Common Final Exam
Fall 2004: 14 Dec 2004
Note: Answers are provided at the end of the paper.
Question 1 (25 marks: allow about 45 minutes):
You have been hired by George Snoopy, President of Snoopy Ceramics, to
provide advice in three areas.
First: Snoopy Ceramics experienced the following gas bills and kiln hours for
January through June of the current year:
Month Kiln hours Gas bill
Jan. 220 $ 5,200
Feb. 110 3,000
March 300 8,500
Apr. 100 3,500
May. 176 5,500
June 100 3,500
(a) Using the high-low method, determine the fixed gas cost and the variable
gas cost per kiln hour (5 marks)
(b) Assuming that the company plans to use 220 kiln hours in September,
predict the gas bill for that month. (5 marks)
Secondly: in its first year of operations, Snoopy Ceramics produced 1,000,000
units and sold 850,000 units. Cost component information for the first year was
Direct material $ 20 per unit
Direct labour $ 10 per unit
Variable manufacturing overhead $ 15 per unit
Fixed factory overhead $ 2,000,000
Selling and administrative expense:
Variable $ 5 per unit
Fixed $ 800,000
1 The firm maintains no Work in Process Inventory, and the average unit selling
price was $53. The firm uses variable costing.
Required: Provide George with the following information:
(c) Prepare the income statement for the year (10 marks)
Thirdly: given the cost data George now has, he is considering outsourcing a
component of the production operation.
Briefly and in “point form” explain why George might decide not to outsource the
component even though to do so would reduce costs (5 marks)
2 Question 2 (25 marks: allow about 45 minutes):
Parkhurst Manufacturing Inc. a clothing manufacturer has a sales forecast for the
second quarter of 2005 for one major product line:
Finished Goods Inventory at the end of each month is expected to equal 20% of
estimated sales for the next month. Assume both July and August sales are
12,000 units. At March 31 (the end of the first quarter 2005), there were 2,000
finished units on hand.
Four units of cotton and six units of wool are needed to produce a finished unit.
Materials equal to one-half of the next month's production requirements are
expected in materials inventory at the end of each month. This requirement has
consistently been met.
Prepare a production budget and a material purchases budget for the second
quarter of 2005.
Show all necessary supporting schedules.
3 Question 3 (25 marks: allow about 45 minutes):
ARDHHWQ COMPANY uses a job-order costing system.
The table below provides selected data on the three jobs worked on during the
company’s first month of operations, January 2004.
10100 10200 10300
Units of product in the job 40,000 36,000 30,000
Machine-hours worked 12,000 10,000 9,000
Direct materials cost $ 45,000 $ 37,000 $ 14,000
Direct labor cost 96,000 80,000 72,000
Actual overhead costs totaling $ 300,000 were incurred during the month.
Estimated manufacturing overhead cost ($324,000) is applied to production by a
predetermined overhead rate on a basis of estimated machine-hours (36,000) to
be utilized for the period.
Job 10100 was completed during the month; while job 10200 and job 10300 were
Required: (with all your supporting calculations)
(a) Prepare ALL the journal entries to record the above transactions, with
narratives, (with the exception of the entry to close out the Manufacturing
Overhead account) (10 Marks)
(b) Prepare a schedule of Cost of Goods Manufactured for the month ended
January 31, 2004 (10 Marks)
(c) Determine the amount of Under-applied or Over-applied Manufacturing
Overhead cost for the month (5 Marks)
4 Question 4 (25 marks: allow about 45 minutes):
Carpet Division of Building Products Inc. manufactures a single grade of
residential carpeting. The division has the capacity to produce 500,000 square
yards of carpet each year. Its current costs and revenues are as follows:
Sales (400,000 square yards) $ 2,000,000
Variable costs per square yard:
Production $ 2.00
Selling & administrative 1.00
Fixed costs per square yard (based on 500,000-yard capacity)
Production $ 0.50
Selling & administrative 1.00
Each year, the Housing Division purchases 40,000 yards of carpeting (of the
grade produced by the Carpet Division) from an outside vendor at a cost of $6.50
per square yard.
(a) If the Housing and Carpet Divisions negotiate on the internal transfer of
40,000 square yards of carpeting, what is the maximum price that will be
acceptable to the Housing Division? (5 marks)
(b) If the Housing and Carpet Divisions negotiate on the internal transfer of
40,000 square yards of carpeting, what is the minimum price that will be
acceptable to the Carpet Division? (5 marks)
(c) What will be the total transfer cost if the Carpet Division decides to
transfer the carpet to the Housing Division at 125 % of the absorption
cost? (5 marks)
(d) What will be the total transfer cost if the Carpet Division decides to
transfer the carpet to the Housing Division at the 200% of variable product
cost? (5 marks)
5 (e) If the Housing and Carpet Divisions agree on the internal transfer of
40,000 square yards of carpet at a price of $4.50 per square yard, how will
the profits of the two divisions be affected? (5 marks)
(a) High activity 300 hours $ 8,500
Low activity 100 hours 3,500
Difference: 200 hours $ 5,000
Variable cost = $ 5,000 / 200 hours $ 25/hour
Substitute $ 25 per hour in either cost equation:
Low activity 100 hours * $ 25 + fixed cost = $ 3,500
$ 2,500 + fixed cost = $ 3,500
fixed cost =$ 1,000
(b) ( 220 * $ 25 )+ $ 1,00$ 6,500
(c) Sales revenue: 850,000 * $ 53 $ 45,050,000
Cost of goods manufactured:
Materials: 1,000,000 * $ 20: $ 20,000,000
Labour: 1,000,000 * $ 10: 10,000,000
Variable overhead: 1,000,000 * $ 15: