MID-TERM EXAM

ACADEMY OF
December 2021
POLICY AND DEVELOPMENT
International School of Economics and Finance Management Accounting
Duration: 120 minutes

TEST CODE: 05

Instructions
Please read the instruction carefully before you start.
 There are 3 questions in this paper.
 Each question carries different marks and full marks can be obtained for complete
answers to all the questions.
 There are 10 marks available on this paper.
 A hand-held calculator may be used when answering questions on this paper but it must
not be pre-programmed or able to display graphics text of algebraic equations.
 Other materials are not allowed in the examination.
 Cheating is forbidden and will result in the mark of ZERO.

Note: This is closed-book exam. 1

Question 1: (3.5 points)

Rosebloom produces premium cookies and uses process costing. There are three
processing departments: Mixing, Baking and Packaging. In the Packaging Department,
direct materials are added at the beginning of the process. Conversion costs are added
evenly throughout each process. The weighted-average method of process costing is used.
Data from May for the Packaging Department are as follows:

Packaging Department

Units:

Beginning work in process: 70 batches

Transferred in from the Baking Dept. during May: 650 batches

Completed and transferred out during the period: 630 batches

Ending work in process (80% complete as to conversion work): 90 batches

Costs:

Beginning work in process $4,725

(transferred in cost, $3,430; direct material cost, 770;
conversion costs, $525)

Transferred in from the Baking Dept. during May $31,850

Materials cost added during May $7,150

Conversion costs added during May $10,005

Requirements

1. Prepare a timeline for Packaging Department. (0.5 point)

2. Prepare a production cost report for the Packaging Department in May.

(3.0 points)

Note: This is closed-book exam. 2

Question 2: (3.5 points)

Vincent Jardine, a CPA, has a consulting firm in the state of New York that offers optimal
tax solutions. Vincent Jardine’s systems consultants provide direct labor at a rate of $180
per hour. Clients are billed at 120% of direct labor cost. Last month, Vincent Jardine's
consultants spent 135 hours on Nurix Inc.
Vincent Jardine decides to develop an ABC system to allocate his firm’s indirect costs. He
estimates indirect costs for this year amount to $182,000 and the company is expected to
work 7,000 direct labor hours during the year. He identifies three activities related to the
total indirect costs - documentation preparation, travel and information technology (IT)
support. He figures that documentation costs are driven by the number of pages, travel
costs are driven by the number of miles travelled, and IT support costs are driven by the
number of direct labor hours worked. Estimates of the costs and quantities of the allocation
bases follow:

Estimated Estimated quantity

Activity Allocation base
costs of allocation base
Documentation preparation Pages $ 42,000 5,000 pages
Travel Miles travelled 105,000 35,000 miles
IT Support Direct labor hours 35,000 7,000 DLH
Total $182,000

The Nurix job used the following resources last month:

Cost Driver Nurix

Direct labor hours 135
Pages 320
Miles travelled 450

Requirements
1. Compute the cost allocation rate for each activity. (1.0
point)
2. Compute the cost assigned to the Nurix job, using the ABC system. (1.0
point)
3. Compute the operating income from the Nurix job, using the ABC system.
Note: This is closed-book exam. 3
 (0.5 point)
4. Assuming that Vincent Jardine uses traditional costing method to allocate
indirect cost (based on direct labor hours), calculate the operating income from
the Nurix job. Comment on the results obtained.
(1.0 point)

Question 3: (3.0 points)

Timex Company is a hand watch manufacturer. Timex sells a quatz watch for $69 per unit.
Variable costs are $45 per unit, and fixed costs are $96,000 per year.
Requirements

1. Use the contribution margin approach to compute the number of units Timex must sell
each year to break even. (0.5
point)

2. Use the contribution margin ratio CVP formula to compute the dollar sales Timex
needs to earn $88,800 in operating income for 2019. (0.5
point)

3. Graph Timex’s CVP relationships. Show the breakeven point, the sales revenue line,
the fixed cost line, the total cost line, the operating loss area, the operating income
area, and the sales in units and dollars when operating income of $88,800 is earned.
(1.0 point)

4. Timex is considering a quality improvement program that will increase the variable
costs by 20% and the fixed costs by $12,000. Selling price will now be $75 per unit.
Compute the required sales in dollars in order to have double operating income.
(1.0 point)

---------- END ---------

Note: This is closed-book exam. 4