ACCT 505 FINAL EXAM GUIDE (NEW) SET 3

ACCT 505 FINAL EXAM GUIDE (NEW) SET 3 (TCO E) Preparing purchase orders is a(n) (Points : 5) batch-level activity. product-level activity. unit-level activity. organization sustaining activity. 2. (TCO G) Given the following data, what would ROI be? Sales $70,000 Net operating income $10,000 Contribution margin $20,000 Average operating assets $50,000 Stockholder's equity $25,000 (Points : 5) 28.6% 20.0% 40.0% 50.0% 3. (TCO C) Heckaman Corporation produces and sells a single product. Data concerning that product appear below. Selling price per unit $115.00 Variable expense per unit $56.35 Fixed expense per month $299,115 Required: Determine the monthly breakeven in unit or dollar sales. Show your work! (Points : 25) Solution: Break-even in dollars = fixed costs/ (P - V)/P = 299,115/(115.00 - 56.35)/56.35 = 299,115/1.04082 Break-even = $287,385 4. TCO B) Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for materials 80% Percent complete for conversion 15% Units started into production during the month 6,000 ACCT 505 FINAL EXAM GUIDE (NEW) SET 3 Units transferred to the next department during the month 5,200 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 Ending work in process: Units in ending work-in-process inventory 1,200 Percentage complete for materials 75% Percentage complete for conversion 30% Required: Calculate the equivalent units for conversion for the month in the first processing department. (Points : 25) Solution: Equivalent units using WAM = Units transfered to the next department during the month + Ending inventory (percentage of completion) Ending inventory completed as to conversion =30% x 1,200 = 360 units Equivalent units as to conversion= 5,200 + 360 =5,560 units 5. (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory 0 Units produced 9,000 Units sold 7,000 Sales $100,000 Less cost of goods sold: Beginning inventory 0 Add cost of goods manufactured 54,000 Goods available for sale 54,000 Less ending inventory 12,000 Cost of goods sold 42,000 Gross margin 58,000 Less selling and admin. expenses 28,000 Net operating income $30,000 ACCT 505 FINAL EXAM GUIDE (NEW) SET 3 Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30) Solution: Solution Sales $100,000 Less : Variable Cost Beginning Inventory 0 Add : Cost of Goods Manufactured $36,000 (9,000 x $4) Goods available for Sale $36,000 Less : Ending inv. 2,000 x $4 $8,000 Cost of goods Sold $28,000 Less : Variable Selling & admin. (7,000 x $1) $7,000 Total Variable costs $35,000 Contribution $65,000 Less : Fixed Costs Manufacturing overheads $18,000 Selling & admin.Exp.$28,000-$7,000 $21,000 $39,000 Net Operating Income $26,000 Net Operating Income under absorption costing is $30,000 whereas under Variable costing it comes out as $26,000. The reason of this difference of $4,000 is due to Ending inventory charged @$6 under Absorption costing whereas under Variable costing only variable cost $4 has been considered. The difference is 2,000 x ($6 - $4) = $4,000