Management Accounting 1 (Ma1) Practice Examination Important
Management Accounting 1 (Ma1) Practice Examination Important
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.
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.
MANAGEMENT ACCOUNTING 1
PRACTICE EXAMINATION
30 Question 1
Select the best answer for each of the following unrelated items. Answer each of these items in your
examination booklet by giving the number of your choice. For example, if (1) is the best answer for
item (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item
will not be marked. Incorrect answers will be marked as zero. No account will be taken of any
explanations 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.
b. For Year 2, what predetermined overhead rate was used (overhead is applied on the basis of direct
labour costs)?
1) 80%
2) 100%
3) 120%
4) 200%
Continued...
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d. IPM Co. is considering closing down one of its divisions. The division presently has a contribution
margin of $500,000. Overhead allocated to the division is $1,250,000, of which $125,000 cannot be
eliminated. If this division were discontinued, by what amount would IPM’s pretax income increase?
1) $125,000
2) $500,000
3) $625,000
4) $750,000
e. PCP Co. produces and sells two products — A and B. These two products are the result of a joint
process. Joint costs are incurred until split-off. After split-off, separate costs are incurred in refining
each product. The joint costs are allocated to each of the two products based on their respective
market values at split-off. If the market value of Product A at split-off increases and all other costs and
selling 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 a
formula price of actual cost plus 20%. Fiddling is also entitled to receive 50% of any savings from the
formula 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) $4,050,000
2) $4,320,000
3) $4,410,000
4) $4,500,000
The previous year's fourth quarter ending inventory was 700 units, which meets the minimum
requirement for ending inventories. What is the expected production in the current second quarter?
1. 4,500 units
2. 5,200 units
3. 5,300 units
4. 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 Conversion
Refining Department Units Completion Costs
WIP, February 1 25,000 80% $ 22,000
Units started and costs incurred in February 135,000 $ 143,000
Units completed and transferred out 100,000
WIP, February 28 ? 50% $ ?
h. What were the conversion costs per equivalent unit of production last period and this period,
respectively?
1) $1.10 and $1.30
2) $1.10 and $1.45
3) $1.30 and $1.30
4) $1.30 and $1.45
i. What was the conversion cost of the work in process inventory account at February 28?
1) $39,000
2) $39,600
3) $42,500
4) $45,000
j. What was the per-unit conversion cost of the units started last period and completed this period?
1) $0.86
2) $1.14
3) $1.25
4) $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 of
Year 2, the company had enough beginning inventory of raw materials to produce 48,000 units. Beginning
inventory of finished units totalled 4,000, with a target ending inventory of 5,000 units. The company
keeps 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.
Continued...
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l. What will be the total costs incurred for direct materials, direct manufacturing labour, and
manufacturing overhead, respectively, for Year 2?
1) $0; $40,000; $16,000
2) $0; $41,000; $16,000
3) $80,000; $40,000; $16,000
4) $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 hosting
private parties. The activities involved in his services and the time required for each activity are as
follows:
Ron has determined that his time should be priced at $25.00 per hour to make the business economically
viable. Ron charges a travel fee of $0.50 per kilometre (one way only) from the city centre to the
customer. He also pays an assistant $10.00 per hour for the duration of the party, but does not pay the
assistant 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 a
party that lasts 7 hours?
1) $280
2) $325
3) $345
4) $350
n. A customer requires special lighting that Ron will have to rent for $50 and that will increase the set-up
and take-down time by 2 hours. How much should Ron charge this customer if she lives 10 kilometres
from the city centre and gives a party that lasts 8 hours?
1) $425
2) $450
3) $485
4) $490
o. Another customer is on a limited budget and offers to supply an assistant to take the place of Ron’s
regular assistant. This would decrease the set-up and take-down time by 50%. How much should Ron
charge this customer if the party lasts 8 hours and the customer lives 20 kilometres from the city
centre?
1) $281.25
2) $291.25
3) $310.00
4) $371.25
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15 Question 2
Jane left her job as the production manager of a medium-sized firm two years ago to join a new firm that
manufactures a revolutionary type of fitness equipment. Jane was made the general manager at the start of
operations, and the firm seemed to be doing extremely well. The president was pleased with the
company’s first-year performance and at the beginning of the second year promised Jane a $20,000 bonus
if the company’s 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 would
receive her bonus that she bought non-refundable airline tickets to Europe for her husband and her three
sons.
At the end of Year 2, Jane received the income statement for Year 2, which showed that the company’s
income had decreased from Year 1 even though the company had sold considerably more units. Jane did
not get along very well with the accountant and felt that he had deliberately distorted the financial
statements for Year 2.
Year 1 Year 2
Production (in units) 6,000 3,000
Sales (in units) 4,000 5,000
Unit selling price $ 500 $ 500
Unit costs:
Variable manufacturing $ 300 $ 300
Variable selling 20 20
Fixed manufacturing 180,000 210,000
Fixed selling 100,000 140,000
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 determined
by the variable costing income statements you prepared in part (a) and the income statements prepared
by the accountant.
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16 Question 3
Whiskey-Jack Adventures offers guided tours and wilderness experiences in the mountains and lakes
around Whistler, B.C. Whiskey-Jack provides a guide, all the necessary provisions, and equipment for a
fee of $75 per person per day. Based on available equipment and guides, the maximum capacity is
800 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.
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 if
Whiskey-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 camp
site. Determine whether Whiskey-Jack should accept the proposal. (Hint: Calculate the effect on
operating income.)
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15 Question 4
Alpha Inc. manufactures digital compasses for navigation. The company’s total overhead budget for
January, for the manufacture of 2,000 units, was $49,600. Overhead is applied on the basis of direct
labour-hours. On the last day of the month, just as the 2,000th unit was completed after a total of
752 actual direct labour-hours, the hard-drive on the microcomputer that contained the month’s detailed
cost information crashed. With the computer out of commission, the cost accountant has had difficulty
completing 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 for
control.
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10 Question 5
BabyGoGo Ltd. manufactures three models of children’s swing sets: standard, deluxe, and super. The
standard 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 significantly
across 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 costs
on 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
The chief financial officer of BabyGoGo has hired a consultant to recommend cost allocation bases. The
consultant has recommended the following:
Activity Level
Activity Cost Driver Standard Deluxe Super Total
Machine setup Number of production runs 22 11 17 50
Sales order processing Number of sales orders received 300 200 300 800
Warehouse costs Number of units in inventory 200 100 100 400
Shipping 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, and
recommended that they not be applied to products.
Required
8 a. In your examination booklet, complete the income statement using the cost allocation bases
recommended 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 6
You 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.
Variances
Total Price/ Spending/ Quantity/
Costs Standard Cost Rate Budget Efficiency Volume
DM $ 405,000 $ 6,900F $9,000U
DL 90,000 4,850U 7,000U
VOH 54,000 $ 1,300F
FOH 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 has
budgeted the following costs for next year:
Larch expects to log 10,000 hours of billable time next year and aims for a profit of $10 per hour of each
electrician’s 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 company’s electricians has just completed a job that required 18 hours of time and $520 in
parts (invoice cost). Compute the amount that would be billed for the job.
END OF EXAMINATION
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CGA-CANADA
30 Question 1
Note:
2 marks each
Sources/Calculations:
a. 3) Topic 1.6 (Level 2)
Raw materials, beginning inventory $ 960
Raw materials purchased x
3,840
Raw materials, ending inventory (1,040)
Raw materials used in production $ 2,800
x = $2,880
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) $1.10
Conversion cost per unit this period $143,000/110,000 $1.30
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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 $ 490,000
Add:
Fixed manufacturing overhead released
from operating inventory (2,000 × $30) 0 60,000
Less:
Fixed manufacturing overhead deferred
to closing inventory (2,000 × $30) 60,000 0
Variable costing net income $ 440,000 $ 550,000
16 Question 3
7 a. Source: Topics 4.4 and 4.7 (Level 1)
Guide fee $ 75.00
Variable costs:
Food $ 7.50
Supplies 3.00
Insurance 12.00
Guide 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
Since operating income would increase, Whiskey-Jack should accept the proposal.
PSMA1 Page 3 of 5
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
Note:
1 mark each for any two valid responses
10 Question 5
Source: Topics 5.2 and 5.3 (Level 1)
8 a. BABYGOGO LTD.
Income Statement
year ended December 31, Year 2
Sample calculations:
1
$26,000 × 22/50 = $11,440
2
$64,000 × 300/800 = $24,000
2 b. Activity-based costing (ABC) provides a more detailed breakdown of costs and better matches each
cost with the activity that incurred the cost. This additional information should enable BabyGoGo to
make more accurate decisions. For example, if BabyGoGo wants to reduce costs, with ABC it can
identify the most costly activities and/or which costs are most amenable to reduction. Also, The
company 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)
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
END OF SOLUTIONS
100
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