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Accounting & MIS 3300
Exam II
Autumn 2013
Instructions:
1.
Read each question carefully and answer fully. Ignore income tax
unless instructed to consider it. Variances are isolated at earliest
possible point.
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
24
10 – 13 minutes
II
3
28
11 – 15 minutes
III
4-5
32
13 – 18 minutes
IV
6
16
6 – 9 minutes
100
40 – 55 minutes
Total
Page 2 of 6
PROBLEM I
Asare Company has the following per-unit standards for 20x1:
Direct Materials
Direct Labor
Variable Manu. Overhead
5 lbs. @ $10.60 per lb.
3 direct-labor hours @ $16.00 per direct-labor hour
2 machine hours @ $22.00 per machine hour
Budgeted fixed manufacturing overhead was $680,000. Asare used a denominator level of
50,000 machine hours. Actual production was 24,000 units using 47,000 machine hours,
and the following occurred:
Direct Materials:
Direct Labor:
Manu. Overhead:
Purchased 148,000 lbs. for $1,613,200 and used 116,000 lbs.
Paid $1,197,000 for 76,000 direct-labor hours
Incurred $1,000,000 (variable) and $720,000 (fixed)
Required: Compute the variances requested and place in boxes below.
Direct Material Price
Variance
Direct Labor Price
Variance
Variable Manu.
Overhead Spending
Variance
Fixed Manu.
Overhead Spending
Variance
Direct Material
Efficiency Variance
Direct Labor
Efficiency Variance
Variable Manu.
Overhead Efficiency
Variance
Fixed Manu.
Production-Volume
Variance
Page 3 of 6
PROBLEM II
The Chang Company has the following standards:
Direct Materials
Direct Labor
Manufacturing Overhead
3 lbs. @ $6.50 per lb.
6 hours @ $24.00 per hr.
$37.00 per direct-labor hour
and the following results:
Revenues
Cost of direct materials purchased
Direct Material Price Variance
Direct Material Efficiency Variance
Direct Labor Price Variance
Direct Labor Flexible-Budget Variance
$3,740,000
622,300
14,700 F
39,000 U
78,750 U
185,250 F
Chang used a denominator level of units of 30,000, actually manufactured 31,000 units, and
sold 26,000. Calculate the items requested below:
Standard direct labor hours allowed for actual output
Actual direct labor hours worked
Actual average direct labor wage rate
Standard pounds of direct materials allowed
Actual pounds of direct materials used
Actual pounds of direct materials purchased
Actual average direct materials price per pound
Page 4 of 6
PROBLEM III
The Bright Company began operations in January of 20x1 and decided to use FIFO. The
following is known:
January 20x1
February 20x1
Production
900 units
700 units
Sales ($190 per unit)
600 units
800 units
Budgeted Variable Manufacturing
$75 per unit
$75 per unit
Budgeted Fixed Manufacturing
$50,400 per month
$50,400 per month
Variable Operating Costs
$12 per unit sold
$12 per unit sold
Fixed Operating Costs
$15,000 per month
$15,000 per month
Part A. Bright uses a normal absorption costing system and a denominator level of 800
each month. Bright had no price, spending, or efficiency variances. Production-volume
variances, if any, are closed to cost of goods sold. Required: produce the January and
February income statements in good form.
Page 5 of 6
PROBLEM III CONTINUED
Part B. Assume Bright uses actual variable costing. Required: calculate the net income
for each of the two months.
January:
$
February:
$
Part C. Required: present below a succinct, properly labeled, and professional schedule
that starts with the actual variable net income numbers in part B and arrives at the net
income numbers under actual absorption costing for the each of the two months.
Page 6 of 6
PROBLEM IV
The Ramirez Company has been selling at two weekend events, having these results:
Sales
Revenue
Expenses
Profit
Event 1
17,000 units
$ 391,000
367,000
$ 24,000
Sales
Revenue
Expenses
Profit
Event 2
29,000 units
$ 667,000
559,000
$ 108,000
They have the opportunity to sell at a future event that is expected to have the same
revenue and cost structure as the above events, plus an “event fee” not previously required.
The promoters of the event require Ramirez to choose, well before the event, an event fee to
attend that either a) requires a $30,000 payment or b) requires them to pay 4% of sales.
Ramirez cannot back out after choosing fee type. Ramirez estimates sales will be 45,000
units if the weather is “clear” and 25,000 units if the weather is “foul.” The weather has a
60% chance of being clear when the event occurs.
Required: Calculate the value to Ramirez of a perfectly accurate prediction of the weather
prior to signing the contract with the promoters. Show your answer in good form!