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Accounting & MIS 3300
Exam III
Autumn 2016
Instructions:
1.
Read each question carefully and answer fully. Ignore income taxes.
2.
Problems not supported by relevant and readable computations are
subject to point loss. Where appropriate, terms like “unfavorable,”
“favorable,” “better off,” “worse off,” etc. must be included with number
answers. Dollar amounts should include a dollar sign; unit amount
should include an indication of the unit.
3.
Budget your time carefully. It is generally better to finish half of each
problem than to complete all of half the problems. Students who start
early or continue to work on exams after instructed to stop will receive
penalties as outlined in the syllabus.
4.
It is the student's responsibility to verify that all the listed problems
and pages are contained is this booklet. Unanswered questions
receive zero points regardless of reason.
Approximate
Points
Approximate
Time
Problem
Pages
I
2
21
9 – 12 minutes
II
3
24
9 – 13 minutes
III
4
20
8 – 11 minutes
IV
5
11 + 4 = 15
6 – 8 minutes
IV
6
20
8 – 11 minutes
100
40 – 55 minutes
Total
Page 2 of 6
PROBLEM I
The Adams Company has two support departments (Cleaning and Maintenance) and two
production areas (Assembly and Finishing). The following is known:
Actual Costs
$
Services Furnished by
Cleaning (Sq. footage)
Maintenance (labor hrs.)
Support Departments
Cleaning
Maintenance
123,000 $
227,000
1,000
900
Operating Departments
Assembly
Finishing
$
- $
3,000
400
7,000
3,000
Total
-
13,000
1,200
$
350,000
24,000
5,500
Part A. Allocate the costs under the step-down method that produces an answer closer to
the reciprocal method.
Part B. Allocate the costs under the reciprocal method.
Page 3 of 6
PROBLEM II
Barnes sells one product at the same price per unit. In 20x1, the results were:
Sales Units
Sales
CGS
Gross Margin
Operating Expenses
Operating Income
95,000
$ 8,455,000
5,415,000
3,040,000
2,130,000
$
910,000
Barnes believes that about 40% of Cost of Goods Sold and 100% of Operating Expenses are
fixed. Barnes expects the results will be the same in 20x2 unless a special order is
accepted. Each part is unique, built upon the above data. All special order offers are “take
it or leave it.”
Part A. Assume a special order for 15,000 units at $51 each is received. Barnes has
capacity of 112,000 units. How much better or worse off will they be if they accept?
Part B. Assume a special order for 15,000 units at $51 each is received. Barnes has
capacity of 100,000 units. How much better or worse off will they be if they accept?
Part C. Barnes is considering issuing 10,000 coupons that allow the holder to buy one unit
at a 25% discount. The discounted units are $3 per unit cheaper to manufacture. Barnes
has capacity of 120,000 units. Barnes is concerned that some of the units sold as part of the
promotion may replace units they would have sold at the regular price. They do not know
how many coupons will be used. What is the maximum percentage of the coupons exercised
that can come from those who would have bought at the regular price without making
Barnes worse off?
Part D. Barnes is considering a special order for 30,000 units when they have capacity of
120,000. Because the customer is in New Zealand, Barnes would have to pay $75,000 to
obtain a one-year export license and $2 more in manufacturing costs per unit to meet NZ
standards. What is the minimum price per unit Barnes is willing to accept from this
customer?
Page 4 of 6
PROBLEM III
The Chu Company is considering the purchase of a new machine to replace an old machine
purchased 2 years ago for $540,000. The old machine has a 6-year useful life (4 years
remain). The new machine has a 4-year useful life. Both machines are (or will be)
depreciated on a straight-line basis with a zero salvage value (and they will be worth zero
at the end of their useful life). The president is presented with the following income
statement projecting results in the first year after buying the new machine:
Revenues
Operating Costs:
To Operate Machine
Depreciation
Loss On Sale
Loss
$ 263,000
$ 261,000
50,000
$ 311,000
285,000
596,000
$ (333,000)
The president is surprised, since the new machine has annual operating costs $53,000 less
than the old, and the projected income statement for the old machine has a profit.
Required: Present a professional quality table analyzing whether Chu should keep the old
or buy the new. Ignore time value of money issues (i.e., assume a zero interest rate).
Page 5 of 6
PROBLEM IV
Part A. The Darwin Company uses 12,500 units of the raw material QX1 in their
production department each month. They buy the entire month’s need once a month at
$46.50 per unit. Their supplier has offered to sell them the units at a 7% discount if the
pay for one year’s worth of units in advance (net of the discount). The supplier will still
deliver 12,500 each month over the twelve months. Darwin can borrow money at an 11%
per annum interest rate. Simply, the two chooses are: 1) pay for one year’s of units (net of
discount) and receive 12,500 once each month or 2) pay for and receive 12,500 once each
month.
Required: Calculate whether Darwin should continue to buy monthly or should buy a
year’s worth, fully taking into account all costs and benefits described above. Present the
result professionally.
Part B. (Completely unrelated to Part A.) Ed’s Campus Salon offers students a 25%
discount on haircuts. Fran’s Campus Electronics offers students a 15% discount on
televisions. Required: Describe in two sentences below what these discounts are called and
why the challenges faced by the two firms are not the same.
Page 6 of 6
PROBLEM IV
The Gould Company produces three products through a joint process costing $40,320.
Gould uses the net realizable value method and considers Z3 a byproduct. Thus, they will
use byproduct accounting. During the first year of operations, the following took place:
Product Kilos Produced Kilos Sold Separable Costs Selling Price per kilo
X1
1,000
1,000 $
7,000 $
22
Y2
2,000
1,000
13,000
29
Z3
3,000
1,500
2
Fill in the requested values in the table and provide supporting computations below that.
Financial Statements Contain
Total Reported Sales
Production Method
Sales Method
$
$
Cost of Goods Sold from X1
$
$
Cost of Goods Sold from Y2
$
$
Cost of Goods Sold from Z3
$
$
Total Inventory Balance, End
$
$