BAR 3

Question 1

Calculate equivalent unit, using various methods

Answer 1

a) conversion cost using weighted-average method
1) equivalent units = units completed + (ending WIP * % completed of ending WIP)
2) weighted-average cost per equivalent units= (beg cost DL labor + beg cost factory OH + current cost DL + current cost factory OH) / equivalent units
b) material cost using FIFO method
1) equivalent units = (beginning WIP * % completed of ending inventory) + (completed units production - beginning WIP inv) + (Ending WIP Inv * ending inv % complete for materials)

Question 2

calculate total manufacturing cost

Answer 2

= DL + (DL * % rate of factory overhead of DL) + DM used

Question 3

DM used

Answer 3

= Beg DM + DM purchased - purchase returns and allowances + transportation in - Ending DM

Question 4

Calculate company’s balance in factory overhead control

Answer 4

= actual factory overhead - (DL * applied factory overhead rate %)

Question 5

Inventoriable ie product costs

Answer 5

include DL, DM, and applied overhead

Question 6

ABC systems:

Answer 6

• eliminate nonvalue-added activities to reduce costs
• increases both # of cost pools and # of allocation bases
  -breaks down production process into many activities, accumulates costs by activities ie cost pools using allocation base for each activity
• recommended when more than 1 product is produced and are heterogeneous ie products do not uniformly consume indirect resources
• will be used when indirect costs are high percentage of total costs

Question 7

Prime costs v Conversion costs

Answer 7

= DM + DL
Conversion costs are DL and overhead, but exclude DM

Question 8

The following are included in cost of quality report

Answer 8

a) warranty claims (external failure cost)
b) design engineering (prevent cost)
c) supplier evaluations (prevention cost)”

Question 9

SBU “ Strategic Business Units “ ranking of highest responsibility

Answer 9

1) Investment 2) Profit 3) Revenue 4) cost

Question 10

Different budgets

Answer 10

• Factory overhead budget is derived from production budget
• Capital budget is used to create cash budget
• COGS budget and selling & admin expense budget are independent of 1 another

Question 11

Determine total of budgeted factory overhead, if factory overhead is applied to DL hours at X per hour

Answer 11

= production # of units next year * # of hours for each unit production *$ per hour applied to DL hours

Question 12

Determine total of budgeted DL, if factory overhead is applied to DL hours at X per hour

Answer 12

= production # of units next year * # of hours for each unit production * hourly rate for production

Question 13

Order of budget presentation

Answer 13

= sales -> production -> DM purchases -> cash disbursements

Question 14

Determine budgeted cash collections for month of Dec Y1

Answer 14

= ( $Dec sales budgeted *% of collections expected to be in month of sale) + $ AR

Question 15

The preparation of a cash budget involves:

Answer 15

a) alerts management to period of excess cash b) shows itemized cash receipts and disbursements c) broken down into monthly periods

Question 16

Determine amount production budget show for unit to be produced during 1Q

Answer 16

= # units 1Q + (# units 2Q * % of next Q budgeted sales of units ) - # units of beginning inv budgeted

Question 17

The following will change current ratio or total current assets

Answer 17

a) ST notes payable are returned w cash = cash is reduced and current liabilities are reduced = total current assets will change
b) equipment is purchased with a cash down payment = payment of cash reduces current assets; LT assets, LT liabilities, and ST liabilities are increased= current ratio reduced
c) cash dividend is declared = cash dividend increases current liabilities without increasing current assets = current assets unchanged but current ration will change

Current ratio = measures working capital = currents assets / current liab
Current ratio will increase when there is payament on AP
Current ratio will decrease when purchase of inventory on account and purchase of equipment for cash
Current ratio will remain unchanged when cash received from an AR

Question 18

Cash conversion cycle

Answer 18

= days in inventory + days sales in AR - days of payable outstanding

• A low cash conversion cycle is favorable since cash is generated more quickly
• Most favorable cash conversion cycle = days in inventory short, days sales in AR short, days payables outstanding Long
• More days in inventory would cause longer period of time to elapse from start of production until sale of good= less favorable
• More days in payables outstanding is more favorable since able to defer payments to suppliers for longer period of time

Question 19

Working capital changes

Answer 19

• Working capital will increase when refinancing a ST notes payable with a 2 year note payable
• Working capital will decrease when payament of 20-year mortage payable with cash and purchase of new plant financed by 20 year mortgage
• Working capital will remain unchanged when cash collection of AR

Question 20

Determine largest amount of ST debt company may issue to increase inventory without dropping current ration below 2.0?

Answer 20

= current assets - current liab

Question 21

of days in company’s cash conversion cycle

Answer 21

= [Inventory / (COGS /365)] + [Receivables / (sales / 365)]- [Payables/ (COGS/365)}

Question 22

Total Inventory =

Answer 22

current assets - [(current assets / current ratio)* quick ratio ]

Question 23

Asset turnover measures degree of efficiency which company is using its assets

Answer 23

= sales divided / average total assets

Question 24

Material efficiency variance can be caused by

Answer 24

a) actions of purchasing department b) design of the product c) skill level of the labor force

Question 25

Unfavorable material price variances is caused by

Answer 25

a) purchasing from suppliers other than those offering most favorable terms b) purchasing nonstandard or uneconomical lots c) failure to correctly forecast price increases

Question 26

DM quantity usage variance

Answer 26

= standard price * (actual quantity used - standard quantity allowed)

Question 27

Calculate amount usage variance if no changes in inventory

Answer 27

( budgeted $ wood purchases / budgeted wood purchases tons) * (actual wood purchases tons - budgeted wood purchases tons)

Question 28

Applied overhead

Answer 28

= (standard variable overhead rate * standard direct labor hours allowed) + (standard fixed overhead rate * actual production)

Question 29

Budgeted overhead based on standard hours

Answer 29

= (standard variable overhead rate * standard direct labor hours allowed) + (standard fixed overhead rate * standard production)

Question 30

Calculate production volume variance

Answer 30

= applied overhead - budgeted overhead based on standards hours