ACC 312 Fundamentals of Managerial Accounting

Midterm Exam I, Fall 2012, Wednesday October 4th 2012

Test Form A

Name UTEID __

Instructor

Class Day___T/TH___________ Time

DO NOT OPEN
until given instructions to do so.

Instructions
Confirm that you have 25 multiple-choice questions and 5 work out problems (14 pages).

1. Answers to Multiple-Choice questions should be recorded on the Scantron.

A. On your Scantron answer sheet, write and bubble in your name, UTEID, and the “Test
Form” letter noted above.

B. Use a #2 pencil only to mark your responses on your Scantron answer sheet. Mark
clearly and erase completely as needed. Only multiple choice answers marked on your
Scantron answer sheet will be graded.

C. The time allotted for an exam includes the time required to “bubble-in” your Scantron
answer sheets. It is cheating to take extra time to bubble in the answer sheet after time
is up for the exam.

2. Answers to Problems should be recorded on the exam where indicated. Show your work in the
space provided or attach scratch paper.

3. Cell phones, books, notes, PDAs and programmable calculators are NOT allowed at your
desk during the exam. Calculators capable of storing text are NOT allowed.

4. In the interest of minimizing disruptions and making sure all students have exactly the same
information on the exam, we will answer only the following kinds of questions during the exam:
a. Vocabulary questions relating to non-managerial-specific words;
b. Questions about a possible mistake in the exam.
In the latter case, if a mistake is confirmed, we will answer by making an announcement to the
whole class. If no announcement is made in a short period of time, you may assume that the
problem is correct as written.

5. Bring your entire exam, scratch paper, Scantron answer sheet, and student ID to the front of the
room when you have finished.

6. You are reminded of the University’s honor policy which requires you do your own work and not
give or receive assistance on this exam.

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

SECTION I - MULTIPLE CHOICE (50 points – 25 questions, 2 points each) - Please choose
the ONE BEST answer for each question and record your answer on the Scantron answer sheet.

1. Mike Company, an acclaimed sportswear company, has decided to stop producing its
famous Air Barkley basketball shoes. Identify an indirect cost of this decision.

a. Raw materials such as rubber used in production of the Air Barkley line
b. Salaries of Air Barkley line workers (make the shoes)
c. An increase in the sales of Mike Company’s sock line
d. A decrease in sales of Mike Company’s running shoes
e. The salary of Mike Company’s CEO

2. Fixed costs for Longhorn Copy Company are $900, unit variable cost are $4, and step
costs are $450 for every 100 units produced. What is the total cost of producing 166
units?

a. $2,014
b. $1,114
c. $2,464
d. $1,614
e. None of the above

3. A decision maker’s control over costs and benefits ___________ as time passes because
commitments and obligations expire with time.

a. Increases
b. Decreases
c. Remains Constant
d. Fluctuates
e. Terminates

4. Rick’s Sporting Goods produces basketballs. Last year’s sales totaled $2,500,000, with
fixed costs of $6 per unit, variable costs of $10 per unit, and a selling price of $20. If
Rick’s has a corporate tax rate of 40%, how many basketballs must it sell to reach
$225,000 in after tax profits?

a. 97,500
b. 131,250
c. 112,500
d. 281,250
e. None of the above

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

5. The Sallad Morning News sells a daily newspaper in North Texas. In 2011, the company
had after-tax profits of $3,227,221 and sold papers for $1.30 each. Their corporate tax
rate was 25%. Also during 2011 the variable cost per paper was $.85 and 10,578,232
papers were sold. What is the total amount of fixed costs for the newspaper during 2011?
Round to the nearest dollar.

a. $457,243
b. $426,091
c. $298,607
d. $1,532,983
e. There is insufficient information to answer the question

6. When plotting a CVP Relationship graphically, fixed costs per unit are represented by
which of the following?

a. A vertical line
b. An upward sloping diagonal line
c. A downward sloping diagonal line
d. A horizontal line
e. None of the above

7. You are the CEO of Icerock, a tire manufacturing company. Icerock produces three types
of tires: Simple, Deluxe, and Premium. You can only produce as many tires as your
employees can manufacture in a 40 hour work week. Given a constant demand for every
product, what metric should you use to choose the product mix?

a. Highest revenue per unit

b. Highest revenue per hour
c. Highest contribution margin per unit
d. Highest contribution margin per hour
e. Lowest production time per unit

8. Which one of these short-term decisions is NOT a solution to deal with excess demand?
a. Temporarily increase price
b. Outsource production until excess demand dissipates
c. Use extra available capacity to increase production
d. Run a special pricing discount promotion
e. None of the above

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

Use the following information to answer Questions 9 and 10.

The Southfeet Company produces two types of backpacks, the Electric and the Hester:

Electric Hester
Selling Price $50 $80
Variable Cost per unit $35 $50

In 2011, The Southfeet Company sells 100,000 units of Electric and 25,000 units of Hester.
Fixed costs for the company are $270,000

9. What is The Southfeet Company’s weighted contribution margin ratio? Round to three
decimal points.

a. .315
b. .338
c. .180
d. .300
e. None of the above

10. What is Southfeet’s breakeven (in units) for both products (combined). Use the unit
contribution method to solve.

a. 150,000
b. 240,000
c. 15,000
d. 30,000
e. 120,000

11. In making a short-term decision, when is it helpful to calculate contribution margin per
unit for particular resource?
a. When demand is low and a resource is scarce
b. When demand is high and a resource is scarce
c. When demand is low and a resource is abundant
d. When demand is high and a resource is abundant
e. None of the above

12. What is an example of a short-term decision?

a. Doubling plant manufacturing capacity
b. Purchasing land to build a manufacturing factory
c. Investing in research and development to develop a new drug
d. Establishing a five-year contract to outsource & double production
e. None of the above

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

13. Todd Instruments, a local manufacturing company, specializes in producing Supreme and
Basic model calculators. Its CFO is learning how to allocate overhead costs to each
model of calculator. The following cost information is provided:

Manufacturing overhead costs $ 3,600,000

Supreme model calculators produced 14,500
Basic model calculators produced 9,500

If Todd Instruments allocates its overhead costs based on the quantity of calculators
produced, the overhead allocated to Supreme and Basic models respectively is

a. $2,480,000; $1,120,000
b. $3,000,000; $600,000
c. $2,175,000; $1,425,000
d. $1,800,000; $1,800,000
e. $1,120,000; $2,480,000

14. Hutch Inc., a local manufacturing company and competitor of Todd Instruments,
specializes in producing Deluxe and Essential model calculators. Its CFO has decided to
allocate overhead costs based on direct labor hours. Assume a Deluxe calculator requires
8 direct labor hours and each Essential calculator requires 6 direct labor hours. The
following information is provided:

Manufacturing overhead costs $ 5,840,400

Deluxe model calculators produced 16,200
Essential model calculators produced 9,800

If Hutch Inc. allocates its overhead costs based on the direct labor hours, the overhead
allocated to Deluxe and Essential models respectively is: (round to the nearest dollar)

a. $4,017,600; $1,822,800
b. $3,639,018; $2,201,382
c. $2,201,382; $3,639,018
d. $2,503,029; $3,337,371
e. $4,380,300; $1,460,100

15. The matching principle in GAAP requires that we separate:

a. Conversion costs and overhead.
b. Product costs and period costs.
c. Selling and administrative costs.
d. Controllable and non-controllable costs.
e. Variable and Fixed

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012
Questions 16 & 17: Orange Inc. manufactures three products that share a specific chip from the
same production line. The following table shows relevant information:

uPad uPhone uPod

Monthly demand 100,000 40,000 60,000

Financial data
Unit Price $400 $200 $150
Unit variable Cost $250 $150 $50

Fixed Cost for the entire production line $700,000

16. Suppose the production is disrupted because of a short supply in the critical chip, which
is shared among all three products. Each product uses only one chip. Which product
should Orange focus to meet the demand first?
a. uPad
b. uPhone
c. uPod
d. Equally (i.e., proportionately) among the three products

17. Now suppose that there is no shortage of chips, and Orange can meet customers’ full
demand. What is Orange’s expected profit before tax?
a. – $2,300,000 (a loss of $2,300,000)
b. $2,300,000
c. $12,300,000
d. $22,300,000
e. None of the above

18. The Peterson Company incurred the following costs in the month of May:
Direct materials used $12,000
Commissions paid to sales people $5,000
Direct labor paid $9,000
Manufacturing plant utility costs $19,000
Advertising costs $2,000
Rent: Manufacturing plant $1,000

The company’s product costs total:

a. $46,000
b. $43,000
c. $40,000
d. $41,000
e. None of the above

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

19. Hobbs Electronics makes and sells portable DVD players. Each DVD player has a
selling price of $100. The following cost data per DVD player is based on a capacity of
5,000 DVD players per period.
Direct Material $30
Direct Labor $20
Total Manufacturing Overhead $10

Hobbs receives a special order for 1 DVD player for $72. The only additional costs Hobbs
will incur is $2 shipping charges. Hobbs has sufficient idle capacity to produce the
additional DVD player. Also, 20% of the manufacturing overhead is fixed (80% variable).
How much per unit will Hobbs make on just this special order for 1 DVD player?

a. $13
b. $12
c. $10
d. $11
e. More information is needed to answer this question

20. If work-in-process has increased, which of the following is always true:

a. Total manufacturing costs are more than cost of goods manufactured

b. Total manufacturing costs are less than cost of goods manufactured
c. Cost of goods sold is more than cost of goods manufactured
d. Cost of goods sold is less than cost of goods manufactured
e. Cost of goods sold is equal to cost of goods manufactured

21. Which two types of costs look similarly when plotted on a graph?

a. Total fixed and total variable costs

b. Total fixed cost and unit variable costs
c. Total variable cost and unit fixed costs
d. Unit variable costs and unit fixed costs

22. A company observed a decrease in the cost per unit. All other things being equal, which
of the following is probably true?

a. The company is studying a variable cost, and total volume has increased.
b. The company is studying a variable cost, and total volume has decreased.
c. The company is studying a fixed cost, and total volume has increased.
d. The company is studying a fixed cost, and total volume has decreased.
e. The company is studying a fixed cost, and total volume has remained constant.

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

23. Jones Manufacturing has 27,000 labor hours available for producing X and Y. Consider
the following information

If Jones follows proper managerial accounting practices, which of the following production
schedules should the company set?

Product X Product Y
a. 0 units 8,000 units
b. 6,000 units 0 units
c. 1,500 units 8,000 units
d. 6,000 units 5,000 units
e. 2,000 units 8,000 units

24. Billings Company’s plant manager is trying to better understand his plant’s inventory
workflow. He determined that $10 million was spent to purchase raw materials, $2
million on direct labor and $3 million on manufacturing overhead. If raw materials
beginning and ending inventories are $2 million and $1 million, respectively, and work-
in-process beginning and ending inventories are $6 million and $4 million respectively,
how much is cost of goods Manufactured?

a. $17 million
b. $16 million
c. $15 million
d. $18 million
e. None of the above

25. If traceable fixed costs are $400 for the Ginseng product produced by ABC Vitamins, and
variable costs are $200, how much is the segment margin when contribution margin is
$700?

a. $100
b. $500
c. $300
d. $400
e. $200

End of Multiple Choice Section

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

SECTION II (50 points) You MUST show your work to receive any partial credit. Please try to
be as neat and organized as possible. Use the backs of pages, if needed, but tell us where to find
your calculations. If you have to round, round to two decimal places.

QUESTION ONE (11 points)

Rainforest Inc. is a company that markets cabinet hardware. Rainforest Inc. offers its customers
three different products very diverse cost structures:
__________________________________________________________________________
Knobs Pulls Hinges
Selling Price $23 $42 $57
Variable Costs:
Manufacturing 13 27 35
Marketing 2 4 5
Administrative 3 3 3

Demand 270,000 75,000 45,000

Units made per labor hour 45 25 15
_____________________________________________________________________________

Rainforest Inc. only has 10,000 labor hours of capacity to produce all of its products. Fixed costs
are $1,840,600, and the corporate tax rate is 35%.

Required:
Question 1A ( 9 points)
How many units of each product should be produced to maximize profits? Put a zero if a
product should not be produced at all. Round to the nearest unit.

Units
Knobs
Pulls
Hinges

Question 2A (2 points)
Required: What is Rainforest Inc.’s maximized after-tax profit? Round to the nearest
dollar.
$___________________

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

QUESTION TWO (11 points)

You own a restaurant called River South on 6th Street in Austin, Texas.
o On an average weekday (Monday – Thursday), you gross $2,500 in revenue per day.
o On an average weekend (Friday – Sunday), you make $7,500 in revenue per day.
o Your restaurant is open 8 hours on weekdays (Monday – Thursday), and 10 hours on
weekends (Friday – Sunday).
o You pay the wait staff $15 per hour without any overtime pay.
o You have three employees working on weekdays (Monday-Thursday), and five on
weekends (Friday-Sunday).
o Food and beverages are ordered on a weekly basis: you spend $10,000 on beverages and
$7,500 on food.
o In addition you make a $2,000 weekly rent payment to the landlord.

PSY (a popular singer) visits Austin, and wants to borrow your restaurant to have a week long
celebration and party.
o He offers to pay $100,000 for a party staffed with 10 employees (who are paid $15/hour),
24 hours for 7 days (non stop).
o He demands five times the quantity of beverages than a typical week, but with the same
amount of food.
As the owner of the restaurant you must decide if you want to take his offer or decline the
offer. It is recommend you create a contribution margin statement for both the status quo and
the offer…but not required.

Required:
1. Circle the benefit/cost item or items that are relevant to your decision? 2 points
Revenue staff wages beverage cost food cost lease payment

2. What is River South’s current contribution margin ratio? 4 points

____________________

3. Based strictly on a financial decision, would you accept PSY’s offer? If so, how much
would you gain/lose by accepting his offer? 5 points

____________________

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

QUESTION THREE (11 points)

For the fiscal years ended 12/31/10 and 12/31/11 Mediterranean Manufacturing, makers of finely
crafted Mediterranean style pool and garden accessories, has the following data:

Mediterranean Manufacturing Mediterranean Manufacturing

Inventory Accounts as of 12/31/10 Inventory Accounts as of 12/31/11
Beginning Raw Materials $ 2,500,000 Beginning Raw Materials $ 3,750,000
Ending Raw Materials 3,750,000 Ending Raw Materials 4,250,000
Beginning WIP Inventory 4,650,000 Beginning WIP Inventory 2,950,000
Ending WIP Inventory 2,950,000 Ending WIP Inventory 1,875,000
Beginning Finished Goods Inv 3,250,000 Beginning Finished Goods Inv 4,000,000
Ending Finished Goods Inv 4,000,000 Ending Finished Goods Inv 3,150,000

Additionally, the following information is provided by the CFO of Mediterranean Manufacturing

for the fiscal year ending 12/31/11: Raw material purchases of $1,350,000; labor costs of
$2,350,000; manufacturing overhead of $995,000; revenues of $19,985,000; and selling and
administrative expenses of $12,000,000.

Required: Given the information above complete the following questions for the year 2011.

A. What is Mediterranean Manufacturing 2011 Cost of Raw Materials Used

__________________? 3 points

B. What is Mediterranean Manufacturing 2011 Cost of Goods Manufactured

__________________? 3 points

C. Prepare Mediterranean Manufacturing’s GAAP Income Statement for the period

ending 12/31/11 (ie financial not managerial). Use the table provided below.
There are more lines provided than required to complete the statement. 5 points

Mediterranean Manufacturing
Income Statement
For the period ending 12/31/11

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

QUESTION FOUR (8 points)

Ear Candy is a top-selling music headphone product. Ear Candy is about to release two new
headphone versions (Superior and Basic). Sizable differences exist in selling prices and
variable costs as detailed below:

Superior Headphones Basic Headphones

Selling Price $200 $100
Variable Costs:
Manufacturing $25 $25
Marketing $65 $15

The fixed costs for these two products combined are $15,000,000. The planned sales mix in
units is 70% Superior and 30% Basic. Due to great tax planning, Ear Candy’s tax rate is 20%.

Required:
Round to nearest whole unit, as needed. Show your work for maximum credit.

Considering this sales mix, in order to have an after-tax profit of $1,000,000:

A. How many units of Superior headphones need to be sold? (4 points)

________________

B. How many units of Basic headphones need to be sold? (4 points)

________________

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

QUESTION FIVE (9 points)

Strong Coffee & More is an on-line company that specializes in selling coffee by the pound.
They offer their customers free shipping on all orders. Management currently is interested in
understanding how their shipping costs vary with the number of orders sold. To this end, they
have provided you with the following data for the most recent six months of operations:

Month Orders Shipping

Sold Costs
January 5,000 $27,500
February 7,500 $33,750
March 6,000 $30,250
April 6,500 $31,000
May 7,000 $32,375
June 5,100 $26,000

Required:
a. Use the high-low method to estimate Strong Coffee & More’s monthly fixed shipping
costs. (3 Points)

b. Use the high-low method to estimate Strong Coffee & More’s variable shipping costs per
order. (3 Points)

c. Assume Strong Coffee & More expects to sell 5,500 orders in July. Use the cost
information you developed above to estimate their total July shipping costs. (3 Points)

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 ACC 312 Fundamentals of Managerial Accounting
Midterm Exam I, Fall 2012, Wednesday October 4th 2012

BLANK

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