Sample Final Exam Questions w solutions

Sample Final Exam Questions w solutions - ` STUDENT'S...

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Unformatted text preview: ` STUDENT'S SURNAME .................................................. OTHER NAMES .............................................................. STUDENT ID NUMBER ................................................... THE UNIVERSITY OF SYDNEY FACULTY OF ECONOMICS + BUSINESS ACCOUNTING DISCIPLINE SAMPLE FINAL EXAM PRACTICE QUESTIONS SEMESTER 2 2010 Unit of Study: Instructions: ACCT1002 - ACCOUNTING 1B The following questions provide plenty of practice for the final exam in Semester 2, 2010. To gain the maximum benefit, ensure that you attempt the questions without referring to the answers. 1 ` QUESTION 1 TOPIC: FLEXIBLE BUDGETING Hirsch Enterprises lost its only copy of the master budget for this period. Management wants to evaluate this period's performance but believes it needs the master budget to do so. Actual results for the period are as follows: Sales volume Sales revenue Variable costs Contribution margin Fixed costs Operating profit 12,000 billable hours $672,000 208.600 $463,400 3 18.200 $ 145.200 The company planned on 10,000 billable hours at a price of $50 each. At that volume, the contribution margin would have been $350,000. Fixed costs were estimated to be $272,000 for the period. Management notes, "We budget an operating profit of $7.80 per billable hour," REQUIRED: Prepare an analysis of the company's results. SOLUTION Note that you will be required to provide an analysis of the figures attached below. 2 ` 3 ` QUESTION 2 TOPIC: BUDGETS Rorgems Corp. budgets sales for next year at 5,600,000 units. Inventory at the beginning of the year is 270,000 units. The company wants to increase inventory held to 400,000 units at year end. The main component of Rorgems product is an electrical component with each model requiring 8. The components have a cost of$2.00. Inventory of electrical components is currently 1,000,000'which the firm wishes to reduce to 800,000 by year end. Required: Prepare a budget for purchases of electrical components. SOLUTION – SEE HONGREN ET.AL. on how you should present budgets. 4 ` QUESTION 3 TOPIC: BUDGETS DELGADO COMPANY'S INVENTORY BUDGETS FOLLOWING SHOULD BE USED FOR Q# 1 AND 2 BELOW: Raw material Beginning of Year 40,000 kilograms End of Year Desired 20,000 kilograms Finished goods 80,000 units 100,000 units Each finished good unit requires two kilograms of raw material. Q#1 Assume Delgado's accountant has correctly calculated that 500,000 finished units must be produced in the coming year. Projected sales must be: [Al 480,000 units. [B] 500,000 units. [C] 520,000 units. [D] 540,000 units. [E] none of the above answers [A] to [D] Answer: [A] Q#2 Assume Delgado's accountant has correctly calculated that 600,000 kilograms of raw material must be purchased in the coming year. Finished units to be manufactured must be: [Al 280,000 units. [Bl 290,000 units. [C] 300,000 units. [Dl 310,000 units, [El none of the above answers [A] to [D]. Answer: [D] THE FOLLOWING INFORMATION IS TO BE USED FOR Q# 3, 4 and 5. Number of units Master Budget 10,000 Actual Results 12,000 5 ` Selling Price Variable Costs per unit Fixed Costs per unit $10.00 $3.00 $2.50 $9.00 $3.00 $3.00 Q#3 The sales volume variance for profit is: [A] $ 14,000 Unfavourable [B] $14,000 Favourable [C] $9,000 Unfavourable [D] $20,000 Favourable [El none of the above answers [A] to [D]. Answer: [B] Q#4 The flexible budget variance for variable costs is: [A] $6,000 Unfavourable [B] $12,000 Unfavourable [C] $18,000 Unfavourable [D] $24,000 Unfavourable [El none of the above answers [A] to [D]. Answer: [E] Q#5 The flexible budget for the contribution margin is: [A] $45,000 [B] $54,000 [C] $70,000 [D] $84,000 [El none of the above answers [A] to [D]. Answer: [D] THE FOLLOWING INFORMATION IS TO BE USED FOR Q# 6 and 7 Number of units Selling Price Variable Costs per unit Fixed Costs per unit Actual Results 10,000 $10.00 $3.00 $2.50 Master Budget 12,000 $9.00 $4.00 $3.00 Q#6 The flexible budget variance for fixed costs is: 6 ` [A] $5,000 Unfavourable [B] $5.000 Favourable [C] $11,000 Unfavourable [D] $11,000 Favourable [E] Zero or not applicable Answer: [D] Q#7 The flexible budget variance for sales revenue is: [A] $20,000 Unfavourable [B]$2,000 Favourable [C] $12,000 Unfavourable [D] $12,000 Favourable [El none of the above answers [A] to [D]. Answer: [E] THE FOLLOWING INFORMATION IS TO BE USED FOR Q# 8 and 9 . The following budgeted information is provided for Pegasus Company. Cash Sales Credit Sales April $ 250,000 500,000 May $ 300,000 400,000 June $ 200,000 600,000 Management estimates that 10% of credit sales are uncollectible, 30% are collected in the month of sale and the remaining 60% in the month following the sale. Q#8 The company's total budgeted cash receipts for May are: [A] $300.000 [B] $420.000 [C] $720,000 [D] $760,000 [E] none of the above answers [A] to [D]. Answer: [C] 7 ` Q#9 The company's total budgeted cosh receipts for June are' [A] $200,000 [B] $380,000 [D] $420,000 [D] $620,000 [E] $720,000 Answer: [D] AI COMPANY'S INVENTORY BUDGETS FOLLOWING SHOULD BE USED FOR Q# 10 AND 11 BELOW. Raw Material Finished Goods Beginning of Year 55,000 kilograms 40,000 units End of Year Desired 50,000 kilograms 50,000 units Each finished good unit requires two kilograms of raw material. Q#10 Assume Ed Company plans to sell 400,000 units during the year. The number of units it would need to manufacture in the year would be: [A] 390,000 units. [B] 400,000 units. [C] 410,000 units. [D] 415,000 units. [E] none of the above answers [A] to [D]. Answer: [C] Q#11 Assume 300,000 finished units were to be manufactured during the year. Raw material purchases required during the year would be: [A] 595,000 kilograms [B] 600,000 kilograms. [C] 605,000 kilograms. [D] 305,000 kilograms [E] none of the above answers [A] to [D]. Answer: [A] 8 ` QUESTION 4 TOPIC: VARIABLE COSTS AND FIXED COSTS Ulan Limited owns the righ ts to extract minerals from beach sands on Fraser Island. Ulan has costs in 3 areas: • Payment to mining subcontractor who charges $80 per tonne of beach sand mined • Payment of a government mining tax of $50 per tonne of beach sand mined • Payment of barge operator who charges $150,000 per month to transport each batch of beach sand, up to 100 tonnes per day. For over 100 tonnes and up to 200 tonnes the barge operator charges $300,000 and so on. The barge operates 25 days a month. The $150,000 monthly charges must be paid even if less than 100 tonnes are transported on any day and even if Ulan requires fewer than 25 days of barge transportation per month. Ulan is currently mining 180 tonnes of beach minerals per day for 25 days per month. Required: 1. What is the Variable Cost per tonne of beach sand mined? 2. What is Ulan's Fixed Cost per month? 3. Plot a graph for the Variable Costs. 4. Plot a graph for the Fixed Costs. 5. Is the concept of Relevant Range applicable to the plots? 6. What is the Unit Cost per tonne of beach sand mined: a. if 180 tonnes are mined each day b. if 220 tonnes are mined each day Explain the difference in the Unit Cost figures. 9 ` SOLUTIONS 10 ` QUESTION 5 TOPIC: BASIC CVP ANALYSIS University Pizza delivers pizzas to the dormitories and apartments near a major state university. The company's annual fixed expenses are $54,000. The sales price of a pizza is $ 10, and it costs the company S6 to make and deliver each pizza. (In the following requirements, ignore income taxes) Required: 1. Using the contribution margin approach, compute the company's break-even point in units (pizzas) 2. What is the contribution margin ratio? 3. Compute the break-even sales revenue. Use the contribution-margin ratio in your calculation. 4, How many pizzas must the company sell to earn a target net profit of $60,000? Use the equation method. SOLUTIONS 11 ` QUESTION 6 TOPIC: CVP ANLYSIS WITH MULTIPLE PRODUCTS Brad’s Bicycle sells 21-speed bicycles. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two catergories, as follows: Product Type High-quality Medium-quality Sales Price $ 1,000 600 Invoice Cost $ 550 270 Sales Commission $ 50 30 Seventy percent of the shop's sales are medium-quality hikes. The shop's annual fixed expenses are $148,500. (In the following requirements, ignore income taxes) Required: 1. Compute the unit contribution margin for each product type. 2. What is the shop's sales mix? 3. Compute the weighted-average unit contribution margin, assuming a constant sales mix. 4. What is the shop's break-even sales volume in dollars? Assume a constant sales mix. 5. How many bicycles of each type must be sold to earn a target net income of $99,000? Assume a constant sales mix. SOLUTIONS 12 ` 13 ` QUESTION 7 TOPIC: JOB COSTING Hongren et.al. P21-4 Req. 1 Predetermined manufacturing overhead rate: Total estimated manufacturing overhead costs Total estimated machine hours $50,000 + $65,000 + $40,000 + $27,000a 7,000 hours $182,000 7,000 hours = $26 / machine hour a The following costs are not part of manufacturing overhead: Depreciation on delivery trucks is a distribution expense. Customer service hotline is a customer service expense. Req. 2 Indirect materials Depreciation on plant Manufacturing Overhead 52,000 169,000b and eq Indirect manufacturing labour Plant electricity Balance Allocated 67,000 43,000 20,000 13,000 b 6,500 actual machine hours × $26 / machine hour Req. 3 Journal POST. DATE ACCOUNTS AND EXPLANATIONS Cost of Sales Manufacturing Overhead REF. DEBIT CREDIT 13,000 13,000 To close under-allocated manufacturing overhead to Cost of Sales. 14 ` Req. 4 Managers compare the actual line item amounts for manufacturing overhead with the budgeted amounts. Managers investigate large differences between actual and budgeted amounts to identify the reasons why actual costs differ from planned or budgeted costs. QUESTION 8 TOPIC: COST-VOLUME-PROFIT ANALYSIS Hongren et.al. E22-12 To Breakeven: Standard $54.00 36.00 $18.00 2 $36.00 Sale price per unit Variable costs per unit Contribution margin per unit Sales mix in units Contribution margin Weighted-average CM ($120 / 5) Chrome $78.00 50.00 $28.00 3 $84.00 5 $120.00 $ 24.00 Fixed costs + Profit Breakeven units sold = Weighted-average contribution margin per unit $12,000 + $0 = $24 = 500 scooters Number of Standard [500 × (2/5)] 200 Number of Chrome [500 × (3/5)] 300 To earn Profit of $6,600: 15 ` Standard $54 36 $18 Sale price per unit Variable costs per unit Contribution margin per unit Sales mix in units Contribution margin Weighted-average CM ($120 / 5) Chrome $78 50 $28 2 $36 3 $84 5 $120 $ 24 Fixed costs + Profit Units sold = Weighted-average contribution margin per unit $12,000 + $6,600 = $24 = 775 scooters Number of Standard [775 × (2/5)] 310 Number of Chrome [775 × (3/5)] 465 QUESTION 9 TOPIC: FLEXIBLE BUDGETS AND STANDARD COSTS Hongren et.al. E23-6 Although not required, it is helpful to begin by organising the materials and labor data as follows: Direct materials: Actual price per metre .......................................................................... $1.05 Standard price per metre...................................................................... $1.10 Actual quantity used ............................................................................. 145,000 metres Standard quantity allowed (20,000 × 7)................................................ 140,000 metres 16 ` Direct labour: Actual price per hour ............................................................................ $14.00 Standard price per hour........................................................................ $13.00 Actual quantity used ............................................................................. 450 hours Standard quantity allowed (20,000 × 0.025) ......................................... 500 hours Now we can calculate the variances: Price Variances: Actual price Price variance = Standard price − per input unit Direct materials per input unit − = price variance $1.05 per metre Actual quantity × of input × 145,000 metres × 450 hours $1.10 per metre = $7,250 F Direct labor = ($14.00 / hour − $13.00 / hour) price variance = $450 U Efficiency Variances: Efficiency Actual quantity = variance of input − Standard quantity Standard price × of input per input unit 17 ` Direct materials − = efficiency variance 145,000 metres × $1.10 per metre 140,000 metres = $5,500 U Direct labor = (450 hours − 500 hours) × $13.00 per hour efficiency variance = $650 F The large $7,250 favourable direct materials price variance combined with the large $5,500 unfavourable direct materials efficiency variance suggests that managers may have used cheaper, lower-quality materials that resulted in more waste. The net effect is favourable ($7,250F + $5,500U = $1,750F), so this appears to have been a wise decision if quality is maintained. The unfavourable direct labour price variance combined with the favourable direct labour efficiency variance suggests that managers may have used higher-paid, more skilled workers who performed more efficiently. Again the net effect is positive ($450U + $650F = $200F), so this appears to have been a wise tradeoff. 18 ` QUESTION 10 TOPIC: THE CASH FLOW STATEMENT Hongren et.al. P 18-7 Datex Co. Ltd Cash Flow Statement For the Year Ended 31 December 20X2 Cash flows from operating activities: Net profit $ 57,000 Add (subtract) items that affect profit and cash flows differently: Depreciation $ 21,000 Loss on sale of equipment 11,000 Increase in accounts receivable (5,000) Decrease in inventories 3,000 Increase in accounts payable 2,000 Decrease in income tax payable (2,000) Net cash from operating activities 30,000 87,000 Cash flows from investing activities: Purchase of building Sale of equipment Purchase of long-term investment Net cash used in investing activities $(160,000) 58,000 (14,000) (116,000) Cash flows from financing activities: 19 ` Issue of ordinary shares $ 41,000 Issue of long-term bill payable 34,000 Payment of cash dividends (18,000) Net cash from financing activities 57,000 Net increase in cash $ 28,000 Cash balance, 31 December 20X1 22,000 Cash balance, 31 December 20X2 $ 50,000 Non-cash financing and investing activities: Redemption of debentures payable by issuing ordinary shares $ 65,000 Total non-cash financing and investing activities $ 65,000 QUESTION 11 TOPIC: THE CASH FLOW STATEMENT Hongren et.al. P 18-4 Req. 1 Town East Press Ltd Cash Flow Statement For the Year Ended 31 December 20X2 Cash flows from operating activities: Cash receipts: Collections from customers ($213,000 + $1,600) Receipts of interest Total cash receipts $214,600 8,600 $223,200 Cash payments: 20 ` To suppliers: Inventory ($70,600 + $2,000 + $4,500) Operating expenses ($10,500 – $2,000) $ (77,100) (8,500) To employees (27,800) For interest (11,600) For income tax (29,100) Total cash payments (154,100) Net cash from operating activities 69,100 Cash flows from investing activities: Purchase of land $ (29,000) Purchase of equipment ($49,400 – depreciation expense of $4,000 = $45,400; $53,500 – $45,400) (8,100) Net cash used in investing activities (37,100) Cash flows from financing activities: Payments of dividends ($2,700 + $68,000 – $41,500) $ (29,200) Payment of bill payable (25,000) Issue of ordinary shares 23,600 Net cash used in financing activities Net increase in cash (30,600) $ Cash balance, 31 December 20X1 Cash balance, 31 December 20X2 1,400 5,300 $ 6,700 Req. 2 This problem will help students learn how operating activities, investing activities, and financing activities generate cash receipts and cash payments. By solving this problem, students will learn how companies prepare the Cash Flow Statement. 21 ` Students will thus be able to understand the meaning of cash flows from the three basic categories of business activities. This knowledge will aid their analysis of investments. For example, students should know that net cash from operating activities conveys a more positive signal about a company than net cash used in operations. Student responses may vary. QUESTION 12 TOPIC: THE CASH FLOW STATEMENT Hongren et.al. Decision Case (pg 705) Decision Case 1 Req. 1 (indirect method for operating activities) Golf Australia Ltd Cash Flow Statement For the Year Ended 31 December 20X2 Cash flows from operating activities: (Thousands) Profit $105 Add (subtract) items that affect profit and cash flows differently: Depreciation Amortisation of patents $ 46 11 Increase in accounts receivable ($72 – $61) (11) Increase in inventories ($194 – $181) (13) Increase in accounts payable ($63 – $56) 7 Decrease in accrued liabilities ($17 – $12) (5) 35 Net cash from operating activities 140 22 ` Cash flows from investing activities: Acquisition of property, plant, and equipment ($369 – $259) Acquisition of long-term investments ($31 – $0) $(110) (31) Net cash used in investing activities (141) Cash flows from financing activities: Issue of ordinary shares ($149 – $61) $ 88 Payment of cash dividends ($156 + $105 – $221) (40) Payment of long-term bills payable ($264 – $179) (85) Net cash used in financing activities (37) Net decrease in cash $ (38) Cash balance, 31 December 20X1 63 Cash balance, 31 December 20X2 $ 25 Req. 2 During 20X6, the company sold equipment for $33,000 and land for $61,000. These two transactions, indicated by the gain and the loss on the 20X1 income statement, increased 20X1 cash by $94,000. During 20X2, the company generated no cash by selling non-current assets. The two largest payments during 20X2 were the purchases of property, plant, and equipment ($110,000) and the payment of longterm bills payable ($85,000), which came to a $195,000 outlay. Thus, compared to the 20X1 cash balance, the 20X2 amount looks low. Req. 3 Overall, 20X2 was a good year. Profit was up from $50,000 to $105,000, and operations were the largest source of cash. On this basis, business appears to have been successful. Also, the company increased its property, plant, and equipment by $110,000. Golf Australia should be able to use these non-current assets to earn profits in future years. The business eliminated debt by $85,000. Reducing debt decreases future interest expense. Tell the board members that the future looks bright for Golf Australia. The cash has been spent wisely. 23 ` QUESTION 13 TOPIC: FINANCIAL STATEMENT ANALYSIS Hongren et.al. P 19-2 (this was covered as Homework Question – review this question again) Req. 1 Ipswich City Music Company Pty Ltd Common-Size Income Statement Compared to Industry Average For the Year Ended 31 December 20X2 INDUSTRY IPSWICH CITY AVERAGE Net sales……………………………………… 100.0% 100.0% Cost of sales…………………………………. 64.1 65.9 Gross profit…………………………….…….. 35.9 34.1 Operating expenses………………………… 21.3 28.1 Other expenses……………………………… 1.0 0.4 Total expenses.……………………………… 22.3 28.5 Profit…………………………………………… 13.6% 5.6% Ipswitch City Music Company Pty Ltd Common-Size Balance Sheet Compared to Industry Average As at 31 December 20X2 INDUSTRY IPSWICH CITY AVERAGE Current assets……………………………….. 77.1% 74.4% Property, plant & equipment, net………... 18.6 20.0 24 ` Intangible assets, net………………………. 3.8 0.6 Other assets…………………………………. 0.5 5.0 Total assets………………………………….. 100.0% 100.0% Current liabilities………………………….… 39.0% 45.6% Long-term liabilities………………………… 21.6 19.0 Shareholders’ equity……………………….. 39.4 35.4 100.0% 100.0% Total liabilities and shareholders’ equity.. Req. 2 Ipswich City’s common-size income statement shows that its • ratio of gross profit to net sales. • ratio of profit to net sales. are better than the industry averages. Overall, Ipswich City’s profit performance is better than average for the industry. Req. 3 Ipswich City’s common-size balance sheet shows that its • ratios of current assets and of current liabilities to total assets are both better than the industry average. • ratio of shareholders’ equity to total assets is better than the industry averages. Overall, the company’s financial position is better than average for its industry. QUESTION 14 TOPIC: FINANCIAL STATEMENT ANALYSIS Hongren et.al. P 19-4 (refer to lecture notes for ratio formulae) 25 ` P 19-4 Req. 1 (Dollar Amounts and Share Quantities in Thousands) 20X2 a. Current ratio: 20X1 $548 $497 = 1.92 $286 b. Times-interest- = 1.86 $267 $160 $169 = 4.32 earned ratio: c. Inventory $37 = 3.31 $51 $378 $283 = 1.29 turnover: d. Return on ordinary share- ($298 + $286) / 2 $89 − $2* = 1.20 ($286 + $184) / 2 = 0.366 ($254 + $221) / 2 $65 − $2* = 0.301 ($221 + $198) / 2 holders' equity: e. Earnings per ordinary share: f. Price/earnings $89 − $2* = $5.80** 15 $65 − $2* $92.80** $67.50** = 16 ratio: $5.80** = $4.50** 14 = 15 $4.50** 26 ` __________ *$50,000 × .04 = $2,000 **Not in thousands Req. 2 Decisions: a. The company’s financial position improved during 20X2 as shown by increases in all the ratios. b. The share’s attractiveness improved during 20X2, as shown by the increase in the market price of the share. This increase is consistent with the increases in return on ordinary shareholders’ equity, earnings per ordinary share, and the price/earnings ratio. 27 ...
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