FINAL ACCOUNTING EXAM

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McKendree University *

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230

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Accounting

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Jun 13, 2024

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docx

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Question 1) Computate Inc. produces microprocessors for laptops. Last year, the company recognized revenues of $4,000,000. Total costs for the period were $2,000,000, of which $500,000 were fixed. If sales were to increase by $150,000, by how much would Computate’s operating income increase? The Operating Income would increase by $93,750 Total Revenue = $4,000,000 Total costs = $2,000,000 Fixed costs = $500,000 Increase in sales = $150,000 Variable Costs: = Total costs – Fixed costs = 2,000,000 – 500,000 = 1,500,000 Variable Cost per Unit of Sales: = Variable Costs / Total Revenue = 2,000,000 / 4,000,000 = 0.375 = 37.5% Additional Variable Costs Incurred: = Variable Cost per Unit of Sales x Sales Increase = 37.5% x 150,000 = $56,250 Operating Income: = Increase in Sales – Additional Variable Costs = 150,000 – 56,250 = 93,750 Question 2) Premier Printing produces custom labels and stationary for companies. In conducting CVP analysis of its Personalized Package, management decided to determine how many of the

packages would need to be sold in order to justify continuing the product line. Management determined that fixed costs direct related to this particular product amounted to $27,000 annually. Premier reported $120,000 of gross sales related to this product and variable product costs of $90,000. Assuming that each Personalized Package sells for $12 per unit, what is the minimum number of Personalized Packages that Premier needs to sell to break even and therefore justify the product line? Fixed costs = $27,000 Gross sales = $120,000 Variable costs = $90,000 Selling price per unit = $12 Variable Cost per Unit of Sales: = Variable costs / Gross sales = $90,000 / $120,000 = $0.75 Contribution Margin per Unit: = Selling price per unit – Variable cost per unit of sale = $12 – $0.75 = $11.25 Break-Even Point in Units: = Fixed costs / Contribution Margin per Unit = $27,000 / $11.25 = 2,400 Premier needs to sell approximately 2,400 personalized packages to break even and therefore justify the product line. This is the minimum number of units that need to be sold to cover the fixed costs. After selling these units, the company would start making a profit. Question 3) Jaroni Inc. produces specialty quilts and blankets using a partly manual, partly automated manufacturing process. Total sales for the previous period were $60,000. Wages, materials, and variable manufacturing overhead totaled $10,200. Salaries, depreciation, rent, and other fixed expenses amounted to $14,940. Jaroni charges $500 per customized blanket. What is Jaroni's break-even point in Sales Dollars? Sales = $60,000 Total Variable Costs = $10,200

Contribution Margin: = Sales - Total Variable Costs = $60,000 - $10,200 = $49,800 CM Ratio: = (Contribution Margin / Sales) x 100 = ($49,800 / $60,000) x 100 = 0.83 x 100 = 83% Fixed Costs = $14,940 Break-Even Point in Sales Dollars: = Fixed Costs / CM Ratio = $14,940 / 83% = $18,000 Jaroni Inc. would need to make $18,000 in sales to cover all their fixed and variable costs and to start making a profit. Question 4) Rough N' Tough (RNT) manufactures outdoors accessories. Management is considering producing the poles for their tents rather than continuing to purchase from their current supplier. The supplier charges $60 per set of poles. The cost accounting team has estimated that RNT would incur the following costs if they were to produce the poles instead: $40 per set for direct materials, $10 per set for direct labor, $7 per set for variable overhead, and $20 per set for fixed overhead application. RNT currently has unused production capacity and manufacturing equipment that could be used to manufacture the poles. RNT has planned to sell 5,000 tents this year. What would the change in overall cost be for the company if RNT produced the poles rather than purchasing them? The cost of manufacturing a set of poles:

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= direct materials cost + direct labor cost + variable overhead cost + fixed overhead application cost = 40 + 10 + 7 + 20 = $77 The cost of buying a set of poles from supplier = $60 The total cost if the poles are purchased from the supplier would be: = $60 * 5,000 = $300,000 The total cost if the poles are produced in house would be: = $77 * 50 = $385,000 The change in overall cost if RNT produced the poles rather than purchasing them would be: = $385,000 - $300,000 = $85,000 If RNT decides to produce the poles in-house instead of purchasing them from the supplier, it would result in an increase in overall cost by $85,000. Question 5) Scholar Suppliers manufactures backpacks for students. The backpacks come in two sizes: Small, and Large. Scholar Suppliers anticipates the following sales volumes and prices for the coming period: Size Sales Volume Selling Price Small 3,000 backpacks $25 each Large 6,000 backpacks $75 each What is the budgeted level of revenue for the coming period? Total revenue of small backpacks: = sales volume * selling price = 3,000 * $25 = $75,000 Total revenue of large backpacks: = sales volume * selling price = 6,000 * $75 = $450,000

Total Budgeted Level of Revenue: = total revenue of small backpacks + total revenue of large backpacks = $75,000 + $450,000 = $525,000 The total budgeted level of revenue for the coming period would be $525,000. Question 6) Public Manufacturing Company (PMC) is preparing their budgeted financial statements for the coming year, and has accumulated the following data: Beginning-of-period balances: Cash $40,000 Accounts Receivable $50,000 Raw Materials Inventory $14,000 Work-in-Process Inventory $160,000 Finished Goods Inventory $6,000 Equipment (historical value) $200,000 Accumulated Depreciation $130,000 Accounts Payable $62,000 Estimates for end-of-period balances: Accounts Receivable $55,000 Raw Materials Inventory $10,000 Work-in-Process Inventory $120,000 Finished Goods Inventory $5,000 Accumulated Depreciation $124,000 Accounts Payable $50,000 Budgeted activity levels for the period: Sales 12,000 units @ a sales price of

$300/unit Purchases of Direct Materials $500,000 Direct Labor Wages $340,000 Manufacturing Overhead $1,400,000 Selling and Administrative Expenses $1,300,000 What is the budgeted cash received from customers? Beginning Accounts Receivable = $50,000 Sales = 12,000 units * $300/unit = $3,600,000 Ending Accounts Receivable = $55,000 Cash Received from Customers: = Beginning Accounts Receivable + Sales – Ending Accounts Receivable = $50,000 + $3,600,000 – $55,000 = $3,595,000 The budgeted cash that PMC expects to receive from its customers in the coming year is $3,595,000. Question 7) Assume the following information for Jenkins Inc.: Total flexible budget direct materials costs: $5,000 Standard quantity of direct materials per unit: 40 items Budgeted production: 300 units Total actual direct materials costs: $4,500 Actual quantity of direct materials per unit: 42 items Actual production: 250 units What is Jenkins’ direct materials efficiency variance? (do not round intermediate calculations, round final answer to the nearest cent) Standard Quantity: = 40 items/unit * 250 units = 10,000 items Actual Quantity: = 42 items/unit * 250 units = 10,500 items Standard Price:

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= Total flexible budget direct materials costs / (Standard quantity of direct materials per unit * budgeted production) = 5,000 / (40 * 300) = 0.416667 Direct Materials Efficiency Variance: = (Actual Quantity Used * Standard Price) – (Standard Quantity * Standard Price) = (10,500 * 0.416667) – (10,000 * 0.416667) = 4375.04 – 4166.67 = $208.37 Unfavorable Question 8) Assume the following information for Webster Company: Beginning Raw Materials Inventory (Quantity): 200 items Budgeted Ending Raw Materials Inventory (Quantity): 200 items Budgeted direct materials (Purchased): $7,000 Standard quantity of direct materials per unit: 20 items Budgeted production: 100 units Actual Ending Raw Materials Inventory (Quantity): 175 items Actual direct materials costs (Purchased): $7,500 Actual quantity of direct materials used per unit: 19 items Actual production: 150 units What is Webster’s direct materials price variance? (do not round intermediate calculations, round final answer to the nearest cent) Budget: Budgeted quantity used in production = Budgeted production x Standard quantity of direct materials per unit = 100 units * 20 items = 2,000 items Budgeting quantity purchased = Budgeted quantity used in production + Budgeted ending raw materials inventory – Beginning raw materials inventory = 2,000 + 200 – 200

= 2,000 items Standard price per item = Budgeted direct materials (purchased) / (Standard quantity of direct materials per unit * Budgeted production) = 7,000 / (20 * 100) = $3.50 Actual: Actual quantity used in production = Actual production x Actual quantity of direct materials used per unit = 150 units x 19 items = 2850 items Actual quantity purchased = Actual quantity used in production + Actual ending raw materials inventory – Beginning raw materials inventory = 2850 + 175 – 200 = 2825 items Actual price (purchased) per item = Actual direct materials cost (purchased)/Actual quantity purchases = $7500/2825 items = $2.654867256 Direct Materials Price Variance = (Actual quantity purchased x Actual price) – (Actual quantity purchased x Standard price) = $7500 - (2825 x $3.50) = $7500 - $9887.50 = $2387.50 Favorable Webster’s direct materials price variance is $2,562.50 Favorable.

Question 9) The following information is provided for Dexter, Inc.: Standard direct labor wage rate: $10/hour Standard direct labor hours per unit of output: 5 hours/unit Budgeted Production: 5,000 units Actual direct labor hours per unit of output: 5 hours/unit Actual direct labor wage rate: $11.50/hour Actual Production: 4,900 units What is the direct labor rate variance? Actual Hours Worked: = Actual direct labor hours per unit of output * Actual Production = 5 * 4,900 = 24,500 hours Standard cost of direct labor: = Standard direct labor wage rate * Standard direct labor hours per unit = $10/hour * 5 hours/unit = $50/unit Direct Labor Rate Variance: = (Actual Hours Worked * Standard Wage Rate) - (Actual Hours Worked * Actual Wage Rate) = (24,500 * $10) - (24,500 * $11.50) = $245,000 - $281,750 = $36,750 Unfavorable The direct labor rate variance for Dexter, Inc. is $36,750 Unfavorable.

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Question 10) The following information is provided for Dexter, Inc.: Standard direct labor wage rate: $10/hour Standard direct labor hours per unit of output: 5 hours/unit Budgeted Production: 5,000 units Actual direct labor hours per unit of output: 5 hours/unit Actual direct labor wage rate: $11.50/hour Actual Production: 4,900 units What is the direct labor efficiency variance ? Actual hours: = Actual production * Actual direct labor hours per unit of output = 4900 * 5 = 24,500 hours Standard hours: = Actual production * Standard direct labor hours per unit of output = 4900 * 5 = 24,500 hours Direct labor efficiency variance: = Standard direct labor wage rate * (Actual hours – Standard hours) = $10 * (24,500 – 24,500) = $0 The direct labor efficiency variance for Dexter Company is $0.