NEW YORK UNIVERSITY

Leonard N. Stern School of Business

Final Exam Version C
C10.0002 Principles of Managerial Accounting
Sprin !""#
Answer all questions of this examination in the exam booklet provided.
$oints %istri&ution'
$art (
)ultiple *hoice +# points
$art B
,uestion - !"
,uestion ! !"
,uestion . / #/
Total -"" points
Part A - Multiple Choice
1 Conversion cost consists of which of the following?
a. Manufacturing overhead cost.
b. Direct materials and direct labor cost.
c. Direct labor cost.
d. Direct labor and manufacturing overhead cost.
2. ransportation costs incurred b! a manufacturing compan! to
ship its product to its customers would be classified as which
of the following?
a. Product cost
b. Manufacturing overhead
c. Period cost
d. Administrative cost
". he salar! of the president of a manufacturing compan! would be
classified as which of the following?
a. Product cost
b. Period cost
c. Manufacturing overhead
d. Direct labor
# $hich one of the following costs should %& be considered a
direct cost of serving a particular customer who orders a
customi'ed personal computer b! phone directl! from the
manufacturer?
a. the cost of the hard dis( drive installed in the computer.
b. the cost of shipping the computer to the customer.
c. the cost of leasing a machine on a monthl! basis that
automaticall! tests hard dis( drives before the! are
installed in computers.
d. the cost of pac(aging the computer for shipment.
) $hich one of the following costs should %& be considered an
indirect cost of serving a particular customer at a Dair!
*ueen fast food outlet?
a. the cost of the hamburger patt! in the burger the! ordered.
b. the wages of the emplo!ee who ta(es the customer+s order.
c. the cost of heating and lighting the (itchen.
d. the salar! of the outlet+s manager.
, Micro Computer Compan! has set up a toll-free telephone line
for customer in-uiries regarding computer hardware produced b!
the compan!. he cost of this toll-free line would be
classified as which of the following?
a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost
. Prime cost consists of direct materials combined with/
a. direct labor.
b. manufacturing overhead.
c. indirect materials.
d. cost of goods manufactured.
0 1awara Compan! uses the weighted-average method in its process
costing s!stem. &perating data for the Painting Department for
the month of April appear below/

Percentage
2nits complete
3eginning wor( in process inventor! ... .4"55 156
ransferred in from the prior
department during April ............ ,)4,55
2nits completed ............ ............,.4"55
7nding wor( in process inventor! ...... )4,55 056
$hat were the e-uivalent units of production for conversion
costs in the Painting Department for April?
a. ,)4,55
b. .14.05
c. .54)25
d. ,84805
e. %one of the above
8 he Assembl! Department started the month with "4)55 units in
its beginning wor( in process inventor!. An additional units
#.4255 were transferred in from the prior department during
the month to begin processing in the Assembl! Department.
here were "4,55 units in the ending wor( in process inventor!
of the Assembl! Department. 9ow man! units were transferred to
the ne:t processing department during the month?
a. )54.55
b. #.4"55
c. #.4155
d. )#4155
e. %one of the above
15 ;elsh Compan! uses a predetermined overhead rate based on
machine hours to appl! manufacturing overhead to <obs. he
compan! has provided the following estimated costs for ne:t
!ear/
Direct materials .................. =154555
Direct labor ...................... "54555
>ales commissions ................. #54555
>alar! of Mar(eting supervisor .... 254555
?ndirect materials ................ #4555
Advertising e:pense ............... 04555
@ent on factor! e-uipment ......... #54555
;elsh estimates that )4555 direct labor hours and 154555
machine hours will be wor(ed during the !ear. he
predetermined overhead rate per hour will be/
a. =,.05.
b. =#.#5.
c. =".#5.
d. =0.25.
11 Paul Compan! used a predetermined overhead rate during the !ear
<ust completed of =".)5 per direct labor hour4 based on an
estimate of 224555 direct labor hours to be wor(ed during the
!ear. Actual overhead cost and activit! during the !ear were/
Actual manufacturing overhead cost incurred .. =854555
Actual direct labor hours wor(ed ............. 2)4555
he under- or overapplied overhead for the !ear would be/
a. =1"4555 underapplied.
b. =154)55 overapplied.
c. =24)55 overapplied.
d. =24)55 underapplied.
12 C@&$ Compan! has the following estimated costs for the ne:t
!ear/
Direct materials ..................... = #4555
Direct labor ......................... 254555
@ent on factor! building ............. 1)4555
>ales salaries ....................... 2)4555
Depreciation on factor! e-uipment .... 04555
?ndirect labor ....................... 154555
Production supervisorAs salar! ....... 124555
C@&$ Compan! estimates that 254555 labor hours will be wor(ed
during the !ear. ?f overhead is applied on the basis of direct
labor hours4 the overhead rate per hour will be/
a. =2.2).
b. =".2).
c. =".#).
d. =#..5.
1" he >amuelson Compan! uses a <ob-order cost s!stem. he
following data were recorded for 1une/
1une 1st Added During 1une
$or( in Process Direct Direct
1ob %umber ?nventor! Materials Babor
#., = 855 = ,55 = 055
&verhead is charged to production at .56 of the direct
materials cost.
>amuelsonAs $or( in Process inventor! balance on 1une "5 was/
a. =,4#)5.
b. =240,5.
c. =24"55.
d. =24.25.
1# he predetermined overhead rate for manufacturing overhead was
=#.55 per direct labor-hour. he estimated labor rate was =).55
per hour. ?f the estimated direct labor cost was =.)45554 what
was the estimated manufacturing overhead?
a. = 1)4555
b. = ,54555
c. = .)4555
d. ="554555
1) >weet Compan! applies overhead to <obs on the basis of 12)6 of
direct labor cost. ?f 1ob 15. shows =154555 of manufacturing
overhead applied4 how much was the direct labor cost on the
<ob?
a. =04555
b. =124)55
c. =1142)5
d. =154555
1, Calculate the cost of goods completed and transferred to the
finished goods inventor!.

3eginning $or( in Process............. =1.)
Direct labor cost incurred............ "55
Manufacturing overhead applied ....... 2)5
Direct materials used................. 12)
7nding $or( in Process................ 255

a. = ,)5
b. =1452)
c. =141)5
d. =141.)
e. %one of the above
1. >etting up e-uipment is an e:ample of a/
a. 2nit-level activit!.
b. 3atch-level activit!.
c. Product-level activit!.
d. &rgani'ation-sustaining activit!.
10 &verhead allocation based on volume alone/
a. is a (e! aspect of the activit!-based costing model.
b. will s!stematicall! overcost high-volume products and
undercost
low-volume products.
c. will s!stematicall! overcost low-volume products and
undercost
high-volume products.
d. must be used for e:ternal financial reporting.
PA@ 3.
1. 1ett! Compan! produces a single product. he cost of producing and
selling a single unit of this product at the compan!+s normal
activit! level of .54555 units per month is as follows/
Direct materials ........................ =28.,5
Direct labor ............................ ).05
Cariable manufacturing overhead ......... 2.)5
Di:ed manufacturing overhead ............ 1..25
Cariable selling E administrative e:pense 1.05
Di:ed selling E administrative e:pense .. ,..5
he normal selling price of the product is =.2.85 per unit. An order
has been received from Alomo Corporation of ?tal! for 24555 units to
be delivered during the current month at a special discounted price of
=,,.15 each. his order would have no effect on the compan!+s normal
sales and would not change the total amount of the compan!+s fi:ed
costs. he variable selling and administrative e:pense would be =1.15
less per unit on this order than on normal sales. Direct labor is a
variable cost in this compan!.
@e-uired/
a. >uppose there is ample idle capacit! to produce the units re-uired
b! the overseas should the order be accepted? 3! how much would
this special order increase FdecreaseG the compan!+s net operating
income for the month if it accepted?
b. >uppose there is not enough idle capacit! to produce all of the
units for the overseas customer and accepting the special order
would re-uire cutting bac( on production of 14"55 units for
regular customers. $hat is the minimum acceptable price per unit
for the special order?
2. Aholt Compan! ma(es #54555 units per !ear of a part it uses in the
products it manufactures. he unit product cost of this part is
computed as follows/
Direct materials ................. =11."5
Direct labor ..................... 22..5
Cariable manufacturing overhead .. 1.25
Di:ed manufacturing overhead ..... 2#..5
2nit product cost .............. =)8.85
An outside supplier has offered to sell the compan! all of these
parts it needs for =#,.25 a unit. ?f the compan! accepts this offer4
the facilities now being used to ma(e the part could be used to ma(e
more units of a product that is in high demand. he additional
contribution margin on this other product would be =2,#4555 per !ear.
=21.85 of the fi:ed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside
supplier. his fi:ed manufacturing overhead cost would be applied to
the compan!+s remaining products.
@e-uired/
a. 9ow much of the unit product cost of =)8.85 is relevant in the
decision of whether to ma(e or bu! the part?
b. $hat is the net total dollar advantage FdisadvantageG of
purchasing the part rather than ma(ing it?
c. $hat is the ma:imum amount the compan! should be willing to pa! an
outside supplier per unit for the part if the supplier commits to
suppl!ing all #54555 units re-uired each !ear?
.. Consider the following production and cost data for two products4 B
and C/
Product B Product C
Ma:imum Demand per month 154555 ,4555
Contribution margin per unit ....... =1"5 =125
Machine set-ups needed per unit .... 15 set-ups 0 set-ups
he compan! can onl! perform ,)4555 machine set-ups each month.
Re0uired'
a. Determine optimum production levels of products B and C needed to
ma:imi'e profits.
b. Determine the annual profit associated with this optimum output
level if total fi:ed costs are =)554555 per month.
NEW YORK UNIVERSITY
Leonard N. Stern School of Business
Final Exam Version C
C10.0002 Principles of Managerial Accounting
Sprin !""#
Answer all questions of this examination in the exam booklet provided.
$oints %istri&ution'
$art (
)ultiple *hoice +# points
$art B
,uestion - !"
,uestion ! !"
,uestion . / #/
Total -"" points
Part A - Multiple Choice
1 Conversion cost consists of which of the following?
a. Manufacturing overhead cost.
b. Direct materials and direct labor cost.
c. Direct labor cost.
d. Direct labor and manufacturing overhead cost.
2. ransportation costs incurred b! a manufacturing compan! to
ship its product to its customers would be classified as which
of the following?
a. Product cost
b. Manufacturing overhead
c. Period cost
d. Administrative cost
". he salar! of the president of a manufacturing compan! would be
classified as which of the following?
a. Product cost
b. Period cost
c. Manufacturing overhead
d. Direct labor
# $hich one of the following costs should %& be considered a
direct cost of serving a particular customer who orders a
customi'ed personal computer b! phone directl! from the
manufacturer?
a. the cost of the hard dis( drive installed in the computer.
b. the cost of shipping the computer to the customer.
c. the cost of leasing a machine on a monthly basis that
automatically tests hard disk drives before they are
installed in computers.
d. the cost of pac(aging the computer for shipment.
) $hich one of the following costs should %& be considered an
indirect cost of serving a particular customer at a Dair!
*ueen fast food outlet?
a. the cost of the hamburger patty in the burger they ordered.
b. the wages of the emplo!ee who ta(es the customer+s order.
c. the cost of heating and lighting the (itchen.
d. the salar! of the outlet+s manager.
, Micro Computer Compan! has set up a toll-free telephone line
for customer in-uiries regarding computer hardware produced b!
the compan!. he cost of this toll-free line would be
classified as which of the following?
a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost
. Prime cost consists of direct materials combined with/
a. direct labor.
b. manufacturing overhead.
c. indirect materials.
d. cost of goods manufactured.
0 1awara Compan! uses the weighted-average method in its process
costing s!stem. &perating data for the Painting Department for
the month of April appear below/

Percentage
2nits complete
3eginning wor( in process inventor! ... .4"55 156
ransferred in from the prior
department during April ............ ,)4,55
2nits completed ............ ............,.4"55
7nding wor( in process inventor! ...... )4,55 056
$hat were the e-uivalent units of production for conversion
costs in the Painting Department for April?
a. ,)4,55
b. 717!"
c. .54)25
d. ,84805
e. %one of the above
8 he Assembl! Department started the month with "4)55 units in
its beginning wor( in process inventor!. An additional units
#.4255 were transferred in from the prior department during
the month to begin processing in the Assembl! Department.
here were "4,55 units in the ending wor( in process inventor!
of the Assembl! Department. 9ow man! units were transferred to
the ne:t processing department during the month?
a. )54.55
b. #.4"55
c. #71""
d. )#4155
e. %one of the above
15 ;elsh Compan! uses a predetermined overhead rate based on
machine hours to appl! manufacturing overhead to <obs. he
compan! has provided the following estimated costs for ne:t
!ear/
Direct materials .................. =154555
Direct labor ...................... "54555
>ales commissions ................. #54555
>alar! of Mar(eting supervisor .... 254555
$ndirect materials ................ #"""
Advertising e:pense ............... 04555
%ent on factory e&uipment ......... #""""
;elsh estimates that )4555 direct labor hours and 154555
machine hours will be wor(ed during the !ear. he
predetermined overhead rate per hour will be/
a. =,.05.
b. '#.#".
c. =".#5.
d. =0.25.
11 Paul Compan! used a predetermined overhead rate during the !ear
<ust completed of =".)5 per direct labor hour4 based on an
estimate of 224555 direct labor hours to be wor(ed during the
!ear. Actual overhead cost and activit! during the !ear were/
Actual manufacturing overhead cost incurred .. =854555
Actual direct labor hours wor(ed ............. 2)4555
he under- or overapplied overhead for the !ear would be/
a. =1"4555 underapplied.
b. =154)55 overapplied.
c. =24)55 overapplied.
d. '()"" underapplied.
12 C@&$ Compan! has the following estimated costs for the ne:t
!ear/
Direct materials ..................... = #4555
Direct labor ......................... 254555
%ent on factory building ............. 1)"""
>ales salaries ....................... 2)4555
Depreciation on factory e&uipment .... !"""
$ndirect labor ....................... 1""""
Production supervisor*s salary ....... 1("""
C@&$ Compan! estimates that 254555 labor hours will be wor(ed
during the !ear. ?f overhead is applied on the basis of direct
labor hours4 the overhead rate per hour will be/
a. '(.().
b. =".2).
c. =".#).
d. =#..5.
1" he >amuelson Compan! uses a <ob-order cost s!stem. he
following data were recorded for 1une/
1une 1st Added During 1une
$or( in Process Direct Direct
1ob %umber ?nventor! Materials Babor
#., = 855 = ,55 = 055
&verhead is charged to production at .56 of the direct
materials cost.
>amuelsonAs $or( in Process inventor! balance on 1une "5 was/
a. =,4#)5.
b. =240,5.
c. =24"55.
d. '(7(".
1# he predetermined overhead rate for manufacturing overhead was
=#.55 per direct labor-hour. he estimated labor rate was =).55
per hour. ?f the estimated direct labor cost was =.)45554 what
was the estimated manufacturing overhead?
a. = 1)4555
b. ' +""""
c. = .)4555
d. ="554555
1) >weet Compan! applies overhead to <obs on the basis of 12)6 of
direct labor cost. ?f 1ob 15. shows =154555 of manufacturing
overhead applied4 how much was the direct labor cost on the
<ob?
a. '!"""
b. =124)55
c. =1142)5
d. =154555
1, Calculate the cost of goods completed and transferred to the
finished goods inventor!.

3eginning $or( in Process............. =1.)
Direct labor cost incurred............ "55
Manufacturing overhead applied ....... 2)5
Direct materials used................. 12)
7nding $or( in Process................ 255

a. ' +)"
b. =1452)
c. =141)5
d. =141.)
e. %one of the above
1. >etting up e-uipment is an e:ample of a/
a. 2nit-level activit!.
b. ,atch-level activity.
c. Product-level activit!.
d. &rgani'ation-sustaining activit!.
10 &verhead allocation based on volume alone/
a. is a (e! aspect of the activit!-based costing model.
b. -ill systematically overcost high-volume products and
undercost lo--volume products.
c. will s!stematicall! overcost low-volume products and
undercost high-volume products.
d. must be used for e:ternal financial reporting.
PA%. ,.
1. /etty Company produces a single product. .he cost of producing and
selling a single unit of this product at the company0s normal
activity level of 7"""" units per month is as follo-s1
Direct materials ........................ '(2.+"
Direct labor ............................ ).!"
3ariable manufacturing overhead ......... (.)"
4i5ed manufacturing overhead ............ 17.("
3ariable selling 6 administrative e5pense 1.!"
4i5ed selling 6 administrative e5pense .. +.7"
.he normal selling price of the product is '7(.2" per unit. An order
has been received from Alomo Corporation of $taly for (""" units to
be delivered during the current month at a special discounted price of
'++.1" each. .his order -ould have no effect on the company0s normal
sales and -ould not change the total amount of the company0s fi5ed
costs. .he variable selling and administrative e5pense -ould be '1.1"
less per unit on this order than on normal sales. Direct labor is a
variable cost in this company.
%e&uired1
a. 7uppose there is ample idle capacity to produce the units re&uired
by the overseas customer. 7hould the order be accepted8 ,y ho- much
-ould this special order increase 9decrease: the company0s net
operating income for the month if it accepted8
b. 7uppose there is not enough idle capacity to produce all of the
units for the overseas customer and accepting the special order
-ould re&uire cutting back on production of 1;"" units for regular
customers. <hat is the minimum acceptable price per unit for the
special order8
Answer:
a.
Variable cost per unit on normal sales:
Direct materials ........................ $29.60
Direct labor ............................ 5.80
Variable manufacturing overhead ......... 2.50
Variable selling & administrative expense 1.80
Variable cost per unit on normal sales $39.70
Variable cost per unit on special order:
Normal variable cost per unit ........... $39.70
Reduction in variable selling & admin. .. 1.10
Variable cost per unit on special order $38.60
Selling price for special order ........... $66.10
Variable cost per unit on special order ... 38.60
Unit contribution margin on special order 27.50
Number of units in special order .......... 2,000
Increase (decrease) in net operating income $55,000
b. The opportunity cost is just the contribution margin on
normal sales:
Normal selling price per unit ............. $72.90
Variable cost per unit on normal sales .... 39.70
Unit contribution margin on normal sales .. $33.20
Minimum acceptable price:
Unit contribution margin on normal sales .. $33.20
Displaced normal sales .................... 1,300
Lost contribution margin displaced sales .. $43,160
Total variable cost on special order ...... $77,200
Total Incremental cost of special order $120,360
Number of units in special order .......... 2,000
Minimum acceptable price on special order $60.18
(. Aholt Company makes #"""" units per year of a part it uses in the
products it manufactures. .he unit product cost of this part is
computed as follo-s1
Direct materials ................. '11.;"
Direct labor ..................... ((.7"
3ariable manufacturing overhead .. 1.("
4i5ed manufacturing overhead ..... (#.7"
=nit product cost .............. ')2.2"
An outside supplier has offered to sell the company all of these
parts it needs for '#+.(" a unit. $f the company accepts this offer
the facilities no- being used to make the part could be used to make
more units of a product that is in high demand. .he additional
contribution margin on this other product -ould be '(+#""" per year.
'(1.2" of the fi5ed manufacturing overhead cost being applied to the
part -ould continue even if the part -ere purchased from the outside
supplier. .his fi5ed manufacturing overhead cost -ould be applied to
the company0s remaining products.
%e&uired1
a. 9ow much of the unit product cost of =)8.85 is relevant in the
decision of whether to ma(e or bu! the part?
Direct materials ................. '11.;"
Direct labor ..................... ((.7"
3ariable manufacturing overhead .. 1.("
Avoidable >verhead................... (.!"
Avoidable >utlay Cost ';!.""
Avoidable >verhead ? 4i5ed manufacturing overhead - Continued fi5ed
mfg >verhd @9(#.7"5#"""":'2!!""" - '!7+"""9'(1.2"5#"""": ? '(.!
#""""
b. $hat is the change in income of purchasing the part rather than
ma(ing it?
Avoidable Cost 9Aross 7avings: ';!9#""""u: '1)(""""
Purchase Cost 9'#+.(5#""""u: 1!#!"""
B5cess of Purchase over Make ;(!"""
Cess Profit from use of 4reed up capacity (+#"""
Det Change in income -'+#"""
c. $hat is the ma:imum amount the compan! should be willing to pa! an
outside supplier per unit for the part if the supplier commits to
suppl!ing all #54555 units re-uired each !ear8
9'1)(""""E'(+#""":F#""""? '17!#"""F#"""" ? '##.+
.. Consider the follo-ing production and cost data for t-o products C
and C1
Product B Product C
Ma:imum Demand per month 154555 ,4555
Contribution margin per unit ....... =1"5 =125
Machine set-ups needed per unit .... 15 set-ups 0 set-ups
he compan! can onl! perform ,)4555 machine set-ups each month.
Re0uired'
e. Determine optimum production levels of products B and C needed to
ma:imi'e profits. +""" of C and 17"" of C
9CMFsetup1C-'1;G C-'1)1 Produce up to +""" of C and use the
remaining 17""" setups 9+)"""-9+"""5!:: to produce 17""
917"""F1": units of C
f. Determine the annual profit associated with this optimum output
level if total fi:ed costs are =)554555 per month.
')(2("""?9'7(""""9'1("5+""":E((1"""91;"517"":-')""""":