I need some help with this Managerial Accounting Midterm
ACT 5733 - Advanced Managerial Accounting Fall 2013 Mid-Term Exam Directions: Answer all the questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please \"cut and paste\" your solutions into the Word or PDF file. Be sure to show how you did your calculations. Also, please be sure to include your name at the top of the first page of your file. You can use any sources you wish, except for other people. Please cite any sources you use. There is no time limit to complete the exam, other than it is due at 11:59 PM Eastern on Sunday, November 3rd, 2013. The exam will count 30 percent toward your course grade. The point value for each question is noted. If you have any questions, please e-mail me at af878@nova.edu or andrew.felo@gmail.com. Good luck! Question #1 (12 points) List and describe the four standards in the IMA's Statement of Ethical Practice. As part of your answer, be sure to provide an example of an action that violates the standard. Question #2 (18 points) Consider the following information, prepared based on a capacity of 60,000 units: Category Variable manufacturing costs Fixed manufacturing costs Variable marketing costs Fixed marketing costs Cost per Unit $15.00 $1.00 $6.00 $2.00 Capacity cannot be added in the short run and the firm currently sells the product for $25 per unit. Consider each of these scenarios independent of each other. a) The company is currently producing 60,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $21 per unit. Since the potential customer approached the firm, there will be no variable marketing costs incurred. Should the company accept the special order? Why or why not? Be specific. b) The company is currently producing 45,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. What is the minimum amount that the firm should be willing to accept for this order? c) The company is considering selling 1,000 units that are in danger of becoming obsolete. What is the minimum price it would be willing to take for the 1,000 units? Question #3 (44 points) Consider the following information: Beginning inventory (units) Budgeted units to be produced Actual units produced Units sold Variable manufacturing costs per unit produced Variable marketing costs per unit sold Budgeted fixed manufacturing costs Fixed marketing costs Selling price per unit Variable costing operating income Absorption costing operating income Variable costing beginning inventory Absorption costing beginning inventory Variable costing ending inventory Absorption costing ending inventory PVV Allocated fixed manufacturing costs Q1 0 10,000 9,000 Q2 J A $200 $50 $1,000,00 0 $200,000 $400 B C D E F G H I 10,000 10,300 10,300 $200 $50 $1,000,00 0 $200,000 $400 $345,000 Q3 100 10,000 Q R $200 $50 $1,000,000 $200,000 $400 S K $280,000 $20,000 T U L M N O P $10,000 $15,000 V $985,000 There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs. Complete the missing figures from the above Table. You need to show your work in order to be eligible for partial credit. Q1 A B C D E F G H I Q2 J K L M N O P Q3 Q R S T U V Question #4 (12 points) a) What is the goal of the EOQ model? b) Why does a firm hold \"safety stock?\" c) What costs are a firm trying to balance when it decides on how much safety stock to hold? Question #5 (9 points) What are some accounting changes that a firm should make if it decides to implement a JIT inventory management system? Why are those changes necessary? Be specific! Question #6 (5 points) What is the justification for using backflush costing? Be specific! a. Saving in variable marketing cost loss of revenue 25-23 Net saving per unit Total additional profit 10000*2 4 2 2 $20,000 Q1 Beginning inventory (units) Budgeted units to be produced Actual units produced Units sold Variable manufacturing costs per unit produced Variable marketing costs per unit sold Fixed manufacturing costs Fixed marketing costs Selling price per unit Variable costing operating income Absorption costing operating income Variable costing beginning inventory Absorption costing beginning inventory Variable costing ending inventory Absorption costing ending inventory PVV Allocated fixed manufacturing costs Q2 Q3 0 100 300 3,800 4,200 4,100 4,000 4100 4300 $125 4,000 4,000 $125 $40 $40 $40 $600,000 $600,000 $600,000 $250,000 $400 $250,000 $400 $90,000 $250,000 $400 81500 120,000 $130,500 0 $12,500 37500 0 27500 82500 12500 37500 $12,500 27500 82500 $27,500 30000 570000 -30000 630000 0 3900 66500 $125 160500 $615,000 150 235 916500 1010500 850000 160500 -15000 66500 45000 15000 30000 ACT 5733 - Advanced Managerial Accounting Directions: Answer all the questions. Please submit your work in Word only. You can submit an Excel file to support calculations, but please \"cut and paste\" your solutions into the Word file. Be sure to show how you did your calculations. Question #1 (8 points) If a CMA is confronted by an ethical dilemma, what does the IMA Standards of Ethical Behavior for Practitioners of Management Accounting and Financial Management recommend the person do? Be specific in your response. The management accountant should have competence, integrity, confidentiality and objectivity. In an ethical dilemma, he or she has to maintain the abovementioned qualities. He or she should look at the parties being affected by his decision and what will be the opinion of other professionals in the field. For example, if a management accountant is told to show the inventory at cost while its market value is lower than the cost. He should be careful in reporting in this situation as the misstatement will affect the various parties, such as shareholders, tax authority, etc. Under the objectivity he or she has to report the fair information to all relevant parties and has to disclose all relevant information, which may affect the decision of the reader. Question #2 (15 points) Consider the following information, prepared based on a capacity of 60,000 units: Category Variable manufacturing costs Fixed manufacturing costs Variable marketing costs Fixed marketing costs Cost per Unit $12.00 $3.50 $4.00 $2.50 Capacity cannot be added and the firm currently sells the product for $25 per unit. Consider each of these scenarios independent of each other. a) The company is currently producing 60,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $23 per unit. Since the potential customer approached the firm, there will be no variable marketing costs incurred. Should the company accept the special order? Why or why not? Be specific. a. Saving in variable marketing cost loss of revenue 25-23 4 2 Net saving per unit Total additional profit 10000*2 2 $ 20,000 From financial point of view the company can accept the order as it is generating additional profit of $20000, but as the order is only for once, then the company should also consider the impact on loss of sales of existing customer, if the existing customer is buying on regular basis then the order may be rejected. b) The company is currently producing 45,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. Since the potential customer approached the firm, there will be no variable marketing costs incurred. What is the minimum amount that the firm should be willing to accept for this order? The minimum accepted amount will be $12 variable manufacturing cost, as all other costs are irrelevant for this decision. However, company should also consider the impact on existing customer, as they may ask for reduce price, if they find that someone is sold at reduced price, the same product. c) The company is considering selling 1,000 units that are in danger of becoming obsolete. What is the minimum price it would be willing to take for the 1,000 units? 12+4 = $16 should be the minimum price as per calculation as the company would like to cover at least all variable cost. But it is not in the control of company, whatever is available in the market the company should sell at price less than $16, as company has no choice. Question #3 (10 points) List and describe three ways a firm can determine long-run prices. As part of your answers, be sure to describe when each method would be most appropriate and the strengths and weaknesses of each method. They are cost based, competition based and customer based pricing. In cost based pricing all cost are add and then a predetermined profit margin is added, it is simple and it makes sure that all cost are covered. It is used where there is enough demand of the product and competition is not tough. In competition based pricing, the cost based prices are compared with the competitor and provide a chance to capture market if the demand is limited by selling it lower than the competitor pricing. Sometimes under this method, the company has to sacrifice its target profit and forced to earn a lower rate of profit margin. The customer based pricing is done according to demand of customer as being done by China, as it makes A, B and C quality of product and set price accordingly as the demand of the customer. This type of costing may force the company to sacrifice its quality standard as being done by China. Question #4 (44 points) Consider the following information: Beginning inventory (units) Budgeted units to be produced Actual units produced Units sold Variable manufacturing costs per unit produced Variable marketing costs per unit sold Fixed manufacturing costs Fixed marketing costs Selling price per unit Variable costing operating income Absorption costing operating income Variable costing beginning inventory Absorption costing beginning inventory Variable costing ending inventory Absorption costing ending inventory PVV Allocated fixed manufacturing costs Q1 0 3,800 4,000 A $125 $40 $600,000 $250,000 $400 B C D E F G H I Q2 J 4,200 4,000 4,000 $125 $40 $600,000 $250,000 $400 $90,000 Q3 300 4,100 Q R $125 $40 $600,000 $250,000 $400 S K $130,500 $12,500 T U L M N O P $12,500 $27,500 V $615,000 There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs. Complete the missing figures from the above Table. Q1 Q2 Q3 A B C D E F G H I J K L M N O P Q R S T U V Q1 Beginning inventory (units) Q2 Q3 0 100 300 Budgeted units to be produced 3,800 4,200 4,100 Actual units produced 4,000 4,000 4100 Units sold 3900 4,000 4300 Variable manufacturing costs per unit produced $125 $125 $125 $40 $40 $40 Fixed manufacturing costs $600,000 $600,000 $600,000 Fixed marketing costs $250,000 $250,000 $250,000 Selling price per unit $400 $400 $400 Variable costing operating income 66500 $90,000 160500 Absorption costing operating income 81500 120000 $130,500 Variable costing beginning inventory Absorption costing beginning 0 $12,500 37500 0 27500 82500 Variable marketing costs per unit sold inventory Variable costing ending inventory 12500 37500 $12,500 Absorption costing ending inventory 27500 82500 $27,500 30000 570000 -30000 630000 0 PVV Allocated fixed manufacturing costs $615,000 Question #5 (15 points) a) What is the goal of the EOQ model? The economic order quantity model helps in determining a quantity to be orders as which the total carrying cost and total ordering cost are equal and they both in total is at its minimum level. b) Why does a firm hold \"safety stock?\" The firm holds safety stock to meet the maximum lead time and maximum usage during meet time. For example, if a company place an order from USA to Japan and it takes normally 15 days, but it can take maximum 20 days and the usage during this lead time is normally 200 units but the usage may be 250 units, therefore the safety stock will be 5*50 = 250 units as safety stock to avoid the cost of stock out. c) What costs are a firm trying to balance when it decides on how much safety stock to hold? It is trying to balance the cost of holding stock and the cost of stock out. The stock out cost includes the loss of production and loss of revenue, due to loss of customer. Question #6 (8 points) What is the justification for using backflush costing? Be specific! It is a method in which the costing process of a product or services is delayed until the production or service is completed. The cost to operation is charged once the operation is completed. It helps in easy determination of setting selling price and it avoids the lengthy and difficult system of accumulating cost during production process. Q1 Beginning inventory (units) Budgeted units to be produced Actual units produced Units sold Variable manufacturing costs per unit produced Variable marketing costs per unit sold Fixed manufacturing costs Fixed marketing costs Selling price per unit Variable costing operating income Absorption costing operating income Variable costing beginning inventory Absorption costing beginning inventory Variable costing ending inventory Absorption costing ending inventory PVV Allocated fixed manufacturing costs Q2 Q3 0 100 300 10,000 10,000 10,000 9,000 $200 10,300 10,300 $200 $200 $50 $50 $50 $1,000,000 $1,000,000 $1,000,000 $200,000 $400 $200,000 $400 $345,000 $200,000 $400 8,900 $135,000 $146,111 $135,000 $146,111 D 0 E F G H I J $20,000 0 B 8,900 C $280,000 0 A $20,000 K L M $20,000 $10,000 $20,000 $15,000 N O P $985,000 Q R S T U V 0 $20,000 $20,000 100 As there is no beginning inventory. As there is no beginning inventory
