YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 S, T, & X FINAL EXAMINATION April 7, 2011 Duration: 180 Minutes 100

Marks Instructors: Dr. S. Qu & C. Ching INSTRUCTIONS: yIdentify yourself only by your student number on each exam answer book you use. yThis exam is a closed book exam. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. yPlease DOUBLE SPACE and make your writing legible! yMake any necessary assumptions and state your assumptions in your answer. Do not ask the instructor or proctor to interpret or provide further guidance on the questions. yShow all calculations. yAll questions must be answered in the exam answer books distributed at the exam. Work handed in on the question sheet or materials not distributed at the exam will not be graded. yYou must hand in the exam answer books as well as the question sheet at the end of the examination. Please place the question sheet within your exam answer book and hand in both. yOrganization and logical development of arguments are required! Random or scattered statements will not be rewarded. The instructor will not ³interpret´ your answer. You must state your response clearly. yThis exam has 3 questions and is worth 100 marks in total. yThis exam is worth 40% of your final grade in the course.

GOOD LUCK! Question 1 (26 marks, 46 minutes) Premier Corporation sells two models of home ice cream makers, Mister Ice Cream and Cold King. Current sales total 60,000 units, consisting of 21,000 Mister Ice Cream units and 39,000 Cold King units. Selling price and variable cost information follow. Mister Ice Cream $37.00 20.50 Cold King $43.00 32.50

Selling price Variable cost

Salespeople currently receive flat salaries that total $200,000. Management is contemplating a change to a compensation plan that is based on commissions in an effort to boost the company's presence in the marketplace. Two plans are under consideration: Plan A: Plan B: 10% commission computed on gross dollar sales. Mister Ice Cream sales are expected to total 19,500 units; Cold King sales are anticipated to be 45,500 units. 30% commission computed on the basis of production contribution margins. Mister Ice Cream sales are anticipated to be 39,000 units; Cold King sales are expected to total 26,000 units.

Required: 1. (15 marks) Comparing Plan A to the current compensation arrangement: a) (3 marks) Will Plan A achieve management's objective of an increased presence in the marketplace? Briefly explain.

b) (3 marks) From a sales-mix perspective, will the salespeople be promoting the product that one would logically expect? Briefly discuss.

c) (3 marks) Will the sales force likely be satisfied with the results of Plan A? Why?

d) (7 marks) Will Premier likely be satisfied with the resulting impact of Plan A on company profitability? Why?

2. (11 marks) Assume that Plan B is under consideration. a) (4 marks) Compare Plan A and Plan B with respect to total units sold and the sales mix. Comment on the results.

b) (7 marks) In comparison with flat salaries, is Plan B more attractive to the sales force? To the company? Show calculations to support your answers. © Adapted from Managerial Accounting, Hilton and Faverre-Marchesi, Canadian Ed., McGraw-Hill Ryerson, 2010. Question 2 (20 marks, 36 minutes) Redstone Industrial Resources Company (RIRC) has several divisions. However, only two divisions transfer products to other divisions. The Mining Division refines toldine, which is then transferred to the Metals Division. The toldine is processed into an alloy by the Metals Division, and the alloy is sold to customers at a price of $450 per unit. The Mining division is currently required by RIRC to transfer its total yearly output of 400,000 units of toldine to the Metals Division at total actual manufacturing cost plus 10 percent. Unlimited quantities of toldine can be purchased and sold on the open market at $270 per unit. While the Mining Division could sell all the toldine it produces at $270 per unit on the open market, it would incur a variable selling cost of $15 per unit. Brian Jones, manager of the Mining Division, is unhappy with having to transfer the entire output of toldine to the Metals Division at 110 percent of cost. In a meeting with the management of Provo, he said, ³Why should my division be required to sell toldine to the Metals Division at less than market price? For the year just ended in May, Metals' contribution margin was over $57 million on sales of 400,000 units, while Mining's contribution was just over $15 million on the transfer of the same number of units. My division is subsidizing the profitability of the Metals Division.

2. Required: 1. Explain your answer. 3. determine the unit and total contribution margin for both the Mining Division and the Metals Division. 4.´ The following table shows the detailed unit cost structure for both the Mining and Metals divisions during the most recent year: Mining Division Transfer price from Mining Division Direct material Direct labour Manufacturing overhead Total cost per unit * ² $36 48 96* $180 Metals Division $198 18 60 75‚ $351 Manufacturing-overhead cost in the Mining Division is 25 percent fixed and 75 percent variable. (8 marks) Using the market price as the transfer price. (4 marks) If Redstone Industrial Resources Company were to institute the use of negotiated transfer prices and allow divisions to buy and sell on the open market. determine the price range for toldine that would be acceptable to both the Mining Division and the Metals Division. . ‚Manufacturing-overhead cost in the Metals Division is 60 percent fixed and 40 percent variable. Is your answer consistent with your conclusion in requirement (3)? Explain.We should be allowed to charge the market price for toldine when transferring to the Metals Division. (2 marks) Explain why transfer prices based on total actual costs are not appropriate as the basis for divisional performance measurement. (4 marks) Use the general transfer-pricing rule to compute the lowest transfer price that would be acceptable to the Mining Division.

Michael attributed the success of the event to his aggressive marketing campaign which includes spending $5.000 in advertising the event at various social media networks. Hilton and Faverre-Marchesi. or negotiated) is most likely to elicit desirable management behaviour at RIRC. (2 marks) Identify which one of the three types of transfer prices (cost-based. In addition. . during the last two weeks of the ticket sales window.5. Michael Quaritch is the chief coordinator for the 2011 Undergrad Prom. 98 minutes) The Undergraduate Business Council (³UBC´) is the Schulich undergraduate student representative council for students in the BBA and iBBA program. Canadian Ed. © Adapted from Managerial Accounting. Question 3 (54 marks. market-based. He felt that the event was a great success. Explain your answer. with attendance to the event at its all time high. This success is further demonstrated by the fact that net profit for the event exceeded budget by $2. the event manager made a $20 discount coupon available on line in which students could download and receive a discount when buying their tickets. 2010. through the organization of various social and networking events.140. One of the social events that was recently held is the 2011 gradation prom for undergraduate students at the Schulich School of Business (³2011 Undergrad Prom´). McGraw-Hill Ryerson. One of the main objectives of the UBC is to further connect the Schulich Community. Michael prepared the following performance report at the UBC executive board meeting..

The amount of budgeted disc jockey expense is based on the 2010 signed contract with the disc jockey of $1. Jack Sully. 6. 3. . One server is required for every table. Michael submitted the budget for the event to the president of UBC.Prior to the commencement of the ticket sales window. The amount of budgeted salaries and wages for servers is based on the 2010 signed contract of $25 per hour per server. The amount of budgeted beverage expenses is based on the 2010 MBA Prom budget of $10 per drink and 3 drinks per person. It is assumed that 1 course of meal would be served to each attendee. 2. 5. 4. which can seat 10 attendees throughout the duration of the graduation prom. The amount of budgeted facility rental expenses is based on the 2010 MBA Prom which was held at the Pandora. The 2011 budget for the event was based on the following assumptions 1. The amount of budgeted food expenses is based on the 2010 MBA students¶ graduation prom (³2010 MBA Prom´) budget of $40 per course of meal. Pandora is a 5-star banquet hall located in downtown Toronto. The amount of budgeted revenue is determined by multiplying the regular ticket price of $150 per person with the number of expected attendees for the event of 200.000 for the event.

The UBC obtains a satisfaction survey from its attendees on every graduation prom it organizes. The UBC has received the sponsorship funding from Coca-Cola and the benefit of the sponsorship amount have been netted against ³beverage expense´ in the above income statement. three different servers brought me roast beef dishes as my main entrée. Similar to the other graduation proms. Your evaluation should include a detailed analysis on Michael¶s performance with respect to the 2011 . the 2011 Undergrad Prom was 10 hours in total length (started from 6PM in the evening and ended at 3AM in the morning). I tried to have the order fixed but it took forever to get the server to respond to my request.´ y³I had a really good time drinking. The tables are very close together. In addition. You are the vice president of finance of the UBC. Jack would like you to briefly evaluate the meaningfulness of the performance report prepared by Michael. Jack would also like you to evaluate the performance of Michael. For the 2011 Undergrad Prom.The 2011 Undergrad Prom was held at the RDA banquet hall.´ y³I ordered an orange juice but the server brought me a Pepsi. Through his relationship with the Vice-president of marketing. The dance hall also looks a bit too small.300 drinks were served during the event. Jack was once a coop student at the Coca-Cola Company. The rent for the facility was $3.´ y³It was pretty crowded. However. Michael hired a total of 25 servers for the event at a rate of $26 per hour. a 3-star banquet hall facility that has the capacity for 28 tables. the banquet hall also reported that 330 courses of meals and 1. There were 300 attendees at the event.000. Even though it is supposed to be 3 drinks per person.´ Michael has recently approached Jack and requested a raise. The amount of sponsorship would equal to $3 per drink that is served at the event. the Coca-Cola Company agreed to sponsor the 2011 Undergrad Prom provided that competing non-alcoholic beverages are not being served at the event. In addition. it is really an open bar as there is nothing to keep track of how many drinks that we ordered. a sample of comments collected through the satisfaction survey is as follows: y³I am a vegetarian and have indicated my dietary restrictions in my information form.

Required: Prepare the report for the president of UBC. ------------------------------------------------.Undergrad Prom including a detailed variance analysis on each revenue and expense item on the performance report.End of exam ------------------------------------------------- . 2011. © Carl Ching.

Please do not write your name on the examination booklets. (There is a 4-mark penalty if you do not do so!!) 4. 3. Identify . If you require paper for rough work. 5.YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 V & W FINAL EXAMINATION April 7. 9. This is a closed book examination. 1 of X. Please enclose the examination with your responses -. Please use ink and write on every other line ± do not write on unlined pages. 2011 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. No notes or other aids are permitted in the exam. 3 of X. use an exam booklet. Please do not leave the room without the proctor¶s knowledge. Number each book. 2.also enclose all books given to you. 8. etc. Make sure you have them all. 7. Use only paper provided at the exam. proctors are not permitted to interpret questions. The exam has 4 questions. except for a calculator with only mathematical functions. The exam has 7 pages (including the cover page). 6. Calculators that store text are not permitted. 2 of X. You must answer them all. Make any required assumptions. Do not communicate with anyone except the proctor.

however. She realizes that 60 suites are already committed to other individual clients during that time. Lakeside Suites has established a good reputation among small and medium-sized business clients as a nice place to hold annual meetings and conferences. Monica calls both Margucci and Reginald to see if either party would be willing to move its event to different dates. GOOD LUCK! QUESTION 1 (42 marks. recently called Monica about the possibility of holding its annual three-day sales conference at the end of February. Monica believes strongly that she must honour these reservations. the room rate is lower than the normal rate of $150 per day. laundry. although it wants Monica to construct a runway at a cost of $3. wants to hold its annual three-day fashion event at Lakeside Suites at the end of February. Monica received a call from Margucci Original Designers. . Trying to figure a way out. However.000 for use of the convention centre. Like most clients. Monica looks at her reservations chart to see if she can hold both events. Next. Per its usual arrangement. Margucci would book 225 suites per day (for a total of 675 room days) and is willing to pay $120 per suite per day. a hotel in Oakville. One of Lakeside¶s long-standing clients. Shortly after receiving the call from Reginald. and other incidental charges from Margucci attendees similar to individual customers. both Margucci and Reginald are committed to holding their respective events at the end of February. Reginald wants to reserve 75 rooms each day (= 225 total room days). Because this is a bulk booking. Margucci would be willing to pay the normal daily rate of $5. Reginald would pay $120 per day per room and $5. Lakeside Suites has a capacity of 320 suites and offers a small. Since opening.yourself with your student number and your section only. Monica expects this miscellaneous revenue to be $25 per person per day. 75 minutes) Monica Appleby manages Lakeside Suites. Monica is currently in a quandary regarding hotel bookings for the last weekend in February. Margucci. Monica was ecstatic to receive the Margucci call until she realized that the dates Margucci wants coincide with Reginald¶s annual sales meeting.000. Monica predicted Lakeside Suites could earn additional revenues of $25 per person per day on food. the Reginald attendees would spend additional money at the hotel. Also. conference centre. Reginald Printing. a prospective first-time client. but well-managed.000 per day for use of the convention centre.

000 $140.000 150. QUESTION 1 (Cont¶d. As booking Margucci would cause an abnormally high occupancy rate. laundry.000 $180.005. Monica anticipates the need to pay her hourly staff an overtime premium of 50% for the three-day period. she will be able to sell the remaining 35 suites to individual parties for each of the three days at the standard rate of $150 per suite. she is likely to sell another 57 suites to individual parties for each of the three days at the standard rate of $150 per suite. and movies Labour (kitchen help.000 210. If she accepts Margucci.000 6. explaining which option maximizes profits.000 75.Monica provides you with the following summary financial data for a typical month of operations. Monica usually pays hourly staff overtime premium when the hotel is at 100% occupancy rate. telephone. and other incidentals Convention centre Total revenues Variable Costs: Food. Identify Monica¶s decision options and prepare a financial analysis. supplies. movies. (12 marks) .000 $1.000 $780. Required: a.000 350. Provide your recommendation based on the financial analysis in (a) and an evaluation of qualitative factors.000 $130 Monica also informs you that if she chooses Reginald. (22 marks) b.000 $615. telephone. cleaning staff) Contribution margin Fixed costs: Labour (hotel management) Building and grounds Profit before taxes $125.) Summary Financial Data for a Typical Month of Operations Number of occupied suite-days Average suite rate Revenue: Suites Food.

(8 marks) © Adapted from Managerial Accounting. Wiley.527. Canadian Edition.000 hr x $14. (4 marks) .10) Fixed manufacturing expenses: Fixed overhead Total cost of goods sold Gross profit $8.500 hr x $14.000 930.500 800.c.000 PCs x $420) Variable manufacturing expenses: Direct materials (200. However.000 4.000 $3.200 parts x $9.000 878. Describe how Universal System¶s managers can benefit from the standard costing system.099. explain how this information might affect your recommendation provided in (b).000 2.880 $4.120 Required a. Ferraro. Suppose 75 and 225 suites per day is the number of suites that Reginald and Margucci wish to block for their conventions. the actual demand associated with the booking of Reginald and of Margucci might be less than this estimate.000 2. The company¶s performance report includes the following selected data: Static Actual Budget Results (20.160 560.260. Carty.000. With appropriate calculation. QUESTION 2 (20 marks. 30 minutes) Universal System assembles PCs and uses flexible budgeting and a standard cost system. While Reginald is sure to occupy at least 60 suites.740. Sprinkle. 2011.220 900.000 620. Balakrishnan.60) Variable overhead (200. Monica would not be able to fill unused suites with paying guests. Because actual demand would not be known until late.240.000 parts x $10.000 PCs x $400) (22.00) (214.712.000.200 parts x $4. Universal System allocates overhead based on the number of direct materials parts.00) (214.000 $9.000 parts x $4. Margucci estimates that total demand might range from 150 to 225 suites.000 4.000 PCs) Sales (20.80) Direct labour (40.000 PCs) (22. Sivaramakrishnan.00) (42.

Braun. 40 minutes) Each autumn. Have Universal System¶s managers done a good job or a poor job controlling material and labour costs? Why? (12 marks) c.000 at 6 % interest. Compute the quantity variances for direct materials and direct labour. She has enough cotton in inventory to make another 25 sets. Middleton is considering buying an eight-harness loom so that she can weave more intricate patterns in linen. Middleton¶s supplier will sell her linen on credit. The mats sell for $20 per set of four. QUESTION 3 (22 marks. 2012. payable December 31. The new loom costs $1. Katherine Middleton weaves cotton placemats to sell at a local crafts shop. It is depreciated at the rate of $10 per month. The accounts payable relate to the cotton inventory and are payable by September 30. Middleton plans to keep her old loom whether or not she buys the new loom. it would be depreciated at $20 per month.b. Canadian Edition. Pyper. Linen costs $18 per set. Harrison. She predicts that each linen set will sell for $50. Tietz. as a hobby. The shop charges a 10% commission and remits the net proceeds to Middleton at the end of December. Her bank has agreed to lend her $1. Middleton has woven and sold 25 sets each of the last two years.000. (4 marks) © Adapted from Managerial Accounting. Prepare a flexible budget of COGS based on the actual number of PCs sold. Middleton uses a four-harness loom that she purchased for cash exactly two years ago. WEAVER Balance Sheet August 31 Current assets: Cash Inventory of cotton Fixed assets: Loom $ 25 175 200 500 Current liabilities: Accounts payable $ 74 Owner¶s equity: 386 . Middleton believes she can weave 15 linen placemats sets in time for the Christmas rush if she does not weave any cotton mats. The balance sheet for her weaving business at August 31 is as follows: KATHERINE MIDDLETON. with $200 principal plus accrued interest payable each December 31. She paid $7 per set for the cotton. Pearson Canada.

2 million and has strongly urged Matt Frieco. Tietz. The desired rate of return for each division is 20 percent. QUESTION 4 (16 marks. Harrison. New Concept Industries traditionally has evaluated all of its divisions on the basis of return on investment. Game Leasing Inc. prepare a budgeted income statement for the four months ending December 31. 30 minutes) Gokart Corporation (GC). Canadian Edition. Pyper. and arcade games. Pearson Canada. one of the largest firms that leases arcade games to family recreational centers. batting cages. for two alternatives: (i) weaving the placemats in cotton using the existing loom and (ii) weaving the placemats in linen using the new loom. New Concept¶s top management believes that GLI¶s assets could be acquired for an investment of $3. to consider acquiring GLI. is looking for a friendly buyer. (GLI). When Katherine reviews the budgeted statements you prepared in part (a). a subsidiary of New Concept Industries. For each alternative. manufactures go-carts and other recreational vehicles. The management team of any division reporting an annual increase in the ROI is automatically eligible for a bonus. which mainly are sold to recreational centres. (16 marks) b. 2012. what other factors does she need to consider before buying the new loom? (6 marks) © Adapted from Managerial Accounting. The management of divisions reporting a decline in the ROI must provide convincing explanations for the . GC has been receiving some pressure from New Concept¶s management to diversify into some of these other recreational areas. The recent trend for recreational centres is to feature not only go-cart tracks but miniature golf. Prepare a combined cash budget for the four months ending December 31. Braun. division manager of GC.Accumulated depreciation Total assets (240) 260 $460 Total liabilities and owner¶s equity $460 Required a.

000.100.200. 50 percent of the bonus is paid to divisions reporting an increase in ROI.) Required: a. maybe this acquisition would look more attractive. and they believe the acquisition may not be in the best interest of GC.200. Frieco has reviewed GLI¶s financial statements with his controller. explain why GC would be reluctant to acquire Game Leasing Inc. GLI -----$3. ³If we could convince them to base our bonuses on something other than return on investment.000.000.000 2.300.000.000 -----(6.000 $8.000) (1. the New Concept people are not going to be happy.000 $1.500.800.000 (1. How would we do if the bonuses were based on residual income.000 $8.900. Dona Connelly.´ said Frieco. Moreover.000 1. using the company¶s 15 percent cost of capital?´ In the following table are condensed financial statements for both GC and GLI for the most recent year.400.000 $ 850. If New Concept Industries continues to use ROI as the sole measure of divisional performance.000 950.000. (4 Marks) .000 $2.300. ³If we decide not to do this.000) $2.000 $3.700.000 3.000) (1.000.000 Sales revenue Leasing revenue Variable expenses Fixed expenses Operating income Current assets Long-lived assets Total assets Current liabilities Long-term liabilities Stockholders¶ equity Total liabilities and stockholders¶ equity QUESTION 4 (Cont¶d.decline in order to be eligible for a bonus.500.000 GC $9.800.000 $3.000 5.000 1.000) $ 600.100.000 $1.

explain why GC would be more willing to acquire GLI. If New Concept Industries could be persuaded to use residual income to measure the performance of GC. Please identify at least two examples of the effects on the behaviours of division managers.b. (8 Marks) © Adapted from CMA . Discuss how the behaviour of division managers is likely to be affected by the use of the following performance measures: (a) return on investment and (b) residual income. (4 Marks) c.

This is a closed book examination.V. proctors are not permitted to interpret .V. Make any required assumptions. etc. 6. No notes or other aids are permitted in the exam. 2010 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: M. Calculators that store text are not permitted. Annisette & S. Make sure you have them all. 5. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -. use an exam booklet. Please use ink and write on every other line ± do not write on unlined pages. Use only paper provided at the exam. Annisette & S.also enclose all books given to you. 2 of X. Number each book. 2. 2020T. 7. You must answer them all. If you require paper for rough work. The exam has 4 questions. 3 of X. Do not communicate with anyone except the proctor. 1 of X. 8.W FINAL EXAMINATION April 19. The exam has 7 pages (including the cover page). except for a calculator with only mathematical functions. Please do not leave the room without the proctor¶s knowledge. Hsu ± Winter 2010 7 YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020T. 3.Actg. Hsu 1.W ± Final Examination ± M.

´ replied Emily Brown.000) Product B $400. ³We paid the guy $100 an hour.000 for September.000 234.000 160.000 922.000 162.000 a month at the beginning of the year to only $26.000 228.000 210. 50 Minutes) ³Our losses have shrunk from over $75. we¶ll be in the black by the first of next year.000 220.000 604.000 180. surely he found something wrong. Please do not write your name on the examination booklets. president of Telco Products.000 $ (6.000 $(40.questions.´ The data to which Ms.000 60. The company¶s absorption costing income statement for the latest month (September) is presented below: TELCO PRODUCTS Income Statement For September Total Company Sales Less cost of good sold Gross margin Less operating expenses: Selling Administrative Total operating expenses Operating income (loss) $1.000 Product C $500. Anderson.000 72. GOOD LUCK! QUESTION #1 (33 Marks.000 150.000) ³What recommendations did that business consultant make?´ asked Mr.000) Product A $600.´ said Tom Anderson. the executive vice president.000 $ (26.000 424.000 330.´ ³He says our problems are concealed by the way we make up our income statements.000 170. If we can just isolate the remaining problems with products A and C. Brown was referring are shown below: Total Company Product A Product B Product C .000 372.000 $20. 9. ³He left us some data on what he calls µtraceable¶ and µcommon¶ costs that he says we should be isolating in our reports.000 48. Identify yourself with your student number only.000 112.500.000 180.000 578.

000 $80.000 $180.Variable costs:* Manufacturing (materials. ³Bill. and variable overhead) Selling Traceable fixed costs: Manufacturing Selling Common fixed costs: Manufacturing Administrative *as a percentage of sales 18% 10% $180.000 $100. our chief accountant.000 ----- 20% 10% $160. He¶s also very careful to allocate all of our costs to the products.´ said Mr.000 $102.000 ----- 32% 8% $36.´ ³I¶ll admit that Bill always seems to be on top of things. Anderson. Prepare an income statement for the month of September that would better reveal the company¶s problems. Assume that Mr. labour. Required 1. Brown. (12 marks) 2.) The following additional information is available on the company: a. Anderson is considering the elimination of product C due to the losses it is incurring. Based on the statement you prepared in (1) above.000 $282.000 ³I don¶t see anything wrong with our income statements. Products A and B each sell for $250 per unit. b.000 ----- $376.´ replied Ms. says that he has been using this format for over 20 years.000 $210. what points would you make for or against elimination of product C? (4 marks) . Strong market demand exists for all three products. Work in process and finished goods inventories are negligible and can be ignored. QUESTION #1 (Cont¶d. What insights revealed by this statement would you bring to management¶s attention? (6 marks) 3. and product C sells for $125 per unit.

which product would you recommend to concentrate the remaining inventory of RX-7 chips on? Explain. Each class is three credit hours. Determine the number of faculty members needed to cover classes. 12. From the looks of September¶s income statement. Currently. 30 Minutes) Ontario University (OU) is preparing its master budget for the upcoming academic year. 7 Ed. Which product would you first recommend the company to devote its excess capacity to producing? Explain. and university and community service. OU operates two semesters per year and has no summer term. the admissions office is forecasting a 5 percent growth in the student body despite a tuition hike to $75 per credit hour. OU¶s faculty members are evaluated on the basis of teaching. Each faculty member teaches five classes during the academic year. B. (Two RX-7 chips are used in product A. and one chip is used in product B and product C). and C are on back order and won¶t be available for several weeks. the purchasing manager informs Mr. however. The following additional information has been gathered from an examination of university records and conversations with university officials: OU is planning to award 180 tuition-free scholarships.000 students are enrolled on campus. Assume there is a shortage of full-time faculty members. and the typical student takes 15 credit hours each semester. (6 marks) 2.4. (5 marks) . (7 marks) ©Managerial Accounting. Anderson that the RX-7 chips which are used in products A. Because of the strong demand for all three products. McGraw Hill Ryerson. research. The average class has 25 students. Garrison et al. List at least five actions that OU might take to accommodate the growing student body. th QUESTION #2 (19 Marks. the company has the opportunity to produce more products with its excess production capacity next month. (4 marks) 5. (4 marks) 3. Required 1. Prepare a tuition revenue budget for the upcoming academic year. Before the company starts to expand its production as you suggested in part (4).

purchasing 850 units of part Z88. McGraw Hill Ryerson. The commercial division is growing rapidly. (4 marks) © Managerial Accounting. Faculty members are indeed the key driver ± without them we don¶t operate. and maintenance). The AVP notes: ³The most important resource of the university is its faculty. The commercial division is expanding its production and now wants to increase its purchase of part X23 to 15. All divisions are profit centres. its capacity is unlikely to increase soon. Favere-Marchesi. Industrial division Data on part X23: Price to commercial division Variable manufacturing costs Fixed manufacturing costs Price to outside buyers Consumer division Data on part Z88: Variable manufacturing costs Fixed manufacturing costs Sales price Other suppliers of part X23: Advanced Tech Inc..000 units of part X23 from the industrial division for use in manufacturing one of its own products. 45 Minutes) Superior Manufacturing Inc. grounds.´ Does the administrative vice-president really understand the linkages within the budgeting process? Explain. 2010. The problem is that the industrial division is at full capacity and no new investment in the division has been made for some years because top management sees little future growth in industrial products. Now that you know the number of faculty needed.g.000 units per year. the library. price Britton Electric. QUESTION #3 (24 Marks. The commercial division can buy part X23 from Advanced Tech Inc.. (SMI) produces electronic components in three divisions: industrial. a customer of the consumer division. commercial. Canadian Edition.4. dormitories. Hence. You have been requested by the university¶s administrative vice-president (AVP) to construct budgets for other areas of operation (e. The commercial products division annually purchases 10. price $185 155 25 205 $ 80 20 125 $200 210 . or from Britton Electric. you can prepare the other budgets. Hilton. and consumer products.

Assume that the consumer division¶s sales of Z88 to Britton would increase to 1.000 parts? Support your answer with a quantitative analysis.Required 1. BusiSoft.000 parts of X23? Support your answer with a quantitative analysis. (6 marks) 3. are you willing to sell part X23 to the commercial division at $185? Why? What transfer price would you set if SMI allows you to negotiate with the commercial division? Explain. regarding where the commercial division should purchase the additional 5. a distributor of business software packages.700 units if the commercial division buys X23 from Britton. (4 marks) 2. 5th Ed. Blocher. BUSISOFT CORPORATION Monthly Selling Expense Report For the Month of October Annual October October October . Fletch¶s biggest challenge at this point was to ensure that the company did not lose control of expenses during this growth period. regarding where the commercial division should purchase the additional 5. McGraw-Hill Irwin. (4 marks) 4. When Fletch received the October reports. BusiSoft Corporation¶s president was looking forward to seeing the performance reports for October because he knew the company¶s sales for the month had exceeded budget by a considerable margin. Assuming the consumer division¶s sales to Britton would not be affected by the commercial division¶s decision about part X23. What qualitative factors would you consider before making your recommendations on the basis of the scenario stated in part (3)? (10 marks) © Cost Management: A Strategic Emphasis. he was dismayed to see the large unfavourable variance in the company¶s Monthly Selling Expense Report that follows. Ignore the assumption stated in part (2). What is the proper decision for SMI Inc. Assuming you were the manager of the industrial division. 45 Minutes) Alan Fletch. had been growing steadily for approximately two years. QUESTION #4 (24 Marks. What is the proper decision for SMI Inc. Stouf & Cokins.

800 U Fletch called in the company¶s new controller.400.000 U --14.000 U 28.200 U 43.000$76.000 Dollar sales 2.000 U $ 263.500.816.000 716.000 250. approval was given to hire six additional salespeople effective October 1.800 Per diem $7.000 Orders 54.600.000 896.000. the commission varies with sales dollars.800 processed 90 90 96 Sales $24. Sales office expense is a mixed cost with the variable portion related to the number of orders processed.00 $160. As a consequence. The fixed portion of office expense is $6.Budget Budget Actual Unit sales 2.000 297.000. Porter . She proposed that BusiSoft implement flexible budgeting.592.953.000 Commissions 0 1.200 F 148. Subsequent to the adoption of the annual budget for the current year.524.000 0 h $3. BusiSoft decided to open a new sales territory.400.000 (700) (6) $2.320.00 760.800 6. Daisy Porter.800. The total compensation paid to the sales force consists of a monthly base salary and a commission.000 Advertising 3.000 $22.160. to discuss the implications of the variances reported for October and to plan a strategy for improving performance.000 $7.000 annually and is incurred uniformly throughout the year. Porter offered to redo the Monthly Selling Expense Report for October using flexible budgeting so that Fletch could compare the two reports and see the advantages of flexible budgeting.000 216.800 Sales salaries 13.800 U 96.000 310.400.805.000 280.00 0 $20.000 230.200 Staff salaries 8.000 992.564.787. Porter suggested that the company¶s reporting format might not be giving Fletch a true picture of the company¶s operations.000 3.000 250.000 $3.300.000 1.000 325.00 personnel/mont 0 $39.000.000 expense Office expenses Shipping expenses Total expenses Variance 30.000 6.500 5.000.

is variable with the number of sales personnel and the number of days spent travelling.decided that these additional six people should be recognized in her revised report. Per diem reimbursement to the sales force. BusiSoft¶s original budget was based on an average sales force of 90 people throughout the year with each sales person travelling 15 days per month. The company¶s shipping expense is a mixed cost with the variable portion. Required 1. the actual selling expense and the monthly dollar variance. Citing the benefits of flexible budgeting. explain why Daisy Porter would propose that BusiSoft use flexible budgeting in this situation. The fixed portion is incurred uniformly throughout the year. dependent on the number of units sold. The report should have a line for each selling expense item showing the appropriate budgeted amount. (6 marks) 2. (18 marks) © Managerial Accounting. 2010. $6 per unit. . while a fixed amount per day. Canadian Edition. McGraw-Hill Ryerson. Prepare a revised Monthly Selling Expense Report for October that would permit Alan Fletch to more clearly evaluate BusiSoft¶s control over selling expenses. Hilton & Favere-Marchesi.

3. This is a closed book examination. Make any required assumptions. 7.also enclose all books given to you. 2009 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. Please use ink and write on every other line ± do not write on unlined pages. You must answer them all. Please enclose the examination with your responses -. No notes or other aids are permitted in the exam. 5. Use only paper provided at the exam. 2 of X. proctors are not permitted to interpret questions. . 1 of X. If you require paper for rough work. 6. 3 of X. (There is a 4-mark penalty if you do not do so!!) 4. The exam has 3 questions. 2. Please do not leave the room without the proctor¶s knowledge. The exam has 7 pages (including the cover page).Section A &B YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020A & B FINAL EXAMINATION February 20. Make sure you have them all. except for a calculator with only mathematical functions. use an exam booklet. etc. Calculators that store text are not permitted.Final Examination . 8. Number each book. Do not communicate with anyone except the proctor.

As they finished lunch. the production manager for Dakoda Corporation. Those have been our bread and butter the past few years.0 13. What I¶m not sure about is whether the skateboard line will be better for us than our snowboards.5 20. the company president.00 per hour) Manufacturing overhead Selling and administrative cost Profit per snowboard $ 10. Please do not write your name on the examination booklets. 60 minutes) Dakoda is a wholesale distributor supplying a wide range of moderately priced sports equipment to large chain stores. GOOD LUCK! QUESTION 1: (38 marks. The selling price and costs associated with snowboards are as follows: Selling price per snowboard Costs per snowboard: Molded plastic Other material Direct labor ($16.0 Because Dakoda¶s sales manager believes the firm could sell 12.0 $90.000 snowboards if it had sufficient manufacturing capacity at the Plastic Molding Factory. Bill Vanderweidt.0 71.000 snowboards annually. We¶ll run a few numbers on this skateboard idea that I think will demonstrate the line¶s potential.5 18.0 9. Dakoda is able to manufacture and sell 10. said. Peggy Dickenson.´ Vanderweidt responded with. Bill. ³Let me get together with one of the controller¶s people.0 $19. Vanderweidt wanted to put forward his suggestion to add a new product line. ³I¶ll give your proposal some serious thought.9. had requested to have lunch with the company president. making full use of its direct-labor capacity at available work stations of the Plastic Molding Factory. the company has looked into the possibility of purchasing the . Identify yourself with your student number only. I think you¶re right about the increasing demand for skateboards. About 60 percent of Dakoda¶s products are purchased from other companies while the remainder of the products are manufactured by Dakoda.´ Currently snowboards are manufactured by a Plastic Molding Factory.

0 5.000 of factorywide. Prepare a financial analysis and explain why Bill thinks that ³the company could make better use of its Plastic Molding Department by manufacturing skateboards.00 per skateboard.´ (14 marks) $52. regardless of whether the product has been purchased or is manufactured by Dakoda.5 38.0 $14. For the purchased snowboards. would be able to provide up to 9. After his lunch with the company president. total selling and administrative costs would be $13 per unit. Required: 1. Selling price per skateboard Costs per skateboard: Molded plastic Wheels. there is an allocated $6.00 per snowboard delivered to Dakoda¶s facility.6 7. Vanderweidt has a market study that indicates an expanding market for skateboards and a need for additional suppliers for snowboards. fixed manufacturing overhead costs.) In the Plastic Molding Factory.5 8. hardware Direct labor ($16. For each unit of product that Dakoda sells.4 10. a steady supplier of quality products. Maxim Products.500 skateboards annually at a price of $52.000 snowboards per year at a price of $69. Vanderweidt believes that Dakoda could expect to sell 12.00 fixed cost per unit for distribution that is included in the selling and administrative cost for all products.snowboards for distribution.0 $ 6. Dakoda uses direct-labor hours as the application base for manufacturing overhead.00 per hour) Manufacturing overhead Selling and administrative cost Profit per skateboard QUESTION 1: (Cont¶d. Vanderweidt worked out the following estimates with the assistant controller and concluded that the company could make better use of its Plastic Molding Factory by manufacturing skateboards. Included in the manufacturing overhead costs of the Plastic Molding Factory for the current year is $50.0 .

Dona Connelly. Moreover. New Concept Industries traditionally has evaluated all of its divisions on the basis of return on investment. how many snowboards should be purchased? (12 Marks) 3. which states clearly whether Dakoda should manufacture skateboards. New Concept¶s top management believes that GLI¶s assets could be acquired for an investment of $3. and they believe the acquisition may not be in the best interest of GC. which mainly are sold to recreational centres. and arcade games.2. division manager of GC. the New Concept people are not going to be happy. determine an option makes the best use of its scarce resources. a subsidiary of New Concept Industries. Provide a general evaluation of the skateboard idea. ³If we could convince them to base our bonuses on something other than return on investment. to consider acquiring GLI.´ said Frieco. maybe this acquisition would look . is looking for a friendly buyer. one of the largest firms that leases arcade games to family recreational centers. The recent trend for recreational centres is to feature not only go-cart tracks but miniature golf. Game Leasing Inc. 30 minutes) Gokart Corporation (GC). ³If we decide not to do this.2 million and has strongly urged Matt Frieco. (4 Marks) 4. Calculate the improvement in Dakoda¶s total contribution margin if it adopts the optimal strategy rather than continuing with the current strategy. The management of divisions reporting a decline in the ROI must provide convincing explanations for the decline in order to be eligible for a bonus. The management team of any division reporting an annual increase in the ROI is automatically eligible for a bonus. The desired rate of return for each division is 20 percent. In order to maximize the company¶s profitability. manufactures go-carts and other recreational vehicles. (8 Marks) © Adapted from CMA QUESTION 2: (16 marks. EC has been receiving some pressure from New Concept¶s management to diversify into some of these other recreational areas. (GLI). batting cages. Frieco has reviewed GLI¶s financial statements with his controller. How many skateboards and snowboards should be manufactured? Should the company buy snowboards from Maxim? If yes. 50 percent of the bonus is paid to divisions reporting an increase in ROI.

100. (4 Marks) 2.000.000) $ 600.000 $8. explain why GC would be more willing to acquire GLI.000 $3. If New Concept Industries continues to use ROI as the sole measure of divisional performance.000 $3.000 1.) Required: 1.400. If New Concept Industries could be persuaded to use residual income to measure the performance of GC. Please identify at least two examples of the effects on the behaviours of division managers.000 Sales revenue Leasing revenue Variable expenses Fixed expenses Operating income Current assets Long-lived assets Total assets Current liabilities Long-term liabilities Stockholders¶ equity Total liabilities and stockholders¶ equity QUESTION 2: (Cont¶d.000. (4 Marks) 3.300.more attractive.500. Discuss how the behaviour of division managers is likely to be affected by the use of the following performance measures: (a) return on investment and (b) residual income.000 5.800.000 1.000 950. GLI GC -----$9.200.300.200.000 $2. using the company¶s 15 percent cost of capital?´ In the following table are condensed financial statements for both GC and GLI for the most recent year.800.000 -----(1.000 $1.000 $3.000) (1.000.000) $2.000 $1. (8 Marks) .000 (1.000.700.900.000 $ 850.000 3.000.000.100. How would we do if the bonuses were based on residual income. explain why Entertainment Corporation would be reluctant to acquire Game Leasing Inc.000 $8.000) (6.500.000 2.

and lab tests.580 patients seen.054 and averaged 3. James White. (4 Marks) 3. the hospital¶s chief administrator. and each assistant is expected to spend 30 minutes with a patient. (4 Marks) . Does it appear that North York has any significant problems with the cost of its lab tests? Briefly explain.Each patient is anticipated to have three lab tests. Compute the differences (variances) between these amounts and identify them as favorable or unfavorable.50 per hour.3 per patient. The following information is available for June: yMedical assistants ± North York¶s standard wage rate is $14 per hour. determine the price and quantity variances for lab tests.580 patients served during June. at an average budgeted cost of $65 per test.The cost of clinic supplies used is budgeted at $6 per patient. clinic supplies.150. Prepare a report that shows budgeted and actual costs for the 1. Based on the detailed analysis for lab tests. By performing a detailed analysis. (10 Marks) 2. 30 minutes) North York Hospital has an outpatient clinic. Actual lab tests for June cost $318. and the actual cost of supplies used was $9. is very concerned about cost control and has asked that performance reports be prepared that compare budgeted and actual amounts for medical assistants.© Adapted from CMA QUESTION 3: (18 marks. Past financial studies have shown that the cost of clinic supplies and lab tests are highly correlated with the number of patients served. Required: 1. evaluate the performance of cost control at North York. yLab tests . yClinic supplies . at an average pay rate of $15. Assistants totaled 840 hours in helping the 1.

000 24.000 minimum cash balance at all times. $22. a distributor of cosmetics throughout Ontario.000. and management believes that only 20 percent of the accounts outstanding on December 31.000 90. accounts receivable. Hilton.000. yThe December 31. McGraw-Hill Ryerson. 2009. Uncollectibles amounting to 5 percent of sales are anticipated. 2009. and accounts payable.000 Sales revenue Merchandise purchases Cash operating costs Proceeds from sale of equipment Required: .000 45. Sixty percent of customer accounts are collected in the month of sale.000 ___ February $180.000 100.000 140.© Adapted from Managerial Accounting. The following information has been extracted from the company¶s accounting records: yAll sales are on account. ySeventy percent of the merchandise purchases are paid for in the month of purchase.000 multiples at an 8 percent interest rate. will be recovered and that the recovery will be in January 2010..000 31. is in the process of assembling a cash budget for the first quarter of 2010. with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Financing is available (and retired) in $1. 45 minutes) Beauty Inc. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time. Seventh Edition. yBeauty Inc. $55.000. maintains a $20.000 5. balance sheet disclosed the following selected figures: cash. 35 percent are collected in the following month. QUESTION 4: (28 marks. $20. the remaining 30 percent are paid for in the month after acquisition.000 ____ March $185. yAdditional data: January $150.

Prepare a schedule that discloses the firm¶s total cash collections for January through March. McGraw-Hill Ryerson. total receipts (from requirement (1)). total payments (from requirement (2)). (8 Marks) 2. the cash excess (deficiency) before financing. and ending cash balance. for January through March. . if any. Hilton. The schedule should present the following information in the order cited: Beginning cash balance.1. (7 Marks) 3. stated. loan interest paid. A member of the board of directors of Beauty Inc. borrowing needed to maintain minimum balance. Prepare a schedule that discloses the firm¶s total cash disbursements for January through March. Comment on this statement. Seventh Edition. (9 Marks) 4. Prepare a schedule that discloses the firm¶s cash needs. (4 Marks) © Adapted from Managerial Accounting. ³The monthly cash budget shows the company¶s cash surplus or deficiency and assures us that and unexpected cash shortage will not occur´. loan principal repaid.

The exam has 6 pages (including the cover page). use an exam booklet. Number each book. U YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 T & U FINAL EXAMINATION April 26. 2. 2 of X. 2007 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 3 Hours INSTRUCTOR: Sylvia Hsu 1. The exam has 5 questions. You must answer them all.also enclose all books given to you. Make sure you have them all.Final Examination . Please use ink and write on every other line ± do not write on unlined pages. If you require paper for rough work. . Please enclose the examination with your responses -. Show all supporting calculations. This is a closed book examination. etc. Use only paper provided at the exam. 4. A correct answer without supporting calculations will not be given any marks.Sections T. except for a calculator with only mathematical functions. 1 of X. No notes or other aids are permitted in the exam. Calculators that store text are not permitted. 3 of X. (There is a 4-mark penalty if you do not do so!!) 5. 3.

Allison sold 25% more units that she had in 2006 and was so confident that she would receive her bonus that she bought non-refundable airline tickets to Paris.000 100. which showed that the company¶s income had decreased from 2006 even though it had sold considerably more units.000 140. Make any required assumptions. The president was extremely pleased with the company¶s first-year performance.000 5. 8. The following are the reports that Allison received: Production (in units) Sales (in units) Unit selling price Unit costs: Variable manufacturing Variable selling Fixed manufacturing Fixed selling 2006 6. and at the beginning of the second year (2007) promised Allison a $20. 7. and the firm seemed to be doing extremely well.6.000 2007 3.000 $ 500 $ 300 20 180. During 2007. Allison was made the general manager at the start of operations.000 4. 30 Minutes) Allison Collins joined a new firm that was manufacturing a revolutionary type of fitness equipment.000 .000 bonus if the company¶s net income were to increase by 25% in 2007. Please do not write your name on the examination booklets. Please do not leave the room without the proctor¶s knowledge. proctors are not permitted to interpret questions. At the end of 2007. Allison did not get along very well with the accountant and felt that he had deliberately distorted the financial statements for 2007. Allison received fiscal 2007¶s income statement. GOOD LUCK! QUESTION #1 (14 Marks. Identify yourself with your student number only. Do not communicate with anyone except the proctor.000 $ 500 $ 300 20 210.

320.000 1.000 units of toldine to the Metals Division at total actual manufacturing cost plus 10 percent. The Mining Division refines toldine. Unlimited quantities of toldine can be purchased and sold on the open market at $90 per unit.000 units. Spraakman. The Mining division is currently required by BRC to transfer its total yearly output of 400.Income Statement (FIFO) Sales 2006 Cost of goods sold $2. However. Explain to Allison why she lost her $20.000 $ 490. My division is subsidizing the profitability of the Metals Division.000 Selling 680. The toldine is processed into an alloy by the Metals Division.000 2007 $2.770.000 Gross margin 1. We should be allowed to charge the market price for toldine when transferring to the Metals Division. Raiborn. (8 Marks) 2. Second Canadian Edition. While the Mining Division could sell all the toldine it produces at $90 per unit on the open market.500. which is then transferred to the Metals Division. In a meeting with the management of BRC. Which set of income statements more accurately measures performance? Why? (6 marks) © Adapted from Managerial Accounting. QUESTION #2 (24 Marks. Thomson Nelson. it would incur a variable selling cost of $5 per unit. is unhappy with having to transfer the entire output of toldine to the Metals Division at 110 percent of cost.´ .000 bonus. Mallouk. Prepare variable costing income statements for fiscal 2006 and 2007. Barfield. manager of the Mining Division. Jeff Mayhew. 40 Minutes) Bal Resources Company (BRC) has several divisions.000 Required 1. and the alloy is sold to customers at a price of $150 per unit. Kinney. Metals¶ contribution margin was over $19 million on sales of 400. only two divisions transfer products to other divisions. he said.000 730.000 $ 500. while Mining¶s contribution was just over $5 million on the transfer of the same number of units.000.000 240.000 Net income 180. ³Why should my division be required to sell toldine to the Metals Division at less than market price? For the year just ended in May.

Identify which one of the three types of transfer prices (cost-based. QUESTION #3 (30 Marks. or negotiated) is most likely to elicit desirable management behavior at BRC. Explain your answer. determine the price range for toldine that would be acceptable to both the Mining Division and the Metals Division. marketbased. (6 marks) © Adapted from CMA. a high-fashion dress manufacturer. Dublin Fashions supplies retailers in Europe. State two reasons why transfer prices based on total actual costs are not appropriate as the basis for divisional performance measurement (4 marks) 2. . determine the total contribution margin for both the Mining Division and the Metals Division. is planning to market a new cocktail dress for the coming season. Required 1. Explain your answer (i. manufacturing overhead cost in the Metals Division is 60 percent fixed and 40 percent variable.. If Bal Resources Company were to institute the use of negotiated transfer prices and allow divisions to buy and sell on the open market. (6 marks) 3.e. Mining Division Metals Division $12 6* 16 20 32 $60 25 $51 Direct Material Direct Labour Manufacturing overhead‚ Total *Not including the transfer price for toldine. 55 Minutes) Dublin Fashions Inc. ‚ Manufacturing overhead cost in the Mining Division is 25 percent fixed and 75 percent variable. (8 marks) 4. Using the market price as the transfer price.The following table shows the detailed unit cost structure for both the Mining and Metals divisions during the most recent year. provide three advantages of that type of transfer price which you have identified).

the combination of dresses. and the resulting remnants can be sold for $5.250 dresses.50 a yard.00 a dress. The market research indicates that the cape and handbag will be salable only as accessories with the dress.50 9. or $50. Some material remains after cutting. and handbags expected to be sold by retailers are as follows: Percent of Total 70% 6 15 9 100% Complete sets of dress.00 for each dress. if cape and handbag are not manufactured. If the cape and handbag are manufactured. (24 Marks) . The cost of cutting the dress if the cape and handbag are not manufactured is estimated at $20.00 per dress and there will be no salable remnants. The company expects to sell 1.00 $80.00 27. the cutting costs will be increased by $9. which can be sold as remnants. The selling prices and the costs to complete the three items once they are cut are as follows: Unit Cost to Manufacture (excludes costs of material Selling Price per Unit and cutting operation) $200.50 Dress Cape Handbag Required 1.00 per dress. capes. which will increase the cutting costs.Four yards of material are required to lay out the dress pattern.50 19. if the leftover material is to be used for the cape and handbag. Market research reveals that dress sales will be 20 percent higher if a matching cape and handbag are available.50 6. more care will be required in the cutting operation. and handbag Dress and cape Dress and handbag Dress Total The material used in the dress costs $12. If a matching cape and handbag are available. cape. The leftover material also could be used to manufacture a matching cape and handbag. Calculate Dublin Fashions¶ incremental profit or loss from manufacturing the capes and handbags in conjunction with the dresses. However.

000 Machine Machine Machine Hours Hours Hours $330.464.0 Letsgo develops flexible budgets for different levels of activity for use in evaluating performance. QUESTION #4 (26 Marks.9 24.000 31. has an automated production process.6 137.0 $1.0 129.0 147. Manufacturing Cost Report For 2007 (in thousands of dollars) Static Budget Flexible Budget 30. Identify three qualitative factors that could influence the company¶s management in its decision to manufacture capes and handbags to match the dresses.000 . Letsgo Trailer.000 32.0 50.0 $341.0 50. A standard-costing system is used.000 machine hours.2.0 Actual Cost Cost Item Direct Material Direct labor Manufacturing overhead: Supplies Maintenance Supervision Inspection Insurance Depreciation Total cost $353.000 units to be produced. A total of 6.0 150.0 200. in addition to the analysis on incremental profit/loss shown in requirement (1).8 25. The 2007 manufacturing cost report follows.0 144. The annual static budget for 2007 called for 6.0 $352.0 523.0 50.0 24. (6 marks) © Adapted from CMA.0 147.0 537.502.523.0 200.0 200. requiring 30. 45 Minutes) Letsgo Trailer Inc. requiring 32.200 units was produced during 2007. Inc.0 81.0 540. and production activity is quantified in terms of process hours.0 $1.8 133.0 80.6 84.0 25.0 50.0 200.0 $1.3 82.0 507.0 $1.540.0 130. The standard overhead rate for the year was computed using this planned level of production.

Would the need to make the distinction between product costs and period costs still be essential in term of the impact on net income? Explain. (5 marks) 5. The variable-overhead rate per machine hour in a flexible-budget formula. The variable-overhead spending variance. indicate whether favorable or unfavorable where appropriate. © Adapted from Managerial Accounting. Brewer. (Hint: Use the high-low method to estimate cost behavior. The fixed-overhead budget variance. .000. (4 marks) 3. because of its effect on net income for a period. Garrison. 10 Minutes) Managerial accounting emphasizes that the distinction between period costs and product costs is essential for the majority of manufacturing companies. (3 marks) 6. QUESTION #5 (6 Marks. Seventh Canadian Edition. Failure to make the distinction can affect the cost of goods manufactured and cost of goods sold. The standard fixed-overhead rate per machine hour used for product costing. (4 marks) © Adapted from CMA. McGraw-Hill Ryerson.machine hours. Noreen. Answers should be rounded to two decimal places when necessary. (6 marks) 4. 1. The preceding manufacturing cost report compares the company¶s actual cost for the year with the static budget and the flexible budget for two different activity levels. Chesley.) (4 marks) 2. The fixed-overhead volume variance. Required You are an accountant working in a manufacturing company which adopts the just-intime technique. For variances. Compute the following amounts. Required Assume management has determined that the actual fixed overhead cost in 2007 amounted to $320. Carroll. The variable-overhead efficiency variance.

2 of X. You must answer them all. Do not communicate with anyone except the proctor. 1 of X.YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 A & B FINAL EXAMINATION December 21. 2010 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. No notes or other aids are permitted in the exam. 7. 5. Use only paper provided at the exam. Please do not leave the room without the proctor¶s knowledge. Make sure you have them all. Number each book. 2. Calculators that store text are not permitted. except for a calculator with only mathematical functions. Please enclose the examination with your responses -. The exam has 8 pages (including the cover page). Please do not write your name on the examination booklets. 6. proctors are not permitted to interpret questions. If you require paper for rough work. Make any required assumptions. 3. Identify . 3 of X.also enclose all books given to you. Please use ink and write on every other line ± do not write on unlined pages. 9. (There is a 4-mark penalty if you do not do so!!) 4. use an exam booklet. 8. The exam has 4 questions. etc. This is a closed book examination.

The Switch Division of York Inc. GOOD LUCK! QUESTION 1 (18 marks. (5 marks) .000 per year. Refer to the original data. The manager of the Switch Division has refused to meet this price.000 switches each year at a price of $5 per switch.000. produces a small switch that is used by various companies as a component part in their products.25 per unit.29) The manager of the Switch Division also points out that the normal $5 selling price barely allows his division to earn the required 14% rate of return.yourself with your student number and your section only. Assume that the normal volume of sales is 280.´ he reasons. Another division of the company is currently purchasing 20. taking on these extra units would require us to increase our operating assets by at least $50.25 Cost per switch: Variable $3. then our ROI is obviously going to suffer.000÷300.´ Would you recommend that the Switch Division sell to the other division at $4.54 Operating loss per switch $( 0.25? Explain. operates its divisions as autonomous units. How many switches must the Switch Division sell each year to generate the desired rate of return on its assets? What is the margin earned at this level of sales? What is the turnover at this level of sales? (8 marks) 2. The switches are sold for $5 each.000 due to the larger inventories and accounts receivable we would be carrying. 40 minutes) York Inc.00 Fixed ($462. pointing out that it would lead to a decline in the performance for his division: Selling price per switch $ 4. giving its divisional managers great discretion in pricing and other decisions.000 switches each year. and fixed costs total $462. Besides.25 per switch. ³If we take on some business at only $4.54 4. at a price of $4. Required: 1. The Switch Division has average operating assets of $700.000 switches each year from an overseas supplier. ³and maintaining that ROI figure is the key to my future.000 switches) 1. The division has a capacity of 300. Each division is expected to generate a minimum required rate of return of at least 14% on its operating assets. Variable costs are $3 per switch.

Managerial Accounting.000 75.000 $ 250.000 116.000 switches each year at a price of $5 per switch. What would your recommendation be regarding the internal sale of switches to the other division at $4. He stated.610 Fixed expenses: Manufacturing overhead 58. I won¶t have the slightest idea of where to start looking for the problem.340 Total variable expenses 90. McGraw-Hill Ryerson. who was recently appointed production manager. particularly since sales were exactly as budgeted. Another division of the company is currently purchasing 20.000 switches each year from an overseas supplier. and variable manufacturing overhead.´ Stoney does use a standard cost system.000 Variable expenses: Variable cost of goods sold* 72. at a price of $4. has just been handed the company¶s income statement for October. 40 minutes) Stoney Company produces precast ingots for industrial use.000 Operating income (loss) $ 7. .25? Explain.500 5. Assume that the normal volume of sales is 290.390 Contribution margin 135. If it doesn¶t. Chesley. QUESTION 2 (22 marks. ³I sure hope the company has a standard cost system in operation.050 Variable selling expenses 18.000 $ ( 390) * Contains direct materials.000 94.000 Sales $ 225. Budget Actual Ingots 4.000 Selling and administrative 70.000 133.3. Refer to the original data. direct labour. with the standard variable cost per ingot details shown below. (5 marks) © Adapted from Garrison. Mr. Evans was shocked to see the loss for the month. Carroll Webb.000 Total fixed expenses 128.000 59.25 per switch. Eighth Canadian Edition. Eric Evans.000 22.000 134.

350 machine-hours were scheduled in October.40 Variable manufacturing overhead 0.00 per hour 5. .95 in production. c.320 for the month.00 * Based on machine-hours. Stoney incurred a total variable manufacturing overhead cost of $4.000 ingots and incurred the following costs: a.800 machine-hours was recorded. Eighth Canadian Edition.6 hours $ 9.800 kilograms of materials which were purchased at $2. Carroll Webb. McGraw-Hill Ryerson.600 direct labour-hours at a cost of $8.70 per hour in October. Managerial Accounting. Evans possible causes of these variances.) b. Mr. Stoney paid 3. Chesley. A total of 1. 1. 2. Variable manufacturing overhead spending and efficiency variances. Pick out the two most significant variances that you computed in (1) above and explain to Mr.700 direct-labour hours were scheduled in October.0 kilograms $ 2. Evans has determined that during October the company produced 5. Direct labour rate and efficiency variances. (Finished goods and work in process inventories are insignificant and can be ignored.00 Direct labour 0. (4 marks) © Adapted from Garrison.00 per hour 0. c. Required: 1.) QUESTION 2 (Cont¶d. It is the company¶s policy to close all variances to cost of goods sold on a monthly basis.60 Total standard variable cost $ 16.Standard quantity or hours Standard rate or price Standard cost Direct materials 4.50 per kilogram $10.3 hours* $ 2. b. Compute the following variances for October: (18 Marks) a. Used 19. Direct materials price and quantity variances. 2.

Sales are budgeted at $250.000 will be for cash.000 Liabilities and Shareholders¶ Equity Accounts payable $ 90. June.000 Buildings and equipment.000. All of the May 31 accounts receivable will be collected in June. has not budgeted previously. All of the May 31 accounts payable to suppliers will be paid during June.000 Total assets $ 610.000 Common shares 420. Forty percent of all inventory purchases are paid for in the month of purchase.000 during June. and the remainder is collected the following month. c. Purchases of inventory are expected to total $200.000 Note payable 15. the remainder are paid in the following month. 40 minutes) The balance sheet of Finch Inc.000 Inventory 30. . a distributor of photographic supplies.000 Retained earnings 85. $60.000 Total liabilities and shareholders¶ equity $ 610.000. One-half of a month¶s credit sales are collected in the month the sales are made. Balance Sheet May 31 Assets Cash $ 8. These purchases will all be on account. as of May 31 is given below: FINCH INC. b. Of these sales.000 Accounts receivable 72. and for this reason it is limiting its master budget planning horizon to just one month ahead² namely. the remainder will be credit sales. The June 30 inventory balance is budgeted at $40. net of depreciation 500.000 Finch Inc.QUESTION 3 (24 marks. The company has assembled the following budgeted data relating to June: a.

had requested to have a meeting with the company president. the production manager for Dako. As they finished the meeting. Prepare a cash budget for June. Selling and administrative expenses for June are budgeted at $51. Bill Wiley. Managerial Accounting.000 will be purchased for cash during June. the company president. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases. The company¶s interest expense for June (on all borrowing) will be $500.000. McGraw-Hill Ryerson. 60 minutes) Dako Inc.000 for the month. which will be paid in cash. I think you¶re right about the increasing demand for skateboards. (13 marks) 3. (5 marks) 2. QUESTION 4 (36 marks. Depreciation is budgeted at $2. is a wholesale distributor supplying a wide range of moderately priced sports equipment to large chain stores. Pat Dickenson. Bill. (6 marks) © Adapted from Garrison. Required: 1. Provide five benefits that Finch Inc. g. What I¶m not sure about is whether the skateboard line will . About 70 percent of Dako¶s products are purchased from other companies while the remainder of the products are manufactured by Dako. The new note will be due in one year. exclusive of depreciation.000 from its bank by giving a new note payable to the bank for that amount.) f. Carroll Webb. QUESTION 3 (Cont¶d. the company will borrow $18. e.d. During June. These expenses will be paid in cash. Chesley. Wiley had prepared a proposal of adding a new product line. The note payable on the May 31 balance sheet will be paid during June. ³I¶ll give your proposal some serious thoughts. would gain from implementing a budgeting system. New warehouse equipment costing $9. said. Prepare a budgeted income statement for June. Eighth Canadian Edition.

´ Wiley responded with. Wiley worked out the following estimates with the assistant controller and concluded that the company could make better use of its Plastic Molding Factory by manufacturing skateboards. The selling price and costs associated with snowboards are as follows: Selling price per snowboard Costs per snowboard: Molded plastic Other material Direct labor ($16.0 Because Dako¶s sales manager believes the firm could sell 12.000 snowboards if it had sufficient manufacturing capacity at the Plastic Molding Factory. Wiley believes that Dako could expect to sell 12.be better for us than our snowboards.500 skateboards annually at a price of $52. Those have been our cash cow the past few years.00 per snowboard delivered to Dako¶s facility.00 per hour) Manufacturing overhead Selling and administrative cost Profit per snowboard $90.0 13. making full use of its direct-labor capacity at available work stations of the Plastic Molding Factory.) Selling price per skateboard Costs per skateboard: $52.00 per skateboard.000 snowboards per year at a price of $69.0 . Dako is able to manufacture and sell 10. a steady supplier of quality products. the company has looked into the possibility of purchasing the snowboards for distribution. After his meeting with the company president. MAX Products.0 71.0 $19.5 18. would be able to provide up to 9. Wiley has a market study that indicates an expanding market for skateboards and a need for additional suppliers for snowboards.5 20. We¶ll run a few numbers on this skateboard idea that I think will demonstrate the line¶s potential.0 $ 10.´ Currently the Plastic Molding Factory only manufactures snowboards. QUESTION 4 (Cont¶d.0 9. ³Let me get together with one of the controller¶s people.000 snowboards annually.

0 $14. Dako uses direct-labor hours as the application base for manufacturing overhead.5 38. In order to maximize the company¶s profitability. adapted) . regardless of whether the product has been purchased or is manufactured by Dako.Molded plastic Wheels. determine an option that makes the best use of its scarce resources. Calculate the improvement in Dako¶s total contribution margin if it adopts the optimal strategy as you show in (2) rather than continuing with the current strategy. What would you recommend to Pat Dickenson? (8 Marks) (CMA. hardware Direct labor ($16.6 7.0 In the Plastic Molding Factory. which includes at least three qualitative factors.5 8. For each unit of product that Dako sells.000 of factorywide. How many skateboards and snowboards should be manufactured? Should the company buy snowboards from MAX? Explain. total selling and administrative costs would be $13 per unit.00 fixed cost per unit for distribution that is included in the selling and administrative cost for all products. For the purchased snowboards.´ (15 marks) 2. fixed manufacturing overhead costs. how many snowboards should be purchased? (9 marks) 3. Provide a general evaluation of the skateboard idea.4 10.00 per hour) Manufacturing overhead Selling and administrative cost Profit per skateboard $ 6. Required: 1. Prepare a financial analysis and explain why Bill thinks that ³the company could make better use of its Plastic Molding Department by manufacturing skateboards. (4 marks) 4. If yes. there is an allocated $6. Included in the manufacturing overhead costs of the Plastic Molding Factory for the current year is $50.0 5.

You must answer them all.also enclose all books given to you. 1 of X. Use only paper provided at the exam. use an exam booklet. etc. Please do not leave the room without the proctor¶s knowledge. 2. Please use ink and write on every other line ± do not write on unlined pages. Do not communicate with anyone except the proctor. Number each book. 2 of X. proctors are not permitted to interpret questions. The exam has 6 pages (including the cover page). 5. Calculators that store text are not permitted. This is a closed book examination. 7.SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020A & B FINAL EXAMINATION December 11. (There is a 4-mark penalty if you do not do so!!) 4. 8. 9. If you require paper for rough work. 3. 2009 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. Make any required assumptions. except for a calculator with only mathematical functions. 3 of X. 6. No notes or other aids are permitted in the exam. The exam has 4 questions. Please do not write your name on the examination booklets. Identify . Please enclose the examination with your responses -. Make sure you have them all.

000).510 40 2.000 square feet $500 60 90 $600 Sam is quite certain about the estimates for direct material and direct labour.yourself with your student number only. The estimate for overhead is based on the overhead costs that were incurred during the past 12 months as presented in the following schedule.010 310 . Sam has developed the following preliminary cost estimates for each 1.100 2. However. which provides commercial landscaping services.550 2.600 47. Sam develops cost estimates that he can use to prepare bids on jobs. After analyzing the firm¶s costs.000) by the total direct-labour hours (36.100 48. GOOD LUCK! Question #1 (26 Marks.320 Regular DirectLabour Hours Overtime Direct-Labour Hours* 2.910 190 2.000 3. Total Total Overhead DirectLabour Hours January February March April May $ 53. He used total direct labour hours to estimate overhead cost per 1.800 3. Direct material Direct labour (5 direct-labour hours at $12 per hour) Overhead (at $18 per direct-labour hour) Total cost per 1. 55 Minutes) Sam Gains is the owner of EcoLand Inc.000 square feet.000 square feet of landscaping.690 110 3. he is not as comfortable with the overhead estimate.000 55. He usually charges 30% mark-up of the total costs as the bidding price.310 20 2.330 2.700 57. The estimate of $18 per direct-labour hour was determined by dividing the total overhead costs for the 12-month period ($648.

Sam believes that monthly overhead is driven by total direct-labour hours. He estimates that 20 percent of the direct-labour hours required for the project will be on overtime. This project will take two months to complete.) Required: a. Sam is very interested in winning this project.June July August 65.400 30 2.430 2.150 4.000 * The overtime premium is 50 percent of the direct-labor wage rate. assuming the cost estimate in part (b) is accurate. (3 marks) b.000 56. Since this project will start in February which is not in a busy season.120 30 2. about his estimation of overhead costs.390 760 3.800 3.000 $648.170 2. Sam has been asked to submit a bid on a landscaping project for the city government consisting of 200. Please explain why Matt argued that the estimate of $18 per direct-labour hour might not be a good estimate.150 2.830 60 2.400 2. Question #1: (Cont¶d.100 4.390 690 3.000 square feet.890 2.900 November 47.300 64.000 36.560 240 33. Calculate the incremental costs that should be included in any bid that Sam would submit on this project. Matt told him that the estimate of $18 per directlabour hour might not be a good estimate based on the overhead cost information given. Matt Chen who is an accountant. (7 marks) .830 September 52.050 350 2. (6 marks) c.080 3. He discussed with his friend. Please use the high-low method to provide a new estimate of overhead cost rate per direct-labour hour and express the cost formula of the overhead cost.300 December 54.000 October 47.

40 minutes) Maria Stone and Rick Nyman recently started their own small business after graduating from the same university. Prepare the budgeted income statement and statement of cash flows for . (3 marks). they decided on a business selling vegetarian wraps and fruit juices from a street cart near their alma mater. They hoped this would provide more flexibility in their personal lives for a few years.200 and spent out-of-pocket costs of $5. They estimate the cart will last at least four years after which they expect to sell it for $1.000 that was set up for selling food. they had average monthly revenues of $8. After two months in business. They used $1. assuming the cost estimate in part (b) is accurate? Provide your explanation.800 for the cost for supplies to get started.000 and move on to something else in their lives.000 of their personal savings and they borrowed $8. She thinks the results from their first two months in business can be extended over the next 10 months to prepare the budget they need. and street vendor license. Maria agrees to prepare a forecasted income statement.000 from Maria¶s parents. a business license. (You do not have to provide with a bidding price.400 for ingredients.d. Would Sam bid at the same price as the one you suggested in part (d) if the project is to be started in June? Explain. They agreed to pay interest on the outstanding loan balance each month based on an annual rate of 6 percent. They will repay the principal over the next two years as cash becomes available. e. September and October. napkins and other supplies.) (7 marks) © Adapted from CMA Question #2: (24 marks. They bought a small enclosed cart for $7. Required a. but Maria thinks they should prepare a set of forecasted financial statements for their first year in business before deciding whether or not to repay any principal on the loan. What is the minimum price for bidding this government project you would suggest. which includes the two months already passed. Since both of them enjoyed cooking. Rick thinks they should repay some of the money they borrowed from Maria¶s parents. They spent $1. and statement of cash flows for their first year in business.

Required a.000. Assume no principal will be repaid on the loan and all sales and purchases are cash basis. The total fixed cost is $4. unit fixed manufacturing costs are $120. 5th Edition. York Corporation uses the return on investment (ROI) to evaluate the performance of each subsidiary company and expects each subsidiary company to generate the rate of return of at least 15% on the subsidiary¶s operating asset. VIN is operating at 80 percent of capacity and is producing 200. Advance. When Maria reviews the budgeted statements you prepared in part (a).000 modems annually. (18 marks) b. Other variable manufacture costs of the computer are $470.000. Question #3 (22 Marks.the next 6 months that you would expect Maria to prepare based on her expectations for the business. the cost of acquiring similar modems from the market is $72 each. McGrawHill Irwin. York Corporation. notified VIN¶s president that another subsidiary company. VIN¶s parent company. The variable cost to produce a modem is $40 each and the variable selling cost is $5 each.. on the other hand. wonders why it should even talk to VIN since it can get modems from the market at $72 each. has begun making computers and can use VIN¶s modem as a part. T. Under instructions from the parent company. variable selling expense per computer is $70 and unit fixed selling expense is $50.000. Advance needs 40. Edmonds. VIN insists that its market price is $80 each and will stand firm on that price. How would the performance of VIN be affected if VIN agrees to sell . The average operating assets of VIN are $20.000 modems annually. excluding the cost of the modem. Computers are sold for $820. 40 Minutes) VIN Electronics Corporation makes a modem that it sells to retail stores for $80 each.000. the presidents of VIN and Advance meet to negotiate a price for the modem. Should VIN insist to sell modems to Advance for $80 each? Explain. Olds. Advance Technologies Inc. (4 marks) b. Tsay and P. B. what other factors does she need to consider before deciding to repay the loan? (6 marks) © Fundamental Managerial Accounting Concepts.

000 5. Shane Fisher. the company president.084. Making more tables naturally causes the cost of materials and labour to be higher.50 80. 45 Minutes) Pine Inc.800). From the perspective of the parent company.520.800 .000 modems. expressed concern that the total manufacturing cost was more than $0. Actual Results Master Budget Cost of planks per table Cost of labour per table Total variable manufacturing cost per table Total number of tables produced Total variable manufacturing cost Total fixed manufacturing cost Total manufacturing cost $ 44. After reviewing the following data generated by Pine¶s chief accountant.000 5.240. It sells the tables to large retail discount stores such as Wal-Mart. assuming VIN refuses to sell modems to Advance? (4 marks) d.328.000 1.00 25. what would be the suboptimality cost. .756.000 = $564. makes picnic tables of 2 x 4 planks of treated pine.5 million.084. Prepare the flexible budget of the manufacturing cost that Diana suggests.400 $7.10 26. Diana Hatherly.000 $6. She explained that the flexible budget cost variance was less than $0.modems at $72 each? Explain. York Corporation.000 Mr. what would be your suggestion to VIN and Advance regarding the internal sale of modems? (8 marks) © Adapted from CMA Question #4 (28 Marks.800 $ 40.520.400 1.10 70. Diana responded that things were not as bad as they seemed. Required a. (6 marks) c.20 82.50 65.$6. Fisher asked Diana to explain what caused the increase in cost.280.5 million above budget ($7. should VIN sell to Advance at $72 each? Why or why not? If you are the president of York Corporation. She noted that part of the cost variance resulted from making and selling more tables than had been expected. If Advance¶s demand increases to 70.

and the performance report. (3 marks) b. Based on the following information, determine the direct material price and quantity variances. (6 marks)
Actual Data Number of planks per table Price per plank Material cost per table $ 21 X 2.10 $44.10 Standard Data $ 20 X 2.00 $40.00

c. Based on the following information, determine the direct labour rate and efficiency variances. (6 marks)
Actual Data Number of hours per table Price per hour Labour cost per table $ 2.9 X 9.00 $26.10 Standard Data $ 3.0 X 8.50 $25.50

d. The standard fixed overhead rate for the year was computed using the planned level of production. Determine the amount of the fixed manufacturing overhead cost budget and volume variances. (5 marks) e. Discuss how Mr. Fisher should react to the variance information. (8 marks)
© Fundamental Managerial Accounting Concepts, T. Edmonds, B. Tsay and P. Olds, 5th Edition, McGrawHill Irwin.

YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020A & B FINAL EXAMINATION December 9, 2008

PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 3 questions. You must answer them all. The exam has 6 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line ± do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctor¶s knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret questions. 9. Please do not write your name on the examination booklets. Identify

yourself with your student number only. GOOD LUCK! Question #1 (57 Marks; 75 Minutes) Georgina Company, Ltd., a small manufacturing company, manufactures three types of engines used for various automobiles. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all engines were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. The company is manufacturing at capacity and is selling all the engines it produces. The 2008 third-quarter results for the current year show recent experience. Georgina Company Ltd. Income Statement For the quarter ended September 30, 2008 (In thousands) Opal Emerald Jade Sales $1,900 $3,520 $2,800 Cost of Good Sold 1,990 2,496 2,440 Gross Margin $(90) $1,024 $360 Selling and General Administrative Costs 280 740 470 Income before tax $ (370) $284 ($110)

Total $8,220 $6,926 $1,294 $1,490 ($196)

Mary Grants, the company¶s president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: 1. Discontinue the Opal line immediately. Opal would not be returned to the product line unless the problems with this product line can be identified and resolved. 2. Increase quarterly sales promotion by $200,000 on the Emerald product line in order to increase sales volume by 30 percent.

and shipping) are incurred directly for each engine and are set based on management¶s discretionary evaluation as follows: Quarterly Advertising and Promotion 80. yThe price and unit manufacturing costs for the three products are as follows: Opal $ 190 Emerald $220 Jade $140 Price Direct material $54 $31 $17 Direct labour 60 40 20 Variable manufacturing overhead 45 45 45 Fixed manufacturing overhead 40 40 40 yThe general selling and administrative expense is allocated to the three engines lines based on average sales over the past three years.000 200. promotion. the controller.000 Shipping Expenses $8 per unit $10 per unit $4 per unit Opal Emerald Jade Required 1. suggested a more careful study of the financial relationships to determine the possible effects on the company¶s operating results of the president¶s proposed course of action. yAll three engines are manufactured with common equipment and facilities.3. to prepare an analysis. Ann Brown says that Georgina¶s product-line income statement for . ySpecial selling expenses (primarily advertising.000 each quarter. and cut the traceable advertising and promotion for this line to $40.000 $320. Each unit of the three engines uses the same rate of common equipment. Brown has gathered the following information. Cut production on the Jade product line by 50 percent. The president agreed and assigned Ann Brown. the assistant controller. Johnny Smith.

Use the operating data presented for Georgina Company and assume that the president¶s proposed course of action had been implemented at the beginning of the third quarter. Explain why the product-line income statement as presented is not suitable for analysis and decision making. and explain why it is better. (6 marks) b. Was the president correct in proposing that the Opal line be eliminated? Explain your answer. a. Do you agree on the proposal of a reduction in production on the Jade line and the direct promotion costs? Explain. (4 marks) 3. Following your suggestion in (a). Are there any qualitative factors that Georgina Company¶s management should consider before it drops the Opal line? (10 marks) b.the third quarter is not suitable for analyzing proposals and making decisions such as the ones suggested by Mary Grants. (4 marks) 4. Provide a general evaluation of the proposed course of action which combines the three suggestions. prepare an income statement which would be more suitable for analysis. Support your answer with a quantitative analysis that shows the net impact on income before taxes for each of the three suggestions: a. (10 marks) © Adapted from CMA Question #2 (20 Marks. Was an increase in quarterly sales promotion on the Emerald product line proposed by the president costeffective? (4 marks) c. (19 marks) 2. Evaluate the three suggestions and specifically answer the following questions. 40 Minutes) . Explain why the president proposes to promote the Emerald line rather than the Jade line. Does the proposal make effective use of the company¶s capacity? Explain your answer. Describe an alternative income statement format that would be more suitable for analysis and decision making.

e. $900. the report that the controller likely used when assessing Chapman¶s performance). Total«««««««««««««««. the manager of the production department. (6 marks) 2. The last amount includes $72.000.000.800 239.440. variable manufacturing overhead. Prepare a performance report that compares budgeted and actual costs for the period just ended (i. and his crews turned out 10.CleanAir produces industrial ventilation fans.... Required: 1. however.000 fans during the month²a remarkable feat given that the firm¶s manufacturing plant was closed for several days because of storm damage and flooding. Other fixed manufacturing overhead«««.000. His pleasure. the report that Chapman likely used when assessing his performance). Chapman was especially pleased with the fact that overall financial performance for the period was favorable when compared with the budget. direct labor.000 of straight-line depreciation and $108.000 $995. $432.000 fans evenly over the first quarter and budgeted the following costs: direct material. $450. $360. (4 marks) .900 John Chapman. if Chapman had any hopes of keeping his job. as the controller issued a stern warning that performance must improve. and fixed manufacturing overhead. Supervisory salaries««««««««««.000 37. The company plans to manufacture 36. was very short-lived. Prepare a performance report that compares budgeted and actual costs for the period just ended (i.000. and improve quickly. 152..000 24. Shortly after the end of January.600 Variable manufacturing overhead Depreciation«««««««««««««.e. CleanAir reported the following costs: Direct material used««««««««««. $1.000 of supervisory salaries.500 Direct labor«««««««««««««« 110.

375 $119. citing any apparent problems for the firm.625 110. 55 minutes) York Business Associates.250 136.750 45.000 $2.300.875 $386.875 315. The corporate management at Red Stone Services is pleased with the performance of York Business Associates for the first nine months of the current year and has recommended that the division manager. An unexpected increase in billed hour volume over the original plan is the main reason for this increase in income. offers management and computer consulting services to clients throughout Canada and the northwestern United States.000 $766.750 45.625 110. providing a fair evaluation of managers¶ performance? Explain. YORK BUSINESS ASSOCIATES 2008 Operating Budget 1st Quarter Revenue: Consulting fees: Computer system consulting Management consulting Total consulting fees Other revenue Total revenue Expenses: Consultant salary expenses Travel and related expenses General and administrative expenses Depreciation expense 2nd Quarter $421.160.625 $1. Should Chapman be praised for outstanding performance or is the general manager¶s warning appropriate? Explain.000 60.875 30.000 $647.000 45.000 $647.625 945. Alan Epworth.265.000 60.875 30. The original operating budget for the first three quarters for York Business Associates follows. McGraw-Hill Ryerson.000 60.500 $421.375 .875 30.000 $647.000 45.000 $736.000 $766.875 $386. submit a revised forecast for the remaining quarter. Hilton.000 $766.875 315.942.3. Question #3 (23 Marks.625 110.000 180.000 135.375 $119. Seventh Edition.000 $736. (7 marks) © Adapted from Managerial Accounting.125 $ 358.500 $1.000 $736. Which of the two reports is preferred. a division of Red Stone Services Corporation.000 $1.875 $386.875 315.210.875 330.000 $2. (3 marks) 4.750 45.625 90. as the division has exceeded the annual plan year-to-date by 20 percent of operating income.000 45. The division specializes in Web site development and other Internet applications.500 3rd Quarter Total for First Three Quarters $421.

yThe hourly billing rate for consulting revenue will remain at $90 per hour for each management consultant and $75 per hour for each computer consultant. due to the favorable increase in billing hour volume when compared to the plan. However. Three additional management consultants have been hired to start work at the beginning of the fourth quarter in order to meet the increased client demand. 10 for management consulting and 15 for computer systems consulting. paid monthly. yOther revenue is derived from temporary rentals and interest income and remains unchanged for the fourth quarter. are the same: $50.500 Epworth will reflect the following information in his revised forecast for the fourth quarter. yYork Business Associates currently has 25 consultants on staff. while the new consultants will be compensated at the planned rate. the hours for each consultant will be increased by 60 hours per quarter. the improvement of corporate-wide employee programs will increase the fringe benefits to 40 percent in the fourth quarter. yThe planned salary expense includes a provision for employee fringe benefits amounting to 30 percent of the annual salaries. However.000 for a computer consultant.Corporate expense allocation Total expenses Operating income $119. yThe original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. . yThe budgeted annual salaries and actual annual salaries. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants. These are expenses previously determined hourly rate and have proven to be adequate to cover these costs.000 for a management consultant and $46.

Required: 1. Prepare a revised operating budget for the fourth quarter for York Business Associates that Alan Epworth will present to corporate management. yDue to the favorable experience for the first three quarters and the division¶s increased ability to absorb costs. (20 marks) 2. this 10 percent savings on fourth quarter expenses will be reflected in the revised budget.yGeneral and administrative expenses have been favorable at 10 percent below the plan. Discuss the reasons why an organization would prepare a revised operating budget. yDepreciation of office equipment and personal computers will stay constant at the projected straight-line rate. the corporate management at Red Stone Services has increased the corporate expense allocation by 50 percent. (3 marks) © Adapted from CMA .

Make any required assumptions. Number each book. 2007 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 3 Hours INSTRUCTOR: Sylvia Hsu 1. If you require paper for rough work. The exam has 6 pages (including the cover page). Use only paper provided at the exam.also enclose all books given to you. Do not communicate with anyone except the proctor. proctors are not permitted to interpret . The exam has 4 questions. Make sure you have them all. 2 of X. Show all supporting calculations. No notes or other aids are permitted in the exam. This is a closed book examination. 6. etc. 3 of X. Please use ink and write on every other line ± do not write on unlined pages. 7. 2.YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 A & B FINAL EXAMINATION December 7. use an exam booklet. Calculators that store text are not permitted. A correct answer without supporting calculations will not be given any marks. You must answer them all. except for a calculator with only mathematical functions. Please do not leave the room without the proctor¶s knowledge. 4. 3. (There is a 4-mark penalty if you do not do so!!) 5. 1 of X. Please enclose the examination with your responses -.

900 18.000) Sales Less regional expenses (traceable): Cost of goods sold Advertising Salaries Utilities Depreciation Shipping expense Total regional expenses Regional income (loss) before corporate expenses Less corporate expenses: Advertising (general) General administrative .000 (45.000 139.000 50. Identify yourself with your student number only.000 ($125.000 30.000 50.000 $450.questions.100 395.000 135.000 32.000 640.000 280. and each has its own manager and sales staff. management is able to isolate the problem and improve the company¶s performance.000 15.000 ($13. This statement is for December.500 210. 8.000 28.000 90.000) 30.000 $750. The products that the company distributes vary widely in profitability.000 88.000 68.000 13.000 17.100) 376. management has requested that the monthly income statement be segmented by sales region in order to evaluate the performance of each segment. The company¶s first effort at preparing a segmented statement is given below. Because losses have been incurred at Dean Corporation for 2007.000 80. 50 Minutes) Dean Corporation is a wholesale distributor of office products.500 108.000 160.000 12.000 82. GOOD LUCK! QUESTION #1 (33 Marks.000 $ 78.500 27. It purchases office products from manufacturers and distributes them in the three regions.000 50.000 32. other costs are all fixed. The three regions are about the same size.000 200.000 28.100 54. Please do not write your name on the examination booklets. the most recent month of activity.500 795. Sales Region West Central East $800. Cost of goods sold and shipping expense are both variable. hence.

but in recent years a market has developed for the wool yarn itself.00 Direct labour 3. QUESTION #2 (18 Marks. a continuing dispute has existed in the ATT Sweater Company as to whether the yarn should be sold simply as yarn or processed into sweaters. Since the development of the market for the wool yarn. Do you agree with these allocations in preparing a segmented report? Explain. McGraw-Hill Ryerson. (4 marks) 2.60 . Originally. Brewer. Garrison.expense Total corporate expenses Operating income (loss) Required 1. Analyze the statement that you prepared in part (3) shown previously. Noreen. Current cost and revenue data on the yarn are given below: Per Spindle of Yarn Selling price $22. Seventh Canadian Edition. all of the wool yarn was used to produce sweaters. (3 marks) 3. Present an income statement for December in a format which you consider would be more appropriate for evaluating the performance of each segment and providing recommendations to management. 25 Minutes) The ATT Sweater Company produces sweaters.00 Cost to manufacture: Raw materials (raw wool) $9. Explain the basis that is apparently being used to allocate the corporate expenses to the regions. The company buys raw wool and processes it into wool yarn from which the sweaters are woven. The yarn is purchased by other companies for use in production of wool blankets and other wool products. (16 marks) 4. List at least three disadvantages or weaknesses that you see to the statement format illustrated above. What points that might help to improve the company¶s performance would you bring to management¶s attention? (10 Marks) © Managerial Accounting. Chesley Carroll.

50 Direct labour 5.40 18.50 Wool yarn 18. The costs and revenues associated with the sweaters are given below: Per Sweater Selling price $34. This has made it necessary for the company to discount the selling price of the sweaters to $34 from the normal $45 price.00 Manufacturing profit (loss) $(3. The sales manager thinks that the production of sweaters should be discontinued. QUESTION #2 (Cont¶d.00 Total raw materials 22. the dispute has again surfaced over whether the yarn should be sold outright rather than processed into sweaters. thread.00 profit. He argues that the company is in the sweater business. Would you recommend that the wool yarn be sold outright or processed into . not the yarn business.00 The market for sweaters is temporarily depressed.Manufacturing overhead 5.00 loss when the yarn could be sold for a $4. she is upset about having to sell sweaters at a $3. Materials and direct labour costs are variable.) All of the manufacturing overhead costs are fixed and would not be affected even if sweaters were discontinued. Required 1.80 Manufacturing overhead 8.00) Since the market for wool yarn has remained strong. and that the company should focus on its core strength. However. One spindle of wool yarn is required to produce one sweater. the production superintendent does not want to close down a large portion of the factory.70 37.00 Cost to manufacture: Raw materials: Buttons. Manufacturing overhead is assigned to products on the basis of 150% of direct labour cost.00 $ 4. due to unusually warm weather in the western provinces where the sweaters are sold. lining $ 4.

does it appear that Schulich suffered a lengthy strike during the year by its production workers? Briefly explain. Max¶s TV Division has identified a new opportunity to manufacture a new model of TV in addition to . What is the lowest price that the company should accept for a sweater? Support your answer with appropriate computations and explain your reasoning? (7 Marks) © Managerial Accounting. On the basis of the data presented. QUESTION #4 (39 Marks. McGraw-Hill Ryerson. Chesley Carroll. Compute the variable-overhead spending variance and efficiency variance.sweaters? Support your answer with appropriate computations and explain your reasoning. The following information is available for the year just ended: Standard variable overhead rate per hour: $2.00 Planned activity during the period: 20. McGraw-Hill Ryerson. QUESTION #3 (10 Marks.900 Actual machine hours worked: 23.000 machine hours Actual production: 10. 20 Minutes) Schulich Company uses a standard cost accounting system and applies manufacturing overhead to products on the basis of machine hours. Brewer.700 finished units Machine-hour standard: Two completed units per machine hour Actual variable overhead: $55. (4 marks) 3. Seventh Edition. (4 marks) 2.100 Required 1.50 Standard fixed overhead rate per hour: $4. (2 marks) © Adapted from Managerial Accounting. 80 Minutes) Max Industries is a decentralized organization which has several independent divisions. Noreen. Calculate the company¶s fixed-overhead volume variance and budget variance. Each division is evaluated as a profit centre. Seventh Canadian Edition. Garrison.440 Actual total overhead: $155. (11 Marks) 2. Hilton.

during this current year. The new model will require a tuner which will have to be purchased by TV Division. However. (24 marks) 2. The strike experienced by this customer has since been resolved and normal purchase levels will resume next year. All three potential suppliers have been eager to offer attractive prices in order to get TV Division¶s business. This is because one of Tuner Division¶s largest customers experienced a strike during the year and hence did not purchase as many tuners as it usually does. Tuner Division has enough excess capacity to supply TV Division¶s tuner requirements. Variable costs are $50 per unit and allocated fixed overhead is $15 per unit.its existing products. $65 and $70 per unit. TV Division has received price quotations from three external suppliers for the required tuner at $60. the new model will require $35 per unit of variable costs and will be allocated $40 per unit of fixed overhead. TV Division management would like to find a reliable supplier for the tuners. Tuner Division has a good reputation among its customers. Under this policy. TV Division management has determined that the new model will be priced at $160 per unit. Max has a policy that states that any internal transfers between divisions should occur at the midpoint between the selling division¶s cost and the buying division¶s external purchase price. and usually operates at full capacity. will TV Division and Tuner Division transact? Is this policy a goal congruent solution for Max? (15 marks) . In addition to the tuner. From the perspective of Max as a whole. Once such a supplier has been identified TV Division plans to sign them to a 3 year supply contract. Tuner Division usually sells its tuners for $75 per unit. TV Division management was advised that another division of Max ± Tuner Division ± specializes in manufacturing the same kind of tuners that the new model will require. Required 1. should TV Division purchase the tuners from Tuner Division or one of the three external suppliers? Discuss with full reasoning the various issues that would have to be considered.