HARAMAYA
UNIVERSITY
COLLEGE OF CONTINUING AND DISTANCE EDUCATION
Department of Accounting and Finance
Assignment for the Course Cost and Management Accounting-II
Course Code: Acct 322
Maximum Mark: 30 Points
Date: 15/01/2014
Name: ………………………………………………………………..
ID. No.: ………………………………………………………………
Department: ------------------------------------------------Center: ……………………………………………………………….
General Guidelines
o Write your name, ID Number, Department, and Center on the space provided.
o Make sure that the Assignment contains 20 true/false, 20 multiple choices and 2
work out questions.
o Give your answer for part one and two on the separate answer sheet provided
only.
o To give the answer for part three you can use a white paper of your own.
o Any form of cheating or an attempt to cheat will nullify your result.
o Neat and clear answers are worthwhile.
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Answer Sheet for Part I and part ii
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Answer
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Part One: True/False Questions
Say True/False
1. If the activity level increases, then one would expect the variable cost per unit to increase
as well.
2. Fixed costs expressed on a per unit basis vary inversely with changes in activity.
3. The contribution income statement organizes costs according to behavior.
4. The contribution margin represents the amount available to contribute toward covering
fixed expenses and toward profits for the period.
5. One assumption in CVP analysis is that inventories do not change.
6. If sales volume increases, and all other factors remain unchanged, the contribution
margin ratio will decrease.
7. An increase in the number of units sold will decrease a company's break-even point.
8. The break-even point is the point where total contribution margin equals total variable
expenses.
9. Two companies with the same margin of safety in dollars will also have the same total
contribution margin.
10. If a company has high operating leverage, then profits will be very sensitive to changes in
sales.
11. Operating leverage will decrease as the company's margin of safety increases.
12. Ideal standards can be used in forecasting and planning whereas practical standards
cannot be used for such purposes.
13. A materials price variance is favorable if the actual price exceeds the standard price.
14. An unfavorable materials quantity variance occurs when the actual quantity used in
production is less than the standard quantity allowed for the actual output of the period.
15. An unfavorable labor rate variance can occur if workers with high hourly wage rates are
assigned to work on products whose standards assume workers with low hourly wage
rates.
16. A favorable materials quantity variance would appear as a debit in a journal entry.
17. A standard can be regarded as the budgeted cost for one unit of product.
18. A favorable variable overhead efficiency variance indicates that overhead has been used
efficiently.
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19. In a standard cost system, overhead is applied on the basis of the actual level of activity
rather than the standard level of activity allowed for the output of a period.
20. An unfavorable volume variance means that a company operated at an activity level
greater than that planned for the period.
Part Two: Multiple Choice Questions
Choose the Best Answer among the Alternatives Provided For Each Question
1. When using a flexible budget, what will occur to fixed costs as the activity level increases
within the relevant range?
A. Fixed costs per unit will decrease.
B. Fixed costs per unit will remain unchanged.
C. Fixed costs per unit will increase.
D. Fixed costs are not considered in flexible budgeting.
E. None of the above.
2. Comparing actual results to a budget based on actual activity for the period is possible
with the use of a:
A. Monthly budget.
B. Master budget.
C. Flexible budget.
D. Rolling budget.
3. A static budget is:
A. A budget for a single level of activity.
B. A budget that ignores inflation.
C. Used only for fixed costs.
D. Used when the mix of products does not change.
E. None of the above.
4. The overhead spending variance:
A. Measures the variance in amount spent for fixed overhead items.
B. Includes elements of waste or excessive usage as well as elements of price variance.
C. Is generally considered to be the least useful of all overhead variances.
D. Measures the difference between denominator activity and standard hours allowed.
E. None of the above.
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5. If the price a company paid for overhead items, such as utilities, decreased during the
year, the company would probably report a(n):
A. Favorable efficiency variance.
B. Favorable spending variance.
C. Unfavorable efficiency variance.
D. Unfavorable spending variance.
E. None of the above.
6. Variable overhead is applied on the basis of standard direct labor-hours. If the direct
labor efficiency variance is unfavorable, the variable overhead efficiency variance will
be:
A. Favorable.
B. Unfavorable.
C. Zero.
D. Indeterminable since it is not related to the labor efficiency variance.
E. None of the above.
7. The fixed overhead budget variance is measured by:
A. The difference between budgeted fixed overhead cost and actual fixed overhead cost.
B. The difference between actual fixed overhead cost and applied fixed overhead cost.
C. The difference between budgeted fixed overhead cost and applied fixed overhead
cost.
D. None of the above.
8. Which of the following would produce a labor rate variance?
A. Poor quality materials causing breakage and work interruptions.
B. Use of persons with high hourly wage rates in tasks that call for low hourly wage
rates.
C. Excessive number of hours worked in completing a job.
D. An unfavorable variable overhead spending variance.
E. None of the above.
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9. The following materials standards have been established for a particular raw material
used in the company’s sole product:
Standard quantity per unit of output .......... 1.0 pound
Standard price............................................ $16.60 per pound
The following data pertain to operations concerning the product for the last month:
Actual materials purchased....................... 2,200 pounds
Actual cost of materials purchased ............ $34,650
Actual materials used in production .......... 1,900 pounds
Actual output ............................................. 2,100 units
What is the materials quantity variance for the month?
A. $3,320 F
B. $3,150 F
C. $4,980 U
D. $4,725 U
E. None of the above
10. The following materials standards have been established for a particular raw material
used in the company's sole product:
Standard quantity per unit of output .......... 0.1 pound
Standard price............................................ $18.20 per pound
The following data pertain to operations for the last month:
Actual materials purchased....................... 5,700 pounds
Actual cost of materials purchased ............ $100,320
Actual materials used in production .......... 5,600 pounds
Actual output ............................................. 55,800 units
What is the materials price variance for the month?
A. $1,820 U
B. $1,760 U
C. $3,420 F
D. $352 U
E. None of the above
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11. A quantity of a particular raw material was purchased for $43,250. The standard cost of
the material was $2.00 per kilogram and there was an unfavorable materials price
variance of $3,250. How many kilograms were purchased?
A. 20,000
B. 21,625
C. 23,250
D. 24,875
E. None of the above
12. A total of 6,850 kilograms of a raw material was purchased at a total cost of $21,920. The
material price variance was $1,370 favorable. The standard price per kilogram for the raw
material must be:
A. $0.20
B. $3.00
C. $3.20
D. $3.40
E. None of the above
13. The following labor standards have been established for a particular product:
Standard labor-hours per unit of output ............. 8.0 hours
Standard labor rate .............................................. $13.10 per hour
The following data pertain to operations concerning the product for the last month:
Actual hours worked ............ 4,000 hours
Actual total labor cost........... $53,000
Actual output ........................ 400 units
What is the labor efficiency variance for the month?
A. $10,600 U
B. $11,080 U
C. $11,080 F
D. $10,480 U
E. None of the above
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14. The following labor standards have been established for a particular product:
Standard labor-hours per unit of output ............. 2.4 hours
Standard labor rate .............................................. $15.45 per hour
The following data pertain to operations concerning the product for the last month:
Actual hours worked ............ 5,400 hours
Actual total labor cost........... $85,860
Actual output ........................ 2,200 units
What is the labor rate variance for the month?
A. $1,908 U
B. $2,430 U
C. $4,284 U
D. $4,284 F
E. None of the above
15. The following information pertains to Bates Company's direct labor for March:
Standard direct labor-hours....................... 21,000
Actual direct labor-hours ........................... 20,000
Favorable direct labor rate variance .......... $8,400
Standard direct labor rate per hour ............ $6.30
What was Bates' total actual direct labor cost for March?
A. $117,600
B. $118,000
C. $134,000
D. $134,400
E. None of the above
16. Which of the following is correct? The break-even point occurs on the CVP graph where:
A. Total profit equals total expenses.
B. Total profit equals total fixed expenses.
C. Total contribution margin equals total fixed expenses.
D. Total variable expenses equal total contribution margin.
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17. The contribution margin ratio is equal to:
A. Total manufacturing expenses/Sales.
B. (Sales - Variable expenses)/Sales.
C. 1 - (Gross Margin/Sales).
D. 1 - (Contribution Margin/Sales).
E. None of the above
18. The contribution margin ratio always increases when the:
A. Break-even point increases.
B. Break-even point decreases.
C. Variable expenses as a percentage of net sales decrease.
D. Variable expenses as a percentage of net sales increase.
E. None of the above
19. A $2.00 increase in a product's variable expense per unit accompanied by a $2.00
increase in its selling price per unit will:
A. Decrease the degree of operating leverage.
B. Decrease the contribution margin.
C. Have no effect on the break-even volume.
D. Have no effect on the contribution margin ratio.
E. None of the above
20. The break-even point in unit sales is found by dividing total fixed expenses by:
A. The contribution margin ratio.
B. The variable expenses per unit.
C. The sales price per unit.
D. The contribution margin per unit.
E. None of the above
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Part Three: Work Out Questions
1. Fergusons, Inc., manufactures and sells handbags. In the summer of 2012, Fergusons’
management accountant gathered the following data to prepare budgets for 2013:
Materials and Labor Requirements
Direct materials
Leather
Lining
Direct manufacturing labor
1.25 square yards (s.y.) per unit
0.50 square yards per unit
2 hours per unit
Fergusons’ CEO expects to sell 9,000 handbags during 2013 at an estimated retail price of $350
per bag. Further, the CEO expects 2013 beginning inventory of 1,000 handbags and would like
to end 2013 with 2,000 handbags in stock.
Direct Materials Inventories
Leather
Lining
Beginning Inventory 1/1/2013
200 s.y.
100 s.y.
Ending Inventory 12/31/2013
150 s.y.
200 s.y.
Variable manufacturing overhead is $5 per direct manufacturing labor-hour. There are also
$50,000 in fixed manufacturing overhead costs budgeted for 2013. Fergusons combines both
variable and fixed manufacturing overhead into a single rate based on direct manufacturing
labor-hours. Variable marketing costs are allocated at the rate of $200 per sales visit. The
marketing plan calls for 25 sales visits during 2013. Finally, there is $25,000 in fixed
nonmanufacturing costs budgeted for 2013.
Other data include the following:
Direct Materials Inventories
Leather
Lining
Direct manufacturing labor
2012 Unit Price
$4.00 per s.y.
$1.50 per s.y.
$3.00 per hr
2013 Unit Price
$5.00 per s.y.
$2.00 per s.y.
$4.00 per hr
The inventoriable unit cost for ending finished goods inventory on December 31, 2012, is
$25.75. Assume Fergusons uses a FIFO inventory method for both direct materials and finished
goods. Ignore work in process in your calculations.
Required:
i.
ii.
Prepare the 2013 revenues budget.
Prepare the 2013 production budget.
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iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
Prepare the direct material usage budget for 2013.
Prepare the direct material purchases budget for 2013.
Prepare a direct manufacturing labor budget for 2013.
Prepare a manufacturing overhead budget for 2013.
Prepare an ending inventory budget for both direct materials and finished goods for
2013.
Prepare a cost of goods sold budget for 2013.
Prepare a nonmanufacturing costs budget for 2013.
Prepare the budgeted income statement for Fergusons, Inc., for the year ending
December 31, 2013.
2. XYZ Co. produces three products: X, Y, and Z. Data concerning the three products are
as follows:
X
Y
Z
Selling price
$100.00
$60.00
$80.00
Variable expenses:
Direct materials
$24.00
$10.00
$12.00
Direct labor
14.00
12.00
20.00
Other variable expenses
14.00
8.00
18.00
Demand for the company’s products is very strong, with far more order each month than the
company can produce with the available raw materials. The same material is used in each
product. The material cost $2 per pound, with a maximum of 5,000 pounds available each
month.
Required: In which order should the company produce X, Y, and Z?
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