AC222 1 pd rev.

7/5/14


AC222 SPRING 2014
FINAL EXAM STUDY GUIDE

DATE: WEDNESDAY, MAY 7
TIME: 6 PM
LOCATION:
ID#s U0, U1, U3 - SMG 105
ID#s U2, U4 - KCB 101
ID#s U5, U6, U7, U8, U9 - LAW

Students who notified us with CONFLICTS or WHO QUALIFY FOR EXTENDED TIME should follow instructions in the email you
received. No email? We dont know about your conflict, so well see you in the Law Auditorium. NOTE that ONLY students who
request an extended time or make up exam ahead of time will be admitted there will be only enough exams for those students.
The proctors check attendance and IDs so bring your BU ID.

The instruction sheet for the exam, which will also be given to you as you enter the exam room, is near the end of this study guide.
Please READ IT CAREFULLY. Note particularly that you may come to the front for questions ONE AT A TIME ONLY the lines at the
last exam will not be allowed. The exam is carefully proofread: if you understand the material, you dont need to ask questions
read carefully and THINK before you rush up. We will not give any lengthy explanations, so please dont linger and keep asking.
Read the question carefully, make a judgment, and solve it. If you really understand the material, you can understand the
question. If you cannot, the exam is not the place for us to teach it to you.

We will cut off questions at 30 minutes before the end of the exam. No questions for any reason after that. At that point you
must remain in your seat until a proctor picks up your exam. This is a time when you should be finished and checking your exam,
and ensuring that you have filled in all required information including your VERSION NUMBER, as well as assuring that all of your
answers are on the answer pages. No one will be permitted to leave the room for any reason after that, until we have collected
your exams. PLEASE REMAIN IN YOUR SEAT. NOTE again that graders will NOT see your question booklet those will be stored
until the first two weeks of FALL term, when you will have an opportunity, if you request it, to see your exam.

Note that you will be asked to turn in ALL PAPER when you finish: your EXAM BOOKLET, your ANSWER PAGES (make sure you
turn in TWO), and ALSO YOUR CHEAT SHEET.

Any student whose exam has no version number will be given an INCOMPLETE IN THE COURSE. We have insufficient time to hand in
course grades to follow up on these papers. We will attempt to identify those exams during Summer term, provided you put your
name on your exam booklet. Otherwise, during the first week of Fall term youll have to come in and search the boxes of exam
booklets and try to find yours for us, and prove, with a writing sample, that it is yours.

CHEAT SHEET? You may have ONE SINGLE 8-1/2 X 11 SHEET OF NOTES. If you have anything else on your desk, the proctor will pick
it and your exam up, and the exam is over for you. No discussion, no exceptions. Those with multiple sheets or notebooks at the
last exam should re-read the instructions for the cheat sheet. Stapled sheets will not be allowed, even if the total would be just
one sheet. Copy them onto one sheet.

CALCULATOR? Anything EXCEPT your cell phone or PDA. Your cell phone must be turned off, in your backpack, under your chair.
Or, better yet, leave your cell phone at home.

CHAPTERS COVERED: roughly 20% of the points will be on Chapters 1, 2, 3, 4, 5, 7, 11, 11A, 12; remainder on Chapters 8, 9, 10

FORMAT: Same format as the two midterms 15 multiple choice, 19 short problems, 2 problems with work, 1 essay. 2 hours as
follows:
AC222 2 pd rev. 7/5/14

Conceptual M/C Short (1-point) problems 2-point problems Essays
Previous chapters 4 4 0 0
Chapter 8 4 5 Maybe Maybe
Chapter 9 3 5 Maybe Maybe
Chapter 10 / 10A 4 5 Maybe Maybe


STUDY PLAN:
Assumptions:
1. Youve read the chapters as they were covered.
2. You did the Connect problems as the chapters were covered, not all at once at the end.
Prepare for exam:
Review any Connect problems you had difficulty with.
Use the study resources in the Connect library to do additional problems.
Use the quizzes and practice tests in the Noreen 2e web site (URL in syllabus).
Do the suggested question and problems in the chapters below.
Be sure you are familiar with all chapter vocabulary, adding unfamiliar words to your cheat sheet.

SPECIFIC CONCEPTS BY CHAPTER:

CHAPTER 8
Master (planning) budget for the current year
Purposes
Master plan
Communicating management plans throughout the organization
Operating guide for the coming period
Control document - the benchmark.
Resource allocation
Identify constraints before they cause problems
Coordinate activities throughout the organization

Order of building a budget:
Sales
Production (for manufacturer)
Direct materials
Direct labor
Overhead
Raw materials purchases (or merchandise inventory purchases)
Disbursements for materials (or merchandise) inventory purchases
Disbursements for operating expenses
Cash budget: total receipts total disbursements, plus financing
Budgeted financial statements

VOCABULARY:
Budget Master budget
Budget committee Output
Cash budget Participative budget
Cash inflow Perpetual budget
Cash outflow Responsibility accounting
Continuous budget Slack
Control Top down budget
Input Self-imposed budget

PROBLEMS FOR PRACTICE:
Exercise 8-10 (your homework)
AC222 3 pd rev. 7/5/14
Problem 8-27
Problem 8-28
Problem 8-26
END-OF-CHAPTER QUESTIONS: Q 8-1, 2, 3, 4, 5, 6, 7, 8, 9, and 10

CHAPTER 9
FLEXIBLE BUDGET compares actual results to a budget at the actual activity level achieved
o Cost formula / unit for variable cost
o Master (planning) budget for fixed costs
PREPARE a flexible budget:
Define actual volume
Determine the cost formula for each variable cost
Calculate budgeted costs at the actual volume achieved: cost formula / unit * actual volume in units
Contribution format

Flexible budget performance report with activity, revenue, and spending variances:

Revenue /
cost item
Planning
(master)
budget
Activity
variance
F / U Flexible
budget
Revenue /
spending
variances
F / U Actual
costs
(1) (2) (3)


Flexible budget planning budget Actual cost flexible budget
(2) (1) (3) (2)

Variable cost: actual units @ budgeted cost
Fixed cost: budgeted amounts
VOCABULARY:
Activity variance Planning budget
Cost formula Revenue variance
Denominator activity Spending variance
Favorable variance Static budget
Flexible budget Unfavorable variance
Master budget

PROBLEMS FOR PRACTICE:
Exercise 9-18
Exercise 9-16
Problem 9-25
END-OF-CHAPTER QUESTIONS: Q 9-1, 2, 3, 4, 5, 6, 7, 8, 9, 10, and 11

CHAPTER 10

STANDARD COST: for each variable cost, the budgeted cost per unit of output.
IDEAL standard: only achieved by an organization working under optimal conditions; used to promote continuous
improvement.
PRACTICAL standard: tight, although achievable by reasonable but highly efficient operations.
HISTORICAL standard: the average of past performance, of little use for control.

Standard manufacturing cost variances: materials, labor, variable overhead, fixed overhead
Price variance: how much you paid for the resource, compared to the standard (what you expected to pay) actual price
versus standard price for the actual quantity purchased (DM) or used (DL)
Use (efficiency) variance: how much you used, compared to how much you believe you should have used actual quantity
versus standard quantity, at the standard price

A favorable variance is one that will increase income; an unfavorable variance has the effect of decreasing income.
AC222 4 pd rev. 7/5/14

VOCABULARY:
Budget variance Predetermined fixed overhead rate
Cost formula Predetermined variable overhead rate
Denominator activity Price standard
Favorable variance Quantity standard
Fixed overhead rate Spending variance
Flexible budget Standard cost per unit
Ideal standard Standard quantity of input allowed for actual output
Input Standard price allowed
Labor efficiency variance Static budget
Labor rate variance Strategy
Management by exception Unfavorable variance
Master budget Variable overhead efficiency variance
Material price variance Variable overhead spending variance
Material quantity variance Variance
Output
Practical standard

PROBLEMS FOR PRACTICE:
Exercise 10-1
Exercise 10-5
Problem 10-20 (especially good)
Problem 10A-11
End-of-Chapter Questions 10-1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13
IN GENERAL

Be sure to put your VERSION NUMBER on your exam. Exams without a version cannot be
graded. Since the final exam period is short, you will earn an INCOMPLETE in the course until
we can identify and grade your exam. Those exams will be graded after grades are turned in,
and we can determine your version.

And

Academic Conduct: We assume you have read the SMG Academic Conduct Code and intend to adhere strictly to it. Violations WILL
be pursued. The work on the exam should be yours, and yours alone. Remember also that taking the exam early, or at a make up
session, is a privilege you are being given, and carries with it an obligation. You may not discuss ANY aspect of the exam with
anyone taking the exam before or after you. NO discussions. It makes no difference whether you thought their exam would be
different it is still the exam. We DO find out about these conversations, and the consequences are unpleasant for all concerned.















AC222 5 pd rev. 7/5/14
EXAM INSTRUCTIONS
Be sure there is at least ONE seat between you and the next person.
Write your name, id, and professors name on EACH answer page.
When you get your exam booklet, WRITE THE VERSION NUMBER
ON EACH ANSWER PAGE. Students whose exams have no version
will receive an Incomplete for the course.
TURN OFF YOUR CELL PHONE, PUT IT IN YOUR BAG, AND PUT THE
BAG UNDER YOUR SEAT, right now. No cell phones in your pocket!
Your notes sheet is ONE SINGLE SHEET. No stapled, back-to-back,
no notebook, ONE SHEET. Anything else and we will pick up your
exam and cheat sheet, and the exam is over for you.
If you must ask a question, you must come to the FRONT OF THE
ROOM ONE AT A TIME. IF SOMEONE ELSE IS THERE, WAIT IN
YOUR SEAT UNTIL THEY RETURN TO THEIR SEAT. If we see you
lining up in the aisle, youll be asked to sit down. Keep questions
very brief.
If you need to use the restroom, you must sign out at the front,
leaving your exam, then sign back in and pick up your exam. ONLY
ONE AT A TIME MAY LEAVE.
When there are 30 minutes remaining, there will be no more
questions, and you may not leave your seat for any reason. Wait for
a proctor.
Graders will not see your question book. Anything to be graded
MUST BE ON THE ANSWER PAGES. No exceptions.
When time is called, STOP WRITING. The proctors will begin to
collect exams FROM THE BACK. You may leave once your exam is
collected, not before. Do NOT come to the front with your exam.
You must hand in EVERYTHING: exam booklet, answer pages and
cheat sheet.
AC222 6 pd rev. 7/5/14
PRACTICE QUESTIONS

1. Which of the following budgets is prepared before the cash budget?

Selling and Administrative Expense Budget Production Budget
A) Yes Yes
B) Yes No
C) No Yes
D) No No

2. The usual starting point for a master budget is:
A) the direct materials purchase budget.
B) the budgeted income statement.
C) the sales forecast or sales budget.
D) the production budget.

3. Which of the following is not a benefit of following a well-designed budgeting procedure?
A) Improved decision-making processes.
B) Improved performance evaluations.
C) Improved coordination of business activities.
D) Assurance of future profits.
E) All of the above are benefits of effective budgeting.

4. Which of the following statements about budgeting is false?
A) Budgeting is an aid to planning and control.
B) Budgets create standards for performance evaluation.
C) Budgets help coordinate the activities of the entire organization.
D) Budgeting forces managers to think ahead and formalize long-range objectives.
E) The master budget should only be prepared by top management, who see the big picture.

5. A 12-month budget that rolls forward one month at a time (one month is added the end of the budget as each actual month
comes to a close) is called:
A) Perpetual budget.
B) Zero-based budget.
C) Self-imposed budget.
D) Participative budget.

6. Which of the following statements is NOT correct?
A) The cash budget is an element of a master budget.
B) The direct labor budget is specifically dependent on the production budget.
C) The budgeting process would normally begin with preparation of a sales budget.
D) A continuous budget is feasible only for sales projections.

7. The budgeted year-end Accounts Payable (the amount to be entered on the budgeted Balance Sheet) can usually be obtained
from which budget?
A) Cash budget.
B) Raw materials purchases budget.
C) Cash disbursements for raw materials budget.
D) Production budget.
E) Cash receipts budget.

AC222 7 pd rev. 7/5/14
8. Sandy Claws Company is estimating the following sales for the first six months of next year:

January .......... $250,000
February ........ $220,000
March ............ $240,000
April ............... $300,000
May ................ $360,000

Sales at Sandy Claws are normally collected as follows:
60% in the month of sale,
35% in the month following the sale,
the remaining 5% are uncollectible.
Based on this information, how much cash should Sandy Claws expect to collect during the month of April?

$264,000 (60% * April Sales of 300,000 + 35% * 240,000 from March Sales)

9. Big Witch Company's sales budget shows the following projections for next year:

Sales in units
First Quarter ............................... 60,000
Second Quarter .......................... 80,000
Third Quarter .............................. 45,000
Fourth Quarter ........................... 55,000

Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal
30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter?

60,000 +(30% *80,000)- 18,000 = 66,000


10. Nightaire Department Store expects to generate the following sales figures for the next three months:

July August September
Expected sales ............. $480,000 $560,000 $600,000

Nightaire's gross profit rate is 45% of sales dollars.
At the end of each month, Nightmare wants a merchandise inventory balance equal to 30% of the following month's
expected sales, stated at cost.

What dollar amount of merchandise inventory should Nightmare plan to purchase in August?
(560,000* 55%) +(30% * 55% * 600,000) (30% * 55% * 560,000)

= 314,600


11. The following are budgeted data:


Month
1 Month 2 Month 3
Sales in units ............................... 15,000 20,000 18,000
Production in units ..................... 16,000 22,000 15,000

One pound of material is required for each finished unit.
The inventory of materials at the end of each month should equal 20% of the following month's production needs.
At the beginning of Month 1, 3,200 lbs. of materials were on hand.

Purchases of raw materials for Month 2 would be budgeted to be: 20,600 lbs
AC222 8 pd rev. 7/5/14
12. The Man Under The Stairs Company has obtained the following sales forecast data:

July August September October
Cash sales ..................... $80,000 $70,000 $50,000 $60,000
Credit sales ................... $240,000 $220,000 $180,000 $200,000

The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following the month of sale, and the
remainder in the second month following the month of sale. There are no bad debts.

The budgeted accounts receivable balance on September 30 is how much?

September 30 AR = (80% left to collect from September Sales * 180,000) + (10% left to collect from August Sales * 220,000) =
166,000

13. The Creature Under the Bed Company makes and sells only one product, Spookyfoam. The company is in the process of
preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:


Variable Cost
Per Unit Sold
Monthly Fixed
Cost
Sales commissions ........................................... $0.70
Shipping ........................................................... $1.10
Advertising ....................................................... $0.20 $14,000
Executive salaries ............................................. $34,000
Depreciation on office equipment ................... $11,000
Other ................................................................ $0.25 $19,000

All expenses other than depreciation are paid in cash in the month they are incurred.

If the budgeted selling and administrative expenses for November total $123,250, how many units of Spookyfoam does the company
plan to sell in November (rounded to the nearest whole unit)?

14. CRED Productions is located in a small town in the rural west. Data regarding the operations of this supplier of beachwear follow:

Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.
Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and 2% uncollectible.
The cost of goods sold is 80% of sales.
The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month of sale. Payment
for merchandise is made in the month following the purchase.
Other monthly expenses to be paid in cash are $21,100.
Monthly depreciation is $21,000.
Ignore taxes.


AC222 9 pd rev. 7/5/14
Balance Sheet
October 31
Assets:
Cash ................................................................................................................... $ 25,000
Accounts receivable
(net of allowance for uncollectible accounts) .............................................. 77,000
Inventory ........................................................................................................... 162,400
Property, plant and equipment
(net of $624,000 accumulated depreciation) ............................................... 1,026,000
Total assets ....................................................................................................... $1,290,400

Liabilities and Stockholders Equity:
Accounts payable .............................................................................................. $ 239,000
Common stock .................................................................................................. 740,000
Retained earnings ............................................................................................. 311,400
Total liabilities and stockholders equity .......................................................... $1,290,400

The cost of December merchandise purchases would be how much?: $192,000

15. The Crane Company, a merchandising firm, has budgeted its activity for December according to the following information:

Sales at $550,000, all for cash.
Merchandise inventory on November 30 was $300,000.
Budgeted depreciation for December is $35,000.
The cash balance at December 1 was $25,000.
Selling and administrative expenses are budgeted at $60,000 for December and are paid in cash.
The planned merchandise inventory on December 31 is $270,000.
The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid for in cash.

The budgeted net income for December is: $42,500

Sales *.25 = CM 35,000 Depreciation 60,000 SG&A = 42,500

16. Poorly trained workers could have an unfavorable effect on which of the following variances?

Labor Rate Variance Materials Quantity Variance
A) Yes Yes
B) Yes No
C) No Yes
D) No No

17. During a recent lengthy strike at Moby Manufacturing Company, management (the rotten weasels) replaced striking assembly
line workers with office workers (who werent to happy about that). The assembly line workers were being paid $18 per
hour while the office workers are only paid $10 per hour. What is the most likely effect on the labor variances in the first
month of this strike (besides a demand for a pay increase from the office workers)?

Labor Rate Variance Labor Efficiency Variance
A) Unfavorable No effect
B) No effect Unfavorable
C) Unfavorable Favorable
D) Favorable Unfavorable

18. If the purchasing manager attempts to reduce the companys total manufacturing costs by purchasing less expensive but lower
quality raw materials, which of the following variances is most likely to occur?
A. Unfavorable labor efficiency variance
B. Unfavorable materials price variance
AC222 10 pd rev. 7/5/14
C. Favorable labor rate variance
D. Favorable materials quantity variance

19. The purpose of a flexible budget is to:
A) allow management some latitude in meeting goals.
B) eliminate fluctuations in production reports by ignoring variable costs.
C) compare actual and budgeted results at virtually any level of activity.
D) reduce the time to prepare the annual budget.

Use the following information for the next TWO questions (20 & 21).
The following data for Horizon Telephone pertain to the production of 450 rolls of telephone wire during June. Selected items are
omitted because the costing records were lost in a windstorm.

Direct Materials
(There was no beginning or ending raw materials inventory)
Standard cost per roll: ? pounds at $4.00 per pound.
Total actual cost of materials used in production: $9,600
Standard cost allowed for units produced $9,000
Materials efficiency variance $80 unfavorable

20. What is the standard quantity of raw materials allowed (in pounds) for each roll produced? Two decimals (0.00)

21. The actual amount of raw materials purchased, expressed in pounds, is how many pounds (total pounds)

Use the following information for the next TWO questions (22 & 23).
Nicholass Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances.
F denotes a favorable variance and U denotes an unfavorable variance.
Flexible ------------Variances-------------
Budget Price Efficiency
Material A $20,000 $1,000 U $1,200 F
Material B 30,000 500 F 800 U
Material C 40,000 1,400 U 1,000 F

22. The total actual amount spent for Material A was how much?

23. The explanation that lower-quality materials were purchased is MOST likely for:
A) Material A
B) Material B
C) Material C
D) Both Material A and Material C

Use the following information for the next TWO questions (24 & 25).
Norman Corporation manufactured 100,000 oat buckets during February. The variable overhead cost-allocation rate is $5.00 per
machine-hour. The following variable overhead data pertain to February:

Actual Budgeted
Production 100,000 units 100,000 units
Machine-hours 9,800 hours 10,000 hours
Variable overhead cost per machine-hour $5.25 $5.00

24. What is the variable overhead spending variance? Be sure to label F or U or your answer is NOT correct.

25. What is the variable overhead efficiency variance? Be sure to label F or U or your answer is NOT correct.

26. Data concerning Balzac Company's direct labor costs for the month of January follow:

Actual total direct labor-hours 34,500
Standard total direct labor-hours 35,000
AC222 11 pd rev. 7/5/14
Total direct labor cost $241,500
Direct labor efficiency variance $3,200 Favorable

What is Balzac's direct labor rate variance? Be sure to label F or U or your answer is NOT correct.

27. Tecumseh Company calculated its direct materials price variance as $1,000 favorable, and its direct materials quantity variance
as $3,000 unfavorable. Which of the following could explain BOTH of these variances?
A. The production manager has recently hired more skilled laborers.
B. The purchasing manager bought less expensive raw materials but they were of lower quality.
C. A machine in the factory malfunctioned resulting in considerable wasted materials.
D. The purchasing manager bought higher quality materials.

28. Golden Ring Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of
standard machine hours (MH). The company had budgeted its fixed manufacturing overhead cost at $58,000 for the month
and its level of activity at 2,500 MH. The actual total fixed manufacturing overhead was $61,200 for the month and the
actual level of activity was 2,600 MH. What was the fixed overhead budget variance for the month to the nearest dollar?
Be sure to label F or U or your answer is NOT correct.

29. Danzig Corporation applies manufacturing overhead to products on the basis of standard machine hours. Budgeted and actual
overhead costs for the most recent month appear below:
Original Budget Actual Costs
Variable overhead costs:
Supplies $11,220 $10,670
Indirect labor 8,670 8,030
Fixed overhead costs:
Supervision 5,610 5,940
Utilities 8,160 7,990
Factory depreciation 39,780 39,950
Total overhead cost $73,440 $72,580

The company based its original budget on 5,100 machine-hours. The company actually worked 4,800 machine-hours during
the month. The standard hours allowed for the actual output of the month totaled 4,980 machine-hours.

What was the overall fixed overhead volume variance for the month? Be sure to label F or U or your answer is NOT correct.



Essays:
30. Explain how a manager might make a trade-off between the direct labor rate variance and the direct labor efficiency variance.

31. Rampant Retail Stores had an unprecedented beginning to the Christmas sales season, far surpassing their budgeted sales for
the month of November. When the manager of the Oshkosh Store received her flexible budget report, she was shocked when the
activity variances for her stores variable expenses were all unfavorable. How can this possibly be true?! No way! I need an
explanation, fast! Explain why this happened.

32. What happens to all the variances that have been calculated during a period?

33. Aleppo Company budgeted 2011 based on the assumption that their denominator activity would be 60,000 direct labor hours.
During the year, 65,000 actual direct labor hours were worked. Standard hours allowed for the actual output were 63,000 DLH.
After they calculated all of their variances, they wondered: which variances (of the 8 that we normally compute) would have
changed, and how, if they had based their budget on 65,000 hours (fixed overhead dollars budgeted would not have been
different)?




ANSWERS
AC222 12 pd rev. 7/5/14

1. A 12. $166,000 20. 5.00 pounds
2. C 13. 20,111 units 21. 2,270 pounds
3. D 14. $192,000 22. $19,800
4. E 15. $42,500 23. B
5. A 16. C 24, $2,450 U
6. D 17. D 25. $1,000 F
7. C 18. A 26. $20,700 U
8. $264,000 19. C 27. B
9. 66,000 units 28. $3,200 U
10. $314,600 29. $1,260 U
11. 20,600 pounds


30. The manager may use more skilled workers, with higher pay (causing an unfavorable rate variance) in order to achieve higher
efficiency (favorable efficiency variance). Clearly the intent is to have the overall (total) labor variance be favorable.

31. The activity variances are the difference between the master budget and the flexible budget. Since the flexible budget
represents the actual sales activity the variable costs would be proportionately higher. Thus the difference or variance between
the flexible and master budgets would be unfavorable. This should be offset by the favorable activity variance for sales, so that net
income should be higher, and have a favorable variance. She needs to study her report more carefully.

32. They are closed to cost of goods sold (similarly to over and under applied overhead) if they are not material in amount.

33. Only the fixed overhead volume variance would have changed. It would have been unfavorable instead of favorable.