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27/06/2009 :

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Answer the following Questions:
Question One: (7.5 Mark)
Faculty of commerce has two service departments and two operating
departments. Selected data on the four departments are presented below:-
Service Depts. Operating Depts.
Computer
Administration Accounting Finance
services
Departmental costs
$180,000 $90,000 $190,000 $900,000
before allocations
Number of
15 5 20 80
employees
Number of PCs 12 20 18 102
The Faculty of Commerce allocates service department costs by the step
method in the following order : Administration ( number of employees)
and Computer Services (number of personal computers PCs ). The
Faculty makes no distinction between fixed and variable service
department costs.
Required : Using the Step Method , allocate the service department costs to
the operating department.

Question Two: (7.5 Mark)

The Jerusalem Chemical Company produced three joint products at a joint
cost of $117,000. These products were processed further and sold as
follows.
Chemical Sales Additional
Product Processing Cost
A $230,000 $190,000
B 330,000 300,000
C 175,000 100,000
The company has had an opportunity to sell at split off directly to other
processors. If that alternative had been selected sales would have been A,
$54,000; B, $28,000; and C, $54,000.The company expects to operate at the
same level of production and sales in the forthcoming year. Consider all the
available information, and assume that all costs incurred after split off are
variable.
1. Could the company increase operating income by altering its
processing decisions? If so, what would be the expected overall
operating income?
2. Which products should be processed further and which should
be sold at split off?

Question Three: (7.5 Mark)

A manager of eBooks.com is contemplating acquiring servers to operate
its Web site. The servers will cost $660,000 cash and will have zero
terminal salvage value. The recovery period and useful life are both three
years. Annual pretax cash savings from operations will be $300,000. The
income tax rate is 40%, and the required after-tax rate of return is 12%.
1. Compute the net present value, assuming straight-line depreciation
of $220,000 yearly for tax purposes. Should eBooks.com acquire
the computers? Explain
2. Suppose the computers will be fully depreciated at the end of year 3
but can be sold for $90,000 cash. Compute the net present value.
Should eBooks.com acquire the computers? Explain.

Question Four(7.5 Mark)

Hospitals measure their volume in terms of patient-days. We calculate
patient- days by multiplying the number of patients by the number of days
that the patients are hospitalized. Suppose Elwafa hospital has fixed costs of
$54 million per year and variable costs of $600 per patient- day.
Daily revenues vary among classes of patients. For simplicity, assume that
there are two classes: (1) self-pay patients (S) who pay an average of $1,000
per day and (2) non-self-pay patients (G) who are the responsibility of
insurance companies and government agencies and who pay an average of
$800 per day. Twenty percent of the patients are self-pay.
1. Compute the break-even point in patient-days, assuming that Elwafa
hospital maintains its planned mix of patients.
2. Suppose that the hospital achieves 225,000 patient-days but that 25%
of the patient-days were self-pay (instead of 20%). Compute the net
income. Compute the break-even point
Question Five: (7.5 Mark)
Sea Corporation makes a single product-a fire-resistant commercial filing
cabinet-that it sells to office furniture distributors. The company has a simple
ABC system that it uses for internal decision making. The company has two
overhead departments whose costs are listed below:
Manufacturing overhead $500,000
Selling and administrative overhead 300,000
Total overhead costs $800,000
The company's ABC system has the following activity cost pools and
activity measures:
Activity Costs Pool Activity Measure
Assembling units ........... Number of units
Processing orders .......... Number of orders
Supporting customers ....... Number of customers
Other . . . . . . . . . . . . . . . . . . . Not applicable
Costs assigned to the "Other" activity cost pool have no activity measure;
they consist of the costs of unused capacity and organization-sustaining
costs-neither of which are assigned to orders, customers, or the product.
Sea Corporation distributes the costs of manufacturing overhead and of
selling and administrative overhead to the activity cost pools based on
employee interviews, the results of which are reported below:
Distribution of Resource Consumption Across Activity Cost Pools
Assembling Processing Supporting
Other Total
Units Orders Customers
Manufacturing overhead 50% 35% 5% 10% 100%
Selling and administrative 10% 45% 25% 20% 100%
overhead ..................
Total 1,000 250 100
activity . . . . . . . . . . . . . . units orders customers

Required:
1. Perform the first-stage allocation of overhead costs to the activity cost
pools.
2. Compute activity rates for the activity cost pools.
3. OM is one of Sea Corporation's customers. Last year, OM ordered
filing cabinets four different times. OM ordered a total of 80 filing
cabinets during the year. Construct a table showing the overhead costs
attributable to OM.
 Question Six: (7.5 Mark)
MB Corporation manufactures and sells a seasonal product that has peak
sales in the third quarter. The following information concerns operations for
Year 2-the coming year-and for the first two quarters of Year 3:
a. The company's single product sells for $8 per unit. Budgeted sales in
units for the next six quarters are as follows (all sales are on credit):

Year 3
Year 2 Quarter
Quarter
1 2 3 4 1 2

Budgeted unit sales 40,000 60,000 100,000 50,000 70,000 80,000

b. Sales are collected in the following pattern: 75% in the quarter the sales
are made, and the remaining 25% in the following quarter. On January 1,
Year 2, the company's balance sheet showed $65,000 in accounts
receivable, all of which will be collected in the first quarter of the year.
Bad debts are negligible and can be ignored.
c. The company desires an ending finished goods inventory at the end of
each quarter equal to 30% of the budgeted unit sales for the next quarter. On
December 31, Year 1, the company had 12,000 units on hand.
Required:
Prepare the following budgets and schedules for the year, showing both
quarterly and total figures.
1. A sales budget and a schedule of expected cash collections.
2. A production budget.

Question Seven: (7.5 Mark)

XY Company produces a single product. Variable manufacturing overhead is
applied to products on the basis of direct labor-hours. The standard costs for
one unit of product are as follows:

Direct material: 6 ounces at $0.50 per ounce $3

Direct labor: 1.8 hours at $10 per hour 18
Variable manufacturing overhead: 1.8 hours at $5 per hour 9
Total standard variable cost per unit $30

During June, 2,000 units were produced. The costs associated with June's
operations were as follows:
Material purchased: 18,000 ounces at $0.60 per ounce $10,800
Material used in production: 14,000 ounces. . . . . . . . . . . . . .
Direct labor: 4,000 hours at $9.75 per hour. . . . . . . . . . . . . . . $39,000
Variable manufacturing overhead costs incurred . . . . . . . . . . . . $20,800

Required:
Compute the direct materials, direct labor, and variable manufacturing
overhead variances.

Question Eight: (7.5 Mark)

The MI Division of Medical Diagnostics, Inc., has reported the following
results for last year's operations:

Sales.......... .......... .......... .......... $25 million

Net operating income .......... $3 million
Average operating assets .. . . . . . $10 million

Required:
1. Compute the MI Division's margin, turnover, and ROI.
2. Top management of Medical Diagnostics, Inc., has set a minimum
required rate of return on average operating assets of 25%. What is the MI
Division's residual income for the year?

Good Luck