Managerial Accounting Solved Exam Sample

QUESTION

Part I: Multiple Choice- 3 Points each (60 points)

Please place your answer legibly in capital letters at the space provided to the left of each question.

1. When managers of subunits throughout an organization strive to achieve the goals set by top management, the result is:

A. goal congruence.

B. planning and control.

C. responsibility accounting.

D. delegation of decision making.

2. A manufacturer’s raw-material purchasing department would likely be classified as a:

A. cost center.

B. revenue center.

C. profit center.

D. investment center.

3. If the head of a hotel’s food and beverage operation is held accountable for revenues and costs, the food and beverage operation would be considered a(n):

A. cost center.

B. revenue center.

C. profit center.

D. investment center.

4. A responsibility center in which the manager is held accountable for the profitable use of assets/capital is commonly known as a(n):

A. cost center.

B. revenue center.

C. profit center.

D. investment center.

5. Which of the following is an appropriate base to distribute the cost of building depreciation to responsibility centers?

A. Number of employees in the responsibility centers.

B. Budgeted sales dollars of the responsibility centers.

C. Square feet occupied by the responsibility centers.

D. Budgeted net income of the responsibility centers.

6. Consider the following statements about performance reports:

Performance reports provide feedback to managers and allow them to better control operations.
Many performance reports have budget, actual, and variance data.
Performance reports are often structured around a firm’s organizational hierarchy—that is, data relating to lower-level units (e.g., departments) are combined and flow into higher-level units (e.g., stores).

Which of the above statements is (are) true?

A. I only.

B. I and II.

C. I and III.

D. I, II, and III.

Use the following to answer questions 7-8:

Management of Child Kare, an operator of day-care facilities, wants the firm’s profit to be subdivided by center. The firm’s accountant has provided the following data:

			Actual	Budgeted
	Actual	Budgeted	Direct	Direct
Center	Revenue	Revenue	Costs	Costs
Downtown	$ 340,200	$ 320,000	$ 300,000	$ 300,000
SF Valley	534,600	560,000	440,000	510,000
Pomona	226,800	240,000	250,000	225,000
Ventura	518,400	480,000	490,000	465,000
Totals	$1,620,000	$1,600,000	$1,480,000	$1,500,000

Child Kare’s advertising, which is handled by the home office, is not reflected in the preceding figures and amounted to $60,000.

7. If advertising expense were allocated to centers based on actual center profitability, how much advertising would be allocated to SF Valley?

A. $18,000.

B. $40,543.

C. $20,400.

D. $21,000.

8. Assume that management used the allocation base that is most influenced by advertising effort and consistent with sound managerial accounting practices. How much advertising would be allocated to SF Valley?

A. $18,000.

B. $19,800.

C. $21,000.

D. $30,000.

9. Sands Corporation operates two stores: J and K. The following information relates to store J:

Sales revenue	$1,300,000
Variable operating expenses	600,000
Fixed expenses:
Traceable to J and controllable by J	275,000
Traceable to J and controllable by others	80,000

J’s segment contribution margin is:

A. $345,000.

B. $425,000.

C. $620,000.

D. $700,000.

10. The biggest challenge in making a decentralized organization function effectively is:

A. earning maximum profits through fair practices.

B. minimizing losses.

C. taking advantage of the specialized knowledge and skills of highly talented managers.

D. obtaining goal congruence among division managers.

11. Capital budgeting tends to focus primarily on:

revenues.

costs.

C.	cost centers.

D.	programs and projects.

E.	allocation tools.

12. Which of the following is taken into account by the net-present-value method?

Choice A

Choice B

Choice C

Choice D

Choice E

13. The internal rate of return:

A.	ignores the time value of money.

B.	equates a project’s cash inflows with its cash outflows.

C.	equates a project’s cash outflows with its expenses.

D.	equates the present value of a project’s cash inflows with the present value of the cash outflows.

E.	equates the present value of a project’s cash flows with the future value of the project’s cash flows.

14. Burkette Company can acquire a $900,000 machine now that will benefit the firm over the next 6 years. Annual savings in cash operating costs are expected to total $190,000. If the hurdle rate is 8%, the investment’s net present value is:

A.	$(181,800).

B.	$(21,630).

$44,970.

$184,920.

E.	None of the other answers are correct.

15. A new machine that costs $172,100 is expected to save annual cash operating costs of $40,000 over each of the next nine years. The machine’s internal rate of return is:

A.	approximately 14%.

B.	approximately 16%.

C.	approximately 18%.

D.	approximately 20%.

E.	None of the other answers are correct.

16. A machine costs $25,000; it is expected to generate annual cash revenues of $8,000 and annual cash expenses of $2,000 for five years. The required rate of return is 12%. Which of the following statements about the machine’s internal rate of return is true?

A.	The internal rate of return is greater than 12%.

B.	The internal rate of return is between 10% and 12%.

C.	The internal rate of return is less than 10%.

D.	The internal rate of return must be greater than 15%.

E.	There is insufficient information to make any judgment about the internal rate of return.

17. The mayor of Statesville is considering the purchase of a new computer system for the city’s tax department. The system costs $75,000 and has an expected life of five years. The mayor estimates the following savings will result if the system is purchased:

If Statesville uses a 10% discount rate for capital-budgeting decisions, the net present value of the computer system would be:

$489.

$4,057.

$11,658.

$63,342.

$79,057.

18. A piece of equipment costs $30,000, and is expected to generate $8,500 of annual cash revenues and $1,500 of annual cash expenses. The disposal value at the end of the estimated 10-year life is $3,000. Ignoring income taxes, the payback period is:

A.	3.53 years.

B.	3.86 years.

C.	4.29 years.

D.	6.98 years.

E.	some other period of time not noted.

19. San Remo has a $4,000,000 asset investment and is subject to a 30% income tax rate. Cash inflows are expected to average $600,000 before tax over the next few years; in contrast, average income before tax is anticipated to be $500,000. The company’s after-tax accounting rate of return is:

8.75%.

10.50%.

12.50%.

15.00%.

E.	None of the other answers are correct.

20. Consider the following statements about the accounting rate of return:

I. The accounting rate of return focuses on a project’s income rather than its cash flows.
II. Companies can figure the accounting rate of return on either the initial investment figure or an average investment figure.
III. The accounting rate of return considers the time value of money.

Which of the above statements is (are) correct?

I only.

II only.

III only.

I and II.

E.	II and III.

Part II: Problem I (40 points)

Carlos, Inc., uses a standard cost system when accounting for its sole product. Planned production is 50,000 process hours per month, which gives rise to the following per-unit standards:

Variable overhead: 15 hours at $12 per hour

Fixed overhead: 15 hours at $5 per hour

During September, 3,200 units were produced and the company incurred the following overhead costs: variable, $601,000; fixed, $236,000. Actual process hours totaled 48,500.

Required:

Calculate the spending and efficiency variances for variable overhead.
Calculate the budget and volume variances for fixed overhead.

ANSWER

goal congruence.

cost center.

profit center.

investment center

Square feet occupied by the responsibility centers.

I and II.

$40,543

$19,800

$345,000.

10-

obtaining goal congruence among division managers.

11-

programs and projects

12-

Choice C

13-

equates the present value of a project’s cash inflows with the present value of the cash outflows.

14-

$(21,630)

15-

approximately 18%

16-

The internal rate of return is less than 10%.

17-

$4,057

18-

4.29 years

19-

8.75%.

20-

I only

Part II: Problem I

Carlos, Inc., uses a standard cost system when accounting for its sole product. Planned production is 50,000 process hours per month, which gives rise to the following per-unit standards:

Variable overhead: 15 hours at $12 per hour

Fixed overhead: 15 hours at $5 per hour

During September, 3,200 units were produced and the company incurred the following overhead costs: variable, $601,000; fixed, $236,000. Actual process hours totaled 48,500.

Required:

Calculate the spending and efficiency variances for variable overhead.

Spending variance: $601,000 – (48,500 x $12) = $ 19,000U

Efficiency variance: (48,500 x $12) – (3,200 x 15 x $12) = $6,000U

Calculate the budget and volume variances for fixed overhead.

Budget Variance: $236,000 – (50000 x $5) = $ 14,000F

Volume Variance: $250,000 – (3200 x 15 x $5) = $ 10,000U

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