 Required: a. The company's sales manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 250 units per month. Should this change be made? b. 270. For the Mixing Department the rate for the year was $0. Manufacturing overhead was applied. Randall Company is a merchandising company that sells a single product. 2. 5. c.000 pounds of sauce were started into production in the Mixing Department during the year. and Bottling. SP uses process costing and has two different departments: Mixing.200 were incurred. One fourth of all sales are paid for in the month of sale and the balance is paid for in the following month. Other actual manufacturing overhead costs of $11. Raw materials were used in production: $327.000 January 40. The ending inventory (pounds of sauce) was 100% complete as to Materials.000 indirect.100 20.000 Ending Balance ??? 40. The following transactions were recorded in the Mixing Department for the year: 1.000 direct. where the sauce is bottled and packaged. 6. The company's Mixing Department inventory balances were as follows at the beginning and end of the year: Beginning Balance $32. What was the total ending WIP-Mixing balance at the end of the year? d.000 of Materials and $11.100 of Conversion Costs.000 direct. 4. Required: a. Calculate the Equivalent Units of Production for the Mixing Department for the year. 3. Labor costs were incurred: $156. Accounts receivable at September 30 totaled $450.e.000. Calculate the Cost per Equivalent Unit for the Mixing Department for the year. How much Cost of Goods Manufactured was transferred from the Mixing Department to the Bottling Department during the year? 7. and 50% complete as to conversion costs. . SP applies overhead using departmental predetermined overhead rates. $28.000 November 70.800 indirect.000 Sales in Units Units are sold for $12 each. $25.000 December 50.000 Work in Process-Mixing Pounds of sauce (Mixing) The beginning WIP-Mixing consisted of $21. where the ingredients are mixed together and cooked. Prepare a reconciliation of the variable and absorption costing net operating incomes for the month and explain any difference between the two. The company's sales in units for the next four months have been forecasted as follows: October 60.40 per direct labor dollar. SP Company (SP) manufactures a gourmet brand of barbecue sauce called Flamin’ Steve’s BBQ Sauce. b. . and a dividend of $200.000 for purchase of equipment is scheduled for November. November.000. Prepare a Merchandise Purchases Budget in units for each of the months October.000 Variable element Variable element per guest per jeep $101 $0 $0 $136 $8 $57 $2 $0 Revenue Tour guide wages Vehicle expenses Administrative expenses In March.000. The targeted ending inventory is 15% of the next months needs. cost drivers). Each jeep has one tour guide. Half of the purchases are paid for in the month of the purchase and the remainder is paid for in the month following purchase. and December include a quarter total column.000 each month.900 $1. The company uses the following data in its budgeting: Fixed element per month $0 $0 $4.000 units.Merchandise is purchased for $7 per unit. the company budgeted for 492 guests and 165 jeeps. The company bases its budgets on two measures of activity (i. Prepare a schedule showing expected cash disbursements for merchandise purchases for each of the months October.000 is to be paid in December. answer the following questions: a. What amount would be reported on the Income Statement as Cost of Goods Sold? 8. and December include a quarter total column. What amount would be reported on the Balance Sheet as Accounts Payable? c. Tervo Jeep Tours operates jeep tours in the heart of the Colorado Rockies. c. What amount would be reported on the Balance Sheet as Inventory? b. There is no depreciation.e. Required: a. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. A payment of $300. namely guests and jeeps. November. Selling and administrative expenses are expected to total $120. Accounts payable at September 30 totaled $290. One vehicle used in one tour on one day counts as a jeep. Cash at September 30 totaled $80. b. The company’s income statement showing the actual results for the month appears below: . Using the budgets you prepared in “a” and “b” above. Inventory at September 30 totaled 10. 858 17.50 $5.330 liters 2.80 Inputs Direct materials Direct labor Variable overhead The company reported the following results concerning this product in August.Tervo Tours Income Statement For the month Ended March 31 Actual guests Actual jeeps Revenue Expenses: Tour guide wages Vehicle expenses Administrative expenses Total expenses Net operating income 497 163 $49.278 Required: a.10 $1.3 hours $6.3 hours $17.500 liters $4.00 per hour Standard Cost Per Unit $34.10 per hour $5.00 per liter 0. Label each variance as favorable (F) or unfavorable (U).789 $ 7.50 per hour . b.00 per hour 0.90 per liter $17. What are potential causes of the tour guide wages spending variance? 9. Fastic Corporation makes a product with the following standard costs: Standard Quantity Standard Price or Hours or Rate 6. Originally budgeted output Actual output Raw materials used in production Actual direct labor-hours Purchases of raw materials Actual price of raw materials Actual direct labor rate Actual variable overhead rate 8.9 liters $5. What are potential causes of the revenue variance? d.014 41.917 2.310 hours 62. Prepare a flexible budget performance report showing both the company's activity variances and revenue and spending variances for March. What does the activity variance tell us? c.600 units 8.400 units 58.067 21. Compute the labor efficiency variance and the direct labor rate variance. Required: a. . Compute the variable overhead efficiency variance and the variable overhead rate variance. Compute the materials quantity variance and the materials price variance. Variable overhead is applied on the basis of direct labor-hours. b. c.The materials price variance is recognized when materials are purchased.
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