Management Accounting Assignment -
Part A -
Section A: Multiple Choice Questions
Question 1 - What is the aim of management accounting?
A. To maintain the financial history of an organisation.
B. To provide a basis for management to provide information for external users
C. Provide information required by managers to manage resources and create value.
D. To ensure compliance with Australian accounting standards.
E. Involves reports focusing on the enterprise in its entirety.
Question 2 - Performance measures, including shareholder value, residual value and cash flow, relate to which perspective?
A. Customer perspective.
B. Internal business processes.
C. Management perspective
D. Financial perspective.
E. All of the above.
Question 3 - If the relationship between overhead costs and the cost drivers differs substantially across production departments, the company should use:
A. Multiple department overhead rates.
B "Plantwide" overhead rate.
C. Actual overhead rates.
D. Direct labour to determine the overhead rate
E. Machine hours to determine the overhead rate.
Question 4 - As activity level decreases, unit variable cost:
A. Increases proportionately with activity.
B. Decreases proportionately with activity.
C. Increases by a fixed amount.
D. Remains constant.
E. Decreases by a fixed amount.
Question 5 - Budgeting can be used in an organisation to:
A. Motivate managers to achieve organisational goals.
B. Direct attention towards key issues.
C. Control operations.
D. Provide managers with information for decision making and planning.
E. All of the above.
Question 6 - Cost of Goods Sold is calculated by
A. Closing balance of inventory + opening inventory - purchases.
B. Closing balance + opening inventory + purchases
C. Closing balance of inventory - opening inventory + purchases.
D. Finished Goods - Work in Progress
E. Closing Balance - Work in Progress
Question 7 - Indirect costs:
A. Cannot be traced to a particular cost object.
B. Cannot be economically traced to a particular cost object.
C. Can be traced to a particular cost object.
D. Are always fixed costs
E. Are always variable costs.
Question 8 - A Product Costing Systems...
A. Include all manufacturing costs only.
B. Include all manufacturing costs and upstream costs.
C. Consider all future cost changes in the future
D. Factor in manufacturing costs and operational costs.
E. Include upstream, downstream and manufacturing costs
Question 9 - Manufacturing costs flow through a number of manufacturing ledger accounts? Which one is NOT one of these?
A. Finished goods.
B. Work in Process.
C. Research and development
D. Cost of Goods sold
E. Raw materials
Question 10 - If a Contribution margin is 35%, and projected sales are $1,180,000 and Fixed costs are $264,000, what would be the Operating Income if Sales are $1,240,000?
A. $542,000
C. $149,000
C. $170,000
D. $503,000.
E. $314,600
Question 11 - Due to an expected downturn in demand, a manufacturer plans to decrease production within the relevant range of activity. What behaviour can the company expect for each of the following?
Variable cost per unit Fixed cost per unit
A. No change No change
B. Increase No change
C. No change Decrease
D. Increase Decrease
E. No change Increase
Question 12 - Which of the following is not an objective of management accounting?
A. Providing information for decision making.
B. Providing information for planning.
C. Providing information for control.
D. Motivating managers towards achieving organisational goals.
E. Providing information for profit and loss statements.
Question 13 - Which of the following statements about cost volume profit (CVP) analysis and activity based costing is(are) true?
1. The term fixed cost is not used because for many costs the relationship with respect to volume is not relevant.
2. Facility-level costs can be regarded as fixed.
3. Batch-level and product-level costs are non-volume activity costs.
A. 1, 2 and 3.
B. 1 and 2.
C. 1 and 3.
D. 2 and 3.
E. 1.
Question 14 - If the Selling price of a product is $90.00 per unit, VC is $65.00 per unit and FC is $300,000, how many units does the company need to sell if it wants to generate $100,000 profit?
A. 4,445
B. 6,154
C. 12,000
D. 16,000
E. 13,539
Question 15 - Which of the following represents the cost-based pricing formula?
A. Price = cost/mark-up %.
B. Price = cost + mark-up %.
C. Price = mark-up % × cost.
D Price = cost + (mark-up % × cost).
E. Price = cost + (mark-up % + cost).
Question 16 - If the Actual Qty used was 11,100kg and the Actual Price paid was $22.65 per kg, what was the Price Variance if the Standard Price was $22.35 per Kg and the Standard Quantity was 10,875kg?
A. $3,330 F.
B. $3,330 U.
C. $3,262.50 U.
D. $3,262.50 F.
E. $5.096.25 U.
Question 17 - Henry Barks P/L sell suits and they have calculated that their Contribution margin is less than zero. Which statement is true?
A. Henry Barks needs to sell more suits
B. Their selling price is less than the variable costs
C. Their profits are greater than their total costs
D. Their fixed costs are less than the variable cost per unit
E. All of the above
Question 18 - Grand Itch Breweries P/L makes a beer called Gippy Premium and they produce between 16,000 and 22,000 units (bottles) per month. At 19,000 units, per unit cost is $2.55, at 20,200 units, per unit cost is $2.50. Determine the cost formula that expresses the behaviour of Grand Itch's total costs:
A. Y $14,060 + $1.79X
B. Y $33,115+ $1.79X
C. Y $0 + $2.55X
D. Y $14,060 + $0.05X
E. Y $33,115 + $0.05X
Question 19 - Which of the following statements regarding absorption cost pricing formulas is(are) true?
a. Net income will be greater if more "higher-contribution" margin units are sold than "lower-contribution" margin units.
b. Net income will be equal as long as total sales remain equal, regardless of what products a company sells
c. Net income will be greater if more "lower-contribution" margin units are sold than "higher-contribution" margin units.
d. Net income will be unaffected by changes in the mix of products sold
e. Either statement a) or c) is correct
Question 20 - Price skimming is:
A. A low price initially used to attract customer then increase the price as demand increases.
B. A price set to increase market share.
C. Where a price is set low for basic model products but add-ons to the base model have high prices.
D. Where a company produces at a lower cost than its competitors but sells at the same price, thereby achieving higher profits.
E. Where a high product price is used initially to reap high, short-term profits for new products but over time, price will be lowered.
Section B: Attempt all questions in this section, Show workings for all practical questions
Question 21: What is benchmarking? Briefly describe the difference between in-house benchmarking, competitive benchmarking, industry benchmarking and best-in-class (or process) benchmarking, giving an example for each.
Question 22: Hi-Sierra P/L manufactures a competition-rated mountain bike for competitive mountain bike racers. This machine is the only product that the company produces and sells. Cost and revenue data, based on sales of 960 units, is given below:
Total $
Sales 3,960,000
Cost of goods sold 2,220,000
Gross margin 1,740,000
Selling and administration expense 324,000
Net profit before taxes 1,400,000
The cost of goods sold consists of $1,680,000 variable and $540,000 fixed. Selling and administrative expenses consist of $168,000 variable and $156,000 fixed.
Required
a. Calculate the break-even point in units.
b. Calculate the margin of safety at the present sales level in dollars.
c. Hi-Sierra P/L received an order for 15 units at a price of $3,380.00. There will be no increase in fixed costs and variable costs will be reduced by $20 per unit in packaging costs. The company has excess capacity to produce the order. Determine the projected increase or decrease in profit from the order, showing workings.
d. The company also received an order for 12 units at $3,730.00 per unit. They will not save any money in packaging costs for the new order. If only one order (3 or 4) can be accepted, which one is the more attractive?
Question 23: Gold Coast Surfing P/L sells surfboards. For purposes of a CVP analysis the shop owner has divided sales into two categories as follows:
Product type Sales price ($) Invoice cost ($) Sales commission ($)
Grommit (advanced) 1,250 890 60
Kermie (learner) 720 510 40 60% of the shop's sales are Kermies. The shop's annual fixed expenses are $37,500. (In the following requirements, ignore income taxes.)
Required -
a. Calculate the unit contribution margin for each product type.
b. Calculate the weighted average unit contribution margin, assuming a constant sales mix.
c. What is the shop's break-even sales volume in dollars (round off to nearest full $)?
Assume a constant sales mix.
Question 24: The Outback Camping Company manufactures two types of tents for the Defence Force.
- The "Desert Storm" (DS), a high-volume product with sales totalling 6,400 per annum.
- The "Alpine Country" (HC), a low-volume product with sales of 2,100 per annum.
Each product requires 26 hours of direct labour (DLH)
Total annual DHL is 131,250 (6,650 + 2,100)
DL cost is $28.00 per hour
Estimated annual manufacturing overhead (MO) is $340,000
Direct material (DM) costs are as follows;
Desert Storm (DS): $665.00 per unit
Alpine Country (HC): $420.00 per unit
The following costs have been identified for purposes of applying ABC (Activity-Based Costing)
Setting up machines $ 60,000 No. of set-ups 50
Construction of machines $200,000 Machines hours 40,000
Inspections $ 20,000 No. of inspections 140
Cost drivers Desert Storm Alpine Country
Setting up machines No. set ups 35 15
Construction of machines Machine hours 26,000 14,000
Inspections No of inspections 90 50
Required - Calculate the actual costs for both products using the traditional and ABC methods, identifying the amount for each product that is overstated or understated (8 marks).You should show your calculations. What are the benefits of an ABC method?
Question 25: BB Bottling Company P/L manufactures bottles for wine. A unit of production is a case of 12 bottles. The following standards have been set by the production engineering staff and the management accountant:
Direct material $1.70
Quantity 2.5 kg
Price $0.68 per kg
Direct labour $5.60
Quantity 0.20 hour
Rate $28 per hour
Actual costs incurred in the production of 80,000 units were as follows:
Direct material $143,500 for 205,000 kg
Direct labour $464,475 for 16,500 hours
All materials were purchased during this time period.
Required - Use the variance formulas to calculate the direct material price and quantity variances and the direct labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.
Part B -
Section A: Multiple Choice Questions
Question 1 - Which of the following statement/s about management accounting is/are true?
i. It is concerned only with information obtained from the accounting records.
ii. It is concerned with financial and non-financial information.
iii. It can provide information useful for making decisions.
A. i
B. i and ii
C. ii and iii
D. ii
Question 2 - Choose the statement that best completes this sentence: 'All management accounting information...'
A. Has a focus on past costs
B. Has a focus on future costs
C. Is collected as required by internal management of the firm
D. Is constrained by the requirement of the Australian Accounting Standards
Question 3 - The "vision" of an organisation:
A. Refers to the desired future state of an organisation
B. Refers to a statement that defines the purpose of the organisation
C. Refers to specific statements of objective, upon which goals can be set
D. Is only useful for non-profit organisations
Question 4 - If production increases, variable cost will:
A. Increases proportionately with activity.
B. Decreases proportionately with activity.
C. Remain unchanged
D. Remains constant on a per unit basis
Question 5 - Which of the following is not an example of a variable cost?
A. Straight line depreciation on a machine expected to last 5 years
B. Wages paid to assembly line workers at a local manufacturing plant
C. Timber used to make outdoor furniture
D. Commissions paid to sales personnel.
Question 6 - Direct material used $150 000
Selling costs $5 000
Indirect labour $7 000
Administrative costs $10 000
Depreciation on factory equipment $70 000
Direct labour $40 000
Overtime premiums paid $20 000
Indirect materials $45 000
The non-manufacturing costs are:
A. $15 000
B. $70 000
C. $182 000
D. $372 000
Question 7 - Total costs are $80 000 when 8000 units are made. Of this amount, variable costs are $48 000. What are the total costs when 10 000 units are produced?
A. $92 000
B. $98 000
C. $100 000
D. $108 000
Question 8 - Which of the following are problems frequently encountered in data collection?
A. Outliers
B. Missing data
C. Mismatched time periods
D. All of the given answers
Question 9 - Consider the following equation:
Total cost = fixed costs + (cost driver rate x cost driver quantity)
If a cost can be estimated using this equation, it is probably a:
A. Fixed cost
B. Variable costs
C. Curvilinear costs
D. Mixed or semi-variable costs
Question 10 - Which of the following statements is not correct regarding work in process?
A. WIP is partially completed inventory
B. WIP consists of DL, DM and allocated MOH
C. WIP is debited as product costs are incurred
D. WIP is credited when goods are sold
Question 11 - Gratis Company Ltd applies overhead based on direct labour hours in their printing department. At the beginning of the year, the company estimated that manufacturing overhead would be $550 000, direct labour hours would be 100 000 and direct labour cost would be $1 100 000 in the printing department. What is the printing department's predetermined overhead rate for the year?
A. $0.18 per direct labour hour
B. $0.50 per direct labour hour
C. $2.00 per direct labour hour
D. $5.50 per direct labour hour
Question 12 - If manufacturing overhead is over applied for the period, a method to bring the balance of the manufacturing overhead account to zero would be:
A. Debit cost of goods sold, credit manufacturing overhead
B. Debit work in process inventory, credit manufacturing overhead
C. Debit manufacturing overhead, credit raw materials inventory
D. Debit manufacturing overhead, credit cost of goods sold
Question 13 - Which of the following statements are true?
A. Professional service entities employ process costing
B. Mass service entities employ job costing
C. Service shops generally employ hybrid costing
D. Merchandising entities employ job costing for customer services.
Question 14 - What is the charge rate for engineers if direct labour is $30 per hour and the overhead cost is calculated at 60% of direct labour?
A. $18
B. $30
C. $36
D. $48
Question 15 - Which of the following characteristics apply to service organisations?
I. They produce intangible outputs
II. Service can not be stored
III. They purchase goods for sale
IV. Services are consumed as they are produced
A. i, ii and iv
B. ii, iii and iv
C. i, ii and iii
D. All of the given answers
Question 16 - The support department cost allocation method that fully accounts for the mutual provision of service between support departments is called the:
A. Direct method
B. Step - down method
C. Reciprocal method
D. Dual cost allocation method
Question 17 - Normal costing is when:
A. Actual material, labour and overhead costs are added to WIP
B. Actual material, and predetermined labour and OH costs are added to WIP
C. Actual labour, and predetermined material and OH costs are added to WIP
D. Actual material and labour and predetermined OH costs are added to WIP
Question 18 - Consider the following statements about support department costs.
I. In order to assign all manufacturing costs to products, support department costs must be allocated to production departments.
II. Support department costs are period costs rather than product costs because the support departments are not directly involved in production.
III. Support departments are not considered crucial to the production process.
Which statement/s is/are correct?
A. i, ii and iii
B. i and iii
C. iii
D. i
Question 19 - Which of the following statement is/are true?
A. The standard cost per unit of materials is used to calculate a materials price variance
B. The standard cost per unit of materials is used to calculate a materials usage variance
C. The standard cost per unit of materials cannot be determined until the end of the period
D. The standard cost per unit of materials is used to calculate a materials price variance AND the standard cost per unit of materials is used to calculate a materials usage variance
Question 20 - A labour rate variance is shown by:
A. AH (AR-SR)
B. (AH-SH)
C. (AH-SH) (AR-SR)
D. AR (AH-SH)
Question 21 - The production supervisor generally does not influence the:
A. DM quantity variance
B. DL rate variance
C. DL efficiency variance
D. DM price variance
Question 22 - The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit is $20. The contribution margin percentage is:
A. 2.5%
B. 25%
C. 33%
D. 400%
Question 23 - Suppose variable expenses were to decrease by $3.00 per unit. What effect would this have on the cost volume profit analysis?
A. The unit contribution margin would increase by $3.00
B. The break-even point in units would increase
C. The break even point in units would decrease
D. The unit contribution margin would increase by $3.00 AND the breakeven point in units would decrease.
Question 24 - Epex Pty Ltd makes a single product. Annual fixed expenses are $48 000 and the contribution margin ratio is 30 per cent. What volume in sales dollars is necessary for Epex to achieve a target profit of $15 000?
A. $63 000
B. $90 000
C. $160 000
D. $210 000
Question 25 - Market share may be a LEAD indicator from:
A. A financial perspective
B. A customer perspective
C. Internal business processes
D. Learning and growth
Question 26 - Market share may be a LAG indicator from:
A. A financial perspective
B. A customer perspective
C. Internal business processes
D. Learning and growth
Question 27 - Sample Company reported the following costs during 2008 for the manufacture and sale of 2000 units:
Variable costs:
Manufacturing $220 000
Selling and administrative $20 000
Fixed costs:
Manufacturing $100 000
Selling and administrative $50 000
The average amount of capital invested in the product line during the year was $500 000 and the targeted return on investment was 20 per cent. If Sample's price per unit was $245 and the mark-up percentage was 53 per cent, what pricing formula was used by the company?
A. Total variable cost-plus
B. Variable manufacturing cost plus
C. Absorption cost-plus
D. Time and material cost-plus
Question 28 - The most common trade-off in a decision situation is between information:
A. Accuracy and relevance
B. Relevance and timeliness
C. Accuracy and timeliness
D. Sensitivity and relevance
Question 29 - In a decision to keep or replace a piece of equipment, calculate the total yearly expense of keeping the old equipment using the following data.
Old acquisition cost $100 000
Total life of both old and new equipment 4 years
Annual cost of depreciation $25 000
Variable cost $80 000
Cost of new equipment $50 000
Total accumulated depreciation $75 000
A. $105 000
B. $25 000
C. $95 000
D. $130 000
Question 30 - The book value of an asset such as equipment is an example of:
A. A future cost
B. A differential cost
C. An opportunity cost
D. A sunk cost
Section B:
Question 31: Distinguish between 'lag' and 'lead' indicators. Provide ONE examples of each 'lag' and 'lead' indicator to illustrate your answer.
Question 32: Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follow:
Product type Sales price Variable Cost
Plain $20 $12
Fancy $35 $24.50
Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sale mix remains constant.
Required:
1) Calculate the unit contribution margin for each product type.
2) What is Maxie Pty Ltd sale mix?
3) Calculate the weighted average unit contribution margin.
4) What is Maxie Pty Ltd break-even sales volume in dollars?
5) How many units of Fancy must Maxie Pty Ltd sell to earn target profit of $31,500?
Question 33: Gareth furniture P/L manufactures two types of tables
The "simple" is a high-volume product, sales of 15,000 per annum
The "complex" is a low-volume product with sales of 2,660 per annum
Each product requires 2 hours of direct labour (DLH)
Total annual DLH is 14,000 (12,000 plus 2,000)
DL cost is $24.00 per hour
Estimated manufacturing overhead is $1,400,000 (DLH is used as the driver)
Direct material costs are as follows;
The simple: $220.00 per unit
The complex: $460.00 per unit
Following costs have been identified in order to calculate costs applying the ABC method;
Setting up machines $100,000 no. setups: 400
Construction $750,000 Machine hours: 30,000
Inspections $ 550,000 No: inspections 550
Cost Drivers Simple Complex
Setting up machines No: setups 300 100
Construction machine hours 20,400 9,600
Inspections No: inspections 150 400
Calculate the actual costs per unit for both products using the Traditional and ABC methods, identifying the amount for each product that is overstated or understated. You should show your calculations.
Question 34: Describing the skimming pricing and penetration pricing approaches to pricing new products. Provide an example of each.
Question 35: Neo Solar Ltd installs heater system in new homes. Jobs are priced using the time and materials method. The managing director of Neo Solar Ltd is pricing a job involving the heater systems for 10 houses to be built by a local developer.
His estimates follow:
Labour Hours 400
Material Cost $60 000
The following predictions relate to the company's operations:
Labour rate, including on costs $16 per hour
Annual labour hours 12 000 hours
Annual O/H costs:
Material handling and storage $25 000
Other O/H cost 108 000
Annual cost of material used 250 000
Required:
Neo Solar Ltd adds a mark-up of $4 per hour on its time charge, but there is no mark up on material costs.
1. Calculate the price for the job described above.
2. What would be the price of the job if Neo Solar also added a mark up of 10% on all material charges (including material handling and storage costs)?