Practice Test #4

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University of Winnipeg
Business And Administration
Debbie Mortimer

DEPARTMENT OF BUSINESS AND ADMINISTRATION BUS2003 Test 4 November 17, 2010 Name:____________________________________________________ Student Number: __________________________________________ Instructions: Please answer the following questions on the examination test sheets. If you need more room, please use the back of the pages. Show your calculations in detail. Grading: Q1 /8 Q2 /18 Q3 / 12 Q4 / 10 Total /48 Question One: (8 marks) TabComp Inc. is a retail distributor for MZB-33 computer hardware and related software. TabComp prepares annual sales forecasts, of which the first six months of the coming year are presented below: Cash sales account for 25% of TabComp's total sales, 30% of the total sales are paid by bank credit card, and the remaining 45% are on open account (TabComp's own charge accounts). The cash and bank credit card sale payments are received in the month of the sale. Bank credit card sales are subject to a 4% discount, which is deducted immediately. The cash receipts for sales on open account are 70% in the month following the sale and 28% in the second month following the sale; the remaining are uncollectible. TabComp's month-end inventory requirements for computer hardware units are 30% of the next month's sales. The units must be ordered two months in advance due to long lead times quoted by the manufacturer. Required: a) Calculate the cash that TabComp can expect to collect during April. Show all of your calculations. (4 marks) b) Determine the number of computer hardware units that should be ordered in January. Show all of your calculations. (4 marks) Question One Solution: a) The cash that TabComp can expect to collect during April is calculated below: 1 mark per calculation = 4 marks b) The number of units that TabComp should order in January is calculated as follows: 1 mark per calculation = 4 marks January sales 130 BI (130 x 0.30) (39) EI (120 x 30%) 36 Total 127 Question Two: A sales budget is given below for one of the products manufactured by the OMI Co.: January 25,000 units February 40,000 units March 65,000 units April 45,000 units May 35,000 units June 30,000 units The inventory of finished goods at the end of each month must equal 20% of the next month's sales. However, on December 31, the finished goods inventory totalled only 4,000 units. Each unit of product requires three kilograms of specialized material. Since the production of this specialized material by OMI's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year. Required: Prepare a budget showing the quantity of material to be purchased each month for January, February, and March, and in total for the quarter. (18 marks) Question Two Solution: Beginning inventory, January 1: 87,000 x 0.3 = 26,100. Ending inventory, March 31: (43,000 x 3) x 0.3 = 38,700. 2 marks per month “units to be produced” = 6 marks 2 mark per month “ending inventory” = 6 marks 1 mark per month “beginning inventory” = 3 marks 3 marks total for “quarter” amounts Question Three: Lido Company's standard and actual costs per unit for the most recent period, during which 400 units were actually produced, are given below: Required: From the above information, compute the following variances. Show whether the variance is favourable (F) or unfavourable (U): a) Materials price variance (2 marks) b) Materials quantity variance (2 marks) c) Direct labour rate variance (2 marks) d) Direct labour efficiency variance (2 marks) e) Variable overhead spending variance (2 marks) f) Variable overhead efficiency variance (2 marks) Question Three Solution a) Materials price variance = AQ(AP - SP) = (2.1 x 400)($1.60 - $1.50)
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