Managerial Accounting


Managerial Accounting focuses heavily on finding solutions to numerical problems.  With that in mind, most units will include a number of problems. For each problem, you will need to provide more than a simple numerical response. Your solutions should thoroughly address the issue and present the findings in a meaningful format similar to those developed within the chapters and as part of the review exercises solutions. Part value may be assigned for incorrect responses.

Question 1: (40 marks)

Stark and Company would like to evaluate one of the product lines that they sell to the defense department. Every month the Stark and Company produce an identical number of units, although the sales in units differ from month to month.

Selling price


Units in beginning inventory


Units produced


Units sold


Units in ending inventory


Variable costs per unit:

Direct materials


Direct labour


Variable manufacturing overhead


Variable selling and administrative


Fixed costs:

Fixed manufacturing overhead


Fixed selling and administrative



1)     Under variable costing, identify the unit product cost for the month.

2)     What is the unit product cost for the month under absorption costing?

3)     Prepare an income statement for the month using the contribution format and the variable costing method.

4)     Prepare an income statement for the month using the absorption costing method.

Question 2: (12 marks)

The following information pertains to Death Star Corporation for a period:

Selling price per unit


Standard fixed manufacturing costs per unit


Variable selling and administrative costs per unit


Fixed selling and administrative cost per unit


Beginning inventories:



Standard fixed manufacturing cost


Standard variable manufacturing cost


Units produced


Units sold



1)     Assume the unit standard costs data for the beginning and ending inventories remained constant during the period. What was the total standard cost of the ending inventory under absorption costing?

Question 3: (30 marks)

DC and Marvel would like to evaluate one of the product lines that they sell to defense department. Every month the Stark and Company produce an identical number of units, although the sales in units differ from month to month.

Selling price



Units in beginning inventory



Units produced



Units sold



Variable costs per unit:

Direct materials



Direct labour



Variable manufacturing overhead



Variable selling and administrative



Fixed costs:

Fixed manufacturing overhead



Fixed selling and administrative




1)     Compute the total Contribution Margin.

2)     Compute the Operating Income under Variable Costing.

3)     Prepare a reconciliation from your Variable Costing Operating Income to compute Operating Income under absorption costing.

Question 4: (18 marks)

Stark and Company’s has following cost data:

Systems development


Final product testing and inspection

$1 2,000

Quality data gathering, analysis, and reporting

$ 9,000

Net cost of scrap


Returns arising from quality problems


Amortization of test equipment


Rework labour and overhead


Test and inspection of incoming materials


Product recalls



1)     Determine the prevention cost?

2)     Determine Total appraisal cost?

3)     Determine the total internal failure?


Managerial Accounting

1. Briefly discuss the purpose and role that each type of financial institutions (depositary, contractual, and investment) play in the U.S. economy. How do each of these institutions intersect with the various types of markets, i.e., capital, money, spot (cash), derivatives, Forex and Interbank, primary, and secondary (inclusive of OTC)?

2. Select a publicly traded firm of your choice that enjoys a large shareholder base. What challenges may this firm have encountered (or is likely to encounter) in terms of (a) incorporating ethics into financial management practices, and (b) maintaining/sustaining ethical practices in the face of internal or external (market) pressures? What would you do if you encountered an unethical situation at work? Frame your response relative to the financial manager’s fiduciary duty to maximize shareholder’s wealth.

Managerial Accounting

Question 1

Josh Donaldson is employed by Bringer of Rain Inc. and is directly involved in preparing and packaging the MLB official baseballs. The basic wage rate is $15 per hour and he is paid time-and-a-half for any work in excess of 40 hours per week. Additionally, Bringer of Rain Inc. provides a fringe benefit package that costs the company $5 for each hour of employee time (regular or overtime). During a recent week, Donaldson worked 49 hours but was idle for 3 hours due to a materials shortage.

Assume that Bringer of Rain Inc. treats all fringe benefits as part of manufacturing overhead. Compute Donaldson’s total wages and fringe benefits for the week and indicate how much of his wages and fringe benefits for the week would be allocated to direct labour and how much would be allocated to manufacturing overhead.

Question 2

Prepare a schedule of cost of goods manufactured in good form.

The following costs relate to one month’s activity in Nutcracker Company:

Indirect materials


Rent on factory building


Maintenance of equipment


Direct material used


Utilities on factory


Direct labour


Selling expense


Administrative expense


Work-in-process inventory, beginning


Work-in-process inventory, ending


Finished goods inventory, beginning


Finished goods inventory, ending


Question 3

Suppose that you have been given a summer job as an intern at Electronic Waves, a company that manufactures portable two-way radio transceivers for radio enthusiasts. The privately owned company has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs.

Classify the following lists of costs as either product (inventoriable) costs or period (non-inventoriable) costs for purposes of preparing the financial statements for the bank.



Period Cost

Depreciation on salespersons’ cars.

Salaries of personnel who work in the finished goods warehouse.

Rent on equipment used in the factory.

Lubricants used for machine maintenance.

Soap and paper towels used by factory workers at the end of a shift.

Factory supervisors’ salaries.

Heat, water, and power consumed in the factory.

Materials used for boxing company products for shipment overseas. (Units are not normally boxed.)

Advertising costs.

Workers’ Compensation Insurance for factory employees.

Depreciation on chairs and tables in the factory lunchroom.

The cost of packaging the company’s product.

The wages of the receptionist in the administrative offices.

Cost of leasing the corporate jet used by the company’s executives.

The cost of renting rooms at a British Columbia resort for the annual sales conference.

Question 4

Last month Mont Tremblant Biking, a mountain sporting goods retailer, had total sales of $3,200,000, selling expenses of $110,000, and administrative expenses of $470,000. The company had beginning merchandise inventory of $140,000, purchased additional merchandise inventory for $2,550,000, and had ending merchandise inventory of $180,000.

Prepare an income statement for the company for the month.

Question 5

The Trump International Hotel & Tower is a five-star hotel located in downtown Toronto. The hotel’s operations vice president would like to replace the hotel’s legacy computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, consume less power than the old computer terminals, and provide additional security since they can be viewed only from a restrictive angle. The new computer displays would not require any new wiring. However, the hotel’s chef believes the funds would be better spent on a new bulk freezer for the kitchen.

Classify each item as a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel displays. If none of the categories apply for a particular item, select “None.”


Differential Cost

Opportunity Cost

Sunk Cost


Cost of the old computer terminals

Cost of existing registration desk wiring

Rent on the space occupied by the registration desk

Wages of registration desk personnel

Benefits from a new freezer

Costs of maintaining the old computer terminals

Cost of removing the old computer terminals

Cost of the new flat-panel displays

Managerial Accounting

Below is a link to an article from CFO Magazine. (Links to an external site.)Links to an external site.

(if the link does not work, just copy and paste it into your browser)

The article provides the details of a fraud committed by a CFO.  Please read the article and answer Two of the following questions:

  1. Copy one of the comments and indicate whether you agree or disagree with it. Explain why.
  2. Explain the importance of ethics in the workplace.
  3. Have you or someone you know (you may keep that private) been in a position where you felt pressure to do something you felt uncomfortable about? What were the ramifications of the decision that was made? Do you currently agree with the action?  Why or why not?