Online Take Home Mid-trimester Exam T120
Management Accounting ACC202
1. This examination consists of section A: 5 multiple choice questions (worth 5 marks), section B: Case study (worth 10 marks) and section C: Case study (worth 5 marks).
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Section A: 5 multiple choice questions worth 1 mark each. (5marks total)
1. For Echuca Ltd sales are $ XXXXXXXXXX, profit is $90 000, invested capital is $ XXXXXXXXXXand the interest rate is 8 per cent. What is the residual income for the year?
A. ($30 000)
B. $54 000
C. $82 800
D. $36 000
2. Transfer prices should not be based on actual costs because:
A. inefficient producing divisions have higher costs of production, which would be passed on by buying divisions.
B. producing divisions have no incentives to control costs.
C. inefficient units with high costs of production have no opportunity for profit.
D. inefficient producing divisions have higher costs of production, which would be passed on by buying divisions AND producing divisions have no incentives to control costs.
3. The Wonderlust Retail Company Ltd experiences relatively constant demand of XXXXXXXXXXunits per year for one of its products. The product, a coffee-making machine, costs the firm $30. Placing an order costs $200 and annual ca
ying costs are $2 per unit. The firm works 200 days per year and desires a safety stock of 300 units. The lead time for an order is 15 working days. The economic order quantity for Wonderlust is:
A. 1549.
B. 3098.
C. 2191.
D. 2221.
4. Which of the following statements regarding management accounting information is false?
A. The cost of providing the information must be considered in the light of the benefits received from the information.
B. All information derived is necessary despite the cost.
C. The information entails both costs and benefits.
D. The cost of the information includes the time spent by the user to read, understand and use the information.
5. Which of the following characteristics do merchandisers have?
i. They trade in physical products.
ii. They do not hold inventories.
iii. They purchase goods for resale.
iv. Their outputs have low customisation.
A. All the given answers
B. i, ii and iii
C. i, iii and iv
D. ii, iii and iv
Section B: Case study worth 10 marks.
ChalkTalk Ltd manufactures blackboard chalk for educational use. The company’s product is sold by the box at $50 per unit. ChalkTalk uses an actual costing system, which means that the actual cost of direct material, direct labour and manufacturing overhead are entered into work in progress inventory. The actual application rate for manufacturing overhead is calculated each year; actual manufacturing overhead is divided by actual production (in units) to calculate the actual manufacturing overhead rate.
Information for ChalkTalk’s first two years of operation is as follows:
Year 1
Year 2
Sales (in units)
2 500
2 500
Production (in units)
3 000
2 000
Production costs:
Variable manufacturing costs
$21 000
$14 000
Fixed manufacturing overhead
$42 000
$42 000
Selling and administrative costs:
Variable
$25 000
$25 000
Fixed
$20 000
$20 000
ChalkTalk had no beginning or ending work in progress inventories for either year. However, the following information relate to finished goods inventory.
Based on absorption costing
End of year 1
End of year 2
Finished goods inventory
$10 500
$0
Based on variable costing
End of year 1
End of year 2
Finished goods inventory
$3 500
$0
Required:
1. Prepare income statements for both years based on absorption costing.
1. Prepare income statements for both years based on variable costing.
1. Reconcile reported profit under absorption and variable costing, for each year by comparing the following two amounts on each income statement.
2. Cost of goods sold
2. Fixed cost (expensed as a period expense).
1. What was ChalkTalk’s total profit across both years under
3. Absorption costing
3. Variable costing
Section C: Case study worth 5 marks.
The unethical use of accounting information.
ABC learning was Australia’s-and one of the world’s largest-providers of early childhood educational services until it collapsed spectacularly in the late 2000s, when it came to light that its reported financial success was built on a number of questionable accounting practices.
Required:
In 500 words summarise the unethical accounting practices utilised by ABC Learning’s accountants and state which of the principles set out in the Australian Accounting Professional and Ethical Standard board’s Code of Ethics for Professional Accountants did each of these actions contravene