acctba3 - comprehensive reviewer

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ACCTBA3 T1 2013-2014 / Kenneth Drexel S. Bihis1

ACCTBA3 COMPREHENSIVE REVIEWERFundamentals of Accounting Part IIIACCTBA3 V24, T1 2013-2014Kenneth Drexel S. Bihis, CPA

UNIT I. INTRODUCTION TO MANAGEMENT ACCOUNTING

1. Which of the following persons would occupy a line position in a department store?I. Sales managerII. Manager, furniture departmentIII. Manager, advertising departmentIV. Manager, personnel department

A. Only IB. Only I and II C. Only I, II, IIID. I, II, III, IV

2. The controller occupies:A. a line position.B. a staff position. C. neither a line nor a staff position, since the accounting department must be independent.D. both a line and a staff position.

3. Decentralization refers to:A. reporting for the company as a whole.B. focusing reporting on parts of the company.C. the delegation of decision-making authority throughout an organization.D. differences in organizations.

4. _________________ is an example of a staff position.A. Sales manager for a manufacturerB. President of a merchandising companyC. Store manager for Best BuyD. Human resource manager for a community college

5. Which of the following is NOT one of the three major customer value propositions discussedin the text?A. customer intimacyB. operational excellenceC. zero defects

D. product leadership

6. Dorra Corporation manufactures lawnmowers in five work stations. Dorra's weekly demand is5,000 mowers but Dorra can only produce 4,200. According to the theory of constraints, toincrease production output Dorra would benefit the most by concentrating improvement effortson the:A. first work station.B. last work station.C. fastest work station.D. slowest work station.

7. The management function of directing and motivating is:A. providing a framework for management to have criteria to terminate employees when needed.B. requiring a department to have perfect quality control.C. coordinating a company's diverse activities and human resources to produce a smooth-runningoperation.D. developing a complex performance ranking system to give a few high performers extrabonuses.


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UNIT II. COST CONCEPTS AND CLASSIFICATIONS

Period costs Costs that are not directly necessary in the manufacturing business.

Product costs relates to the costs that are directly necessary in the manufacturing business.

Cost Item Product Costs Period Costs Cost BehaviorDM DL MOH SE AE V FDirect materials used X XIndirect materials used X XDirect labor X XIndirect labor X XDepreciation of factory equipment X XDepreciation of office equipment X XUtilities of corporate headquarters X XRent of production facility X XSales and commissions expense X XAdvertising expense X XWages of production workers X XSalaries of office employees X X

PROBLEM 1: IRONMAN Company presents the following accounts for its 2 nd year ofoperations this 2011:

Selling expenses 140,000Raw materials inventory, January 1 90,000Raw materials inventory, December 31 60,000Utilities, factory 36,000Direct labor cost 150,000Depreciation, factory 162,000

Purchases of raw materials 750,000Indirect materials used 20,000Sales 2,500,000Insurance, factory 40,000Supplies, factory 15,000Administrative expenses 270,000Indirect labor 10,000Maintenance, factory 87,000Work in process inventory, January 1 180,000Work in process inventory, December 31 100,000Finished goods inventory, January 1 260,000Finished goods inventory, December 31 210,000

Additional information:a) Manufacturing overhead applied is 150% of direct labor cost.b) The difference between the applied and actual overhead is buried down to Cost of goods

sold only.

Prepare the following:1) Cost of Goods Manufactured2) Adjusted Cost of Goods Sold3) Income Statement

Pro-Forma Solution:Raw materials, January 1 90,000

Purchase of materials 750,000Raw materials, December 31 (60,000)Less: Indirect materials (20,000)Direct materials used 760,000Direct labor 150,000Manufacturing overhead (applied) [150% x ] 225,000Manufacturing costs 1,135,000Work in process, January 1 180,000


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Work in process, December 31 (100,000)Cost of goods manufactured 1,215,000

Cost of goods manufactured 1,215,000Finished goods, January 1 260,000Cost of goods manufactured available for sale 1,475,000Finished goods, December 31 (210,000)Unadjusted cost of goods sold 1,265,000Add/Less: Under/overapplied overhead* 145,000Adjusted cost of goods sold 1,410,000

Actual overhead costs:[1] Utilities, factory[2] Depreciation, factory[3] Indirect materials used[4] Indirect labor[5] Insurance, factory[6] Maintenance, factory[7] Supplies, factory

Total 370,000

Actual manufacturing costs 370,000Applied manufacturing costs 225,000Over/Underapplied 145,000*

Sales 2,500,000Adjusted Cost of Goods Sold 1,410,000Gross Profit 1,090,000

Selling and Administrative expenses:Selling expenses (140,000)Administrative (270,000)

Net income

410,000

Net income: P 680,000

UNIT III. COST SYSTEMS

PROBLEM 2: RIFF-OFF INC . has provided the following data for the month of October. Therewere no beginning inventories; consequently, the direct materials, direct labor and manufacturingoverhead applied listed below are all for the current month.

Work inProcess

FinishedGoods

Cost of GoodsSold

Direct materials 6,320 15,860 80,080Direct labor 5,450 15,250 77,000Manufacturing overhead 5,840 10,950 56,210

17,610 42,060 213,290

Manufacturing overhead for the month was underapplied by P8,000.

The company allocates any over/underapplied overhead among work in process, finished goodsand cost of goods sold at the end of the month on the basis of the overhead applied during themonth in those accounts .


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Allocation % OverheadWork in process 5,840 8% 640Finished goods 10,950 15% 1200Cost of goods sold 56210 77% 6160

73000 8,000PROBLEM 3: BOOM CORPORATION used a predetermined overhead rate during the year justcompleted of P3.50 per direct labor-hour, based on an estimate of 22,000 direct labor-hours to beworked during the year. Actual manufacturing overhead cost during the year were P30,200.Direct labor cost totaled P18,000 with a labor rate of P5.00 per DL-hour.

How much is the over/underapplied?

Actual MOH P 30,200Applied MOH (P3.50 x 3,600 hours) P 12,600

Underapplied by P 17,600

UNIT IV. COST BEHAVIOR

PROBLEM 4: Baaca Corporation has provided the following production and total cost data fortwo levels of monthly production volume.

Production volume 6,000 units 7,000 unitsDirect materials P 340,200 P 396,900Direct labor P 81,000 P 94,500Manufacturing overhead P 100,320 P 101,500

Pro-forma solution: (Change in cost / Change in activity)

Variable manufacturing overhead per unit:

Answer: P 1.18

Fixed manufacturing overhead:

Answer: P 93,240

Cost equation:

Y = 93,240 + 1.18X

PROBLEM 5: I SAW THE SIGN COMPANY's activity for the last six months is as follows:

MachineHours

ElectricalCost

July 2,000 2,560August 3,000 2,230September 2,400 1,750October 1,800 1,520November 1,800 1,450December 2,100 1,600


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Assume that estimated machine hours for the next month will be 1,960 hours.*

HIGH-LOW RULE:CHOOSE THE ONE WITH THE HIGHEST/LOWEST ACTIVITY (X)IN CASE OF TIE, CHOOSE THE ONE WITH THE HIGHEST/LOWEST COST (Y)

Pro-forma solution: (Change in cost / Change in activity)

Variable manufacturing overhead per unit:

Answer: P 0.65

Fixed manufacturing overhead:

Answer: P 280

Cost equation:

Y = 280 + 0.65X

UNIT V: CVP ANALYSIS

PROBLEM 6 : SPHERES ENTERPRISES INC. produces toy cars whose selling price is P200per unit and whose variable cost per unit is P68. The companys fixed monthly fixed expense isP514,800. The company is currently selling at 5,000 units.

1. What is the break-even point in units and in pesos? 3,900 units; P 78 0,000

2. What is the margin of safety in pesos and in %? P 220,000; 22%3. Assume a target profit of P45,000, how many units should it sell? 4,241 units

CVP FORMULA:

BREAK-EVEN POINT (SALES) = FIXED EXPENSES/CM %BREAK-EVEN POINT (UNIT) = FIXED EXPENSES/CM per unit

TARGET SALES POINT (SALES) = (FIXED EXPENSES + TARGET PROFIT)/CM %TARGET SALES POINT (UNIT) = (FIXED EXPENSES + TARGET PROFIT)/CM per unit

MARGIN OF SAFETY = ACTUAL SALES BEP SALESMARGIN OF SAFETY % = MARGIN OF SAFETY/ACTUAL SALES

DEGREE OF OPERATING LEVERAGE = CONTRIBUTION MARGIN/ NET INCOME

Solution:


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PROBLEM 6: SUITS CO. produces and sells two products. Data concerning those products forthe most recent month appear below:

ProductPearson

ProductHardman

Sales 27,000 22,000Variable expenses 10,260 9,340

Fixed expenses for both products is P10,000 in total.

CM Pearson CM Hardman CM TotalSales 100% 27000 100% 22000 100% 49000Variable expenses 38% 10260 42.45% 9340 40% 19600Contribution margin 62% 16740 57.55% 12660 60% 29,400Fixed expenses 10,000Net income 19,400

Break-even Sales Mix 55.10% Break-even sales: 44.90% 16,666.67

Pearson 9,183.67Hardman 7,482.99

PROBLEM 7. WONDER COMPANY provided its functional/traditional income statement forits 2013 operations.

WONDER COMPANYIncome Statement

For the Year Ended December 31, 2013

Sales 1,200,000Cost of goods sold (540,000)Gross margin 660,000Selling expenses (340,000)Administrative expenses (120,000)Total net income 200,000

The companys selling expenses is 65% fixed while administrative expenses is one-thirdvariable .

Prepare a contribution format income statement:

WONDER COMPANYContribution Format - Income StatementFor the Year Ended December 31, 2013

Sales 1,200,000Variable expenses (699,000)Contribution margin 501,000Fixed expenses 301,000Total net income 200,000

Variable expenses = 540,000 + (35% x 340,000) + (1/3 x 120,000) = 699,000Fixed expenses = (65% x 340,000) + (2/3 x 120,000) = 301,000


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UNIT VI: STANDARD COSTING

PROBLEM 8: Lido Company's standard and actual costs per unit for the most recent period,during which 400 units were actually produced, are given below:

Materials:Standard cost is 2 feet which costs P1.50 per foot. Actual cost incurred is P1,344 at P1.60.Assume production is equal to purchases.

Labor:The standard for the company was to use 1.5 hours at P6.00 per hour. Actual labor costs is P3,640at P6.50 per hour.

Variable overheadStandard for VOH is 1.5 hours at P3.40 per hour. Actual VOH is P1,736.

Required:

From the foregoing information, compute the all the variances. Show whether the variance isfavorable (F) or unfavorable (U):

MATERIAL VARIANCES

AQAP 840 x 1.60

AQSP 840 x 1.50

SQSP 800 x 1.50

LABOR VARIANCESAHAR 560 x 6.50

AHSR 560 x 6.00

SHSR 600 x 6.00

VARIABLE OVERHEAD VARIANCESAHAR 560 x 3.1

AHSR 560 x 3.4

SHSR 600 x 3.4

PROBLEM 9. DREAM TEAM CO. uses a standard cost system. Information for rawmaterials for Product M-11 for the month of October follows:

Standard price per pound of raw materials P 1.60Actual purchase price per pound of raw materials P 1.55

Actual quantity of raw materials purchased 2,000 poundsActual quantity of raw materials used 1,900 poundsStandard quantity allowed for production 1,800 pounds


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MATERIAL VARIANCES

AQAP 2,000 x 1.55

AQSP- Purchased 2,000 x 1.60

AQSP - Used 1,900 x 1.60

SQSP 1,800 x 1.60

UNIT VII: RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING

PROBLEM 10. In January, the Universal Solutions Division of ZIMA CORPORATION had average operating assets of P520,000 and net operating income of P97,600. The companyuses residual income, with a minimum required rate of return of 18%, to evaluate theperformance of its divisions.

1. What is the Return on Investment? 18.77% 2. What is the residual income? P 4,000

ROI/RESIDUAL INCOME FORMULA:ROI = MARGIN X TURNOVERMARGIN = NET INC/ SALESTURNOVER = SALES/AVE. ASSETSRESIDUAL INCOME: ACTUAL INCOME ( AVE. ASSETS X MIN. REQ RETURN)

PROBLEM 11: Kulp Corporation has two major business segments-East and West. In July, theEast business segment had sales revenues of P900,000, variable expenses of P441,000, andtraceable fixed expenses of P171,000. During the same month, the West business segment hadsales revenues of P450,000, variable expenses of P234,000, and traceable fixed expenses ofP45,000. There was a common fixed expenses totaled P321,000.

Compute for the segment margin of East and West and compute for their total net income.

East West TotalSales 900,000 450,000 1,350,000Variable expenses 441,000 234,000 675,000Contribution margin 459,000 216,000 675,000Traceable expenses 171,000 45,000 216,000Segment margin 288,000 171,000 459,000

Common fixed costs - - 321,000Net income 138,000

PROBLEM 12: Division A of Harkin Company has the capacity for making 3,000 motors permonth and regularly sells 1,950 motors each month to outside customers at a contribution marginof P62 per motor. The variable cost per motor is P35.70. Division B can buy the motors at P60.00from an outside supplier. Division B of Harkin Company would like to obtain 1,400 motors eachmonth from Division A.

Lowest acceptable price: Variable Cost + Opportunity Cost or Lost Sales

Answer: P 51.20 (35.70 + (350 x 60/ 1400 units) = P51.20)

Highest acceptable price: Market Price

Answer: P 60.00


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Lost Sales Computation:

Total capacity 3,000Total demand from Division B 1,400Remaining units for regular customers 1,600

Demand from regular customers 1,950Remaining units for regular customers 1,600Lost customers 350

UNIT VIII: RELEVANT COSTING

PROBLEM 13. The management of DLSU SYSTEMS owns two segments, Animo.Sys andMLS. Data from the company's segment contribution income statement follows:

Animo.Sys MLSSales P 800,000 P 900,000Variable expenses P 440,000 P 650,000

Fixed manufacturing expenses P 248,000 P 312,000Fixed selling expenses P 184,000 P 201,000

All fixed expenses of the company are fully allocated to products in the company'saccounting system. Further investigation has revealed that P201,000 of the fixedmanufacturing expenses and P156,000 of the fixed selling and administrative expenses of theAnimo.Sys segment are avoidable if the Animo.Sys is discontinued.

Lost Contribution Margin (360,000)Avoidable Costs 357,000Opportunity Costs 0Net benefit/disadvantage (3,000)

Decision: Continue Animo.Sys

PROBLEM 14: Creelman Company makes four products in a single facility. Data concerningthese products appear below:

A B C DSelling price 25.30 28 23.10 27.50VOH per unit 13.20 13 9.30 11.00Variable selling cost 1.50 2.20 3.40 2.70Milling machine min. 1.90 2.70 2.10 2.60Monthly demand 4000 1000 1000 1000

The milling machines are potentially the constraint in the production facility. A total of 13,000minutes are available per month on these machines.

Rank the following products in accordance with the highest contribution margin per constrainedresource.

A B C DContribution margin 10.60 12.80 10.40 13.80Milling machine min. 1.90 2.70 2.10 2.60CM per constrainedresource

5.5 4.74 4.95 5.31

Ranking 1s 4 3rd 2nd

PROBLEM 15: Manning Co. manufactures and sells trophies for winners of athletic and otherevents. Its manufacturing plant has the capacity to produce 18,000 trophies each month; currentmonthly production is 15,300 trophies. The company normally charges P141 per trophy. Costdata for the current level of production are shown below:

Variable costs:Direct materials 948,600


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Direct labor 290,700Selling and administrative - 41,310

Fixed costs:Selling 579,870Administrative 134,640

The company has just received a special one-time order for 900 trophies at P73 each. For thisparticular order, no variable selling and administrative costs would be incurred. This order wouldalso have no effect on fixed costs.

Incremental revenue(73 x 900 units) 65,700

Incremental costs(81* x 900 units) 72,900

------------------------Incremental profit (7,200)

Decision: Reject

*948600+290700 /15300 = 81*

PROBLEM 16: Rowena Corporation manufactures laser printers. Rowena currentlymanufactures the 32,000 imaging drums that it uses in its printers. The annual costs tomanufacture these 32,000 drums are as follows:

Variable manufacturing cost P736,000, P23 per drumFixed manufacturing cost 2,080,000, P65 per drum

Hardware Solutions, Inc. has offered to provide Rowena with all of its imaging drum needs for

P72 per drum. If Rowena accepts this offer, 70% of the fixed manufacturing cost above could betotally eliminated. Also, Rowena will be able to use the freed up space to generate P240,000 ofincome each year in the production of alternative products.

Cost to make:

Variable costs 736,000Avoidable costs(70% x 2080,000) 1,456,000Opportunity costs 240,000Cost to make 2,432,000

Cost to buy (32,000 x 72) 2,304,000

Decision: Buy

PROBLEM 17. CEEDEE CO. produces products X, Y and Z from a single raw material inputin a joint production process. Budgeted date for the next month is as follows:

X Y ZUnits produced (c) 1,500 2,000 3,000Per unit sales value at split-off (a) P 19 P 21 P 24Added processing costs per unit (d) P7.00 P7.50 P7.00Per unit sales value if processed further (b) P 29 P 29 P 30

The cost of the joint raw material input is P 149,000. Which of the products should be sell as is orprocessed further?

X Y ZUnits 1,500 2,000 3,000Incremental revenue ( [b-a] x c) 15,000 16,000 18,000Incremental cost (d x c) 10,500 15,000 21,000Incremental profit 4,500 1,000 (3,000)Decision Process Process Sell

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