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RSM 222 H1S MIDTERM EXAM, Winter 2011




Question;UNIVERSITY OF TORONTO;RSM 222 H1S;MIDTERM EXAM, Winter 2011;Section I: 9 Multiple Choice Questions (3 marks each, 27 marks in;total);Please;circle the single best answer for the multiple-choice questions.;1. Which of;the following items would be included as part of factory overhead in a microcomputer;manufacturer?;a. the cost;of memory chips;b. wage of;computer assemblers;c.;depreciation of computer assemblers;d. salary;of marketing director;e. all of;the above;2.;Inventoriable costs;a. include;only the prime costs of manufacturing a product.;b. include;only the conversion costs of manufacturing a product.;c. are;expensed when products become part of finished goods inventory.;d. are;regarded as assets before the products are sold.;e. None of;the above.;3. Once the;break-even point is reached;a. The;total contribution margin changes from negative to positive.;b. Net;income will increase by the unit contribution margin for each item sold.;c. Variable;costs will remain constant in total;d. The;contribution margin ratio begins to decrease;e. None of;the above;4. Miller;manufactures desks. During the most productive month of the year, 3,500 desks;are manufactured at a total cost of $84,400. In its slowest month, Miller makes;1,100 desks at a cost of $46,000. February is a regular month. Miller plans to;make 2,000 units. What is the total variable costs for Fabruary?;a. $60,400;b. $55,240;c. $48,230;d. $32,000;e. None of;the above.;5. Winsor;Inc. has planned to increase factory manager salary by 10%. If selling prices;and all other cost are held constant, the break-even point;a.;decreases at rate higher than 10%;b.;decreases at a rate lower than 10%.;c.;increases at rate higher than 10%;d.;increases at a rate lower than 10%.;e. None of;the above.;6. The;following information relates to Glow Ltd.;Sales;$125,000;Cost of;goods sold 56,000;Operating;expenses 25,500;Finished;goods, beginning inventory 15,000;Finished;goods, ending inventory 15,000;Direct;material 10,500;Direct labour;19,000;Overhead;25,000;What is;Glow?s cost of goods manufactured?;a. $29,500;b. $50,500;c. $54,500;d. $61,500;e. None of;the above;7. Activity;based costing may be used in which of the following scenarios?;a. For;selling and administrative expenses.;b. For;service related business.;c. Both a;and b.;d. Nether a;nor b.;8. The;process of choosing among competing alternatives is called;a.;Controlling;b. Decision;making;c. Planning;d.;Performance evaluation;e. None of;the above.;9. Which of;the following statement is true?;I. A cost;driver is a factor that causally affects costs.;II. A cost;hierarchy is a categorization of costs into different cost pools on the basis;of;the;different types of cost drivers or different degrees of difficulty in;determining;cause-and-effect;relationships.;a. Only I;b. Only II;c. Both I;and II;d. Neither;I nor II;Section II. Short Answer Questions (18 marks);1. Ruth;Reed, divisional controller and certified management accountant, was upset by a;recent memo she received from the divisional manager, Paul Chesser. Ruth was;scheduled to present the division?s financial performance at headquarters in;one week. In the memo, Paul had given Ruth some instructions for this upcoming;report. In particular, she has been told to emphasize the significant;improvement in the division?s profits over last year. Ruth, however, didn?t;believe that there was any real underlying improvement in the division?s;performance and was reluctant to say otherwise. She knew that the increase in;profits was because of Paul?s conscious decision to produce for inventory.;Paul had;convinced his plant managers to produce more than they knew they could sell. Paul;argued that by doing so reported profits would jump. He pointed out two significant;benefits. First, by increasing profits, the division could exceed the minimum;level needed so that all the managers would qualify for the annual bonus.;Second, by meeting the budgeted profit level, the division would be better able;to compete for much needed capital. Ruth had objected but had been overruled.;The most persuasive counterargument was that the increase in inventory could be;liquidated in the coming year as the economy improved. However, Ruth considered;this event unlikely. Based on past experience, she believe that it would take;at least two years of improved market demand before the productive capacity of;the division was exceeded.;Answer the following questions;a. (4;marks) Why does the profit increase when the division produces for more;inventory?;b. (4;marks) In chapter 1, ethical standards for management accountant were listed.;Identify any standards that apply in this situation. Based on this, discuss;what should Ruth do?;Should she;comply with the directive to emphasize the increase in profits? If not, what options;does she have?;2. DEF;company has the following cost data for 2010. The data is collected before the disposition;of under- or over-applied overhead.;Work in;Process Inventory $60,000;Finished;Goods Inventory $80,000;Cost of;Goods Sold $200,000;Actual;overhead $150,000;Applied;overhead $130,000;a. (2;marks) How much is the under-applied or overapplied overhead for 2010?;b. (4;marks) Assume that the amount issignificant, prepare the journal entry to dispose of the amount.;3. (4;marks) Provide two reasons why overhead might be under-applied/over-applied for;DEF company in 2010.;Section III. 4 Problems (55 Marks);1. Job Costing (13 marks);Orange Inc.;is a manufacturing firm that uses normal job-order costing. On January 1, the;beginning;of its fiscal year, the company had the following inventory balances: Raw;material;$ 20,000;Work in process $25,000, Finished goods $30,000.;The company;applies overhead cost to jobs on the basis of machine-hours worked. For the;current;year, the company estimated that it would work 75,000 machine-hours and incur;$450,000 in;manufacturing overhead cost. The following transactions were recorded for the;year;1. Raw;materials were purchased on account, $410,000.;2. Raw;materials were requisitioned for use in production, $380,000 ($360,000 direct;materials;and $20,000 indirect materials).;3. The;following costs were incurred for employee services: direct labor, $75,000;indirect;labor;$110,000, sales commissions, $90,000, and administrative salaries, $200,000.;4. Sales;travel costs were $17,000.;5. Utility;costs in the factory were $43,000.;6.;Advertising costs were $180,000;7.;Depreciation was recorded for the year, $350,000 (80% relates to factory;operations, and;20% relates;to selling and administrative activities).;8.;Insurance expired during the year, 10,000 (70% related to factory operations;and the;remaining;30% relates to selling and administrative activities).;9.;Manufacturing overhead was applied to productions. Due to lower than expected;demand for;its products, the company worked 70,000 machine-hours during the year.;10. Goods;costing $880,000 to manufacture according to their job cost sheets were;completed;during the year;Required (A - C):(Show your calculation using;T-Account);A) (6 marks);Determine the amount of over or under applied overhead for the year;B) (4;marks) Determine the ending inventory balance of work-in-process.;C) (3;marks) Determine the amount of Selling, General & Administrative Costs for;the year.;7;2. Process Costing (12 Marks);Halifax;Salt company process salt and accounts for production using weighted average;process;costing;method. Direct material is added at the start of production but labor and;overhead costs;are;incurred evenly throughout. The following data pertain to operations for;February;Beginning;WIP (75% complete) 8,000 kg;Started in;February 200,000 kg;Ending WIP;(25% complete) 20,000 kg;The cost;information is provided below;Direct;material Conversion;Beginning;WIP $4,000 $2,282;Incurred in;February $48,000 $20,878;Required;Calculate;the cost transferred out to finished goods inventory and the value of the;ending WIP.;3. Cost-Volume-Profit Analysis (15 marks);The ABC;company produces two products. The marketing department expects that the;company;can sell;1,000 units of regular product and 1,100 units of luxury product each month.;The company provides the following information;Regular;Luxury;Unit sales;price $210 $300;Unit;variable cost $110 $130;Monthly;fixed cost for FIVE machines used to manufacture both products is $150,000. It;takes 1;machine;hour to produce regular product and 2 hours to produce luxury product. Each;machine;has a;capacity of 600 hours/month.;a. What is;the maximum profit that the company can make in January?;(7 marks).;b. The;marketing department figured out in January that the customers are willing to;buy;luxury;product at price $350. Should the company revise its production plan in;February?;What would;be the profit with the new plan?;4. ABC Problem (15 Marks);The River;Company manufactures a variety of prestige boardroom chairs. Its job-costing;system;uses an;activity based approach. There are two direct cost categories (direct materials;and direct;labour) and;three indirect cost pools. The cost pools represent the following three;activities.;Activities;Budgeted costs for;2011;Cost driver;used as;allocation;base;Cost;allocation rate;Materials;handling $200,000 Parts $0.25;Cutting;2,000,000 Parts 2.50;Assembly;2,000,000 Direct labour hours 25.00;Two styles;of chairs were produced in February, 2011, the executive char and the chairman;chair.;Their;quantities, direct material costs, and other data for February are as follows;Units;produced Direct material;costs;Number of;parts Direct labour;hours;Executive;Chair 5,000 $600,000 100,000 7,500;Chairman;Chair 100 25,000 3,500 500;The;upstream activities to manufacturing (R&D and design) and downstream;activities;(marketing;distribution, and customer serve) are analyzed, and the unit costs for these activities;are;Upstream;Activities Downstream Activities;Executive;Chair $60 $110;Chairman;Chair 146 236;The direct;manufacturing labour rate is $20 per hour. Assume no beginning or ending;inventory.;Required;1) Compute;the unit manufacturing costs of the executive chair and the chairman chair.;Executive;Chair Chairman Chair;2) The;company sells the executive chair at the price $500 and the chairman chair at;the price $1,200. What is the profit for the company in February?


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