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Accounting & MIS 3300
Exam III
Autumn 2013
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
25
10 – 14 minutes
II
3
32
13 – 18 minutes
III
4
19
8 – 10 minutes
IV
5
24
10 – 13 minutes
100
41 – 55 minutes
Total
Page 2 of 5
PROBLEM I
The Antler 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
110,880 $
340,200
6,000
900
Operating Departments
Assembly
Finishing
$
- $
2,000
4,000
10,000
18,000
Total
-
20,000
9,000
Part A. Allocate the costs under the step-down method in the “better” order.
Part B. Allocate the costs under the reciprocal method.
$
451,080
38,000
31,900
Page 3 of 5
PROBLEM II
Burns 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
80,000
$ 2,880,000
2,020,000
$
860,000
616,000
$
244,000
Per Unit
$ 36.00
25.25
$ 10.75
7.70
$ 3.05
20x1
70,000
$ 2,520,000
1,882,500
$
637,500
584,000
$
53,500
Per Unit
$ 36.00
26.89
$ 9.11
8.34
$ 0.76
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 special order offers
are “take it or leave it.” All parts refer to 20x3. For each part, make your answer stand
out.
Part A. Assume a special order for 13,000 units at $22 each is received. Burns has capacity
of 95,000 units. This special order will not require the standard Burns nameplate, and
thus, will be $1.00 per unit less expensive to manufacture. 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 90,000 units. How much
better or worse off will they be if they accept?
Part C. Use the data from Part B. Burns does not want to lose any regular customers so
they might accept a lower price on the special order. Burns 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 Burns is no better/worse off than in Part B?
Part D. Burns is considering issuing 10,000 coupons that allow the holder to buy one
discounted unit at $22. The discounted unit is exactly the same as a regular unit in every
way. Burns has capacity of 90,000 units. Burns 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 Burns worse off?
Page 4 of 5
PROBLEM III
The Hanson Company purchased a machine to produce its one product on 1/1/20x1
that had a 6-year life. Today, 1/1/20x2, Hanson has to the opportunity to purchase a
replacement machine with a 5-year life and lower operating costs. This would permit them
to sell the old machine. Hanson depreciates all machines straight-line 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 12/31/20x2 income
statements under the two alternatives:
Keep
Revenues
Expenses:
Other than Machine
Machine Operating Costs
Depreciation
Other Gains/Losses:
Sales Price of Old Machine
Carrying Value of Old Machine
Loss on Sale of Old Machine
Total Expenses
Operating Income
$
$
800,000
Replace
$
800,000
245,000
95,000
30,000
245,000
25,000
42,000
370,000
430,000
10,000
150,000
140,000
452,000
348,000
$
Required: Present an analysis of whether or not Hanson should keep or replace the old
machine, presenting relevant, professional-quality schedules and a clear conclusion.
Page 5 of 5
PROBLEM IV
The Cruz Company manufactures three products in a joint process that costs $17,600.
Additionally, they know:
Product
Beginning
Inventory
Alpha
Beta
Gamma
0
0
0
Production
in kg
400
500
1,100
Ending
Inventory
Final Sales
Value
per kg
200 $
28
0 $
44
0 $
3
Separable
Costs
in total
3,400
7,800
0
Part A. Required: Assume Cruz uses the NRV method and considers Gamma to be a
byproduct, compute the balance in ending inventory using the production method:
Ending Inventory Balance = $
Part B. Required: Assume Cruz uses the NRV method and considers Gamma to be a
byproduct, compute the balance in ending inventory using the sales method:
Ending Inventory Balance = $
Part C. Using the results from part B, assume Cruz could sell all Alpha produced for $20
per kilo before processing it further. What is the gain/loss of processing Alpha further?
Gain/(Loss) of Processing Further = $