UCFBusiness-Downtown PMBA

ACCOUNTING 6425FINAL EXAM REVIEW

FALL 2013

Indicate the best answer to each of the following questions (each question is worth 3 points – 102 points total.) Calculations must be provide for the award of partial credit:

Use the following to answer questions 1-4:

Europa Company manufactures only one product. Presented below are direct labor costs for its operation in November.

Standard direct labor hours per unit of product

3.20

Number of finished units produced 6,500Standard rate per direct labor hour $19.20Total direct labor payroll for the period

$359,424

Actual wage rate per direct labor hour worked

$16

1. The actual direct labor hours are: A) 18,720.B) 19,200.C) 20,800. D) 22,400. E) 22,464.

2. The total standard direct labor hours in November are: A) 18,720.B) 19,200.C) 20,800. D) 22,400. E) 22,464.

3. The direct labor rate variance is: A) $26,624.00 unfavorable. B) $31,948.80 unfavorable. C) $39,936.00 favorable.

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D) $71,884.80 favorable. E) $103,833.60 favorable.

4. The direct labor efficiency variance is: A) $26,624.00 unfavorable. B) $31,948.80 unfavorable. C) $39,936.00 favorable. D) $71,884.80 favorable. E) $103,833.60 favorable.

5. Bilbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit SBU for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included depreciation and maintenance on the equipment, materials, supplies, and labor.Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month. In April, the costs were $32,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables.

The amount of the joint cost that should have been allocated to the Pork Palace in April is?

Use the following to answer questions 6 & 7:

Rane Inc. manufactures hair brushes that sell at wholesale for $3.50 per unit. Budgeted production in both 2003 and 2004 was 3,600 units. There was no beginning inventory in 2003. The following data summarized the 2003 and 2004 operations:

2003 2004Units sold 3,250 3,350Units produced 3,600 3,000Costs:Variable factory per unit

$ 0.80

$ 0.80

Fixed factory overhead

$ 1,620.00

$ 1,620.00

Variable marketing $ $

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1.00 1.00Fixed administrative $

800.00$

800.00

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6. Determine income under full (absorption) costing for 2003:

7. Determine income under variable costing for 2003:

8. The objectives of management control of the manager include: A) Quantity and quality. B) Intensity and breadth. C) Consistency and comparability. D) Motivation, incentive and fairness. E) Identification, response and performance.

9. A unit of an organization is referred to as a profit SBU or profit center if it has: A) Authority to make decisions affecting the major determinants of

profit, including the power to choose its markets and sources of supply.

B) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital.

C) Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply.

D) Authority to provide specialized support to other units within the organization.

E) Responsibility for combining material, labor, and other factors of production into a final output.

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10 .Return on investment (ROI) encourages units to invest only in projects that earn: A) Greater than borrowing costs. B) On a sustained basis. C) Higher than the unit’s current ROI. D) Less than the unit's current ROI. E) None of the above.

11. A company's return on investment is affected by a change in:

Asset Return Turnover on Sales A) Yes Yes B) Yes No C) No No D) No Yes E) Yes Not likely

A) A Above.B) B Above.C) C Above.D) D Above.E) E Above.

12. Depreciation expenses are not cash payments and are by themselves: A) Significant in capital budgeting. B) Irrelevant in capital budgeting. C) Relevant in capital budgeting because of extra taxes paid. D) Irrelevant in capital budgeting because of fewer taxes paid. E) Seldom significant in amounts.

13. Working capital commitment affects the capital project cash flow as: A) Cash outflow during the initiation stage only. B) Cash inflow during the final disposal stage only. C) Cash outflow during the initiation stage and cash inflow during the

final disposal stage. D) Cash outflow during the operation stage. E) Cash inflow during the operation stage.

14. The flexible budget is a budget that adjusts: A) Revenues for sales dollar changes. B) Revenues and expenses for changes in output achieved. C) Expenses for changes in output achieved. D) For uncontrollable external conditions. E) For uncontrollable internal conditions.

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15. Without knowing its required rate of return for use in the evaluation of capital investment projects, a firm will be prohibited from calculating a project's:

Payback Period Book Rate of Return Net Present Value Internal Rate of ReturnA) Yes Yes Yes YesB) No No Yes YesC) No Yes No YesD) No No Yes No

16. Nelson Inc. is considering the purchase of a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Nelson can sell all that it could manufacture for the next ten years, the government exempts taxes on profits from new investments. This legislation will most likely remain in effect in the foreseeable future. The equipment is expected to have ten years of useful life with no salvage value. The firm uses the double-declining-balance depreciation method and switches to the straight-line depreciation method in the last four years for a 10-year asset. Nelson uses a rate of 10% in evaluating its capital investments. The net cash inflows are expected to be as follows:

CashYea

rInflow

1 $40,000

2 70,0003 100,00

04 170,00

05 200,00

06 250,00

07 230,00

08 200,00

09 100,00

010 40,000

. The payback period is: A) 4.15 years. B) 5.08 years. C) 6.42 years. D) 6.61 years.

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E) 8.70 years.

17. Use of net book value in valuing investment in operating plant assets, in contrast to using current value, will:

A) have no appreciable effect on ROI. B) have no appreciable effect on plant asset book value. C) have no appreciable effect on operating income. D) usually understate ROI. E) usually overstate ROI.

18. Division A, which is operating at capacity, produces a component that it currently sells in a perfectly competitive market for $25 per unit. At the current level of production, the fixed cost of producing this component is $8 per unit and the variable cost is $10 per unit. Division B would like to purchase this component from Division A. The price that Division A should charge Division Y for this component is:

A) $ 10 per unit. B) $ 18 per unit. C) $ 20 per unit. D) $ 25 per unit.

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19.Kingston Company, which needs 10,000 units of a certain part to be used in its production cycle, can make or buy the part. If Kingston buys the part from Utica Company, Kingston could not use the released facilities in another manufacturing activity within the coming year. 60% of the fixed overhead applied will continue regardless of which decision is made. The following information is available: Cost to Kingston to make the part:

   

In deciding whether to make or buy the part, Kingston's total relevant costs to make the part are:  

A. $342,000.

B. $480,000

C. $530,000.

D. $570,000.

E. Some other amount.

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20.For the past 12 years, the Blue Company has produced the small electric motors that fit into its main product line of dental drilling equipment. As material costs have steadily increased, the controller of the company is reviewing the decision to continue to make the small motors and has identified the following facts:

(1) The equipment used to manufacture the electric motors has a net book value (NBV) of $150,000.(2) The space now occupied by the electric motor manufacturing department could be used to eliminate the need for storage space now being rented.(3) Comparable units can be purchased from an outside supplier for $59.75.(4) Four of those who work in the electric motor manufacturing department would be terminated and given eight weeks' severance pay.(5) A $10,000 unsecured note is still outstanding on the equipment used in the manufacturing process.

Which of the items above are relevant to the controller's decision analysis?  

A. 1, 3, and 4.

B. 2, 3, and 4.

C. 2, 3, 4, and 5.

D. 1, 2, 4, and 5.

E. 4 and 5

 

21.For a typical capital investment project, the bulk of the investment-related cash outflow occurs:  

A. During the initiation stage of the project (i.e., at time period 0).

B. During the operation stage of the project.

C. Either during the initiation stage or the operation stage.

D. During neither the initiation stage nor the operation stage.

E. Evenly during all three stages: initiation, operation, and final disposal.

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22.

In making capital budgeting decisions, the principal focus is on:  

A. After-tax cash flows only.

B. Timing of the cash flows only.

C. After-tax cash flows and the timing of these cash flows.

D. Accounting-based measures of revenues and expenses.

E. Nonfinancial performance indicators.

23.A composite of the cost of various sources of funds comprising a firm's capital structure is its:  

A. Internal rate of return (IRR).

B. Weighted-average cost of capital (WACC).

C. Book rate of return.

D. Modified internal rate of return (MIRR).

E. Accounting rate of return, after tax.

24.A 15% internal rate of return (IRR) on a proposed capital investment indicates all of the following except:  

A. The actual (economic) rate of return on the project is 15%.

B. Use of a 15% discount rate would result in an estimated project NPV of zero.

C. An acceptable capital project if the cost of capital is 16 percent or higher.

D. A positive net present value (NPV) if the cost of capital is less than 15%.

E. An acceptable project, in a present value sense, if the discount rate is less than 15%.

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25.What is the present value of $1 received five years from now (rounded to two decimal places) if the discount rate is 12%?  

A. $1.76.

B. $0.57.

C. $1.00.

D. $1.60.

E. $0.89.

26. Madson Company is analyzing several proposed investment projects. The firm has resources only for one project.

   

The company uses the payback period method for making capital investment decisions. On the basis of this decision model, which project should be selected? (Ignore taxes.)  

A.  Project P.

B.  Project Q.

C.  Project R.

D. Project S.

E.  Project T.

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Use the following to answer question 27:

Consider the following data for three divisions of a company, X, Y, and Z:

   

27.The return on investment (ROI) for Division X is:  

A. 8.0%.

B. 12.0%.

C. 20.0%.

D. 25.0%.

E. 40.0%.

28.

Which of the following is different in a flexible budget compared to the master budget for a period?  

A. Selling price per unit.

B. Variable cost per unit.

C. Budgeted fixed cost.

D. Sales volume.

E. Budgeted fixed administrative costs.

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29.An organization planned to use $82 of direct material per unit of output, but it actually used $80 per unit. During this period, the company planned to make 1,200 units, but actually produced only 1,000 units. The flexible budget amount for direct materials cost is:  

A. $80,000.

B. $82,000.

C. $96,000.

D. $98,400.

Use the following information for question 30:

Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. After-tax cash flow is $96.000 per year. Management requires a minimum after-tax rate of return of 10% on all investments.

30.What is the net present value (NPV) of the investment? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end.  

A. ($270,480).

B. $63,936.

C. $109,428.

D. $154,920.

E. None of the above.

 31. In properly developing formal systems at the team level that will have the desired

impact on employees' performance, the management accountant should recognize any existing informal systems and:  

A. Make plans to eliminate these informal systems.

B. Simply formalize them into the system being developed.

C. Try to eliminate them prior to system development.

D. Not let these "culture" aspects affect system development.

E. Try to capture valued "culture" aspects in the formal system.

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32.The need for coordination between the production and the selling function will impact the choice of:  

A. Profit, cost or revenue center.

B. Manager for the firm.

C. Formal or informal control systems.

D. Profitability goal for the firm.

E. Control measures to prevent fraud.

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Answers

1. E2. C3. D4. B5. $8,8006.

Absorption costing net income2003:Sales (3,250 x $3.50) $11,375.00Cost of goods sold (3,250 x $1.25)* (4,062.50 )Gross margin 7,312.50Operating expenses ((3,250 x $1.00) + $800)

(4,050.00 )

Operating income $ 3,262.50

* $1.25 = $.80 + ($1,620/3,600)

7.

Variable cost net income2003:Sales (3,250 x $3.50) $11,375.00Variable costs (3,250 x $1.80) (5,850.00 )Contribution margin 5,525.00Fixed costs ($1,620 + $800) (2,420.00 )Operating income $ 3,105.00

The difference in net income ($3,262.50- $3,105.00 = $157.50) is equal to the increase in inventory times the fixed OH rate ($.45 x 350 = $157.50)

8. D9. A10. C11. A12. B13. C14. B15. D16.Answer: B (year 1 + year 2 + year 3 + year 4 +year 5 = $580,000 –

the remaining $20,000 is achieved in 8% or .08 of the following year 20,000 / 250,000 for year 6)

17. E18. D19. B20. B

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21. A22. C23. C24. C25. B26. A27. E28. D29. B30. B31. E32. A

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