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MANAGEMENT ADVISORY SERVICES October 11, 2018

Mid-term Examination 9:00am-12:00nn

DIRECTION: Write your answer clearly in your test booklet. The exam is good for 3 hours. God bless!

THEORETICAL
1. Which activity is NOT normally performed by managerial accountants?
a. Assisting managers to interpret data in managerial accounting reports.
b. Designing systems to provide information for internal and external reports.
c. Gathering data from sources other than the accounting system.
d. Deciding the best level of inventory to be maintained.
2. Divisional profits should
a. exclude revenues and expenses related to dealings with other divisions within the same enterprise.
b. be computed so that the total profits of all the divisions equals the total profit for the company.
c. be based on the principle of controllability.
d. be based on cash flows rather than accrual basis accounting.
3. Which equation describes ROI? (I = investment, S = sales, and
N = income)
a. S/I
b. S/I x N
c. S/I x S/N
d. N/S x S/I
4. Which transfer price is ideal for the company when the selling division is at capacity?
a. Market price.
b. Incremental cost.
c. Budgeted full cost.
d. Actual variable cost plus a percentage profit.
5. Which variance is LEAST likely to be affected by hiring workers with less skill than those already working?
a. Material use variance.
b. Labor rate variance.
c. Material price variance.
d. Variable overhead efficiency variance.
6. The major variance used in controlling fixed costs is the
a. efficiency variance.
b. budget variance.
c. use variance.
d. none of the above.
7. Which formula calculates a use or efficiency variance? (AQ = actual quantity of the factor, AP = actual price of
the factor, SQ = standard price of the factor, SQ = standard quantity of the factor)
a. (AQ x AP) - (SQ x SP).
b. (AQ x SP) - (SQ x SP).
c. (AQ x AP) - (AQ x SP)
d. (SQ x SP) - (SQ x AP).
8. The use of ideal standards
a. motivates workers to perform well.
b. results in mostly favorable variances.
c. is preferred by most managers.
d. can cause performance to suffer.
9. An unfavorable volume variance signifies that
a. cost control was poor.
b. sales were less than budgeted.
c. production was less than sales.
d. production was less than the level used to set the fixed overhead application rate.
10. .A POOR reason to use activity-based overhead rates is that
a. some departments are labor-intensive, some are machine-intensive.
b. significant amounts of overhead are driven by different factors.
c. rates calculated for some departments are much higher than for other departments.
d. all jobs require about the same amounts of cost-driving activities.
11. A predetermined overhead rate is calculated using
a. budgeted overhead cost and budgeted activity.
b. actual overhead cost and actual activity.
c. budgeted overhead cost and budgeted direct labor hours.
d. budgeted overhead cost and budgeted direct labor cost.
12. . Which is a good reason to use separate overhead rates?
a. Some departments are labor-intensive, some are machine-intensive.
b. Labor rates vary considerably among departments.
c. The resulting overhead rates are all about the same.
d. All jobs require about the same percentage of time in all departments.
13. Conventional and just-in-time manufacturers both
a. Maintain large inventories of their products.
b. Sell only to other manufacturing companies.
c. Desire to meet customers' deadlines.

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 d. Require about the same amount of space to operate.
14. A non-value-adding cost is
a. usually direct to a product.
b. the same as a discretionary cost.
c. unavoidable.
d. not essential to manufacturing a product.
15. ABC Company breaks even at $600,000 sales and earns $60,000 at $700,000 sales. Which of the following is
true?
a. Fixed costs are $40,000.
b. Profit at sales of $800,000 would be $160,000.
c. The selling price per unit is $6.
d. Contribution margin is 60% of sales.
16. The activities that drive resource requirements are called the
a. activity drivers
b. cost objects
c. resource drivers
d. sustaining activities
17. ____________ relate to an entire plant as a whole.
a. Batch-level activities
b. Facility-sustaining activities
c. Sustaining activities
d. Unit-level activities
18. Allocated costs are
a. generally separable.
b. generally variable.
c. generally common.
d. especially important in deciding whether to drop a segment.
19. Which of the following is true for a make-or-buy decision?
a. The reliability of the outside supplier of the component is important to the decision.
b. Depreciation on equipment used in making the component and having no other use is the critical factor in the
decision.
c. Opportunity costs are irrelevant.
d. The company should make the component if the purchase price is less than the per-unit variable cost to make the
component.
20. Which of the following will occur if X Co.'s actual sales in May are lower than its budgeted sales for that month?
a. X won't have enough cash to cover bills requiring payment in May.
b. X's actual inventory at the end of May will be higher than budgeted.
c. X's actual purchases in June will be higher than budgeted.
d. All of the above.

SITUATIONAL

Waupaca Company produces three products with the following production and cost information:

Model A Model B Model C

Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5

21. Overhead costs include setups $90,000; shipping costs $140,000; and engineering costs $180,000. What would
be the per unit overhead cost for Model A if direct labor hours were the allocation base?
a. $20.50
b. $41.00
c. $82.00
d. Some other number

22. Tyler Company currently sells 1,000 units of product M for $1 each. Variable costs are $0.40 and avoidable fixed
costs are $400. A discount store has offered $0.80 per unit for 400 units of product M. The managers believe that
if they accept the special order, they will lose some sales at the regular price. Determine the number of units they
could lose before the order became unprofitable.
a. 267 units
b. 500 units
c. 600 units
d. Some other number.
23. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the products. The
contribution margins, sales demands, and time on each machine (in minutes) is as follows:
time time
Demand CM on M1 on M2
A 100 $12 5 10
B 80 18 10 5
C 100 25 15 5
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 There are 2,400 minutes available on each machine during the week. How many units should be produced and
sold to maximize the weekly contribution?
A B C
a. 100 80 100
b. 20 80 100
c. 100 40 100
d. 100 80 73
24. Equinox Company budgeted sales of 44,000 units for January, 60,000 for February. The budgeted beginning
inventory for January 1 was 14,000 units. Equinox desires an ending inventory equal to one-half of the following
month's sales needs. Budgeted production for January is
a. 74,000 units.
b. 60,000 units.
c. 52,000 units.
d. 28,000 units.
25. Danner Inc. has projected sales to be $100,000 in June, $90,000 in July, and $70,000 in August. Danner collects
50% of a month's sales in the month of sale, 30% in the month following the sale, and 16% in the second month
following the sale. Cash collections in August would be
a. $35,000.
b. $62,000.
c. $78,000.
d. $86,000.
26. Scottso Division has the following results for the year:

Revenues $1,080,000
Variable expenses 440,000
Fixed expenses 400,000

Total divisional assets are $1,600,000. The company's minimum required rate of return is 14 percent. Return on
investment for Scottso is
a. 54%.
b. 18%.
c. 15%.
d. 10%.
27. Durand Division has the following results for the year:

Revenues $470,000
Net income 130,000

Total divisional assets are $625,000. The company's minimum required rate of return is 12 percent. Residual
income for Durand is
a. $3,760.
b. $55,000.
c. $73,600.
28. Acme has a standard price of $6 per pound for materials. July's results showed an unfavorable material price
variance of $44 and a favorable quantity variance of $228. If 1,066 pounds were used in production, what was the
standard quantity allowed for materials?
a. 1,066
b. 1,104
c. 1,294
d. some other number
29. Chippewa paid $32,225 to direct labor for the production of 1,700 units. Standards allow 3 labor hours per unit at
a rate of $6.50 per hour. Actual hours totaled 5,150. The direct labor rate variance was
a. $1,250 favorable
b. $925 favorable
c. $325 favorable
d. $325 unfavorable
30. Silver Bow manufactured the first batch of product in 100 hours. The second batch took an additional 60 hours.
What percent learning occurred?
a. 100%
b. 90%
c. 80%
d. Cannot be determined with the information given.
d. cannot be determined without further information.
31. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and
fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs.
Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The volume
variance under absorption costing would be
a. $10,000.
b. $20,000.
c. $30,000.
d. some other number.

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Ultra Shine Company manufactures a cleaning solvent. The company employs both skilled and unskilled workers. To
produce one 55-gallon drum of solvent requires Materials A and B as well as skilled labor and unskilled labor. The
standard and actual material and labor information is presented below:

Standard:
Material A: 30.25 gallons @ $1.25 per gallon
Material B: 24.75 gallons @ $2.00 per gallon

Skilled Labor: 4 hours @ $12 per hour

Unskilled Labor: 2 hours @ $ 7 per hour

Actual:
Material A: 10,716 gallons purchased and used @ $1.50 per gallon
Material B: 17,484 gallons purchased and used @ $1.90 per gallon

Skilled labor hours: 1,950 @ $11.90 per hour

Unskilled labor hours: 1,300 @ $7.15 per hour
During the current month Ultra Shine Company manufactured 500 55-gallon drums.

Round all answers to the nearest whole dollar.

32. Refer to Ultra Shine Company. What is the total material price variance?
a. $877 F
b. $877 U
c. $931 U
d. $931 F

33. Refer to Ultra Shine Company. What is the total material mix variance?
a. $3,596 F
b. $3,596 U
c. $4,864 F
d. $4,864 U

34. Refer to Ultra Shine Company. What is the total material yield variance?
a. $1,111 U
b. $1,111 F
c. $2,670 U
d. $2,670 F

35. Refer to Ultra Shine Company. What is the labor rate variance?
a. $0
b. $1,083 U
c. $2,583 U
d. $1,083 F

36. Refer to Ultra Shine Company. What is the labor mix variance?
a. $1,083 U
b. $2,588 U
c. $1,083 F
d. $2,588 F

37. Refer to Ultra Shine Company. What is the labor yield variance?
a. $2,583 U
b. $2,583 F
c. $1,138 F
d. $1,138 U

Rainbow Company uses a standard cost system for its production process. Rainbow Company applies overhead based
on direct labor hours. The following information is available for July:

Standard:
Direct labor hours per unit 2.20
Variable overhead per hour $2.50
Fixed overhead per hour
(based on 11,990 DLHs) $3.00

Actual:
Units produced 4,400
Direct labor hours 8,800
Variable overhead $29,950
Fixed overhead $42,300

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 38. Refer to Rainbow Company Using the four-variance approach, what is the variable overhead spending variance?
a. $7,950 U
b. $25 F
c. $7,975 U
d. $10,590 U

39. Refer to Rainbow Company Using the four-variance approach, what is the variable overhead efficiency variance?
a. $9,570 F
b. $9,570 U
c. $2,200 F
d. $2,200 U

40. Refer to Rainbow Company Using the four-variance approach, what is the fixed overhead spending variance?
a. $15,900 U
b. $6,330 U
c. $6,930 U
d. $935 F
41. Refer to Rainbow Company Using the four-variance approach, what is the volume variance?
a. $6,930 U
b. $13,260 U
c. $0
d. $2,640 F
42. Refer to Rainbow Company Using the three-variance approach, what is the spending variance?
a. $23,850 U
b. $23,850 F
c. $14,280 F
d. $14,280 U
43. Refer to Rainbow Company Using the three-variance approach, what is the efficiency variance?
a. $11,770 F
b. $2,200 F
c. $7,975 U
d. $5,775 U
44. Refer to Rainbow Company Using the three-variance approach, what is the volume variance?
a. $13,260 U
b. $2,640 F
c. $6,930 U
d. $0
45. Refer to Rainbow Company Using the two-variance approach, what is the controllable variance?
a. $21,650 U
b. $16,480 U
c. $5,775 U
d. $12,080 U
46. Refer to Rainbow Company Using the two-variance approach, what is the noncontrollable variance?
a. $26,040 F
b. $0
c. $6,930 U
d. $13,260 U
47. Refer to Rainbow Company Using the one-variance approach, what is the total variance?
a. $19,010 U
b. $6,305 U
c. $12,705 U
d. $4,730 U

In the two following constraint equations, X and Y represent two products (in units) produced by the Uncommon Products
Corporation.

Constraint 1: 3X + 5Y < 4,200

Constraint 2: 5X + 2Y > 3,000
48. Refer to Uncommon Products Corporation. What is the maximum number of units of Product X that can be
produced?
a. 4,200
b. 3,000
c. 600
d. 1,400

49. Refer to Uncommon Products Corporation. What is the feasible range for the production of Y?
a. 840 to 1,500 units
b. 0 to 840 units
c. 0 to 631 units
d. 0 to 1500 units

50. Refer to Uncommon Products Corporation. A solution of X = 500 and Y = 600 would violate

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a. Constraint 1.
b. Constraint 2.
c. both constraints.
d. neither constraint.

51. One constraint in an LP problem is: 12X + 7Y > 4,000. If the optimal solution is X = 100 and Y = 500, this
resource has
a. slack variable of 700.
b. surplus variable of 700.
c. output coefficient of 700.
d. none of the above.

52. Consider the following linear programming problem and assume that non-negativity constraints apply to the
independent variables:

Max CM = $14X + $23Y

Subject to
Constraint 1: 4X + 5Y < 3,200
Constraint 2: 2X + 6Y < 2,400

Which of the following are feasible solutions to the linear programming problem?
a. X = 600, Y = 240
b. X = 800, Y = 640
c. X = 0, Y = 400
d. X = 1,200, Y = 0

Rio Hondo Company is a manufacturer of electronic components. The following manufacturing information is available for
the month of May:

Good units manufactured 40,000

Value-added hours of manufacturing time 20,000
Total units manufactured 50,000
Total hours of manufacturing time 30,000

53. Refer to Rio Hondo Company. What is the throughput per hour?
a. 1.3 units (rounded)
b. 2.0 units
c. 1.8 units
d. .8 units

54. Refer to Rio Hondo Company. What is the process quality yield?
a. 50%
b. 75%
c. 80%
d. 125%

One of the products manufactured by McAllen Company is a plastic disk. The information below relates to the Disk
Production Department:
Good units produced 200,000
Units started in production 250,000
Processing time (budgeted hours) 425
Processing time (total hours) 400
Value-added processing time 300

55. Refer to McAllen Company. What is the process quality yield in the Disk Production Department?
a. 75%
b. 44%
c. 80%
d. 125%

56. Refer to McAllen Company. What is the throughput per hour in the Disk Production Department?
a. 470 units
b. 500 units
c. 625 units
d. 667 units

57. Refer to McAllen Company. What is the process productivity in the Disk Production Department?
a. 588
b. 625
c. 667
d. 833

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The capital budgeting committee of the Richmond Steel Corporation is evaluating the possibility of replacing its old pipe-
bending machine with a more advanced model. Information on the existing machine and the new model follows:

Existing machine New machine

Original cost $200,000 $400,000
Market value now   80,000
Market value in year 5        0   20,000
Annual cash operating costs   40,000   10,000
Remaining life   5 yrs.   5 yrs.

58. Refer to Richmond Steel Corporation. The major opportunity cost associated with the continued use of the
existing machine is
a. $30,000 of annual savings in operating costs.
b. $20,000 of salvage in 5 years on the new machine.
c. lost sales resulting from the inefficient existing machine.
d. $400,000 cost of the new machine.

59. Refer to Richmond Steel Corporation. The $80,000 market value of the existing machine is
a. a sunk cost.
b. an opportunity cost of keeping the old machine.
c. irrelevant to the equipment replacement decision.
d. a historical cost.

60. Refer to Richmond Steel Corporation. If the company buys the new machine and disposes of the existing
machine, corporate profit over the five-year life of the new machine will be ____________________ than the profit
that would have been generated had the existing machine been retained for five years.
a. $150,000 lower
b. $170,000 lower
c. $230,000 lower
d. $150,000 higher

-END OF EXAMINATION-

Once we believe in our self, we can risk curiosity, wonder, spontaneous delight or ay experience that reveals the
human spirit.
- E.E. Cummings

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