ACC 800 Accounting Analysis for Decision-making
Final Exam (Modules 8, 9, 10)
Dr. Jayanti Bandyopadhyay
No Collusion is permitted – open book and open notes – SUBMIT on CANVAS either on EXCEL OR doc
YOU MUST SHOW YOUR WORK IN DETAIL – DUE ON OR BEFORE 10 PM on 12/15
Short answer questions both are required:
Elaborate on the objectives of transfer pricing and the significance of impacts at various levels (quantitative and qualitative). Who are the constituents/stakeholders involved and the possible reasons for conflicts in their objectives in the context of cross-border intra-firm transfer pricing policies? Why is international transfer pricing more than tax minimization? In which situations would tax minimization objectives work with intra-firm trade between a parent and a subsidiary? Hint: the two cases from the readings provided in class (20 points)
Describe target costing and discuss some of the pros and cons of target costing. (5 points)
Problems: 75 Points Total
#1 IS REQUIRED.
Jack Company manufactures a single product that has a standard materials cost of $40 (4 units of raw materials at $10 per unit), standard direct labor cost of $18 (1 hour per unit), and standard variable overhead cost of $8 (based on direct labor-hours). Fixed overhead is budgeted at $34,000 per month. (25 points)
The following data pertain to operations for May of this year:
Raw materials purchased 6,200 units costing $63,240
Raw materials used in production of 1,500 units of finished product 6,200 units of raw materials
Direct labor used 1,500 hours costing $30,000
Variable overhead costs incurred $11,920
Fixed overhead costs incurred $35,000
Required:
a. Compute the following variances (show calculations):
1. Materials quantity variance
2. Labor rate variance
3. Labor efficiency variance
4. Variable overhead spending variance
5. Variable overhead efficiency variance
6. Fixed overhead budget variance
b. Give one possible explanation for each of the six variances computed in requirement (a).
DO EITHER #2 OR #3, BUT NOT BOTH
Budgeted sales of gloves for Hands On for the first six months of the year 2013 are as follows:
Months Unit Sales
January 700,000
February 820,000
March 760,000
April 720,000
May 1,280,000
June 1,500,000
The beginning inventory for 2013 is 200,000 units. The budgeted inventory at the end of a month is 25 percent of units to be sold the following month. Purchase price per unit is $7 per unit.
Required: Prepare a purchases budget in units and dollars for each month, January and February. (25 points)
Soccer Corporation has the following sales budget for the first three months of the current year:
Month Sales Revenue
January $300,000
February 150,000
March 220,000
Historically, the following trend has been established regarding cash collection of sales:
65 percent in month of sale
25 percent in month following sale
8 percent in second month following sale
2 percent uncollectible
The company allows a 2 percent cash discount for payments made by customers during the month of the sale. November and December sales were $100,000 and $200,000, respectively.
Required: Prepare a schedule of budgeted cash collections from sales for February and March.
(25 points)
#4 IS REQUIRED.
Patty Corporation has predicted the following costs for this year for 100,000 units:
Manufacturing Selling and Administrative
Variable $1,600,000 $ 400,000
Fixed 2,400,000 1,200,000
Total $4,000,000 $1,600,000
Required: (25 points)
a. What is the markup on variable costs needed to achieve a target profit of $200,000?
b. What is the initial unit selling price needed to obtain a target profit of $200,000 using the variable cost markup method?
c. What is the manufacturing cost markup needed to obtain a target profit of $200,000?
d. What is the initial unit selling price needed to obtain a target profit of $200,000 using the manufacturing cost markup method?
Variance formulae:
Materials price variance = AQ x (AP – SP)
Materials quantity variance = SP x (AQ – SQ)
Labor rate variance = AH x (AR – SR)
Labor efficiency variance = SR x (AH – SH)
Variable overhead spending variance = Actual costs – (SRH × AH)
Variable overhead efficiency variance = SRH x (AH – SH)
Fixed overhead budget variance = Actual fixed overhead – Budgeted fixed overhead
Formula for mark-up:
Costs not included in base + targeted profit
______________________________________
Costs included in base
