Question 1: Chapter 10 Managerial Accounting (30 mins)

Prepare a cost of goods manufactured schedule, a partial income statement, and a partial
balance sheet.

The following data were taken from the records of Clarkson Company for the fiscal year ended June
30, 2017.

Raw Material

Factory Insurance $ 4,600
Inventory 7/1/16 $ 48,000 Factory Machinery

Raw Material

Depreciation 16,000
Inventory 6/30/17 39,600 Factory Utilities 27,600
Finished Goods

Office Utilities Expense 8,650

Inventory 7/1/16 96,000 Sales Revenue 534,000
Finished Goods

Sales Discounts 4,200

Inventory 6/30/17 75,900 Plant Manager’s Salary 58,000
Work in Process

Factory Property Taxes 9,600

Inventory 7/1/16 19,800 Factory Repairs 1,400
Work in Process

Raw Material Purchases 96,400

Inventory 6/30/17 18,600 Cash 32,000
Direct Labor 139,250

Indirect Labor 24,460

Accounts Receivable 27,000

(a) Prepare a cost of goods manufactured schedule. (Assume all raw materials used were direct
materials.)

(b) Prepare an income statement through gross profit.

(c) Prepare the current assets section of the balance sheet at June 30, 2017.

Question 2: Chapter 11 Cost-Volume-Profit (20 mins)
Compute break-even point and margin of safety ratio, and prepare a CVP income statement
before and after changes in business environment.

Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major
promotional campaign. Her ideas include the installation of a new lighting system and increased
display space that will add $24,000 in fixed costs to the $270,000 currently spent. In addition, Mary
is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume
(20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed
with Mary’s ideas but concerned about the effects that these changes will have on the break-even
point and the margin of safety.

Instructions
(a) Compute the current break-even point in units, and compare it to the break-even point in units if
Mary’s ideas are used.

(b) Compute the margin of safety ratio for current operations and after Mary’s changes are introduced.
(Round to nearest full percent.)

(c) Prepare a CVP income statement for current operations and after Mary’s changes are introduced.
(Show column for total amounts only.) Would you make the changes suggested?

Question 3: Chapter 12 Incremental Analysis (40 mins)
Prepare incremental analysis concerning elimination of divisions.

Brislin Company has four operating divisions. During the first quarter of 2017, the company reported
aggregate income from operations of $213,000 and the following divisional results.

Division
I II III IV

Sales $250,000) $200,000 $500,000 $450,000
Cost of goods sold 200,000) 192,000) 300,000 250,000
Selling and administrative expenses $.175,000) 60,000) 60,000 50,000
Income (loss) from operations $ (25,000) $ (52,000) $140,000 $150,000

Analysis reveals the following percentages of variable costs in each division.

I II III IV
Cost of goods sold 70% 90% 80% 75%
Selling and administrative expenses 40 60 50 60

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.
Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one
or both of the divisions should be discontinued.
Instructions
(a) Compute the contribution margin for Divisions I and II.

(b) Prepare an incremental analysis concerning the possible discontinuance of (1) Division I and (2)
Division II. What course of action do you recommend for each division?

(c) Prepare a columnar condensed income statement for Brislin Company, assuming Division II is
eliminated. (Use the CVP format.) Division II’s unavoidable fixed costs are allocated equally to the
continuing divisions.

(d) Reconcile the total income from operations ($213,000) with the total income from operations
without Division II.

Instructions
Instructions

Question1 CH 13 – Budgetary Planning (15 mins)

Prepare cash budget for a month.

The controller of Trenshaw Company wants to improve the company’s control system by preparing a
month-by-month cash budget. The following information is for the month ending July 31, 2017.

June 30, 2017, cash balance $45,000
Dividends to be declared on July 15* 12,000
Cash expenditures to be paid in July for operating expenses 40,800

Amortization expense in July 4,500
Cash collections to be received in July 90,000

Merchandise purchases to be paid in cash in July 56,200

Equipment to be purchased for cash in July 20,000

* Dividends are payable 30 days after declaration to shareholders of record on the declaration date.
Trenshaw Company wants to keep a minimum cash balance of $25,000.

(a) Prepare a cash budget for the month ended July 31, 2017, and indicate how much money, if any,
Trenshaw Company will need to borrow to meet its minimum cash requirement.

(b) Explain how cash budgeting can reduce the cost of short-term borrowing.

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Question 2 CH 14 – Budgetary Control and Responsibility Accounting (25 mins)

Prepare a responsibility report for an investment center.

The Dinkle and Frizell Dental Clinic provides both preventive and orthodontic dental services. The
two owners, Reese Dinkle and Anita Frizell, operate the clinic as two separate investment centers:
Preventive Services and Orthodontic Services. Each of them is in charge of one of the centers: Reese
for Preventive Services and Anita for Orthodontic Services. Each month, they prepare an income
statement for the two centers to evaluate performance and make decisions about how to improve the
operational efficiency and profitability of the clinic.
Recently, they have been concerned about the profitability of the Preventive Services operations. For
several months, it has been reporting a loss. The responsibility report for the month of May 2017 is
shown below.

Actual

Difference
from

Budget

Service revenue $ 40,000 $1,000 F
Variable costs

Filling materials 5,000 100 U
Novocain 3,900 100 U
Supplies 1,900 350 F
Dental assistant wages 2,500 –0–
Utilities 500 110 U
Total variable costs 13,800 40 F
Fixed costs

Allocated portion of receptionist’s salary 3,000 200 U
Dentist salary 9,800 400 U
Equipment depreciation 6,000 –0–
Allocated portion of building depreciation 15,000 1,000 U
Total fixed costs 33,800 1,600 U
Operating income (loss) $ (7,600) $ 560 U

In addition, the owners know that the investment in operating assets at the beginning of the month was
$82,400, and it was $77,600 at the end of the month. They have asked for your assistance in evaluating
their current performance reporting system.
Instructions
(a) Prepare a responsibility report for an investment center as illustrated in the chapter.
(b) Write a memo to the owners discussing the deficiencies of their current reporting system.

Question 3 CH 15 – Standard Costs and Balanced Scorecard (30 mins)

Compute variances, and prepare income statement.

Ayala Corporation accumulates the following data relative to jobs started and finished during the
month of June 2017.

Costs and Production Data Actual Standard
Raw materials unit cost $2.25 $2.10
Raw materials units used 10,600 10,000
Direct labor payroll $120,960 $120,000
Direct labor hours worked 14,400 15,000
Manufacturing overhead incurred $189,500

Manufacturing overhead applied

$193,500
Machine hours expected to be used at normal capacity

42,500

Budgeted fixed overhead for June

$55,250
Variable overhead rate per machine hour

$3.00

Fixed overhead rate per machine hour

$1.30

Overhead is applied on the basis of standard machine hours. Three hours of machine time are
required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative
expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount
used.
Instructions
(a) Compute all of the variances for (1) direct materials and (2) direct labor.
(b) Compute the total overhead variance.
(c) Prepare an income statement for management. (Ignore income taxes.)

Question 4 CH 16 – Planning for Capital Investments (20 mins)

Calculate payback, annual rate of return, and net present value.

Drake Corporation is reviewing an investment proposal. The initial cost and estimates of the book
value of the investment at the end of each year, the net cash flows for each year, and the net income
for each year are presented in the schedule below. All cash flows are assumed to take place at the end
of the year. The salvage value of the investment at the end of each year is equal to its book value.
There would be no salvage value at the end of the investment’s life.

Investment Proposal

Year
Initial Cost
and Book Value

Annual
Cash Flows

Annual
Net Income

0 $105,000

1 70,000 $45,000 $10,000
2 42,000 40,000 12,000
3 21,000 35,000 14,000
4 7,000 30,000 16,000
5 0 25,000 18,000

Drake Corporation uses an 11% required rate of return for new investment proposals.
Instructions
(a) What is the cash payback period for this proposal?
(b) What is the annual rate of return for the investment?
(c) What is the net present value of the investment?

Instructions
Instructions
Instructions