【CGA】Management Accounting Fundamentals Assignment 1

LESSON 1     Assignment Note: For multiple-choice questions, identify the best response. Answer each item by giving the letter of your choice. For example, if (4) is the best answer for (a), write a(4) as your answer. Select only one answer for each item. If more than one answer is given, it will not be marked. Incorrect answers will be marked as zero. No marks will be given to any explanation you offer. Question 1 (42 marks) Multiple choice (2 mark each) a.    Which of the following statements about managerial accounting is true? 1)    Managerial accounting information is prepared for external users.    2)    Managerial accounting information is a legal requirement. 3)    The structure of managerial accounting practice is relatively flexible. 4)    There are structured standards of acceptability for managerial accounting. b.    Which of the following statements is incorrect with regard to a manufacturing firm? 1) Inventoriable costs include only prime costs. 2) Inventoriable costs include prime costs and manufacturing overhead costs. 3) Inventoriable costs include both variable manufacturing and fixed manufacturing costs. 4) Inventoriable costs will never include any period costs. c.    Crandall Company manufactures a variety of products. The controller is considering how to account for labour fringe benefits. Which of the following methods provides the best measure of the relative cost of manufacturing Crandall’s different products? 1)    Treat all labour fringe benefits as indirect labour by adding the total to manufacturing overhead. 2)    Treat all labour fringe benefits as direct labour. 3)    Treat labour fringe benefits that relate to direct labour as additional direct labour cost and treat fringe benefits that relate to indirect labour as part of manufacturing overhead. 4)    Treat labour fringe benefits as period expenses and expense these costs as incurred. d.    In the context of making a decision, which of the following statements regarding relevant costs is incorrect? 1)    An opportunity cost is a relevant cost. 2)    A traceable fixed cost is a relevant cost. 3)    A variable cost is a relevant cost. 4)    A sunk cost is a relevant cost. e.    Which of the following functions of management compares planned results with actual results? 1)    Planning 2)    Directing and motivating 3)    Controlling 4)    Decision making f.    When distinguishing between fixed costs and variable costs, which of the following statements is true? 1)    As production rises, variable costs per unit will fall. 2)    As production rises, total fixed costs will rise. 3)    As production falls, fixed costs per unit will rise. 4)    As production falls, variable costs per unit will fall. g.    Which of the following are included in manufacturing overhead? 1)    All direct material, direct labour, and administrative costs 2)    All manufacturing costs except direct labour 3)    All manufacturing costs except direct labour and direct materials 4)    All selling and administrative costs h.    Which of the following statements describes the treatment of period costs?  1)    They will never constitute part of the cost of goods manufactured statement but will always be part of the income statement. 2)    They will always be part of the cost of goods manufactured statement.    3)    They will never constitute part of the cost of goods manufactured statement or be part of the income statement. 4)    They will only be incurred if the product is made in the current period. i.    What criterion is used in making the distinction between indirect and direct costs? 1)    Whether a cost differs between alternatives 2)    Whether a cost is variable or fixed 3)    Whether a cost is a product or a period cost 4)    Whether a cost can be easily traced to the cost object under consideration j.    Buford Company rents out a small unused portion of its factory to another company for €1,000 per month. The rental agreement will expire next month, and rather than renew the agreement, Buford Company is thinking about using the space itself to store materials. What term is used to describe the €1,000 per month? 1)    Sunk cost 2)    Period cost 3)    Variable cost 4)    Opportunity cost k.    A machine was purchased in 20X6 to make experimental boards. The machine is still being used in the manufacture of the new board. What term is used to describe the cost of this machine in 20X9? 1)    Opportunity cost 2)    Sunk cost 3)    Differential cost 4)    Period cost Note: Questions (l) through (n) are based on the following information pertaining to Hailey’s manufacturing operations: Inventories    January 1, 2011    December 31, 2012 Direct materials    €    30,000    €    20,000 Work in progress        30,000        25,000 Finished goods        28,000        35,000 Additional information for 2011: Direct materials purchased    €    110,000 Direct manufacturing labour payroll        90,000 Direct manufacturing labour rate per hour        10 Factory overhead rate per direct manufacturing labour-hour        7 l.    For 2011, what was the prime cost? 1)    €    90,000 2)    €120,000 3)    €170,000 4)    €210,000 m.    For 2011, what was the conversion cost? 1)    €    90,000 2)    €153,000 3)    €183,000 4)    €200,000 n.    For 2011, what was the cost of goods manufactured? 1)    €  35,000 2)    €268,000 3)    €273,000 4)    €278,000 o.    In the preparation of the schedule of cost of goods manufactured, the accountant incorrectly excluded as part of manufacturing overhead the janitorial expense of the firm’s factory. What impact will this error have on the financial statements? 1)    It will overstate period expenses on the income statement. 2)    It will overstate the cost of goods sold on the income statement. 3)    It will understate the cost of goods manufactured. 4)    It will have no effect on the cost of goods manufactured. Note: Answer Questions (p) and (q) using the following selected data for March, taken from Ryker Company’s financial statements: Cost of goods available for sale    €    61,000 Manufacturing overhead        25,000 Cost of goods manufactured        51,000 Finished goods inventory — ending        10,000 Direct materials used        20,000 Sales        115,000 Selling and administrative expenses        30,000 Direct labour        15,000 Work-in-progress inventory — beginning        8,000 p.    What was the gross margin for March? 1)    €20,000 2)    €34,000 3)    €50,000 4)    €64,000 q.    What was the work-in-progress inventory at the end of March? 1)    €        0 2)    €    9,000 3)    €    17,000 4)    €    60,000 r.    Done and Bradsweet, LLC, is a professional accounting services company. In 2012, the firm incurred $76,000 in promotion expenses. Of this, $61,000 was for activities related to entertaining potential clients and included charges for hotel stays and transportation for clients and management to corporate head office to promote the firm and its services. Some, but not all, of these clients subsequently engaged the services of the company during the year. The remaining $15,000 was spent on advertising the firm in print and television media in Europe. Which of the following statements is correct? 1)    $76,000 represents a period cost. 2)    $76,000 represents a product cost. 3)    $61,000 is a product cost and $15,000 is a period cost. 4)    $61,000 is a direct cost and $15,000 is an indirect cost. Note: Answer Questions (s) and (t) using the following data from the Bonnie Company for the month of November 2012: Inventories    11/1/2012    11/30/2012 Raw materials    €    19,000    €    ? Work in progress        12,000        14,000 Finished goods        ?        9,000 Additional data: Sales revenue            €    106,000 Direct labour costs                10,000 Manufacturing overhead costs                11,000 Selling expenses                12,000 Administrative expenses                18,000 s.    If the cost of raw materials purchased in November was €14,000 and the cost of goods manufactured was €40,000, what was the inventory of raw materials on November 30? 1)    €12,000 2)    €14,000 3)    €16,000 4)    €19,000 t.    If the cost of goods manufactured for November was €40,000 and net income was €41,000, what was the finished goods inventory on November 1? 1)    €     1,000 2)    €     4,000 3)    €32,000 4)    €35,000 u.    At a sales volume of 40,000 units, Carne Company’s total fixed costs are €40,000 and total variable costs are €40,000. The relevant range for the product is 30,000 to 50,000 units. If the company were to sell 42,000 units, what would be the total expected cost? 1)    €73,600 2)    €80,000 3)    €82,000 4)    €90,000 Question 2 (12 marks) What is the major intention of the IFAC Code of Ethics for Professional Accountants? Describe the Code’s five fundamental principles. Question 3 (20 marks) Several years ago, 4R Company purchased a small building adjacent to its manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space, the building was rented out to another company for a rental revenue of $40,000 per year. The renter’s lease will expire next month and, rather than renewing the lease, 4R Company has decided to use the building itself to manufacture a new product. Direct materials cost for the new product will total $40 per unit. It will be necessary to hire a supervisor to oversee production. Her salary will be $2,500 per month. Workers will be hired to manufacture the new product, with direct labour cost amounting to $18 per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space in a warehouse nearby in order to store finished units of product. The rental cost will be $1,000 per month. In addition, the company will need to rent equipment for use in producing the new product; the rental cost will be $3,000 per month. The company will continue to depreciate the building on a straight-line basis, as in past years. Depreciation on the building is $10,000 per year.