ACCT 346 Week 8 Final Exam (100 OUT OF 100)Questions and Answer elaborations.

These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. Date Taken: Time Spent: Points Recei ved: 270 / 270 (100%) Question Type: # Of Questions: # Correct: Multiple Choice 25 25 Essay 7 N/A Grade Details - All Questions Page: 1 2 3 4 1. Question : Student Answer: Instructor Explanation: (TCO 1) The principle managers follow when they only investigate significant departures from the plan is commonly known as small amounts don't matter only materials and labor deserve attention management by exception exceptional costs yield exception results Chapter 1, Page 6 Points Received: Comments: 4 of 4 2. Question : Student Answer: Instructor Explanation: (TCO 1) Which of the following is not likely to be a fixed cost? Direct materials Rent Depreciation Salary of the human resources director Chapter 1, Page 8 Points Received: 4 of 4 Comments: 3. Question : (TCO 2) Which of the following is not a manufacturing cost? Student Answer: Manufacturing overhead Page: 1 2 3 4 1. Question : (TCO 7) Common costs Student Answer: are fixed costs that are not directly traceable to an individual product line. normally not avoidable. Both A and B are true. Neither A nor B is true. Instructor Explanation: Chapter 7, Pages 256­257 2. Question : (TCO 8) Target costing Student Answer: starts with the features a customer wants and what they will pay for them. is used after the product is designed. focuses on including all features in a product that a customer may want. all of the above. Instructor Explanation: Chapter 8, Page 291 3. Question : (TCO 8) Which of the following are relevant in deciding whether to accept or reject a special order? Student Answer: The impact the order will have on existing business. The price that will be charged on the special order. The incremental cost of filling the special order. All of the above. Instructor Explanation: Chapter 8, Pages 288­289 4. Question : (TCO 9) Present value techniques Student Answer: ignore cash flows that will occur more than ten years in the future. are a way of converting future dollars into equivalent current dollars. provide more conservative results than similar time value of money computations. treat dollars received today the same as dollars received in the future. Instructor Explanation: Chapter 9, Page 319 5. Question : (TCO 9) The internal rate of return Student Answer: takes into account the time value of money. is the rate of return that equates the present value of future cash flows to the initial investment. both A and B neither A nor B Instructor Explanation: Chapter 9, Page 324 6. Question : (TCO 10) A method of budget preparation that requires all budgeted amounts to be justified by the department, even if the amounts were supported in prior periods, is called Student Answer: variance budgeting. flexible budgeting. current period budgeting. zero base budgeting. Instructor Explanation: Chapter 10, Page 363 7. Question : (TCO 10) Which budget is prepared first? Student Answer: Cash disbursement budget Production budget Capital budget Sales budget Instructor Explanation: Chapter 10, Page 363 8. Question : (TCO 10) The standard cost is Student Answer: same as actual cost the cost that should have been incurred to produce an item or service useful only to manufacturing firms calculated after production is completed Instructor Explanation: Chapter 11, Page 404 9. Question : (TCO 10) In general, an unfavorable material variance arises from Student Answer: using more material than planned. paying a higher price for material than planned. Both A and B None of the above Instructor Explanation: Chapter 11, Pages 407­408 10. Question : (TCO 10) The type of center that has responsibility for generating revenue as well as controlling costs is a(n) Student Answer: investment center. cost center. business center. profit center. Instructor Explanation: Chapter 12, Page 444 11. Question : (TCO 10) Responsibility accounting holds managers responsible for Student Answer: all costs charge to their department. all direct cost of their department plus part of the allocated company costs. only costs they have personally approved. only costs they can control. Instructor Explanation: Chapter 12, Page 442 12. Question : (TCO 10) Which ratio measures the rate earned on total capital provided by the owners? Student Answer: Return on assets Return on stockholders' equity Earnings per share Price earnings ratio Instructor Explanation: Chapter 14, Page 528 Page: 1 2 3 4 Page: 1 2 3 4 1. Question : (TCO 1) Distinguish managerial accounting from financial accounting. Include a brief discussion of the differences in the types of information provided to users as well as the differences of the users of the accounting information. Student Answer: Managerial Accounting focuses on accounting information for internal usage, i.e. it focuses on internal users such as managers of the company; while financial accounting is directed to External Users such as creditors, and investors. Managerial Accounting can deviate from the Generally Accepted Accounting Principles, while Financial Accounting has to adhere to GAAP. Managerial Accounting focuses on the future, while Financial Accounting focuses on the past. Instructor Explanation: Financial accounting is used primarily by external users such as stockholders and creditors and top management as a means of evaluating performance. Financial accounting is presented in summary form and must follow generally accepted accounting principles (GAAP). Managerial accounting is used internally by all levels of management. This information is frequently presented with detailed information for day­ to­day decisions. The information provided does not have to conform to GAAP. It is critical that the information provides timely, useful information to provide support for decision making. 2. Question : (TCO 6) Booth Financial Services, LLC has two revenue producing departments, Financial Planning and Business Consulting. The accounting department is trying to determine the best method to allocate $1,000,000 of common costs (secretarial staff, reception personnel, etc), either by salary or number of employees. Information on the revenue departments are as follows: Department Employees Financial Planning 150 employees Business Consulting 50 employees (a) Allocate the $1,000,000 common costs to the two revenue departments using both methods. (b) Why are allocations called arbitrary? Student Answer: a) Common Costs $1,000,000 Department Employees Percentage Salaries Percentage Financial Planning 150 0.75 $10,000,000 0.6667 Business Consulting 50 0.25 $5,000,000 0.3333 200 $15,000,000 Allocation Base Financial Planning Business Consulting Proportion Amount Proportion Amount Salaries 0.67 $666,667 0.33 $333,333 Headcount 0.75 $750,000 0.25 $250,000 b) The allocations are called arbitrary because although both allocation basis are logical, they still result in very different allocations. Instructor Explanation: (a) Financial Business Planning Consulting Allocation Proportion Amount Proportion Base Salary .667 $666,667 .333 Number of .750 $750,000 .250 Employees (b) Both headcount and salary appear to be plausible allocation bases, but they result in very different allocations. This suggests that in many cases allocations are somewhat arbitrary. 3. Question : (TCO 10) Charlie Corp sells it products on both credit and cash basis. Monthly sales are sold 20% for cash, 80% for credit. Credit sales are collected 40% in the month of sale and 60% the following month. Sales for the first quarter are as follows: January $100,000 February $150,000 March $125,000 Compute cash collections for February. Student Answer: January sales: Cash $20,000; A/R $80,000 February sales: Cash $30,000 A/R $120,000 February collections = 20% * $150,000 + 40% * $120,000 + 60% * $80,000 = $126,000 4. Question : (TCO 2) Acme Fireworks uses a traditional overhead allocation based on direct labor hours. For the current year overhead is estimated at $1,000,000 and direct labor hours are budgeted at 200,000 hours. Actual hours worked were 195,000 and actual overhead was $978,000. (a) Compute the predetermined manufacturing overhead rate. (b) Compute the applied manufacturing overhead. (c) Compute the amount of over/under applied manufacturing overhead. Student Answer: (a) $1,000,000/200,000 = $5 per direct labor hour (b) $5 * 195,000 hours = $975,000 (c) Underapplied $3,000 ($978,000­$975,000) Page: 1 2 3 4 Page: 1 2 3 4 1. Question : (TCO 9) An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment's internal rate of return? Student Answer: Year Cash Flow 0 ($185,575) 1 $65,000 2 $65,000 3 $65,000 4 $65,000 IRR 15.00% Instructor Explanation: $185,575 / $65,000 = 2.855 at 4 years = 15% 2. Question : (TCO 4) Legal Docs Inc is a legal services firm that files incorporation papers for small businesses. They charge $1,000 per application. This year's income statement shows the following: Sales $1,295,000 Variable Expenses $1,023,000 Contribution margin $272,000 Fixed costs $250,000 Profit $22,000 Required: (a) Compute the break­even point in units. (b) Compute the contribution margin ratio. (c) Compute the current margin of safety. (d) How many applications must the company sell to make a profit of $350,000? Student Answer: Legal Docs Price per Application $1,000 Number of Apps Processed 1,295 Total Unit At BEP Sales $1,295,000 $1,000 $1,190,257.35 Variable Expenses $1,023,000 $789.96 $940,257.35 CM $272,000 $210 $250,000.00 Fixed Costs $250,000 $250,000 Profit $22,000 $0.00 a) BEP in Units ($250,000 / $210) = 1,190.48 = 1,191 (rounded up) b) CMR (= $272,000 / $1,295,000) = 21.00% c) Margin of Safety in units (1,295 - 1191) = 104 Margin of Safety in Dollars $104,000 d) To Achieve a TP of $350,000 ($350,000 + $250,000) / $210 = 2,857 = 2,858 Applications (Rounded Up) Instructor Explanation: Units sold = $1,295,000/$1,000 = 1,295 units Variable cost per unit = $1,023,000/1,295 = $790 per unit Contribution margin per unit = $1,000 ­$790 = $210 (a) Break­even point in units = $250,000/$210 = 1,190 units (b) Contribution margin ratio = $272,000/1,295,000 = 21% (c) Margin of safety = $1,295,000 ­ $1,190,000 = $105,000 (d) Applications = ($250,000 + $350,0000) / $210 = 2,857 applications 3. Question : (TCO 5) The following data has been taken from Air­Tite company in its first year of business. Units produced 100,000 Units sold 80,000 Units in ending inventory 20,000 Fixed manufacturing overhead $400,000 (a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used. (b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used. (c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing. Student Answer: Air-Tite company Units Produced 100,000 Units Sold 80,000 Units in EI 20,000 FMOH $400,000 a) Full Absorption Costing ($400,000*80,000)/100,000 = $320,000 b) Variable Costing $400,000 c) FMOH included in EI = $400,000 - $320,000) = $80,000 Instructor Explanation: (a) Fixed manufacturing overhead / Units produced = fixed overhead per unit $400,000 / 100,000 = $4 $4 x 80,000 units sold = $320,000 (b) With variable costing, the entire amount of fixed manufacturing overhead ($400,000) will be expensed. (c) The amount of fixed manufacturing overhead in ending inventory under full costing is $80,000 ($4 x 20,000 units). Page: 1 2 3 4 Show Less