.

TEST CODE 02201010

FORM TP 2006158 MAY/JUNE 2006

CARIBBEAN EXAMINATIONS COUNCIL

ADVANCED PROFICIENCY EXAMINATION

ACCOUNTING
UNIT 2 - PAPER 01
90 minutes

READ THE FOLLOWING DIRECTIONS CAREFULLY

1. This paper comprises TWO sections- SECTION A and SECTION B. SECTION A comprises
27 multiple-choice items. SECTION B comprises 6 short-answer items.

MULTIPLE-CHOICE
2. In addition to this test booklet, you should have an answer sheet.
3. Each item in the multiple-choice test has four suggested answers lettered (A), (B), (C), (D). Read
each item you are about to answer and decide which choice is BEST.
4. On your answer sheet, find the number which corresponds to your item and blacken the space
having the same letter as the answer you have chosen. Look at the sample item below.
Sample Item
Prime cost is calculated by Sample Answer
(A)
(B)
adding direct factory expenses to cost of materials used
adding indirect factory expenses to cost of materials used
e ®©®
(C) subtracting direct factory expenses from cost of materials used
(D) subtracting indirect factory expenses from cost of materials used
The best answer to this item is "adding direct factory expenses to cost of materials used," so
answer space (A) has been blackened.
5. If you want to change your answer, be sure to erase your old answer completely and fill in your
new choice.
SHORT-ANSWERS

6. In the case of the short-answer questions, each question is followed by a number of lines or a
space in which you are expected to write your answer. YOU MUST RETURN THE SHORT-
ANSWER SECTION OF THE PAPER ALONG WITH YOUR MULTIPLE-CHOICE PAPER
AND ANSWER SHEET.
7. When you are told to begin, turn the page and work as quickly and as carefully as you can. If you
cannot answer an item or question, omit it and go on to the next one. You can come back to the
harder item later.
8. You will have 90 minutes to answer the questions on thi s paper.
9. You may use silent non-programmable calculators to answer questions in both sections.

Copyright© 2004 Caribbean Examinations Council ®

All rights reserved.
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SECTION A - MULTIPLE CHOICE

Answer ALL questions in this section.

Each question is worth ONE mark.

1. In comparing financial and management 4. Which is the BEST reason for using an
accounting, which of the following more activity-based costing system?
accurately describes management
accounting information? (A) To keep better track of overhead
costs
(A) Historical, precise, useful (B) To more accurately assig n
(B) Required, estimated, internal overhead costs to cost pools so
(C) Budgeted, informative, adaptable that these costs are better
(D) Comparable, verifiable, monetary controlled
(C) To better assign overhead costs to
products
2. Rampaul Inc. applies overhead to jobs on (D) To assign indirect service overhead
the basis of direct labour at the rate of 80 costs to direct overhead cost pools
per cent of direct labour. Rampaul's
records revealed the following data for
2005:
5. Green Enterprises uses a job order costing
$ system. The job cost sheet for Job #329
Direct labour 111 600 shows the following for the month of
Direct material 84200 March:
Actual overhead 98 700
Direct material $5 000
The amount of over- or under-applied Direct labour (100 hours
overhead for the year is at $7.25) $725
Machine hours incurred 40
(A) over-applied by $12 900 Predetermined overhead rate
(B) under-applied by $12 900 per machine hour $26
(C) over-applied by $9 420
(D) under-applied by $9 420 The total cost that should appear on the job
cost sheet for Job #329 is
3. Cost and management accounting
(A) $5 725
(A) requires an entirely separate group (B) $5 765
of accounts than financial (C) $6 765
accounting uses (D) $8 325
(B) focuses solely on determining how
much it costs to manufacture a
product or provide a service
(C) provide s product/serv ice cost
information as well as informa-
tion for internal decision making
(D) is required for business record-
keeping as are financial and tax
accounting
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Use the following information for items 6- 9 .

DeSouza Company has the following information available for October,
when 3 500 units were produced (round answers to the nearest dollar).

Standards:

Material 3.5 pounds per unit at $4 .50 per pound

Labour 5.0 hours per unit at $10.25 per hour

Actual:

Material purchased 12 300 pounds at $4.25 per pound

M aterial used 11 750 pounds
17 300 direct labour hours at $10.20 per hour

6. What is the labour rate variance for 8. What is the material price variance (based
October? on quantity purchased) for October?

(A) $865 F (A) $2 938 u

(B) $865 u (B ) $2 938 F
(C) $875 F (C) $3 075 u
(D) $875 u (D) $3 075 F

7. What is the labour efficiency variance for 9. What is the material quantity variance for
October? October?

(A) $2 040 u (A) $2 250 F

(B) $2 040 F (B ) $2 250 u
(C) $2 050 F (C) $2 475 F
(D) $2 050 u (D) $2 475 u

10. The following information was extracted from the records of James Inc.

Cost of goods sold is $ 107 000.

Ending balance of Finished Goods Inventory is $20 000.
Cost of goods manufactured is $57 000.

The beginning balance of finished goods inventory for the period is

(A) $ 70 000
(B) $ 77 000
(C) $ 127 000
(D) $ 157 000

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Use the following information for items 13. Corazol Inc. applies overhead to jobs at the
11 and 12. rate of 40 per cent of direct labour cost. At
the beginni ng of June the balance in the
Adams Co. uses a job order costing work-in-process account relating to Job#44
system. The following information is avail- was $2 800. During June, the fo llowing
able from its records. The company has 3 was expended on Job #44: Direct material
jobs in process: #5, #8, and #12. of$1250 and direct labour of$1400. The
total cost of Job #44 at June 30th was
Raw material used $ 120 000
Direct labour per hour $ 8.50 (A) $3 210
Overhead applied based on (B) $4 760
direct labour cost 120 per cent (C) $ 5 450
(D) $6 010
D irect material was requisitioned as
follows for each job:
14. Pegas us ~anufac tu ring Inc. uses a
30 per cent, 25 per cent, and 25 per cent; weighted average process costing system.
the bal ance of the requisitions was consid- The company started 30 000 units into
ered indirect. Direct labour hours per job production thi s month. Pegas us
are 2 500; 3 100; and 4 200 respectively. Manufacturing Inc . had 12 000 units that
Indirect labour is $33 000. Other actual were 20 pe r cent co mpl e ted as to
overhead costs totalled $36 000. conversion costs in beg inning work-in-
process inventory and 3 000 uni ts that
were 40 per ce nt co mpl e ted as to
11. Wh at is the total amount of overhead conversion cos ts in ending work-in-
applied to Job #8? process inventory. What are the equiva-
lent units for conversion costs?
(A) $ 18 250
(B) $ 26 350 (A) 37 800
(C) $30 000 (B ) 40 200
(D) $3 1 620 (C) 40 800
(D ) 42 000

12. If Job # 12 is completed and transferred,

what is the balance in work-in-process 15. A primary purpose of using a standard-cost
inventory at the e nd of the period, if over- system is to
head is applied at the end of the period?
(A) make things easier for managers in
(A) $ 96 700 the production faci li ty
(B) $ 99 020 (B) provide a distinct measure of cost
(C) $ 170 720 control
(D) $ 139 540 (C) minimi ze the cost pe r unit of
production
(D) provide more inform ation to
managers

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16. Absorption costing differs from variable 19. The net present value and internal rate of
costing in all of the following EXCEPT return methods of decision making in
capital budgeting are superior to the
(A) treatment of fixed manufacturing payback method in that they
overhead
(B) treatment of variable production (A) are easier to implement
costs (B) consider the time value of money
(C) acceptability for external reporting (C) require less input
(D) arrangement of the income (D) reflect the effects of sensitivity
statement analysis

Use the following information to answer
i terns 17 and 18.
The income statement for Cipriani Co. for
2005 is presented below:
20. Berbice Farms Ltd estimates that its annual
carrying cost for material X is $0.30 per
lb. If the farm requires 50 000 lbs per year,
and ordering costs are $100 per order, the
EOQ (rounded to the nearest pound) is

Sales $400 000 (A) 1 225 lbs

Variable costs ( 125 000) (B) 1 732 lbs
Contribution margin $275 000 (C) 4 0821bs
Fixed costs (200 000) (D) 5 7741bs
Profit before taxes $75 000

21. Which of the following is NOT a benefit

The company produced and sold 25 000 of budgeting?
units.
(A) It uncovers potential bottlenecks
17. What is the break-even point in dollars for before they occur.
Cipriani? (B) It coordinates the activities of the
entire organization by integrating
(A) $200 000 the plans and objectives of the
(B) $290 909 various parts.
(C) $300 000 (C) It ensures that accounting records
(D) $325 000 comply with generally accepted
accounting principles.
(D) It provides benchmarks for evalu-
18. If Cipriani had a break-even sales figure in ating subsequent performance.
dollars of $250 000, the margin of safety
for 2005 would be

(A) $ 75 000
(B) $109 091
(C) $150 000
(D) $250 000

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22. The wages of factory maintenance person- 25. Susan Ince is paid 10 per cent of the gross
ne l would usually be considered to be sales of her department as salary per month .
Susan received $ 15 000 each month for the
Indirect Manufacturing last three months. Which of the following
labour overhead methods BEST describes how Susan is
paid?
(A) No Yes
(B) Yes No (A) Commission on sales
(C) Yes Yes (B) Fixed salary
(D) No No (C) Hourly rate
(D) Piece rate

23. Conversion cost consists of which of the

following? 26. A company applies overhead on the basis
of machine hours. The company 's
(A) Manufacturing overhead cost predetermined overhead rate is $28 per
(B) Direct materi als and direct labour machine hour based on its budget of 17000
cost hours . During th e year the company
(C) Direct labour cost incurred actual overheads of $496 500 and
(D) Direct labour and manufacturing under-applied overhead by $ 12 520. The
overhead cost budgeted overhead cost for the period was

(A) $476 000

24. The Aron Co. requires 40 000 units of (B) $483 980
product Q for the year. The units will be (C) $496 500
used evenly throughout the year. It costs (D) $509 020
$60 to place an order. It costs $ 10 to carry
a unit in inven tory for the year. The
economic order quantity (EOQ) rounded 27. An accounting firm e mploys 25 professional
to the nearest whole unit is auditors. Budgeted costs total $ 1 200 000,
of which $550 000 are indirect costs and
(A) 400 the budgeted professional labour hours are
(B ) 490 500 000 . Actual indirect costs were
(C) 600 $600 000 a nd actua l labo ur hours were
(D) 693 504 000. The predetermined overhead rate
is

(A) $1.10perhour
(B) $ 1.19 per hour
(C) $2.38 per hour
(D) $2.40 pe r hour

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SECTION B - SHORT ANSWER

Answer ALL questions in this section.

28. GuyWood Lumber Inc. is considering the purchase of a new lathe machine. The new lathe will
cost $30 000, have an eight-year life, and create cost savings of $5 000 per year. The new lathe
will require $700 of maintenance each year. Guy Wood Lumber Inc. uses a discount rate of9 per
cent. The annuity figure of 9 per cent for 8 years is 5.538

(a) Compute the net cash flow per year. [ 1 mark]

(b) Compute the net present value of the lathe. [ 3 marks]

(c) Determine the payback period. [2marks]

Total 6 marks

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29. Philmore Corp. produces a single product. The foll owing is a cost structure applied to its first
year of operations, 2005:

Sales price $ 15 per unit

Vari able costs:
Selling expenses $2 per unit
M anufacturing $4 per unit
Fixed costs (total cost incurred for the year):
Sell ing expenses $ 14 000
M anufacturing $20 000

During 2005, Phi lmore Corp. manufactured 5 000 units and sold 3 800. There was no beginning
or e nding work-in-process inventory.

(a) Prepare the income statement using the absorption costing format. [3 marks]

(b) Prepare the income statement using the variable costing format. [3 marks]

Total 6 marks

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30. JR Co. Ltd budgeted overheads for its production and service departments as follows :

Production Department Service Department

1 2 G H
Overhead cost $870 000 $690 000 $160 000 $82 000
Percentage usage of G 60% 30% - 10%
Percentage usage of H 50% 30% 20% -

Allocate the service department overhead cost to the production departments using the step-down
method. Allocate service department G first.

Total 6 marks

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31. Z Ltd had the following purchases of raw material X during the month of April:

April 4 Purchases 140 units at $10 each

12 Purchases 60 units at $ 12 each
16 Purchases 200 units at $ 10 each
26 Purchases 50 units at $ 12 each

Z Ltd had in stock at the beginning of April, 40 units of raw material X which they had purchased
in March at a price of $10 each. At April 30, during the regular stock taking exercise, there were
90 units of raw material X on hand.

Calculate the value of the 90 units on hand using the following:

(a) First in first out method of inventory valuation. [2 marks]

(b) Last in first out method of inventory valuation. [2 marks]

(c) Weighted average method of inventory valuation. [2 marks]

Total 6 marks

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32. ABC Accounting Services provides general accounting, audit and advisory services to clients.
ABC charges clients at the rate of $150 per hour for its services. The overhead charge per hour for
jobs is $40. C lients A and Beach incurred 120 hours of accounting services during May. Client
A's accounting services were conducted by two senior accountants and one junior accountant
each working 40 hours. Client B 's consulting was done by four junior accountants each working
equal time. The actual cost of each class of accountant is
Senior Accountant $75 per hour
Junior Accountant $47.50 per hour
Calculate the total cost of each client job.

Total 6 marks
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33. Sherwood Inc. predicts it will produce and sell 40 000 units of its sole product in 2006. At that
volume, it projects a sales price of $30 per unit, a contribution margin ratio of 40 per cent, and
fixed costs of $5 per unit.

Calculate the company's projected breakeven for 2006 in dollars and units. [4 marks]

Calculate the company 's projected profit if it produced and sold 30 000 units. [2 marks]

Total 6 marks

ENDOFTEST

0220101 0/CAPE/2006