This document contains solutions to multiple choice and problem-style questions for an ACCT 505 final exam. The questions cover topics such as flexible budget analysis, make-or-buy analysis, absorption vs variable costing income statements, schedule of cost of goods manufactured and cost of goods sold, process costing using the weighted average method, net present value calculations, break-even analysis, predetermined overhead rates, and cash budgeting.

1. ACCT 505 Final Exam Solution
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1. (TCO C) Silver City, Inc., has collected the following operating information below for its current month’s
activity. Using this information, prepare a flexible budget analysis to determine how well Silver City performed in
terms of cost control.
Actual Costs Incurred
Static Budget
Activity level (in units)
5,250
5,178
Variable Costs:
Indirect materials
$24,182
$23,476
Utilities
$22,356
$22,674
Fixed Costs:
Administration
$63,450
$65,500
Rent
$65,317
$63,904

2. 2. (TCO D) Globe Co. manufactures automatic door openers.The company uses 15,000 electronic hinges per year
as a component in the assembly of the openers. You have been engaged by Globe to assist with an evaluation of
whether the company should continue producing the hinges or purchase them from an outside vendor.
The Accounting Department provided the following detail regarding the annual cost to produce electronic hinges:
Direct materials
$54,000
Direct labor
60,000
Variable manufacturing overhead
36,000
Fixed manufacturing overhead
90,000
Total costs
$240,000
The Procurement Department provided the following supplier pricing:
Supplier A price per hinge
$11.00
Supplier B price per hinge
$10.75
Supplier C price per hinge
$10.50
The supplier pricing was obtained in response to a formal request for proposal(RFP). Procurement has determined
these suppliers meet Globe’s technical specifications and quality requirements.

3. If Globe stops producing the part internally, 10% of the fixed manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage (in dollars) of accepting an
outside supplier’s offer. Should the company buy the parts? If so, from which supplier?
3. (TCO E) Mesa Company produces a single product. Operating data for the company and its absorption costing
income statement for the last year are presented below:
Units in beginning inventory
2,000
Units produced
9,000
Units sold
10,000
Sales
$100,000
Less cost of goods sold:
Beginning inventory
12,000
Add cost of goods manufactured
54,000
Goods available for sale
66,000
Less ending inventory
6,000
Cost of goods sold

4. 60,000
Gross margin
40,000
Less selling and admin. expenses
28,000
Net operating income
$12,000
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was
applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing.Comment on the differences between
the absorption costing and the variable costing income statements.
4. (TCO A) The following data (in thousands ofdollars) have been taken from the accounting records of the White
Sands Corporation for the just-completed year.
Sales
1,150
Raw materials inventory, beginning
15
Raw materials inventory, ending
40
Purchases of raw materials
150
Direct labor
250

5. Manufacturing overhead
300
Administrative expenses
500
Selling expenses
300
Work in process inventory, beginning
100
Work in process inventory, ending
150
Finished goods inventory,beginning
80
Finished goods inventory,ending
120
Use the above data to prepare (in thousandsofdollars) a schedule of Cost of Goods Manufactured and a Schedule of
Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished
goods inventory is overstated orunderstated?
1. (TCO F) Farmington Corporation uses the weighted-average method in its process costing system.Data
concerning the first processing department for the most recent month are listed below.
Work in process, beginning:
Units in beginning work-in-process inventory
400
Materials costs

6. $6,900
Conversion costs
$2,500
Percentage complete for materials
80%
Percentage complete for conversion
15%
Units started into production during the month
6,000
Units transferred to the next department during the month
5,000
Materials costs added during the month
$112,500
Conversion costs added during the month
$210,300
Ending work in process:
Units in ending work-in-process inventory
1,200
Percentage complete for materials
60%
Percentage complete for conversion

7. 30%
Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first
processing department.
2.
(TCO G) – (Ignore income taxes in this problem.) Tennessee Co. is considering the production of an exterior paint
that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a
useful life of 12 years, and is expected to have a salvage value of $100,000 at the end of 12 years. The machinery
will also need a $40,000 overhaul at the end of Year 7. A $50,000 increase in working capital will be needed for this
investment project. The working capital will be released at the end of the 12 years. The new paint is expected to
generate net cash inflows of $120,000 per year for each of the 12 years. Tennessee’s discount rate is 14%.
Required:
a. What is the net present value of this investment opportunity?
b. Based on your answer to (a) above, should Tennessee go ahead with the new paint?
3. (TCO B) Winslow Corporation produces and sells a single product. Data concerning that product appear below.
Selling price per unit
$130.00
Variable expense per unit
$27.30
Fixed expense per month
$165,3
Required:
a) Determine the monthly break-even in unit sales. Show your work!
b) Determine the monthly break-even in dollar sales. Show your work!
1. (TCO F) Manchester,Inc. bases its predetermined overhead rate on the estimated machine hours for the upcoming
year. Data for the upcoming year appear below.
Estimated machine hours

8. 85,000
Estimated variable manufacturing overhead
$5.55 per machine hour
Estimated total fixed manufacturing overhead
$951,888
Required:
Compute the company’s predetermined overhead rate.
2. (TCO F) Memphis Corporation is preparing its cash budget for February. The budgeted beginning cash balance is
$27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements total$128,000. The desired ending
cash balance is $50,000. The company can borrow up to $110,000 at any time from a local bank, with interest not
due until the following month.
Required:
Prepare the company’s cash budget for February in good form. Make sure to indicate what borrowing, if any, would
be needed to attain the desired ending cash balance.