FATİH UNIVERSITY

FACULTY OF ECONOMIC AND ADMINISTRATIVE SCIENCES

DEPARTMENT OF MANAGEMENT

MAN 306 MANAGERIAL ACCOUNTING

FINAL EXAM

Instructor: ALI COSKUN

Duration: 90 Minutes June 7, 2004

PLEASE CHOOSE 5 (FIVE) OF THE FOLLOWING QUESTIONS AND ANSWER

QUESTION 1.

Rainbow Hotel has 100-rooms. Manager of the hotel anticipates that she will rent these rooms for 25,000 nights next year. All rooms similar and will rent for the same price. Estimated operating costs for the next year are as follows:

Variable-operating costs $6 per room-night

Fixed costs:

Salaries and wages $230,000

Maintenance 75,000

Advertising 25,000

Other administration costs 120,000

Capital invested in hotel is $1,500,000. The owner’s target return on investment is 20 percent. The manager plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment.

Required:

a. What price should Rainbow Hotel charge for a room night?

b. What is the markup as a percentage of the full cost of a room night?

c. What is the markup as a percentage of the variable cost of a room night?

QUESTION 2.

Lewis, Inc. gathered the following information for the year ended December 31, 2003.

Units produced 34,000 units

Units sold 31,200 units

Direct labor $54,700

Direct materials used $126,400

Fixed selling and administrative expenses $51,000

Variable selling and administrative expenses $58,000

Fixed manufacturing overhead $62,900

Variable manufacturing overhead $73,900

Beginning inventories none

Gross margin $171,200

Direct-materials inventory, December 31 $12,800

WIP, December 31 none

Required:

a. What is the ending finished-goods inventory cost under absorption costing?

b. What is the ending finished-goods inventory cost under variable costing?

QUESTION 3.

The Holiday Card Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information:

Selling price per unit $6.60

Direct material cost per unit 1.28

Direct labor cost per unit 1.00

Variable manufacturing cost per unit 0.50

Variable non-manufacturing cost per unit 2.50

Total fixed costs 46,200

Income tax rate 30%

Required:

a. Compute the break-even point in units.

b. Compute the sales volume necessary to produce an after-tax net income of $10,000.

c. Compute the total units sold to earn an after-tax net income of $20,000.

QUESTION 4.

Beltz Company is considering the replacement of a machine that is presently used in the production of its product. The following data are available:

Replacement

Old Equipment Equipment

Original cost $100,000 $60,000

Useful life in years 15 7

Current age in years 8 0

Book value $45,000 -

Disposal value now $28,000 -

Disposal value in 7 years 0 0

Annual cash operating costs $12,000 $9,000

Required:

Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together. Indicate the best alternative for Beltz Company.

QUESTION 5.

Star Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 100,000 units of this part are as follows:

Direct materials $200,000

Direct labor 340,000

Variable factory overhead 600,000

Fixed factory overhead 500,000

Of the fixed factory overhead costs, $70,000 is avoidable.

Required:

a. Assuming there is no alternative use for the facilities, should Star take advantage of an offer from a supplier who is willing to sell Paula 100,000 units of the same part for $12.50 per unit?

b. If the facilities could be rented to another company, what would be the minimum rent of the facilities should be asked for a year?

QUESTION 6.

The Patton Company prepared the following sales budget:

Month Budgeted Sales

March $150,000

April 159,000

May 153,000

June 163,500

July 157,500

In addition, the gross profit rate is 40 percent and the desired inventory level is 30 percent of next month's cost of goods sold.

Required

Prepare a purchases budget for April through June.

QUESTION 7.

Alta Company has gathered the following information:

June 30, cash balance, $45,000

Dividends paid in July, $12,000

Cash expenditures in July for operating expenses, $36,800

Depreciation expense in July, $4,500

Cash collections in July, $89,000

Merchandise purchases paid in cash in July, $56,200

Purchased equipment for cash in July, $17,500

Alta desires to keep a minimum cash balance of $10,000.

Required:

Prepare a cash budget for July, and indicate whether or not Alta meets minimum cash requirements.