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ACCT 2230 final Exam prep, Study Guides, Projects, Research of Management Accounting

University of GuelphManagement Accounting

ACCT 2230 final Exam preparation Summer 2021

Typology: Study Guides, Projects, Research

2020/2021

Uploaded on 08/11/2021

Lajazzwazz13
Lajazzwazz13 🇨🇦

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1. Tanner Company's most recent contribution format income statement is presented
below:
The company sells its only product for $15 per unit. There were no beginning or ending
inventories.
Required:
a) Compute the company's break-even point in units sold.
Contribution margin ratio = $30,000/$75,000 = 0.40
$36,000/0.40 = $90,000 break-even sales
$90,000/$15 = 6,000 units to break even
b) Compute the total variable expenses at the break-even point.
Variable expense ratio = $45,000/$75,000 = 0.60
$90,000 sales x 60% variable expense ratio = $54,000
c) How many units would have to be sold to earn a target operating income of $9,000?
($36,000 + $9,000)/0.40 = $112,500
$112,500/$15 = 7,500 units
d) The sales manager is convinced that a $6,000 increase in the advertising budget would
increase total sales by $25,000. Would you advise the increased advertising outlay?
Yes, the advertising budget should be increased.
2. A public accounting firm employs 10 full-time professionals who provide services to
clients. All professional labour compensation is traced directly to clients on a per
professional labour-hour basis. Any other costs are included in a single indirect-cost
pool (same as overhead) and allocated to individual clients according to billable
professional labour-hours.
Operating costs and data for the year included the following:
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  1. Tanner Company's most recent contribution format income statement is presented below: The company sells its only product for $15 per unit. There were no beginning or ending inventories. Required: a) Compute the company's break-even point in units sold. Contribution margin ratio = $30,000/$75,000 = 0. $36,000/0.40 = $90,000 break-even sales $90,000/$15 = 6,000 units to break even b) Compute the total variable expenses at the break-even point. Variable expense ratio = $45,000/$75,000 = 0. $90,000 sales x 60% variable expense ratio = $54, c) How many units would have to be sold to earn a target operating income of $9,000? ($36,000 + $9,000)/0.40 = $112, $112,500/$15 = 7,500 units d) The sales manager is convinced that a $6,000 increase in the advertising budget would increase total sales by $25,000. Would you advise the increased advertising outlay? Yes, the advertising budget should be increased.
  2. A public accounting firm employs 10 full-time professionals who provide services to clients. All professional labour compensation is traced directly to clients on a per professional labour-hour basis. Any other costs are included in a single indirect-cost pool (same as overhead) and allocated to individual clients according to billable professional labour-hours. Operating costs and data for the year included the following:

Required: a) By how much, if any, was the overhead cost underapplied or overapplied? b) Prepare a summary journal entry to close any underapplied or overapplied overhead cost to a Cost of Services Provided account.

  • In this case, overhead costs were overapplied implying a credit balance in the Overhead Control account. This credit has to be transferred to the Cost of Services Provided account to reduce it. c) Explain qualitatively and quantitatively (in as much detail as possible) the source(s) of any underapplied or overapplied overhead cost. Qualitative explanations:
  • The predetermined rate ($25 per PLH) was higher than the actual rate of $24 (that is, $1,200,000/50,000). This was caused by the fact that both estimates (costs and professional labour hours) were incorrect. Specifically, number of billable hours increased (25%) more than the overhead costs (20%). Quantitative explanations:
  • One source is the fact that the estimated costs were less than the actual costs by $200,000 (underapplied) while the actual professional labour hours were 10,000 more than the estimated. The latter is an equivalent of $250,000 overapplied (that is, 10, × $2.50). The net result is an overapplied of $50,000.
  1. Jackson Painting paints the interiors and exteriors of homes and commercial buildings. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its activity-based costing system.

Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales. The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale; the balance is collected in the following month. Required: a) Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June. b) Prepare a schedule of expected cash collections for each of the months April, May, and June.

  1. Lido Company's standard and actual costs per unit for the most recent period, during which 400 units were actually produced, are given below: There were no inventory of materials at the beginning or end of the period. Required: From the above information, compute the following variances. Show whether the variance is favourable (F) or unfavourable (U): a) Materials price variance = AQ(AP - SP) = (2.1 × 400)($1.60 - $1.50) = $84 U b) Materials quantity variance

= SP(AQ - SQ) = $1.50((2.1 × 400) - (2.0 × 400)) = $60 U

c) Direct labour rate variance = AH(AR - SR) = (1.4 × 400)($6.50 - $6.00) = $280 U d) Direct labour efficiency variance = SR(AH - SH) = $6.00((1.4 × 400) - (1.5 × 400)) = $240 F e) Variable overhead spending variance = AH(AR - SR) = (1.4 × 400)($3.10 - $3.40) = $168 F f) Variable overhead efficiency variance = SR(AH - SH) = $3.40((1.4 × 400) - (1.5 × 400)) = $136 F

  1. Financial data for Bingham Company for last year appear below:

Product R can be processed beyond the split-off point for an additional cost of $26,000 and can then be sold for $105,000. Product J can be processed beyond the split-off point for an additional cost of $38,000 and can then be sold for $117,000. Product C can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000. Required: Which products should be processed beyond the split-off point? Products R and J should be processed beyond the split-off point. Product C should be sold at split-off. Joint production costs are not relevant to the decision to sell at split-off or to process further.

  1. (Appendix 13A) Prince Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently. (Ignore income taxes in this problem.) Required: a) Machine A will cost $25,000 and will have a useful life of 15 years. Its salvage value will be $1,000, and cost savings are projected at $3,500 per year. Calculate the machine's net present value. b) How much should Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for eight years?

c) Machine C has a projected life of ten years. What is the machine's internal rate of return if it costs $31,296 and will save $6,000 annually in cash operating costs? Would you recommend to Prince Company to purchase Machine C? Explain. The internal rate of return is 14% The machine should be purchased because the internal rate of return is greater than the required rate of return.