__________________________________________________________________________________________

__MANAGEMENT ACCOUNTING II October 5, 2018

Mid-term Examination 9:00-12:00 pm

TRUE/FALSE
1. Separation of businesses into more manageable operating units is termed decentralization.
2. The process of measuring and reporting operating data by areas of responsibility is termed responsibility
accounting.
3. A decentralized business organization is one in which all major planning and operating decisions are made by top
management.
4. A centralized business organization is one in which all major planning and operating decisions are made by top
management.
5. The primary disadvantage of decentralized operations is that decisions made by one manager may affect other
managers in such a way that the profitability of the entire company may suffer.

COMPLETION STATEMENTS
6. A ________________ is expressed as a unit amount, whereas a _________________ is expressed as a total
amount.
7. Standards which represent optimum performance under perfect operating conditions are called
_______________ standards, but most companies use _________________ standards which are rigorous but
attainable.
8. In developing a standard cost for direct materials used in making a product, consideration should be given to two
factors: (1) __________________ per unit of direct materials and (2) the __________________ of direct
materials to produce one unit of product.
9. The difference between actual hours times the actual pay rate and actual hours times the standard pay rate is the
labor _________________ variance.
10. The standard number of hours allowed times the predetermined overhead rate is the amount of
________________ to the products produced.
11. The ____________________ is the starting point in preparing the master budget.
12. The formula for developing a production budget is ___________________ plus ______________________
minus _______________________.
13. The ________________ is a set of interrelated budgets that constitutes a plan of action for a specified period of
time.
14. Three major sections of a cash budget are (1) ___________________, (2) ____________________, and (3)
______________________.
15. The two major differences between the master budgets of a merchandiser and a manufacturer are that the
merchandiser will have a ______________________ budget and will not have __________________ budgets.

PROBLEM 1: Scot Company plans to sell 400,000 units of finished product in July 20x1. Management (1)
anticipates a growth rate in sales of 5% per month thereafter and (2) desires a monthly ending finished-goods
inventory (in units) of 80% of the following month's estimated sales. There are 300,000 completed units in the
June 30, 20x1 inventory.

Each unit of finished product requires four pounds of direct material at a cost of P1.50 per pound. There are
1,600,000 pounds of direct material in inventory on June 30, 20x1.

Required:
16. Prepare a production budget for the quarter ended September 30, 20x1. Note: For both part "A" and part "B" of
this problem, prepare your budget on a quarterly (not monthly) basis.
17. Independent of your answer to part "A," assume that Scot plans to produce 1,200,000 units of finished product for
the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to
25% of current production usage, compute the cost of direct material purchases for the quarter.

PROBLEM 2: Jacobs manufactures two products: A and B. The firm predicts a sales volume of 10,000 units for
product A and ending finished-goods inventory of 2,000 units. These numbers for product B are 12,000 and
3,000, respectively. Jacobs currently has 7,000 units of A in inventory and 9,000 units of B.

The following raw materials are required to manufacture these products:

Required for Product

Raw Material Cost per Pound A B
X P2.00 2 pounds
Y 2.50 1 pound 1 pound

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 Z 1.25 3 pounds

Product A requires three hours of cutting time and two hours of finishing time; B requires one hour and three
hours, respectively. The direct labor rate for cutting is P10 per hour and P18 per hour for finishing.

Required:
18. Prepare a production budget in units.
19. Prepare a materials usage budget in pounds and dollars.
20. Prepare a direct labor budget in hours and dollars for product A.

PROBLEM 3: The accounting records of Backspace, Inc., revealed an accounts receivable balance of P195,000
on January 1, 20x6. Forty percent of the company's sales are for cash, and the remaining 60% are on account.
Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total
sales in January and February are expected to amount to P500,000 and P530,000, respectively.

Assume that in the latter half of 20x6, Backspace hired a new sales manager who aggressively tried to maximize
the company's market share. She implemented a compensation system for the sales force that was 100%
commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased
dramatically in a very short period of time, and the sales and collection patterns changed, as follows:

Cash sales: 20%

Credit sales: 80%
Collected in the month of sale 15%
Collected in the month following sale 75%
Uncollectible 10%

Required:
21. Compute the company's cash inflows for January and February, 20x6.
22. Determine the outstanding receivables balance at the end of February.
23. Compare the sales and collection patterns before and after the arrival of the new sales manager. Have things
improved or deteriorated? Explain.
24. On the basis of the information presented, determine what likely caused the improvement or deterioration in
collection patterns.

PROBLEM 4: Cloverleaf, Inc., produces glass shelves that are used in furniture. Each shelf requires 3.6 pounds
of raw material at a cost of P2 per pound. Unfortunately, given the nature of the manufacturing process, one out
of every five shelves is chipped, scratched, or broken at the beginning of production and has to be scrapped.

On average, 20 good shelves are completed during each hour. Laborers who work on these units are paid P15
per hour.

Required:
25. Distinguish between perfection standards and practical standards.
Who within an organization would be in the best position to assist in setting:
26. the direct-material price standard?
27. the direct-material quantity standard?
28. the direct-labor efficiency standard?
29. Calculate a practical direct-material and direct-labor standard for each good shelf produced.

PROBLEM 5: Diamond Corporation manufactures a variety of liquid lawn fertilizers, including a very popular
product called Lush 'N Green. Data about Lush 'N Green and Proctol, a major ingredient, follow.

Expected operations:
 Proctol is purchased in 55-gallon drums at a cost of P45 per drum. A 2% cash discount is offered for
prompt payment of invoices, and Diamond takes advantage of all discounts offered.
 Diamond normally purchases 200 drums of Proctol at a time, paying shipping fees of P420 per
shipment.
 Each gallon of Lush 'N Green requires three quarts of Proctol; however, because of evaporation and
spills, Diamond loses 4% of all Proctol that enters production. (Recall that there are four quarts in a gallon.)

Actual operations:
 For the period just ended, Diamond purchased 1,200 drums of Proctol at a total cost of P54,960.
There was no beginning inventory, but an end-of-period inventory revealed that 15 drums were still on hand.
 Manufacturing activity output totaled 82,000 gallons of Lush 'N Green.

Required:
30. Compute the standard purchase price for one gallon of Proctol.
31. Compute the standard quantity of Proctol to be used in producing one gallon of Lush 'N Green. Express your
answer in quarts.
32. Compute the direct-material price variance for Proctol.
33. How much Proctol was used in manufacturing activity and how much should have been used? Express your
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 answer in quarts.
PROBLEM 6: Bob's Burgers and Such, a national fast-food chain, has experienced a number of problems in the
past few years, and management is considering the adoption of a balanced scorecard as part of a turnaround
effort.

Required:
34. Briefly explain the concept of a balanced scorecard. What general factors are included in a typical balanced
scorecard?
35. Independent of your answer in requirement "A," assume that Bob's is very concerned about customer satisfaction.
List four different (and specific) customer-satisfaction measures that may be appropriate for the firm (and for other
fast-food providers).
36. Independent of requirement "A," assume that Bob's wants to return to former levels of profitability. List several
financial measures that would allow management to assess success or failure with respect to the following goals:
(1) pay creditors on a timely basis, (2) keep shareholders happy, and (3) improve profitability over time at stores
that have been open at least one year.

PROBLEM 7: The Koko Company has income from operations of P60,000, invested assets of P345,000, and
sales of P786,000. Use the DuPont formula to calculate the rate of return on investment, and show:
37. the profit margin
38. the investment turnover, and
39. rate of return on investment.

PROBLEM 8: Data for Divisions R, S, T, U, and V are as follows:

Rate of
Income from Inv. Return Profit Invest.
Div. Sales Operations Assets on Inv. Margin Turnover
R (1) $35,000 $200,000 (2) (3) 1.6
S $455,000 (4) $284,375 16% (5) (6)
T $525,000 $73,500 (7) (8) (9) 1.2
U $800,000 (10) (11) (12) 13.0% 2.5
V (13) (14) $250,000 (15) 16.0% 2.0

40-54. Determine the missing items, identifying each by number.

55. Which division is most profitable in terms of income from operations?
56. Which division is most profitable in terms of rate of return on investment?
PROBLEM 8: Materials
used by Nead Company in producing Division A's product are currently purchased from outside suppliers at a cost of
P30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can
produce the materials needed by Division A at a variable cost of P20 per unit.

57. If a transfer price of P25 per unit is established and 60,000 units of material are transferred, with no reductions in
Division B's current sales, how much would Nead Company's total income from operations increase?
58. Assuming transfer price of P25, how much would the income from operations of Division A increase?
59. Assuming transfer price of P25, how much would the income from operations of Division B increase?
60. If the negotiated price approach is used, what would be the range of acceptable transfer prices?

-End of Examination-

Difficult roads often lead to beautiful destinations.

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