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MANAGEMENT ACCOUNTING PROBLEMS.

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Assume that Hillcrest placed purchase orders for $475,000 in January, $540,000 in February, $525,000 in March and $550,000 in April. Payment terms followed by Hillcrest are:

When purchases are paid % paid within this time Discount Received
Within month of purchase 50% 2%
Month following purchase 40% 1%
60 days following purchase 10% 0%

38. Calculate the cash payments in March for purchases
a) $518,590
b) $525,000
c) $471,090
d) $532,500

39. Assume that you budget for purchasing agent's salary and benefits for the next year using the following data. Activity analysis shows that each purchase order placed should require 17 minutes (both normal productive and non-productive time). Each full time worker works 2,000 hours. Hillcrest hires part-time employees only in 1000- hour increments. In 2000 if we expect 93,000 purchase orders placed, how many agents would you request in your budget?
a. 13 agents
b. 13.5 agents
c. 13.18 agents
d. 720 agents

40. Organizations often acquire more resources than they actually use productively in the short-term. Why do they do this?
a) To make budget achievement easier for managers.
b) This is a normal benefit of corporate life.
c) Since most companies don't take budgeting seriously, they don't understand the resources they actually require.
d) Long-term growth and the indivisibility of many costs often make it impossible or unwise to acquire only what is necessary in the short run.

41. To prepare a manufacturing support budget using activity based budgeting, the following is done:
a) Budget each overhead account by using last year's data and adding a percent for inflation.
b) Take last year's manufacturing support rate and adjust it for production volume this year.
c) Estimate each overhead account adjusting for production line changes made.
d) Document activities, identify drivers, estimate use of drivers, and cost the resources needed for the activities.

42. To set an appropriate budget context for the year upper management:
a) Assesses the environment using an analysis such as SWOT.
b) Update long range plans for products and profits.
c) Communicate environmental assumptions and targets for products or profits to lower levels in the organization.
d) All of the above.

43. Which is not a technical attribute of a good budgeting system?
a) Budgets improve management decisions by forcing managers to plan for uncertainly.
b) Budgets force managers to think about whether the tasks and activities planned are consistent with organizational strategy.
c) Activity budgets cause employees to better under work processes and their related costs.
d) Budgets set high expectations and cause managers to be motivated to perform.

44. Budgeting may fail to have a positive impact on perceptions, aspiration levels, morale and satisfaction when:
a) Traditional budgeting systems are used.
b) Employees don't have formal budget training.
c) A strong review and evaluation process isn't followed.
d) Budget pressure is high, employees didn't participate enough in establishing budgets or monitoring is too frequent.

45. What do budgets symbolize in US culture?
a) Corporate greed.
b) Heavy-handed control over employees.
c) Corporations need tight monitoring to assure absent owners that managers' stewardship functions are being performed.
d) They represent fiscal responsibility and that rational, calculated action plans dominate impulse.

Sweatshirts, Inc. Makes two types of sweatshirts: plain and deluxe. Both types of sweatshirts go through two operations: cutting and sewing. The deluxe sweatshirts go through a third operation that prints emblems and words on them. The deluxe sweatshirts also have more expensive material used on them. After manufacture, sweatshirts are warehoused for sale to department stores.
The following data is available for a one month period:
Deluxe Plain
Quantity produced 10,000 12,000
Direct materials $50,000 $48,000
Conversion Costs:
Cutting $22,000
Sewing $22,000
Printing $ 5,000
Total $ 49,000

46. How much does a Deluxe sweatshirt cost to manufacture?
A. $7.50
B. $6.68
C. $5.00
D. $9.90

47. Sweatshirts, Inc. uses what kind of production cost system?
A. Job order costing system
B. Process costing system
C. Back or forward flush system
A. Operations costing system.

Watermark Paper co. produces white paper used for computer printers, copy machines, and fax machines. produced 140,000 complete rolls of paper and 5,000 incomplete rolls (50% complete). Direct materials, which are added at the beginning of the process, cost $217,500 and conversion costs were $71,250. There were no beginning inventories.

48. How many equivalent units are complete relative to the conversion costs?
A. 72,500
B. 140,000
C. 142,500
D. 145,000

49. How many equivalent units are complete relative to direct materials?
A. 145,000
B. 142,500
C. 140,000
D. 135,000

50. What is the total cost per equivalent unit (roll of paper)?
A. $2.00
B. $1.58
C. $1.50
D. $1.00

51. What kind of product does Watermark produce?
A. processed
B. fabricated
C. assembled
D. extracted

Englewood Hospital uses a job cost system for all patients who have surgery. In March the pre-operating room (PRE-OP) and operating room (OR) had budgeted allocation bases of 2,000 nursing hours and 1000 nursing hours, respectively. The budgeted nursing overhead charges for each department for the month were $84,000 and $66,000, respectively. The hospital floor for surgery patients had budgeted overhead costs of $600,000 and 7,500 nursing hours for the month. For patient R.J. Welborn the actual hours incurred in PRE-OP were 8 and in OR, 4. He was in the hospital for 4 days or 96 hours. Other costs related to Welborn were:

PRE-OP costs OR Costs In-room Cost
Patient Medicine $100 $250 $1,200
Direct nursing time 2,400 3,500 5400
Indirect nursing time 400 0 600
Room usage charges 1000 2000 1600
Nursing station supplies $200 $800 $1100
Utilities for room occupied $50 $100 $75

The hospital charges patients for medicine, direct nursing time and room usage, but uses budgeted overhead rates for charging overhead to patient stays (as opposed to the actual costs incurred or indirect nursing time, supplies, utilities, meals, etc.).
52. What is the budgeted nursing overhead rate for PRE-OP?
A. $80/Hour
B. $66/Hour
C. $188/Hour
E. $42/Hour

53. What is the Nursing overhead rate for OR?
A. $80/Hour
B. $66/Hour
C. $188/Hour
D. $42/Hour

54. How much would the Patient, R.J. Welborn be charged for his use of PRE-OP?
A. $2,836
B. $3,836
C. $4,150
A. $4,486

55. Product cost information derived using traditional process costing provides good technical information for:
A. Companies with high product variety manufactured on sophisticated machinery in production cells.
B. Companies to use for their make or buy decisions.
C. A company to use to forecast profits resulting from receiving a contract which triples their sales volume and requires major expansion of productive facilities.
D. Companies that produce in traditional manufacturing environments where cost is largely a function of the volume of homogeneous products produced.

56. A job order costing system would be most applicable for a:
a) Ice cream producer
b) Flour mill
c) bicycle manufacturer
d) Custom furniture manufacturer

57. Which one of the following examples normally could be classified as a direct cost?
A. The costs of electricity; the product line is the cost object.
B. Printing costs incurred for payroll checks; the activity, payroll check processing is the cost object.
C. The salary of a maintenance supervisor, the product is the cost object.
D. The space charge for the space used by the personnel office within the facility of headquarters: the personnel department is the cost object.

Cu-Later, Inc., produces bug spray. The budgeted cost of inserting spray nozzles is $300,000. This amount includes the costs of insertion equipment depreciation, operating expenses and supplies for insertion equipment, and a portion of the salary of a machine operator who operates a control panel controlling this and other equipment. Bug spray bottles have a variety of spray nozzle assemblies, depending on their design. Insertion of the spray assemblies requires a different amount of equipment time.
58. The cost of inserting spray nozzles is a:
A. Direct Cost
B. Indirect Cost
C. Marketing Cost
D. Direct Materials Cost
E. Administrative Cost

59. The best method for assigning insertion costs to products is:
A. Based on time on the insertion equipment. Technically this is good because the kinds of cost, depreciation, operating expenses of running the machine, supplies used, and control operator salary are driven by time spent. Behaviorally it encourages the design of spray nozzles easy to insert. Culturally it is fair.
B. Based on weight of the bug spray bottles. Technically, it is easy to measure. Behaviorally, it encourages selling smaller bottles of bug spray, where there is more profit. Culturally this is fair because larger bottles can bear more cost.
C. Based on the selling price of the spray bottles. Technically, selling prices are in the information system, and additional data does not have to be collected. Behaviorally, it encourages designing bottles that cost customers less. Culturally this is fair because more expensive bottles can bear more cost.
D. Based on cost of spray nozzles inserted. Technically, cost of spray nozzles drives costs of inserting them by the machine operation. Behaviorally this encourages designers to design less expensive spray nozzles. Culturally, this would be perceived as fair.

60. If a company provides health insurance for a limited number of employees. The coverage is the same for all people insured. The best cost driver for insurance costs is
A. The total number of employees in the company.
B. Salary dollars for all employees in the company.
C. The total number of employees covered by the insurance.
D. The salary of the employees who qualify for the insurance.

61. Which one of the following examples is a direct cost, given the specified cost object?
a) The costs of factory tools & supplies; a product is the cost object.
b) Administrative salaries, the administrative office is the cost object.
c) The salary of a maintenance supervisor, a product line is the cost object.
d) The space charge for the space used by the personnel office within the administrative office's facility; the personnel department is the cost object.

62. Yamazoo makes two models of waverunners: Sharks and Sting-rays. These products differ by color combinations, trim, mirrors, and seat style. The products are shipped by common carrier to dealers. What allocation base would you use to allocate common carrier delivery charges to Sharks and Sting-rays, given the following options:
a) Direct materials cost; it is fair because it represents the two products' ability to bear.
b) Units of product shipped, it is fair because it represents benefits received by each product line.
c) Direct materials costs, because technically direct materials drives shipment costs.
d) Evenly between the two products, because culturally it is fair to share evenly.

63. Many Japanese companies allocate all indirect costs to products based on the number of unique parts in the product. Why might US companies consider doing this?
a. It is considered fair in the US culture, since number of unique parts reflects products' ability to bear cost.
b. Unique parts have been shown statistically to drive or cause all indirect costs, and is thus good technical information.
c. There is a belief in Japanese companies that fewer parts ultimately result in lower costs, fewer quality problems, and more rapid production. By assigning indirect costs based on parts, managers are encouraged to reduce the number of parts in products. This is a behavioral reason that might benefit any company.
d. Generally accepted accounting principles in the US require this method since it is easily verifiable.

Four divisions operated by a US parent company have headquarter's costs allocated to them based on sales revenue dollars. The US parent allocates $.12 per sales revenue dollar. The Southeastern Asia Division, with sales revenue of $22,500,000, reported a $1,200,000 loss after this allocation, and the parent company is considering closing it.

64. How much profit/loss did the Southeastern Asia Division have before this allocation?
a) A loss of $500,000
b) A profit of $1,500,000
c) A profit of $3,900,000
d) A loss of $1,500,000

65. How much headquarters' cost was allocated to the Southeastern Asia Division under this scheme?
a) $300,000
b) $2,464,000
c) $700,000
d) $2,700,000

66. Which of the following statements are true about the allocation to the Southeastern Asia Division?
a) It is a good idea to close the division since they are operating at a loss; overall profits would increase.
b) If Southeastern Asia would lower sales revenue next year, they would receive a smaller allocation and operate at a greater profit.
c) It is not a good idea to sell this division unless the cost of headquarters can be reduced by the amount allocated to the division or the company, as a whole, will be worse off.
d) Since the amounts allocated to Southeastern Asia are controllable by it, the division should reduce the headquarters' cost to an amount they can afford to pay.

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Solution Preview

Assume that Hillcrest placed purchase orders for $475,000 in January, $540,000 in February, $525,000 in March and $550,000 in April. Payment terms followed by Hillcrest are:

When purchases are paid % paid within this time Discount Received

Within month of purchase 50% 2%
Month following purchase 40% 1%
60 days following purchase 10% 0%

38. Calculate the cash payments in March for purchases
a) $518,590
b) $525,000
c) $471,090
d) $532,500

January February March

Purchase 475,000 540,000 525,000

Payment (50%) 237,500 270,000 262,500
Discount (2%) (4,750) (5,400) (5,250)
Payment (40%) 190,000 216,000
Discount (1%) (1,900) (2,160)
Payment (10%) 47,500
Total 518,590

39. Assume that you budget for purchasing agent's salary and benefits for the next year using the following data. Activity analysis shows that each purchase order placed should require 17 minutes (both normal productive and non-productive time). Each full time worker works 2,000 hours. Hillcrest hires part-time employees only in 1000- hour increments. In 2000 if we expect 93,000 purchase orders placed, how many agents would you request in your budget?
a. 13 agents
b. 13.5 agents
c. 13.18 agents
d. 720 agents

Each full time worker can process 2,000 hr x 60 minutes 120,000 min
Purchase order placed 17 min
Each can process 7,059 purchase order

Total purchase order to be processed = 93,000/7,059 = 13.18 agents

40. Organizations often acquire more resources than they actually use productively in the short-term. Why do they do this?
a) To make budget achievement easier for managers.
b) This is a normal benefit of corporate life.
c) Since most companies don't take budgeting seriously, they don't understand the resources they actually require.
d) Long-term growth and the indivisibility of many costs often make it impossible or unwise to acquire only what is necessary in the short run.

41. To prepare a manufacturing support budget using activity based budgeting, the following is done:
a) Budget each overhead account by using last year's data and adding a percent for inflation.
b) Take last year's manufacturing support rate and adjust it for production volume this year.
c) Estimate each overhead account adjusting for production line changes made.
d) Document activities, identify drivers, estimate use of drivers, and cost the resources needed for the activities.

42. To set an appropriate budget context for the year upper management:
a) Assesses the environment using an analysis such as SWOT.
b) Update long range plans for products and profits.
c) Communicate environmental assumptions and targets for products or profits to lower levels in the organization.
d) All of the above.

43. Which is not a technical attribute of a good budgeting system?
a) Budgets improve management decisions by forcing managers to plan for uncertainly.
b) Budgets force managers to think about whether the tasks and activities planned are consistent with organizational strategy.
c) Activity budgets cause employees to better under work processes and their related costs.
d) Budgets set high expectations and cause managers to be motivated to perform.

44. Budgeting may fail to have a positive impact on perceptions, aspiration levels, morale and satisfaction when:
a) Traditional budgeting systems are used.
b) Employees don't have formal budget training.
c) A strong review and evaluation process isn't followed.
d) Budget pressure is high, employees didn't participate enough in establishing budgets or monitoring is too frequent.

45. What do budgets symbolize in US culture?
a) Corporate greed.
b) Heavy-handed control over employees.
c) Corporations need tight monitoring to assure absent ...

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Merchandising Operations (Accounting)

See attached file for full problem description.

E1: The decisions that follow were made by the management of Shanahan Shoe Company. Indicate whether each decision pertains primarily to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandise operations.

1. Decided to mark each item of inventory with a magnetic tag that set off an alarm if the tag is removed from the store before being deactivated

2. Decided to reduce the credit terms offered to customers from 30 days to 20 days to speed up collection of accounts

3. Decided that the benefits of keeping track of each item of inventory as it is bought and sold would exceed the costs of such a system

4. Decided to raise the price of each item of inventory to achieve a higher gross margin to offset an increase in rent expense

5. Decided to purchase a new type of cash register that can be operated only by a person who knows a predetermined code

6. Decided to switch to a new cleaning service that will provide the same service at a lower cost

E2: The operating budget and actual performance for the six months ended June 30, 20x3 for Pacific Hardware Company appears below.

1. Prepare an operating report that shows budget, actual, and difference.
2. Discuss the results, identifying which differences most likely should be investigated by management.

Budget Actual
Selling expenses
Sales salaries expense $90,000 $102,030
Rent expense, selling space 2,000 1,642
Utilities expense, selling space 18,000 18,000
Advertising expense 12,000 11,256
Depreciation expense, selling fixtures 15,000 21,986
Total selling expenses $143,500 $161,692
General and administrative expenses
Office salaries expense $50,000 $47,912
Office supplies expense 1,000 782
Rent expense, office space 4,000 4,000
Depreciation expense, office equipment 3,000 3.251
Utilities expense, office space 3,000 3.114
Postage expense 500 626
Insurance expense 2,000 2,700
Miscellaneous expense 500 481
Total general and administrative expenses 64,000 62,866
Total operating expenses 207,500 224,558

Budget Actual Difference

E3: Compute the dollar amount of each item indicated by a letter in the following table. Treat each horizontal row of numbers as a separate problem.

Sales Cost of Goods Sold Gross
Margin Operating
Expenses Net
Income
$250,000 $ a $80,000 $ b $24,000
c 216,000 120,000 80,000 40,000
460,000 d 100,000 e (2,000)
780,000 f g 240,000 80,000

E4: A household appliance dealer buys refrigerators from a manufacturer and resells them to its customers.
What is the net cost of the refrigerator to the dealer, assuming it is paid for within ten days of purchase?

a. The manufacturer sets a list or catalogue price of $1,000 for a refrigerator. The manufacturer offers its dealers a 30 percent trade discount.
b. The manufacturer sells the machine under terms of FOB destination. The cost of shipping is $100.
c. The manufacturer offers a sales discount of 2/10, n/30. Sales discounts do not apply to shipping costs.

E5: Using the selected account balances at December 31, 20xx, for City Rental that follow, prepare an income statement for the year ended December 31, 20xx. Show the detail of net sales. The company uses the perpetual inventory system, and Freight In has not been included in Cost of Goods Sold.

Account Name Debit Credit

Sales $237,500
Sales Returns and Allowances $11,750
Cost of Goods Sold 140,000
Freight In 6,750
Selling Expenses 21,500
General and Administrative Expenses 43,500

E6: Give the entries to record each of the following transactions under the perpetual inventory system:

a. Purchased merchandise on credit, terms n/30, FOB shipping point, $2,500.
b. Paid freight on the shipment in transaction a, $135
c. Purchased merchandise on credit, terms n/30, FOB destination, $1,400.
d. Purchased merchandise on credit, terms n/30, FOB shipping point, $2,600, which includes freight paid by the supplier of $200.
e. Returned part of the merchandise purchased in transaction c, $500.
f. Paid the amount owed on the purchase in transaction a.
g. Paid the amount owed on the purchase in transaction d.
h. Paid the amount owed on the purchase in transaction c less the return in e.

E7: On June 15, Tunnale Company sold merchandise for $1,300 on terms of n/30 to Whist Company. On June 20, Whist Company returned some of the merchandise for a credit of $300, and on June 25, Whist paid the balance owed. Give Tunnale's entries to record the sale, return, and receipt of payment under the perpetual inventory system. The cost of the merchandise sold on June 15 was $750, and the cost of the merchandise returned to inventory on June 20 was $175.

June 15

E8: Using the selected year-end account balances at December 31, 20x4, for the Atlanta General Store shown below, prepare a 20x4 income statement. Show the detail of net sales. The company uses the periodic inventory system. Beginning merchandise inventory was $52,000; ending merchandise inventory is $44,000.

Dec 31

E9: Determine the missing data for each letter in the following three income statements for Leominister Wholesale Paper Company (in thousands):

20x4 20x3 20x2
Gross sales $ o $ h $286
Sales returns and allowances 24 19 a
Net sales p 317 b
Merchandise inventory, beginning q i 38
Purchases 192 169 c
Purchases returns and allowances 31 j 17
Freight in r 29 22
Net cost of purchases 189 k d
Goods available for sale 222 212 182
Merchandise inventory, ending 39 l 42
Cost of goods sold s 179 e
Gross margin 142 m 126
Selling expenses t 78 f
General and administrative expenses 39 n 33
Total operating expenses 130 128 g
Net income u 10 27

E10: Using the data in E6- give the entries to record each of the transactions under the periodic inventory system.

E11: Using the relevant data in E7, give the entries to record each of the transactions under the periodic inventory system.

E12: Below are selected account balances of Linley Company for the year ended December 31, 20xx.
Prepare closing entries, assuming that the owner of Linley Company, Sandra Linley, withdrew $40,000 for personal expenses during the year.

Account Name Debit Credit

Sales $297,000
Sales Returns and Allowances $15,200
Cost of Goods Sold 113,000
Freight In 5,600
Selling Expenses 48,500
General and Administrative Expenses 37,200

E13: Selected account balances of the Lakeside Grocery Store for the year ended December 31, 20xx, follow

Account Name Debit Credit

Sales $297,000
Sales Returns and Allowances $11,000
Sales Discounts 4,200
Purchases 114,800
Purchases Returns and Allowances 1,800
Purchases Discounts 2,200
Freight In 5,600
Selling Expenses 48,500
General and Administrative Expenses 37,200

Beginning merchandise inventory was $26,000, and ending merchandise inventory is $22,000. Prepare closing entries, assuming that the owner of Lakeside Grocery, John Grover, withdrew $34,000 for personal expenses during the year.

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