Introductory Managerial Accounting
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ACC 1110
Introductory Managerial Accounting
Practice Final Exam
Page 1 of 24
QUESTION ONE
Cleano Products Limited distributes cleaning supplies. The company’s controller has
prepared budgeted financial statements for each month of the first quarter before he fell
ill. You have been asked to prepare budgeted financial statements for the month of April
in his absence. The following information has been assembled to assist you.
The company’s general ledger showed the following balances as at March 31, 2005:
Cash $29,000
Accounts receivable 369,000
Inventory 420,000
Net furniture and fixtures 168,000
Accounts payable 475,000
Share capital 200,000
Retained earnings
Recent and budgeted sales:
311,000
January $250,000
February 300,000
March 350,000
April 700,000
May 400,000
June 400,000
Credit sales are 90 percent of total sales. Eighty percent of credit sales are collected in
the month following the sale and 20 percent in the second month following the sale. The
average gross profit on sales is 40 percent.
The policy is to acquire enough inventory each month to equal the following
month’s projected sales. All purchases of inventory are paid for in the month
following the purchase.
Commissions are 20 percent of sales. All other expenses, excluding amortization, are
estimated to be $60,000 per month. Amortization is $2,500 monthly. All expenses are
paid in the month incurred.
In April, the company is planning to pay $55,000 for equipment purchased in February.
ACC 1110
Introductory Managerial Accounting
Practice Final Exam
Page 2 of 24
QUESTION ONE CONTINUED:
Assume that a minimum cash balance of $25,000 is to be maintained. Also assume that
all borrowings are effective at the beginning of the month and all repayments are made
at the end of the month of repayment. Interest is paid only at the time principal is
repaid.
The interest rate is 6 percent. All loans and repayments must be made in multiples
of one thousand dollars.
Required:
1. Compute April cash collections from sales. Show all your calculations.
2. Prepare the cash budget for the month of April. Show all your calculations.
3. Prepare, in good form, a budgeted income statement for April. Show all your
calculations.
4. Prepare, in good form, a budgeted balance sheet for April 30, 2005. Show all
your calculations.
ACC 1110
Introductory Managerial Accounting
Sample Final Exam
Page 3 of 24
QUESTION TWO
Matrix Limited has decided to introduce a new product. The selling price of the new product is $40.
Advertising and promotion costs are estimated to be $400,000. The sales staff will be paid a
commission of $3 for each unit sold.
The company will have to purchase a stamping machine to manufacture the new product. There are
two models the company can choose from. The model chosen will not affect the quality of the
product. The estimated unit manufacturing costs for the two models, assuming a production level of
250,000 units, are as follows:
Model A Model B
Direct materials
$4.00
$4.50
Direct labour 6.50 8.00
Variable manufacturing overhead 3.50 5.00
Fixed manufacturing overhead 9.80 5.46
Required:
1. Determine the annual unit sales volume at which the company should consider purchasing
Model A instead of Model B. Show all your calculations.
2. Calculate the estimated break-even point in annual unit sales of the new product if the
company purchases Model B. Show all your calculations.
ACC 1110
Introductory Managerial Accounting
Sample Final Exam
Page 4 of 24
QUESTION THREE ( 9 minutes)
The management of Rainfree Limited must decide whether to continue manufacturing a part or to buy
it from an outside supplier. The part is the mechanized arm of an umbrella the company manufactures.
An analysis of the accounting records and production data revealed the following for the past year:
1. The company produced 35,000 mechanical arms.
2. Each mechanical arm requires 10 minutes to produce. Three people in the Machining
Department work full time producing the mechanical arms. Each person is paid $12.00
per hour.
3. The cost of materials used in each mechanical arm is $2.00.
4. Manufacturing costs directly related to the production of the mechanical arm are: supervision
wages, $7,500; quality control, $1,500; amortization, $1,800; property taxes and insurance,
$1,000 (allocated on the basis of factory space).
5. An outside firm is offering to sell the mechanical arm to Rainfree for $4 per unit. Freight
charges will be $0.40 per unit, and a part-time receiving clerk at $8,500 per year will be
required.
6. If the mechanical arm is purchased, the excess space will be used to store Rainfree’s
finished products. Currently, Rainfree rents storage space at approximately $0.80 per unit
per year. Approximately 4,500 units per year are stored in the rented space.
Required:
Should Rainfree make or buy the mechanical arm? Support your answer with calculations.
ACC 1110
Introductory Managerial Accounting
Sample Final Exam