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Accounting & MIS 3300
Exam III
Spring 2015
Instructions:
1.
Read each question carefully and answer fully. Ignore income taxes.
Ignore time value of money.
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 in this booklet. Unanswered questions
receive zero points regardless of reason.
Approximate
Points
Approximate
Time
Problem
Pages
I
2
24
10 – 13 minutes
II
3
30
12 – 16 minutes
III
4
12
5 – 7 minutes
IV
5
22
9 – 12 minutes
V
6
12
5 – 7 minutes
100
41 – 55 minutes
Total
Page 2 of 6
PROBLEM I
The Anson 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
110,880 $
340,200
3,000
2,500
Operating Departments
Assembly
Finishing
$
- $
1,000
2,000
15,000
22,000
Total
-
25,000
10,000
$
451,080
44,000
36,500
Part A. Allocate the costs under the step-down method in the order that gets closer to
reciprocal.
Part B. Allocate the costs under the reciprocal method.
Page 3 of 6
PROBLEM II
Baxter sells one product at a uniform price per unit. In 20x1 and 20x2, the results were:
Sales Units
Sales
CGS
Gross Margin
Operating Expenses
Operating Income
20x2
75,000
$ 4,912,500
3,946,250
$
966,250
673,750
$
292,500
Per Unit
$ 65.50
52.62
$ 12.88
8.98
$ 3.90
20x1
60,000
$ 3,930,000
3,305,000
$
625,000
595,000
$
30,000
Per Unit
$ 65.50
55.08
$ 10.42
9.92
$ 0.50
This year, 20x3, is expected to have the same cost structure as in both 20x1 and
20x2 and the same units sales as in 20x2, absent any special orders. All special order offers
are “take it or leave it.” All parts refer to 20x3. For each part, make your answer stand
out.
Part A. Assume a special order for 18,000 units at $55 each is received. Baxter has
capacity of 100,000 units. This special order will require an additional inspection that will
increase production costs by $2.00 per unit. How much better or worse off will they be if
they accept this special order?
Part B. Assume the same facts in Part A, except the capacity is 85,000 units. How much
better or worse off will they be if they accept?
Part C. Use the data from Part B. Baxter does not want to lose any regular customers so
they might accept a lower price on the special order. Baxter would increase production to
capacity, sell fewer units to the special order, and lose no regular customers. What price
could they offer the special-order customer to entice them to accept the resultant lesser
number of units, such that Baxter would increase operating income by $10,000?
Part D. Baxter is considering issuing 10,000 coupons that allow the holder to buy one
discounted unit at $58. The discounted unit is exactly the same as a regular unit in every
way. Baxter has capacity of 90,000 units. Baxter is concerned that some of the units sold
as part of the promotion may replace units they would have sold at the regular price. What
is the maximum percentage of the coupons exercised that can come from those who would
have bought at the regular price without making Baxter worse off?
Page 4 of 6
PROBLEM III
Chow Corporation can produce any combination of three items subject to production
constraints detailed here. Each product uses a computer chip that costs $20 each. You
have 310,000 chips available each period. The table below lists the products, the maximum
the market will purchase each period, the number of chips needed, the selling price per unit
of final product, and the variable costs to produce that product (but it does not include the
cost of chips used).
Required: Compute the optimum production quantity of each product and place your
answer in the box and provide supporting calculations.
Product
ABCD
EFGH
IJKL
Maximum
Chips
Sales
Needed
20,000
4
10,000
8
30,000
6
Sales
Price
$300
$400
$500
What should be the production of each to maximize profits?
Product
Production
ABCD
EFGH
IJKL
Variable
Costs
$75
$155
$200
Page 5 of 6
PROBLEM IV
The Danson Company produces two products in a joint process and is this, its first year of
operations. Joint costs are $270,000. They make 10,000 liters of product X and 20,000
liters of product Y. X is further processed with no loss of volume into XX at a cost of
$80,000. Y is further processed with no loss of volume into YY at a cost of $75,000. None of
the XX was sold this year, but is expected to sell for $37 per liter early next year. All of the
YY was sold for $11 per liter this year.
Part A. Required: Assume that Danson uses the net realizable value method. Calculate
the cost of goods sold for this year.
Cost of Goods Sold = $
Part B. Required: Assume Danson learns that product X had a sales value of $24 per liter
at splitoff, and Y had a sales value of $8 at splitoff. Calculate the cost of goods sold under
the sales value at splitoff method for this year.
Cost of Goods Sold = $
Part C. Required: Use the facts presented in all parts to make a recommendation to
Danson to increase profits.
Page 6 of 6
PROBLEM V
The Eastman Corporation manufactures two products in a joint process. With joint costs of
$160,000, 8,000 kg of M were manufactured and sold, and 20,000 kg of B were
manufactured and sold. The M sold for $192,000 and the B sold for $20,000. Neither
product received any processing after splitoff. Eastman is consider the uses of three
different methods: I) both products are main products, II) product B is a byproduct and the
Sales method is used, and III) product B is a byproduct and the production method is used.
Hint: You can solve this problem with only addition and subtraction.
Required: Fill in the table below:
Reported Sales
Reported Cost of Goods Sold
I) Both main
II) Byproduct Sales
$
$
$
$
III)
Byproduct
Production
$
$