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York University
Administrative Studies
ADMS 2510
John Kucharczuk

ADMS 2510 Common Final Exam th 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 Required: (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 as follows. Production costs: 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. d) Required: 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: Month Units April 12,000 May 14,500 June 16,000 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. Required: 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. -----------------------------------------------------------------------------Job Number------------- 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 not completed. 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. Required: (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) 6 SOLUTIONS: Question 1 (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:
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