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ACCT 505 Final Exam Guide (New) Set 2

ACCT 505 Final Exam Guide (New) Set 2

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Set 2


1. (TCO C) Madlem, Inc., produces and sells a single product whose selling price is $120.00 per unit and whose variable expense is $46.20 per unit. The company's fixed expense is $405,900 per month.


Required: Determine the monthly breakeven in either unit or total dollar sales. Show your work! (Points : 25)





Question 2.2. (TCO B) Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below.

Work in process, beginning:   

  Units in beginning work in process inventory          400

  Materials costs          $6,900

  Conversion costs       $2,500

  Percent complete for materials          80%

  Percent complete for conversion       15%

  Units started into production during the month       6,000

  Units transferred to the next department during the month 5,200

  Materials costs added during the month      $112,500

  Conversion costs added during the month   $210,300



Ending work in process:        

  Units in ending work-in-process inventory   1,200

  Percentage complete for materials    75%

  Percentage complete for conversion 30%


Required: Calculate the equivalent units for conversion for the month in the first processing department. (Points : 25)








Question 1.1. (TCO D) The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, XXXX. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.

Bernon Co.

Absorption Costing Income Statement

for the Month Ended May 31, XXXX

Sales (17,000 @ $60)  $1,020,000     

Cost of goods sold          612,000      

Gross profit     $ 408,000       

Selling and administrative expenses        66,000       

Income from operations          $ 342,000       


Additional Information:

Cost     Total Cost       Number of Units         Unit Cost       

Manufacturing costs:                                     

  Variable         $442,000         17,000 $26     

  Fixed   170,000         17,000   10     

  Total  $612,000                     $36     


Selling and administrative expenses: 

  Variable ($2 per unit sold)    $34,000

  Fixed   32,000

  Total  $66,000



Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements. (Points : 30)





Question 2.2. (TCO I) (Ignore income taxes in this problem.) Simpson Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $70,000 at the end of 10 years. The machinery will also need a $45,000 overhaul at the end of Year 5. A $60,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $150,000 per year for each of the 10 years. Simpson's discount rate is 18%.

Items   Year(s)            Amount           18% Factor      Present Value 

Cost of machinery       Now    ($700,000)       1          ($700,000)      

Working capital increase         Now    ($60,000)         1          ($60,000)        

Annual cash inflows   1–10    $150,000         4.494   674,100          

Overhaul         5          ($45,000)         0.437   ($19,665)        

Salvage value  10        $70,000           0.191   13,370

Working capital release           10        $60,000           0.191   11,460

Net present value                                ($80,735)



(a) What is the net present value of this investment opportunity?

(b) Based on your answer to (a) above, should Simpson go ahead with the new conditioning shampoo? (Points : 30)





Question 3.3. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.

Sales    1,700

Raw materials inventory, beginning   50

Raw materials inventory, ending        25

Purchases of raw materials      210

Direct labor     360

Manufacturing overhead         330

Administrative expenses         400

Selling expenses          200

Work-in-process inventory, beginning            120

Work-in-process inventory, ending     150

Finished goods inventory, beginning  80

Finished goods inventory, ending      120



Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25)





Question 4.4. (TCO F) Walker Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $43,000. Budgeted cash receipts total $117,000 and budgeted cash disbursements total $122,000. The desired ending cash balance is $55,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month.




Prepare the company's cash budget for November in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance(Points : 25)





Question 5.5. (TCO F) The following overhead data are for a department of a large company.

            Actual Costs Incurred Static Budget

Activity level (in units)           360      340


Variable costs:            

     Indirect materials   $4,182 $4,148

     Electricity   $2,536 $2,414

Fixed costs:                

     Administration       $6,540 $6,500

     Rent           $6,310 $6,400


Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department. (Points : 25)





Question 6.6. (TCO H) McMullen Co. uses 10,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $125,000 as follows.


Direct materials           $40,000

Direct labor     30,000

Variable manufacturing overhead       25,000

Fixed manufacturing overhead           30,000

Total costs       $125,000


An outside supplier has offered to provide Part X at a price of $10 per unit. If McMullen stops producing the part internally, one third of the fixed manufacturing overhead would be eliminated.


Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer. Please state clearly whether the part should be made or bought and share your work. (Points : 30)





Question 7.7. (TCO B) Buckhorn Corporation bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below.

Estimated machine hours        37,000

Estimated variable manufacturing overhead  $7.77 per machine hour

Estimated total fixed manufacturing overhead          $888,000


The actual machine hours for the year turned out to be 35,000.


Required: Compute the company's predetermined overhead rate. (Points : 25)

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