Please read the following instructions before answering the questions:

(a) Time Allowed for this exam: Three hours.(b) Answer Eight Questions only. (c) For each Question 6.25 Mark.(d) Use the provided answer book.(e) Insert your name and student No. below.

Student Name……………………………………………………

Student No………………………………………………………

Prof. Salem Abdalla Helles

17 May, 2016

The Islamic University of Gaza Faculty of CommerceDepartment of Accounting

Advanced Managerial Accounting.Second Term Final Exam (2015/2016).Master for Accounting and FinanceMaster of Business Administration.

Question No. (1)

M B Surfboards manufactures fiberglass surfboards. The standards cost of direct materials and direct manufacturing labor is $225 per board. This includes 30 pounds of direct materials, at the budgeted price of $3 per pound, and 9 hours of direct manufacturing labor, at the budgeted rate of $15 per hour. Following are additional data for the month of July:

Units completed 5,500 units

Direct material purchases 190,000 pounds

Cost of direct material purchases $579,500

Actual direct manufacturing labor-hours 49,000 hours

Actual direct labor cost $739,900

Direct materials efficiency variance $1,500 F

There were no beginning inventories.

Required:

1. Compute direct manufacturing labor variances for July.2. Compute the actual pounds of direct materials used in production

in July.3. Calculate the actual price per pound of direct materials purchased.4. Calculate the direct materials price variance.

Question No. (2)

LG Company produces a single product. Variable manufacturing is applied to products on the basis of direct labor-hours. The standard costs for one unit of the product are as follows:

Direct material: 6 ounces at $ 0.50 per ounce $ 3.00 Direct labor: 0.6 hours at $ 30.00 per hour 18.00 Variable manufacturing overhead: 0.6 hours at $ 10.00 per hour 6.00 Total standard variable cost per unit $ 27.00

During April 2016, 2000 units were produced. The costs associated with April's operations were as follows:

Material purchased: 18,000 ounces at $ 0.60 per ounce $ 10,800 Material used in production: 14,000 ounces -Direct labor: 1,100 hours at $ 30.50 per hour $33,550Variable manufacturing overhead costs incurred ………..…. $12,980

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Required: Compute the direct materials, direct labor, and variable manufacturing overhead variances.

Question No. (3)PB Corporation makes a single product - a fire resistant commercial filing cabinet - that it sells to office furniture distributors. The company has a simple ABC system that it uses for internal decision making. The company has two overhead departments whose costs are listed below:

Manufacturing overhead $500,000Selling and administrative overhead $300,000Total overhead costs $800,000

The company's activity based costing system has the following activity cost pools and activity measures:

Activity Cost Pool Activity MeasuresAssembling units Number of unitsProcessing orders Number of ordersSupporting customers Number of customersOther Not applicable

Costs assigned to the "other" activity cost pool have no activity measure; they consist of the costs of unused capacity and organization-sustaining costs - neither of which are assigned to orders, customers or the product.

PB Corporation distributes the costs of manufacturing overhead and of selling and administrative overhead to the activity cost pools based on employees interviews, the results of which are reported below:

Distribution of Resource Consumption Across Activity Cost Pools

Assembling Units

Processing Orders

Supporting Customers Other Total

Manufacturing overhead 50% 35% 5% 10% 100%Selling and administrative overhead 10% 45% 25% 20% 100%

Total activity 1,000 units

250 orders

100 customers -- --

Required:

1. Perform the first stage allocation of overhead costs to the activity cost pools.

2. Compute activity rates for the activity cost pools.

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3. Office Mart (OM) is one of the PB Corporation's customers. Last year OM ordered filing cabinets four different times. OM ordered a total of 80 filing cabinets during the year. Construct a table showing the overhead costs attributable to OM.

4. The selling price of a filing cabinet is $595. The cost of direct materials is $180 per filing cabinet, and direct labor is $50 per filing cabinet. What is the customer margin of OM?

Question No. (4)DP Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $350,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:

Product Selling Price Quarterly Output A $16 per pound 15,000 poundsB $8 per pound 20,000 poundsC $25 per pound 4,000 gallons

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

Product Additional processing costs

Selling Price

A $63,000 $20 per pound B $80,000 $13per poundC $36,000 $32 per gallon

Required1) Which product or products should be sold at the split-off point and

which product or products should be processed further? Show computations.

2) Could the company increase operating income by altering its processing decisions? If so, what would be the expected overall operating income?

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Question (5):

A) LK Products is investigating the purchase of a piece of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company's required rate of return is 20% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher quality output.

Required: What dollar value per year would these intangible benefits have to make the equipment an acceptable investment?

B) The MDS has made an investment in video and recording equipment that costs $106,700. The equipment is expected to generate cash inflows of $20,000 per year.

Required: How many years will the equipment have to be used in order to provide the company with 10% return on its investment?

Question No. (6)

Ali's Shop sells only coffee and cake. Ali estimates that every time he sells one cake, he sells four cups of coffee. The budgeted cost information for Ali's products for 2013 follows:

Coffee CakeSelling price $2.50 $3.75Product ingredients $0.25 $0.50Hourly sales staff (cost per unit) $0.50 $1.00Packaging $0.50 $0.25Fixed CostsRent on store and equipment $5,000Marketing and advertising cost $2,000

Required:1. How many cups of coffee and how many cakes must Ali sell in

order to break even assuming the sales mix of four cups of coffee to one cake, given previously?

2. If the sales mix is four cups of coffee to one cake, how many units of each product does Ali need to sell to earn operating income after tax of $28,000, while tax rate 20%?

3. Assume that Ali decides to add the sale of hot chocolates to his product mix. The selling price for chocolates is $3.00 and the related variable costs are $0.75. assuming a sales mix of three cups of coffee to two cakes to one chocolate, how many units of each product does Ali need to sell in order to break even?

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Question(7): Selected sales and operating data for three divisions of different structural engineering firms are given below:

Division A Division B Division CSales $1,200,000 $1,400,000 $2,500,000Average operating assets $300,000 $700,000 $500,000Net operating income $60,000 $56,000 $80,000Minimum 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 No. 8:

Gaza's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Butter cream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:

Macaroon Sugar Butter creamProjected sales in units 500,000 800,000 600,000Per Unit data:Selling price $0.80 $0.75 $0.60Direct materials $0.20 $0.15 $0.14Direct labor $0.04 $0.02 $0.02Hours per 1000-unit batch:Direct labor hours 2 1 1Oven hours 1 1 1Packaging hours 0.5 0.5 0.5

Total overhead costs and activity levels for the year are estimated as follows:

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Activity Overhead costs Activity levelsDirect labor 2,400 hoursOven $210,000 1,900 oven hoursPackaging $150,000 950 packaging hours

$360,000Required:

a. Determine the activity-cost-driver rate for packaging costs.b. Using the ABC system, for the sugar cookie:

1- Compute the estimated overhead costs per thousand cookies.2- Compute the estimated operating profit per thousand cookies.

Question No. 9:

The Middle East company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Middle East's division managers can act autonomously to maximize their own division's operating income.

Required:

1- What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?

2- What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?

3- Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. In this case what is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?

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Question No. 10:

River Company runs hardware stores in a tri-state area. Riverbend's management estimates that if it invests $250,000 in a new computer system, it can save $67,000 in annual cash operating costs. The system has an expected useful life of eight years and on terminal disposal value. The required rate of return is 8%. Ignore income tax issues in your answers.

Assume all cash flows occur at year-end expected for initial investment amounts.

Required:

1- Calculate the following for the new computer system:a. Net present value.b. Payback period.c. Discounted payback period.d. Internal rate of return (using the interpolation method).e. Accrual accounting rate of return based on the net initial

investment (assume straight-line depreciation)2- What other factors should river bend consider in deciding whether

to purchase the new computer system?

End of Questions

Good Luck

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