FINAL EXAM

COURSE TITLE: MANAGERIAL ACCOUNTING

PROFESSOR NAME: ABDELAZIZ FOURATI / ZOUHOUR LAHMAR
Program: UPM
Term: Fall
Date: 12/14/2021
Time:4:00 - 6:00 pm

INVIGILATORS
Invigilator(s) name(s) Signature(s)

Statement of Academic Integrity

MSB does not tolerate academic fraud, an act by a student that may result in a false academic evaluation of that student or of another
student. Without limiting the generality of this definition, academic fraud occurs when a student commits any of the following offences:
plagiarism or cheating of any kind, use of books, notes, mathematical tables, dictionaries or other study aid unless an explicit written note
to the contrary appears on the exam, to have in his/her possession cameras, tape recorders, cell phones, or any other communication
device which has not been previously authorized in writing.

Statement to be signed by the student:

I have read the text on academic integrity and I pledge not to have committed or attempted to commit academic fraud in this
examination.

Signature: ______________________________________

Note: an examination copy or booklet without that signed statement will not be graded and will receive a final exam grade of
zero.

INSTRUCTIONS
1. Books and notes Not allowed.
2. Calculators are Allowed.
3. Cell phones are Not allowed.
PROBLEM 1 (COST BEHAVIOR – 25 points)
The ALC Company specializes in the purchase, renovation, and resale of older homes. It employs
several carpenters and painters to carry out the renovation work. It is essential for ALC to have accurate
cost estimates to determine the total renovation costs before purchasing a piece of property. If the
estimated renovation costs plus the purchase price of a house are greater than its estimated resale value,
then the house would not be a worthwhile investment.
The company has been using the home’s interior square feet for his exterior paint cost estimations.
Recently, ALC decided to include the number of openings as a cost driver. Openings are the total
number of doors and windows in a house. Their cost is significant because they require time-consuming
preparatory work and careful brushwork. The rest of the house usually is painted either by rollers or
spray guns, which are relatively efficient ways of applying paint to a large area.

The company has been keeping careful records of these expenses on his last 12 jobs:
House Square Feet Openings Cost
1 2,600 13 3,300
2 3,010 15 3,750
3 2,800 12 3,100
4 2,850 12 3,150
5 4,050 19 4,700
6 2,700 13 3,250
7 2,375 11 2,800
8 2,450 11 2,800
9 2,600 10 2,875
10 3,700 16 4,100
11 2,650 13 3,200
12 3,550 16 3,950

Required:
1. Using the high-low cost estimation technique, determine the linear function of the painting cost:
a. Using square feet as cost driver
b. Using number of openings as cost driver

2. While exploring the market offer, ALC came across an advertisement for the sale of a 3,200
square-feet house with 14 openings. According to the two functions that you have just
determined, what would it cost to paint this house?

3. In order to have a more accurate estimates, ALC Company asked its accountant to use the least-
square regression method to analyse the painting costs. After running two least square
regressions using once the square feet and once the number of openings, the accountant
obtained these two outputs:

Output 1: Square Feet as cost driver Output 2: Openings as cost driver

Statistics Statistics
R² 0.9624 R² 0.9869
Standard error 167.7364 Standard error 99.7368
Observations 12 Observations 12

Coefficient Std-error t-statistics Coefficient Std-error t-statistics

Intercept 290.477 282.628 1.027 Intercept 423.443 157.259 2.693
X variable 1.061 0.095 11.219 X variable 222.942 11.523 19.348

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 a. In your opinion, and after analysing these two outputs, which is the best cost driver to explain
the variation of the painting costs? Clearly explain your position.
b. Using the output of the cost driver that you chose (question a), put the result into a linear
equation format (y = a + bx) and explain what each component means, as well as the R².
c. Using this last cost equation, what painting cost would you expect the company to incur for the
3,200 square-feet house with 14 openings? Explain why the result is different from what you
found in question 2.

PROBLEM 2 (ABC – 25 points)

The Columbus Company produces only two products: a major computer part and cell phones. The
company uses a normal cost system and overhead costs are currently allocated using a plant-wide
overhead rate based on direct labor hours. Outside cost consultants have recommended, however, that
the company use activity-based costing to charge overhead to products.

The company expects to produce 4,000 computer parts and 2,000 cell phones in 2021. Each computer
part requires two direct labor hours to produce, and each cell phone requires one-half hour to produce.

The direct material and direct labor costs included in the two products are as follows:

Item Computer part Cellphone

Direct material (per unit) $30 $17
Direct labor (per unit) $16 $4

Budgeted (estimated) Total Factory Overhead Data For 2021:

Budgeted
Estimated
Activity Overhead
Volume Level
Cost
Production Setups $80,000 20 setups
Material Handling $70,000 5,000 lbs.
Packaging & Shipping $120,000 6,000 boxes
*lbs.: The pound is a unit of mass

Based on an analysis of the three overhead activities, it was estimated that the two products would
require these activities as follows in 2021:

Activity Computer Parts Cellphones Overall Totals

Production Setups 5 setups 15 setups 20 setups
Material Handling 1,000 lbs. 4,000 lbs. 5,000 lbs.
Packaging & Shipping 4,000 boxes 2,000 boxes 6,000 boxes
Required:
1. Calculate the total cost of each product during 2021 using a traditional costing approach based on direct labor
hours.
2. Calculate the activity cost rates and the activity proportions for (a) setups, (b) material handling and (c)
packaging and shipping.
3. Use ABC to compute the total cost of the computer parts and the cellphones produced during 2021. Compute
the cost per unit.
4. Explain the difference between the unit cost calculated under the two systems.

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PROBLEM 3 (CVP analysis – 30 points)
Island Novelties, Inc., a company specializing in personalized packaging and wedding favour boxes for
special events, makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales
data for the two products follow:
Hawaiian Fantasy Tahitian Joy
Selling Price per unit $15 $100
Variable expenses per unit $9 $20
Number of units sold annually 5,000 20,000

Fixed costs total $475,800 per year.

Required:
1. Assuming the sales mix given above, do the following:
a. Prepare a contribution margin income statement showing both dollar and percent of sales
columns for each product and for the company as a whole.
b. Compute the break-even point in dollar sales for the company as a whole
c. Compute the margin of safety in both dollars and percent of sales.

2. The company has developed a new product to be called Samoan Delight. Assume that the
company could sell 10,000 units at $45 each. The unit variable expenses would be $36. The company’s
fixed expenses would not change.
a. Prepare another contribution margin income statement, including the Samoan Delight
product (sales of the other two products would not change).
b. Compute the company’s new break-even point in dollar sales
c. Compute the new margin of safety in both dollars and percent.

3. Assume that, to benefit from a bank loan, Island Novelties, Inc. would have to achieve a net
profit of $220,000. Estimate the quantity that would need to be sold of each of the three products to
meet this target.

PROBLEM 4 (FIFO - 20 points)

Tutti Frutti Juices, Ltd., makes blended tropical fruit drinks in two stages. Fruit juices are extracted
from fresh fruits and then blended in the Blending Department. The blended juices are then bottled and
packed for shipping in the Bottling Department. The following information pertains to the operations
of the Blending Department for November.

Required:
Assume that the company uses the FIFO method in its process costing system:
1. Determine the equivalent units for November for the Blending Department.
2. Compute the costs per equivalent unit for November for the Blending Department.
3. Determine the total cost of ending work in process inventory and the total cost of units
transferred to the next process for the Blending Department in November.

Mediterranean School of Business