Last Name
|_|_|_|_|_|_|_|_|_|_|_|_|
First Name
|_|_|_|_|_|_|_|_|_|_|_|_|
Accounting & MIS 3300
Exam III
Autumn 2014
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
20
8 – 11 minutes
III
4
20
8 – 11 minutes
IV
5
11 + 4 = 15
6 – 8 minutes
IV
6
24
9 – 13 minutes
100
40 – 55 minutes
Total
Page 2 of 6
PROBLEM I
The Antibe 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
75,600 $
145,530
500
700
Operating Departments
Assembly
Finishing
$
- $
2,000
500
6,000
4,000
Total
-
12,000
3,000
$
221,130
20,500
8,200
Part A. Allocate the costs under the step-down method that produces an answer closest to
the reciprocal method.
Part B. Allocate the costs under the reciprocal method.
Page 3 of 6
PROBLEM II
Bordeaux sells one product at the same price per unit. In 20x1, the results were:
Sales Units
Sales
CGS
Gross Margin
Operating Expenses
Operating Income
135,000
$ 7,020,000
6,345,000
675,000
500,000
$
175,000
Bordeaux believes that about 70% of Cost of Goods Sold and 100% of Operating Expenses
are fixed. Bordeaux 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 25,000 units at $25 each is received. Bordeaux has
capacity of 170,000 units. How much better or worse off will they be if they accept?
Part B. Assume a special order for 25,000 units at $25 each is received. Bordeaux has
capacity of 150,000 units. How much better or worse off will they be if they accept?
Part C. Bordeaux is considering issuing 10,000 coupons that allow the holder to buy one
unit at a 20% discount. The discounted units will not include a presentation box that cost
the company $2 per unit. Bordeaux has capacity of 150,000 units. Bordeaux 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 Bordeaux
worse off?
Part D. Bordeaux is considering a special order for 25,000 units when they have capacity of
150,000. Because the customer is in Germany, Bordeaux would have to pay $100,000 to
obtain a one-year export license and $5 more in manufacturing costs per unit to meet E.U.
standards. What is the minimum price per unit Bordeaux is willing to accept from this
customer?
Page 4 of 6
PROBLEM III
The Cannes Company is considering the purchase of a new machine to replace an old
machine purchased 3 years ago for $245,000. The old machine has a 7-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
$ 100,000
75,000
$ 175,000
92,000
267,000
$ (4,000)
The president is surprised, since the new machine has annual operating costs $115,000 less
than the old, and the projected income statement for the old machine has a profit.
Required: Present a professional quality table analyzing whether Cannes 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 Dijon Company uses 34,500 units of the raw material X-B1 in their production
department each month. The buy the entire month’s need once a month at $18 unit. Their
supplier has offered to sell them the units at a 5% discount if the pay for one year’s worth of
units in advance (net of the discount). The supplier will still deliver 34,500 each month
over the twelve months. Dijon can borrow money at a 10% per annum interest rate.
Simply the two chooses are: 1) pay for one year’s of units (net of discount) and receive
34,500 each month or 2) pay for and receive 34,500 once each month.
Required: Calculate whether Dijon should continue to buy monthly or should buy a year’s
worth, fully taking into account all costs and benefits described above.
Part B. Assume the facts in Part A, except the supplier will deliver all 414,000 units
needed annually at the beginning of the year instead of 34,500 each month. What else
might you consider, and how might your answer change?
Required: Provide a succinct but complete answer to the question above.
Page 6 of 6
PROBLEM V
The Evry Company produces three products, Abc, Def, and GHI, through a joint process
costing $120,000. Evry uses the net realizable value method. Abc is processed further
into ABC. Def is processed further into DEF. Abc and Def cannot be sold until further
processing. During the first year of operations, the following took place:
Kilos
Product Produced
ABC
700
DEF
1000
GHI
4000
Sales Price
per Kilo
$
80
$
125
$
4
Separable
Kilos Sold
Costs
600 $ 20,000
750 $ 10,000
3500 $
-
Part A. Assume that GHI is treated as a byproduct (production method).
requested amounts below:
Product
Ending Inventory Balance
ABC
$
DEF
$
GHI
$
Fill in the
Part B. Assume that GHI is treated as a byproduct (sales method). Fill in the requested
amounts below:
Product
Ending Inventory Balance
ABC
$
DEF
$
GHI
$