Exam Management Accounting Intermediate

Level 6012B0237 & 6012B0322

8 July 2013

Date: 8 July 2013Time: 09.00-12.00Location: IWO

Note:You can answer questions in English or in Dutch. In this exam the comma (,) is used as thousands separator and the period (.) is used as decimal separator.

Rules, regulations etc:* You are allowed to use a normal calculator (not a graphic calculator),

and if necessary an unmarked dictionary. Otherwise, use of books, notes, etc is not allowed. Switch off your mobile phone and take it off your desk.

* If asked, you should be able to identify yourself.* You need to have registered for this exam through CTIS. If you did not

do so, you have to apply to the Onderwijsbalie (Bureau Examen- en Studentenzaken) to receive your grade. Don’t contact the instructors for this, they are not allowed to give you your grade.

* You can take this exam sheet with you after you have finished it.* Write your name and student number on every sheet that you

hand in.

Grading:This exam consists of 4 exercises. With each question, the number of points is indicated. In total you can obtain 50 points for this exam. You will have passed the course if your total is 28 points or more.

Results and review:* The results will be posted on Blackboard* The review of the exam will also be announced via Blackboard

Assignment 1: (max. 15 points)

Lane Company manufactures a single product that requires a great deal of hand labor. Overhead cost is applied on the basis of direct labor- hours. The company’s condensed flexible budget for manufacturing overhead is given below:

Cost per Direct Labor- HoursOverhead costs labor-hour 45,000 60,000 75,000Variable costs € 2 € 90,000 € 120,000 € 150,000Fixed costs € 480,000 € 480,000 € 480,000

Total overhead cost € 570,000 € 600,000 € 630,000

The company’s product requires 3 pounds of material that has a standard cost of € 7 per pound and 1.5 hours of direct labor time that has a standard rate of € 6 per hour.The company planned to operate at a budgeted activity level of 60,000 direct labor-hours and to produce 40,000 units of product during the most recent year.Actual activity and costs for the year were as follows:

Number of units produced 42,000Actual direct labor-hours worked 65,000Actual variable overhead cost incurred € 123,500Actual fixed overhead cost incurred € 483,000

a. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements (2p)

b. Compute the standard cost per unit, showing all the details for all manufacturing costs (4p)

c. Determine the reason for any under-or over-applied overhead for the year by computing the variable and the fixed overhead variances (8p)

d. Suppose the company had chosen 65,000 direct labor-hours as the budgeted activity rather than 60,000 hours. State which, if any, of the variances computed above would have changed, and explain how the variance(s) would have changed. No computations are necessary (1p)

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Assignment 2: (max. 12 points)

The Timmerman Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company’s Sales Department provides the following information:

Product Demand next year (units) Estimated selling price per unit

Debbie 50,000 € 13.50Trish 42,000 5.50Sarah 35,000 21.00Mike 40,000 10.00Sewing kit 325,000 8.00

The standard costs for direct materials and direct labor per unit are as follows:

Product Direct Materials Labor

Debbie € 4.30 € 3.20 Trish 1.10 2.00Sarah 6.44 5.60Mike 2.00 4.00Sewing kit 3.20 1.60

The company’s plant has a capacity of 130,000 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.The direct labor rate is € 8 per hour; this rate is expected to remain unchanged during the coming year. Fixed costs total € 520,000 per year. Variable overhead costs are € 2 per direct labor-hour. All of the company’s non-manufacturing costs are fixed. The company’s present inventory of finished products is negligible and can be ignored.

a. Determine the production levels for the five models that will maximize profits during the coming year. (10 p)What is the highest price, in terms of a rate per hour, that Timmerman Company would be willing to pay for additional capacity (direct labor hour time) ? (2 p)

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Assignment 3: (max. 14 points)

Feltkamp Manufacturing Company produces electronic components on a job order basis. Most business is gained through bidding on jobs. Most firms competing with Feltkamp bid full cost plus a 30% markup. Recently, with the expectation of gaining more sales, Feltkamp dropped its markup from 40% to 30%. The company operates two service departments and two production departments.Manufacturing overhead costs and quantities of activities for each department are shown below:

Service Departments Production Departments Personnel Maintenance Machining Assembly Overhead costs € 100,000 €200,000 €400,000 €300,000Number of employees 5 5 5 40Maintenance hours 1,500 200 7,500 1,000Machine hours 0 0 10,000 1,000Direct labor hours 0 0 1,000 10,000

Costs of the personnel department are allocated on the basis of employees and those of the maintenance department on the basis of maintenance hours.Departmental rates are used to assign overhead costs to products.The machining department uses machine hours, and the assembly department uses direct labor hours for this purpose. The firm is preparing to bid on job 123, which requires three machine hours per unit produced in the machining department and five direct labor hours per unit produced in the assembly department. The expected direct materials and direct labor costs per unit are € 450.

a Allocate the service department costs to the production departments using the direct method (2p)

b Determine the bid price per unit produced for job 123 using the direct method (5p)

c Assume that the costs of the service department incurring the greatest costs are allocated first, and allocate the service department costs to the production departments using the step-down method. When allocating costs, assume the maintenance department has 0 employees (2p)

d Determine the bid price per unit produced for job 123 using the method in part c (5p)

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Assignment 4: (max. 9 points)

Relative Principle Ltd. makes blended tropical fruit drinks in two stages.Fruit Juices are extracted from fresh fruits and then blended in the Blending Department. The blended juices are then bottled and packed for shipping in the Bottling Department. The following information pertains to the operations of the Blending Department for January.

Percentage completed Units Materials ConversionWork in progress, beginning 30,000 100% 80%Started into production 170,000Completed and transferred out 150,000Work in progress, ending 50,000 100% 20%

Cost in the beginning work in progress stock and cost added during January were as follows for the Blending Department;

Materials ConversionWork in progress, beginning € 86,600 € 84,400Cost added during January € 1,005,400 € 816,100

Question aCalculate the total costs assigned to units completed and transferred out to the Bottling Department in January and the total costs of the end-of-month work in progress using the weighted average method (4p)

Question bCalculate the total costs assigned to units completed and transferred out to the Bottling Department in January and the total costs of the end-of-month work in progress using the ‘ fifo’ method (5p)

This is the end of the exam. Make sure that your name and student number is on all answer sheets you hand in. You can take this exam sheet with you.

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