BA 213 ~ Final Exam

Worth 80 points

Below are your Final Exam questions please provide solutions directly below each question or
feel free to put your solutions in a separate document for submittal (whatever works better for you ;o).

Chapter 22 – Budgeting

1. At the beginning of the period, the Assembly Department budgeted direct labor of $186,000
and property tax of $15,000 for 12,000 hours of production. The department actually
completed 13,400 hours of production. Determine the budget for the department, assuming
that it uses flexible budgeting. (Worth 4 points)
Answer:
Variable cost:
Direct labor: $186,000/12,000 hrs = $15.50 per hour
Property tax is a fixed cost at $15,000
Actual hours are 13,400, making direct labor costs at: 13,400*15.50 = $207,700
Budgeted direct labor + property taxes: 207,700 + 15,000 = $222,700

2. Soft Glow Candle Co. budgeted production of 78,900 candles in 2012. Wax is required to
produce a candle. Assume 8 ounces (one half of a pound) of wax is required for each candle.
The estimated January 1, 2012, wax inventory is 2,000 pounds. The desired December 31, 2012,
wax inventory is 2,400 pounds. If candle wax costs $3.20 per pound, determine the direct
materials purchases budget for 2012. (Worth 4 points)
Answer
Raw materials in pounds: ((78,900*.5) + 2,400) – 2,000) = 39,850
Raw materials budget: 39,850 * $3.20 = $127,520

3. Soft Glow Candle Co. budgeted production of 78,900 candles in 2012. Each candle requires
molding. Assume that 15 minutes are required to mold each candle. If molding labor costs $16
per hour, determine the direct labor cost budget for 2012. (Worth 4 points)
Answer
Direct labor cost budget: (78,900*$3.20/60) * $16 = $315,600

4. Prepare a cost of goods sold budget for Soft Glow Candle Co. using the information in the
Questions above #2 & 3. Assume the estimated inventories on January 1, 2012, for finished
goods and work in process were $12,000 and $4,000, respectively. Also assume the desired
 inventories on December 31, 2012, for finished goods and work in process were $11,200 and
$5,000, respectively. Factory overhead was budgeted at $108,000. (Worth 7 points)

ANSWER

Cost of direct materials used in production 126,240

Direct Labor 315,600

Factory Overhead budgeted 108,000

Total Manufacturing costs 549,840

Work in process, January 1, 2012 4,000

Total costs of good in process 553,840

Work in Process, December 31, 2012 5,000

Cost of goods manufactured 548,840

Finished goods, January 1, 2012 12,000

Cost of goods available 560,840

Finished goods, December 31, 2012 11,200

Cost of goods sold 549,640

Chapter 23 ~ Performance Evaluation Using Variances from Standard Costs

5. McLean Company produces a product that requires three standard gallons per unit. The
standard price is $18.50 per gallon. If 2,500 units required 8,000 gallons, which were purchased
at $18.00 per gallon, what is the direct materials (a) price variance, (b) quantity variance, and (c)
cost variance? (Worth 5 points)
Answer
a) Price variance: [($18.50 - $18.00) * 8,000] = $4,000
b) Quantity variance: [8,000 – 7,500] * $18.50 = $9,250
c) Cost Variance: [($18.00 * 8,000) – ($18.50 * 7,500)] = $5,250

6. McLean Company produces a product that requires two standard hours per unit at a standard
hourly rate of $18 per hour. If 2,500 units required 5,500 hours at an hourly rate of $19 per
 hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? (Worth 5
points)
Answer
a) Rate variance: ($19 - $18) * 5,500 = $5,500

b) Time variance: (5,500 – 5,000) * $18 = $9,000

c) Cost variance: (5,500 * $19) – (5,000 * $18) = $14,500

7. McLean Company produced 2,500 units of product that required two standard hours per unit.
The standard variable overhead cost per unit is $2.50 per hour. The actual variable factory
overhead was $12,900. Determine the variable factory overhead controllable variance. (Worth
4 points)
Answer
Variable Factory Overhead Controllable Variance: $12,900 – [$2.50 * (2,500 *2 hrs)] = $400

8. McLean Company produced 2,500 units of product that required two standard hours per unit.
The standard fixed overhead cost per unit is $1.30 per hour at 4,600 hours, which is 100% of
normal capacity. Determine the fixed factory overhead volume variance. (Worth 4 points)
Answer:
Fixed Factory Overhead Volume Variance: $1.30 * [4,600 hrs. – (2,500 * 2 hrs.)] = - $10,270

Chapter 24 ~ Performance Evaluation for Decentralized Operations

9. The centralized Help Desk of Hayman Company has expenses of $140,000. The department has
provided a total of 5,000 hours of service for the period. Computer Division has used 2,000
hours of Help Desk service during the period, and Peripheral Division has used 3,000 hours of
Help Desk service. How much should each division be charged for Help Desk services? (Worth 5
points)
Answer
Peripheral Division: 3,000 * (140,000/5,000) = $84,000
Computer Division: 2,000 * (140,000/5,000) = $56,000

10. Using the data from #9 along with the data provided below, determine the divisional income
from operations for the Computer Division and the Peripheral Division. (Worth 6 points)

Computer Division Peripheral Division

Sales $1,200,000 $1,305,000

 Cost of goods sold 610,000 764,000
Selling Expenses 264,000 245,000
Answer

Computer Peripheral
Division Division
Net sales .................................................................. $1,200,000 $1,305,000
Cost of goods sold ................................................... 610,000 764,000
Gross profit ............................................................. $590,000 $541,000
Selling expenses ...................................................... 264,000 245,000
Income from operations before help desk charges $326,000 $296,000
Help Desk charges ................................................... 56,000 84,000
Income from operations ......................................... $270,000 $ 212,000

11. Wakelin Company has income from operations of $20,125 invested assets of $87,500 and sales
of $175,000. Use the DuPont formula to compute the rate of return on investment and show (a)
the profit margin, (b) the investment turnover, and (c) the rate of return on investment. (Worth
5 points)
Answer
A) Profit Margin: $20,125/$175,000 = 12%
B) Investment Turnover: $175,000/$87,500 = 2
C) Rate of Return on Investment: 12% * 2 = 24%

Chapter 25 ~ Differential analysis and Product Pricing

12. Jefferson Company owns equipment with a cost of $95,000 and accumulated depreciation of
$60,000 that can be sold for $40,000, less a 6% sales commission. Alternatively, the equipment
can be leased by Jefferson Company for five years for a total of $42,000, at the end of which
there is no residual value. In addition, repair, insurance, and property tax that would be
incurred by Jefferson Company on the equipment would total $7,000 over the five years.
Determine the differential income or loss from the lease alternative for Jefferson Company.
(Worth 5 points)
Answer
Particulars Alternative 1 Alternative 2 Differential Income
Lease Sell Effect

Revenues 42,000 40,000 (2,000)

Less: Cost (7,000) (2,400) 4,600

Income (Loss) 35,000 37,600 (2,600)

 13. A company manufactures various sized plastic bottles for its medicinal product. The
manufacturing cost for small bottles is $52 per unit (1,000 bottles), including fixed costs of $15
per unit. A proposal is offered to purchase small bottles from an outside source for $32 unit,
plus $7 per unit for freight. Provide a differential analysis of the outside purchase proposal.
(Worth 5 points)
Answer
Particulars Make Buy Differential Effect on Income

Units costs

Purchase price per unit $0 $32 ($32)

Freight per unit $0 $7 ($7)

Variable cost per unit $37 $0 $37

Fixed cost per unit $15 $15 $0

Income (Loss) per unit $52 $54 ($2)

14. A machine with a book value of $250,000 has an estimated six-year life. A proposal is offered to
sell the old machine for $243,000 and replace it with a new machine at a cost of $320,000. The
new machine has a six-year life with no residual value. The new machine would reduce annual
direct labor costs by $12,000. Provide a differential analysis on the proposal to replace the
machine. (Worth 5 points)
Answer

Annual direct labor cost reduction .................................................... $ 12,000

Number of years applicable ............................................................... × 6
Total differential decrease in cost ..................................................... $ 72,000
Proceeds from sale of old equipment ............................................... 243,000 $315,000
Cost of new equipment...................................................................... 320,000
Net differential decrease in cost from replacing
equipment, six-year total ........................................................... $ 5,000
Annual net differential decrease in cost—new machine .................. $ 833.33

Chapter 26 ~ Capital Investment Analysis

15. Determine the average rate of return for a project that is estimated to yield total income of
$136,000 over five years, has a cost of $380,000, and has a $20,000 residual value. Round to
one decimal place. (Worth 4 points)
Answer
Estimated average annual income: ($136,000/5 years) = $27,200
Average investment: ($380,000 + $20,000)/2 = $200,000
Average rate of return: ($27,200/$200,000) = 13.6%

16. A project has estimated annual net cash flows of $114,000. It is estimated to cost $706,800.
Determine the cash payback period. Round to one decimal place. (Worth 4 points)
Answer
($706,800/$114,000) = 6.2 years

17. A project has estimated annual net cash flows of $82,000 for five years and is estimated to cost
$259,000. Assume a minimum acceptable rate of return of 12%. Using a present value factor of
3.605, determine (1) the net present value of the project and (2) the present value index,
rounded to two decimal places. (Worth 4 points)
Answer
1) [($82,000 * 3.605) - $259,000] = $36,610
2) (295,610/$259,000) = 1.14