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Accounting & MIS 3300
Exam III
Autumn 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
23
9 – 13 minutes
II
3
30
12 – 16 minutes
III
4
15
6 – 8 minutes
IV
5
20
8 – 11 minutes
V
6
12
5 – 7 minutes
100
40 – 55 minutes
Total
Page 2 of 6
PROBLEM I
The Austin 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
145,530 $
166,320
8,000
1,000
Operating Departments
Assembly
Finishing
$
- $
4,000
2,000
30,000
19,000
Total
-
16,000
5,000
$
311,850
58,000
27,000
Part A. Allocate the costs under the step-down method in the order than gives answers
closer to the reciprocal method.
Part B. Allocate the costs under the reciprocal method.
Page 3 of 6
PROBLEM II
Bismarck sells one product at the same price per unit. In 20x1 and 20x2, the results were:
Sales Units
Sales
CGS
Gross Margin
Operating Expenses
Operating Income
20x2
45,000
$ 3,262,500
2,529,000
$
733,500
372,600
$
360,900
Per Unit
$ 72.50
56.20
$ 16.30
8.28
$ 8.02
20x1
40,000
$ 2,900,000
2,290,000
$
610,000
345,600
$
264,400
Per Unit
$ 72.50
57.25
$ 15.25
8.64
$ 6.61
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 parts refer to 20x3.
For each part, make your answer stand out.
Part A. Assume a special order for 8,000 units at $62 each is received. Bismarck has
capacity of 55,000 units. This special order will require special packaging that will raise
the cost to produce each unit by $1.25. 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 50,000 units. How much
better or worse off will they be if they accept this offer?
Part C. Use the data from Part B. Bismarck does not want to lose any regular customers
so they might accept a lower price on the special order. Bismarck 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 Bismarck is no better/worse off than in Part B?
Part D. Bismarck is considering issuing 10,000 coupons that allow the holder to buy one
discounted unit at $62. The discounted unit is exactly the same as a regular unit in every
way. Bismarck has capacity of 55,000 units. Bismarck 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 Bismarck worse off?
Page 4 of 6
PROBLEM III
The Columbus Company purchased a machine to produce its one product on 1/1/20x1
that had a 7-year life. Today, three years later on 1/1/20x4, Columbus has the opportunity
to purchase a replacement machine with a 4-year life and lower operating costs. This
would permit them to sell the old machine. Columbus depreciates all machines straightline over their useful life with zero salvage, and all machines would be expected to have a
zero market value at the end of their useful life. The accountant has prepared expected
“year ended 12/31/20x4” income statements under the two alternatives:
Keep
Revenues
Expenses:
Other than Machine
Machine Operating Costs
Depreciation
Loss on Sale of Old Machine
Total Expenses
Operating Income
$
600,000
Replace
$
600,000
$
124,000
10,000
25,000
32,000
191,000
409,000
124,000
36,000
12,000
$
172,000
428,000
Part A. Required: What is the current sales value of the old machine?
1/1/20x4 sales value of $
old machine:
Part B. Required: Present an analysis of whether or not Columbus should keep or replace
the old machine, presenting relevant, professional-quality schedules and a clear conclusion.
Page 5 of 6
PROBLEM IV
The Denver Company manufactures two products in a joint process that costs $332,640.
They began the year with zero finished goods inventory. Additionally, they know:
Product
Brutus
Buckeye
Separable Production
Costs
in kilos
$ 30,000
20,000
190,000
50,000
Sales
Sales Price
in kilos
per kilo
20,000 $ 13.80
40,000
7.20
Part A. Required: Assume Denver uses the NRV method, compute the balance in ending
finished goods inventory (which consists only of Buckeye):
Ending Inventory Balance = $
Part B. Required: Assume Denver uses the constant-gross-margin method, compute the
balance in ending finished goods inventory (which consists only of Buckeye):
Ending Inventory Balance = $
Page 6 of 6
PROBLEM V
The Frankfort Corporation manufactures two products in a joint process that costs $54,000.
They began the year with no balances in any inventory account. During the year, they
produced and sold 5,000 pounds of their main product, XG1, with a selling price of $16 per
pound. They also produced 1,000 pounds of the byproduct, Z99, and sold 800 pounds of it at
$3 per pound.
Required: Fill in the requested information:
PRODUCTION METHOD:
Total Revenue:
$
Cost of Goods Sold:
$
Total Revenue:
$
Cost of Goods Sold:
$
SALES METHOD: