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Accounting & MIS 3300
Exam I
Spring 2013
Instructions:
1.
Read each question carefully and answer fully. Ignore income tax
unless instructed to consider it.
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
continue to work on exams after instructed to stop will receive a zero
on this exam.
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
26
10 – 14 minutes
II
3
26
10 – 14 minutes
III
4
14
6 – 8 minutes
IV
5
20
8 – 11 minutes
V
6
14
6 – 8 minutes
100
40 – 55 minutes
Total
Page 2 of 6
PROBLEM I
Below are the Madison Company’s projections:
Sales Price
Variable costs per unit
Total Fixed Costs
X
Y
$100.00 $160.00
$ 80.00 $100.00
$240,000
Required: For each of the following cases, place your answer in the box and provide support
calculations.
Part A. Assume Madison sells twice as many units of X as they do Y. How many units of
Product X and how many units of Product Y must be sold to earn a profit of $412,896 after
taxes at 40%? And, what is their margin of safety in total units? Round to whole units.
X
Y
Margin of Safety
Part B. Assume that twice as many sales dollars come from X as Y. How many units of
Product X and how many units of Product Y must be sold to breakeven? Round to whole
units.
X
Y
Part C. Madison is considering two extreme choices. They could drop Product Y, and fixed
costs would drop by 75%. They could sell only Product Y, but fixed costs would double.
What is their point of indifference, in unit sales, between the two alternatives? Round to
whole units.
Page 3 of 6
Problem II
The Hayes Company is considering selling at a weekend event. They sell a product for $9
that has variable costs of $5. The promoters of the event require Hayes to choose, well
before the event, a contract fee to attend that either a) requires a $20,000 payment or b)
requires them to pay 5% of sales. Hayes cannot back out after choosing fee type. Hayes
estimates sales will be 50,000 units if the weather is “clear” and 30,000 units if the weather
is “foul.” The weather has a 60% chance of being clear when the event occurs. Fixed costs
other than the fee to attend are $120,000.
Required: For each of the following cases, place your answer in the box and provide support
calculations.
Part A. Which contract fee plan (a or b) should Hayes select if they accept the contract?
Part B. What is Hayes’s expected net income after choosing the better plan, given the
weather turns out as noted in the box (60/40 means the expectation without knowing what
conditions occurred, that is, the expectation when the contract is signed)?
60/40
Clear
Foul
Part C. What is the value to Hayes of a 100% accurate weather forecast prior to signing the
contract to attend?
Page 4 of 6
PROBLEM III
Jensen Company produced 400 units of ABC and 600 units of XYZ in 20x1:
Usage in
ABC
XYZ
Total
Cost
Direct Materials
kilos
500
1,000
1,500 $ 11,250
Direct Labor
labor hours
1,400
1,600
3,000 $ 39,000
Manufacturing Overhead:
Machine time
machine hours
2,000
3,000
5,000 $ 45,000
Inspections
number/inspections
400
1,200
1,600 $ 8,000
Part A. Assume Jensen uses direct-labor hours to apply manufacturing overhead.
Required: Compute the total costs assigned to each product.
ABC
XYZ
Part B. Assume Jensen uses activity-based costing to assign costs of manufacturing.
Required: Compute the total costs assigned to each product.
ABC
XYZ
Page 5 of 6
PROBLEM IV
The Wentworth Company has the following estimates for 20x1:
January
Budgeted sales $ 100,000
February
$ 90,000
March
$ 70,000
April
$ 50,000
May
$ 60,000
June
$ 80,000
July
$ 110,000
August
$ 120,000
Wentworth has an expected gross margin percentage of 40% and has a policy of
maintaining an ending balance in inventory equal to 30% of the next month’s sales.
Purchases are paid for half in the month of purchase and half in the following month.
Required: Present below a schedule detailing the expected cash payment for inventory for
May.
Page 6 of 6
PROBLEM V
The Stenson Company makes two products in two departments.
actual results for 20x1:
Manufacturing Overhead
Direct Labor Costs:
Product Q
Product Z
Total
Assembly
$ 40,000
Finishing
$ 30,000
$
$
$
$
$
60,000
25,000
85,000
35,000
75,000
$ 110,000
Total
70,000
95,000
100,000
$ 195,000
Overhead is applied based on direct-labor cost.
Part A. Assume Stenson uses a factory-wide overhead rate.
Required: Allocate overhead below:
Product Q
Product Z
Allocated Manu. Overhead
Total
$ 70,000
Part B. Assume Stenson uses departmental overhead rates.
Required: Allocate overhead below:
Product Q
Allocated Manu. Overhead
Product Z
Total
$ 70,000
Below are the