Prof.

Salem A Helles Faculty of Commerce

Accounting Department
Advanced Managerial
MBA & Master of
Accounting
Accounting and Finance
Date: 7.06.2011 :
Final Exam :

(7.5 Mark for each Question):

Question One: Choose the term that most appropriately complete the
following statements:-
1.____________________ That point in the manufacturing process where some
or all of the joint products can be recognized as individual products.
2.____________________ A detailed plan for the future , usually expressed in
formal quantitive terms.
3.____________________ A production and inventory control system in which
materials are purchased and units are produced only as needed to meet actual
customer demand.
4.____________________ Any part of an organization that can be evaluated
independently of other parts and about which the manager seeks financial data.
5.____________________ A measure, at a given level of sales, of how a
percentage change in sales volume will affect profits.
6.____________________ Any cost that has already been incurred and that
cannot be changed by any decision made now or in the future.
7.____________________ The discount rate at which the net present value of an
investment project is zero.
8.____________________ An approach to improvement that involves
completely redesigning business processes in order to eliminate unnecessary
steps, reduce errors, and reduce costs.
_________________ .9
.
_________________ . 10
.
_________________ . 11
.
_________________ . 12
.
. _____________ .13

Question Two:
Faculty of commerce has two service departments and two operating departments.
Selected data on the four departments are presented below:-
Service Depts. Operating Depts.
Administration Computer Accounting Finance

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 services
Departmental costs
$180,000 $90,000 $190,000 $900,000
before allocations
Number of employees 15 5 20 80
Number of PCs 12 20 18 102

The Faculty of Commerce allocates service department costs by the step method
in the following order : Administration ( number of employees) and Computer
Services (number of personal computers PCs ). The Faculty makes no distinction
between fixed and variable service department costs .
Required :
Using the Step Method , allocate the service department costs to the operating
departments.

Question Three:

Jerusalem Company produces a single product. Variable manufacturing

overhead is applied to products on the basis of direct labor-hours. The
standard costs for one unit of product are as follows:
Direct material; 6 ounces at $0.50 per ounce .. $3
Direct labor: 1.8 hours at $10 per hour ... 18
Variable manufacturing overhead: 1.8 hours at $5 per hour 9
Total standard variable cost per unit .. $30

During June, 2,000 units were produced. The costs associated with June's
operations were as follows:
Material purchased: 18,000 ounces at $0.60 per ounce $10,800
Material used in production: 14,000 ounces
Direct labor :4,000 hours at $9.75 per hour $39,000
Variable manufacturing overhead costs incurred.... $20,800
Required:
Compute the materials, labor, and variable manufacturing overhead
variances.

Question Four:
The RMC Company specializes in preparing Arabian dinners that it
freezes and ships to restaurants in the Gaza area. When a diner orders an
item, the restaurant heats and serves it. The budget data for 2011 are:
Product

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 Chicken Beef
Selling price to restaurant $5 $7
Variable expenses 3 4
Number of units 250,000 125,000

The company prepares the items in the same kitchens, delivers them in the same
trucks, and so forth .Therefore, decisions about the individual products do not
affect the fixed costs of $735,000.
Required:
1. Compute the planned net income for 2011.
2. Compute the break-even point in units, assuming that the company
maintains its planned sales mix.
3. Compute the break-even point in units if the company sells only chicken.
4. Compute the degree of operating leverage and if sales increase by 5%, net
income will increase by how much?
5. If the company sell 400,000 units, what is the margin of safety?

Question Five:
Selected sales and operating data for three divisions of different structural
engineering firms are given below:
Division A Division B Division C
Sales $12,000,000 $14,000,000 $25,000,000
Average operating assets $3,000,000 $7,000,000 $5,000,000
Net operating income $600,000 $560,000 $800,000
Minimum required rate of return %14 10% %16

Required:
1. Compute the return on investment (ROI) for each division, using the formula
stated in terms of margin and turnover.
2. Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that
would yield a 15% rate of return.
a. If performance is being measured by ROI, which division or divisions
will probably accept the opportunity? Reject? Why?
b. If performance is being measured by residual income, which division or
divisions will probably accept the opportunity? Reject? Why?
Question Six

DP Company manufactures three products from a common input in a joint

processing operation. Joint processing costs up to the split-off point total $350,000
per quarter. The company allocates these costs to the joint products on the basis of

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their relative sales value at the split-off point. Unit selling prices and total output at
the split-off point are as follows:
Product Selling Price Quarterly Output
A $16 per pound 15,000 pounds
B $8 per pound 20,000 pounds
C $25 per pound 4,000 gallons
Each product can be processed further after the split-off point. Additional
processing requires no special facilities. The additional processing costs (per
quarter) and unit selling prices after further processing are given below:
Product Additional Selling Price
processing costs
A $63,000 $20 per pound
B $80,000 $13per pound
C $36,000 $32 per gallon
Required
Which product or products should be sold at the split-off point and which
product or products should be processed further? Show computations.
Question Seven:
The BH Fruit Farm of Gaza has always hired transient workers to pick its
annual cherry crop. Hatem Yousif, the farm manager, has just received
information on a cherry picking machine that is being purchased by many fruit
farms. The machine is a motorized device that shakes the cherry tree, causing
the cherries to fall onto plastic tarps that funnel the cherries into bins. Mr. Yousif
has gathered the following information to decide whether a cherry picker would
be a profitable investment for the BH Fruit Farm:
a. Currently, the farm is paying an average of $40,000 per year to transient
workers to pick the cherries.
b. The cherry picker would cost $94,500, and it would have an estimated
12-year useful life. The farm uses straight-line depreciation on all assets
and considers salvage value in computing depreciation deductions. The
estimated salvage value of the cherry picker is $4,500.
c. Annual out-of-pocket costs associated with the cherry picker would be:
cost of an operator and an assistant, $14,000; insurance, $200; fuel,
$1,800; and a maintenance contract, $3,000.
Required:
(Ignore income taxes.)
1. Determine the annual savings in cash operating costs that would be
realized if the cherry picker were purchased.

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 2. Compute the simple rate of return expected from the cherry picker. (Hint:
Note that this is a cost reduction project.) Would the cherry picker be
purchased if BH Fruit Farm's required rate of return is 16%?
3. Compute the payback period on the cherry picker. The BH Fruit Farm
will not purchase equipment unless it has a payback period of five years
or less. Would the cherry picker be purchased?
4. Compute (to the nearest whole percent) the internal rate of return
promised by the cherry picker. Based on this computation, does it appear
that the simple rate of return is an accurate guide in investment
decisions?

Question Eight:
The Palestine Hotel's guest-days of occupancy and custodial supplies expense
over the last seven months were:
Month Guest- days of Custodial Supplies
Occupancy Expense
March 4,000 $7,500
April 6,500 $8,250
May 8,000 $10,500
June 10,500 $12,000
July 12,000 $13,500
August 9,000 $10,750
September 7,500 $9,750
Guest-days is a measure of the overall activity at the hotel. For example, a guest
who stays at the hotel for three days is counted as three guest-days.
Required:
l. Using the high-low method, estimate a cost formula for custodial supplies
expense.
2. Using the cost formula you derived above, what amount of custodial supplies
expense would you expect to be incurred at an occupancy level of 11,000
guest-days?
Question Nine:
A cash budget by quarters, is given below for a retail company- (000 omitted).
The company requires a minimum cash balance of at least $5,000 to start each
quarter.
Quarter

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 1 2 3 4 Year
Cash balance, beginning $6 $ ? $ ? $ ? $ ?
Add collections from ? ? 96 ? 323
customers
Total cash available 71 ? ? ? ?
Less disbursements:
Purchases of inventory 35 45 ? 35 ?
Operating expenses ? 30 30 ? 113
Equipment purchases 8 8 10 ? 36
Dividends 2 2 2 2 ?
Total disbursements ? 85 ? ? ?
Excess (deficiency) of cash (2) ? 11 ? ?
available over disbursements
Financing :
Borrowing ? 15 - - ?
Repayments (including - - (?) (17) (?)
interest)*
Total financing ? ? ? ? ?
Cash balance, ending $ ? $ ? $ ? $ ? $ ?
*Interest will total $1,000 for the year.
Required:
Fill in the missing amounts in the above table.

Question Ten:

PL Corporation makes ultra-lightweight backpacking tents. Data concerning the

company's two product lines appear below:

Deluxe Standard
Direct materials per unit $60.00 $45.00
Direct labour per unit $9.60 $7.20
Direct labour hours per unit 0.8 DLHs 0.6 DLHs
Estimated annual production 10,000 units 50,000 units

The company has a traditional costing system in which manufacturing overhead

is applied to units based on direct labour-hours. Data concerning manufacturing
overhead and direct labour-hours for the upcoming year appear below:
Estimated total manufacturing overhead $290,000
Estimated total direct labour-hours 50,000 DLHs

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 Required:
1. Determine the unit product costs of the Deluxe and Standard products
under the company's traditional costing system.
2. The company is considering replacing its traditional costing system for
determining unit product costs for external reports with an activity-based
costing system. The activity-based costing system would have the
following three activity cost pools:
Activities and Activity Estimated Expected Activity
measures overhead cost Deluxe Standard Total
Supporting direct $150,000 8,000 42,000 50,000
labour ( direct labour-
hours)
Batch setups (setups) 60,000 200 50 250
Safety testing (tests) 80,000 80 20 100
Total manufacturing $290,000
overhead cost

Determine the unit product costs of the Deluxe and Standard products under the
activity-based costing system.

Good Luck

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