Managerial Accounting Final Exam Review

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Department
Business And Administration
Course
BUS-2003
Professor
Debbie Mortimer
Semester
Fall

Description
BUS2003 Practice Final Exam These questions are representative of the types of questions you may find on the final exam, but in total are longer than the actual final exam. QUESTION ONE Bellow Division of Sound Corporation is currently operating at a loss. Bellow makes radios that are sold to retail stores. The senior management of Sound Corporation is considering closing the Bellow Division. Bellows statement of operations for the last year follows: Bellow Division Statement of Operations for the past year Revenues (80,000 units) $ 5,300,000 Operating expenses: Variable costs 4,095,000 Traceable fixed costs 1,500,000 Allocated corporate overhead 800,000 6,395,000 Operating income (loss) $(1,095,000) Recently, Sound Corporation acquired the Boom Speaker Company which manufactures speakers that are sold to radio manufacturers. In an effort to save the division from closing, the manager of the Bellow Division has asked that the new Boom Speaker Division supply it with 80,000 speakers. The Bellow Division currently purchases the speakers from outside suppliers for $28 each. Boom Speaker produces and externally sells 400,000 speakers per year which represents 80% of its operating capacity. At this production level the standard cost to produce one speaker is as follows: Direct materials $ 8.00 Direct labour 6.00 Overhead 3.00 Total unit cost $17.00 The standard direct labour rate is $12.00 per hour. The variable overhead rate is $2.00 per direct labour hour and the fixed overhead rate is $4.00 per direct labour hour. Boom sells the speakers for $32 each. Required: 1. Calculate the minimum and maximum transfer prices. Show all your computations. (2 marks) Page 1 of 24 2. Should the transfer take place? Calculate the effect on Sounds operating income if the transfer takes place. Show all your computations. (3 marks) 3. Of the allocated corporate overhead, 10% is caused by the presence of Bellow and will be avoided if Bellow is closed. i. Assume the transfer takes place. Should the Bellow Division still be closed? Show all your calculations. (4 marks) 4. Assume the transfer does not take place. Should the Bellow Division be closed? Show all your calculations. (2 marks) 5. Assume Bellow Division has unlimited demand for its radios. What is the maximum number of speakers that should be transferred from Boom Speaker Division? Show all your computations. (3 marks) QUESTION ONE Solution (15 marks) Part 1. (2 marks) Minimum transfer price: Direct materials 8.00 mark Direct labour 6.00 mark Variable overhead 50% x 2.00 = 1.00 1 mark Minimum transfer price 15.00 Maximum transfer price 28.00 mark Part 2. (3 marks) With transfer: Cost of units transferred 80,000 x 15 (cfwd) = 1,200,000 1 mark cfwd Without transfer: External purchase cost of units 80,000 x 28 = 2,240,000 1 mark Savings (increase in operating income) with transfer 1,040,000 Or: Saving (increase in operating income) with transfer = (28 - 15) x 80,000 = 1,040,000 1 mark cfwd 1 mark Page 2 of 24 Yes, the transfer should take place. (1 mark, cfwd with quantitative analysis. No mark awarded if a quantitative analysis is not completed) Part 3. (i) (4 marks) Revenues 5,300,000 mark Variable costs 4,095,000 - 1,040,000 cfwd = 3,055,000 1 mark Traceable fixed costs 1,500,000 mark avoidable allocated corporate overhead 10% x 800,000 = 80,000 1 mark Segment margin 665,000 If the transfer takes place Bellow Division should not be closed because it contributes $665,000 to Sounds operating income. 1 mark, cfwd with quantitative analysis. No mark awarded if a quantitative analysis is not completed. Part 3. (ii) (2 marks) Calculation of Bellows Segment Margin if the transfer does not take place: Operating income (loss) (1,095,000 ) Add back unavoidable corporate overhead 90% x 800,000 = 720,000 Segment margin (375,000) 1 mark If the transfer does not take place Bellow Division should be closed because it decreases Sounds operating income by $375,000. 1 mark, cfwd with quantitative analysis. No mark awarded if a quantitative analysis is not completed. Part 4. (3 marks) Minimum transfer price if Boom has no idle capacity: Variable cost from part 1 15.00 1 mark cfwd Lost contribution margin: $32 15 = 17.00 1 mark cfwd Minimum transfer price 32.00 Maximum transfer price 28.00 mark As soon as regular sales are displaced, Boom will want to charge $32 but Bellow could use an outside supplier for $28, which would be cheaper for both Bellow and the corporation. Only the current idle capacity of Boom should be used to produce units for transfer, a total of (400,000/80%) 400,000 = 100,000 units. 1 mark Page 3 of 24 QUESTION TWO Child Play Inc. produces a special kind of plastic toy car which does not contain lead paint, the Scooter, for various manufacturers. Child Play produces Scooters in batches. After each batch of Scooters is run, the moulds are cleaned. The labour costs of cleaning the moulds can be traced directly to Scooters because of the unique mould required. Cleaning labour is paid on an hourly basis. The following information pertains to June 2007: Static Budget Actual Number of Scooters produced and sold 60,000 45,000 Batch size (number of Scooters per batch) 500 450 Cleaning labour hours per batch 6 7 Cleaning labour cost per hour $16.80 $15.00 Required: 1. Calculate the rate variance for total cleaning labour costs in June 2007. Show all your calculations. (3 marks) 2. Calculate the efficiency variance for total cleaning labour costs in June 2007. Show all your calculations. (3 marks) 3. Comment on the efficiency variance. Your comments should include possible causes of the variance and who should be held accountable for the variance. Do not include an incorrect standard as a possible cause. (6 marks) QUESTION Two Solution (12 marks) Part 1. (3 marks) {(45,000 450) x 7 x $15} {(45,000 450) x 7 x $16.80} 1 mark 1 mark = $10,500 - $11,760 = $1,260F 1 mark cfd Part 2. (3 marks) {(45,000 450) x 7 x $16.80} - {(45,000 500) x 6 x $16.80} 1 mark 1 mark Page 4 of 24
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