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Name:____________________ Student Number:____________

Fall 2009
School of Administrative Studies, York University
ADMS 2510-Introduction to Management Accounting

Final Exam: Part One

December 20, 2009
7 to 8:10PM
1. This is a closed book examination and no collaboration
is allowed.
2. Only NON-PROGRAMMABLE calculators are allowed
3. Write your name and student number in the designated
area at the top of each page, and indicate your
section letter on the cover page.
4. Place photo identification on your desk at the
beginning of the exam to facilitate verification.
5. You must sign in.
6. Formula sheets and dictionaries are not allowed.
7. Cell phones must be turned off.

Indicate Section:____________

A: Tuesday 4-7pm S. Ding VH D

B: Wednesday 7-10pm J. Nemi CLH K
C: Thursday 7-10pm S. Ding CLH B
D: Monday 7-10pm S. Ding VH D
E: Wednesday 4-7pm J. Nemi CLH H
F: Internet P. Gelinas
G: Friday 11:30-2:30pm B. Bryant HNE 038

Number: ______________

Question 1 (20 marks): ________

Question 2 (20 marks): ________

Total: /40

Name:____________________ Student Number:____________

QUESTION 1 (20 marks)

In an attempt to conceal a theft of funds, Snake N. Grass, controller of Bucolic Products,

placed a bomb in the company's record vault. The ensuing explosion left only fragments
of the company's factory ledger, as shown below:

Raw Materials Manufacturing Overhead Control

Bal. 6/1 79,000

Work in Process Accounts Payable

Bal. 6/1
Bal. 6/30
Finished Goods Cost of Goods Sold

Bal. 6/30

To bring Mr. Grass to justice, the company must reconstruct its activities for June. You
have been assigned to perform the task of reconstruction. After interviewing selected
employees and sifting through charred fragments, you have determined the following
additional information:

a. According to the company's treasurer, the accounts payable are for purchases of
raw materials only. The company's balance sheet, dated May 31, shows that
Accounts Payable had a $20,000 balance at the beginning of June. The company's
bank has provided photocopies of all cheques that cleared the bank during June.
These photocopies show that payments to suppliers during June totalled $119,000.
(All materials used during the month were direct materials.)

b. The production superintendent states that manufacturing overhead cost is applied

to jobs on the basis of direct labour hours. 11,500 direct labour hours were used
to apply overhead for June. However, he does not remember the rate currently
being used by the company.

c. The company over-applied manufacturing overhead by $6,100 during the month

of June.

d. Cost sheets kept in the production superintendent's office show that only one job
was in process on June 30, at the time of the explosion. The job had been charged
with $6,600 in materials, and 500 direct labour hours at $8 per hour had been
worked on the job.

e. A log is kept in the finished goods warehouse showing all goods transferred in
from the factory. This log shows that the cost of goods transferred into the
finished goods warehouse from the factory during June totalled $280,000.

Name:____________________ Student Number:____________

f. The company's May 31 balance sheet indicates that the finished goods inventory
totalled $36,000 at the beginning of June.

g. A charred piece of the payroll ledger, found after sifting through piles of smoking
debris, indicates that 11,500 direct labour hours were recorded for June. The
company's Personnel Department has verified that as a result of a union contract,
there are no variations in pay rates among factory employees.

h. The production superintendent states that there was no under- or over-applied

overhead in the Manufacturing Overhead account at May 31.


Determine the following amounts:

a) Predetermined overhead rate being used by the company (3 marks)

1. Predetermined overheade rate =Applied overhead / Actual activity measure

=Applied overhead / Actual direct labor hours
=Applied overhead / 11,500
11,500 direct labour hours are from condition b.

From the T account of Manufacturing Overhead Control, we know the actual overhead is
$79,000; from condition c, we know that this company over-applied overhead by $6,100.
Therefore, the Applied overhead should be 6,100 greater than the actual overhead. That
is, $85,100 (79,000+6,100).

The predetermined overhead rate = 85,100 / 11,500 = $7.4/DLH

b) Work in process inventory, June 30 (5 marks)

From condition d, there is only one unfinished job; the cost of ending inventory of work
in process should be equal to the cost of the only unfinished job.

Working in process inventory at the end of June

= DM + DL + MOH
= $6,600 + $ 8 *500 hours + $7.4/DLH * 500 hours
= $14,300

Name:____________________ Student Number:____________

c) Raw materials usage during June (6 marks)

The WIP account is as follows:

Work in Process
Beginning balance: 7,200 Cost of goods finished and
transferred out: 280,000
(from condition e)
DM usage (unknown)
DL (from condition d and g) = 11,500 hours *8=92,000
MOH (from requirement 1 and condition g)=7.4*11,500
hours =85,100
Ending balance: 14,300 (from requirement 2)

And the following relationship holds:

Beginning balance + DM usage + DL + MOH applied – cost of goods completed and

transferred = ending balance

So, DM usage = ending balance + cost of goods completed and transferred – beginning
balance – DL – MOH applied
=14,300+ 280,000-7,200-92,000-85,100
= 110,000

d) Raw materials inventory, June 30 (2 marks)

Ending balance = Beginning balance + Purchase - Material usage
= 8,000 + 115,000 – 110,000
= 13,000

Name:____________________ Student Number:____________

e) Unadjusted cost of goods sold for June (4 marks)

Beginning balance + transferred in = cost of goods sold + ending balance

Cost of goods sold = beginning balance + transferred in – ending balance

= 36,000 (from condition f) + 280,000 (from condition e) – 21,000
= 295,000

Name:____________________ Student Number:____________

QUESTION 2 (20 marks)

Machine Replacement Incorporated is considering replacing an existing machine with
a new more technologically superior and faster machine at October 31, 2009. The
switch to this new machine will result in a superior product that will have a higher
tolerance to downtime than the existing product. It is expected to allow Machine
Replacement Incorporated to increase its sales price for the new product. The switch
in machines will increase fixed costs, and reduce the overall variable operating costs.
The corporate tax rate is 50%.
Technology Impact on Revenues and Cost Estimates.
Revenue /Cost Item New Technology Old Technology
Sales Price per Unit $ 200 $ 190
Variable Cost per Unit 125 130
Monthly Fixed Costs $ 2,625,000 $ 1,800,000
Capital Costs & Useful Life
Acquisition Cost $ 3,000,000 $ 4,500,000
Book Value 3,000,000 1,225,000
Market Value 10/31/09 3,000,000 600,000
Remaining Life 5 years 5 years

Support your answers with appropriate schedules.
Please round your answers to the nearest dollar.

a) Identify the relevant revenue and cost items in order for management
to prepare an effective equipment replacement decision analysis. (3 marks)
b) What is the monthly break-even point in units for each machine. (2 marks)
c) Determine the monthly sales level in units at which total company
income will be equal for either the old or new machine. (5 marks)
d) Explain which machine represents a lower risk if demand is
uncertain in the short run? (4 marks)
e) Determine the sales level in dollars and in units at which the new
machine will achieve a 10% after tax target income-to-sales ratio.(6 marks)


- Change in Sales price per unit will impact the decision.
- Change in Variable cost per unit will impact the decision.
- Change in Monthly fixed costs will impact the decision.

Name:____________________ Student Number:____________

- Estimated demand in units in the decision period – 5 years.

- Acquisition cost of the new technology.
- Current market value of the old technology.
( 3 Marks ).

Break Even Point in Units;

New Technology = $ 2,625,000 / ($ 200 - $ 125) = 35,000 units.

Old Technology = $ 1,800,000 / ($ 190 - $ 130) = 30,000 units.

( 2 Marks ).

Equality of Profit Would Occur at the Volume Level Where:

( $ 75 x Sales units ) – $ 2,625,000 = ( $ 60 x Sales units ) – $ 1,800,000.

$ 15 Sales units = $ 825,000.

Sales units = 55,000 units.

( 5 Marks ).

If demand is uncertain, the old machine represents less risk because of its
lower fixed costs to recover and the lower break even units at 30,000 units
versus the new machine with its higher fixed costs to recover and a higher
level of break even units at 35,000 units. This is the concept of operating
leverage. For every unit short of its break-even point, the new machine
results in a greater loss per unit, and for every unit past its break-even
point, the new machine results in a greater profit per unit.

( 4 Marks ).

Name:____________________ Student Number:____________


10% after tax target profit is equal to 20% before tax target
profit when the corporate tax rate is 50%.

( $ 75 x Sales units ) – $ 2,625,000 = ( 0.20 ) ( $ 200 x Sales units ).

75Sales units – 2,625,000 = 40Sales units.

35Sales units = 2,625,000, Sales units=75,000.

Sales revenue = 75,000 x $ 200 = $ 15,000,000.