Questions

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School of Accountancy
The University of Waterloo
AFM 481
Final Examination
Tuesday, April 10, 2007
12:30 – 15:00
PAC 9
Important Instructions
*********************************************************************
1.
This examination booklet contains 5 pages including this title page.
Please ensure that it is complete.
2.
You are allowed to consult the course text when completing this
examination. You may not consult any other materials for any reason.
Only non-programmable, non-communicating calculators may be
used. You may not listen to or use any communicating or receiving
hardware such as a cellular telephone, a Blackberry, or an iPod.
3.
If you have a question please ask one of the examination proctors. It
is unacceptable for you to communicate with another student for any
reason.
4.
When you leave the examination you should hand in the booklet in
which you have answered the examination questions. Do not hand in
the examination questions or your work booklet.
5.
Suggested Time and Grade Distribution on this Examination
Suggested
Point
Time
Allocation
37 Minutes
25
30 Minutes
20
37 Minutes
25
23 Minutes
15
23 Minutes
15
150 Minutes
100
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April 10, 2007
AFM 481
Final Examination
Question One (25 marks) Rogers Corporation has two production departments,
Assembly and Finishing and three service departments, Personnel, Maintenance and
Cafeteria. Data relevant to Rogers are:
Dept
Personnel
Direct
Cost
Personnel
$500,000
Maintenance
420,000
Cafeteria
200,000
Finishing
150,000
Assembly
380,000
Maintenance
Cafeteria
0.10
0.16
0.16
0.20
Assembly
Finishing
0.70
0.20
0.80
0.20
0.24
0.24
Assembly and Finishing work on two jobs during the month: Job 100 and 101. Costs are
allocated to jobs based on machine hours in assembly and labor hours in Finishing. The
machine and labor hours worked in each department are as follows:
Assembly
Finishing
Job 100
Labor Hours
Machine Hours
200
1,000
800
200
Job 101
Labor Hours
Machine Hours
100
500
900
100
Required:
(a) Assuming Rogers uses the sequential method of cost allocation, what sequence
would you use to allocate the service department costs and why?
(b) Determine the amount of service department costs to be allocated to Jobs 100 and
101. Rogers allocates service department costs to production departments using
the direct-method of allocation.
(c) Would reciprocal allocations provide a superior result in this case? Why or why
not?
Question Two (20 marks)
Rivera Salad Dressing had 16,000 units (one unit equals one case) in beginning
inventory, 30% complete with respect to both materials and to conversion costs. During
November, 34,000 units were transferred out, 1,000 were spoiled and 9,000 remained in
ending inventory. The spoiled units were 50% complete for conversion costs and 100%
complete for materials. The ending work-in-process was 70% complete for conversion
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April 10, 2007
AFM 481
Final Examination
costs and 60% complete as to direct materials. Rivera accounts for spoiled units
separately and does not spread their cost over good units produced. Assume that spoilage
came proportionately from current and prior work.
Required: Prepare a report showing the equivalent units for November, assuming the
company separately identifies spoiled units and uses FIFO.
Question Three (25 marks)
Barry Corporation manufactures large kitchen appliances. The following represents
financial information for the firm for two years:
Sales
2004
$7,840,000
2005
$7,040,000
Costs:
Direct Labour
Direct Materials
Process Inspection
Scrap
Quality Training
Warranty repairs
Testing equipment
Resolving customer complaints
Rework
Sales Commissions
Factory Overhead
Preventive maintenance
General Administrative Expenses
Material Inspection
Field Testing
$1,200,000
2,000,000
52,800
57,600
610,000
140,000
230,000
89,000
544,000
100,000
450,000
440,000
200,000
210,000
300,000
$1,300,000
2,000,000
60,000
60,200
440,000
150,000
230,000
108,400
390,000
95,000
500,000
304,000
205,000
150,000
400,000
Total costs
$6,623,400
$6,392,600
Required:
(a) Identify and classify poor quality costs into costs of prevention (P), appraisal(A),
internal failure(I) or external failure (E) activities.
(b) Prepare a cost of quality report of 2005, showing comparative costs for 2004,
with a particular emphasis on providing useful information to senior
management..
(c) Based upon the report you have prepared, comment on the company’s strategic
plan for quality control over the two year period.
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April 10, 2007
AFM 481
Final Examination
Question Four (15 marks)
A rather large candy company is attempting to determine the profitability of each of their
customers. They are applying activity based costing methods to their overhead costs for
marketing administrative, collection and customer service cost. Determine the amount of
overhead allocated to the customers below using activity based costing to allocate the
overhead.
The Overhead costs and related cost drivers are as follows:
Cost Pool
Delivery Costs
Expected
Annual
Cost
$500,000
Telephone Ordering Costs
$100,000
Catalogue Costs
$300,000
General & Administrative
$800,000
Marketing Management
Promotions
$700,000
$600,000
Advertising
$400,000
Nbr of miles driven
Nbr of minutes spent
With customer
Nbr of Catalogues
Distributed
Cost of Goods Sold
Sales Dollars
Nbr of samples distributed
Nbr of coupons Redeemed
Cost Driver
Nbr of miles
driven
Nbr of
minutes spent
with customer
Expected Level
of
Cost Driver
1,000,000 miles
1,000,000 minutes
75,000 Catalogues
Customer X
100
750
Nbr of Catalogues
Distributed
Cost of Goods
Sold
Sales Dollars
Nbr of samples
distributed
Nbr of coupons
Redeemed
Customer Y
200
800
100
750
400
$500,000
$1,500,000
100
$50,000
$150,000
200
$300,000
$900,000
150
5
150
3
$8,000,000
$21,000,000
50,000 samples
2,000 coupons
Customer Z
75
300
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April 10, 2007
AFM 481
Sales and Cost of Goods Sold are:
Customer X
Final Examination
Customer Y
Customer Z
Sales Dollars
$1,500,000
$150,000
$900,000
Cost of Goods Sold
$ 500,000
$ 50,000
$300,000
Required:
1) Compute the amount of overhead allocated to Customers X, Y, and Z
2) Compute the profitability of Customers X, Y, and Z
( Show your work.)
Question Five (15 marks)
LinLee CO. produces a product that uses three different materials. The standards are
Direct
Material
A
B
C
Yield
Standard
Mix
Standard
Price
Standard
Cost
1,000
600
400
$3.00
$6.00
$4.50
$3,000
3,600
1,800
$8,400
9,000 units
During January, the following actual production information was available:
Direct
Material
A
B
C
Actual
Mix
12,000
3,000
5,000
Actual
Price
$3.10
$5.90
$4.70
Yield 63,000 units
Required:
(a) Calculate the material quantity, mix and yield variances.
(b) Based on the actual mix numbers and standard prices, above, what does it seem as
if the company was trying to do and did it succeed?
(c) What is the material price variance?
Answer:
(a) Mix variance
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April 10, 2007
AFM 481
Material
AM
SM
A
B
C
12,000
3,000
5,000
10,000
6,000
4,000
Mix variance
Final Examination
AM-SM
2,000
(3,000 )
1,000
SP
$3.00
$6.00
$4.50
SP(AM-SM)
$ 6,000
($18,000 )
$ 4,500
($ 7,500) favorable
Yield variance
(90,000-63,000)($8,400/9,000) = $25,200 unfavorable
Quantity variance: ($7,500)+$25,200 = $17,700 unfavorable
(b) The actual numbers show a shift away from material B, the most expensive materials,
to A and C. It led to a favorable mix variance but at the expense of the yield as well as
the overall quantity variance. As a result, the strategy has failed.
(c) Material Price Variance
(SP-AP)*AQ
($3-3.10)*12000
($6-5.90)*3,000
($4.50-4.70)*5000
Total Price Variance
Result
$1,200 U
$300 F
$1000 U
$1,900 U
6
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