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12/06/2006 :

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Question One: (20 Marks)
Each multiple choice Question has four suggested answers, letter
(A) , (B) , (C) , or (D). You should read each Question and then decide
which choice is best .
1) The length of time that it takes for a project to recover its initial
cost out of the cash receipts that it generates .
a. Break even time .
b. Payback period .
c. Throughput time .
d. None .
2) Questions (2 4). Refer to the following: A TQM team at Sea Corp
has recorded the following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days
b. 0.2 days
c. 4.1 days
d. 13.4 days
3) What is the (MCE) Manufacturing Cycle Efficiency?
a. 50.0%
b. 1.9%
c. 52.0%
d. 5.1%
4) What is the delivery cycle time?
a. 0.5 days
b. 0.7 days
c. 13.4 days
d. 10.4 days

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5) Wesber Company's direct labor cost is 30% of its conversion cost. If
the manufacturing overhead cost for the last period was $49,000 and the
direct materials cost was $20,000, the direct labor cost was:
a. 6,000
b. 14,700
c. 21,000
d. 34,000
6) Questions 6 and 7 refer to the following: At a sales volume of 30,000
units, Fadi inc.'s total fixed costs are $30,000 and total variable costs are
$45,000. The relevant range for the product is 20,000 to 40,000 units. If
Fadi were to sell 32,000 units, the total expected cost would be:
A. 75,000
B. 78,000
C. 80,000
D. 77,000
7)If Fadi were to sell 40,000 units, the total expected cost per unit
(rounded to the nearest cent ) would be:
A. 2.50
B. 2.25
C. 2.13
D. 1.88

8) Which of the following statements about cost behavior are true?

A. Fixed costs per unit vary with the level of activity.
B. Variable costs per unit are constant within the relevant range.
C. Total fixed costs are constant within the relevant range.
D. Total variable costs are constant within the relevant range.

9) Questions 9 and 10 refer to the following : Sales salaries and

commissions are $10,000 when 80,000 units are sold, and $14,000 when
120,000 units are sold. Using the high- low method, what is the
variable portion of sales salaries and commission?
A. $0.08 per unit
B. $0.10 per unit
C. $0.12 per unit
D. $0.125 per unit

10) The fixed portion of sales salaries and commissions?

A. $2,000
B. $4,000
C. $10,000
D. $12,000

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11) Redmond Awnings, a division of Wrapup Corp., has a net operating
income of $60,000 and average operating assets of $300,000. The
required rate of return for the company is 15%. What is the division's
residual income?
A. $240,000
B. $45,000
C. $15,000
D. $51,000
12) Northern Optical ordinarily sells the X- lens for $50. The variable
production cost is $10. the fixed production cost is $18 per unit, and the
variable selling cost is $1. A customer has requested a special order for
10,000 units of the X- lens to be imprinted with the customer's logo. This
special order would not involve any selling costs, but Northern Optical
would have to purchase an imprinting machine for $50,000. What is the
rock bottom minimum price below which Northern Optical should
not go in its negotiations with the customer? In other words, below
what price would Northern Optical actually be losing money on the
sale? There is ample idle capacity to fulfill the order and the imprinting
machine has no further use after this order.
A. $ 50
B. $ 10
C. $ 15
D. $ 29

13) Furniture Company makes two products from selected hardwoods:-

Chairs Tables
Selling price per unit $80 $ 400
Variable cost per unit $30 $ 200
Board feet per unit 2 10
Monthly demand 600 100
The company's supplier of hardwood will only be able to supply 2,000
board feet this month. What plan would maximize profits?
A. 500 chairs and 100 tables
B. 600 chairs and 80 tables
C. 500 chairs and 80 tables
D. 600 chairs and 100 tables

Question Two: (10 Marks)

1- Advantages of standard costs :

2- Short comings of the payback period .

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4- The success of budgeting depends upon three important factors:

5- The cash budgets is divided into four sections:




6- The residual income approach has one major disadvantage.

7- Objectives of International Transfer Pricing:-

)Question Three: (6 Marks

GMC Associates has been offered a four-year contract to supply the
computing requirements for Palestine Islamic Bank (PIB).
Cash flow information
Cost of computer equipment $ 250,000
Working capital required 20,000
Upgrading of equipment in 2 years 90,000
Salvage value of equipment in 4 years 10,000
Annual net cash inflow 120,000

The working capital would be released at the end of the contract.

GMC Associated requires a 14% return.
Required:
?1. What is the net present value of the contract with PIB
?2. Compute the Break even time
?3. Compute the Profitability index

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Question Four: (6 Marks)
Gaza Company is studying a project that would have an eight-year life and
require a $2,400,000 investment in equipment. At the end of eight years, the
project would terminate and the equipment would have no salvage value. The
project would provide net operating income each year as follows:
Sales $3,000,000
Less variable expenses 1,800,000
Contribution margin 1,200,000
Advertising, salaries, and other
fixed costs $700,000
Depreciation $300,000
Total fixed expenses 1,000,000
Net operating income $ 200,000

The companys discount rate is 12%

Required:
1. Compute the projects net present value. Is the project acceptable?
2. Find the projects internal rate of return to the nearest whole percent ?
3. Compute the projects payback period ?
4. Compute the projects accounting rate of return ?

Question Five: (6 Marks)

It is certainly nice to see that small variance on the income statement after
all the trouble weve had lately in controlling manufacturing costs, said Ali
Yousef, vice president of Sea Company. The $ 8,750 overall manufacturing
variance reported last period is well below the 3% limit we have set for
variances. We need to congratulate everybody on a job well done.
The company produces and sells a single product. The standard cost card
for the product follows:
Standard Cost Card-Per Unit
Direct materials, 4 yards at $ 3.50 per yard $ 14
Direct labor, 1.5 direct labor-hours at $ 12 per direct labor-hour 18
Variable overhead, 1.5 direct labor-hours at $2 per direct labor-hour 3
Fixed overhead, 1.5 direct-labor hours at $ 6 per direct labor-hour 9
Standard cost per unit $ 44
The following additional information is available for the year just completed:
a. The company manufactured 20,000 units of product during the year.
b. A total of 78,000 yards of material was purchased during the year at a
cost of $ 3.75 per yard. 77,000 yards of the material was used to
manufacture the 20,000 units. There were no beginning or ending
inventories for the year.

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 c. The company worked 32,500 direct labor-hours during the year at a cost
of $ 11.80 per hour.
d. Overhead cost is applied to products on the basis of direct labor-hours.
Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor-hours) 25,000
Budgeted fixed overhead costs (from the flexible budget) $150,000
Actual fixed overhead costs $148,000
Actual variable overhead costs $ 68,250
Required:
1. Compute the direct materials price and quantity variances for the year.
2. Compute the direct labor rate and efficiency variances for the year.
3. For manufacturing overhead, compute the following:
a. The variable overhead spending and efficiency variances for the
year.
b. The fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount
with the $ 8750 mentioned by the vice president. Do you agree that
everyone should be congratulated for a job well done? Explain.

Question Six: (6 Marks)

You have been asked to prepare a December cash budget for Gaza
Company. The following information is available about the companys
operations:
a. The cash balance on December 1 will be $40,000.
b. Actual sales for October and November and expected sales for
December are as follows:
October November December

Cash sales $65,000 $70,000 $83,000

Sales on account. 400,000 525,000 600,000
Sales on account are collected over three- month period in the
following ratio: 20% collected in the month of sale, 60% collected in the
month following sale, and 18% collected in the second month following
sale. The remainging 2% is uncollectible.
c. Purchases of inventory will total $280,000 for December. Thirty
percent of a months inventory purchases are paid during the month
of pruchase. The accounts payable remaining from Novembers
inventory purchases total $161,000 all of which will be paid in
December.
d. Selling and administrative expenses are budgeted at $430,000 for
December. Of this amount, $50,000 is for depreciation.
e. A new web server for the Marketing Department costing $76,000
will be purchased for cash during December, and dividends
totaling $9,000 will be paid during the month.

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 f. The company must maintain a minimum cash balance of $20,000.
An open line of credit is available from the companys bank to
bolster the cash position as needed.
Required:
1. Prepare a schedule of expected cash collections for December.
2. Prepare a schedule of expected cash disbursements for
materials during December to suppliers for inventory
purchases.
3. Prepare a cash budget for December. Indicate in the financing
section any borrowing that will be needed during the month.

Question Seven : (6 Marks)

Ali Saed has recently opened sheer Elegance, Inc., a store specializing in
fashionable stockings. Mr. Saed has just completed a course in managerial
accounting and he believes that he can apply certain aspects of the course to
his business. He is particularly interested in adopting the cost- volume-
profit (CVP) approach to decision making .Thus, he has prepared the
following analysis:
Sales price per pair of stockings................. $ 2.00
Variable expense per pair of stockings...... 0.80
Contribution margin per pair of stockings... $1.20
Fixed expenses per year:
Building rental ........................................... $12,000
Equipment depreciation ............................ 3,000
Selling....................................................... 30,000
Administrative............................................ 15,000
Total fixed expenses .................................. $60,000

Required:
1. How many pairs of stockings must be sold to break even? What does
this represent in total dollar sales?
2. How many pairs of stockings must be sold to earn a $9,000 target profit
for the first year?
3. Mr. Saed now has one full- time and one part- time salesperson working
in the store. It will cost him an additional $8,000 per year to convert the
part- time position to a full- time position. Mr. Saed believes that the
change would bring in an additional $ 20,000 in sales each year. Should
he convert the position?
4. Refer to the original data. Actual operating results for the first year are
as follows:
Sales $ 125,000
Less variable expenses 50,000
Contribution margin 75,000
Less fixed expenses 60,000

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 Net operating income $ 15,000
a.What is the store's degree of operating leverage?
b. Mr. Saed is confident that with some effort he can increase sales by 20%
next year. What would be the expected percentage increase in net
operating income?

Question Eight: (6 Marks)

Gaza Sports Equipment manufactures round, rectangular, and octagonal
trampolines. Data on sales and expenses for the past month follow:
Trampoline
Rectangular octagonal
Total Round
Sales ................................................. $1,000,000 $140,000 $500,000 $360,000
Less variable expenses..................... 410,000 60,000 200,000 150,000
Contribution margin......................... 590,000 80,000 300,000 210,000
Less fixed expenses: ..........................
Advertising traceable....................
216,000 41,000 110,000 65,000
Depreciation of special equipment... 95,000 20,000 40,000 35,000
Line supervisors' salaries .................
19,000 6,000 7,000 6,000
General factory overhead* .................
200,000 28,000 100,000 72,000
Total fixed expenses ........................
530,000 95,000 257,000 178,000
Net operating income (loss) .............$60,000 $(15,000) $43,000 $32,000
* A common fixed cost that is allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the
round trampolines and wants a recommendation as to whether or not the line
should be discontinued. The special equipment used to produce the trampolines
has no resale value. If the round trampoline model is dropped the two line
supervisors assigned to the model would be discharged.

Required:
1. Should production and sale of the round trampolines be discontinued?
You my assume that the company has no other use for the capacity now
being used to produce round trampolines.
2. Recast the above data in a format that would be more usable to
management in assessing the long-run profitability of the various
product lines.

Question Nine: (6 Marks)

Palestine Hotel has three service departments- Grounds and
Maintenance, General Administration and Laundry. The costs of these
departments are allocated by the Step Method using bases and in the
order shown below:
General Administration :
Costs- allocated on the basis of number of actual employees:
Laundry:

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 Cost- allocated on the basis of number of items processed.
Grounds and Maintenance:
Costs allocated on the basis of square feet of space occupied .

Cost and operating data for all departments in the hotel for recent
month are presented in the table below:
Grounds and General Convention
Laundry Food services Lodging Total
maintenance Administration center
Total overhead costs $17,500 $13,065 $32,700 $28,500 $112,000 $117,450 $321,215
Square feet of space 2,000 2,500 3,750 15,000 6,250 97,500 127,000
Number of employees 9 5 10 5 25 21 75
Laundry items processed - - - 1,000 5,250 40,000 46,250

All billing in the hotel is done through the Convention Center,

Food Services, and Lodging. The hotel's general manager wants the
costs of the three service departments allocated to these three billing
centers.

Required:
Prepare the cost allocation desired by the hotel's general manager.
Include under each billing center the direct costs of the center, as well as
the cost allocated from the service departments.

GOOD LUCK