MANAGERIAL ACCOUNTING TRIAL FINAL EXAM V1

DURATION 120 MINUTES

-------------Task 1
One-A Production Company is the producer and distributor of grade A metal roofs for
residential and commercial needs. It has the following cost structure for its
operations in 2014:
Direct material
$9 per unit
Direct labor
$7 per unit
Variable overhead:
- Manufacturing costs
$4 per unit
- Selling and administrative costs $7 per unit
Fixed overhead:
- Manufacturing costs
$10,000
- Selling and administrative costs $6,000
Sales
3,500 units
Unit selling price
$30
During 2014, the company produced 4,000 pieces of the metal roofs.
Required:
a. Prepare an income statement for One-A Production Company for the year ended 31
December 2014 using the contribution margin method.
b. The knowledge regarding cost behavior is important to managers. Explain.
Task 2
Saza Laboratories manufactures 30,000 units of G-2 lenses each year for use in the
production of its microscopes. At this level of activity, the cost per unit for G-2 lens is
as follows:
Direct materials
$3.60
Direct labor
10.00
Variable manufacturing overhead
2.40
Fixed manufacturing overhead
9.00
Total cost per lens
$25.00
An external supplier has offered to sell 30,000 of the G-2 lenses to Saza Laboratories
for $21 per lens. If Saza Laboratories accepts this offer, the facilities now being used
to manufacture the lens could be rented to another company at an annual rental of
$80,000. Nevertheless, Saza Laboratories has determined that two-thirds of the fixed
manufacturing overhead being applied to G-2 lenses would continue even if the
lenses were purchased from the external supplier.
Required:
a. Prepare computations showing how much profits will increase or decrease if the
external suppliers offer is accepted.
b. What are the advantages of producing own parts and materials compared to
relying on external suppliers?
Task 3
Mega Truckers Company produces test plugs for use in trailers and military trucks.
The company has recently established a standard cost system to enhance cost
control. The standard costs to produce the test plugs are given below:
Standard cost
Requirement per test plug
Direct material
$0.50 per gasket
6 gaskets
Direct labor
$8 per hour
1.3 hours
During September 2014, the company produced 3,000 test plugs. Production data for
September 2014 is as follows:

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Direct material: 25,000 gaskets were purchased at a cost of $0.48 each. 5,000
of these gaskets were still in inventory at the end of the month.
Direct labor: 4,000 direct labor hours were worked at a cost of $36,000.

Required:
a. Compute the following variances for September 2014:
i. Direct materials price and quantity variances.
ii. Direct labor rate and efficiency variances.
b. Prepare a short report on the possible causes of each variance.
Task 4
Crunchee Delight Company produces the best chocolate cookies in town with an
average monthly sale of 2,000 units. Its only fixed expenses comprise of shop rental
and payment of staff salary, which are $30,000 per month. Other information on
production is as follows:
Per unit
Selling price
$90
Variable expenses $63
Contribution margin
$27

Percent of sales
100%
70%
30%

The marketing manager is considering two proposals to increase sales next year:
i. The first proposal suggests that spending an additional $5,000 per month for
advertising would increase sales by $9,000.
ii. The second proposal suggests that the use of higher grade cocoa beans in
the ingredients would increase sales by 10% per month. However, the cost of
these cocoa beans will increase by $2 per chocolate cookie.
Required:
a. Prepare and compare the income statement under the current cost structure with
the income statement if the first proposal is adopted. What is the effect of the first
proposal on the companys net income?
b. What is the effect of the second proposal on the companys net income?
c. Which proposal should be implemented by the company?
Task 5
The Tubbs Kitchen Manufacturer sells kitchen backsplash and countertops. The
company's accountant has prepared the following sales budget for the first quarter of
2015:
January
February
March
Total

Budgeted sales
$100,000
$125,000
$150,000
$375,000

Based on past experience, the following trend in cash collection is expected from its
credit sales: 70% is to be collected in the month of sale, 20% in the month following
sale and 6% in the second month following sale. Uncollectible accounts have
averaged 4% of receivables. The company gives a 2% discount for payments made
by customers during the month of sale.
Required:
Prepare a schedule of cash collections from sales by month and in total for the first
quarter 2015.
THIS IS THE END OF THE EXAM PAPER

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