Free practice final
Managerial Accounting practice final (free, with answers)
A typical managerial accounting final has you separate fixed and variable costs, work cost-volume-profit and break-even problems, assign overhead to jobs, processes and activities, compute standard cost variances, build budgets, and choose between alternatives using relevant costs. Work each problem on paper before you open the answer, then compare your setup with the explanation.
Topics
- Cost Behavior
- Variable Costing
- Cost-Volume-Profit Analysis
- Job-Order Costing
- Process Costing
- Activity-Based Costing
- Standard Costs and Variances
- Budgeting
- Relevant Costs
15 questions
Try each one before you open its answer.
1. A company's maintenance cost and machine hours for four months were: January, 2,000 hours and $13,000; February, 4,500 hours and $23,000; March, 5,000 hours and $22,000; April, 3,000 hours and $15,500. Using the high-low method, what total maintenance cost would it predict for a month with 4,200 machine hours?
- A $21,800
- B $19,600
- C $18,480
- D $12,600
Show answer
Answer: B. $19,600
The high-low method uses the months with the highest and lowest activity, March and January, not the highest and lowest costs: variable cost = ($22,000 − $13,000) ÷ (5,000 − 2,000) = $3 per hour, and fixed cost = $22,000 − $3 × 5,000 = $7,000. The prediction is $7,000 + $3 × 4,200 = $19,600.
2. In its first year of operations, a company produced 10,000 units and sold 8,000 of them. Fixed manufacturing overhead was $50,000, assigned to units based on actual production, and there was no beginning inventory. Which costing method, absorption or variable, reports the higher operating income, and by how much?
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Answer: Absorption costing, by $10,000
Absorption costing puts $50,000 ÷ 10,000 = $5 of fixed overhead into each unit, so the 2,000 unsold units carry $10,000 of fixed overhead into ending inventory instead of expensing it. Variable costing expenses all $50,000 this year, so its operating income is $10,000 lower.
3. A product sells for $50 per unit, variable costs are $30 per unit, and fixed costs are $120,000 per year. How many units must the company sell to earn a target operating income of $40,000?
- A 6,000 units
- B 2,000 units
- C 3,200 units
- D 8,000 units
Show answer
Answer: D. 8,000 units
Each unit contributes $50 − $30 = $20 toward fixed costs and profit. Units needed = (fixed costs + target income) ÷ contribution margin per unit = ($120,000 + $40,000) ÷ $20 = 8,000 units; 6,000 units is only the break-even point.
4. A product sells for $80 per unit and has variable costs of $56 per unit. Fixed costs are $180,000 per year. What is the break-even point in sales dollars?
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Answer: $600,000
The contribution margin ratio is ($80 − $56) ÷ $80 = 30%. Break-even sales = fixed costs ÷ contribution margin ratio = $180,000 ÷ 0.30 = $600,000, which is 7,500 units at $80.
5. A company has sales of $500,000, variable costs of $300,000, and fixed costs of $150,000. If sales volume rises 10% with the same selling price, variable cost per unit and total fixed costs, what will operating income be?
- A $70,000
- B $55,000
- C $100,000
- D $20,000
Show answer
Answer: A. $70,000
Contribution margin rises 10%, from $200,000 to $220,000, while fixed costs stay at $150,000, so operating income goes from $50,000 to $70,000. That 40% jump is the degree of operating leverage, $200,000 ÷ $50,000 = 4, times the 10% change in sales.
6. A company applies manufacturing overhead to jobs with a predetermined rate based on direct labor hours. At the start of the year it estimated overhead of $480,000 and 32,000 direct labor hours. During the year, actual overhead was $497,000 and actual direct labor hours were 34,000. Was overhead overapplied or underapplied for the year, and by how much?
- A Underapplied by $13,000
- B Underapplied by $17,000
- C Overapplied by $13,000
- D Overapplied by $30,000
Show answer
Answer: C. Overapplied by $13,000
The predetermined rate is $480,000 ÷ 32,000 = $15 per direct labor hour, so jobs were charged $15 × 34,000 = $510,000. Applied overhead is $13,000 more than the actual overhead of $497,000, so overhead is overapplied.
7. A department uses the weighted-average method of process costing, and all materials are added at the start of the process. Beginning work in process was 2,000 units, 60% complete for conversion. During the month 18,000 units were started and 16,000 units were completed and transferred out. Ending work in process is 25% complete for conversion. What are the equivalent units for conversion costs?
- A 17,000
- B 20,000
- C 16,000
- D 15,800
Show answer
Answer: A. 17,000
Ending work in process is 2,000 + 18,000 − 16,000 = 4,000 units. Under the weighted-average method, equivalent units = units completed + ending work in process × percent complete = 16,000 + 4,000 × 25% = 17,000. Only FIFO subtracts the 60% of work done on beginning inventory last period, which would give 15,800.
8. A department uses the weighted-average method of process costing. This month it had 20,000 equivalent units for materials and 17,000 for conversion. Total materials cost (beginning work in process plus costs added) was $250,000, and total conversion cost was $142,800. Ending work in process is 4,000 units, which have all of their materials and are 25% complete for conversion. What cost is assigned to ending work in process?
- A $83,600
- B $50,000
- C $20,900
- D $58,400
Show answer
Answer: D. $58,400
Cost per equivalent unit is $250,000 ÷ 20,000 = $12.50 for materials and $142,800 ÷ 17,000 = $8.40 for conversion. Ending work in process gets 4,000 × $12.50 = $50,000 of materials plus 4,000 × 25% × $8.40 = $8,400 of conversion, for $58,400.
9. A plant has three overhead activity cost pools. Machine setups cost $120,000 for 400 setups, inspections cost $80,000 for 1,000 inspections, and machine operations cost $200,000 for 40,000 machine hours. Product A uses 200 setups, 300 inspections and 4,000 machine hours. Using activity-based costing, how much overhead is assigned to Product A?
- A $40,000
- B $104,000
- C $84,000
- D $60,000
Show answer
Answer: B. $104,000
The activity rates are $300 per setup, $80 per inspection and $5 per machine hour, so Product A gets 200 × $300 + 300 × $80 + 4,000 × $5 = $60,000 + $24,000 + $20,000 = $104,000. A single plantwide rate of $400,000 ÷ 40,000 = $10 per machine hour would assign only $40,000, undercosting this setup-heavy product.
10. The standard for a product is 3 pounds of material per unit at $4.00 per pound. Last month the company made 2,000 units, buying and using 6,400 pounds at $3.80 per pound. What is the direct materials price variance?
- A $1,280 unfavorable
- B $1,200 favorable
- C $1,280 favorable
- D $1,600 unfavorable
Show answer
Answer: C. $1,280 favorable
The price variance is the price difference times the actual quantity: ($4.00 − $3.80) × 6,400 = $1,280, favorable because the company paid less than standard. The $1,600 unfavorable figure is the quantity variance: (6,400 − 6,000 standard pounds) × $4.00.
11. The standard for a product is 1.5 direct labor hours per unit at $20 per hour. Last month the company made 4,000 units using 6,300 direct labor hours, paid at $21 per hour. What is the direct labor efficiency variance? Say whether it is favorable or unfavorable.
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Answer: $6,000 unfavorable
The standard hours allowed for 4,000 units are 4,000 × 1.5 = 6,000. The efficiency variance is (actual hours − standard hours) × standard rate = (6,300 − 6,000) × $20 = $6,000, unfavorable because workers used more hours than the standard allows.
12. A company expects to sell 12,000 units in the second quarter and 15,000 units in the third quarter. It wants ending finished goods inventory each quarter to equal 20% of the next quarter's sales, and it met that policy at the end of the first quarter. How many units should it produce in the second quarter?
- A 15,000 units
- B 11,400 units
- C 17,400 units
- D 12,600 units
Show answer
Answer: D. 12,600 units
Required production = budgeted sales + desired ending inventory − beginning inventory. Ending inventory is 20% × 15,000 = 3,000 units and beginning inventory is 20% × 12,000 = 2,400 units, so production = 12,000 + 3,000 − 2,400 = 12,600 units.
13. A company's sales, all on credit, were $80,000 in April, $100,000 in May and $90,000 in June. It collects 30% of each month's sales in the month of sale, 60% in the following month and 10% in the month after that, with no bad debts. How much cash does it collect in June?
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Answer: $95,000
June collections come from three months of sales: 30% × $90,000 (June) + 60% × $100,000 (May) + 10% × $80,000 (April) = $27,000 + $60,000 + $8,000 = $95,000.
14. A company has enough idle capacity to make 5,000 more units. Its normal selling price is $30, and its unit costs at the current volume are direct materials $8, direct labor $6, variable manufacturing overhead $3, fixed manufacturing overhead $5, and variable selling cost $2; materials, labor and variable overhead all vary with output. A customer offers to buy 5,000 units at $20 each. The order would have no variable selling cost, would not change total fixed costs, and would not affect regular sales. How would accepting it change operating income?
- A Increase it by $15,000
- B Decrease it by $10,000
- C Increase it by $5,000
- D Decrease it by $20,000
Show answer
Answer: A. Increase it by $15,000
Only the costs that change are relevant: the variable manufacturing cost of $8 + $6 + $3 = $17 per unit. The order adds ($20 − $17) × 5,000 = $15,000 to operating income; the $5 of fixed overhead per unit does not change in total, and including it wrongly makes the order look like a $10,000 loss.
15. A company makes 10,000 units a year of a part, at a cost per unit of direct materials $5, direct labor $4, variable overhead $2, and allocated fixed overhead $6. A supplier offers to sell the part for $14 per unit. Buying would avoid all of the materials, labor and variable overhead, plus a $20,000 supervisor salary included in fixed overhead; the rest of the fixed overhead would continue, and the freed space has no other use. Should the company make or buy the part, and how much does that choice save per year?
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Answer: Make the part; making saves $10,000 a year
The relevant cost of making is the cost that buying would avoid: ($5 + $4 + $2) × 10,000 + $20,000 = $130,000, against $14 × 10,000 = $140,000 to buy. Making is $10,000 cheaper; the unavoidable fixed overhead is paid either way, so it is irrelevant.