University of Connecticut School of Business Managerial Accounting - Accounting 2101 Final Exam - Fall, 2010 - W December 17, 2010

(Some questions have 4 options to select and others have 5) 1. Which of the following costs would be classified as an internal failure cost on a quality report? A) Reliability engineering. B) Materials inspection. C) Rework. D) Warranty repairs. E) Pilot studies/focus-group sessions.

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2. Which of the following measures in a segment report would reflect the segments advertising, which is arranged and paid by headquarters marketing?
Segment Contribution Margin

Profit Margin Controllable by Segment Manager Segment Profit Margin

A)

Yes No No

B)

No No Yes

C)

Yes Yes No

D)

Yes Yes Yes

E)

No Yes Yes

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Use the following to answer question 3: Dunford Company produces three products with the following costs and selling prices: Product X Y Z $80 $60 $70 48 32 40 $32 8 10 $28 $30 46 14 8

Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Machine hours per unit

3. Based on the above data and following assumptions, which of the following statements is correct: A) Assuming there is a limit of 20,000 direct labor hours and no limit on units produced and machine hours, the product most likely selected will be Z B) Assuming there is a limit of 20,000 direct labor hours and no limit on units produced and machine hours, the product most likely selected will be X C) Assuming there no limit on direct labor hours, units produced and machine hours, the product most like selected will be X D) Assuming there is a limit of 30,000 machine hours and no limit on units produced and direct labor hours, the product most likely selected will be Y

4. Fenway Market has two stores, F and G. During February, Store F had a segment margin of $10,000, traceable fixed expenses of $26,000, and variable expenses equal to 55% of sales. Fenway Market as a whole had a combined segment margin of 15%, a contribution margin ratio of 40%, and total sales of $180,000. Based on this information, the traceable fixed expenses in Store G were: A) $19,000. B) $17,000. C) $30,000. D) $36,000.

5. Flexible budgets reflect a company's anticipated costs based on variations in: A) total variable cost B) price. C) quantity sold/produced. D) variable cost / unit. E) total fixed costs.

6. In evaluating the performance of the Assembly-line Manager, which ones of the following costs would least likely be considered? A) Direct materials used. B) Departmental supplies. C) Assembly-line labor. D) Repairs and maintenance. E) Assembly-line supervisor's salary.

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7. Sound, Inc., reported the following results from the sale of 24,000 units of IT-54: Sales $528,000 Variable manufacturing costs 288,000 Fixed manufacturing costs 120,000 Variable selling costs 52,800 Fixed administrative costs 35,200

Rhythm Company has offered to purchase 3,000 IT-54s at $16 each. Sound has available capacity, and the president is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the "full cost" of production is $17. Which of the following correctly notes the change in income if the special order is accepted? A) $3,000 decrease. B) $3,000 increase. C) $12,000 decrease. D) $12,000 increase. E) None of the above.

Use the following to answer question 8: The CD Division of Sound Company makes and sells compact disk players (CDP) that can be sold to outside customers. Budgeted costs next month for the CD Division are as follows: Sales of CDPs to outside customers Selling price per CDP to outside customers Unit variable production costs 2,800 units $185 $120

MaxiSound, another division of Sound Company, would like to buy 1,000 of the CDPs from the CD Division. An outside supplier has offered to sell similar CDPs to MaxiSound for $170 each. 8. Assume that CD Division's monthly production capacity is 3,200 units and the MaxiSound Division will acquire the CDPs from the outside supplier if they are not available from the CD Division. If the CD Division sells 1,000 CDPs to MaxiSound for $170 each, the effect on the monthly profits of Sound Company as a whole will be a: A) $9,000 decrease. B) $74,000 decrease. C) $20,000 increase. D) $11,000 increase.

9. Which of the following correctly lists all the information needed to calculate a material quantity variance? A) Actual units and pounds used B) Actual units, actual pounds per unit used, and the standard price per pound C) Actual pounds, standard pounds, and actual cost per pound. D) Actual units, standard pounds per unit, actual pounds, standard rate per pound. E) Actual units, actual pounds per unit, standard pounds per units, and actual cost per pound.

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10. Listed below are five variances (and possible causes) that are under review by management of Knox Company. Which of the following is least likely to cause the variance indicated? A) Cause: The need to acquire material from a distant supplier since the local supplier ran out Variance: material price variance. B) Cause: The use of a more senior team to work with defective material Variance: labor rate variance. C) Cause: A team of new workers and no consideration for learning curve in the standards Variance: labor efficiency variance. D) Cause: Only able to produce half the units needed due to lack of raw materials in the local area Variance: material quantity variance E) Cause: The introduction of a new manufacturing machine that cuts sheet metal within very precise dimensions resulting in little rework Variance: labor efficiency variance.

11. Nevada, Inc., has two divisions, one located in Las Vegas and the other located in Reno. Las Vegas sells selected goods to Reno for use in various end-products. Assuming that the transfer prices set by Las Vegas do not influence the decisions made by the two divisions, which of the following correctly describes the impact of the transfer prices on divisional profits and overall company profit?
Las Vegas Profit Reno Profit Nevada Profit

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A)

Affected Affected Affected

B)

Affected Affected Not affected

C)

Affected Not affected Affected

D)

Not affected Not affected Affected

E)

Not affected Not affected Not affected

12. What is the total oppor tunity cost over the 12 years for not buildi ng the new produ ct? (do not consi der the time value of mone y)

The Uptight Company was considering building a new product using an advanced technology. Based on an assessment by the project team, the changes to the current financials if the project goes forward would be: Start up cost Year 1 $4 billion Additional loss Year 2 $1billion Additional profit each year Years 3 through 12 $1 billion Assume Uptight decided to not invest in the new product, but rather continually improve the current products. In this case, the changes to the current financial data based on continual improvement are as follows Initial cost Year 1 $2 billion Additional profit each year Year 2 through 12 $500 million

A) $0. B) $4 billion investment cost C) $5 billion profit D) $3.5 billion profit E) some other amount.

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13. What practice is present when divisional managers throughout an organization work to improve their performance, compensation and hopefully lead to a promotion, and at the same time help the company meet its goals? A) Management by exception B) Goal attainment. C) Goal congruence. D) Decentralization of decision making E) Budget development

14. Hitchcock Corporation is in the process of overhauling the performance evaluation system for its Los Angeles Manufacturing Department, which produces and sells parts that are popular in the aerospace industry. Which of the following is least likely to be chosen to evaluate the overall operations of the Los Angeles Department? A) Cost center. B) Profit center. C) Investment center. D) The profit center and investment center are equally likely to be chosen.

15. During the annual budget cycle, Savery Flange, Inc. developed the plan for Low-Cost Flanges. Their plan was to produce 28,000 Flanges throughout the year at a standard variable cost of $11 per unit. At turned out, the actual activity and cost was quite different. The actual results for the year were 30,400 Flanges produced at the variable cost of $12 per unit. Actual and budgeted fixed costs were $40,000. What is the cost variance when comparing actual cost to the incorporated static budget and flexible budget? Static Flexible

A) $30,400U $30,400U

B) $30,400U $56,800U

C) $56,800U $30,400U

D) $56,800U $56,800U

E) None of the above

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Use the following to answer questions 16-17: The Gidney Division's operating data for the past two years is as follows: Return on investment Net operating income Capital Turnover Sales Year 1 12% ? ? Year 2 36% $270,000 3

$1,800,000 ?

Gidney Division's Sales Margin in Year 2 was 150% of the Sales Margin of Year 1. 16. The Capital Turnover for Year 1 was: A) 1.0. B) 0.5. C) 1.5. D) 3.0.

17. The sales for Year 2 were: A) $2,500,000. B) $2,250,000. C) $900,000. D) $1,944,000.

18. Simms Corporation had a favorable direct-labor efficiency variance of $6,000 for the period just ended. The actual wage rate was $0.50 more than the standard rate of $12.00. If the company's standard hours allowed for actual production totaled 9,500, how many hours did the firm actually work? A) 9,000. B) 9,020. C) 9,980. D) 10,000. E) None of the above.

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19. The Magellan Division of Global Corporation, which has income of $250,000 and an asset investment of $1,562,500, is studying an investment opportunity that will cost $450,000 and yield a profit of $67,500. Global Corporation has an ROI of 12%. Assuming that Global uses an imputed interest charge of 14%, would the investment be attractive to: (1) Divisional management if ROI is used to evaluate divisional performance? (2) Divisional management if residual income (RI) is used to evaluate divisional performance? (3) The management of Global Corporation if ROI is used to evaluate company performance? Attractive to Magellan: ROI Attractive to Magellan: RI Attractive to Global: ROI

A)

Yes Yes Yes

B)

Yes No No

C)

Yes No Yes

D)

No Yes Yes

E)

No Yes No

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20. Common costs: A) are not easily related to a segment's activities. B) are easily related to a segment's activities. C) are charged to the operating segments of a company. D) are not charged to the operating segments of a company. E) are best described by characteristics "A" and "D" above.

21. When a flexible budget is used, a decrease in the activity level would: A) increase total fixed costs. B) increase variable cost per unit. C) decrease variable cost per unit. D) decrease total costs. E) None of the above.

22. The ROI calculation will indicate: A) the percentage of each sales dollar that is invested in assets. B) the sales dollars generated from each dollar of income. C) how effectively a company used its invested capital. D) the invested capital generated from each dollar of income. E) the overall quality of a company's earnings.

23. A factory that makes a part has significant idle capacity. If another division offers to buy 3,000 parts and the factory accepts the offer, the factory's opportunity cost of making this part is equal to: A) the variable manufacturing cost per unit. B) the fixed manufacturing cost per unit. C) the semivariable cost per unit. D) the total manufacturing cost per unit. E) zero.

24. Variances are computed by taking the difference between which of the following? A) Product cost and period cost. B) Actual cost and differential cost. C) Price factors and rate factors. D) Actual cost and standard cost. E) Product cost and standard cost.

25. Decentralized firms can delegate authority by structuring an organization into responsibility centers. Which of the following organizational segments is most like a totally independent, standalone business which gives the manager "free rein" in running the business and acquiring any needed facilities or manufacturing equipment. A) Cost center. B) Revenue center. C) Profit center. D) Investment center. E) Contribution center.

26. Zang Enterprises had a sales margin of 7%, sales of $5,000,000, and invested capital of $4,000,000. The company's ROI was: A) 5.60%. B) 8.75%. C) 11.43%. D) 17.86%. E) some other figure.

27. The book value of equipment currently owned by a firm is an example of a(n): A) future cost. B) differential cost. C) comparative cost. D) opportunity cost. E) sunk cost.

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Use the following to answer questions 28-29: Dockery Company makes two products from a common input. Joint processing costs up to the split-off point total $48,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Allocated joint processing costs Sales value at split-off point Costs of further processing Sales value after further processing Product X $19,200 $24,000 $24,500 $48,900 Product Y Total $28,800 $48,000 $36,000 $16,500 $55,700 $60,000 $41,000 $104,600

28. What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off point? A) $3,200 B) $10,400 C) $39,200 D) $46,400 E) None of the above

29. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? A) $24,400 B) $43,700 C) $19,200 D) $48,900 E) None of the above

Use the following to answer questions 30-31: The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: $65,560 Material price variance: $5,960 unfavorable Total materials variance: $22,360 unfavorable Standard cost per pound of material: $4 Standard cost per direct labor hour: $5 Actual direct labor hours: 6,500 hours Labor efficiency variance: $3,500 favorable Standard number of direct labor hours per unit of Roff: 2 hours Total labor variance: $400 unfavorable

30. The total number of units of Roff produced during August was: A) 10,800. B) 14,400. C) 3,600. D) 6,500. E) None of the above

31. The standard material allowed to produce one unit of Roff was (assume actual units is 5400): A) 1 lb. B) 4 lbs. C) 3 lbs. D) 2 lbs. E) None of the above.

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32. Barber Corporation uses an imputed interest rate of 13% in the calculation of residual income. Division X, which is part of Barber, had invested capital of $1,200,000 and an ROI of 16%. On the basis of this information, X's residual income was: A) $24,960. B) $36,000. C) $156,000. D) $192,000. E) some other amount.

33. Which of the following would not be considered if a company desires to establish a series of practical manufacturing standards? A) Production time lost during unusual machinery breakdowns. B) Normal worker fatigue. C) Freight charges on incoming raw materials. D) Production time lost during setup procedures for new manufacturing runs. E) The historical 2% defect rate associated with raw material inputs.

34. A standard cost: A) is the "true" cost of a unit of production. B) is a budget for the production of one unit of a product or service. C) can be useful in calculating equivalent units. D) is normally the average cost within an industry. E) is almost always the actual cost from previous years.

35. A flexible budget for 15,000 hours revealed variable manufacturing cost of $90,000 and fixed manufacturing cost of $120,000. The budget for 25,000 hours would reveal total costs of: A) $210,000. B) $270,000. C) $290,000. D) $350,000. E) some other amount.

Use the following to answer questions 36-37: Wrap, Incorporated's income statement for the most recent month is given below. Sales Variable expenses Contribution margin Traceable fixed expenses Segment margin Common fixed expenses Net operating income Total Store A Store B $1,200,000 $400,000 $800,000 768,000 432,000 304,000 128,000 68,000 $ 60,000 288,000 480,000 112,000 320,000 84,000 220,000 $ 28,000 $ 100,000

For each of the following questions, refer back to the original data.

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36. If Store B sales increase by $60,000 with no change in fixed expenses, the overall company net operating income should: A) increase by $7,500. B) increase by $15,000. C) increase by $24,000. D) increase by $36,000. E) None of the above

37. The marketing department believes that a promotional campaign at Store A costing $10,000 will increase sales by $30,000. If the campaign is adopted, overall company net operating income should: A) decrease by $1,600. B) decrease by $11,600. C) increase by $11,600. D) increase by $20,000. E) None of the above

38. In setting a transfer price, which of the following should not be considered? A) Fixed production costs of the buying division. B) Production capacity of the selling division. C) Product demand from outside customers. D) Costs eliminated by internal transfers.

39. Hayes Division has been stagnant over the past five years, neither growing nor contracting in size and profitability. Investments in new property, plant, and equipment have been minimal. Would the division's use of total assets (valued at net book value) when measuring ROI result in (1) using numbers that are consistent with those on the balance sheet and (2) a rising ROI over time?
Consistent with Numbers on the Balance Sheet? Produce a Rising Return on Investment Over Time?

A)

Yes Yes

B)

Yes No

C)

No Yes

D)

No No

E)

Yes Need more information to judge

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40. Victoria, Inc., recently completed 52,000 units of a product that was expected to consume five pounds of direct material per finished unit. The standard price of the direct material was $9 per pound. If the firm purchased and consumed 268,000 pounds in manufacturing (cost = $2,304,800), the direct-materials quantity variance would be figured as: A) $72,000F. B) $72,000U. C) $107,200F. D) $107,200U. E) none of the above.

41. Flower Company, which is operating at capacity, desires to add a new service to its rapidly expanding business. The service should be added as long as service revenues exceed: A) variable costs. B) fixed costs. C) the sum of variable costs and fixed costs. D) the sum of variable costs and any related opportunity costs. E) the sum of variable costs, fixed costs, and any related opportunity costs.

42. When using a balanced scorecard, which of the following is typically classified as an internal-operations performance measure? A) Cash flow. B) Number of customer complaints. C) Employee training hours. D) Percent of sales that are new products this year. E) Number of suppliers used.

43. The Kelso Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses:

Eastern Western

Sales $450,000 $400,000

Variable expenses 225,000 150,000

Traceable fixed expenses 130,000 105,000

Allocated common corporate expenses 120,000 95,000

Net operating income (loss) $(25,000) $ 50,000

Management of Kelso is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, the its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of the Eastern Division would result in an overall company net operating income (loss) of:

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A) $50,000. B) ($70,000). C) $25,000. D) ($75,000).

44. Courtney purchased and consumed 50,000 gallons of direct material that was used in the production of 11,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of five gallons. If a review of Courtney's accounting records at the end of the period disclosed a material price variance of $5,000U and a material quantity variance of $3,000F, determine the actual price paid for a gallon of direct material. A) $0.50. B) $0.60. C) $0.70. D) An amount other than those shown above. E) Not enough information to judge.

45. All of the following actions will increase ROI except: A) an increase in sales revenues and profits. B) a decrease in operating expenses. C) a decrease in a company's invested capital. D) a decrease in the number of units sold. E) an improvement in manufacturing efficiency.

46. Consider the following statements about variance investigation: (I) Variance investigation involves a look at only unfavorable variances. (II) Variance investigation is typically based on a cost-benefit analysis. (III) Variance investigation is often performed by establishing guidelines similar to the following: Investigate variances that are greater than $X or greater than Y% of standard cost. Which of the above statements is (are) true? A) I only. B) II only. C) III only. D) II and III. E) I, II, and III.

47. Consider the following costs and decision-making situations: (I) The cost of existing inventory, in a keep vs. disposal decision. (II) The cost of special electrical wiring, in an equipment acquisition decision. (III) The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision. Which of the above costs is (are) relevant to the decision situation noted? A) I only. B) II only. C) III only. D) I and II. E) II and III.

48. Baxter Corporation's master budget calls for the production of 5,000 units of its product monthly. The master budget includes indirect labor of $144,000 annually; Baxter considers indirect labor to be a variable cost. During the month of April, 4,500 units of product were produced, and indirect labor costs of $10,100 were incurred. A performance report utilizing flexible budgeting would report a variance for indirect labor of: A) $1,900 unfavorable. B) $700 favorable. C) $1,900 favorable. D) $700 unfavorable.

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49. Barrus Company makes 30,000 motors to be used in the productions of its power lawn mowers. The manufacturing cost per motor at this level of activity is as follows: Direct materials $9.50

Direct labor $8.60

Variable manufacturing overhead $3.75

Fixed manufacturing overhead $4.35

This motor has recently become available from an outside supplier for $25 per motor. If Barrus decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Barrus decides to continue making the motor, how much higher or lower will the company's net operating income be than if the motors are purchased from the outside supplier? A) $36,000 lower. B) $207,000 higher. C) $94,500 higher. D) $130,500 higher.

50. Broderick Corporation has been steadily declining in their rating as a quality producer versus competition. The president after reviewing the latest report decided to change to a Total Quality Program. There was intense employee training, acquisition of flexible manufacturing equipment with extremely fine tolerances, and a resultant reduced need for product inspections. If the procedures and programs functioned as intended, what is likely true about the amounts the company incurred for prevention cost, appraisal cost, and external failure cost?
Prevention Cost Appraisal Cost External Failure Cost

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A) Increase
Increase Increase

B) Increase
Decrease Decrease

C) Increase
Decrease Increase

D) Increase
Decrease Decrease

E) Decrease
Decrease Decrease

Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. C B C A C E D D D D B C C A C C B A D E D C E D D B E A A C D B A B B C A A A B D E B C

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45. 46. 47. 48. 49. 50.

D D B B C B