Management accounting exam (multiple choice questions)

Part 1. Multiple choice questions (select one correct answer, 3 marks each, 60 marks total)

Please record answers to multiple choice questions in the following table:

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10

Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19 Q20

1. Managerial accounting includes the planning function. Which of the following items

would be part of the planning function of a business’s managerial accounting?

A) Comparing actual performance to previously budgeted amounts

B) Creating detailed budgets

C) Implementing operational plans

D) Evaluating results of operations

2. The journal entry to issue $500 of direct materials and $30 of indirect materials to

production includes which of the following?

A) Debit to Work in process for $500 and debit to Finished goods for $30

B) Debit to Manufacturing overhead for $530

C) Debit to Work in process for $500 and debit to Manufacturing overhead for $30

D) Debit to Work in process inventory for $530

3. Arabica Manufacturing Company uses a predetermined manufacturing overhead rate

based on a percentage of direct labor cost. At the beginning of 2012, they estimated total

manufacturing overhead costs at $1,050,000, and they estimated total direct labor costs at

$840,000. What was the predetermined manufacturing overhead rate?

A) 80% of direct labor cost

B) $1.25 per direct labor hour

C) 125% of direct labor cost

D) $35.00 per direct labor hour

4. LDR Manufacturing produces a pesticide chemical and uses process costing. There

are three processing departments-Mixing, Refining, and Packaging. On January 1, 2012,

the first department, Mixing, had a zero beginning balance. During January, 40,000 liters

of chemicals were started into production. During the month, 32,000 liters were

completed, and 8,000 remained in process, partially completed. In the Mixing

Department, all raw materials are added at the beginning of the production process, and

conversion costs are applied evenly through the process.

During January, the Mixing Department incurred $48,000 in direct materials costs and

$211,600 in conversion costs. At the end of the month, the ending inventory in the

Mixing Department was 60% complete with respect to conversion costs. First, calculate

the equivalent units, then calculate the cost per equivalent unit, and then calculate the

total cost of the product that was completed and transferred out during January.

The total cost of product transferred out was:

A) $211,600.

B) $48,000.

C) $37,200.

D) $222,400.

5. Quality Stereo Company has provided the following information regarding its activitybased

costing system:

 Purchasing department costs are allocated based on purchase orders and the cost

allocation rate is $75 per purchase order.

 Assembly department costs are allocated based on the number of parts used and

the cost allocation rate is $1.00 per part.

 Packaging department costs are allocated based on the number of units produced

and the allocation rate is $2.00 per unit produced.

Each stereo produced has 50 parts, and the direct materials cost per unit is $70. There are

no direct labor costs. Quality Stereo has an order for 1,000 stereos which will require 50

purchase orders in all. What is the total cost of the 1,000 stereos?

A) $125,750

B) $55,750

C) $123,750

D) $122,000

6. Axelrod Company has fixed costs of $250,000. Highest production volume this year

was in January when there were 100,000 units produced and total costs of $550,000. In

June, the company produced only 60,000 units. How much was the total cost in June?

A) $378,000

B) $430,000

C) $330,000

D) $414,500

7. Porterhouse Company has both fixed and variable production costs. If volume goes up

by 20%, how would that affect the total variable costs? (Assume all volumes are within

the relevant range.)

A) Would go up 20%

B) Would remain the same

C) Would go up by some amount less than 20%

D) Would go down

8. Reevis Company sells hand-sewn shirts for $25 per unit, and has fixed costs of $7,500.

Their contribution margin ratio is 20%. How many units do they have to sell to break


A) 950

B) 1,750

C) 1,125

D) 1,500

9. Argyle sells steel beams to building contractors in two sizes: regular and heavy.

Argyle sells 4 regular beams for every one heavy beam. Cost data are as follows:

Regular Heavy

Price per unit $20.00 $28.00

Variable cost per unit $16.00 $20.00

Argyle’s fixed costs are $2,880 per month. How much is the breakeven point for total

sales revenues?

A) $12,960

B) $13,240

C) $9,600

D) $12,880

10. Burr Hill golf course is planning for the coming season. Investors would like to earn a

10% return on the company’s $50,000,000 of assets. The company primarily incurs fixed

costs to groom the greens and fairways. Fixed costs are projected to be $25,000,000 for

the golfing season. About 500,000 rounds of golf are expected to be played each year.

Variable costs are about $10 per round of golf. The Burr Hill golf course has a favorable

reputation in the area and therefore, has some control over the price of a round of golf.

Using a cost-plus approach, what price should Burr Hill charge for a round of golf?

A) $50

B) $60

C) $70

D) $80

11. A company produces 100 microwave ovens per month, each of which includes one

electrical circuit. The company currently manufactures the circuit in-house but is

considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of

producing circuits in-house includes variable costs of $26 per circuit and fixed costs of

$5,000 per month.

Assume the company could eliminate all fixed costs by outsourcing, and that there is no

alternative use for the facilities presently being used to make circuits. If the company

outsources, how will it affect monthly operating income?

A) Operating income will go up by $2,300.

B) Operating income will go down by $2,800.

C) Operating income will go down by $200.

D) Operating income will go up by $4,800.

12. Sun Company is considering purchasing new equipment costing $350,000. Sun’s

management has estimated that the equipment will generate cash inflows as follows:

Year 1 $100,000

Year 2 $100,000

Year 3 $125,000

Year 4 $125,000

Year 5 $75,000

Using the factors in the table below, please calculate the net present value of the net cash

inflows above, using a discount rate of 10%. Please round all calculations to the nearest

whole dollar.


Value of $1

5% 6% 7% 8% 9% 10%

1 0.952 0.943 0.935 0.926 0.917 0.909

2 0.907 0.890 0.873 0.857 0.842 0.826

3 0.864 0.840 0.816 0.794 0.772 0.751

4 0.823 0.792 0.763 0.735 0.708 0.683

5 0.784 0.747 0.713 0.681 0.650 0.621

A) $399,325

B) $342,800

C) $401,667

D) $399,761

13. Which of the following best describes the internal rate of return?

A) The discount rate that makes the cost of the investment equal to the present value of

the cash flows

B) The discount rate that is used to borrow funds from a lender

C) The ratio of average annual income to average amount invested

D) The rate at which an investment pays back

14. Norton Company prepared the following sales budget:

Month Budgeted Sales

March $200,000

April $180,000

May $220,000

June $260,000

Cost of goods sold is budgeted at 60% of sales, and the inventory at the end of February

was $36,000. Desired inventory levels at the end of each month are 30% of the next

month’s cost of goods sold. What is the desired beginning inventory on June 1?

A) $36,000

B) $39,600

C) $43,200

D) $46,800

15. Craig Manufacturing Company’s budgeted income statement includes the following


Data extracted from budgeted

income statement Mar Apr May Jun

Sales $120,000 $90,000 $95,000 $100,000

Commission exp. – 15% of sales 18,000 13,500 14,250 15,000

Salary exp 30,000 30,000 30,000 30,000

Miscellaneous expense — 4% of

sales 4,800 3,600 3,800 4,000

Rent expense 3,600 3,600 3,600 3,600

Utility expense 1,900 1,900 1,900 1,900

Insurance expense 2,100 2,100 2,100 2,100

Depreciation expense 4,400 4,400 4,400 4,400

The budget assumes that 60% of commission expenses are paid in the month they were

incurred and the remaining 40% are paid one month later. In addition, 50% of salary

expenses are paid in the month incurred and the remaining 50% are paid one month later.

Miscellaneous expenses, rent expense and utility expenses are assumed to be paid in the

same month in which they are incurred. Insurance was prepaid for the year on January


How much is the total of the budgeted cash payments for operating expenses for the

month of June?

A) $54,200

B) $53,250

C) $54,400

D) $53,900

16. AAA Company is preparing its 3rd quarter budget and provides the following data:

Jul Aug Sep

Cash collections $50,000 $40,000 $48,000

Cash payments:

Purchases of inventory 31,000 22,000 18,000

Operating expenses 12,000 9,000 11,600

Capital expenditures 13,000 25,000 0

Cash balance at June 30 is projected to be $4,000. The company is required to maintain a

minimum cash balance of $5,000 and is authorized to borrow at the end of each month to

make up any shortfalls. It may borrow in increments of $5,000 and pays interest monthly

at an annual rate of 5%. All financing transactions are assumed to take place at the end

of the month. Loan balance should be repaid in increments of $5,000 when there is

surplus cash.

What is the budgeted cash balance at the end of July, after required financing


A) $0

B) $5,000

C) $3.000

D) $8,000

17. The Carolina Products Company has just completed a flexible budget analysis of 2nd

quarter operating income, as shown here:



Budget Flexible


Volume Static

Results Variance Budget Variance Budget

Units/volume 12,800 0 12,800 800 F 12,000

Sales revenue $62,720 $1,280 U $64,000 $4,000 F $60,000

Variable expenses 27,520 640 U 26,880 1,680 U 25,200


margin 35,200 1,920 U 37,120 2,320 F 34,800

Fixed expenses 34,100 100 U 34,000 0 34,000


income/(loss) $1,100 $2,020 U $3,120 $2,320 F $800

Based on the above data, which of the following statements would be a correct

interpretation of the flexible budget variance for variable expenses?

A) Decrease in price per unit

B) Increase in variable cost per unit

C) Increase in sales volume

D) Increase in fixed costs

18. Allbrand Company uses standard costs for their manufacturing division. Standards

specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static

budget for variable overhead costs included the following data:

Production volume: 5,000 units

Estimated variable overhead costs: $12,500

Estimated direct labor hours: 500 hours

At the end of the year, actual data were as follows:

Production volume: 4,000 units

Actual variable overhead costs: $11,760

Actual direct labor hours: 480 hours

How much is the standard price per hour for variable overhead?

A) $25.00 per direct labor hour

B) $20.50 per direct labor hour

C) $28.00 per direct labor hour

D) $26.88 per direct labor hour

19. A product line at Coca-Cola is most likely treated as a(n):

A) cost center.

B) revenue center.

C) profit center.

D) investment center.

20. Marcia Consumer Products has several divisions, including the Education Division

and the Recreation Division. Data on the two divisions are shown here:

Education Division Recreation Division

Current ROI 9.2% 10.0%

Current WACC 8.0% 8.0%

Operating income $110,000 $200,000

Effective tax rate 20.0% 20.0%

Average total assets $1,200,000 $2,000,000

Current liabilities $30,000 $30,000

How much is the EVA for the Education Division?

A) $12,890

B) $4,600

C) ($5,600)

D) ($12,750)

Part 2. (10 marks)

Clark Manufacturing makes blank CDs; it is a very competitive market and the company

follows a target pricing strategy. Currently the market price for a unit of product (one

unit equals a package of 100 CDs) is $18.00. Clark’s production costs are shown below:

Direct materials $5.00 per unit

Direct labor $2.90 per unit

Indirect production costs $6.42 per unit

Non-manufacturing costs $3.20 per unit

Clark uses activity-based costing for its indirect production costs and provides the

following information about this particular product:

The company’s objective is to earn 5% profit on the sales price of the product. Clark

carried out a value engineering study and decided that they could make the processing

activity more efficient and save costs. They have determined that if they can reduce the

activity rate for the processing activity down low enough, they can hit their profit

objective. What activity rate would be needed to achieve the 5% objective they seek?

(Please round to nearest cent.)

Part 3. (10 marks)

Atlas Manufacturing is closing the year 2012. Atlas uses standard costing methodology

in its accounting system and for internal performance reporting. Atlas’s ending balances

are shown here:

Using the format below, please prepare a statement of operating income.

Sales revenue (standard)

Sales revenue variance

Sales revenue (actual)

Cost of goods sold (standard)

Manufacturing variances

(Credit balances in parentheses)

Direct materials price variance

Direct materials efficiency variance

Direct labor price variance

Direct labor efficiency variance

Variable overhead spending variance

Variable overhead efficiency variance

Fixed overhead spending variance

Fixed overhead volume variance

Cost of goods sold (actual)

Gross profit

Selling & admin. expenses

Net operating income/(loss)

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