Managerial Accounting

Accounting Department
Faculty of Commerce
:

Prof. Salem Helles

Med-term Exam
May, 11, 2009
:

Answer the Following Questions:-

Question One: (6 marks)

Each multiple- choice question has four suggested answers, (A), (B), (C)
and (D). You should read each question and then decide which choice is
best, either (A) or (B) or (C) or (D).
1- Management Accountants have an obligation to the
organizations they server with the following standards :
a. Competence and Integrity .
b. Confidentiality and objectivity (credibility) .
c. a + b .
d. None of the above .
2- A measure of how sensitive net operating income is to
percentage changes in sales .
a. Margin of safety .
b. Operating leverage .
c. Break even point .
d. Split off point .
3- Suppose a city has a $200,000 budget in order to conduct a
counseling program. Variable costs per prescription is $200 per
patient per day. Fixed costs are $60,000.
How many patients can it server in a year?
a. 200
b. 300
c. 500
d. 700
4- Managers use accounting information for:
a. Making short term planning and control decisions .
b. Making non routine decisions .
c. Formulating overall policies and long rang plans.
d. All of the above .
5- To be relevant to a particular decision , a cost or revenue
a. must be an expected future cost or revenue.
b. Must have an element of difference among the alternative
courses of action .
c. Both A and B .
d. None of the above .
1

6- In the decision to keep or replace equipment , relevant costs

includes
a. The disposal value of old equipment .
b. The cost of new equipment .
c. The difference in the annual operating costs .
d. All of the above .
Question Two: (3.5 Mark)
Read each statement and then write T (true) or F (false).
1.(
) Integrity is essential to accountants because they provide
information that users must trust to be right .
2. (
) Budgets and performance reports are essential tools for
planning and control .
3. (
) Managers use CVP analysis to compute the sales needed to
achieve a target profit .
4. (
) The contribution margin or gross margin is the difference
between sales revenue and variable costs .
5. (
) Decision makers may fail to consider opportunity costs
because accountants do not report these in the financial accounting
system .
6. (
) In the decision to keep or replace equipment , the book
value of old equipment is relevant .
7. (
) The CMA designation is the external accountants
Counterpart to the CPA .
Question Three : (4.5 Mark)
The Sea view Hotel in Jerusalem has 400 rooms, with a fixed cost of
$300,000 per month during the busy season. Room rates average $62
per day, with variable costs $12 per rented room per day.
Assume a 30-day month .
1. How many rooms must be occupied per day to break even ?
2. How many rooms must be occupied per month to make a monthly
profit of $150,000?
3. How many rooms must be occupied per month to make a monthly
profit after tax $150,000 if tax rate 20%?
Question Four: (6 Marks)
Gaza Store has a magic department near the main door. Suppose that
management is considering dropping the magic department, which has
consistently shown an operating loss. The predicted income statements, in
thousands of dollars($), follow (for ease of analysis, only three product
lines are shown):
2

Total
Sales
Variable expenses
Contribution
margin
Fixed expenses
(compensation,
depreciation,
property taxes
insurance, etc)
Operating income

$6,000
4,090
$1,910(32%)

General
Merchandise
$5,000
3,500

Electronic
Products
$400
200

$1,500 (30%) $ 200(50%)

1,110
$800

750
$750

50
$150

Magic
Department
$600
390
$210(35%)

310
$(100)

The $310,000 of magic department fixed expenses include the

compensation of employees of $100,000. These employees will be
released if the magic department is abandoned. All of the magic
department's equipment is fully depreciated, so none of the $310,000
pertains to such items. Furthermore, disposal values of equipment will be
exactly offset by the costs of removal and remodeling.
If the magic department is dropped, the manager will use the vacated
space for either more general merchandise or more electronic products.
The expansion of general merchandise would not entail hiring any
additional salaried help, but more electronic product would require an
additional person at an annual cost of $25,000. The manager thinks that
sales of general merchandise would increase by $300,000; electronic
products, by $200,000.
Required:
Should the magic department be closed?