ACCT
505 Final Exam Answers
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ACCT 505 Final Exam Answers
1. (TCO C) Silver City, Inc., has
collected the following operating information below for its current month’s
activity. Using this information, prepare a flexible budget analysis to
determine how well Silver City performed in terms of cost control.
Actual Costs Incurred
Static Budget
Activity level (in units)
5,250
5,178
Variable Costs:
Indirect materials
$24,182
$23,476
Utilities
$22,356
$22,674
Fixed Costs:
Administration
$63,450
$65,500
Rent
$65,317
$63,904
2. (TCO D) Globe Co. manufactures
automatic door openers. The company uses 15,000 electronic hinges per year as a
component in the assembly of the openers. You have been engaged by Globe to
assist with an evaluation of whether the company should continue producing the
hinges or purchase them from an outside vendor.
The Accounting Department provided
the following detail regarding the annual cost to produce electronic hinges:
Direct materials
$54,000
Direct labor
60,000
Variable manufacturing overhead
36,000
Fixed manufacturing overhead
90,000
Total costs
$240,000
The Procurement Department provided
the following supplier pricing:
Supplier A price per hinge
$11.00
Supplier B price per hinge
$10.75
Supplier C price per hinge
$10.50
The supplier pricing was obtained in
response to a formal request for proposal (RFP). Procurement has determined
these suppliers meet Globe’s technical specifications and quality requirements.
If Globe stops producing the part
internally, 10% of the fixed manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy
analysis showing the annual advantage or disadvantage (in dollars) of accepting
an outside supplier’s offer. Should the company buy the parts? If so, from
which supplier?
3. (TCO E) Mesa 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 factory overhead totals $18,000 for the year. This 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.
4. (TCO A) The following data (in
thousands of dollars) have been taken from the accounting records of the White
Sands Corporation for the just-completed year.
Sales
1,150
Raw materials inventory, beginning
15
Raw materials inventory, ending
40
Purchases of raw materials
150
Direct labor
250
Manufacturing overhead
300
Administrative expenses
500
Selling expenses
300
Work in process inventory, beginning
100
Work in process inventory, ending
150
Finished goods inventory, beginning
80
Finished goods inventory, ending
120
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?
1. (TCO F) Farmington 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
Percentage complete for materials
80%
Percentage complete for conversion
15%
Units started into production during
the month
6,000
Units transferred to the next
department during the month
5,000
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
1,200
Percentage complete for materials
60%
Percentage complete for conversion
30%
Required: Calculate the equivalent
units for materials (using the weighted-average method) for the month in the
first processing department.
2.
(TCO G) – (Ignore income taxes in
this problem.) Tennessee Co. is considering the production of an exterior paint
that will require the purchase of new mixing machinery. The machinery will cost
$700,000, is expected to have a useful life of 12 years, and is expected to
have a salvage value of $100,000 at the end of 12 years. The machinery will
also need a $40,000 overhaul at the end of Year 7. A $50,000 increase in
working capital will be needed for this investment project. The working capital
will be released at the end of the 12 years. The new paint is expected to
generate net cash inflows of $120,000 per year for each of the 12 years.
Tennessee’s discount rate is 14%.
Required:
a. What is the net present value of
this investment opportunity?
b. Based on your answer to (a)
above, should Tennessee go ahead with the new paint?
3. (TCO B) Winslow Corporation
produces and sells a single product. Data concerning that product appear below.
Selling price per unit
$130.00
Variable expense per unit
$27.30
Fixed expense per month
$165,3
Required:
a) Determine the monthly break-even
in unit sales. Show your work!
b) Determine the monthly break-even
in dollar sales. Show your work!
1. (TCO F) Manchester, Inc. bases
its predetermined overhead rate on the estimated machine hours for the upcoming
year. Data for the upcoming year appear below.
Estimated machine hours
85,000
Estimated variable manufacturing
overhead
$5.55 per machine hour
Estimated total fixed manufacturing
overhead
$951,888
Required:
Compute the company’s predetermined
overhead rate.
2. (TCO F) Memphis Corporation is
preparing its cash budget for February. The budgeted beginning cash balance is
$27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements
total $128,000. The desired ending cash balance is $50,000. The company can
borrow up to $110,000 at any time from a local bank, with interest not due
until the following month.
Required:
Prepare the company’s cash budget
for February in good form. Make sure to indicate what borrowing, if any, would
be needed to attain the desired ending cash balance.
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