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FMAC exam questions




Question;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.;The globalization of business activity has;resulted in which of the following?;a.;Increased corruption and unethical behavior.;b.;The FASB and IASB working jointly on a;project to converge accounting standards.;c.;The requirement that major Canadian companies;use International Financial Reporting Standards.;d.;All of the above.;e.;b and c.;2.;The manipulation of the allowance for;doubtful accounts by management would be best indicated by when a company;a.;tightens its credit;standards and the allowance account decreases.;b.;lowers its credit standards;and the allowance account decreases.;c.;tightens its credit standards;and the allowance account increases.;d.;lowers its credit standards;and the allowance account increases.;3.;The best measure for determining how well a;firm operates within its industry is;a.;Gross Profit;b. Operating Profit;c.;Earnings before Taxes;d.;Net profit;4.;A change in retained earnings from one year;end to the next can result from cash flows related to both operating and;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 and days payable outstanding, while decreasing the average collection;period.;II. The;DuPont System helps the analyst see 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.;How should a company report total;comprehensive income?;a. On the face of its income statement.;b. In a separate statement of comprehensive;income.;c. In its statement of stockholders' equity.;d. All of the above ways are acceptable.;7.;Currently, management accounting information;within government and nonprofit organizations is in greater demand because;a. public;and private donors are demanding accountability;b. citizens;are requesting 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.;The measurement of the objectives for the;Balanced Scorecard;a. creates;focus for the future.;b. communicates;an important message to all employees.;c. focuses;the entire organization on strategic implementation of company?s outcomes.;d. All;of the above are correct.;9.;The strategy MOST LIKELY to reduce the;break-even point would be to;a. increase;both the capacity-related (fixed) costs and the contribution margin per unit.;b. decrease;both the capacity-related (fixed) costs and the contribution margin per unit.;c. decrease;the capacity-related (fixed) costs and increase the contribution margin per;unit.;d. increase;the capacity-related (fixed) costs and decrease the contribution margin per;unit.;10.The major;reason for using practical capacity as the denominator for activity driver;calculations is to;a. avoid;distortions created by the assignment of unused capacity costs to the products;produced or customers served.;b. simplify;the calculations of the activity cost drivers.;c. reduce;the cost of unused capacity.;d. place;less emphasis on the cost of unused capacity.;11.An;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.;12.Which of the;following is NOT an option 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 it wishes to pay for.;d.;Improve margins by lowering costs.;13.A;performance measurement system should accomplish all of the following except;a.;communicate the company?s strategy.;b.;motivate employees to achieve strategic;objectives.;c.;identify financial measures to evaluate an;organization?s intangible assets.;d.;help managers allocate resources to the most;productive alternatives.;14.Committed costs are those that the organization agrees must;be set aside to cover product costs through the three major stages of the life;cycle. (True/False);15.Budgeting;provides all of the following EXCEPT;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. a means to anticipate problems;d. an ethical framework for decision making;Part B - Short Answer (10 questions, 50 marks).;Please highlight your answers and show your work to receive partial credit for;incorrect answers.;1.;(2 marks) Assume that Zebra 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 $5;March 30 4 $7;July 29 6 $6;October 30 5 $4;Assume Zebra sells 10 items on October 31 and uses;the LIFO method of inventory valuation.;Required: What;amount would appear as cost of goods sold on the income statement?;2.;(5 marks) The following calculations have;been made for Rogers Company;Growth;Rate;2012;to 2013;Net sales 10.5%;Total accounts receivable 21.3%;Allowance for doubtful accounts 2.6%;2013 2012;Allowance for doubtful accounts as a;percentage of total accounts;receivable 3.8% 5.4%;Required: Analyze the accounts receivable and;allowance for doubtful accounts changes and provide plausible explanations for;the results.;3.;(5 marks) Analyze the common size income;statements below;2013;2012;Net sales;100%;100%;COGS;54;63;Gross margin;46;37;Research;and development;14;20;Selling;general and administrative;5;9;Restructuring;asset impairments and other charges;1;8;Income from operations;26;0;Interest;expense;(1);(2);Income (loss) before income taxes;25;(2);Provision;for income taxes;8;0;Net income (loss);17%;(2)%;Sales;revenue increase, 2012 to 2013;80%;Operating expense increase, 2012 to;2013;31%;4.;(7 marks) Yak Corporation reported the;following information;(1) Net income for the year was $52 million.;(2) Purchases of equipment were $12 million.;(3) Customer accounts receivable decreased by;$6 million.;(4) Dividends paid to common shareholders;were $10 million.;(5) Depreciation expense was $18 million.;(6) Income tax payable decreased by $3;million.;(7) Long-term debt decreased by $14 million.;(8) Accounts payable increased by $8 million.;(9) Inventories decreased by $5 million.;(10) Opening cash balance was $4 million.;Required;Based on the above information, calculate the ending cash balance.;5.;(4 marks) Able Manufacturing uses;departmental cost driver rates to allocate manufacturing support costs to;products. Manufacturing support costs are allocated on the basis of machine;hours in Department A and on the basis of direct labor hours in Department B.;At the beginning of 2013, the following estimates were provided for the coming;year;Dept. A Dept. B;Direct labor cost $600,000 $1,800,000;Manufacturing overhead;costs $400,000 $600,000;Direct labor-hours 25,000 60,000;Machine-hours 10,000 12,000;The accounting records of the company;show the following data for Job #123;Dept.;A Dept. B;Direct labor-hours 10 20;Machine-hours 2 15;Direct material cost $100 $200;Required: Calculate the total;manufacturing costs of Job #123.;6.;(6 marks) Pete?s Publishing, Inc. has excess;capacity. Company management is approached by a new customer to fill a large;one-time order for 1,000 books, a product similar to one offered to regular;customers. The following information applies to sales to regular customers;Sales (100,000 units) $12,000,000;Direct materials $5,000,000;Direct labor 4,000,000;Variable manufacturing support 500,000;Fixed manufacturing support 200,000;Total manufacturing costs 9,700,000;Profit $2,300,000;Required;What is the minimum acceptable price at which overall profit will not change?;7.;(3 marks) Bob?s Boots Ltd. manufactures three;different products ?boots, slippers, and runners. Considerable market demand;exists for all models. The following per unit data apply;Boots Slippers Runners;Selling price $150 $20 $85;Direct materials 100 8 40;Direct labor ($20 per hour) 20 5 10;Variable support costs ($4 per machine;hour)10 2 12;Fixed costs 8 4 20;Gross profit 12 1 3;Required;If there is no excess capacity, what should the company do to maximize profits?;8.;(8 marks) Engineers at Jones & Smith Ltd.;developed the following standard costs for direct material and direct labor for;one of their major products;Standard;quantity Standard price;Direct;materials 10 kilograms $5 per kilogram;Direct labor 0.5 hours $30;per hour;During 2013;the company produced and sold 100,000 units using 990,000 kilograms of direct;materials at an average cost of $4.95 per kilogram,and total direct labour;costs of $1,428,000 (51,000 DLHs incurred).;Required;Calculate the 2013 price and quantity (efficiency) variances, and total;variances, for direct material and direct labour.;9.;(5 marks) Mercury Manufacturing produces a;single product that sells for $30. Variable (flexible) costs per unit equal;$20. Management believes that a 5% reduction in the selling price will result;in a 15% increase in unit sales, currently 10,000 units. The company expects;the total capacity-related costs to rise from $10,000 to $15,000 to accommodate;the required increase in production if this proposed reduction in selling price;is implemented.;Required;What will happen to profits?;10.(5 marks);Marcel?s Manufacturing, Inc., is considering reorganizing its plant into;manufacturing cells. The following;estimates have been prepared to evaluate the benefits from the reorganization;Before the change After the change;Total annual sales $600,000 $800,000;Costs as a percentage of;sales;Direct materials 23% 20%;Direct labor 9% 7%;Manufacturing Support;costs 18% 13%;Work-in-process inventory $125,000 $ 90,000;Inventory;carrying costs are estimated to be 10% per year.;Required;Calculate the amount that total benefits are projected to increase annually as;a result of switching to a cellular manufacturing operation.;Part;C ? Problems (3 problems, 65 marks in total). Show your work to receive partial;credit for incorrect answers.;Problem;1 (14 marks);Over the years, Donna Dow has been a;very successful investor. She;investigates a company thoroughly before purchasing its shares. Donna is interested in the common stock of IBU;Computers Limited. The following data;are available for the company;2013;2012;2011;Current ratio*;1.9;2.0;2.1;Acid-test ratio;1.1;1.0;.9;Accounts;receivable turnover;3.6X;3.5X;3.0X;Inventory;turnover;4X;5X;6X;Current;liabilities;$1M;$1M;$1M;Sales;$10M;$10M;$10M;Gross Profit;Ratio;30%;30%;30%;Dividends paid;per share**;$4;$3;$2.50;Dividend yield;ratio;5.5%;5.5%;5.5%;Dividend payout;ratio;40%;40%;40%;Return on total;assets;10%;12%;8%;Return on common;stockholders? equity;8%;14.5%;9%;* Current;assets consist of cash, accounts receivable, and inventory.;**There were no changes in common;stock outstanding over the three-year period.;Donna would like answers to a number;of specific questions regarding this data. Respond in a complete but concise;manner to each of her questions.;1.;Is the market price of the company?s stock;going up or down?;2.;Is the earnings per share increasing or;decreasing?;3.;Is the company employing financial leverage;to the advantage of the common stockholders?;4.;Is it becoming easier for the company to pay;its bills as they come due?;5.;Are customers paying their bills at least as;fast now as they did in Year 1?;6.;Is the total of accounts receiving;increasing, decreasing, or remaining constant?;7.;Is the level of inventory increasing;decreasing, or remaining constant?;Problem;2 (16 marks);AudioFile Products Ltd. is a retailer;that sells sound systems. The company is;planning its cash needs for the month of January, 2013. In the past, AudioFile 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 2013 forecasted income statement;Sales $200,000;Cost;of goods sold 150,000;Gross;profit 50,000;Variable;selling expenses $ 10,000;Fixed;administrative expenses 20,000;30,000;Forecast;net operating income $ 20,000;b.;Sales are 10% for cash and 90% on credit.;c.;Credit sales are collected over a three-month;period with 40% collected in the month of sale, 30% in the following month, and;20% in the second month following sale. November 2012 sales totaled $300,000;and December sales totaled $500,000.;d.;40% of a month?s inventory purchases are paid;for in the same month. The remaining 60% are paid in the following month.;Accounts payable relate solely to inventory purchases. At December 31, these;totaled $400,000.;e.;The company maintains its ending inventory;levels at 60% of the cost of the merchandise to be sold in the following month.;The merchandise inventory at December 31, 2012 was $90,000. February 2013 sales;are budgeted at $150,000. Gross profit percentage is expected to remain;unchanged.;f.;The company pays a $10,000 monthly cash;dividend to shareholders.;g.;The cash balance at December 31, 2012 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 on its operating loan;in increments of $10,000 at the beginning of each month, up to a total loan;balance of $500,000. The interest rate on this loan is 1% per month. There is;no operating loan at December 31, 2012.;Required;Prepare a Cash Flow Forecast for AudioFile for the month of January 2013.;Include appropriate supporting schedules.;Problem;3 (35 marks);In the past, the Big Dog Carworks Ltd.;(BDCL) 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 small;engine models: Basic and Heavy Duty. The following information has been obtained;from the company?s records over the past year;Basic;Heavy Duty;Units produced;500,000;50,000;Direct material cost per engine;$40;$60;Direct labour cost per hour;$30;$30;Direct labour hours incurred;200,000;40,000;Inspections per engine;2;4;Inspection time per engine (hrs.);.1;.3;Engines packed and shipped per batch;2,000;500;Individual engine packing time;(hrs.);.25;.4;Additional preparation time per;batch (hrs.);30;15;BDCL employs;245 employees to perform indirect labour functions, rotating among machine;setups, engine 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;Basic;Heavy Duty;Machining hours per engine;.4;.6;Set up time per run (hrs.);300;600;Number of production runs;100;50;Required;a.;(7 marks). Determine the amount of indirect;manufacturing costs allocated to one engine of each type (Basic, Heavy Duty);based on the existing cost allocation basis (direct labour hours).;b.;(5 marks) Determine the total cost (direct;material, direct labour, indirect manufacturing overhead) of producing one;engine of each type using the existing cost allocation basis.;c.;(15 marks) Determine the indirect;manufacturing support costs for one engine of each type using time-driven;activity-based costing.;d.;(8 marks) Comment on the differences between;results calculated in parts b and c.;Template for Part A;Part;A;Answer;1.;2.;3.;4.;5.;6.;7.;8.;9.;10.;11.;12.;13.;14.;15.


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