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ADM 3346 Study Guide - Quiz Guide: Contribution Margin, European Cooperation In Science And Technology, Operating Leverage


Department
Administration
Course Code
ADM 3346
Professor
Tiemei L I
Study Guide
Quiz

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ADM 3346 X
COST ACCOUNTING
Spring/Summer 2012
Quiz No. 1
Solutions
. . . . . . . / 16 marks
NAME: __________________________________________
STUDENT #: ________________________
Statement of Academic Integrity:
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result in a false academic evaluation of that student or of another student. Without limiting
the generality of this definition, academic fraud occurs when a student commits any of the
following offences: plagiarism or cheating of any kind, use of books, notes, mathematical
tables, dictionaries or other study aid unless an explicit written note to the contrary appears
on the exam, to have in his/her possession cameras, radios (radios with head sets), tape
recorders, pagers, cell phones, or any other communication device which has not been
previously authorized in writing.
Statement to be signed by the student:
I have read the text on academic integrity and I pledge not to have committed or attempted
to commit academic fraud in this examination.
Name:______________________________________ (signature)
Note:
A quiz received without the signature of the student will not be graded and will receive a
score of zero.
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2
Multiple Choice (16 marks)
Choose the best answer for each of the following 8 multiple choice questions. Circle your answer
directly on the quiz booklet. Only one answer will be accepted for each multiple choice question.
There is no penalty for guessing. Each question is worth 2 marks.
Question No. 1
Gamble Company has only 25,000 hours of machine time each month to manufacture its two
products. Product X has a contribution margin of $50 per unit, and Product Y has a contribution
margin of $64 per unit. Product X requires 5 hours of machine time, and Product Y requires 8
hours of machine time. If Gamble Company wants to dedicate 80 percent of its available machine
time to the product that provides the highest contribution margin per unit of the constrained
resource, the company will have a total contribution margin of:
a.
$250,000.
b.
$240,000.
c.
$210,000.
d.
$200,000.
Answer: (b)
X: CM/unit = $50
CM/mhr = $50/5 = $10/machine hour
Y: CM/unit = $64
CM/mhr = $64/8 = $8/machine hour
Therefore, 80% of capacity is applied to Product X
X: 20,000 hrs x $10/machine hour
$200,000
Y: 5,000 hrs x $8/ machine hour
40,000
Total company contribution margin
$240,000
Question No. 2
West Company produces a part that has the following costs per unit:
$ 8
3
1
5
$17
Zest Corporation can provide the part to West for $19 per unit. West Company has determined
that 60 percent of its fixed overhead would continue if it purchased the part. However, if West no
longer produces the part, it can rent that portion of the plant facilities for $60,000 per year. West
Company currently produces 10,000 parts per year. Which alternative is preferable and by what
margin?
a.
Make-$20,000
b.
Make-$50,000
c.
Buy-$10,000
d.
Buy-$40,000
Answer: (c)
Purchase price from Zest
$(190,000)
Rent Revenue Received
60,000
Variable Costs Avoided
120,000
Fixed Overhead Avoided
20,000
Difference in Favor of Buying
$ 10,000
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