Great Vision College

Department of Accounting and Finance,

Assignment the Course Cost and Management Accounting II

Name of Student …………………………………………………. ID NO……………………

Distance Center ……………………………………… Contact Address: +251-……………….

ASSIGNMENT FOR COST AND MANAGEMENT ACCOUNTING II (AcFn 302)

This is a test paper you are expected to do on your own. It carries 30 points. The test paper
should be completed and mailed or hand it over personally to the proximal center of the School
of Distance and Continuing Education for evaluation. Do not try to complete the assignment
until you have covered all the lessons and exercises in the course material (Module).

Any questions in the course that you have not been able to understand should be stated on a
separate sheet of paper and attached to this Assignment. Your tutor will clarify them for you
during the tutorial session held twice per term.

After completing this assignment, be certain to write your Name, Id.No and Address on the first
page.

Contact Address of the college

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Choose the best answer for each of the following multiple choice questions (1 point each)
1. A static budget is:
A. Used for control purposes
B. A budget for a single projected level of activity

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 Great Vision College
Department of Accounting and Finance,
Assignment the Course Cost and Management Accounting II

C. Data’s are modified regardless of change of activity

D. Prepared at the beginning of the period

E. A and C F. B and D G. All

2. BABISO Company expects to sell 7,000 units of product during the current year and the
company using static-budget. Budgeted variable costs per unit are: direct materials $ 5,
direct labor $8 and manufacturing overhead $12. Annual budgeted fixed costs are
$100,000. BABISO produced 3,000 units and incurred direct materials $30,000, direct
labor $40,000, manufacturing overhead $50,000 and fixed costs are $95,000. What is the
total variable costs variance for the period?

A. $5,000 F E. $55,000 U
B. $21,000 F F. $120,000 U
C. $21,000 U G. $175,000 F
D. $55,000 F

3. Based on the above question, what is the direct materials variance?

A. $4,000 F E. $10,000 F
B. $4,000 U F. $10,000 U
C. $5,000 F G. $55,000 F
D. $5,000 U

4. Refer question number 2, what is the operating income variance for the year, if budgeted
and actual selling price per unit are the some $75?

A. $10,000 F E. $515,000 F
B. $10,000 U F. $515,000 U
C. $225,000 F G. $525,000 U
D. $225,000 U

5. Refer question number 2, what is the company flexible-budget variance of direct labor?

A. $16,000 F D. $24,000 U G. $56,000 F

B. $16.000 U E. $32,000 F H. None
C. $24,000 F F. $32,000 U

6. A quantity of sold by the company 1,000 units, however, the company were expected
1,500 units. Budgeted selling price was $7.00 per unit and there was an unfavorable
flexible-budget variance of $2,500. The actual selling per unit must have been:

A. $0 B. $2.50 C. $3.00 D. $4.50

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 Great Vision College
Department of Accounting and Finance,
Assignment the Course Cost and Management Accounting II

E. $5.00 F. $5.50 G. $9.50 H. None

7. Based on question number 4, what is the sales-volume variance of revenue and static-
budget variance of revenue respectively?

A. $2,500 F and $2,000 F E. $3,500 F and $4,000 F

B. $2,500 U and $2,000 U F. $3,500 U and $6,000 U
C. $3,000 F and $2,000 U G. $4,500 F and $6,000 U
D. $3,000 U and $3,000 U H. $4,500 U and $5,500 U

8. A favorable variance occurs when:

A. Budgeted costs exceed actual costs

B. Actual revenue less than budgeted revenue
C. Actual costs exceed budgeted costs
D. Budgeted revenue less than actual revenue

E. A and B G. A and D
F. A and C H. All of the above

9. Which one of the following statements are/is false.

A. If the costs a company incurred for total variable items (DMs, DLs and MOHs)
decreased during the period, the company would report a favorable variance.
B. When using a flexible budget, fixed cost per unit will decrease as the activity level
increases within the relevant range.
C. An unfavorable sales-volume variance means a company units sold less than that
planned for the period.
D. Comparing actual result to a budgeted result based on the actual activity for the
period is flexible budget.

E. A and C
F. B and D
G. None of the above
10. A company expects its sales will be 12,000 units, its fixed costs are budgeted at
$120,000, and its variable costs are budgeted at $80,000. If its units sold declines to
10,000 units. What will be its fixed costs per unit and variable cost per unit respectively?
A. $100,000 and 75,000
B. $100,000 and 80,000
C. $120,000 and 120,000
D. $144,000 and 96,000
E. $100,000 and 120,000

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 Great Vision College
Department of Accounting and Finance,
Assignment the Course Cost and Management Accounting II

F. None of the above

Part Two: Workout Questions

1. The Expando Company produces entertainment centers from a type of pressed wood
referred to as particle board. Other materials, such as glue and screws are viewed as
insignificant and are charged to overhead as indirect materials. Budgeted or standard
quantities allowed per unit along with the budgeted prices and rates are as follows:

Type of input Inputs per output Cost per input Cost per output
Direct materials 2 particle board sheets* $10 $20
Direct labor 0.4 hours 15 6
Factory overhead:
Variable 0.4 hours 30 12
Fixed 0.4 hours 50 20
$58

* Particle board is purchased in sheets that are 3/4" by 4' by 8'.

Overhead rates are based on 4,800 standard direct labor hours per month, or average monthly
production of 12,000 units, i.e., (0.4) (12,000) = 4,800 hours. Desired ending inventories are
10% of next period’s material needs for direct material and 5% of next period’s sales for finished
goods. Unit Sales are budgeted as follows for the first six months of the year.

January February March April May June

9,000 10,000 11,000 12,000 14,000 14,500

The budgeted sales price is $100 per unit. Sales are budgeted as 50% cash and 50% credit sales.
Past experience indicates that 80% of the credit sales are collected during the month of sale, 18%
are collected in the following month, and 2% are uncollectible. A 1% cash discount is allowed to
customers who pay within the month the sale takes place including cash sales.

Variable selling and administrative expenses are budgeted at 10% of sales dollars. The budget
for fixed selling and administrative expenses is $50,000 per month. Cash payments are made for
all expenditures made during the month except for depreciation of $100,000 in manufacturing

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 Great Vision College
Department of Accounting and Finance,
Assignment the Course Cost and Management Accounting II

and $25,000 in the selling and administrative area. The budgeted beginning cash balance for
March is $100,000 and the tax rate is 40%. Budgeted income taxes from January and February
are $200,000. This amount is to be paid at the end of March along with the current months taxes.
A three month note for $50,000 is to be repaid at the end of March. The interest rate on the note
is 12 percent.

Some additional account balances budgeted for the end of February include: Land $5,000,000,
buildings and equipment $15,000,000, accumulated depreciation $6,000,000, other current
liabilities 0, long term liabilities 0, common stock $5,000,000 and retained earnings $8,993,000.

Required: Prepare
1. Sales budget for March, including net sales dollars.
2. Calculate collections for March.
3. Production Budget, i.e., units to be produced for March.
4. Direct Material quantity needed for production for March.
5. Direct Material quantity to be purchased for March.

6. Budgeted cost of direct material 10. Budgeted factory overhead costs for
purchases for March. March.
7. Budgeted cost of direct material 11. Budgeted cost of goods sold for
used for March. March.
8. Direct labor needed for production 12. Prepare a simple Budgeted Income
for March. Statement for March.
9. Budgeted cost of direct labor used 13. Prepare a cash budget for March.
for March. 14. Budgeted Balance Sheet for March

2. Zapo 1-2-3 is a top-selling electronic spreadsheet product. Zapo is about to release

version 5.0. It divides its customers into two groups: new customers and upgrade
customers (those who previously purchased Zapo 1-2-3, 4.0 or earlier versions).
Although the same physical product is provided to each customer group, sizable
differences exist in selling prices and variable marketing costs:
New Customers Upgrade Customers
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 Great Vision College
Department of Accounting and Finance,
Assignment the Course Cost and Management Accounting II

Selling prices $210 $120

Variable costs:
Manufacturing $25 $25
Marketing 65 90 15 40
Contribution margin $120 $80

The fixed costs of Zapo 1-2-3 5.0 are $14,000,000. The planned sales mix in units is 60% new
customers and 40% upgrade customers.
Required:
a. What is the Zapo 1-2-3 5.0 breakeven points in units, assuming that the planned
60%/40% sales mix is maintained?
b. If the sales mix is maintained, what is the operating income when 200,000 units are sold?
c. Show how the breakeven point in units changes with the following customer mixes:
a) New 50%/Upgrade 50%
b) New 90%/Upgrade 10%
c) Comment on the results
3. The Award Plus Company manufactures medals for winners of athletic events and other
contests. Its manufacturing plant has the capacity to produce 10,000 medals each month.
Current production and sales are 7,500 medals per month. The company normally
charges $150 per medal. Cost information for the current activity level is as follows:
Variable costs that vary with number of units produced
Direct materials $262,500
Direct manufacturing labor 300,000
Variable costs (for setups, materials handling, quality control and so on)
that vary with the number of batches, 150 batches x $500 per batch 75,000
Fixed manufacturing costs 275,000
Fixed marketing costs 175,000
Total costs $1,087,500
Award Plus has just received a special one-time-order for 2,500 medals at $100 per medal.
Accepting the special order would not affect the company’s regular business. Award Plus makes

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 Great Vision College
Department of Accounting and Finance,
Assignment the Course Cost and Management Accounting II

medals for its existing customers in batch size of 50 medals (150 batches x 50 medals per batch =
7,500 medals).
The special order requires Award Plus to make the medals in 25 batches of 100 each.
Required:
1. Should Award Plus accept this special order? Show your calculations.
2. Suppose plant capacity were only 9,000 medals instead of 10,000 medals each month.
The special order must either be taken in full or rejected completely. Should Award Plus
accept the special order? Show your calculations.
3. As in requirement 1, assume that monthly capacity is 10,000 medals. Award Plus is
concerned that if it accepts the special order, its existing customers will immediately
demand a price discount of $10 in the month in which the special order is being filled.
They would argue that Award Plus’s capacity costs are now being spread over more units
and that existing customers should get the benefit of these lower costs. Should Award
Plus accept the special order under these conditions? Show your calculations.

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