ACCT Exam 4 Sample Study Questions + Answers

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Jun 27, 2024

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Question 31: Activity-Based Costing (ABC) ● A company produces three products, each requiring different levels of activity cost drivers: ○ Product X: Requires 10 setups and 20 machine hours. ○ Product Y: Requires 5 setups and 30 machine hours. ○ Product Z: Requires 8 setups and 25 machine hours. ○ Total overhead costs are $150,000, with setup costs totaling $50,000 and machine hour costs totaling $100,000. Calculate the activity rates for setups and machine hours. Solution: ● Setup activity rate = Setup costs / Total setups required = $50,000 / (10 + 5 + 8) = $50,000 / 23 ≈ $2,174.78 per setup ● Machine hour activity rate = Machine hour costs / Total machine hours required = $100,000 / (20 + 30 + 25) = $100,000 / 75 = $1,333.33 per machine hour Question 32: Cost-Volume-Profit (CVP) Analysis ● A company sells a product for $80 per unit. Variable costs are $50 per unit, and fixed costs total $120,000. Calculate the breakeven point in units and dollars. Solution: ● Contribution margin per unit = Selling price per unit - Variable cost per unit = $80 - $50 = $30 per unit ● Breakeven point in units = Fixed costs / Contribution margin per unit = $120,000 / $30 = 4,000 units ● Breakeven point in dollars = Breakeven point in units × Selling price per unit = 4,000 units × $80 = $320,000 Question 33: Variance Analysis ● A company budgeted to produce 10,000 units with total direct labor costs of $100,000. Actual production was 9,500 units with actual direct labor costs of $97,000. Calculate the direct labor rate variance and direct labor efficiency variance. Solution: ● Direct labor rate variance = (Actual rate - Standard rate) × Actual hours = ($97,000 / 9,500 units - $100,000 / 10,000 units) × 9,500 units = ($10.21 - $10.00) × 9,500 units = $1,995 favorable variance ● Direct labor efficiency variance = (Actual hours - Standard hours) × Standard rate = (9,500 units - 10,000 units) × $10.00 per unit = (-500 units) × $10.00 per unit = $5,000 unfavorable variance

Question 34: Performance Measurement ● Define Economic Value Added (EVA) and explain its significance in evaluating company performance. Solution: ● Economic Value Added (EVA) = Net Operating Profit After Tax (NOPAT) - (Capital × Cost of Capital) ○ NOPAT = Operating income - Taxes ○ Capital = Total assets - Current liabilities ○ Cost of Capital = Weighted Average Cost of Capital (WACC) EVA measures a company's financial performance by calculating the return on invested capital above the company's cost of capital. It helps assess whether a company is creating value for its shareholders. Question 35: Budgeting ● Prepare a sales budget for XYZ Company for the second quarter of the year. XYZ expects the following: ○ April sales: $150,000 ○ May sales: $180,000 ○ June sales: $200,000 ○ Sales are typically collected 40% in the month of sale, 30% in the following month, and 30% in the second following month. Solution: Sales Budget for XYZ Company (Second Quarter) April May June Total Sales $150,000 $180,000 $200,000 $530,000 Cash collections April $60,000 $24,000 $0 $84,000 May $54,000 $60,000 $60,000 $174,000 June $60,000 $54,000 $60,000 $174,000 Total cash collections $174,000 $138,000 $120,000 $432,000 Question 36: Transfer Pricing ● A company has two divisions: Division M (selling division) and Division N (buying division). Division M can sell a product externally for $120 per unit. Division N can produce the same product internally at a variable cost of $80 per unit. Determine an appropriate transfer price based on cost-plus pricing.

Solution: ● Cost-plus transfer price = Variable cost per unit + Markup = $80 per unit + (20% × $80 per unit) = $80 per unit + $16 per unit = $96 per unit Division N should pay Division M $96 per unit as the transfer price. Question 37: Decision Making ● A company is considering investing in new equipment that costs $200,000. The equipment has a useful life of 5 years and is expected to generate annual cash flows of $60,000. Calculate the net present value (NPV) of the investment using a discount rate of 10%. Solution: ● NPV = Present value of cash inflows - Initial investment ○ Calculate present value of cash inflows: PV = $60,000 / (1 + 0.10)^1 + $60,000 / (1 + 0.10)^2 + $60,000 / (1 + 0.10)^3 + $60,000 / (1 + 0.10)^4 + $60,000 / (1 + 0.10)^5 PV ≈ $54,545 + $49,587 + $45,079 + $41,072 + $37,341 PV ≈ $227,624 ○ Calculate NPV: NPV = $227,624 - $200,000 NPV = $27,624 Question 38: Standard Costing ● Calculate the manufacturing overhead rate variance and the manufacturing overhead efficiency variance given the following information: ○ Standard hours allowed for actual production: 5,000 hours ○ Actual hours worked: 4,800 hours ○ Standard overhead rate: $10 per hour ○ Actual overhead costs: $48,500 Solution: ● Manufacturing overhead rate variance = (Actual overhead rate - Standard overhead rate) × Actual hours = ($48,500 / 4,800 hours - $10 per hour) × 4,800 hours = ($10.10 - $10) × 4,800 hours = $480 unfavorable variance ● Manufacturing overhead efficiency variance = (Actual hours - Standard hours) × Standard overhead rate = (4,800 hours - 5,000 hours) × $10 per hour = (-200 hours) × $10 per hour = $2,000 unfavorable variance Question 39: Pricing Strategy ● A company manufactures and sells a product for $100 per unit. Variable costs are $60 per unit, and fixed costs total $150,000. Calculate the sales volume required to achieve a target profit of $75,000. Solution:

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● Contribution margin per unit = Selling price per unit - Variable cost per unit = $100 - $60 = $40 per unit ● Required sales volume = (Fixed costs + Target profit) / Contribution margin per unit = ($150,000 + $75,000) / $40 = $225,000 / $40 = 5,625 units Question 40: Capital Budgeting ● Calculate the profitability index (PI) for a project that requires an initial investment of $300,000 and generates annual cash flows of $90,000 for 5 years. The discount rate is 12%. Solution: ● Calculate present value of cash inflows: PV = $90,000 / (1 + 0.12)^1 + $90,000 / (1 + 0.12)^2 + $90,000 / (1 + 0.12)^3 + $90,000 / (1 + 0.12)^4 + $90,000 / (1 + 0.12)^5 PV ≈ $80,357 + $71,753 + $64,046 + $57,050 + $50,690 PV ≈ $324,896 ● Calculate PI: PI = PV of cash inflows / Initial investment PI = $324,896 / $300,000 PI ≈ 1.083