Please read the following instructions before answering the questions:
(a) Time Allowed for this exam: Three hours.
(b) Answer Eight Questions only.
(c) For each Question 6.25 Mark.
(d) Use the provided answer book.
(e) Insert your name and student No. below.
Student Name ……………………………………………………
Student No ………………………………………………………
Prof. Salem Abdalla Helles
20 May, 2014
1

Question One
LG Company makes two products, P1 and P2. Data regarding the two products follow:
Direct
Labor-
Hours per
Unit
Annual
Production
P1 0.80 10,000 units
P2 0.40 40,000 units
Additional information about the company follows: a. P1 require $32 in direct materials per unit, and P2 require $18. b. The direct labor wage rate is $15 per hour. c. P1 are more complex to manufacture than P2 and they require special
equipment. d. The ABC system has the following activity cost pools:
Activity Cost Pool Activity Measure
Estimated
Overhead cost
Total
Activity
P1
Machine setups Number of setups $72,000 400 100
Special processing Machine-hours $200,000 5,000 5,000
P2
300
-
General factory
Required:
Direct labor-hours $816,000 24,000 8,000 16,000
1.
Compute the activity rate for each activity cost pool.
2.
Determine the unit cost of each product according to the ABC system, including direct materials and direct labor.
Question Two:
Ali's Shop sells only coffee and cake. Ali estimates that every time he sells one cake, he sells four cups of coffee. The budgeted cost information for Ali's products for 2013 follows:
Selling price
Coffee
$2.50
Cake
$3.75
Product ingredients $0.25
Hourly sales staff (cost per unit) $0.50
Packaging $0.50
Fixed Costs
Rent on store and equipment
Marketing and advertising cost
$5,000
$2,000
$0.50
$1.00
$0.25
2

Required:
1.
How many cups of coffee and how many cakes must Ali sell in order to break even assuming the sales mix of four cups of coffee to one cake, given previously?
2.
If the sales mix is four cups of coffee to one cake, how many units of each product does Ali need to sell to earn operating income after tax of $28,000, while tax rate 20%?
3.
Assume that Ali decides to add the sale of hot chocolates to his product mix. The selling price for chocolates is $3.00 and the related variable costs are $0.75. assuming a sales mix of three cups of coffee to two cakes to one chocolate, how many units of each product does Ali need to sell in order to break even?
Question Three:
DP Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $350,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point.
Unit selling prices and total output at the split-off point are as follows:
Product Selling Price Quarterly Output
A $16 per pound 15,000 pounds
B
C
$8 per pound
$25 per pound
20,000 pounds
4,000 gallons
Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs
(per quarter) and unit selling prices after further processing are given below:
Product
A
B
C
Additional
processing costs
$63,000
$80,000
$36,000
Selling Price
$20 per pound
$13per pound
$32 per gallon
Required
1) Which product or products should be sold at the split-off point and which product or products should be processed further? Show computations.
2) Could the company increase operating income by altering its processing decisions? If so, what would be the expected overall operating income?
3

Question Four:
City Hospital, a non-profit organization, estimates that it can save
$28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $110,000. No terminal disposal value is expected. City Hospital's required rate of return is 14%.
Assume all cash flows occur at year-end except for initial investment amounts. City Hospital uses straight-line depreciation.
1Calculate the following for the special-purpose eye-testing machine: a.
Net present value. b.
Payback period. c.
Profitability index. d.
Reverse payback period.
Question Five:
SC is considering the purchase of a special-purpose bottling machine for
$23,000. It is expected to have a useful life of four years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs:
Year Amount
1
2
3
4
$10,000
8,000
6,000
5,000
Total $29,000
SC uses a required rate of return of 16% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts.
Required
Calculate the following for the special-purpose bottling machine: a.
Net present value. b.
Payback period. c.
Discounted payback period (Break even time).
4

Question Six:
RCC makes and sells artistic frames for picture of weddings, graduations, and other special events Ali Ahmd , the controller is responsible for preparing RCC's master budget and has accumulated the following information for 2015:
2015
Estimated sales in units
Selling price
Direct manufacturing labor-hours per unit
January
10,000
$54.00
2.0
Wage per direct manufacturing labor-hour $10.00
February
12,000
$51.50
2.0
$10.00
March
8,000
$51.50
1.5
$10.00
April
9,000
$51.50
1.5
$11.00
May
9,000
$51.50
1.5
$11.00
In addition to wages, direct manufacturing labor-related costs include pension contributions of $0.50 per hour, and employee medical insurance of $0.40 per hour. The cost of employee benefits paid by RCC on its employees is treated as a direct manufacturing labor cost.
RCC has a labor contract that calls for a wage increase to $11 per hour on
April 1, 2015. New labor saving machinery has been installed and will be fully operational by March 1, 2015. RCC expects to have 16,000 frames on hand at December 31, 2014, and it has a policy of carrying an end-ofmonth inventory of 100% of the following month's sales plus 50% of the second following month's sales.
Required:
Prepare a production budget and a direct manufacturing labor budget for
RCC Company by month and for the first quarter of 2015. Both budgets may be combined in one schedule. The direct manufacturing labor budget should include labor-hours, and show the details for each labor cost category.
5

Question Seven
West Gaza Company (WGC) produces three products, A110, B382, and
C657. Unit data for the three products follows:
A110
Product
B382 C657
Selling price
Variable costs
Direct materials
Labor and other costs
$84 $56 70
24 15 9
28 27 40
Quantity of Bistide per unit 8 lb. 5 lb. 3 lb.
All three products use the same direct material, Bistide. The demand for the products far exceeds the direct materials available to produce the products. Bistide costs $3 per pound and a maximum of 5,000 pounds is available each month. WGC must produce a minimum of 200 units of each product.
1How many units of product A110, B382, and C657 should WGC
Produce?
Question Eight:
Selected sales and operating data for three divisions of different structural engineering firms are given below:
Division A Division B Division C
Sales
Average operating assets
$12,000,000 $14,000,000 $25,000,000
$3,000,000 $7,000,000 $5,000,000
Net operating income $600,000
Minimum required rate of return %14
$560,000
10%
$800,000
%16
Required:
1.
Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover.
2.
Compute the residual income for each division.
3.
Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a.
If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why? b.
If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
Reject? Why?
6

Question Nine:
T SA manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2014:
Expected production and sales 6,000 units
Direct materials
Direct manufacturing labor
72,000 pounds
21,000 hours
Total fixed costs $1,200,000
Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manufacturing labor:
Standard Quantity Standard Price Standard Unit Cost
Direct materials 12 pounds $10 per pound $120
Direct manufacturing 3.5 hours $50 per hour $175 labor
During 2014, actual number of units produced and sold was
5,500. Actual cost of direct materials used was $668,800, based on 70,400 pounds purchased at $9.50 per pound. Direct manufacturing labor-hours actually used were 18,500, at the rate of $51.50 per hour. As a result, actual direct manufacturing labor costs were $952,750. Actual fixed costs were $1,180,000. There were no beginning or ending inventories.
Required:
Compute price and efficiency variances for direct materials and direct manufacturing labor.
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Question No. (10)
Da wood Jamel is a cost accountant and business analyst for
DDC, which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labor. Jamel feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing over- head to production based upon pounds of materials used.
At the beginning of 2014, DDC budgeted annual production of
400,000 doorknobs and adopted the following standards for each doorknob:
Direct materials (brass)
Input
0.3 lb. @ $10/lb.
Direct manufacturing labor 1.2 hours @ $20/hour
Manufacturing overhead :
Variable
Fixed
$6/lb. x 0.3 lb.
$15/lb. x 0.3 lb.
Cost/Doorknob
$ 3.00
24.00
1.80
4.50
Standard cost per doorknob
Actual results for April 2014 were as follows:
Production 35,000 doorknobs
$33.30
Direct materials purchased
Direct materials used
Direct manufacturing labor
Variable manufacturing overhead
Fixed manufacturing overhead
12,000 lb. at
10,450 lb.
$11/lb.
38,500 hours for $808,500
$64,150
$152,000
Required:
For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U): a.
Direct materials variances b.
Direct manufacturing labor variances c.
Variable manufacturing overhead variances d.
Fixed manufacturing overhead variances
Can Jamel use any of the variances to help explain any of the other variances? Give examples.
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