ACCT 215 Midterm, Fall 2004

American University of Beirut Olayan School of Business ;~ ACCT 215 puns . MIDTERM — os Fall 2004 - 2005 November 23, 2004 Name: © dnwomd N gacoy ID #:_NOOU OAIG4 Section:_|-h =3h14 Instructor:_ Mrs. R : N “LAAAL Time: 2 Hours The examination is comprised of seven pages and the following questions: Question | Type Points Minutes 1 Multiple choice 20 -5 30 Break-Even Analysis 20 20 Joint Products 15 15 Cost Management 15 15 Keep/Drop a Product Line 15 15 Measurement of Cost 15 15 Behaviour Cushion 10 Total 100 120 INSTRUCTIONS: PLEASE ANSWER ALL QUESTIONS (INCLUDING MULTIPLE CHOICE) ON THE ANSWER BOOKLET. SHOW ALL SUPPORTING COMPUTATIONS! GOOD LUCK! J. MULTIPLE CHOICE -“ 5 The primary purpose of management accounting is a.) presenting information to help managers fulfill organizational objectives. b. preparing information for shareholders, tax authorities, and other persons outside organizations. c. complying with generally accepted accounting principles and tax rules. ig all the above are purposes of management accounting. +2. Cost-benefit analyses and behavioral implications are major considerations in management accounting more than in financial accounting. both financial and management accounting equally. d. neither management nor financial accounting. A financial accounting more than in management accounting. c The concept of management by exception is a. inconsistent with management accounting. “2 : appropriate in financial accounting but not in management accounting. d a major element in management accounting by focusing on deviations from plans while ignoring smoothly running activities. a traditional approach that is no longer appropriate. The value chain of an organization focuses on adding value to a. shareholders’ investments in a company. managers’ abilities to run a company efficiently and effectively. customers by adding value to goods and services. d. the macroeconomic well being of the country. Ethical behavior is important in management accounting because ethical conduct adds value. ethical conduct is required by law. ethical conduct reduces value but adds to favorable public images. Ethical conduct is not important in management accounting. variable cost changes in direct proportion to cost driver level. changes with the level of output. changes from one period to the next. changes from one relevant range to the next. A fixed cost is constant over all levels of output within the relevant range. is not immediately affected by changes in the cost-driver level. is constant from one period to the next. d. constant on a per-unit basis. In management accounting analyses, the cost driver is the number of units produced or sold. the money amount of sales revenue. any output measure that causes a cost to be incurred. either a or bg depending on the nature of the company. In management accounting analyses, the relevant range is the total possible range of output. wa: output range planned by management of a company. . limit to sales activity because of marketing factors. limit of cost-driver activity level within which cost relationships are valid, 10. The break-even point results when a. total revenue equals total costs. VA contribution margin equals fixed costs. c. variable costs equal fixed costs. both a. and b. describe the break-even point. The contribution margin is the same as the gross margin. revenues less variable costs. . revenues less fixed costs. d. revenues less total costs. 12. Operating leverage is a company's ratio of \@ fixed to variable costs. a. fixed to total costs. c . variable to total costs. ® debt to equity. 13. In analyzing cost behavior patterns, management accountants a. should always seek to determine the most accurate true cost. _ bd. use curvilinear and similar quantitative techniques to determine cost functions. i~ & typically ignore costs that cannot be easily measured. ENC) often assume cost behavior is linear over the relevant range. 14. Costs that change abruptly at levels of activity are called a. mixed costs. 1) step costs. c. curvilinear costs. d. irrelevant costs. L~ 15. A cost that is represents management's decision to meet an objective and can be readily chariged is called a a. variable cost. b. capacity cost. ay discretionary fixed cost. d. committed fixed cost. 16. Cost estimating functions that are based primarily on professional judgment are a. ‘engineering analysis. @ accounting analysis. visual fit analysis. Cc, _-\ both a. and b. Which of the following methods does NOT use historical data to develop a cost function high-low. visual fit. ordinary least squares regression. All the above use historical data to develop a cost function. A measurement of how much of the fluctuation in cost is explained by changes in the cost driver is a. The t statistic. Dy The coefficient of determination R” c.: The alpha factor o d. The variance sigma o 19: A cost object or objective is best described as a. a unit of output produced or sold. the total money amount of costs incurred. b. \ the factor that causes costs to be incurred. _ anything for which a separate measurement of costs is desired. —20, | Which scorecard function is associated with planning and control? a. scorekeeping tL ©) attention directing c. problem solving d none of the above II BREAK-EVEN ANALYSIS Beirut City, SAL, is a major producer ofipipe organs, Its Model D 14 is a double-manual organ with a large potential market. Here is a summary of data from 2003 operations for Model D 14. Variable costs per unit Direct materials $ 2,300 Direct labor 800 Factory overhead 600 Selling expense 500 Total fixed costs Factory overhead 195,000 Advertising 55,000 Administrative expense 68,000 Selling price per unit “9,500 , B2e2 Required: 1. Compute the 2003 breakeven point in units. 2. Beirut City sold\sixty-five D 14 models in 2003. How much profit did the firm realize? 65 wih soly 3, Management is pondering alternative courses of action for 2004. (Treat each alternative independently.) a. Calculate the number of units that must be sold to generate a profit of $95,400. Calculate income before taxes if the company_increases the number of units sold by 20 percent and cuts the selling price by $ 500 per unit. c. If variable costs are,cug by 10 percent, find the number of units that must be sold to generate a profit of $ 125,000. () Assume that costs and selling price remain constant. I, SINT PRODUCTS a _ Warner Company has a joint process which produces three products, AAyBB and,CG. Each * product may be sold at split-off or processed further and then sold, Joint processing costs for a year amount to $30,000. Currently, Warner sells all products at split-off. Other relevant data are as follows: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion AA $15,500 $2,200 $17,700 15,500 BB 18,000 8,000 23,000 AG, ODO cc 24,000 11,500 37,500 26.G0°° Required: a. What will be the effect on profits of processing each product further? b. Assume the company maximizes profits, what is the company’s operating - income? iN D.17 3 NL Ac Hlabys Feitad IL COST MANAGEMENT D vpried le. (ot The Solomon Company has gathered the following information: Sales $104,000 AQ Direct materials used 25,800) yor 44,008 Direct labor 15,200 Fixed: Factory overhead 12,400 Selling expenses 4,200 |= 2S 00 Administrative expenses 8,600 Variable: Factory overhead Selling expenses ; Administrative expenses There were no beginning or ending inventories. Required: Calculate the following: a. Contribution margin 4300 b. Gross margin Guoeo c. Total product cost (6ov% ruoe + OTT BL - Goce (To tal period cost 242s vy, Freedom Corporation has three departments, Data for the most recent year is presented below: . KEEP / DROP A PRODUCT LINE A B Sales $400 Variable expenses 128 52 Fixed expenses: Unavoidable 96 52 Avoidable 116 Compute the operating income of the company. . Compute the,contribution margin,and gperating income,of each department. Should any department(s) be eliminated? Which one(s) and why?