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CMA Part 1 Essay Practice Questions(二)

发布时间:2017-03-03 10:05 -阅读数: -文章来源:这是默认来源
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Question 1.4 Smart Electronics: Smart Electronics manufactures two types of gaming consoles, Models M-11 and R-24. Currently, the company allocates overhead costs based on direct labor hours; the total overhead cost for the past year was 8......
Question 1.4 – Smart Electronics:
 
Smart Electronics manufactures two types of gaming consoles, Models M-11 and R-24. Currently, the company allocates overhead costs based on direct labor hours; the total overhead cost for the past year was €80,000. Additional cost information for the past year is presented below.
 
 
 
Product Name
Total Direct Labor Hours Used  
 
Units Sold
 
Direct Costs per Unit
 
Selling Price per Unit
M-11 650 1,300 €10 €90
R-24 150 1,500 €30 €60
 
Recently, the company lost bids on a contract to sell Model M-11 to a local wholesaler and was informed that a competitor offered a much lower price. Smart’s controller believes that the cost reports do not accurately reflect the actual manufacturing costs and product profitability for these gaming consoles. He also believes that there is enough variation in the production process for Models M-11 and R-24 to warrant a better cost allocation system. Given the nature of the electronic gaming market, setting competitive prices is extremely crucial. The controller has decided to try activity-based costing and has gathered the following information.
 
 
 
 
Number of Setups
Number of Components Number of Material Movements
M-11 3 17 15
R-24 7 33 35
Total activity cost €20,000 €50,000 €10,000
 
The number of setups, number of components, and number of material movements ghave been identified as activity-cost drivers for overhead.
 
REQUIRED:
           
1.      Using Smart’s current costing system, calculate the gross margin per unit for Model M-11 and for Model R-24. Assume no beginning or ending inventory. Show your calculations.
 
2.      Using activity-based costing, calculate the gross margin for Model M-11 and for Model R-24. Assume no beginning or ending inventory. Show your calculations.
 
3.      Describe how Smart Electronics can use the activity-based costing information to formulate a more competitive pricing strategy. Be sure to include specific examples to justify the recommended strategy.
 
4.      Identify and explain two advantages and two limitations of activity-based costing.
 
 
 

Question 1.5 – Ace Contractors
 
Ace Contractors is a large regional general contractor. As the company grew, Eddie Li was hired as the controller and tasked with analyzing the monthly income statements and reconciling all of the accounts formerly handled by Susan Zhao, the sole accounting associate. Li noticed a large amount of demolition expense for February, even though no new projects had started over the past few months. Since Li did not expect such a large amount of demolition expense, nor was any of this type of expense budgeted, Li dug a little deeper. He found that all of those expenses were bank transfers into another bank account. After additional research, it became evident that Zhao had been transferring funds out of the company bank account and into her own, and recording fake expenses to make the bank account reconciliation work. While the president kept the prenumbered checks locked up until check run time and signed all of the outgoing checks, he was unaware of the ability to initiate transfers via the internet. Li had also reviewed the bank reconciliations, which were completed by the office manager, and this fraud was not evident since the ending balance was reasonable.
 
REQUIRED:
 
1.      a.   Identify and explain the four types of functional responsibilities that should be segregated properly.
          b.   Identify and explain two incompatible duties that Zhao had that allowed her to take company funds.
 
2.      Identify and explain two ways that the company had attempted to safeguard its assets and suggest two ways to strengthen controls in this area.
 
3.      Refer to COSO’s Internal Control Framework to answer the following questions.
         a.       Identify and describe the three objectives of internal control.
         b.      Identify and describe five components of internal controls.
 
4.      Identify and explain three ways internal controls provide reasonable assurance.

Question 1.6 - SmallParts
 
SmallParts is a manufacturer of metal washers, screws, and other parts required in the manufacture of various handmade craft and novelty items. The firm has the ability to custom make virtually any small part, provided the client is able to provide SmallParts with the dimensions and tolerance required of the product. Because of its niche in the market, SmallParts has over 1,000 clients. Unfortunately, many of its small business clients eventually merge or cease operations.  One of the company’s biggest challenges is the return of shipped product.  Usually, this is because the small business client has ceased operations. While most of the product is custom made, SmallParts has found that much of it can be sold to other clients for adapted use. The company’s accountant is reviewing the company’s internal controls and financial accounting procedures, in particular, with respect to inventory. 
 
Currently, SmallParts has one salesperson responsible for marketing returned product. This salesperson has exclusive and total control over the returned product including arranging of sales terms, billing, and collection. The salesperson receives the returned product and attempts to find a client who may be able to adapt the product for the client’s use. The inventory of returned product is not entered in the accounting records, under the logic that the cost is sunk. Revenue generated from its sale is classified as other revenue on the SmallParts income statement.
 
REQUIRED:
 
         1.      Identify and describe the three objectives of a system of internal control.
 
         2.      Identify and explain three ways that the procedure for handling returned product violates the internal control system of segregation of duties.
 
         3.      Identify four functional responsibilities within an organization that should be separated. Explain why these responsibilities should be separated.
 
         4.      Identify and describe three ways that SmallParts can provide for better internal control over its inventory of returned product. 
 
 

Question: 1.7 – Michael Hanson
 
Michael Hanson is an internal auditor who has been asked to evaluate the internal controls and risks of his company, Consolidated Enterprises Inc.   He has been asked to present recommendations to senior management with respect to Consolidated’s general operations with particular attention to the company’s database procedures.  With regard to database procedures, he was specifically directed to focus attention on (1) transaction processing, (2) virus protection, (3) backup controls, and (4) disaster recovery controls.                                       
 
REQUIRED:
 
1.      Define the objectives of
         a. a compliance audit.
         b. an operational audit.
 
2.      For each of the areas shown below, identify two controls that Hanson should review and explain why.
         a. Transaction processing.
         b.  Virus protection.
         c.   Backup controls.
 
3.      Identify four components of a sound disaster recovery plan.
 
4.      During his evaluation of general operations, Hanson found the following conditions.
         a.  Daily bank deposits do not always correspond with cash receipts.
  1. Physical inventory counts sometimes differ from perpetual inventory records, and there have been alterations to physical counts and perpetual records.
         c.  An unexplained and unexpected decrease in gross profit percentage has occurred.
 
For each of these conditions, (1) describe a possible cause of the condition and (2) recommend actions to be taken and/or controls to be implemented that would correct the condition.

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