Final EXAM

COURSE TITLE: MANAGERIAL ACCOUNTING

PROFESSOR NAME: ZOUHOUR LAHMAR LADHARI
Term: Winter
Date: May 7th, 2018
Time:11.00 am - 1.00 pm

Grade/100 Supervisors Signature

INSTRUCTIONS

1. Books and notes Not allowed.

2. Calculators are Allowed.
3. Cell phones are Not allowed.

Statement of Academic Integrity

MSB does not condone 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.

Mediterranean School of Business 1

Problem 1 (36 points)
Kauli Company produces two models of cellular phones. The design of P16 is simpler than P20.
The unit cost and production for the coming year are as follows:

P16 P20
Direct materials cost per unit $40 $50
Direct labor cost per unit ($15 per hour) $30 $45
Production in units 20,000 15,000

The total manufacturing overheads for the coming year are $800,000. The controller has analyzed
the overhead costs into three activities as follows:

Activity cost pool Activity cost Cost driver Activity usage

P16 P20
Machine setup $200,000 Number of setups 29 11
Assembly 400,000 Direct labor hour 180 220
Packaging 200,000 Number of packages 200 300
Total $800,000

Required:
1. Calculate the total manufacturing cost per unit of each product assuming that the total overheads
are allocated to products on the basis of direct labor hours.
2. Calculate the total manufacturing cost per unit of each product assuming that an activity-based
costing system is used.
3. What is the difference between the product unit cost you computed using the traditional approach
and the one you computed using ABC? Does the use of ABC guarantee cost reduction?

Problem 2 (20 points)

Officials of Tennis Club are in the process of preparing a budget for the year ending December 31.
Ramon Saud, the club accountant, has had difficulty with the expenses for “Repairs and
maintenance”. It is a mixed cost and Saud has been having trouble breaking it down into its variable
and fixed components.
An accountant friend has suggested that he use the high-low method to divide the “Repairs and
maintenance” cost into its variable and fixed parts. The information about this cost during the past
year is as follows:

Mediterranean School of Business 2

 Month Labor hours Repairs and maintenance cost
January 220 $7,578
February 230 7,852
March 210 7,304
April 200 7,030
May 230 7,852
June 240 8,126
July 250 8,400
August 260 8,674
September 270 8,948
October 260 8,674
November 240 8,126
December 230 7,852
Total 2,840 $96,416
1. Using the high-low method, determine the total amount of fixed costs and the amount of variable
cost per unit.
2. Suppose you conducted a least squares regression and obtained the following results:
Coefficients
R square 0.96
Intercept 1,600
x variable 1 28

Put these results into a linear equation format (y = a + bx) and explain what each component
means.
3. Saud estimates the total labor hours for the coming year to 3,000 hours. Using the least squares
regression method results, estimate the total repairs and maintenance cost for the coming year.

Problem 3 (40 points)

Icon Industries produces and sells one product P1. In the coming year, the company plans to sell
20,000 units of P1 and estimates the variable cost and selling price data for P1 as follows:
P1
Materials per unit $18.00
Labor (1 hour per unit) 10.00
Variable overheads per unit 12.00
Total variable costs $40.00
Selling price $60.00

The fixed overhead costs are predicted to be $420,000 in the coming year.

The management team is considering expanding their operations by manufacturing another product
P2. The company plans to sell 12,000 units of P2 and estimates the variable cost and selling price
data for P2 as follows:

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 P2
Materials per unit $10.00
Labor (0.5 hour per unit) 5.00
Variable overheads per unit 7.00
Total variable costs $22.00
Selling price $45.00
Fixed overhead costs are predicted to increase by $30,000 per year as a result of adding the new
product P2.

Required:
1. Assuming the company manufactures product P1 only:
a. Calculate the break-even point in number of units and in sales revenue.
b. Without any additional calculation, explain if the company will have a profit or a loss in the
coming year.
2. If the company produces both P1 and P2:
a. Calculate the break-even point in number of units and in sales revenue.
b. Calculate the margin of safety in sales revenue (for the total sales of P1 and P2). Interpret the
result.
c. Calculate the number of units that Icon Industries must sell to earn a profit of $200,000.

Questions: (4 points)
1. Briefly describe the five steps of the management decision-making process.
2. What are the criteria for a cost to be considered relevant to a given decision?

Mediterranean School of Business 4