cma part 1 mock 2

MOCK TEST 2

CMA PART 1

Phone: 00971-50-3060762

E-mail: [email protected]

BLOG education4all-arman.blogspot.com

FINANCE MANAGER CUM TRAINER

CPA MBA PGD B.COM

ARMAGHAN AHMED education4all

Question 1 - ICMA 10.P1.049 - Budget Methodologies

Streeter Company produces microwave turntables. Sales for the next year are expected to be 65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter, and 66,000 units in the fourth quarter. Streeter maintains a finished goods inventory at the end of each quarter equal to one half of the units expected to be sold in the next quarter. How many units should Streeter produce in the second quarter?

A. 72,000 unitsB. 75,000 unitsC. 78,000 unitsD. 84,000 units

Question 2 - CMA 1294 3.19 - Budget Methodologies

Superior Industries' sales budget shows quarterly sales for the next year as follows:Quarter Units

1 10,0002 8,0003 12,0004 14,000

Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales. Budgeted production for the second quarter of the next year would be:

A. 7,200 units.B. 8,800 units.C. 8,000 units.D. 8,400 units.

Question 3 - HOCK CMA P3A H49 - Strategic Planning

Michael Porter of Harvard University has set forth three generic strategies for companies. Which of the following is not one of those strategies?

A. Innovation.B. Cost leadership.C. Focus, or competitive scope.D. Differentiation.


Super Drive, a computer disk storage and back-up company, uses accrual accounting. The company's Statement of Financial Position for the year ended November 30, is as follows:

Super DriveStatement of Financial Position

November 30Assets Cash $ 52,000

Part 1 : 02/11/15 08:14:19

(c) HOCK international, page 1

Accounts receivable, net. 150,000Inventory 315,000Property, plant and equipment 1,000,000Total assets $1,517,000Liabilities and Equity Accounts payable $ 175,000Common stock 900,000Retained earnings 442,000Total liabilities and shareholders equity $1,517,000

Additional information regarding Super Drive's operations include the following:Sales are budgeted at $520,000 for December and $500,000 for January of the next year.Collections are expected to be 60% in the month of sale and 40% in the month following the sale.80% of the disk drive components are purchased in the month prior to the month of sale, and 20% are purchased in the month of sale. Purchased components are 40% of the cost of goods sold.Payment for the components is made in the month following the purchase.Cost of goods sold is 80% of sales.

The projected gross profit for the month ending December 31 is

A. $104,000B. $536,000C. $416,000D. $134,000

Question 5 - ICMA 10.P1.026 - Learning Curves

In competing as a subcontractor on a military contract, Aerosub Inc. has developed a new product for spacecraft that includes the manufacturing of a complex part. Management believes there is a good opportunity for its technical force to learn and improve as they become accustomed to the production process. Accordingly, management estimates an 80% learning curve would apply to this unit. The overall contract will call for supplying eight units. Production of the first unit requires 10,000 direct labor hours. The estimated total direct labor hours required to produce the seven additional units would be

A. 70,000 hours.B. 40,960 hours.C. 30,960 hours.D. 56,000 hours.


Maker Distributors has a policy of maintaining inventory at 15% of the next month's forecasted sales. The cost of Maker's merchandise averages 60% of the selling price. The inventory balance as of May 31 is $63,000, and the forecasted dollar sales for the last seven months of the year are as follows:June $700,000July 600,000August 650,000September 800,000October 850,000November 900,000

Part 1 : 02/11/15 08:14:19


December 840,000

What is the budgeted dollar amount of Maker's purchases for July?

A. $364,500.B. $399,000.C. $355,500.D. $360,000.


All of the following are criticisms of the traditional budgeting process except that it

A. makes across-the-board cuts when early budget iterations show that planned expenses are too high.B. incorporates non-financial measures as well as financial measures into its output.C. is not used until the end of the budget period to evaluate performance.D. overemphasizes a fixed time horizon such as one year.


One of the steps in the the strategic planning process is analyzing external factors in order to identify the organization's opportunities and threats. Which of the following is not a part of external analysis?

A. Analysis of the national environment in which the company operates.B. Analysis of the macroenvironment.C. Identification of the company's strengths and weaknesses.D. Examination of the industry in which the company operates.

Question 9 - CIA 1190 IV.20 - Responsibility Centers and Reporting Segments

A limitation of transfer prices based on actual cost is that they

A. Charge inefficiencies to the department that is transferring the goods.B. Lack clarity and administrative convenience.C. Can lead to suboptimal decisions for the company as a whole.D. Must be adjusted by some markup.


An organization employs a system of internal reporting that furnishes departmental managers with revenue and cost information on only those items that are subject to their control. Items not subject to the manager's control are not included in the performance reports. This method of accounting is known as

A. Responsibility accounting.B. Segment reporting.C. Absorption cost accounting.

Part 1 : 02/11/15 08:14:19


D. Contribution margin reporting.

Question 11 - ICMA 10.P1.139 - Performance Measures

Performance results for four geographic divisions of a manufacturing company are shown below.

Division Target Returnon Investment

Actual Returnon Investment

Return onSales

A 18% 18.1% 8% B 16% 20.0% 8% C 14% 15.8% 6% D 12% 11.0% 9%

The division with the best performance is

A. Division B.B. Division A.C. Division D.D. Division C.

Question 12 - CMA 697 3.30 - Performance Measures

James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method. Webb is reviewing the following forecasted information for his division for next year:

Category Amount(thousands)Working capital $1,800Revenue 30,000Plant and equipment 17,200

If the imputed interest charge is 15% and Webb wants to achieve a residual income target of $2,000,000, what will costs have to be in order to achieve the target?

A. $25,690,000B. $10,800,000C. $25,150,000D. $9,000,000

Question 13 - ICMA 10.P1.112 - Manufacturing Input Variances -- Overhead

Harper Company's performance report indicated the following information for the past month.Actual total overhead $1,600,000Budgeted fixed overhead 1,500,000Applied fixed overhead at $3 per labor hour 1,200,000Applied variable overhead at $0.50 per labor hour 200,000 Actual labor hours 430,000

Part 1 : 02/11/15 08:14:19


Harper's total overhead spending variance for the month was

A. $185,000 unfavorable.B. $200,000 unfavorable.C. $100,000 favorable.D. $115,000 favorable

Question 14 - CMA 1292 3.17 - Manufacturing Input Variances -- Overhead

Nanjones Company manufactures a line of products distributed nationally through wholesalers. Presented below are planned manufacturing data for the year and actual data for November of the current year. The company applies overhead based on planned machine hours using a predetermined annual rate.

Planning Data Annual NovemberFixed manufacturing overhead $1,200,000 $100,000Variable manufacturing overhead 2,400,000 220,000Direct labor hours 48,000 4,000Machine hours 240,000 22,000

Data for November Direct labor hours (actual) 4,200 Direct labor hours (plan based on output) 4,000 Machine hours (actual) 21,600 Machine hours (plan based on output) 21,000 Fixed manufacturing overhead $101,200 Variable manufacturing overhead $214,000

The amount of over or underapplied variable manufacturing overhead for November was

A. $2,000 overapplied.B. $6,000 overapplied.C. $6,000 underapplied.D. $4,000 underapplied.

Question 15 - CIA 1196 3.87 - Joint Products and Byproducts

A manufacturing company properly classifies and accounts for one product as a by-product rather than as a main product because it:

A. Has no sales value to the manufacturing company.B. Has low physical volume when compared to the other main products.C. Has low sales value when compared to the main products.D. Can never be developed into a main product by this or any other manufacturer.

Question 16 - CMA 690 4.3 - Overhead Allocation

Alex Company had the following inventories at the beginning and end of the month of January: January 1January 31Finished goods $125,000 $117,000

Part 1 : 02/11/15 08:14:19


Work-in-process 235,000 251,000Direct materials 134,000 124,000

The following additional manufacturing data were available for the month of January:

Direct materials purchased $189,000Purchase returns and allowances 1,000Transportation-in 3,000Direct labor 300,000Actual factory overhead 175,000

Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31.

Alex Company's cost of goods manufactured for January was:

A. $681,000.B. $673,000.C. $665,000.D. $657,000.

Question 17 - CMA 691 3.16 - Shared Service Cost Allocation

The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments such as Quality Control and Maintenance to the production departments. To aid them in this discussion, the controller has provided the following information:

QualityControl MaintenanceMachiningAssembly TotalBudgeted overhead costs before allocation$350,000 $200,000 $400,000 $300,000$1,250,000Budgeted machine hours 50,000 50,000Budgeted direct labor hours 25,000 25,000Budgeted hours of service: Quality control 7,000 21,000 7,000 35,000 Maintenance 10,000 18,000 12,000 40,000

If Rochester Manufacturing uses the direct method of allocating service department costs, the total service costs allocated to the assembly department would be:

A. $80,000.B. $120,000.C. $167,500.D. $87,500.

Question 18 - CMA 691 3.48d - Job-Order and Operation Costing

Gregg Industries manufactures molded chairs. The three models of molded chairs, which are all variations of the same design, are Standard (can be stacked), Deluxe (with arms), and Executive (with arms and padding). The company uses batch manufacturing and has an operation costing system.

Gregg has an extrusion operation and subsequent operations to form, trim, and finish the chairs. Plastic sheets are produced by the extrusion operation, some of which are sold directly to other manufacturers. During the forming

Part 1 : 02/11/15 08:14:19


operation, the remaining plastic sheets are molded into chair seats and the legs are added; the standard model is sold after this operation. During the trim operation, the arms are added to the deluxe and executive models and the chair edges are smoothed. Only the executive model enters the finish operation where the padding is added. All of the units produced are subject to the same steps within each operation, and no units are in process at the end of the period. The units of production and direct materials costs were as follows:

UnitsProducedExtrusionMaterials

FormMaterials

TrimMaterials

FinishMaterials

Plastic sheets 5,000 $ 60,000 Standard model 6,000 72,000 $24,000 Deluxe model 3,000 36,000 12,000 $9,000 Executive model 2,000 24,000 8,000 6,000 $12,000 16,000$192,000 $44,000 $15,000 $12,000

Manufacturing costs applied during the month were:

ExtrusionOperationForm

OperationTrim

OperationFinish

OperationDirect labor $152,000 $60,000 $30,000 $18,000Factory overhead 240,000 72,000 39,000 24,000

Assume that 1,000 units of the deluxe model remained in work-in-process at the end of the period and that these units were 100% complete as to materials and 60% complete as to trim operation conversion. What is the balance of work-in-process?

A. $64,500B. $42,000C. $69,300D. $69,000

Question 19 - CMA 1286 4.15 - Process Costing

Levittown Company employs a process cost system for its manufacturing operations. All direct materials are added at the beginning of the process and conversion costs are added proportionately. Levittown's production quantity schedule for November is reproduced as follows. UnitsWork-in-process on November 1(60% complete as to conversion costs) 1,000Units started during November 5,000Total units to account for 6,000 Units completed and transferred out from BI 1,000Units started and completed during November3,000Work-in-process on November 30(20% complete as to conversion costs) 2,000Total units accounted for 6,000

Using the FIFO method, the equivalent units for conversion costs for November are

A. 3,400 units.B. 4,000 units.C. 3,800 units.D. 4,400 units.

Part 1 : 02/11/15 08:14:19


Question 20 - CIA 1196 III.88 - Process Costing

A company employs a process costing system for its two-department manufacturing operation using the first-in, first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.

The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for Department 2, in units for the current month, is presented below.

Physical Flow(output units)Beginning inventory (60% complete with respect to conversion) 20,000 Units transferred in from Department 1 180,000 Total units to account for 200,000 Units completed in Department 2 during the month 170,000 Units found to be defective at inspection 5,000 Ending inventory (80% complete with respect to conversion) 25,000 Total units accounted for 200,000

Beginning work-in-process inventory was valued at $78,000, consisting of $23,000 of transferred-in costs and $55,000 of conversion costs. Transferred-in costs for units transferred in during the month were $360,000. Costs added to production during the month were $156,000 in direct materials added and $326,700 in conversion costs added.

Total cost transferred out at the end of the month was

A. $814,700B. $810,765C. $736,700D. $812,581

Question 21 - ICMA 10.P1.195 - Process Costing

Oster Manufacturing uses a weighted-average process costing system and has the following costs and activity during October.Materials $ 40,000Conversion cost 32,500 Total beginning work-in-process inventory $ 72,500 Materials $ 700,000Conversion cost 617,500 Total production costs - October $1,317,500 Production completed 60,000 unitsWork-in-process, October 31 20,000 units

All materials are introduced at the start of the manufacturing process, and conversion cost is incurred uniformly throughout production. Conversations with plant personnel reveal that, on average, month-end in-process inventory is 25% complete. Assuming no spoilage, how should Oster's October manufacturing cost be assigned?

A. $1,283,077 to completed production; $106,923 to work-in-process.B. $1,155,000 to completed production; $235,000 to work-in-process.

Part 1 : 02/11/15 08:14:19


C. $1,095,000 to completed production; $222,500 to work-in-process.D. $1,042,500 to completed production; $347,500 to work-in-process.


Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May. UnitsBeginning work-in-process inventory, May 1 16,000Started in production during May 100,000Completed production during May 92,000Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending inventory was 90% complete for materials and 40% complete for conversion costs.

Costs pertaining to the month of May are as follows:Beginning inventory costs are materials, $54,560; direct labor, $20,320; and factory overhead, $15,240.Costs incurred during May are materials used, $468,000; direct labor, $182,880; and factory overhead, $391,160.

Using the FIFO method, the cost per equivalent unit for conversion costs for May is

A. $6.00B. $5.65C. $5.83D. $6.20

Question 23 - CMA 678 4.6 - Classifications of Costs

Conversion costs are

A. All costs associated with manufacturing other than direct labor costs and raw material costs.B. Manufacturing costs incurred to produce units of output.C. The sum of raw materials costs and direct labor costs.D. The sum of direct labor costs and all factory overhead costs.

Question 24 - ICMA 10.P1.183 - Joint Products and Byproducts

Tucariz Company processes Duo into two joint products, Big and Mini. Duo is purchased in 1,000 gallon drums for $2,000. Processing costs are $3,000 to process the 1,000 gallons of Duo into 800 gallons of Big and 200 gallons of Mini. The selling price is $9 per gallon for Big and $4 per gallon for Mini. If the sales value at splitoff method is used to allocate joint costs to the final products, the per gallon cost (rounded to the nearest cent) of producing Big is

A. $5.00 per gallon.B. $4.50 per gallon.C. $5.63 per gallon.D. $3.38 per gallon.

Part 1 : 02/11/15 08:14:19


Question 25 - CMA 690 4.6 - Joint Products and Byproducts

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit.

Assuming no further processing work is done after the split-off point, the amount of joint cost allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be

A. $180,000.B. $225,000.C. $75,000.D. $120,000.


A fixed cost that would be considered a direct cost is

A. The rental cost of a warehouse to store inventory when the cost object is the Purchasing Department.B. Board of directors' fees when the cost object is the Marketing Department.C. A cost accountant's salary when the cost object is a unit of product.D. A production supervisor's salary when the cost object is the Production Department.


A manufacturing company has a continuous flow cycle that employs simplified activities in a short manufacturing cycle. The company produces a single product with a minimal defect rate. The product costing system that this company would most likely use for its manufacturing operations is:

A. Job-order costing.B. Activity-based costing.C. Operation costing.D. Process costing.

Question 28 - CIA 1187 IV.9 - Variable and Absorption Costing

Which of the following is an argument against the use of direct (variable) costing?

A. Fixed factory overhead is necessary for the production of a product.B. Fixed factory overhead is difficult to allocate properly.C. Variable factory overhead is a period cost.D. Absorption costing overstates the balance sheet value of inventories.

Part 1 : 02/11/15 08:14:19



Jones Corporation uses a first-in, first-out (FIFO) process costing system. Jones has the following unit information for the month of August. UnitsBeginning work-in-process inventory, 100% completefor materials, 75% complete for conversion cost 10,000Units completed and transferred out 90,000Ending work-in-process inventory, 100% completefor materials, 60% complete for conversion costs 8,000

The number of equivalent units of production for conversion costs for the month of August is

A. 92,700.B. 92,300.C. 87,300.D. 88,000.

Question 30 - CIA 594 III.77 - Shared Service Cost Allocation

A company has two service departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September the following information is available: Service Departments Production Departments Power Maintenance Machining AssemblyDirect costs $62,500 $40,000 $25,000 $15,000Actual activity: Kilowatt hrs. 50,000 150,000 50,000Maintenance hours 250 1,125 1,125

Assume the company uses the sequential or step method for allocating service department costs to production departments. The company begins with the service department that receives the least service from other service departments. What dollar amount of Power Department costs will be allocated to the Maintenance Department for September?

A. $8,000B. $12,500C. $6,250D. $0

Question 31 - CIA 1188 IV.5 - Job-Order and Operation Costing

A shipbuilding company, employing 30 workers, constructs custom built yachts. Which of the following is an appropriate product-costing method for this operation?

A. Step-down allocation of costs.B. Job-order costing.C. Variable cost transfer pricing.D. Process costing.

Part 1 : 02/11/15 08:14:19


Question 32 - CMA 1283 3.15 - Internal Auditing

For an internal audit department to be considered as a relevant internal control by the external auditor, the internal auditor must

A. Perform operational audits.B. Be independent of the accounting function.C. Be cost effective.D. Use statistical sampling procedures.

Question 33 - CIA 1192 I.3 - Internal Auditing

In the performance of an internal audit, audit risk is best defined as the risk that an auditor

A. Might not select documents that are in error as part of the examination.B. May not be able to properly evaluate an activity because of its poor internal accounting controls.C. May fail to detect a significant error or weakness during an examination.D. May not have the expertise to adequately audit a specific activity.

Question 34 - CMA 685 5.25 - Systems Controls and Security Measures

Which one of the following is the best reason for developing a computer security plan?

A. All possible threats associated with the data processing equipment are identified.B. Recovery from the damage associated with any identified threats can be assured.C. The user departments can be assured that control policies are in place and their data files are secure.D. A company can select the set of control policies and procedures that optimize computer security relative to cost.

Question 35 - CIA 594 II.50 - Internal Auditing

An internal auditor is conducting interviews of three employees who had access to a valuable asset that has disappeared. In conducting the interviews the internal auditor should

A. Respond to non-cooperation by threatening adverse consequences of such behavior.B. Not indicate that management will forgo prosecution if restitution is made.C. Conduct the interviews in a group.D. Allow a suspect to return to work after the interview so as not to arouse suspicions.

Question 36 - CIA 596 I.57 - Systems Controls and Security Measures

Which one of the following input controls or edit checks would catch certain types of errors within the payment amount field of a transaction?

A. Limit check.

Part 1 : 02/11/15 08:14:19


B. Record count.C. Echo check.D. Check digit.

Question 37 - CIA 588 II.15 - Internal Auditing

The effectiveness of an audit assignment is related to the findings and the action taken on those findings. Which of the following activities contributes to assignment effectiveness?

A. Adhering to a time budget.B. Having budget revisions approved by the project supervisor.C. Conducting an exit interview with auditees.D. Preparing weekly time reports.

Question 38 - CIA 598 3.49 - Systems Controls and Security Measures

Minimizing the likelihood of unauthorized editing of production programs, job control language, and operating system software can best be accomplished by

A. Effective network security software.B. Database access reviews.C. Compliance reviews.D. Good change-control procedures.

Question 39 - ICMA 10.P1.242 - Internal Controls

When assessing a companys internal control structure policies and procedures, the primary consideration is whether they

A. prevent management override.B. reflect managements philosophy and operating style.C. affect the financial statement assertions.D. relate to the control environment.

Question 40 - ICMA 10.P2.096 - Financial Statements

Barber Company has recorded the following payments for the current period.Interest paid on bank loan $300,000Dividends paid to Barber shareholders 200,000Repurchase of Barber Company stock 400,000

The amount to be shown in the Financing Activities section of Barber's Cash Flow Statement should be

A. $500,000B. $300,000

Part 1 : 02/11/15 08:14:19


C. $600,000D. $900,000

Question 41 - CMA1287 P2 Q17 - Accounts Receivable and Inventory

Nasus Company began the month of November with 150 units of Model-XL brass hinges on hand at a cost of $2.00 each. These hinges sell for $3.50 each. The following schedule presents the additional activity in this inventory item during November.

NovemberQuantityReceivedUnit PriceUnits Sold

4 1006 200 $2.10 8 150

10 200 2.20 16 22021 250 2.40 28 100

If Nasus uses perpetual moving average inventory pricing, the sale of 220 items on November 16 would be recorded at a unit cost of:

A. $2.16B. $2.08C. $2.10D. $2.20

Question 42 - CMA 1293 2.3 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

An investment in trading securities is valued on the Statement of Financial Position at the

A. Lower of cost or market.B. Fair value.C. Cost to acquire the asset.D. Accumulated income minus accumulated dividends since acquisition.

Question 43 - HOCK 2005 H4 - Owners' Equity

When cash dividends are paid, which account is affected?

A. Additional paid-in capital.B. Retained earnings.C. Dividends receivable.D. Common shares.

Question 44 - CMA 1295 P2 Q4 - Financial Statements

Part 1 : 02/11/15 08:14:19


Royce Company had the following transactions during the fiscal year ended December 31, 20X1:Accounts receivable decreased from $115,000 on December 31, 20X0 to $100,000 on December 31, 20X1.Royce's board of directors declared dividends on December 31, 20X1 of $0.05 per share on the 2.8 million shares outstanding, payable to shareholders of record on January 31, 20X2. The company did not declare or pay dividends for fiscal 20X0.Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000.Paid interest to bondholders of $780,000.The cash balance was $106,000 on December 31, 20X0 and $284,000 on December 31, 20X1.

The total of cash provided/used by operating activities plus cash provided/used by investing activities plus cash provided/used by financing activities is

A. cash used of $582,000.B. cash provided of $178,000.C. cash provided of $284,000.D. equal to net income reported for fiscal year ended December 31, 20X1.

Question 45 - CMA 1293 2.4 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

An investment in available-for-sale securities is valued on the Statement of Financial Position at the

A. Par or stated value of the securities.B. Fair value.C. Cost to acquire the asset.D. Accumulated income less accumulated dividends since acquisition.

Question 46 - CMA 696 P2 Q9 - Liabilities and Taxes

Which one of the following temporary differences will result in a deferred tax asset?

A. Use of the straight-line depreciation method for financial statement purposes and the Modified Accelerated Cost Recovery System (MACRS) for income tax purposes.B. Advance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes.C. Investment gains accounted for under the equity method for financial statement purposes and under the fair value method for income tax purposes.D. Installment sale profits accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes.

Question 47 - CIA 1190 IV.32 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

MKT Corporation's assets on December 31, Year 1, include the following:

I. U.S. Treasury Bills, acquired on October 15, Year 1, which mature on April 15, Year 2. MKT plans to hold the Treasury Bills until they mature because the company has no need for the cash earlier than the maturity date.

II. Shares of PF Company. PF has been very profitable and MKT Corporation plans to increase its ownership in PF as

Part 1 : 02/11/15 08:14:19


it believes PF has strong growth potential.

III. Bonds of ABC Corporation that mature in 3 years. These bonds will be sold, as needed, to meet MKT's current financing needs.

Which of the above should be classified as available-for-sale securities?

A. III only.B. II and III only.C. I, II, and III.D. I and II only.

Question 48 - CIA 594 P4 Q29 - Accounts Receivable and Inventory

Which of the following is true regarding the assignment (pledging as collateral) of accounts receivable and factoring of accounts receivable for a manufacturing firm?

A. The factoring of accounts receivable involves the invoice from the manufacturing firm to its customer being stamped with a notification that payment is to be made directly to the other party, whereas the assignment of accounts receivable does not.B. The factoring of accounts receivable provides collateral for the manufacturing firm, whereas the assignment of receivables provides direct financing.C. The lender has recourse to the manufacturing firm under factoring but not under the assignment of accounts receivable.D. The assignment of accounts receivable involves the invoice from the manufacturing firm to its customer being stamped with a notification that payment is to be made directly to the other party, whereas the factoring of accounts receivable does not.

Question 49 - CMA 1291 P2 Q28 - Liabilities and Taxes

Beginning January 1, Year 1, Center Company offered a 3-year warranty from date of sale on any of its products sold after January 1, Year 1. The warranty offer was part of a program to increase sales. Meeting the terms of the warranty was expected to cost Center 4% of sales. Sales made under warranty in Year 1 totaled $9,000,000, and one-fifth of the units sold were returned. These units were repaired or replaced at a cost of $65,000. The amount of warranty expense that should appear on Center's Year 1 income statement is

A. $71,000B. $137,000C. $360,000D. $65,000

Question 50 - CMA 695 P1 Q13 - Owners' Equity

The equity section of Smith Corporation's statement of financial position is presented below.Preferred stock, $100 par $12,000,000Common stock, $5 par 10,000,000Paid-in capital in excess of par 18,000,000Retained earnings 9,000,000

Part 1 : 02/11/15 08:14:19


Net worth $49,000,000

The common shareholders of Smith Corporation have preemptive rights. If Smith Corporation issues 400,000 additional shares of common stock at $6 per share, a current holder of 20,000 shares of Smith Corporation's common stock must be given the option to buy

A. 4,000 additional shares.B. 3,333 additional shares.C. 3,774 additional shares.D. 1,000 additional shares.

Part 1 : 02/11/15 08:14:19



A. This is the sales for the second quarter. Beginning and ending inventory need to be taken into consideration. See correct answer for full calculation.

B. This is the number of units Streeter should produce in the third quarter.

C.

The second quarter's beginning inventory will be 50% of the 72,000 units to be sold during the second quarter, or 36,000 units.

The second quarter's ending inventory will be 50% of the 84,000 units to be sold during the third quarter, or 42,000 units.

Units to be sold during the second quarter are given as 72,000.

The inventory equation is:

Beginning Inventory + Goods Manufactured Goods Sold = Ending Inventory

Let X represent Goods Manufactured:

36,000 + X 72,000 = 42,000

X = 78,000

D. This is the total sales budgeted for the third quarter. See correct answer for full calculation.


A.

This answer results from using the formula for the physical flow of inventory incorrectly.The correct formula is

Beginning Inventory + Units Produced Units Sold = Ending Inventory To get this answer, units sold are added and units produced are subtracted. Instead, the number of units produced (the unknown) should be added to beginning inventory and the number of units sold should be subtracted.

B.

To solve this question, we use the formula for the physical flow of goods:

Beginning Inventory + Units Produced Units Sold = Ending Inventory Beginning inventory for the second quarter is 20% of the second quarter sales, or 1,600 units (8,000 0.20). The ending inventory for the second quarter is 20% of the third quarter sales, or 2,400 units (12,000 0.20). Plugging numbers into the formula we will get the following:

1,600 + Units Produced 8,000 = 2,400Solving for Units Produced, we get Units Produced = 8,800.

Part 1 : 02/11/15 08:14:19


C. This is the sales level for the second quarter. It does not take into consideration the beginning and ending inventories. See the correct answer for a complete explanation.

D.

This answer results from calculating the beginning inventory as 2,000 units. The beginning inventory is budgeted as 20% of sales of 8,000 units, which is 1,600 units.

Question 3 - P3A H49 - Strategic Planning

A.

Superior innovation is not one of Michael Porter's three generic strategies. Superior innovation is one of the four components of competitive advantage. Product innovations give the innovator something that is unique, and this uniqueness provides differentiation which in turn allows the company to charge a premium price for its product. Process innovation can reduce unit costs below those of the competition. So although innovation is necessary in order to pursue the generic strategies of cost leadership and differentiation, it is not itself a generic strategy.

B. Cost leadership, or being the low-cost producer within a particular industry for a given level of quality, is one of Michael Porter's three generic strategies.

C. Focusing, or concentrating on a particular marketing niche or narrow segment of the market for the purpose of achieving either cost leadership or differentiation is one of Michael Porter's three generic strategies.

D. Differentiation, or development of a product or service with unique attributes that customers perceive to be better or different from competitive offering, is one of Michael Porter's three generic strategies.


A. Gross profit (gross margin) is equal to sales minus cost of goods sold. December sales are projected to be $520,000. Cost of goods sold is 80% of sales. Thus, the projected gross profit is 20% of sales, or $104,000.

B. Gross profit (gross margin) is equal to sales minus cost of goods sold. Thus, gross profit cannot be greater than the amount of sales, and sales are budgeted at $520,000 for December. See the correct answer for a complete explanation.

C. This is the cost of goods sold for December. Gross profit (gross margin) is equal to sales minus cost of goods sold.

D.

This is not the correct answer. Please see the correct answer for a complete explanation.

We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at [email protected]. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.

Part 1 : 02/11/15 08:14:19


1

Question 5 - ICMA 10.P1.026 - Learning Curves

A. This is the number of direct labor hours required for the first unit multiplied by 7. This would be correct only if no learning had taken place. Since learning did take place, the number of direct labor hours required for the additional seven units must be less than the number of hours for the first unit multiplied by 7.

B. This is the total number of direct labor hours required for all eight units. The number of direct labor hours required for the additional seven units (units 2 through 8) will be this number minus the number of direct labor hours required for the first unit.

C.

To find the number of direct labor hours required for the additional seven units, first find the total direct labor hours required for all eight units. Then, to find the number of hours required for the seven additional units, subtract the 10,000 hours required for the first unit from the total number of hours required for all eight units.

The learning curve rate is given as 80%. Therefore, the formula to calculate the total direct labor hours required for 8 units (3 doublings) is: 10,000 (2 0.8) (2 0.8) (2 0.8), or 10,000 (2 0.8)3, which is equal to 40,960. The first unit required 10,000 direct labor hours, so we subtract the 10,000 hours required for the first unit from the 40,960 hours required for all 8 units. The result, 30,960 hurs, is the number of hours required for units 2-8, the seven additional units.

D.

This is the number of direct labor hours required for the first unit multiplied by 7 and the product multiplied by 0.80. This is not the correct way to find the number of direct labor hours required for the additional seven units.

Find the total number of direct labor hours required for all eight units. The number of direct labor hours required for the additional seven units (units 2 through 8) will be that number minus the number of direct labor hours required for the first unit.


A.

The ending inventory each month is to be 15% of the next month's forecasted sales. The cost of the inventory sold (cost of goods sold) averages 60% of the selling price. Therefore, July's ending inventory is forecasted to be $650,000 (August sales) 0.60 0.15, or $58,500. July's beginning inventory, which is the same as June's ending inventory, is forecasted to be $600,000 (July sales) 0.60 0.15, or $54,000. The cost of the inventory sold during July is forecasted to be $600,000 (July sales) 0.60, or $360,000.

The basic inventory formula is Beginning Inventory + Purchases/Production Sold/Used = Ending Inventory. Thus, the formula to find Purchases for July is the following, letting P stand for Purchases:

$54,000 + P $360,000 = $58,500.Solving for P, we get P = $364,500.

B.

This is not the correct answer. Please see the correct answer for an explanation.

We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let

Part 1 : 02/11/15 08:14:19


us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at [email protected]. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.

C. This answer results from reversing the beginning and ending inventory balances in calculating the purchases.

D. This is 60% of the July forecasted sales. This does not take into accounrt the change in the inventory level from the beginning of July to the end of July.


A. This is a criticism of traditional budgeting. The traditional budgeting process may lead to across-the-board cuts when early budget iterations show that planned expenses are too high. However, budgeting should not necessarily require across the board cuts, even when expenses are higher than desired. Cost cutting should be based on what is best for the organization. Frequently cuts based on what is best for the organization will not be equally distributed.

B. This is not a criticism of the traditional budgeting process, because it is not a feature of any budgeting process, traditional or non-traditional. A budget is quantitative and does not include non-financial measures in its output at all.

C. This is a criticism of traditional budgeting, because this can occur. Actual performance for a period is measured against budgeted performance for that period. While it is necessary to wait until the end of a period to measure the budgetary variance for the whole period, the budget period can be broken into smaller timeframes. A 12 month budget can, and often will, be divided into monthly amounts to allow for current month and year-to-date budget variance reporting throughout the year, so that operational adjustments can be made as necessary.

D.

This is a criticism of traditional budgeting. Those who criticize it question why a budget needs to have a fixed time horizon such as one year. They say that different segments of the same company have different needs for planning. The purpose of a forecast should be to recognize issues that need to be planned for in time to plan for them, and this will be different for every area of the company. So different forecasting horizons are needed for different areas, and they need to be monitored individually. One size does not fit all in an organization today.


A. Analysis of the national environment in which the company operates is a part of external analysis. Analyzing the national environment includes assessing domestic and international political risk and the impact of globalization on competition within the industry.

B. Analysis of the macroenvironment is analysis of the wider environment in which the company operates. This is a part of external analysis. Analysis of the macroenvironment includes macroeconomic factors such as inflation and the labor market, social factors such as environmental issues, and government, legal, international and technological factors that affect the industry and the company.

C. Identification of the company's strengths and weaknesses is a part of internal analysis, not external analysis. Strengths lead to superior performance and weaknesses lead to inferior performance in efficiency, quality, innovation, and customer responsiveness.

D. Examination of the industry in which the company operates is a part of external analysis. The industry analysis

Part 1 : 02/11/15 08:14:19


involves assessing the company's industry, the companys competitive position in the industry, and the competitive positions of its major rivals. The nature of the industry, the stage the industry is in, the dynamics and the history are all part of this analysis.


A. Inefficiencies are charged to the department that is receiving, not transferring, the goods.

B. Cost-based transfer price provide clarity and administrative convenience.

C. The basic issue of transfer prices is how much should one unit of a company charge another unit of the same company for its goods or services. The goal in setting a transfer price is that the method used will stimulate the department managers to do what will provide the greatest benefit to the company as a whole, rather than to act in their own interest. A transfer price based on actual cost does not motivate managers to use resources more efficiently, which can lead to suboptimal decisions for the company as a whole.

D. In cost-based transfer pricing, costs do not need to be adjusted by any markup.


A. Responsibility accounting is a system in which cost and revenue data is reported based on who (manager or division) is able to control them or is responsible for them. This is the system described in the question.

B. Segment reporting is the reporting of results by segment: product line, geography or some other distinguishing characteristic. This is not descriptive of the method used by this company.

C. Absorption cost accounting relates to the allocation of fixed costs. This is not descriptive of the method used by this company.

D. Contribution margin reporting breaks costs down into fixed and variable costs. While this may be used in conjunction with responsibility accounting, this by itself is not describing the method used by the company.

Question 11 - ICMA 10.P1.139 - Performance Measures

A. Division B's actual return on investment exceeded its target return on investment by the greatest amount, among the divisions that did exceed their targets. In addition, among the divisions that exceeded their targets, Division B had one of the highest returns on sales. Therefore, it is the division with the best overall performance.

B. Division A's actual return on investment exceeded its target return on investment and among the divisions that did exceed their targets, it had one of the highest returns on sales. However, it did not exceed its target return on investment by as much as some other divisions did. Therefore, it cannot qualify as the division with the best performance.

C. Division D's actual return on investment was below its target return on investment. Its return on sales was the highest of all the divisions, but since it did not meet its target return on investment, it cannot qualify as the division with the best performance.

D. Division C's actual return on investment exceeded its target return on investment, but not by as much as some

Part 1 : 02/11/15 08:14:19


other divisions. Furthermore, its return on sales was not as great as that of some other divisions. Therefore, it cannot qualify as the division with the best performance.

Question 12 - CMA 697 3.30 - Performance Measures

A. See the correct answer for a complete explanation.

B. See the correct answer for a complete explanation.

C. Residual income is equal to net income before taxes minus target return in dollars (a % of assets or invested capital). Invested capital is equal to the sum of working capital and plant and equipment or $19,000,000 ($1,800,000 + $17,200,000). Hence, the imputed interest charge is equal to $2,850,000 ($19,000,000 15%). Net income needs to be equal to the sum of the imputed interest charge and the amount of residual income, or $4,850,000 ($2,850,000 + $2,000,000). Thus, costs are equal to the revenue minus net income or $25,150,000 (30,000,000 $4,850,000).D. See the correct answer for a complete explanation.

Question 13 - ICMA 10.P1.112 - Manufacturing Input Variances -- Overhead

A. This is actual total overhead minus applied fixed overhead minus (Standard Variable OH Rate Actual Application Base). The fixed overhead amount subtracted should be the budgeted fixed overhead, not the applied fixed overhead.

B. This is actual total overhead minus applied total overhead (fixed and variable). It correctly indicates an unfavorable variance, but the calculation is missing the budgeted element. See correct answer for a full explanation.

C. This is the actual total overhead minus budgeted fixed overhead. It is incorrect for two reasons. First, if the calculation were correct, the variance would be an unfavorable one, not a favorable one, because the actual was higher than the budgeted amount and this is a cost variance. And second, variable overhead is included in the total actual overhead amount but is not included in the amount that is subtracted from total actual overhead.

D. The total overhead spending variance is the total of the fixed overhead spending variance + the variable overhead spending variance.

The fixed overhead spending variance is:

Actual Fixed Overhead Incurred Minus Budgeted Fixed Overhead.

The variable overhead spending variance is:

Actual Variable Overhead Incurred Minus Budgeted Variable Overhead Based on Inputs Actually Used (standard rate actual usage of application base).

Therefore, the total overhead spending variance (fixed and variable) is calculated as follows:

Actual Total Overhead Incurred

Minus: Budgeted Fixed Overhead

Minus: Budgeted Variable Overhead (Rate Actual Application Base)

Part 1 : 02/11/15 08:14:19


Equals: Total Overhead Spending Variance

Actual Total Overhead = $1,600,000

Budgeted Fixed Overhead = $1,500,000

Budgeted Variable OH (Rate Actual Application Base) = $0.50 430,000 = $215,000

Therefore, the total overhead spending variance = $1,600,000 $1,500,000 $215,000 = $(115,000). Since overhead is a cost, a negative variance is a favorable variance.

Question 14 - CMA 1292 3.17 - Manufacturing Input Variances -- Overhead

A.

This answer results from applying the variable overhead using normal costing, which is incorrect. The problem says that overhead is applied based on planned machine hours, which means standard costing is being used.

Under standard costing, overhead to be applied is calculated by multiplying the predetermined rate by the amount of (in this case) machine hours that should have been used for the amount actually produced.

Under normal costing, overhead to be applied is calculated by multiplying the predetermined rate by the amount of the allocation base that was actually used for the amount actually produced.

B.

This answer results from calculating the amount of variable overhead applied by multiplying the predetermined rate by the amount of machine hours planned to be used for the planned output. However, under standard costing -- which is being used here because the problem tells us that overhead is applied based on planned machine hours -- overhead to be applied is calculated by multiplying the predetermined rate by the amount of (in this case) machine hours that should have been used for the amount actually produced.

C.

This answer results from two errors:

(1) Calculating the amount of variable overhead applied by multiplying the predetermined rate by the amount of machine hours planned to be used for the planned output. However, under standard costing -- which is being used here because the problem tells us that overhead is applied based on planned machine hours -- overhead to be applied is calculated by multiplying the predetermined rate by the amount of (in this case) machine hours that should have been used for the amount actually produced.

(2) Reversing or misinterpreting the calculation of the variance amount. The variance is the actual variable overhead incurred minus the variable overhead applied. Because overhead is a cost, a positive result is an unfavorable variance, and the variable overhead was underapplied (less was applied than was incurred). A negative result is a favorable variance, and the variable overhead was overapplied (more was applied than was incurred).

D.

Nanjones applies overhead based on planned machine hours using a predetermined annual rate. The amount of planned variable manufacturing overhead was $2,400,000 and amount of planned machine hours were 240,000. Thus, the application rate for variable manufacturing overhead was $10 per hour ($2,400,000 /

Part 1 : 02/11/15 08:14:19


240,000).

Under standard costing -- which is being used here because the problem tells us that overhead is applied based on planned machine hours -- overhead to be applied is calculated by multiplying the predetermined rate by the amount of (in this case) machine hours that should have been used for the amount actually produced. The problem tells us that the planned machine hours based on output was 21,000, and therefore, the amount of variable overhead applied was $10 21,000, or $210,000. The actual variable overhead incurred was $214,000. Therefore, variable manufacturing overhead was underapplied by $4,000.

Question 15 - CIA 1196 3.87 - Joint Products and Byproducts

A. This alternative is incorrect because it describes scrap, whereas a by-product provides sales value to the manufacturer.

B. This alternative is incorrect because the physical volume of the by-product may be significant.

C. This is the correct reason for treating a product generated from a joint process as a by-product.

D. A by-product may be developed into a main product. Some manufacturers choose not to develop a by-product into a main product due to the lack of facilities, cost, lack of fit with other main products, etc. However, this does not preclude others from taking the by-product and developing it into a salable finished product (for example, sawdust and wood chips manufactured into particle board).

Question 16 - CMA 690 4.3 - Overhead Allocation

A. This is the total cost of manufacturing. Cost of goods manufactured is total manufacturing costs adjusted for the change in work-in-process inventory.

B. This is the cost of goods sold. Cost of goods sold is beginning finished goods inventory + cost of goods manufactured ending finished goods inventory. The question asks only for the cost of goods manufactured.C.

Cost of goods manufactured is total manufacturing costs adjusted for the change in work-in-process inventory. Total manufacturing costs are total prime costs (direct materials used + direct labor used) + manufacturing overhead applied. We are told that the direct labor was $300,000 but will need to calculate the direct materials used and the manufacturing overhead applied for January.

The beginning direct materials inventory was $134,000. During the period, they purchased $189,000 of direct materials and also incurred $3,000 in transportation in costs. However, they also returned $1,000 of direct materials during the period. Adding these together we can calculate the total direct materials available during January as $325,000. Since there was an ending inventory of $124,000, they must have used $201,000 of direct materials during the period.

Overhead is applied as 60% of direct labor, which totals $180,000 ($300,000 60%). Adding the prime costs (direct materials and direct labor) plus the overhead, we get $681,000 of total manufacturing costs. Work-in-process inventory increased during the period by $16,000. This means that $16,000 of the work performed during the period was in ending work-in-process inventory and not finished goods inventory, so this amount needs to be subtracted from the total manufacturing cost to calculate the cost of goods manufactured. The cost of goods manufactured is $681,000 $16,000, or $665,000.

Part 1 : 02/11/15 08:14:19


Another way to calculate the cost of goods manufactured is to use the beginning and ending WIP inventory balances instead of the amount of change. Beginning WIP inventory was $235,000. Cost of manufacturing was $681,000. Ending WIP Inventory was $251,000. Cost of goods manufactured is beginning WIP inventory of $235,000 plus cost of manufacturing of $681,000 minus ending WIP Inventory of $251,000, which is $665,000.

D.

The question asks for cost of goods manufactured. This answer results from an incorrect calculation of cost of goods sold. Cost of goods manufactured is one component in the calculation of cost of goods sold.

Cost of goods sold is beginning finished goods inventory + cost of goods manufactured ending finished goods inventory. This answer results from turning around beginning and ending finished goods inventory in the calculation of cost of goods sold. This is ending finished goods inventory + cost of goods manufactured beginning finished goods inventory. The question asks only for cost of goods manufactured.

Question 17 - CMA 691 3.16 - Shared Service Cost Allocation

A. This is the amount of maintenance costs allocated to the assembly department, not the total service costs allocated to the assembly department.

B.

This is not the correct answer. Please see the correct answer for a complete explanation.


C. Under the direct method the service department costs are not allocated to other service departments. As such, we need to make certain that when we determine the ratio to allocate the costs to the production departments, we do not include the usage by the other service departments. In order to allocate the costs of the quality control department to assembly, we need to determine what percentage of the quality control time that was used by the production departments was used by assembly. Assembly used QC 7,000 hours and machining used QC 21,000. Thus, assembly will get 25% (7,000 28,000), or $87,500 of the QC costs. Assembly used the maintenance department a total of 12,000 hours and machining used maintenance for 18,000 hours. Thus, assembly will get 40% (12,000 30,000) of the maintenance costs, or $80,000. In total, therefore, the assembly department received $167,500 in costs allocated from the service departments.

D. This is the amount of quality control costs allocated to the assembly department, not the total service costs allocated to the assembly department.

Question 18 - CMA 691 3.48d - Job-Order and Operation Costing

A.

The 3,000 Deluxe units are 100% complete as to materials, 100% complete as to Extrusion Operation costs, and 100% complete as to Form Operation costs. However, 1,000 of the 3,000 units are only 60% complete as to Trim Operation costs.

Part 1 : 02/11/15 08:14:19


The costs per unit for the Deluxe model are as follows:

Materials (all units are 100% complete as to materials):

Extrusion materials: Total costs $36,000 3,000 units produced = $12 per unitForm materials: Total costs $12,000 3,000 units produced = $4 per unit Trim materials: Total costs $9,000 3,000 units produced = $3 per unit

Conversion costs:

In calculating conversion costs per unit, we must use the total costs of each operation (for all models) and the total number of units of all models that went through each operation, because we do not have the costs broken down by model.

Extrusion operation: Total costs $392,000 to produce 16,000 units = $24.50 per unit Forming operation: Total costs $132,000 to produce 11,000 units = $12.00 per unit Trim operation: Total costs $69,000 to produce 4,600 units (calculated as follows: 2,000 complete Executive units + 2,000 complete Deluxe units + 600 Deluxe equivalent units [60% of 1,000 partially complete Deluxe units]) = $69,000 4,600 units = $15.00 per equivalent unit.

Total costs in EWIP inventory for 1,000 Deluxe units that are 100% complete as to materials, 100% complete as to extrusion and form operations, and 60% complete as to trim operation are:

Materials: ($12 + $4 + $3) 1,000 units = $19,000 Conversion costs: ($24.50 1,000) + ($12.00 1,000) + ($15.00 600) = $45,500 Materials costs of $19,000 + Conversion costs of $45,500 = Total cost of $64,500.

B. This is the total conversion cost of the finish operation.

C. This answer results from calculating the per unit conversion cost in the Trim operation by dividing the total costs of $69,000 by the 5,000 units of Deluxe chairs worked on and then multiplying the per unit conversion cost by the 1,000 units in ending WIP inventory. However, the 1,000 units in ending WIP inventory were only 60% complete as to Trim operations. Therefore, the number of units in the divisor for the calculation of per unit cost is incorrect, and it is incorrect to multiply that per unit Trim operations cost by 1,000 units to calculate the ending WIP inventory.

D. This is the total conversion cost of the trim operation.


A. This is the number of equivalent units started and completed plus the number of equivalent units in ending work-in-process inventory for conversion costs. The numbe of equivalent units that were completed during the month from the incomplete units in beginning work-in-process inventory should be included in the total equivalent units for the month, also.

B. This answer does not treat beginning WIP properly and ignores ending WIP. The number of equivalent units completed during the month from the units in beginning WIP inventory should be 100% of the number of physical units in BWIP minus the percentage complete that the beginning WIP inventory was for conversion costs at the beginning of the month. The number of equivalent units in ending WIP inventory for conversion costs should be the percentage complete that the ending inventory was for conversion costs multiplied by the number of physical units in ending WIP inventory.

C.

There are three calculations that we need to make under FIFO in order to calculate the EUP for conversion

Part 1 : 02/11/15 08:14:19


costs: (1) Calculate the EUP to finish BWIP, (2) determine the number of units that were started and completed, and (3) calculate the number of EUP to start EWIP. ConversionCosts Completion of BWIP 400 Started & Completed 3,000 Starting of EWIP 400 Total EUP-FIFO 3,800

In order to finish BWIP, 400 EUP were required (40% of 1,000, because BWIP consisted of 1,000 units that were already 60% complete). A total of 3,000 units were started and completed (this is given in the question). There were 400 EUP to start EWIP (20% of 2,000 units). 400 + 3,000 + 400 = 3,800 EUP of conversion costs under FIFO.

D. This is the total equivalent units for conversion costs using the Weighted Average cost flow assumption. The problem asks for the equivalent units for conversion costs using FIFO.


A. This answer results from allocating all of the cost of the spoiled units to the units completed and transferred out. The units in ending WIP were 80% complete as to conversion activities, and inspection takes place when the units are 70% cmplete. Since the units in ending WIP have gone through the inspection, a portion of the spoilage must be allocated to the units in ending WIP.

B.



C.



D.

The spoilage is all normal spoilage. The number of units considered normal spoilage is 4% of units inspected. The total number of units inspected during the month was all of the units in beginning work-in-process inventory (20,000) plus all of the units transferred in during the month (180,000), or 200,000. 4% of 200,000 is 8,000 units, and since only 5,000 units were spoiled, all of those units are normal spoilage.

The 25,000 units in EWIP were 80% complete as to conversion activities. Inspection takes place when the

Part 1 : 02/11/15 08:14:19


units are 70% complete, before the direct materials are added. Therefore, a portion of the normal spoilage must be allocated to the good units transferred out, and a portion of it must be allocated to the good units in ending work-in-proocess inventory. The allocation of the normal spoilage is as follows: Good units transferred out 170,000 87% Good units in EWIP 25,000 13% Total good units 195,000

The allocation of the normally spoiled units between completed units and EWIP is as follows:

Good, completed units transferred out: 87% of 5,000 = 4,350 EUP

Good units in ending WIP: 13% of 5,000 = 650 EUP

Calculation of Equivalent Units of Production: Transferred-InUnits

Direct MaterialsAdded

Conversion CostsAdded

Completion of BWIP 0 1 20,000 5 8,000 9 Started & Completed 150,000 2 150,000 6 150,000 10 Starting of EWIP 25,000 3 25,000 7 20,000 11 Normal Spoilage-completed units 4,350 4 0 8 3,045 12 Normal Spoilage-EWIP 650 4 0 8 455 12 Total EUP - FIFO 180,000 195,000 181,500

Calculation of cost per EUP for the allocation of costs added: Transferred-in

DirectMaterials

ConversionCosts

Costs added $360,000 $156,000 $326,700 Total EUP-FIFO 180,000 195,000 181,500 Cost per EUP $2.00 13 $0.80 14 $1.8015

Costs allocated to good, completed units transferred out: Transferred-In

DirectMaterials

ConversionCosts Total

Costs in BWIP (100% to completed units) $ 23,000 $ 0 $55,000 Costs added, allocated to completed units) 308,70016 136,00017 289,88118 Total Costs $331,700 $136,000 $344,881 $812,581

1 The units in BWIP were received last period, and the work done on them when received was 100% complete. Therefore, completion of BWIP for transferred-in units is zero.

2 180,000 units transferred in minus 25,000 units in EWIP minus 5,000 spoiled units. The units started and completed were 100% complete as to the work done on them in the previous departments.

3 The 25,000 transferred-in physical units in EWIP at the end of the period were 100% complete as to the work done on them in the previous departments.

4 The normally spoiled transferred-in units were 100% complete as to the work done on them in the previous departments. 87% of the spoilage is allocated to the good units, or 5,000 0.87 = 4,350.

5 Direct materials are added when the units are 70% complete as to conversion costs. The units in BWIP were only 60% complete. Therefore, 100% of the direct materials were added to those units during the current

Part 1 : 02/11/15 08:14:19


period.

6 180,000 units transferred in minus 25,000 units in EWIP minus 5,000 spoiled units. The units started and completed were 100% complete as to the materials added to them in this department in the current period.

7 The 25,000 units remaining in EWIP at the end of the period were 80% complete as to conversion activities. Direct materials are added when the units are 70% complete. Therefore, 100% of the direct materials had been added to the units in ending WIP inventory.

8 Inspection takes place immediately before the direct materials are added. Therefore, there can be no spoiled direct materials in the units in ending WIP inventory.

9 The 20,000 units in BWIP were 60% complete as to conversion costs. Therefore, 40% of the conversion costs needed to be added to those units during the current period. 20,000 0.40 = 8,000 EUP.

10 180,000 units transferred in minus 25,000 units in EWIP minus 5,000 spoiled units. The units started and completed were 100% complete as to conversion costs added to them in this department in the current period.

11 The 25,000 units remaining in EWIP at the end of the period were 80% complete as to conversion costs. 25,000 0.80 = 20,000 EUP.

12 Units are inspected when they are 70% complete with respect to conversion. 5,000 units were found to be defective, and at that point, they had had 70% of their conversion costs added. 5,000 0.70 = 3,500 EUP of normally spoiled conversion costs. This 3,500 is pro-rated between completed units and EWIP: 87% to completed units and 13% to EWIP. 3,500 0.87 = 3,045 and 3,500 0.13 = 455.

13$360,000 180,000 EUP

14$156,000 195,000 EUP

15$326,700 181,500 EUP

16 (150,000 + 4,350) $2.00 = $308,700.

17 (20,000 + 150,000) $0.80 = $136,000.

18 (8,000 + 150,000 + 3,045) $1.80 = $289,881.


A. This was calculated using 65,000 as the total equivalent units of production for both direct materials and conversion costs. That is the total of the number of units completed plus the number of equivalent units for conversion costs in ending work-in-process inventory based on 25% completion. The number of equivalent units for direct materials in ending work-in-process inventory is different, because the materials are added at the start of the process.

B.

Total materials cost to be allocated under the weighted average method is $40,000 in beginning WIP + $700,000 added during the month = $740,000.

Total conversion cost to be allocated under the weighted average method is $32,500 in beginning WIP + $617,500 added during the month = $650,000.

Part 1 : 02/11/15 08:14:19


For direct materials, the total number of equivalent units using the weighted average method was 60,000 units completed plus the 20,000 (100% complete) units in ending WIP inventory, for a total of 80,000 equivalent units. The units in ending WIP inventory are 100% complete as to direct materials because all materials are introduced at the start of the manufacturing process.

For conversion costs, the total number of equivalent units under the weighted average method was 60,000 units completed plus the 5,000 equivalent units (20,000 units, 25% complete) to start ending work-in-process inventory, for a total of 65,000 equivalent units.

The costs per equivalent unit are:

Direct materials: $740,000 80,000 EUP = $9.25.Conversion costs: $650,000 65,000 EUP = $10.00.

The costs of the completed units are:

Direct materials: $9.25 60,000 = $555,000Conversion costs: $10.00 60,000 = $600,000Total costs of completed units: $555,000 + $600,000 = $1,155,000

The costs in ending work-in-process inventory are:

Direct materials: $9.25 20,000 = $185,000Conversion costs: $10.00 5,000 = $50,000Total costs of units in ending work-in-process inventory: $185,000 + $50,000 = $235,000

C. This is an allocation of only the costs added during the month. It does not include the costs in beginning work-in-process inventory.

D. This was calculated using 80,000 as the total equivalent units of production for both direct materials and conversion costs, which is the total of the number of units completed plus the number of units in ending work-in-process inventory. This does not take into consideration the state of completion of the ending work-in-process inventory.


A. This is the cost per equivalent unit using the weighted average method.

B. This answer results from dividing the conversion costs incurred during the period by the total equivalent units of production calculated using the weighted average method instead of FIFO.

C.

Under the FIFO method of process costing we need to make three calculations to determine the equivalent units of production. These are: calculate (1) how many EUP were required to finish BWIP, (2) how many units were started and completed and (3) how many EUP were needed to start the EWIP. There were 16,000 units in BWIP and they were 20% complete for conversion costs, meaning that they needed to do 80%, or 12,800 EUP to finish BWIP. There were a total of 76,000 units started and completed during the period (92,000 completed minus the 16,000 in BWIP). There were 24,000 units in EWIP that were 40% complete for conversion costs, meaning that 9,600 EUP of conversion costs had been done on the EWIP. Adding these three numbers together, we get 98,400 units. ConversionCosts Completion of BWIP 12,800 Started & Completed 76,000

Part 1 : 02/11/15 08:14:19


Starting of EWIP 9,600 TOTAL EUP-FIFO 98,400

The conversion costs added during the period were $182,880 in direct labor costs and $391,160 in overhead costs, for a total of $574,040. The conversion costs of $574,040 divided by the equivalent units of production for conversion costs of 98,400 equals the equivalent unit conversion cost of $5.83.

D. This is the total conversion costs in both beginning work-in-process inventory and those incurred during the period, divided by the number of equivalent units under FIFO. When FIFO costing is used, the costs in beginning WIP inventory are allocated 100% to completed units, so those costs are not included in the calculation of the cost per equivalent unit that is used to allocate the costs incurred during the period between completed units and units in ending WIP inventory.


A. This is the definition of overhead, and conversion costs include more than just overhead.

B. Manufacturing costs include direct materials, which are not included in conversion costs.

C. This is the definition of prime costs.

D. By definition, conversion costs are the costs of direct labor and factory overhead. It is the cost of converting the raw materials to the finished goods.

Question 24 - ICMA 10.P1.183 - Joint Products and Byproducts

A. This answer results from using the physical unit method to allocate the total cost instead of the sales value at splitoff method.

B. This answer results from dividing the cost to be allocated to Big by the total number of gallons produced of both Big and Mini to calculate the cost per gallon. The cost to be allocated to Big should be divided by the number of gallons of Big produced only to calculate the cost of Big per gallon.

C. The joint cost to be allocated is $2,000 to purchase the direct materials and $3,000 to process it, for a total of $5,000. Using the sales values at splitoff, the sales values are:

Big: $9 800 gal. = $7,200Mini: $4 200 gal. = $800Total sales value: $7,200 + $800 = $8,000

Bigs proportionate share of the cost is $7,200 $8,000, or 90%Minis proportionate share of the cost is $800 $8,000, or 10%

Total costs allocated to Big:

$5,000 total cost 0.90 = $4,500 for 800 gallons.The cost per gallon for Big is $4,500 800 gallons, which is $5.625 per gallon, or $5.63 rounded to the nearest cent.

D. This answer results from allocating only the processing cost of $3,000. The total cost, including the purchase cost and the processing cost, should be allocated.

Part 1 : 02/11/15 08:14:19


Question 25 - CMA 690 4.6 - Joint Products and Byproducts

A. In order to allocate the costs using the physical quantity method, we need to know the total physical quantity. There are 60,000 units of MSB and 90,000 units of CBL. There are 150,000 total units and CBL represents 60% of the total units. The joint costs are $300,000 and CBL should be allocated 60%, or $180,000, of the joint costs.

B. This is how much would be allocated to CBL if the allocation was done using the sales value of the products.

C. This is how much would be allocated to MSB if the allocation were done using the sales value of the products.

D. This is how much should be allocated to MSB using the physical units as the basis of allocation.


A. A direct cost is a cost that can be specifically attributed to the cost object. The rent for a warehouse is not directly traceable to the purchasing department because other departments (for example, the production departments) also have control over how much inventory is held.

B. A direct cost is a cost that can be specifically attributed to the cost object. The board of directors fees are not directly traceable to the Marketing Department so they are not a direct cost of the Marketing Department.

C. A direct cost is a cost that can be specifically attributed to the cost object. The accountant is not a direct cost when the cost object is a unit of product.

D. The supervisor's salary would be a fixed cost and when looking at the production department, this is a direct cost since the cost can be associated with the cost object (the production department).


A. Because only a single product is produced, there is no need to use job-order costing.

B. Because only a single product is produced, there is no need to use activity-based costing.

C. Because only a single product is produced, there is no need to use operation costing, which is a combination of process costing and job-order costing. In this method of costing, a company applies the basic operation of process costing to a production process that produces batches of items. These different batches all follow a similar process, but the direct materials that are input to each batch are different. If the company produces only one product, every batch use the same direct materials.

D. Process costing is used in a mass production process.

Question 28 - CIA 1187 IV.9 - Variable and Absorption Costing

A. Because fixed manufacturing costs are a necessary part of production, one can argue that they should be

Part 1 : 02/11/15 08:14:19


included in the cost of a unit produced.

B. Fixed factory overhead is expensed under direct (or variable) costing and is not allocated.

C. Variable factory overhead is a product cost, not a period cost, under direct (or variable) costing.

D. The fact that absorption costing overstates inventory is an argument in favor of direct (or variable) costing.


A.



B. This is the number of equivalent units for conversion costs in BWIP at the beginning of the month, plus the number started and completed, plus the number of equivalent units in ending work-in-process inventory at month end. The number of equivalent units in BWIP is not included in the total equivalent units when FIFO is used; however, the number of equivalent units in BWIP that were completed during the month is included. That number was 25% of the number of physical units, since the units in beginning work-in-process inventory were 75% complete for conversion costs at the beginning of the month.

C. The equivalent units of production for conversion costs using the first-in, first-out (FIFO) method are: ConversionCostsCompletion of BWIP 2,500 Started & Completed 80,000 Starting of EWIP 4,800 Total EUP - FIFO 87,300

When FIFO is being used, the units in beginning work-in-process inventory are not included in the total equivalent units used to allocate the added costs between units completed and units in ending work-in-process inventory. That is because the costs in beginning work-in-process inventory are allocated 100% to completed units. Only the costs added during the period are allocated between completed units and EWIP according to equivalent units during the period.

The 10,000 units in BWIP were 75% complete as to conversion costs, so 25% of the work or 2,500 EUP remained to be done in the current period. The number of units started and completed is equal to the number of units completed (90,000, given in the problem) minus the number of physical units in BWIP (10,000, also given in the problem), or 80,000 EUP. The number of EUP in EWIP is 60% of the 8,000 units in EWIP, or 4,800 EUP. Therefore, total equivalent units of production under FIFO are 2,500 + 80,000 + 4,800 = 87,300.

D.

This is the number of units started and completed plus the number of physical units in ending work-in-process inventory. It is also the total number of units started during the month.

The number of equivalent units of production for conversion costs is the number of equivalent units in BWIP that were

Part 1 : 02/11/15 08:14:19


completed during the month, plus the number started and completed, plus the number of equivalent units in ending work-in-process inventory.

The number of equivalent units of production in beginning work-in-process inventory that were completed during the month is 25% of the number of physical units, since those units were 75% complete for conversion costs at the beginning of the month. The number of equivalent units in ending work-in-process inventory is 60% of the number of physical units in ending work-in-process inventory, since those units were 60% complete for conversion costs at the end of the month.

Question 30 - CIA 594 III.77 - Shared Service Cost Allocation

A. The question asks for the amount of Power Department costs that will be allocated to the Maintenance Department. This answer is an allocation of the Maintenance Department's costs, based on the number of kilowatt hours of power used by the Maintenance Department as a percentage of the total kilowatt hours of power used. The correct answer is an allocation of the Power Department's costs, based on the number of kilowatt hours of power used by the Maintenance Department as a percentage of the total kilowatt hours of power used.

B.

Under the step method the costs of the service departments are allocated one by one. The costs of a service department will be allocated to the production department and to any service department whose costs have not yet been allocated. We are told that the service department that receives the least services from the other service department will be allocated first.

The Power Department uses 250 of the total 2,500 maintenance hours provided (250 hours used by Power + 1,125 hours used by Machining + 1,125 hours used by Assembly), so Power uses 10% of the total hours of service provided by Maintenance.

The Maintenance Department uses 50,000 of the total 250,000 kilowatt hours provided (50,000 kilowatt hours used by Maintenance + 150,000 kilowatt hours used by Machining + 50,000 kilowatt hours used by Assembly), so Maintenance uses 20% of the total kilowatt hours provided by the Power Department.

Therefore, we need to allocate the Power Department's costs first since it uses only 10% of the Maintenance Department work, whereas the Maintenance Department uses 20% of the power. So, the costs of the Power Department need to be allocated to the Maintenance Department and the production departments. In total, the Power Department provided 250,000 kilowatt hours and the Maintenance Department used 50,000, or 20% of those hours. The Maintenance Department will then receive 20%, or $12,500 of the Power Department's costs of $62,500.

C. This answer results from allocating the Power Department's costs to the Maintenance Department on the basis of the percentage of total maintenance hours used by the Power Department. The Power Department's costs should be allocated to the Maintenance Department on the basis of the number of kilowatt hours of power used by the Maintenance Department as a percenetage of the total kilowatt hours of power used.

D. Under the step method some service department costs are allocated to the other service departments. Since the Power Department receives less 'service' from the Maintenance Department than it provides to the Maintenance Department, the Power Department's costs are allocated fir

cma part 1 mock 2

Documents

Transcript of cma part 1 mock 2