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The University of the South Pacific

 

Serving the Cook Islands, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.

 


 

SCHOOL OF ACCOUNTING AND

 

FINANCE

 

AF201: MANAGERIAL ACCOUNTING

 

MID-SEMESTER TEST ? SEMESTER 1, 2015

 

PRINT MODE

 


 

Time Allowed 2 hours plus 10 minutes reading

 

100 marks (30% of final grade)

 

There are 2 sections:

 

Sections

 

A

 

B

 


 

Questions 1 ? 15: Multiple Choice

 

Question 1: Problem Solving & Discussion

 

Question 2: Problem Solving

 

Question 3: Problem Solving

 

Question 4: Problem Solving & Discussion

 


 

TOTAL

 


 

Allocated

 

marks

 

30 marks

 

15 marks

 

20 marks

 

10 marks

 

25 marks

 

100 marks

 


 

Estimated

 

Time

 

36 minutes

 

18 minutes

 

24 minutes

 

12 minutes

 

30 minutes

 

120 minutes

 


 

INSTRUCTIONS

 

1. ALL questions in each section are compulsory.

 

2. Write your answers in the answer booklet provided.

 

3. Non-programmable Calculators may be used, but are not provided.

 


 

SECTION A

 

MARK YOUR ANSWERS TO QUESTONS IN SECTION A ON THE ANSWER

 

SHEET PROVIDED AND RETURN THE SHEET WITH YOUR ANSWER BOOKLET

 

Answer the questions by placing a circle around the letter on the

 

ANSWER SHEET that you think is the correct answer.

 

There are 15 questions in this Section. All questions carry 2 marks each.

 

Answer ALL questions.

 


 

Refer to the following information to answer Questions 1 and 2.

 


 

The Norfolk Company reported the following information at the end of the

 

current year:

 

Indirect labor

 

Selling expenses

 

Rent on factory

 

Depreciation factory

 

Administrative

 

expenses

 


 

$40,000

 

$15,000

 

$25,000

 

$10,000

 


 

Direct materials

 

Sales Revenue

 

Factory utilities

 

Direct labor

 


 

$30,000 Property taxes on

 

factory

 


 

$50,000

 

$200,000

 

$10,000

 

$45,000

 

$5,000

 


 

Question 1. Calculate Norfolk Company?s manufacturing overhead cost.

 

A. $50,000

 

B. $80,000

 

C. $90,000

 

D. $140,000

 


 

Question 2. Calculate Norfolk Company?s total manufacturing cost.

 

A. $95,000

 

B. $145,000

 

C. $175,000

 

D. $185,000

 


 

Page | 1

 


 

Question 3. In January, 5,000 units were manufactured at a unit cost of $5. At

 

this level of activity, variable costs are 40 percent of total unit costs. The

 

following month, the company planned to manufacture 4,500 units. If cost

 

behavior patterns remain unchanged in February,

 

A. Total fixed costs will decrease

 

B. Total variable cost will remain unchanged

 

C. Total cost per unit will increase

 

D. Variable cost per unit will decrease

 


 

Question 4. The Rutherford Company?s costs and activity level for April and

 

May are as follows:

 

Activity level in units

 

Variable costs

 

Fixed costs

 

Mixed (Semi-variable) costs

 

Total costs

 


 

April

 

10,000

 

$10,000

 

$30,000

 

$20,000

 

$60,000

 


 

May

 

20,000

 

?

 

?

 

?______

 

$75,000

 


 

Assuming that these levels are within the relevant range, the mixed costs for

 

May are

 

A. $10,000

 

B. $25,000

 

C. $40,000

 

D. $20,000

 


 

Page | 2

 


 

Refer to the following information and answer question 5.

 

The following cost functions were developed for manufacturing overhead

 

costs:

 

Manufacturing

 

Overhead Cost

 


 

Cost Function

 


 

Electricity

 


 

=

 


 

$400+ $30 per direct labor hour

 


 

Maintenance

 


 

=

 


 

$350 + $10 per direct labor hour

 


 

Supervisors? salaries

 


 

=

 


 

$28,000 per month

 


 

Indirect materials

 


 

=

 


 

$12 per direct labor hour

 


 

Question 5. What is the cost function for total manufacturing overhead cost if

 

September production is expected to be 1,500 units requiring 1,000 direct

 

labor hours?

 

A. $28,000 + ($12 x Direct labor hours)

 

B. $28,750 + ($52 x Direct labor hours)

 

C. $750 + ($40 x Direct labor hours)

 

D. $ 28,750 + ($40 x Direct labor hours)

 


 

Use the following information to answer question 6.

 

Context Company reported the following shipping charges for the last six

 

months.

 


 

Month

 


 

Shipping costs

 


 

Units shipped

 


 

Jan

 


 

$4,500

 


 

12,500

 


 

Feb

 


 

$4,680

 


 

13,000

 


 

Mar

 


 

$5,000

 


 

14,000

 


 

Apr

 


 

$4,550

 


 

13,300

 


 

May

 


 

$4,800

 


 

13,500

 


 

Jun

 


 

$5,500

 


 

15,000

 


 

Page | 3

 


 

Question 6. Using the high-low method, determine the amount of estimated

 

variable cost per unit shipped.

 

A. $0.30

 

B. $0.40

 

C. $0.20

 

D. $0.21

 

Question 7. The results of the regression analysis to estimate setup costs using

 

the number of setups and number of setup hours as activity cost drivers are as

 

follows

 

SUMMARY

 

OUTPUT

 

Regression Statistics

 

R Square

 

0.998212

 

Standard

 

Error

 

49.83698

 

Observations

 

9

 

ANOVA

 

df

 


 

F

 

1675.185

 


 

Significance

 

F

 

5.71E-09

 


 

2

 

6

 

8

 


 

Coefficients

 

1493.265

 

2.605579

 


 

Standard

 

Error

 

136.42

 

0.045317

 


 

t Stat

 

10.94608

 

57.49626

 


 

P-value

 

3.45E-05

 

1.86E-09

 


 

Lower 95%

 

1159.457

 

2.494691

 


 

Upper 95%

 

1827.073

 

2.716466

 


 

13.7142

 


 

0.916289

 


 

14.96711

 


 

5.6E-06

 


 

11.47212

 


 

15.95628

 


 

Regression

 

Residual

 

Total

 


 

Intercept

 

Setup hours

 

Number of

 

setups

 


 

MS

 

4160697

 

2483.724

 


 

SS

 

8321394

 

14902.34

 

8336296

 


 

Based on the multiple regression analysis output, what is the estimated cost

 

function?

 

A. Total cost = $1,493.27 + ($2.71 x Setup hours)

 

B. Total cost = $1,493.27 + ($2.61 x Setup hours) + ($13.71 x Number of setups)

 

C. Total cost = $1,493.27 + ($13.71 x Number of setups)

 

D. Total cost = $1,493.27

 


 

Page | 4

 


 

Use the following information and answer question 8 and 9.

 

AB

 

Units produced

 

Prime costs

 

Machine hours (actual)

 


 

XY

 


 

50,000

 


 

65,000

 


 

$750,000

 


 

$650,000

 


 

30,000

 


 

60,000

 


 

Harrison uses a plantwide rate of $4 per machine hour to apply overhead to

 

production. Budgeted overhead was $392,000, but actual overhead was

 

$376,000.

 

Question 8. How much of Harrison Company?s overhead was applied to

 

product AB?

 

A. $130,000

 

B. $195,000

 

C. $120,000

 

D. $187,500

 


 

Question 9. What was Harrison Company?s total cost to produce product XY?

 

A. $650,000

 

B. $910,000

 

C. $900,000

 

D. $890,000

 


 

Page | 5

 


 

Use the following information to answer questions 10 and 11.

 

User of service

 


 

Budgeted overhead

 


 

Support

 


 

Producing

 


 

Departments

 


 

Departments

 


 

S1

 


 

S2

 


 

P1

 


 

$450,000

 


 

$300,000

 


 

P2

 


 

$750,000 $920,000

 


 

Provider of service

 

S1 - Number of employees

 


 

10

 


 

25

 


 

50

 


 

75

 


 

S2- Machine hours

 


 

60

 


 

-

 


 

140

 


 

200

 


 

Department S1?s cost is allocated based on the number of employees, and

 

Department S2?s cost is allocated based on machine hours.

 

Question 10. If the direct method is used, Department S1?s cost assigned to

 

Department P1 would be

 

A. $157,500

 

B. $185,294

 

C. $150,000

 

D. $180,000

 

Question 11. If the sequential or step-down method is used and Department

 

S1?s cost is allocated first, the Department S1 cost assigned to Department S2

 

would be

 

A. $67,500

 

B. $60,000

 

C. $75,000

 

D. $0

 


 

Page | 6

 


 

Question 12. Lipex Pty Ltd produces two products (A&B) from a particular joint

 

process. Each product may be sold at the split-off point or processed further.

 

Additional processing requires no special facilities, and production costs of

 

further processing are entirely variable and traceable to the products

 

involved. Joint production costs for the year were $60 000. Sales values and

 

costs are as follows.

 


 

Allocate the joint production costs based on the physical units method. What

 

are the joint costs assigned to product A?

 

A. $25,714

 

B. $20,339

 

C. $34,286

 

D. $30,000

 


 

Question 13. A firm incurs manufacturing costs totaling $240 000 in process 1 to

 

produce the following three beverages emerging from that process at the split-off

 

point.

 

Apple juice: sold immediately it emerges from Process 1 without further processing

 

for $0.70 litre

 

Apple cider: processed further in Process 2 at an additional cost of $0.66667 litre,

 

then sold for $1.50 litre

 

Apple pulp: processed further in Process 3 at an additional cost of $1.50 litre, then

 

sold for $3.50 litre

 

The following data relates to the period in which the joint costs were incurred.

 


 

Page | 7

 


 

What is the amount of joint cost that would be allocated to apple juice if the

 

net realisable value method had been used?

 

A. $120,000

 

B. $80,000

 

C. $84,000

 

D. $91,000

 

Use the following information to answer questions 14 and 15

 

Lazy Linda Kitchen Appliances manufactures small kitchen appliances like

 

toasters and blenders. Last month Lazy Linda recorded the following quality

 

costs:

 

Discarded electrical components due to defects

 

Managing customer complaints

 

Quality training programs for employees

 

Supplier audit

 

Process inspection

 

Work-in-process inspection

 

Maintaining equipment used to perform quality tests

 

Cost of hiring a technician to fix a machine breakdown

 

Legal fees paid to a customer whose pet mouse was

 

electrocuted due to a faulty toaster

 


 

$2,000

 

$3,000

 

$5,000

 

$6,000

 

$4,500

 

$5,000

 

$2,500

 

$3,000

 

$6,000

 


 

Page | 8

 


 

Question 14. Lazy Linda's total appraisal cost was:

 

A. $5,000

 

B. $9,500

 

C. $12,000

 

D. $18,000

 

Question 15. Lazy Linda's total internal failure cost was:

 

A. $9,500

 

B. $7,500

 

C. $5,000

 

D. $2,000

 

Total marks for this section: 30 marks

 


 

SECTION B ANSWER ALL QUESTIONS

 

QUESTION 1: Throughput Accounting

 

The Mayfield Corporation manufactures filing cabinets in two operations:

 

machining and finishing. It provides the following information.

 


 

Annual capacity

 

Annual production

 

Fixed operating costs (excluding direct materials)

 

Fixed operating costs per unit produced ($640,000

 

÷ 80,000; $400,000 ÷ 80,000)

 


 

Machining

 

100,000 units

 

80,000 units

 

$640,000

 

$8 per unit

 


 

Finishing

 

80,000 units

 

80,000 units

 

$400,000

 

$5 per unit

 


 

Each cabinet sells for $72 and has direct materials costs of $32 incurred at the

 

start of the machining operation. Mayfield has no other variable costs.

 

Mayfield can sell whatever it produces. The following requirements refer only

 

to the preceding data. There is no connection between requirements (2) and

 

(3).

 

REQUIRED

 

1. Identify the bottleneck department of Mayfield Corporation, and

 

briefly explain why it is a bottleneck.

 

(3 marks)

 

2. An outside contractor offers to do the finishing operation for 12,000

 

units at $10 per unit, double the $5 per unit that it costs Mayfield to do

 

Page | 9

 


 

the finishing in-house. Should Mayfield accept the subcontractor?s

 

offer? Show your calculations.

 

(4 marks)

 

3. The Hunt Corporation offers to machine 4,000 units at $4 per unit, half

 

the $8 per unit that it costs Mayfield to do the machining in-house.

 

Should Mayfield accept the subcontractor?s offer? Show your

 

calculations.

 

(4 marks)

 

4. Mayfield is considering how to motivate workers to improve their

 

productivity (output per hour). One proposal is to evaluate and

 

compensate workers in the Machining and Finishing Departments on

 

the basis of their productivities. Do you think the new proposal is a

 

good idea? Explain briefly.

 

(4 marks)

 

Total marks for this question: 15 marks

 


 

QUESTION 2: Variable and Absorption Costing

 

Ivy, Inc., produces a single product that sells for $60 per unit. There were no

 

inventories of work in process or finished goods. Costs for the year were as

 

follows:

 

Variable costs:

 

Direct materials

 

Direct labor

 

Manufacturing overhead

 

Selling expenses

 


 

$4 per kg.

 

$12 per unit

 

$5 per unit

 

$3 per unit

 


 

Fixed costs:

 

Manufacturing overhead

 

Selling and administrative

 


 

$36,000

 

$15,000

 


 

Each unit produced consumes 2 kg of direct materials.

 

During the year, 4,000 units were produced and 3,500 units were sold. There

 

were no work-in-process inventories at the end of the year; only finished

 

goods inventories.

 

REQUIRED

 

1. Determine the unit cost of production under variable costing.

 


 

(2 marks)

 


 

2. Determine the unit cost of production under absorption costing. (3 marks)

 


 

Page | 10

 


 

3.

 


 

(i) Calculate the finished goods in units.

 

(2 marks)

 

(ii) Determine the finished goods inventory cost at the year-end using

 

absorption costing.

 

(2 marks)

 

(iii) Determine the finished goods inventory cost at the year-end using

 

variable costing.

 

(2 marks)

 


 

4. Determine the operating profit under variable costing

 


 

(5 marks)

 


 

5. Determine the operating profit under absorption costing

 


 

(4 marks)

 


 

Total marks for this question: 20 marks

 


 

QUESTION 3: Support Department Cost Allocation

 

Suva Private Hospital has two support departments, Customer services

 

department and housekeeping department and two revenue-producing

 

departments, outpatient department (O) and maternity department (M). The

 

controller for the hospital has decided to use the reciprocal method to

 

allocate the costs of the support departments to the revenue-producing

 

departments. She has prepared the following cost equations for the two

 

support departments. C equals the total cost for the customer services

 

department, and H equals the total cost for the housekeeping department.

 

C = $35,000 + 0.3H

 

H = $40,000 + 0.2C

 

Before the controller was able to complete the allocation, she had to leave

 

to take care of an emergency. In addition to these equations, she left a

 

hastily scribbled note indicating that Outpatient department uses 40 percent

 

of customer service?s output and 20 percent of housekeeping?s output.

 

REQUIRED

 

1. Using the reciprocal method calculate the values for departments C and H

 

(4 marks)

 

2. Allocate the costs of the two support departments to each of the two

 

producing departments.

 

(6 marks)

 

Total marks for this question: 10 marks

 


 

Page | 11

 


 

QUESTION 4: Conventional vs. Activity-based Costing

 

The Pasifika Cement plant has two categories of overhead: maintenance

 

and inspection. Costs expected for these categories for 2008 are as follows:

 

Maintenance

 

Inspection

 


 

$ 60,000

 

180,000

 


 

The plant currently applies overhead using direct labor hours and expected

 

capacity of 20,000 direct labor hours is available. The data provided below

 

has been assembled for use in developing a bid for a proposed job. Bid prices

 

are calculated as full manufacturing cost plus 40 percent markup.

 

Direct materials

 

Direct labor

 

Machine hours

 

Number of inspections

 

Direct labor hours

 


 

$1,200

 

$6,000

 

300

 

3

 

400

 


 

Total expected machine hours for all jobs during the year were 10,000, and

 

the total expected number of inspections is 1,500.

 

REQUIRED

 

1. (i) Compute the pre-determined manufacturing overhead rate using the

 

current conventional method (label the rate correctly).

 

(2 mark)

 

(ii) Compute the total cost of the potential job using the MOH rate in 1 (i).

 

(3 marks)

 

(iii) Determine the bid price for the potential job.

 


 

(2 marks)

 


 

2. (i) Compute the pre-determined manufacturing overhead rates using

 

activity-based costing (ABC) and assuming maintenance is applied to

 

jobs using machine hours, while inspection is applied to jobs using

 

number of inspections (label the rates correctly).

 

(4 marks)

 

(ii) Compute the total cost of the job using the rates in (2) (i)

 

(6 marks)

 

(iii) Determine the bid price for the potential job assuming ABC is used.

 

(3 marks)

 

3. Prepare a memorandum to the plant manager recommending a bid price

 

for the potential job. Support your recommendation by explaining which

 

method best reflects the actual cost of the job.

 

(5 marks)

 

Total marks for this question: 25 marks

 

~THE END~

 

Page | 12

 


 

 







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