Final Solution Winter 2017

Examination Cover Sheet
COURSE: COMM NUMBER: 305 & ACCO240 SECTION(S): ALL SECTIONS
EXAMINATION: DATE: APRIL 25, 2017 TIME: 14:00 – 17:00 PAGES: 8

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SPECIAL INSTRUCTIONS:
 You may answer the questions in any order. Please state, on the cover of the booklet, the
order in which you answered the questions. Your answers should be in a good format and
may be written in pencil or ink.
 Read the questions carefully and budget your time carefully. Show details of all work and
calculations to benefit from part marks, Attempt all questions.
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COMM 305 & ACCO 240 FINAL EXAM WINTER 2017 Page 1 of 8
QUESTION I-A. 12 POINTS
The company that you work for as a managerial accountant considers changing the
production process from manual to automatic. The result of the change would be that
variable manufacturing costs would be reduced from currently 40% of Sales to 15% of
Sales, but fixed manufacturing costs would double to $1.8m. You had already prepared
the following income statement for the company based on the current manual
production process:
Income Statement
Year Ending March 31, 2017
Sales $3,000,000
Cost of goods sold (variable and fixed manufacturing costs) 2,100,000
Gross profit 900,000
Selling and administrative expenses
Variable costs (10% of sales) $300,000
Fixed costs 75,000 375,0000
Income before taxes 525,000
Income tax expense (20%) 105,000
Income after taxes $ 420,000
Management also wants to examine the possibility of outsourcing their production. A
suitable supplier was identified and the supplier offers to produce the good in the right
quality and quantity at cost of 45% of sales. If the company outsources its production,
the company would no longer incur variable manufacturing costs and would reduce its
fixed manufacturing costs to one-third of its current fixed manufacturing costs (under
manual operation). All other fixed costs, as well as variable cost percentages, would
remain the same as in the above pro forma income statement.
Assume that the company produces its products just-in-time. Hence all manufacturing
costs become Cost of Goods Sold.
Instructions:
a) Based on the provided information calculate the break-even point in sales dollars
for the company for the year ending March 31, 2017. (3 Marks)
b) Calculate the break-even point in sales dollars for the year ending March 31,
2017, if the company changes to an automatic production. (3 Marks)
c) Calculate the sales dollars required for the outsourcing option to have the same
operating income as projected in the pro forma income statement (the current
manual production process) for the year ending March 31, 2016. (3 Marks)
d) Starting from which level of sales dollars is the manual production option better
than the outsourcing option? Show your calculations and justify your answer. (3
Marks)
Solution to Question I – Part A: 12 marks
a) Based on the provided information calculate the break-even point in sales dollars
for the company for the year ending March 31, 2017. (3 Marks)
1. Prepare CVP Income Statement (Current labour-intense process)
Sales $3,000,000
Var. COGS (40% x $3m) 1,200,000
Var. SG&A (10% x $3m) 300,000
Total Variable Costs 1,500,000
Contribution Margin 1,500,000
Fixed COGS ($2.1m – $1.2m) 900,000
Fixed SG&A 75,000
Total Fixed Costs 975,000
Operating Income before taxes 525,000
2 Calculate BEP in sales dollars

BEP in Sales-$ = Fixed Costs / CM Ratio
Calculate CM Ratio = CM / Sales = $1,500,000 / $3,000,000 = 50%
= $975,000 / 50%
= $1,950,000
b) Calculate the break-even point in sales dollars for the year ending March 31,
2017, if the company changes to an automatic production. (3 Marks)
1. Prepare CVP Income Statement (For automatic production)
Sales $3,000,000
Var. COGS (15% x $3m) 450,000
Var. SG&A (10% x $3m) 300,000
Total Variable Costs 750,000
Fixed COGS ($0.9m x 2) 1,800,000
Fixed SG&A 75,000
Total Fixed Costs 1,875,000

= $1,875,000 / 75%
= $2,500,000
c) Calculate the volume of sales dollars required for the outsourcing option to have
the same operating income as projected in the pro forma income statement for
the year ending April 30, 2016. (3 Marks)
1. Prepare CVP Income Statement (For outsourcing option)
Sales $3,000,000
Purchasing costs (45% x $3m) 1,350,000
Var. SG&A (10% x $3m) 300,000
Total Variable Costs 1,650,000
Fixed COGS (1/3 x $0.9) 300,000
Fixed SG&A 75,000
Total Fixed Costs 375,000

Required Sales-$ = Fixed Costs + Profit Target Before Taxes / New CM Ratio
Required Sales-$= ($375,000 + $525,000 ) / 45% = $2,000,000
d) Starting from which level of sales dollars is the manual production option better
than the outsourcing option? Show your calculations and justify your answer. (3
Marks)
Option 1: Manual production

S = 0.4S var. COGS + 0.1S var. SG&A + $975,000 Fixed Costs + P
S = 0.50S + $975,000 + P
Option 2: Outsourcing
S = 0.45S var. COGS + 0.1S var. SG&A + $375,000 + P
S = 0.55S + $375,000 + P
Equate of Option 1 and 2, and solve for S
0.50S + $975,000 + P = 0.55S + $375,000 + P

0.05 S = $600,000
S = $12,000,000
Answer: Starting from above $12m sales the manual production becomes more
profitable.
QUESTION I-B. 8 POINTS
Vancouver Company is contemplating in investing into automating part of their
production. However, before making the change, Alfredo would like to know its
consequences, since the volume of business varies significantly from year to year.
Shown below are the estimated revenues and costs for the current manual system and
the proposed automated system under the assumption of last year’s sales of
$1,500,000:
Manual Automated
System System
Sales $1,500,000 $1,500,000
Variable costs $1,200,000 400,000
Contribution margin 300,000 1,100,000
Fixed costs 100,000 900,000
Operating income $ 200,000 $ 200,000
Instructions:
(a) Using the operating leverage, which option is preferable if sales are expected to
increase by 20% next year? Show your calculations. (3.5 Marks)
(b) Using the operating leverage, which option is preferable if sales are expected to
decrease by 20% next year? Show your calculations. (2.5 Marks)
(c) Given that historical sales volume has always been below $1.5m, which option
would you propose to Vancouver Company? Justify your answer. (2 Marks)
Solution to Question I – Part B: 8 marks
(a) Using the operating leverage, which option is preferable if sales are expected to
increase by 20% next year? Show your calculations. (3.5 Marks)
Operating Leverage Manual: $300,000 CM / $200,000 Operating Income = 1.5

Profit Increase Manual: $200,000 x 1.5 x 20% = $60,000
New Total Profit Manual = $260,000
Operating Leverage Automated: $1,100,000 CM / $200,000 Operating Income = 5.5

Profit Increase Automated: $200,000 x 5.5 x 20% = $220,000
New Total Profit Automated = $420,000
Answer: Automated system is preferable.
(b) Using the operating leverage, which option is preferable if sales are expected to
decrease by 20% next year? Show your calculations. (2.5 Marks)
Profit Decrease Manual: $200,000 x 1.5 x -20% = -$60,000

New Total Profit Manual = $140,000
Profit Decrease Automated: $200,000 x 5.5 x -20% = -$220,000

New Total loss Automated = -$20,000
Answer: the Manual system is preferable.
((c) Given that historical sales volume has always been below $1.5m, which option
would you propose to Vancouver Company? Justify your answer. (2 Marks)
Answer: At $1.5 m sales both alternatives generate the same amount of profit. Above
$1.5m the automated system is more profitable; below $1.5m the current manual
system is more profitable. As historical sales volume has always been below $1.5m,
it is better to use the manual system.
QUESTION II-A. 10 POINTS
Montreal Ltd produces 3 different bicycles which are the simple A, the classic B, and the
superb C.
Budgeted
Price per Variable cost per units to be Machine hours
Product unit unit sold required per unit
Simple A $600 $480 350 Two Hours
Classic B $650 $290 500 Three Hours
Superb C $720 $400 300 Eight Hours
The fixed costs incurred for the production of the three bike models amount to
$120,000. The total machine hours available amount to 3,800 hours.
Instructions:
1. Calculate the maximum profit achievable from full capacity production at
Montreal Ltd. (7 Marks)
2. Montreal Ltd has the option to rent additional machinery to make sure that all
budgeted units can be produced and sold. This would increase fixed costs by an
additional $35,000. Would you recommend doing this? Explain your answer and
show calculations.
(3 Marks)
Solution to Question II – Part A: 10 marks
1) Calculate the maximum profit achievable from full capacity production at Montreal Ltd
Check if there is a bottleneck/capacity constraint?
Simple A: 350 uts x 2 Hour. = 700 Hours.
Classic B: 500 uts x 3 Hours. = 1,500 Hours.
Superb C: 300 uts x 8 Hours. = 2,400 Hours.
Total required time: = 4,600 Hours required to produce all budgeted units
Available time: = 3,800 Hours.
Total required time > Available time  Bottleneck/Capacity Constraint

Calculate contribution margin per unit of limited resource
Simple A Classic B Superb C
Selling price $600 $650 $720
Variable cost $480 $290 $400
CM $120 $360 $320
Machine hours 2 Hours 3 Hours 8 Hours
required
CM per unit of $60 $120 $40
limited resource
Order of production: Classic B, Simple A, and Superb C

Calculate optimal production plan:
Total available time = 3,800 Hours.
Classic B: 500 uts x 3 Hours = 1,500 Hours required
Remaining time = 2,300 Hours
Superb A: 350 uts x 2 Hour = 700 Hours required
Remaining time = 1,600 Hours
Classic C: 1,600 Hours / 8 Hours = 200 uts
Remaining time = 0
Calculate maximum profit with optimal production plan:
- B: 500 uts
- A: 350 uts
- C: 200 uts
Total CM for Classic B: c/o $360 x 500 uts = $180,000

Total CM for Superb A: c/o $120 x 350 uts = $42,000
Total CM for simple C: c/o $320 x 200 uts = $64,000
Total CM: = $286,000
- Fixed costs: = $120,000
Maximum Net Profit: = $166,000
[COMMENT: Alternative calculation of maximum net profit via using CM per limited
resources instead of CM per unit]
2) Montreal Ltd has the option to rent additional machinery to make sure that all
budgeted units can be produced and sold. This would increase fixed costs by an
additional $35,000. Would you recommend to do this? Explain your answer and show
calculations.
Currently c/o 100 units of C cannot be produced.

CM of C per unit: $320
Total contribution for 100 units of C: $320 x c/o 100 units = $32,000
Increase in fixed costs = $35,000
Incremental LOSS: $3,000
Answer: Montreal Ltd should NOT rent the additional machinery as it would generate an
incremental LOSS of $3,000. c/o
QUESTION II-B. 10 POINTS
Next Level (NL) is a division of Global Electronics, Inc. NL produces video game systems.
These systems are sold to retailers. NL recently approached the manager of the personal
computer (PC) division regarding a request to buy a special circuit board for a new advanced
video game system. NL has requested that the PC division produces 200,000 units of this special
circuit board. The following facts are available regarding the PC division:
Selling price of standard circuit board $54
Variable cost of standard circuit board 30
Additional variable costs of special circuit board 20
Instructions
For each of the following independent situations, calculate the minimum transfer price and
discuss whether PC should accept the offered price.
(a) Next Level has offered to pay the PC division $62 per circuit board. The PC division has
no available capacity. The PC division would have to forgo sales of 200,000 circuit
boards to existing customers in order to meet the request of Next Level.
(b) Next level has offered to pay the PC division $90 per circuit board. The PC division has
no available capacity. The PC division would have to forgo sales of 250,000 circuit
boards to existing customers in order to meet the request of Next Level.
(c) Next Level has offered to pay the PC division $62 per circuit board. The PC division has
available capacity.
Solution to Question II – Part B: 10 marks
(a) Assuming no available capacity, and that the number of new units produced would
be equal to the number of standard units forgone, variable cost of the special
board would be $50 ($30 + $20) and the opportunity cost would be $24 ($54 –
$30). Therefore, the minimum transfer price would be $74 ($50 + $24). Since this
is higher than the $62 transfer price, the PC Division should reject the offer.
Min TP = special circuit board VC + OC

Min TP = ($30 + $20) + ($54 - $30) = $50 + $24 = $74
Offered TP = $62 < Min TP $74  Reject offer

(b) Assuming no available capacity, and that in order to produce the 200,000 special
circuit boards, 250,000 standard boards would be forgone, the opportunity cost
would be: [($54 – $30) × 250,000] ÷ 200,000 = $30.00
Therefore, the minimum transfer price would be $80.00 [($30 + $20) + $30]. Since
the $90 transfer price being offered exceeds the minimum transfer price of $80,
the PC Division should accept the offer.

Min TP = ($30 + $20) + [($54 - $30) × 250,000 ÷ 200,000] = $50 + [$24 ×
250,000 ÷ 200,000] = $50 + $30 = $80
Offered TP = $90 > Min TP $80  Accept offer
(c) Assuming that the PC Division has available capacity, variable cost would be $50
($30 + $20) and the opportunity cost would be zero. Therefore, the minimum
transfer price would be $50 ($50 + $0). Since the $62 transfer price being offered
exceeds the $50 minimum transfer price, the offer should be accepted.

Min TP = ($30 + $20) + $0 = $50
Offered TP = $62 > Min TP $50  Accept offer
QUESTION III. 20 POINTS
Montreal Corporation has recently acquired a small manufacturing operation in British Columbia
that produces one of its more popular items. This plant will provide these units for resale in retail
hardware stores in British Columbia and Alberta. Because the budget prepared by the plant was
incomplete, Jordan Leigh, Montreal' CFO, was sent to B.C. to oversee the plant's budgeting
process for the second quarter of 2017.
Jordan asked various managers to collect the following information for preparing the second-
quarter budget.
Sales in Units
Unit sales for March 2017 102,000
Expected unit sales for April 2017 110,000
Expected unit sales for May 2017 115,000
Expected unit sales for June 2017 120,000
Expected unit sales for July 2017 135,000
Expected unit sales for August 2017 160,000
Average unit selling price $15
Based on the experience from the home plant, Jordan has suggested that the B.C. plant keeps
10% of the next month's unit sales in ending inventory. The plant has contracts with some of the
major home hardware giants, so all sales are on account; 50% of the accounts receivable is
collected in the month of sale, and the balance is collected in the month after the sale. This was
the same collection pattern from the previous year. The new plant has no bad debts.
Direct Materials: The combined quantity of direct materials (consisting of metal, plastic, and
rubber) used in each unit is 1.1 kg. Metal, plastic, and rubber together amount to $1.50 per kg.
Inventory of combined direct materials on March 31 consisted of 12,155 kg. This plant likes to
keep 10% of the materials needed for the next month in its ending inventory. Fifty percent of the
payables are paid in the month of purchase, and 50% is paid in the month after purchase.
Accounts Payable on March 31 will total $120,600.
Direct Labour: Labour requires 15 minutes per unit for completion and is paid at an average
rate of $18 per hour.
Instructions
For the second quarter of 2017 prepare the monthly and total of the following budgets:
a. Sales budget.
b. Schedule for expected cash collections from customers.
c. Production budget.
d. Direct materials budget.
e. Schedule for expected payments for materials purchases.
f. Direct labour budget.
g. Solution to Question III -20 marks
h. Note: For each * (asterisk) allocate 0.5 marks
i.
j. (a) (2 Marks)
MONTREAL CORPORATION
British Columbia Production Plant
Sales Budget for the 2nd Quarter, 2017
April May June Total
Sales in units 110,000 115,000 120,000 345,000

Per unit selling price $15 $15 $15 $15
Total expected sales $1,650,000 $1,725,000 $1,800,000 $5,175,000
* * * *
k.
l. (b) (2 Marks)
Expected Cash Collections for the 2nd Quarter, 2017
Collections from March* $765,000 $765,000

April (50% x c/o
825,000 825,000
$1,650,000)
April (50% x c/o
$825,000 825,000
$1,650,000)
May (50% x c/o $1,725,000) 862,500 862,500
May (50% x c/o $1,725,000) 862,500 862,500
June (50% x c/o
900,000 900,000
$1,800,000)
$1,590,00 $1,687,50 $1,762,50 $5,040,00
0* 0* 0* 0*
* 102,000 units x $15 per unit x 50% = $765,000
m.
n.
o. (c) (4 Marks)
p.
Production Budget for the 2nd Quarter, 2017
Budgeted sales in units 110,000 115,000 120,000 345,000
Plus: ending inventory 11,500* 12,000* 13,500* 13,500*
Total required 121,500 127,000 133,500 358,500
c/o c/o
Less: beginning inventory 11,000* 11,500* 12,000* 11,000*
110,500 115,500 121,500 347,500
(d) (8 Marks)
Direct Materials Budget for the 2nd Quarter, 2017
c/o c/o c/o c/o
Units to be produced 110,500 115,500 121,500 347,500
DM per unit (kg) 1.10 1.10 1.10 1.10
c/o c/o c/o c/o
Total production needs 121,550* 127,050* 133,650* 382,250*
c/o c/o c/o c/o
Plus: ending inventory 12,705* 13,365* 15,125* 15,125*
134,255 140,415 148,775 397,375
c/o c/o c/o c/o
Less: beginning inventory 12,155* 12,705* 13,365* 12,155*
Total materials required 122,100 127,710 135,410 385,220
Cost per kg 1.50 1.50 1.50 1.50
c/o c/o c/o c/o
Cost of purchases $183,150* $191,565* $203,115* $577,830*
Production requirements, July: 135,000 + (10% x 160,000) - 13,500 =

137,500
Total production needs in kg, July: 137,500 x 1.1 = 151,250 kg
Desired ending inventory, June: 151,250 x 10% = 15,125
q. (e) (2 Marks)
Expected DM Cash Disbursements for the 2nd Quarter, 2017
Disbursements from $120,60

$120,600
March 0
April (50% x c/o $183,150) 91,575 91,575
April (50% x c/o $183,150) $91,575 91,575
May (50% x c/o $191,565) 95,782.5 95,782.5
$95,782.
May (50% x c/o $191,565) 95,782.5
5
June (50% x 101,557.
101,557.5
c/o$203,115) 5
$212,175* $187,357.5 $197,340 $596,872.5*
* *
r.
s. (f) (2 Marks)
Labour Budget for the 2nd Quarter, 2017
c/o c/o c/o c/o

Production in units 110,500 115,500 121,500 347,500
Hours per unit 0.25 0.25 0.25 0.25
Total hours required 27,625 28,875 30,375 86,875
Rate per hour $18 $18 $18 $18
Total labour costs $497,250* $519,750* $546,750* $1,563,750*
t.
u.
QUESTION IV. 20 POINTS
Quebec Corp. is a manufacturer of specialty in-line skates. The operating results for 2016 are as
follows:
Units produced 20,000 pairs
Units sold 18,000 pairs
Selling price $200 per pair
Production information:
Direct materials $1,000,000
Direct labour 750,000
Variable manufacturing overhead 450,000
Fixed manufacturing overhead 800,000
Variable marketing costs 180,000
Fixed marketing costs 200,000
There was no beginning finished goods inventory.
Instructions (Hint: Prepare the production cost per unit under each method first.)
a) Assuming the company uses Throughput costing method:

1. Prepare the Throughput costing income statement for 2016. (8 Marks)
2. Reconcile the difference in net income between the Variable costing and
Throughput-costing methods. (2 Marks)
3. Reconcile the difference in net income between the Absorption costing and
Variable-costing methods (2 Marks)
b) Assuming the company uses the budgeted volume of 25,000 pairs to allocate the fixed
overhead rate rather than the actual production volume of 20,000 pairs. The company
expenses production volume variance to cost of goods sold in the accounting period in
which it occurs. Do the following:
1. Prepare the income statement for 2016 under Normal Absorption costing. (6
Marks)
2. Reconcile the difference in net income between the Normal Absorption

costing and Absorption-costing methods. (2 Marks)
Solution to Question IV -20 marks
Calculate the manufacturing cost per unit. ABS NABSC VC TH

DM $50.0 $50.0 $50.0 $50
DL $37.5 $37.5 $37.5 -
Var. MOH $22.5 $22.5 $22.5 -
Fixed MOH $40.0 $32.0 - -
MC per unit: $150.0 $142.0 $110.0 $50
Fixed MOH under absorption costing = $800,000 / 20,000 units produced = $40
Fixed MOH under normal absorption costing = $800,000 / 25,000 units budgeted = $32
(1) Quebec Corporation PRODUCTS

Throughput Costing Income Statement
For the year 30, 2016 (8 marks in total)
Sales (18,000 units × $200) $3,600,000

Less: COGS (18,000 units × $50 ) 900,000
Throughput contribution margin c/o 2,700,000
Less: Operating expenses
Direct Labour (20,000 units × $37.5 ) $750,000
Variable Overhead (20,000 units × $22.5 ) 450,000
Variable S&A (18,000 units × $10) 180,000
Fixed Overhead 800,000
Fixed S & A 200,000
$2,380,000
Net Profit before tax c/o $320,000
(2) The difference is $120,000 which is per unit deferred DL & variable
manufacturing overhead costs times the number of skates
increased in ending inventory, 2,000 skates × (direct labour,
$37.5 + variable MOH, $22.5). (2 marks in total)
Net income under throughput costing: $320,000 c/o

Add deferred var. MOH and DL cost $ 120,000*
Net Profit under variable costing: $440,000 c/o
*2,000 skates × (direct labour, $37.5 + variable MOH, $22.5 c/o)
(3) When production exceeds sales, absorption costing net income
will exceed variable costing net income by an amount equal to
the fixed overhead rate times the number of units increased in
ending inventory. The difference in net income is $80,000, which
equals the 2,000 skates in ending inventory times the $40 fixed
overhead rate.
(2 marks in total)
Net income under Variable costing: 440,000 c/o

Add deferred fixed MOH cost $ 80,000*
Net income under absorption costing: $520,000 c/o
*2,000 skates in ending inventory x $40 fixed overhead c/o

Fixed MOH under absorption costing = $800,000 / 20,000 units produced =
$40
(B-1) Quebec Corp.

Income Statement—Normal Costing
Year ended December 31, 2016 (6 marks in total)
Sales (18,000 units × $200 ) $3,600,000
Less: COGS (18,000 units × $142 ) 2,556,000

Plus unfavorable production volume
variance (5,000 unit X $32) 160,000
Adjusted COGS 2,716,000
Gross Profit $884,000
Variable S&A (18,000 unit × $10) 180,000

Fixed S & A 200,000
$380,000
Net Income before tax c/o $504,000
(B-2) When production exceeds sales and actual production is lower
than budgeted production, Absorption costing net income will
exceed Normal absorption costing net income by an amount
equal to the difference in fixed manufacturing overhead rate
times the number of units increased in ending inventory. The
difference in net income is $16,000 ($504,000 – $516,000), which
equals the 2,000 skates in ending inventory times the difference
in fixed manufacturing overhead rate $8 ($40 – $32). (2 marks in
total)
Net income under Normal absorption costing: $504,000 c/o

Plus: deferred fixed MOH cost (2,000 X $8) $16,000*
Net income under absorption costing: $520,000 marks
c/o
*2,000 skates in ending inventory x the difference in fixed

manufacturing overhead rate $8 ($40 – $32)
QUESTION V. 20 POINTS
You have been given the following information about the production of Gamma Co., and are
asked to provide the plant manager with information for a meeting with the vice-president of
operations:
Standard Cost Card
Direct materials (2 kg at $3 per kilogram) $6.00
Direct labour (0.8 hours at $10) 8.00
Variable overhead (0.8 hours at $5 per hour) 4.00
Fixed overhead (0.8 hours at $10 per hour) 8.00
$26.00
The following is a production report for the most recent period of operations:
Variances
Total Standard
Costs Price/Rate Spending/Budget Quantity/Efficiency Volume
Cost
Direct materials $405,000 $33,000 U $9,000 F
Direct labour 540,000 13,675 F 7,000 U
Variable
270,000 $1,500 U ?
overhead
Fixed overhead 540,000 $1000 U $7,000 F
Instructions (2 Marks for each sub-question)

a. How many units were produced during the period?
b. How many kilograms of raw material were purchased and used during the period?
c. What was the actual cost per kilogram of raw materials?
d. How much were actual direct labour hours worked during the period?
e. What was the actual rate paid per direct labour hour?
f. What was the actual variable overhead cost incurred during the period?
g. What was the total fixed cost in the company's master budget?
h. What were the hours for the master budget fixed overhead?
i. What was the total overhead budget variance?
j. What was the total under-applied (over-applied) manufacturing overhead?
Solution to Question V:
Marking COMMENT:
- No c/o
- Each correct answer 2 points
Material Variances
Price Variance Quantity Variance
(AQ × AP) (AQ × SP) (SQA × SP)
c) b) a) $
132,000 × $3.25 132,000 × $3 67,500 x 2× 3
$429,000 $396,000 405,000
$33,000 U $9,000 F
$24,000 U
Total Material
Variances
(a) Number of units = Total standard material cost ÷ standard cost/unit
Number of units = $405,000 ÷ $6.00 (2 kg × $3 per kg) = 67,500 units
(b) AQ = [(SQ × SP) ± Quantity variance] ÷ SP

AQ = ($405,000 - $9,000) ÷ $3.00 per kg = 132,000 kilograms
(c) AP = [(AQ × SP) ± Price variance] ÷ AQ

AP = [(132,000 × $3) + $33,000] = $429,000 ÷ 132,000 kg = $3.25/kg
Labour Variances
Price Variance Quantity Variance
(AQ × AP) (AQ × SP) (SQA × SP)
e) d)
54,700 × $9.75 54,700 × $10 67,500 x 0.8× $10
$533,325 $547,000 $540,000
$13,675 F $7,000 U
$6,675 F
Total Labour Variance
(d) AH = [(SH × SR) ± Efficiency variance] ÷ SR

AH = ($540,000 + $7,000) ÷ $10.00/hr = 54,700 hours
(e) AR = [(AH × SP) ± Rate variance] ÷ AH

AP = [(54,700 × $10) - $13,675] = $553,325 ÷ 54,700 hr = $9.75/hr
Variable Overhead Variances
Spending Variance Quantity Variance
(A-Spending) (AQ × SR) (SQA × SR)
54,700 × $5 67,500 x .8 × $5
f) $275,000 $273,500 $270,000
$1,500 U $3,500 U
$5,000 U
Total Variable Overhead
Variance
(f) Actual variable overhead cost = (AH × VOH rate) ± Spending variance
Actual variable overhead cost = (54,700 × $5) + $1,500 = $275,000
Fixed Overhead Variances

Spending Variance Volume Variance
(AQ × AP) (SQ × SR) (SQA × SR)
h) 53,300 × $10 67,500 x .8 × $10
$534,000) g) $533,000 $540,000
$1,000 U $7,000 F
$6,000 F
Total fixed Overhead
Variance
(g) Budgeted fixed cost = Standard cost ± Volume variance
Budgeted fixed cost = $540,000 - $7,000 = $533,000
(h) Master budget hours = Budgeted fixed cost ÷ FOH rate
Master budget hours = $533,000 ÷ $10.00 = 53,300 hours
(i) Total overhead budget variance
= Variable MOH spending variance + Variable MOH quantity variance
+ Fixed OH Spending Variance
= $1,500 U + $3,500 U* + $1,000 U= $6,000 U
*$270,000 - $273,500 = $3,500 U
(j) Under-/Over-applied
Total actual overhead: $275,000 + $534,000* = $809,000
Total applied overhead: $270,000 + $540,000 = $810,000
Total overhead variance = Actual Overhead – Overhead Applied
= $809,000 – $810,000
= $1,000 F OVER-APLIED
*$533,000 Master Budget (from i) + $1,000 U Spending Variance =

$534,000 Actual FMOH

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Examination Cover Sheet

COURSE: COMM NUMBER: 305 & ACCO240 SECTION(S): ALL SECTIONS

EXAMINATION: DATE: APRIL 25, 2017 TIME: 14:00 – 17:00 PAGES: 8

MATERIALS ALLOWED: INSTRUCTIONS:

STUDENT NAME: ______________________________________________________________

ID. NO. _________________________ SECTION: __________________________________

1. Prepare CVP Income Statement (Current labour-intense process)

2 Calculate BEP in sales dollars

1. Prepare CVP Income Statement (For automatic production)

Calculate CM Ratio = CM / Sales = $2,250,000 / $3,000,000 = 75%

1. Prepare CVP Income Statement (For outsourcing option)

2 Calculate BEP in sales dollars

Required Sales-$= ($375,000 + $525,000 ) / 45% = $2,000,000

Option 1: Manual production

Equate of Option 1 and 2, and solve for S

0.50S + $975,000 + P = 0.55S + $375,000 + P

Operating Leverage Manual: $300,000 CM / $200,000 Operating Income = 1.5

Operating Leverage Automated: $1,100,000 CM / $200,000 Operating Income = 5.5

Answer: Automated system is preferable.

Profit Decrease Manual: $200,000 x 1.5 x -20% = -$60,000

Profit Decrease Automated: $200,000 x 5.5 x -20% = -$220,000

Answer: the Manual system is preferable.

Simple A $600 $480 350 Two Hours

Classic B $650 $290 500 Three Hours

Superb C $720 $400 300 Eight Hours

Total required time > Available time  Bottleneck/Capacity Constraint

Order of production: Classic B, Simple A, and Superb C

Calculate maximum profit with optimal production plan:

Total CM for Classic B: c/o $360 x 500 uts = $180,000

Currently c/o 100 units of C cannot be produced.

Min TP = special circuit board VC + OC

Offered TP = $62 < Min TP $74  Reject offer

Min TP = special circuit board VC + OC

Offered TP = $90 > Min TP $80  Accept offer

Min TP = special circuit board VC + OC

Offered TP = $62 > Min TP $50  Accept offer

Sales in units 110,000 115,000 120,000 345,000

Collections from March* $765,000 $765,000

* 102,000 units x $15 per unit x 50% = $765,000

Production requirements, July: 135,000 + (10% x 160,000) - 13,500 =

Disbursements from $120,60

c/o c/o c/o c/o

Direct materials $1,000,000

Direct labour 750,000

Variable manufacturing overhead 450,000

Fixed manufacturing overhead 800,000

Variable marketing costs 180,000

Fixed marketing costs 200,000

There was no beginning finished goods inventory.

a) Assuming the company uses Throughput costing method:

2. Reconcile the difference in net income between the Normal Absorption

Calculate the manufacturing cost per unit. ABS NABSC VC TH

(1) Quebec Corporation PRODUCTS

Sales (18,000 units × $200) $3,600,000

Net income under throughput costing: $320,000 c/o

*2,000 skates × (direct labour, $37.5 + variable MOH, $22.5 c/o)

Net income under Variable costing: 440,000 c/o

*2,000 skates in ending inventory x $40 fixed overhead c/o

(B-1) Quebec Corp.

Sales (18,000 units × $200 ) $3,600,000

Less: COGS (18,000 units × $142 ) 2,556,000

Variable S&A (18,000 unit × $10) 180,000

Net income under Normal absorption costing: $504,000 c/o

ID. NO. _ SECTION: __________