Prof.

Salem A Helles Faculty of Commerce

Accounting Department
Advanced Managerial
MBA & Master of
Accounting
Accounting and Finance
Date: 24.08.2011 :
Final Exam :

:
Question One: (18 Mark) First: Choose the term that most appropriately
complete the following statements:-
1.____________________ A detailed plan for the future, usually expressed in
formal quantitative terms.
2.____________________ Any part of an organization that can be evaluated
independently of other parts and about which the manager seeks financial data.
3.____________________ A measure, at a given level of sales, of how a
percentage change in sales volume will affect profits.
4.____________________ Any cost that has already been incurred and that
cannot be changed by any decision made now or in the future.
5.____________________ The discount rate at which the net present value of an
investment project is zero.
_________ ________ .6
.
_________________ . 7
.
_________________ .8
.

Second: Choose the best answer:

1) Questions (1-5). Refer to the following: The average selling price of a cup of
coffee is $1.49 and the average variable expense per cup is $0.36. The average
fixed expense is $1,300 per month. 2,100 cups are sold each month on
average. What are the break-even sales in units?
A. 872 cups
B. 3,611 cups
C. 1,200 cups
D. 1,150 cups

2) How many cups of coffee would have to be sold to attain target profits of
$2,500 per month?
A. 3,363 cups
B. 2,212 cups

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 C. 1,150 cups
D. 4,200 cups
3) What is the margin of safety?
A. 3,250 cups
B. 950 cups
C. 1,150 cups
D. 2,100 cups
4) What is the operating leverage?
A. 2.21
B. 0.45
C. 0.34
D. 2.92
5) If sales increase by 15%, by how much should net operating income increase?
A. 33.15%
B. 20.10%
C. 22.10%
D. 44.20%
6) Questions (6-9). Refer to the following: Palestine Enterprises' actual
production for the period required 2,100 standard direct labor hours. Actual
variable overhead for the period was $10,950. Actual direct labor hours
worked were 2,050. The predetermined variable overhead rate is $5 per direct
labor hour. What was the spending variance?
A. $ 450 U
B. $ 450 F
C. $ 700 F
D. $ 700 U
7) What was the efficiency variance?
A. $ 450 U
B. $ 450 F
C. $ 250 F
D. $ 250 U
8) Palestine Enterprises actual production for the period required 2,100 standard
direct labor hours. Actual fixed overhead for the period was $14,800. The
budgeted fixed overhead was $14,450. The predetermined fixed overhead rate
was $7 per direct labor hour. What was the budget variance?
A. $ 350 U
B. $ 350 F
C. $ 100 F
D. $ 100 U
9) What was the volume variance?
A. $ 250 U
B. $ 250 F
C. $ 100 F

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 D. $ 100 U
10) Ali operates a part time auto repair service. He estimates that a new
diagnostic computer system will result in increased cash inflows of $1,500 in
year 1, $2,100 in Year 2, and $3,200 in Year 3. If Ali's cost of capital is 10%,
then the most he would be willing to pay for the new computer system
would be:
A. 4,599
B. 5,502
C. 5,638
D. 5,107
11) To maximize total contribution margin, a firm should:
A. Promote those products having the highest unit contribution margins.
B. Promote those products having the highest contribution margin ratios.
C. Promote those products having the highest contribution margin per
unit of a constrained resource.
D. Promote those products having the highest contribution margins and
contribution margin ratios.
. 300,000 ) 12
.%12
:
720600 .B 507000 .A
911100 .D 791740 .C

Question Two: (6 Marks)

Gaza Company is studying a project that would have an eight- years life and
require a $2,400,000 investment in equipment. At the end of eight years, the
project would terminate and the equipment would have no salvage value. The
project would provide net operating income each year as follows:
Sales ............................... ......... $3,000,000
Less variable expenses 1,800,000
Contribution margin 1,200,000
Less fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs ............. $700,000
Depreciation ............................... 300,000
Total fixed expenses .................... 1,000,000
Net operating income .................. $200,000
The company's discount rate is 12%
Required:
1- Compute the project's net present value. Is the project acceptable.
2- Find the project's internal rate of return to the nearest whole percent.
3- Compute the project's payback period.
4- Compute the project's accounting rate of return.

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Question Three: (6 Marks)
MPs, Inc., manufactures auto accessories. One of the company's products is a
set of seat covers that can be adjusted to fit nearly any small car. The company
has a standard cost system in use for all of its products. According to the
standards that have been set for the seat covers, the factory should work 2,850
hours each month to produce 1,900 sets of covers. The standard costs associated
with this level of production are:

Total Per Set of Covers

Direct materials $42,560 $22.40
Direct labor $17,100 9.00
Variable manufacturing overhead
(based on direct labor-hours) $6,840 3.60
$35.00
During August, the factory worked only 2,800 direct labor-hours and produced
2,000 sets of covers. The following actual costs were recorded during the
month:
Total Per set of Covers
Direct materials (12000 Yards) $45,600 $22.80
Direct labor $18,200 9.10
Variable manufacturing overhead $7000 3.50
$35.40

At standard, each set of covers should require 5.6 yards of material. All of the
materials purchased during the month were used in production.
Required: Compute the following variances for August:
1.The direct materials price and quantity variances.
2.The direct labor rate and efficiency variances.
3.The variable overhead rate and efficiency variances.

Question Four: (6 Marks)

MC distributes a single product. The Company's sales and expenses for last
month follow:
Total Per Unit
Sales $450,000 $30

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 Variable expenses 180,000 12
Contribution margin 270,000 18
Fixed expenses 216,000
Net operating income $ 54,000
Required:
1. What is the monthly break-even point, in units sold and in sales dollars?
2. What is the total contribution margin at the break-even point?
3. How many units would have to be sold each month to earn a target profit
after tax of $90,000 while tax rate 20%?
4. Refer to the original data. Compute the company's margin of safety in both
dollar and percentage terms.
5. What is the company's CM ratio? If sales increase by $50,000 per month.
And there is no change in fixed expenses by how much would you expect
monthly net operating income to increase?

Question Five: (6 Marks)

Selected sales and operating data for three divisions of different structural
engineering firms are given below:
Division A Division B Division C
Sales $12,000,000 $14,000,000 $25,000,000
Average operating assets $3,000,000 $7,000,000 $5,000,000
Net operating income $600,000 $560,000 $800,000
Minimum required rate of return %14 10% %16
Required:
1. Compute the return on investment (ROI) for each division, using the formula
stated in terms of margin and turnover.
2. Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that
would yield a 15% rate of return.
a. If performance is being measured by ROI, which division or divisions
will probably accept the opportunity? Reject? Why?
b. If performance is being measured by residual income, which division or
divisions will probably accept the opportunity? Reject? Why?

Question Six: (6 Marks)

The Jerusalem Chemical Company produced three joint products at a joint cost
of $117,000. These products were processed further and sold as follows.
Chemical Sales Additional
Product Processing Cost

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 A $230,000 $190,000
B 330,000 300,000
C 175,000 100,000
The company has had an opportunity to sell at split off directly to other
processors. If that alternative had been selected sales would have been A,
$54,000; B, $28,000; and C, $54,000.The company expects to operate at the
same level of production and sales in the forthcoming year. Consider all the
available information, and assume that all costs incurred after split off are
variable.
1. Could the company increase operating income by altering its
processing decisions? If so, what would be the expected overall
operating income?
2. Which products should be processed further and which should be
sold at split off?

Question Seven: (6 Marks)

LG Products markets two computer games: A and B. A contribution format income
statement for a recent month for the two games appears below:
A B Total
Sales $30,000 $70,000 $100,000
Less variable expenses 20,000 50,000 70,000
Contribution margin $10,000 $20,000 30,000
Less fixed expenses 24,000
Net operating income $6,000

Required:
1. Compute the overall contribution margin (CM) ratio for the company.
2. Compute the overall break-even point for the company in sales dollars.
3. Compute the break- even point for each computer games in sales dollars.

Question Eight: (6 Marks)

Bed & Bath, a retailing company, has two departments, Hardware and Linens. A
recent monthly contribution format income statement for the company follows:

Total Department

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 Hardware Linens
Sales $4,000,000 $3,000,000 $1,000,000
Variable expenses 1,300,000 900,000 400,000
Contribution margin 2,700,000 2,100,000 600,000
Fixed expenses 2,200,000 1,400,000 800,000
)Net operating income (loss $ 500,000 $ 700,000 )($200,000

A study indicates that $340,000 of the fixed expenses being charged to Linens
are sunk costs or allocated costs that will continue even if the Linens
Department is dropped. In addition, the elimination of the Linens Department
will result in a 10% decrease in the sales of the Hardware Department.
Required:
If the Linens Department is dropped, what will be the effect on the net operating
?income of the Company as a whole

)Question Nine: (6 Marks

) " . "
) )200,000
)1$
. )60$ )0.06$
250 3 .

10 .
-:
.1 .
.2 .
.3 .

)Question Ten: (6 Marks

FG Company makes two products, P1 and P2. Data regarding the two
products follow:

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 Direct
Labor- Annual
Hours per Production
Unit
P1 0.80 10,000 units
P2 0.40 40,000 units
Additional information about the company follows:
a. P1 require $32 in direct materials per unit, and P2 require $18.
b. The direct labor wage rate is $15 per hour.
c. P1 are more complex to manufacture than P2 and they require special
equipment.
d. The ABC system has the following activity cost pools:
Estimated Activity
Overhead
Activity Cost Pool Activity Measure Total P1 P2
cost
Machine setups Number of setups $72,000 400 100 300
Special processing Machine-hours $200,000 5,000 5,000 -
General factory Direct labor-hours $816,000 24,000 8,000 16,000
Required:
1. Compute the activity rate for each activity cost pool.
2. Determine the unit cost of each product according to the ABC system,
including direct materials and direct labor.

Good Luck

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