REVISION PACKAGE

The purpose of this revision package is to assist you in your preparation for the
Final Exam. You still have to read the relevant Chapters and Units to
familiarize yourself with the concepts. The coverage of the Finals is available
on moodle.

SECTION A: MULTIPLE CHOICE

 You must read the relevant chapters as outlined in the Final Exam format
posted on moodle.
 Attempt ALL the multiple choice questions in s1, 2016 Final exam papers on
your I&A booklet – pages 31-37

SECTION B: PROBLEM SOLVING

TOPIC: STANDARD COSTING – UNIT 11 (CHAPTER 11)

Wagner Company developed the following standard costs for its product for 2011:
WAGNER COMPANY
Standard Cost Card

Cost Elements Standard Quantity × Standard Price = Standard

Cost
Direct materials 4 pounds $ 5 $20
Direct labor 2 hours 10 20
Variable overhead 2 hours 4 8
Fixed overhead 2 hours 2 4
$52

The company expected to work at the 40,000 direct labor hours level of activity and
produce 20,000 units of product.

Actual results for 2011 were as follows:

 18,900 units of product were actually produced.

 Direct labor costs were $362,700 for 37,200 direct labor hours actually worked.
 Actual direct materials purchased and used during the year cost $361,900 for
77,000 pounds.
 Total actual manufacturing overhead costs were $227,000.

Instructions
Compute the following variances for Wagner Company for 2011 and indicate
whether the variance is favorable or unfavorable.

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 1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
a5. Overhead controllable variance.
a6. Overhead volume variance.

TOPIC: PLANNING FOR CAPITAL INVESTMENTS – UNIT 12 (CHAPTER

12)
(A) Vista Company is considering two new projects, each requiring an equipment
investment of $97,000. Each project will last for three years and produce the
following cash inflows:

Year Cool Hot

1 $ 38,000 $ 42,000
2 43,000 42,000
3 48,000 42,000
$129,000 $126,000

The equipment will have no salvage value at the end of its three-year life. Vista
Company uses straight-line depreciation and requires a minimum rate of return of
12%.

Present value data are as follows:

Present Value of 1 Present Value of an Annuity of 1

Period 12% Period 12%
1 .893 1 .893
2 .797 2 1.690
3 .712 3 2.402

Instructions
(a) Compute the net present value of each project.
(b) Compute the profitability index of each project.
(c) Which project should be selected? Why?

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(B) REVISE Problem 12.3A page 544 7th Edition

Note: For Part (a), answer requirements (1) and (2) only.

TOPIC: BUDGETARY PLANNING – UNIT 9 (CHAPTER 9)

(A) Casa Development, Inc. has budgeted sales revenues as follows:
Budgeted Sales Revenues
January $55,000
February 75,000
March 90,000
April 80,000
May 60,000
June 35,000
Past experience has indicated that 80% of sales each month are on credit and that
collection of credit sales occurs as follows: 60% in the month of sale, 30% in the
month following the sale, and 5% in the second month following the sale. The other
5% is uncollectible.

Instructions

Prepare a schedule which shows expected cash receipts from sales for the months
of April, May, and June.

(B) Burr, Inc. provided the following information:

July August
Projected sales $220,000 $260,000
Projected merchandise purchases $150,000 $180,000

 Burr estimates that it will collect 40% of its sales in the month of sale, 35% in the
month after the sale, and 22% in the second month following the sale. Three
percent of all sales are estimated to be bad debts.
 Burr pays 30% of merchandise purchases in the month purchased and 70% in the
following month.
 General operating expenses are budgeted to be $20,000 per month of which
depreciation is $2,000 of this amount. Burr pays operating expenses in the month
incurred.
 Burr makes loan payments of $3,000 per month of which $400 is interest and the
remainder is principal.

Instructions
Calculate Burr's budgeted cash disbursements for August.

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(C) Revise P9-4A from the textbook, 7th edition, page 403

TOPIC: INCREMENTAL ANALYSIS – UNIT 7 (CHAPTER 7)

(A) Make or Buy

Hernandez, Inc. manufactures three models of picture frames for a total of 8,000
frames per year. The unit cost to produce a metal frame follows:
Direct materials $ 6
Direct labor 8
Variable overhead 2
Fixed overhead (70% unavoidable) 5
Total $21

A local company has offered to supply Hernandez the 8,000 metal frames it needs
for $17 each.

Instructions
Create an incremental analysis for the make-or-buy decision.

(B) Special order decision

Carney Company manufactures cappuccino makers. For the first eight months of
2013, the company reported the following operating results while operating at 80%
of plant capacity:

Sales (500,000 units) $90,000,000

Cost of goods sold 54,000,000
Gross profit 36,000,000
Operating expenses 24,000,000
Net income $12,000,000

An analysis of costs and expenses reveals that variable cost of goods sold is $95 per
unit and variable operating expenses are $35 per unit.
In September, Carney Company receives a special order for 40,000 machines at
$135 each from a major coffee shop franchise. Acceptance of the order would
result in $10,000 of shipping costs but no increase in fixed expenses.

Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Carney Company accept the special order? Justify your answer.

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(C) Add or delete

Parino Company has three product lines in its retail stores: books, videos, and music.
The allocated fixed costs are based on units sold and are unavoidable. Demand of
individual products is not affected by changes in other product lines. Results of the
fourth quarter are presented below:

Books Music Videos Total

Units sold 1,000 2,000 2,000 5,000
Revenue $24,000 $48,000 $30,000 $102,000
Variable departmental costs 15,000 22,000 23,000 60,000
Direct fixed costs 3,000 6,000 4,000 13,000
Allocated fixed costs 4,400 8,800 8,800 22,000
Net income (loss) $ 1,600 $11,200 $ (5,800) $ 7,000

Instructions

Prepare an incremental analysis of the effect of dropping the Video product line.

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