FMAC 503 Final Individual Assignment
Guidelines
The
objective of the final assignment is to communicate your answer in a simple,
clear way.
·
Show all of your work in a Word
document.
·
Fit your work onto 8 ½ x 11 inch pieces
of paper.
·
Single space.
·
Use Arial 12 font.
·
Put your name on each page.
·
Do not retype the problem.
·
Do not include a table of contents.
·
Clearly structure your response to
correspond to the structure of the assignment (e.g., “Part B, Q. 1”).
·
The multiple choice questions require
only a letter answer. You do not need to
type the answer that corresponds with the letter that you have chosen. For
example:
1.
c
2.
b
An
answer template is provided in the appendix for your multiple choice responses.
Part A – MULTIPLE CHOICE and TRUE/FALSE (1 mark each x 15 questions = 15
marks). Choose the one alternative that
best completes the statement or answers the question.
1. Consider the following statements:
I.TheSecurities and Exchange Commission has congressional authority to set
accounting policies in the United States.
II. US GAAP and IFRS are not converging.
a. Only Statement I is true.
b. Only Statement II is true.
c. Both Statements I and II are true.
d. Both Statements I and II are false.
2. The manipulation of the allowance for doubtful accounts by management
would be best indicated when a company:
a. lowers its credit standards and the decreases the allowance account.
b. tightens its credit standards and decreases the allowance account.
c. tightens its credit standards and increases the allowance account.
d. lowers its credit standards and increases the allowance account.
3. Which of the
following items would be most likely to not
be discussed in the management discussion and analysis section of an annual
report?
a. Commitments for capital expenditures.
b. The market value of all assets.
c. The internal and external sources of liquidity.
d. A breakdown of sales increases into price and volume components.
4. Declaring a dividend results in a cash outflow from financing activities.
(True/false)
5. Consider the following statements
I. The
cash conversion cycle of a firm can be improved by decreasing the days
inventory held, days payable outstanding, and the average accounts receivable collection
period.
II.
The DuPont System helps analysts understand how a firm’s decisions and
activities over an accounting period interact to produce return on equity.
a. Only Statement I is true.
b. Only Statement II is true.
c. Both Statements I and II are true.
d. Both Statements I and II are false.
6. Which of the
following statements is false?
a. Annual reports must include three-year audited balance sheets and
two-year audited income statements.
b. The balance sheet is prepared on a particular date.
c. Interim statements are generally prepared quarterly.
d. When a parent company owns more than 50% of the voting stock of a
subsidiary, the financial statements of both entities are consolidated.
7. Currently, management accounting information within government and
nonprofit organizations is in greater demand because:
a. public and private donors are demanding accountability.
b. taxpayers are requesting more
responsive and efficient performance from their governing units.
c. more nonprofit organizations
are competing for limited funds.
d. All of the above are correct.
8. Anexample of a chain
of cause-and-effect relationships that appropriately link the four balanced
scorecard perspectives is:
a. a high return on investment
causes customer loyalty that results in skilled production workers that improve
process quality.
b. skilled production workers help to produce process quality
that results in customer loyalty that helps to increase return on investment.
c. customer loyalty results in
a high return on investment that results in the ability to attract skilled
production workers that improve process quality.
d. improved process quality
results in a high return on investment that causes customer loyalty that
results in the ability to attract skilled production workers.
9. The strategy MOST LIKELY to reduce a company’s break-even point would be
to:
a. increase both the
capacity-related (fixed) costs and the contribution margin per unit.
b. decrease the capacity-related (fixed) costs
and increase the contribution margin per unit.
c. decrease both the capacity-related (fixed)
costs and the contribution margin per unit.
d. increase the capacity-related (fixed) costs
and decrease the contribution margin per unit.
10. The
break-even point in units decreases if the:
a. flexible (variable) cost per
unit increases.
b. total capacity-related
(fixed) costs decrease.
c. contribution margin per unit
decreases.
d. selling price per unit
decreases.
e. a and d.
11. A time-driven activity-based costing system is most useful when:
a. operations throughout the plant are fairly similar.
b. there are small amounts of overhead costs.
c. products produced in the company all show large profits.
d. products make diverse demands on resources because of differences in
volume, process steps, batch size, or complexity.
e. c and d.
12. Which of the following are options to transform breakeven or loss
customers into profitable ones?
a. use more discipline in
granting discounts and allowances.
b. improve the process used
to produce, sell, deliver and service
the customer.
c. use less menu-based pricing that allows customers to select
features and services for which they are willing to pay.
d. All of the above.
e. a and b.
13. A performance measurement system should accomplish all of the following
except:
a.
identify financial measures to evaluate
an organization’s intangible assets.
b.
motivate employees to achieve strategic
objectives.
c.
communicate the company’s strategy.
d.
help managers allocate resources to the
most productive alternatives.
e.
a and b.
14. External failure costs consist of all the following EXCEPT
a. product liability lawsuits.
b. waste.
c. downtime due to defects.
d. returned products.
e. b and c
15. Budgeting provides:
a. a means to communicate the
organization’s short-term goals to its members.
b. support for the management
functions of planning and coordination.
c. an ethical framework for
decision making.
d. All of the above.
e. a and b.
Part B
– Short Answer (10 questions; 50 marks). Supporting calculations must be provided to receive full marks.
1. (2 marks)
Assume that Acme Company has no opening inventory. The following purchases of
inventory occurred during the year:
Date Purchases
(units) Purchase price
per unit
Jan. 2 2 $3
Feb. 15 3 $4
March 30 4 $5
July 29 6 $6
Oct. 30 5 $7
Required:
Assume Acme sells 8 items on October 31 and uses the FIFO method of
inventory valuation. Calculate the amount that would appear as cost of goods
sold on the income statement.
2. (5 marks) Paul
Pigeon is a day trader. He is interested in the common stock of Lenouveau Computers
Limited. The following data are available for the company:
|
2012 |
2013 |
2014 |
|
|
Dividends |
$4 |
$3 |
$2.50 |
|
Dividend |
5.5% |
5.5% |
5.5% |
|
Dividend |
40% |
40% |
40% |
|
Return |
10% |
12% |
8% |
|
Return |
8% |
14.5% |
9% |
*There were no changes in common stock outstanding over the three-year
period.
Required:
Paul would like answers to the following questions:
a. Is the market price of the company’s stock going up or down?
b. Is the company employing financial leverage to the advantage of the
common stockholders?
3. (5 marks) Sal Gordon,
owner of several dance studios, is wondering why her bookkeeper keeps
complaining that it is difficult to pay the bills on time. Sal has looked at
her income statement and can’t figure out the problem. The following ratios for
the company have been calculated.
2014 2013
Debt ratio 72% 58%
Long-term debt to total capitalization 49% 24%
Times interest earned 6.9
times 3.4 times
Cash interest coverage
(2.6) times 1.5 times
Fixed charge coverage 6.0
times 3.2 times
Cash flow adequacy
(5.1) times .4 times
Required:
Write an
explanation that will help Sal understand the challenges her firm is facing.
4. (5 marks) Review
the
following data:
|
Year |
Year |
Year |
|
|
Gross |
45% |
41% |
38% |
|
Operating |
12% |
14% |
15% |
|
Net |
5% |
20% |
8% |
Required:
Explain the
possible causes of the trends.
5. (7 marks) Creston
Corporation reported the following information:
a. Net income for the year was $60 million.
b. Equipment purchases were $5 million.
c. Customer accounts receivable increased by $6 million.
d. Dividends paid to common shareholders were $5 million.
e. Depreciation expense was $16 million.
f.
Income tax payable increased by $2 million.
g. Long-term debt increased by $14 million.
h. Accounts payable increased by $3 million.
i.
Inventories increased by $4 million.
j.
Ending cash balance was $80 million.
Required:
Based on the above information, calculate cash flows from operating,
investing, and financing activities, and the opening cash balance.
6. (6 marks) Apple Valley
Corporation produces widgets. It uses a job order cost system and has two
production departments, A and B. Budgeted manufacturing information for the
year is:
Department A Department
B
Direct
materials $700,000 $100,000
Direct
labor $200,000 $800,000
Manufacturing
support $600,000 $400,000
Direct
labour hours 5,000 20,000
Machine
hours 10,000 50,000
Job #432 required 5,000 machine hours
and 500 direct labour hours to produce 500 widgets. The actual material and
labor costs charged to Job #432 were as follows:
Direct
materials $25,000
Direct
labor
Department A $ 8,000
Department B $12,000
$20,000
Apple Valley applies manufacturing
support costs to jobs on the basis of direct labor costs for Department A and
machine hours for Department B, using departmental rates determined at the
beginning of the year.
Required:Calculated
the cost of one widget manufactured for Job #432.
7. (4 marks) Pete’s
Premium Pistols Ltd. manufactures three different products –handguns, rifles,
and shotguns. Considerable market demand exists for all models. The following
per unit data apply:
Handguns Rifles Shotguns
Selling price $150 $20 $85
Direct materials 100 8 40
Direct labour ($20 per
hour) 20 5 10
Variable support costs
($4 per machine hour) 10 2 12
Fixed costs 8 4 20
Total
expenses 138 19 82
Net income $ 12 $ 1 $ 3
Required:
If machine utilization can only be increased by 10%, what should the
company do to maximize profits?
8. (5 marks) Rochester Rockets
Ltd. plans to introduce a new model of hobby rocket. After extensive
discussions with engineering, manufacturing, and marketing staff, the following
information has been developed:
|
Quarter |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
Market research ($) |
(10,000) |
(20,000) |
||||||
|
Product development |
(10,000) |
(50,000) |
(100,000) |
(50,000) |
||||
|
Selling price/unit |
25 |
25 |
20 |
20 |
||||
|
Variable costs/unit |
11 |
11 |
10 |
10 |
||||
|
Sales quantity |
7,000 |
7,000 |
8,000 |
8,000 |
||||
|
Other fixed costs |
(10,000) |
(10,000) |
(10,000) |
(10,000) |
Required:
Calculate
break-even time for the new product.
9. (4 marks) Dudley Industries
developed the following standard costs for direct materials and direct labor or
gadgets:
|
Standard |
Standard |
|
|
Direct |
0.60 |
$25 |
|
Direct |
0.20 |
$18 |
During October, Dudley produced and sold 8,000 gadgets using 5,000
pounds of direct materials at an average cost per pound of $22.50, and 1,560
direct labor hours at an average wage of $18.20 per hour.
Required:
Calculatethe direct material quantity variance for October and propose a
plausible cause of this variance.
10. (7 marks) Tawatinaw Torpedoes Ltd. has assembled the
following information about its customer base:
|
Customer |
Revenue |
Var. |
|
1 |
125,897 |
98,448 |
|
2 |
488,958 |
498,881 |
|
3 |
589,478 |
478,884 |
|
4 |
45,650 |
47,882 |
|
5 |
78,985 |
68,995 |
|
6 |
898,878 |
788,952 |
Required:
Analyze the relative profitability of the
company’s customers and make recommendations for change.
Part C
– Problems (2 problems, 35 marks in total). Supporting calculations must be provided to receive
full marks.
Problem 1 (16 marks)
Lulu’s
Lemons Ltd. sells vehicles. The company is planning its cash needs for the
month of January, 2015. In the past, Lulu’s has had to borrow money during the
post-Christmas season to offset a significant decline in sales. The following information has been assembled
to assist in preparing a cash flow forecast for January.
a.
January 2015 income statement:
Sales $500,000
Cost of goods sold 350,000
Gross profit
150,000
Variable selling expenses $25,000
Fixed administrative expenses 30,000
55,000
Forecast net operating income $95,000
b.
Sales are 100% on credit.
c.
Credit sales are collected over a
three-month period: 30% is collected in the following month, 20% in the second
month following sale, and 40% in the third month following sale. 10% of sales
revenue is never collected. October 2014 sales totaled $600,000. November sales
totaled $600,000 and December sales totaled $700,000.
d.
100% of a month’s inventory purchases
are paid in the following month. Accounts payable relate solely to inventory
purchases. At December 31, these totaled $422,500.
e.
The company maintains its ending
inventory levels at 150% of the cost of the merchandise to be sold in the
following month. The merchandise inventory at December 31, 2014 was $525,000.
February 2015 sales are budgeted at $400,000. Gross profit is expected to
decline from the usual 30% to 25%.
f.
The company pays $10,000 cash dividends
to shareholders each month.
g.
The cash balance at December 31 was
$30,000; the company must maintain a cash balance of at least this amount at
the end of each month.
h.
The company can borrow and repay its
operating loan in increments of $10,000 at the end of each month, up to a total
loan balance of $500,000. The interest rate on this loan is 1/2% per month. The
operating loan balance at December 31 is $50,000.
Required:
Prepare a cash flow forecast for Lulu’s for January 2015. Include
appropriate supporting schedules.
Problem 2 (19 marks)
In the
past, the Larry’s Lawnmowers Ltd. (LLL) allocated indirect manufacturing costs
based on direct labour hours. Recently, management has decided to pilot a
system of time-driven activity-based costing to allocate these costs. The division
produces two lawnmower models: Lo-cost and Deluxe. The following information
has been obtained from the company’s records over the past year:
|
Lo-cost |
Deluxe |
|
|
Units |
500,000 |
50,000 |
|
Direct |
200,000 |
40,000 |
|
Inspections |
2 |
4 |
|
Time |
.1 |
.3 |
|
Lawnmowers |
2,000 |
500 |
|
Individual |
.25 |
.4 |
|
Additional |
30 |
15 |
LLL
employs 245 employees to perform indirect labour functions, rotating among
machine setups, final inspections and shipping. Each employee is paid $50,000
per year on average, including benefits. On average, each employee works 1,600
hours per year.
200
automated production machines are leased for $14,000,000 in total each year.
Each machine is available for 1,600 hours per year, including set up time. Once
a machine is set up, no labour is necessary to oversee it. Machine-related
information for the year is as follows:
|
Lo-cost |
Deluxe |
|
|
Machine |
.4 |
.6 |
|
Set |
300 |
600 |
|
Number |
100 |
50 |
Required:
a. (7 marks)
Determine the amount of indirect manufacturing costs allocated to one lawnmower
of each type (Lo-cost, Deluxe) based on the existing cost allocation basis
(direct labour hours).
b. (12 marks) Determine the indirect manufacturing support costs for
one lawnmower of each type using time-driven activity-based costing. Use the
following format. Show supporting calculations separately.
|
Lo-cost |
|
Deluxe |
|
|
1. Indirect |
|||
|
a. Machine set up |
|||
|
b. Shipping |
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|
Total indirect |
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|
2. Machines |
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|
a. Machine set up |
|||
|
b. Machine production |
|||
|
Total machine |
|||
|
Total indirect |
Template for Part A
Part A
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Answer |
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Marking Template
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Question |
Marking |
Max |
Mark |
Comments |
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Part |
15 |
15 |
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Part |
1 |
2 |
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2 |
5 |
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3 |
5 |
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4 |
5 |
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5 |
7 |
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6 |
6 |
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7 |
4 |
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8 |
5 |
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9 |
4 |
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10 |
7 |
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Total |
50 |
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Part |
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P1 |
Supporting |
8 |
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Cash |
8 |
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Total |
16 |
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P2 |
MOH |
7 |
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MOH |
12 |
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Total |
19 |
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TOTAL |
100 |
