cga practiceexam ma1 garrison

8/10/2019 CGA PracticeExam MA1 Garrison

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Note:

The purpose of the following practice examination is to provide an opportunity for review and to provide some indication of the form,rather than the content, of the course examination.

MANAGEMENT ACCOUNTING 1 [MA1]

PRACTICE EXAMINATION

IMPORTANT

Before starting to write the examination, make sure that it is complete. This examination consists

of 9 pages. There are 6 questions for a total of 100 marks.

READ THE QUESTIONS CAREFULLY AND ANSWER WHAT IS ASKED.

To assist you in answering the examination questions, CGA-Canada includes the following glossaryof terms.

Glossary

From David Palmer,Study Guide: Developing Effective Study Methods(Vancouver: CGA-Canada, 1996).

Copyright David Palmer.

Compare Examine qualities or characteristics thatresemble each other. Emphasize similarities,although differences may be mentioned.

Contrast Compare by observing differences.Stressthe dissimilarities of qualities orcharacteristics. (AlsoDistinguish between)

Criticize Express your ownjudgmentconcerning thetopic or viewpoint in question. Discuss bothpros and cons.

Define Clearly state the meaningof the word orterm. Relate the meaning specificallyto theway it is used in the subject area underdiscussion. Perhaps also show how the itemdefined differs from items in other classes.

Describe Tell the wholestory in narrative form.

Diagram Give a drawing, chart, plan or graphicanswer. Usually you should label a diagram.In some cases, add a brief explanation ordescription.

Discuss This calls for the most completeand detailedanswer. Examine and analyze carefully andpresent both pros and cons. To discussbriefly requires you to state in a few

sentences the critical factors.Evaluate This requires making an informedjudgment.

Your judgment must be shown to be basedon knowledgeand informationabout thesubject. (Just stating your own ideas is notsufficient.) Cite authorities. Cite advantagesand limitations.

Explain In explanatory answers you must clarify thecause(s), or reasons(s). State the how andwhy of the subject. Give reasons fordifferences of opinions or of results.

Illustrate Make clear by giving an example,e.g., afigure, diagram or concrete example.

Indicate Provide a short explanation.

Interpret Translate, give examples of, solve, orcomment on, a subject, usually making ajudgment on it.

Justify Prove or give reasons for decisions orconclusions.

List Present an itemized series or tabulation.Be concise.Point form is often

acceptable. (Also Enumerateor Identify)Outline This is an organizeddescription. Give a

general overview, stating main andsupporting ideas. Use headings andsub-headings, usually in point form. Omitminor details.

Prove Establish that something is true by citingevidence or giving clear logical reasons.

Relate Show how things are connected with eachother or how one causes another,correlates with another, or is like another.

Review Examine a subject critically, analyzingand commenting on the importantstatements to be made about it.

State Present the main points in brief, clearsequence, usually omitting details,illustrations, or examples.

Summarize Give the main points or facts in condensedform, like the summary of a chapter,omitting details and illustrations.

Trace In narrative form, describe progress,development, or historical events fromsome point of origin.


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CGA-CANADA

MANAGEMENT ACCOUNTING 1PRACTICE EXAMINATION

Marks Time: 3 Hours

30 Question 1Select the best answerfor each of the following unrelated items. Answer each of these items inyourexamination bookletby giving the number of your choice. For example, if (1) is the best answer foritem (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that itemwill not be marked. Incorrect answers will be marked as zero. No account will be taken of anyexplanations you offer.

Note:

2 marks each

Note:

Parts (a), (b), and (c) are based on the following information pertaining to Gladstone Manufacturing for Year 2.

Raw materials used in production $ 2,800Total manufacturing costs added 16,000Applied factory overhead 6,600Selling and administrative expenses 4,300

Inventories:

Raw materials, January 1 $ 960 Work in process, December 31 $ 1,300Raw materials, December 31 1,040 Finished goods, January 1 960Work in process, January 1 1,460 Finished goods, December 31 920

a. For Year 2, what was the cost of raw materials purchased?

1) $2,7202) $2,8003) $2,8804) $3,760

b. For Year 2, what predetermined overhead rate was used (overhead is applied on the basis of directlabour costs)?

1) 80%2) 100%3) 120%4) 200%

c. For Year 2, what was the cost of goods sold?

1) $16,0002) $16,0403) $16,2004) $16,960

Continued...


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d. IPM Co. is considering closing down one of its divisions. The division presently has a contributionmargin of $500,000. Overhead allocated to the division is $1,250,000, of which $125,000 cannot beeliminated. If this division were discontinued, by what amount would IPMs pretax income increase?

1) $125,0002) $500,0003) $625,000

4) $750,000

e. PCP Co. produces and sells two products A and B. These two products are the result of a jointprocess. Joint costs are incurred until split-off. After split-off, separate costs are incurred in refiningeach product. The joint costs are allocated to each of the two products based on their respectivemarket values at split-off. If the market value of Product A at split-off increases and all other costs andselling prices remain unchanged, what will be the effect on the gross margin of the two products?

1) Product A will decrease and Product B will increase.2) Product A will increase and Product B will decrease.3) Product A will increase and Product B will increase.4) Product A will decrease and Product B will decrease.

f. Fiddling Enterprises entered into a contract with one of its customers. The contract provided for aformula price of actual cost plus 20%. Fiddling is also entitled to receive 50% of any savings from theformula price being less than the target price of $4,500,000. Fiddling incurred actual costs of$3,600,000. How much should Fiddling receive from the contract?

1) $4,050,0002) $4,320,0003) $4,410,0004) $4,500,000

g. Consider the following incomplete production budget:

First

quarter

Second

quarter

Third

quarter

Fourth

quarter

Expected sales units 7,000 5,000 8,000 6,000Units to be produced 6,800

The previous year's fourth quarter ending inventory was 700 units, which meets the minimumrequirement for ending inventories. What is the expected production in the current second quarter?

1. 4,500 units2. 5,200 units3. 5,300 units4. 6,800 units

Continued...


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Note:

Use the following information to answer parts (h), (i), and (j).

The following information pertains to production activities at Burn Corp. All units in work in process(WIP) were costed using the FIFO cost flow assumption.

Percentage of ConversionRefining Department Units Completion Costs

WIP, February 1 25,000 80% $ 22,000Units started and costs incurred in February 135,000 $ 143,000Units completed and transferred out 100,000WIP, February 28 ? 50% $ ?

h. What were the conversion costs per equivalent unit of production last period and this period,respectively?

1) $1.10 and $1.302) $1.10 and $1.45

3) $1.30 and $1.304) $1.30 and $1.45

i. What was the conversion cost of the work in process inventory account at February 28?

1) $39,0002) $39,6003) $42,5004) $45,000

j. What was the per-unit conversion cost of the units started last period and completed this period?

1) $0.862) $1.14

3) $1.254) $1.30

Note:

Use the following information to answer parts (k) and (l):

Pots Unlimited manufactures flower pots. It expects to sell 40,000 flower pots in Year 2. At the start ofYear 2, the company had enough beginning inventory of raw materials to produce 48,000 units. Beginninginventory of finished units totalled 4,000, with a target ending inventory of 5,000 units. The companykeeps no work in process inventory. The flower pots sell for $6.00 per unit, direct materials costs are$2.00 per unit, and direct labour is $1.00 per unit. Factory overhead is $0.40 per unit.

k. What will be the amount of cost of goods sold for Year 2?

1) $122,4002) $136,0003) $139,0004) $149,600

Continued...


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l. What will be the total costs incurred for direct materials, direct manufacturing labour, andmanufacturing overhead, respectively, for Year 2?

1) $0; $40,000; $16,0002) $0; $41,000; $16,0003) $80,000; $40,000; $16,0004) $82,000; $41,000; $16,400

Note:

Use the following information to answer parts (m), (n), and (o).

Ron C. Kalten operates RoCK Ltd., a mobile discotheque. His customers are local residents hostingprivate parties. The activities involved in his services and the time required for each activity are asfollows:

Activity Time (in Hours)

Discuss the type of music with customer 0.5Prepare song list 1.0Travel time to and from location (average) 1.0

Set up and take down equipment 1.5Play music at party depends on customer

Ron has determined that his time should be priced at $25.00 per hour to make the business economicallyviable. Ron charges a travel fee of $0.50 per kilometre (one way only) from the city centre to thecustomer. He also pays an assistant $10.00 per hour for the duration of the party, but does not pay theassistant for travel or set-up and take-down time.

m. How much should Ron charge a customer who lives 10 kilometres from the city centre and gives aparty that lasts 7 hours?

1) $2802) $325

3) $3454) $350

n. A customer requires special lighting that Ron will have to rent for $50 and that will increase the set-upand take-down time by 2 hours. How much should Ron charge this customer if she lives 10 kilometresfrom the city centre and gives a party that lasts 8 hours?

1) $4252) $4503) $4854) $490

o. Another customer is on a limited budget and offers to supply an assistant to take the place of Ronsregular assistant. This would decrease the set-up and take-down time by 50%. How much should Roncharge this customer if the party lasts 8 hours and the customer lives 20 kilometres from the citycentre?

1) $281.252) $291.253) $310.004) $371.25


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15 Question 2Jane left her job as the production manager of a medium-sized firm two years ago to join a new firm thatmanufactures a revolutionary type of fitness equipment. Jane was made the general manager at the start ofoperations, and the firm seemed to be doing extremely well. The president was pleased with thecompanys first-year performance and at the beginning of the second year promised Jane a $20,000 bonusif the companys net income were to increase by 25% in Year 2.

During Year 2, Jane sold 25% more units than she had in Year 1 and was so confident that she wouldreceive her bonus that she bought non-refundable airline tickets to Europe for her husband and her threesons.

At the end of Year 2, Jane received the income statement for Year 2, which showed that the companysincome had decreased from Year 1 even though the company had sold considerably more units. Jane didnot get along very well with the accountant and felt that he had deliberately distorted the financialstatements for Year 2.

Following are the reports Jane received:

Year 1 Year 2

Production (in units) 6,000 3,000Sales (in units) 4,000 5,000Unit selling price $ 500 $ 500Unit costs:

Variable manufacturing $ 300 $ 300Variable selling 20 20Fixed manufacturing 180,000 210,000Fixed selling 100,000 140,000

Income Statement (FIFO) Year 1 Year 2

Sales $ 2,000,000 $ 2,500,000Cost of goods sold 1,320,000 1,770,000

Gross margin 680,000 730,000Selling 180,000 240,000Net income $ 500,000 $ 490,000

Required

9 a. Prepare variable costing income statements for Years 1 and 2.

6 b. For Years 1 and 2, prepare a reconciliation for the differences between the net income as determinedby the variable costing income statements you prepared in part (a) and the income statements preparedby the accountant.


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16 Question 3Whiskey-Jack Adventures offers guided tours and wilderness experiences in the mountains and lakesaround Whistler, B.C. Whiskey-Jack provides a guide, all the necessary provisions, and equipment for afee of $75per person per day. Based on available equipment and guides, the maximum capacity is800 tour-days per month (customers are taken on the equivalent of an all-day tour). The company is

presently operating at a level of an average of 600 tour-days per month.

Variable costs per tour-day for Year 2 were as follows:

Food $ 7.50Supplies 3.00Guides salary 37.50Insurance 12.00

Total $ 60.00

Annual fixed costs for Year 2 were as follows:

Equipment rental $ 7,500Marketing 3,000Customer service 1,500Administration 6,000

Total $ 18,000

Required

Answer the following questions independently of each other.

7 a. Assuming that the fee is increased by $18.00 per person per day in Year 3 and the number of tour-days declines by 200 per month, calculate the effect on the monthly operating income.

9 b. A group of foreign travellers has offered Whiskey-Jack a proposal for 300 tour-days in July ifWhiskey-Jack will reduce the fee to $67.50 per tour-day. The group would provide its own food.Whiskey-Jack would incur $300 in additional costs for bussing the tourists back and forth to the campsite. Determine whether Whiskey-Jack should accept the proposal. (Hint: Calculate the effect on

operating income.)


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15 Question 4Alpha Inc. manufactures digital compasses for navigation. The companys total overhead budget forJanuary, for the manufacture of 2,000 units, was $49,600. Overhead is applied on the basis of directlabour-hours. On the last day of the month, just as the 2,000th unit was completed after a total of752 actual direct labour-hours, the hard-drive on the microcomputer that contained the months detailedcost information crashed. With the computer out of commission, the cost accountant has had difficultycompleting the variance analysis report. He has managed to assemble the incomplete information below

for January:

Variable overhead:0.4 direct labour-hours @ $8.00 per hour (from the standard cost card)Actual cost: variable overhead cost $8,400

Fixed overhead:Budget variance $2,000 favourable

Required

13 a. Compute the following for January:

(3) i) Variable overhead flexible budget allowance for the manufacture of the 2,000 units(3) ii) Variable overhead spending variance(3) iii) Variable overhead efficiency variance(2) iv) Budgeted fixed overhead(2) v) Actual fixed overhead

2 b. List an advantage of flexible budgets over static budgets as a tool for planning and as a tool forcontrol.


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10 Question 5BabyGoGo Ltd. manufactures three models of childrens swing sets: standard, deluxe, and super. Thestandard set is made of steel, the deluxe set is made of aluminium, and the super set is made of a titanium-aluminum alloy. Because of the different materials used, production requirements differ significantlyacross models in terms of machine types and time requirements. However, once the parts are produced,assembly time per set for the three models is similar. For this reason, BabyGoGo allocates overhead costson the basis of machine-hours. In Year 2, the company produced 5,000 standard sets, 500 deluxe sets, and

2,000 super sets. The company had the following revenues and expenses for the year.

BABYGOGO LTD.

Income Statement

year ended December 31, Year 2

Standard Deluxe Super Total

Sales $ 475,000 $ 380,000 $ 560,000 $ 1,415,000Direct Costs:

Direct material 200,000 150,000 240,000 590,000Direct labour 54,000 14,400 24,000 92,400

Variable overhead costs:

Machine setup ? ? ? 26,000Orders processed ? ? ? 64,000Warehouse ? ? ? 93,000Shipping ? ? ? 36,000Contribution margin $ ? $ ? $ ? 513,600

Fixed overhead costs:Plant administration 88,000Other 182,000

Gross profit $ 243,600

The chief financial officer of BabyGoGo has hired a consultant to recommend cost allocation bases. Theconsultant has recommended the following:

Activity Level

Activity Cost Driver Standard Deluxe Super Total

Machine setup Number of production runs 22 11 17 50Sales order processing Number of sales orders received 300 200 300 800Warehouse costs Number of units in inventory 200 100 100 400Shipping Number of units shipped 5,000 500 2,000 7,500

The consultant found no basis for allocating the plant administration and other fixed overhead costs, andrecommended that they not be applied to products.

Required

8 a. In your examination booklet, complete the income statement using the cost allocation basesrecommended by the consultant. Do not allocate any fixed overhead costs.

2 b. Explain how activity-based costing might result in better decisions by BabyGoGo management.


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9 Question 6You have been given the following production information for Gamma Co., and are asked to provide the

plant manager with information for a meeting with the vice-president of operations.

Standard Cost Card

Direct materials (DM) (6 kg @ $3) $ 18.00

Direct labour (DL) (0.8 hr @ $5) 4.00Variable overhead (VOH) (0.8 hr @ $3) 2.40Fixed overhead (FOH) (0.8 hr @ $7) 5.60

$ 30.00

Following is a production report for the last period of operations:

Variances

Total Price/ Spending/ Quantity/

Costs Standard Cost Rate Budget Efficiency Volume

DM $ 405,000 $ 6,900F $9,000UDL 90,000 4,850U 7,000UVOH 54,000 $ 1,300FFOH 126,000 500F $14,000U

Note:

F = Favourable; U = Unfavourable

Required

2 a. Calculate the number of units produced last period.2 b. Calculate the number of kilograms of raw material purchased and used during the period.3 c. Calculate the actual cost per kilogram of raw material.2 d. Calculate the number of actual direct labour-hours worked during the period.

5 Question 7 (5 marks)Larch Electrical provides electrical services and uses time and materials pricing. The company hasbudgeted the following costs for next year:

Electricians wages and benefits ......................................... $420,000Other costs, except for parts-related costs........................... $120,000Costs of ordering, handling, and storing parts..................... 5% of invoice cost

Larch expects to log 10,000 hours of billable time next year and aims for a profit of $10 per hour of eachelectricians time. The markup on parts is 15% of invoice cost.

Required

1. Compute the time rate and the material loading charge that would be used to bill jobs.

2. One of the companys electricians has just completed a job that required 18 hours of time and $520 inparts (invoice cost). Compute the amount that would be billed for the job.

END OF EXAMINATION

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CGA-CANADA

MANAGEMENT ACCOUNTING 1 PRACTICE EXAMINATION

SUGGESTED SOLUTIONS

Marks Time: 3 Hours

30 Question 1

Note:

2 marks each

Sources/Calculations:a. 3) Topic 1.6 (Level 2)

Raw materials, beginning inventory $ 960Raw materials purchased x

3,840Raw materials, ending inventory (1,040)Raw materials used in production $ 2,800

x = $2,880

b. 2) Topic 2.1 (Level 1)

c. 3) Topic 1.6 (Level 2)Work in process, beginning inventory $ 1,460Finished goods, beginning inventory 960Manufacturing costs added 16,000

18,420Work in process, ending inventory (1,300)Finished goods, ending inventory (920)Cost of goods sold $ 16,200

d. 3) Topic 9.2 (Level 1)Overhead which can be eliminated ($1,250,000 $125,000) $ 1,125,000Less: Contribution margin (500,000)

$ 625,000e. 1) Topic 9.7 (Level 1)

f. 3) Topic 10.1 (Level 1)

Formula price ($3,600,000 1.20) $ 4,320,000

Share of cost savings {[$4,500,000 ($3,600,000 1.20)] 0.50} 90,000$ 4,410,000

g. 3) Topic 6.7 (Level 1)

Ending inventory for one period is 10% of the next periods sales. Therefore, for the secondquarter, beginning inventory must be 500 units (10% of 5,000) subtracted from 5,000 units to besold plus desired ending inventory of 800 units (10% of 8,000) = 5,300 units to be produced in thesecond quarter.

Continued...


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h. 1) Topics 3.3-3.5 (Level 1)

Conversion cost per unit last period $22,000/(25,000 0.8) $1.10Conversion cost per unit this period $143,000/110,000 $1.30

Calculation of equivalent units:

Production ReportWIP, February 1 25,000 unitsStarted 135,000Less: transferred out 100,000WIP, February 28 60,000 units

Equivalent units (EU) of production:

EU in WIP, February 28, @50% 30,000 unitsPlus: completed and transferred out 100,000Less: EU in WIP, February 1, @ 80% 20,000Equivalent units of production in February 110,000 units

i. 1) Topics 3.3-3.5 (Level 1)

($143,000/110,000)30,000 = $39,000

j. 2) Topics 3.3-3.5 (Level 1)

($1.10 0.8) + ($1.30 0.2) = $1.14

or ($1.10 0.8) + [(25,000 0.2) $1.30]/25,000 = $1.14

k. 2) Topic 2.2-2.3 (Level 1)

40,000 ($2.00 + $1.00 + $0.40) = $136,000

l. 4) Topic 2.2-2.3 (Level 1)

(40,000 + 5,000 4,000) $2.00 = $82,000(40,000 + 5,000 4,000) $1.00 = $41,000

(40,000 + 5,000 4,000) $0.40 = $16,400

m. 4) Topics 10.1 and 10.4 (Level 1)

($0.50 10) + ($25 7) + ($10 7) + ($25 4) = $350

n. 3) Topics 10.1 and 10.4 (Level 1)

$350 + $50 + ($25 2) + $25 + $10 = $485

o. 2) Topics 10.1 and 10.4 (Level 1)

($0.50 20) + ($25 8) + ($25 2.5) + (1.5/2 $25) = $291.25


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15 Question 2

Source: Topics 6.1 and 6.2 (Level 1)

9 a. Year 1 Year 2

(1) Sales $ 2,000,000 $ 2,500,000

(2) Variable costs (4,000 $320) 1,280,000 (5,000 $320) 1,600,000(2) Contribution margin 720,000 900,000

(2) Fixed costs ($180,000 + $100,000) 280,000 ($210,000 + $140,000) 350,000(2) Net income $ 440,000 $ 550,000

6 b. Year 1 Year 2

Absorption costing net income $ 500,000 $ 490,000Add:

Fixed manufacturing overhead released

from operating inventory (2,000 $30) 0 60,000Less:

Fixed manufacturing overhead deferred

to closing inventory (2,000 $30) 60,000 0Variable costing net income $ 440,000 $ 550,000

16 Question 3

7 a. Source: Topics 4.4 and 4.7 (Level 1)

Guide fee $ 75.00Variable costs:

Food $ 7.50Supplies 3.00Insurance 12.00Guide salary 37.50 60.00

Contribution margin $ 15.00

Increase in profit due to increase in selling price (400 tour-days $18) $ 7,200

Decrease in profits due to reduced sales volume (200 tour-days $15) (3,000)Increase in monthly operating income $ 4,200

9 b. Source: Topics 4.4 and 4.7 (Level 1)

Additional tour-days (300 $67.50) $20,250Additional costs:

Guide salaries (300 $37.50) $ 11,250

Supplies (300 $3) 900

Insurance (300 $12) 3,600Bussing 300 16,050

Contribution margin 4,200

Opportunity cost (600 + 300 tour-days 800 capacity) $15 1,500Increase in operating income $ 2,700

Since operating income would increase, Whiskey-Jack should accept the proposal.


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15 Question 4

13 a. Source: Topics 8.1-8.4 (Level 1)

(3) i) 2,000 0.40 $8.00 = $6,400

(3) ii) $8,400 (752 $8.00) = $2,384 unfavourable

(3) iii) (752 $8.00) $6,400 = $384 favourable(2) iv) $49,600 $6,400 = $43,200(2) v) $43,200 $2,000 favourable = $41,200

2 b. Source: Topic 8.1 (Level 1)

Two advantages of flexible budgets over static budgets:

As an aid to planning, flexible budgets assist in allocating resources by helping managers to predictwhat future costs should be at different activity levels

As an aid to the control of costs, flexible budgets help managers gain more insight into the cause ofvariances than is available with static budgets.

Note:

1 mark each for any two valid responses

10 Question 5Source: Topics 5.2 and 5.3 (Level 1)

8 a. BABYGOGO LTD.Income Statement

year ended December 31, Year 2

Standard Deluxe Super Total

Sales $ 475,000 $ 380,000 $ 560,000 $ 1,415,000Direct costs:

Direct material 200,000 150,000 240,000 590,000Direct labour 54,000 14,400 24,000 92,400

Variable overhead:Machine setup 11,4401 5,720 8,840 26,000Order processing 24,0002 16,000 24,000 64,000Warehouse costs 46,500 23,250 23,250 93,000Shipping 24,000 2,400 9,600 36,000

Contribution margin $ 115,060 $ 168,230 $ 230,310 513,600Fixed overhead:

Plant administration 88,000Other fixed 182,000

Gross profit $ 243,600

Sample calculations:

1 $26,000 22/50 = $11,4402 $64,000 300/800 = $24,000

2 b. Activity-based costing (ABC) provides a more detailed breakdown of costs and better matches eachcost with the activity that incurred the cost. This additional information should enable BabyGoGo tomake more accurate decisions. For example, if BabyGoGo wants to reduce costs, with ABC it canidentify the most costly activities and/or which costs are most amenable to reduction. Also, Thecompany will also be able to determine more accurate product cost information for product pricing.


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9 Question 6

Source: Topics 7.3, 8.2, and 8.4 (Level 1)

2 a. $405,000 (6 $3) = 22,500 units

2 b. (22,500 6) + ($9,000 $3) = 138,000 kg 13 c. ($405,000 + $9,000 $6,900) 138,000 = $2.95 per kg

2 d. (22,500 0.8) + ($7,000 $5) = 19,400 hours2

1Alternative calculation: ($405,000 + $9,000) $3 = 138,000 kg2Alternative calculation: ($90,000 + $7,000) $5 = 19,400 hours

5 Question 7

Topic 10.4 (Level 1)

1. Time rate to be used:

Electricians wages and benefits($420,000 10,000 hours) $42

Other repair costs ($120,000 10,000 hours) 12

Desired profit per hour of electrician time 10

Total charging rate per hour for service $64

Material loading charge:

Ordering, handling, and storage cost 5% of invoice cost

Desired profit on parts 15% of invoice cost

Material loading charge 20% of invoice cost

2. Time charge: 18 hours $64 per hour $1,152

Material charge:

Invoice cost of parts $520

Material loading charge (20% $520) 104 624

Billed cost of the job $1,776

END OF SOLUTIONS

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cga practiceexam ma1 garrison

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