Mid Term Exam

MANAGEMENT ACCOUNTING II
PGP Term II - 2020

Maximum Marks - 30 Time Allowed – 2 1/2 hrs.

(OPEN BOOK EXAMINATION)

1. Lexington Company produces baseball bats and cricket paddles. It has two departments that process
all products. During July 2017, the beginning work in process in the cutting department was half
completed as to conversion, and complete as to direct materials. The beginning inventory included
$40,000 for materials and $40,000 for labour and $20,000 for other conversion costs. Ending work-
in-process inventory in the cutting department was 40% complete. Direct materials are added at the
beginning of the process.

Beginning work in process in the finishing department was 80% complete as to conversion. Direct
materials for finishing the units are added near the end of the process. Beginning inventories
included $28,800 for transferred-in costs and $20,000 for labour cost and $8000 for other conversion
costs. Ending inventory was 30% complete. Additional information about the two departments
follows:

Cutting Finishing
Beginning work-in-process units 20,000 24,000
Units started this period 60,000
Units transferred this period 64,000 68,000
Ending work-in-process units 20,000

Material costs added $48,000 $34,000

Conversion costs 24,480 76720
(Includes 9280 labour cost) (Includes 49320 labour cost)

Required:
Prepare cost of production report for July 2017, using weighted average method for Cutting
Department and FIFO method for the finishing department: (4+6 Marks)

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 2. Using the facts and figures provided in the case Brillliant Accents., you are required to analyze
product profitability for the three products under two cost systems.
(3+7) Marks

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome,
and White. Production takes 25, 25, and 10 machine hours to manufacture 1000-unit batches of
brass, chrome and white faucets, respectively. The following additional data apply:
BRASS CHROME WHITE
Projected sales in units #30,000 #50,000 #40,000

PER UNIT data:

Selling price $45 $25 $30

Direct materials $8 $4 $8
Components per Unit 20 8 5
Direct labor $15 $3 $9

Hours per 1000-unit batch:

Direct labor hours 40 10 30
Machine hours 25 25 10
Setup hours 1.0 0.5 1.0
Inspection hours 30 20 20

Total overhead costs and activity levels for the year are estimated as follows:
Activity Overhead costs
Purchasing $120,000
Material Handling $240,000
Setups $465,500
Inspections $405,000
Machine Maintenance and Depreciation $144,000

The purchase manager places 3, 1 and 2 purchase orders respectively for each batch of production of
Brass, Chrome and White faucets. As a matter of policy, an average batch size is of 1000 units irrespective
of the products produced in each batch.

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3. Keneth Samson, a florist, operates retail stores in several shopping malls. The average selling price of
an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen
wants to locate a store, but the location manager is not sure about the rent method to accept. The mall
operator offers the following three options for its retail store rentals:
a. paying a fixed rent of $15,000 a month,
b. paying a base rent of $9,000 plus 10% of revenue received, or
c. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000.

Required: (5+5) Marks

a. For each option, compute the breakeven sales and the monthly rent paid at break-even.

b. Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000
units.

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