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ACCT 102
Exam #1 – VERSION A Fall 2005 Name: ___________________________________ Part 1: Multiple Choice. Circle your correct answer AND write your answer to the left of the question. (39 points – 3 points each)
- Which of the following should be recorded as an asset? A) Paid for a new product advertising campaign B) Paid rent on the warehouse used to store finished goods C) Paid for research and development costs D) Paid for raw materials to be used in production
- As a CMA, Paula is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Paula learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother who is a stock broker, Paula could be in violation of the A) integrity standard. B) objectivity standard. C) confidentiality standard. D) competence standard.
- As a CMA, Ken is bound by the standards of ethical conduct issued by the Institute of Management Accountants. According to the standards, Ken has a responsibility to A) inform subordinates that they should protect confidential information. B) inform the federal enforcement authorities if he discovers that someone in the firm has used confidential information for illegal purposes. C) monitor the activities of subordinates to assure that confidentiality is maintained. D) A and C
- Certified management accountants (CMA) must complete a specified number of continuing professional education credits each reporting period. Which of the four standards of ethical conduct issued by the Institute of Management Accountants likely motivated this requirement? A) Objectivity B) Integrity C) Competence D) Confidentiality
- Select the correct statement regarding fixed costs. A) The fixed cost per unit will increase when volume increases. B) The fixed cost per unit will decrease when volume increases. C) The fixed cost per unit will not change when volume decreases. D) Since they do not change, fixed costs should be ignored in all decision making.
- Alan's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total cost: A) varies inversely with the number of hours the lawn equipment is operated. B) varies directly with the number of hours the lawn equipment is operated. C) is not affected by the number of hours the lawn equipment is operated. D) A and B
- Buffalo Rock Bottling Company pays its production managers a salary of $5,000 a month. Salespersons, however, are paid strictly on commission at $2.00 for each case of product sold. The production managers' salaries are an example of which of the following cost behaviors? A) Mixed B) Variable C) Fixed D) None of the above
- The following information is provided: S a l e s r e v e n u e $ 2 0 0 , 0 0 0 V a r i a b l e m a n u f a c t u r i n g c o s t s 6 0 , 0 0 0 F i x e d m a n u f a c t u r i n g c o s t s 2 6 , 0 0 0 V a r i a b l e s e l l i n g a n d g e n e r a l c o s t s 2 4 , 0 0 0 F i x e d s e l l i n g a n d g e n e r a l c o s t s 2 0 , 0 0 0 What is this company's contribution margin? A) $114, B) $ 90, C) $116, D) $140,
- A company has a contribution margin of $90,000 and Fixed Costs of $75,000. Assume that Sales are expected to increase by 20%, what would be the net income for this company after the 20% increase in Sales? A) $18, B) $33, C) $15, D) $30,
- Owl Company is in the process of preparing a purchases budget for the first quarter of
- The company has expected sales as follows: D e c e m b e r , 2 0 0 3 $ 8 8 , 0 0 0 J a n u a r y , 2 0 0 4 $ 9 3 , 0 0 0 F e b r u a r y , 2 0 0 4 $ 1 0 2 , 0 0 0 M a r c h , 2 0 0 4 $ 1 2 3 0 0 0 Cost of goods sold is expected to be 75% of sales. The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales. The total cost of purchases in January is A) $ 88,875. B) $ 71,437. C) $ 93,000. D) $118,500. Problem #1: Contribution Margin and Operating Leverage (8 points) The following income statement is provided: Sales Revenue $ 50, Cost of Goods Sold: Variable (2,500 @ $10/unit) $ (25,000) Cost of Goods Sold: Fixed $ (4,000) Gross Margin $ 21, Administrative Salaries $ (6,000) Depreciation $ (5,000) Supplies (2,500 @ $2/unit) $ (5,000) Net Income $ 5, REQUIRED :
- Calculate the Contribution Margin.
- Calculate Operating Leverage.
Problem 2: High Low Method (12 Points) Tasty Doughnuts is worried about their utility costs. Below is a summary of last year’s (2005) utility costs along with the number of dozens of doughnuts sold, which they believe is a good cost driver for their utility cost. Month Utility Cost per Month Dozens of Doughnuts Sold January $ 5,100 75, February $ 5,500 72, March $ 5,650 80, April $ 6,300 92, May $ 6,400 98, June $ 6,700 108, July $ 7,100 115, August $ 7,000 122, September $ 6,200 95, October $ 6,100 90, November $ 5,600 85, December $ 5,900 90, REQUIRED: Using the High-Low Method, determine the variable portion of the utility cost per dozen of doughnuts sold (i.e., variable rate). Using the High-Low Method, determine the fixed portion of the utility cost. Assuming that Tasty Doughnuts believes it will sell 100,000 doughnuts in January of 2006, estimate the total utility cost.
Problem 4 -- Master Budget (28 points) Bobcat Company is in process of preparing a budget. The following information will aid you developing their budget.
- Beginning Balance sheet is as follows: Bobcat Company Balance Sheet As of December 31, 2005 ASSETS LIABILITIES & STOCKHOLDERS EQUITY Current Assets Current Liabilities Cash $ 5,000 Accounts Payable $ 2, Accounts Receivable $ 1,600 Commissions Payable $ 800 Prepaid Insurance $ 2,400 Total Current Liabilities $ 3, Inventory $ 1, Total Current Assets $ 10,750 Long term debt $ 10, Property Plant & Equipment Stockholders' Equity Equipment $ 20,000 Common Stock $ 4, Accumulated Depreciation $ (8,000) Retained Earnings $ 5, Total PP &E $ 12,000 Total Stockholders Equity $ 9, TOTAL ASSETS $ 22, TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 22,
- Expected sales in January are $10,000, February $12,000, and March $15,000. Sales in December (2005) were $8,000. All sales are on account.
- The company collects 80% of sales in the month of the sale and 20% in the month after the sale.
- The cost of sales are equal to 70% of the sales price.
- The company desires an ending inventory equal to 25% of the next month’s Cost of Goods Sold.
- The company pays for 60% of its purchases in the month of the purchase and 40% in the month after the purchase.
- On December 31, 2005 the company purchased a 1-year insurance policy to cover all of 2006 for $2,400.
- The company pays a 10% commission to its sales staff that is paid in the month after it is earned. Other Selling and Administrative Expenses, paid in the month they are incurred, include Advertising $750 per month, Utilities $500 per month, Salaries $1,500 per month and Depreciation $250 per month.
- The company pays interest on its long-term debt each month. Interest is equal to 1% of the balance at the beginning of the month.
- The company requires a minimum cash balance of $5,000. If they must borrow funds, they must borrow in increments of $1,000.
REQUIRED
**1. Determine the amount of Total Cash Receipts for January.
- What are Total Purchases for January?
- What are Total Cash Disbursements for Purchases for January?
- What are Total Cash Disbursements for Selling & Administrative Expenses** **for January?
- How much in loans must the company take out in January (if zero, say so)?
- What is the Contribution Margin for January?**
**13. What is the balance of Accounts Payable on January 31, 2006?
- What is the balance of Retained Earnings on January 31, 2006?**
Formulae Breakeven = FC Breakeven = FC in sales $ CM % in units CM Pre-tax income = (S.P - VC) Q – FC Pre-tax income = CM% X Total sales - FC CM = SP – VC CM% = CM / SP Wt. Ave. CM/unit = Sum for each product of ( CM/unit X % sales of units) Wt. Ave. CM % = Sum for each product of (CM % X % of total sales $) Y = mx + b (b is the y-intercept and m is the slope. The slope is the change in y divided by the change in x.) *Pre-tax Return = Pre-tax Income On Investment Investment *Pre-tax Residual income = Pre-tax Income – (target Pre-tax ROI X investment) *Residual income and ROI can also be calculated using after-tax income, when specified. Use pre-tax income unless otherwise instructed. “Payback”: number of years to = investment f recover investment annual after-tax cashflow After-taxes Income + Depreciation = After-tax cashflow Individual income tax data: Each exemption is $3, Standard deduction is $4,750 if single, $9,500 if married Single taxpayer Taxable Income Tax rate of the amount over $ 0 to $ 7,000 ……………...10% $ 0 $ 7,000 to $ 28,400 $ 700 + 15% $ 7, $ 28,400 to $ 68,800 $ 3,910 + 25% $ 28, $ 68,800 to $143,500 $14,010 + 28% $ 68, $143,500 to $311,950 $34,926 + 33% $143, $311,950 to infinity $90,514 + 35% $311, Married taxpayer Taxable Income Tax rate of the amount over $ 0 to $ 14,000 ……………...10% $ 0 $ 14,000 to $ 56,800 $ 1,400 + 15% $ 14, $ 56,800 to $114,650 $ 7,820 + 25% $ 56, $114,650 to $174,700 $22,282 + 28% $114, $174,700 to $311,950 $39,096 + 33% $174, $311,950 to infinity $84,389 + 35% $311, KEY: FC = fixed cost VC = variable cost per unit SP = selling price per unit T = tax rate CM = Contribution margin per unit CM % = Contribution margin percentage
