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The University of the South Pacific Serving the Cook Islands,
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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
AF201: MANAGERIAL ACCOUNTING
MID-SEMESTER TEST ? SEMESTER 1, 2015
Time Allowed 2 hours plus 10 minutes reading
100 marks (30% of final grade)
There are 2 sections:
Questions 1 ? 15: Multiple Choice
Question 1: Problem Solving & Discussion
Question 2: Problem Solving
Question 3: Problem Solving
Question 4: Problem Solving & Discussion
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.
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
Rent on factory
$30,000 Property taxes on
Question 1. Calculate Norfolk Company?s manufacturing overhead cost.
Question 2. Calculate Norfolk Company?s total manufacturing cost.
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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
Mixed (Semi-variable) costs
Assuming that these levels are within the relevant range, the mixed costs for
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Refer to the following information and answer question 5.
The following cost functions were developed for manufacturing overhead
$400+ $30 per direct labor hour
$350 + $10 per direct labor hour
$28,000 per month
$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
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
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Question 6. Using the high-low method, determine the amount of estimated
variable cost per unit shipped.
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
Based on the multiple regression analysis output, what is the estimated cost
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
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Use the following information and answer question 8 and 9.
Machine hours (actual)
Harrison uses a plantwide rate of $4 per machine hour to apply overhead to
production. Budgeted overhead was $392,000, but actual overhead was
Question 8. How much of Harrison Company?s overhead was applied to
Question 9. What was Harrison Company?s total cost to produce product XY?
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Use the following information to answer questions 10 and 11.
User of service
Provider of service
S1 - Number of employees
S2- Machine hours
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
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
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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?
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
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.
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What is the amount of joint cost that would be allocated to apple juice if the
net realisable value method had been used?
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
Discarded electrical components due to defects
Managing customer complaints
Quality training programs for employees
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
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Question 14. Lazy Linda's total appraisal cost was:
Question 15. Lazy Linda's total internal failure cost was:
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.
Fixed operating costs (excluding direct materials)
Fixed operating costs per unit produced ($640,000
÷ 80,000; $400,000 ÷ 80,000)
$8 per unit
$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
1. Identify the bottleneck department of Mayfield Corporation, and
briefly explain why it is a bottleneck.
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
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the finishing in-house. Should Mayfield accept the subcontractor?s
offer? Show your calculations.
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
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.
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
$4 per kg.
$12 per unit
$5 per unit
$3 per unit
Selling and administrative
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
1. Determine the unit cost of production under variable costing.
2. Determine the unit cost of production under absorption costing. (3 marks)
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(i) Calculate the finished goods in units.
(ii) Determine the finished goods inventory cost at the year-end using
(iii) Determine the finished goods inventory cost at the year-end using
4. Determine the operating profit under variable costing
5. Determine the operating profit under absorption costing
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.
1. Using the reciprocal method calculate the values for departments C and H
2. Allocate the costs of the two support departments to each of the two
Total marks for this question: 10 marks
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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:
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.
Number of inspections
Direct labor hours
Total expected machine hours for all jobs during the year were 10,000, and
the total expected number of inspections is 1,500.
1. (i) Compute the pre-determined manufacturing overhead rate using the
current conventional method (label the rate correctly).
(ii) Compute the total cost of the potential job using the MOH rate in 1 (i).
(iii) Determine the bid price for the potential job.
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).
(ii) Compute the total cost of the job using the rates in (2) (i)
(iii) Determine the bid price for the potential job assuming ABC is used.
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.
Total marks for this question: 25 marks
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This question was answered on: Feb 21, 2020
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