YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 S, T, & X FINAL EXAMINATION April 7, 2011 Duration: 180 Minutes

100 Marks Instructors: Dr. S. Qu & C. Ching INSTRUCTIONS: yIdentify yourself only by your student number on each exam answer book you use. yThis exam is a closed book exam. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. yPlease DOUBLE SPACE and make your writing legible! yMake any necessary assumptions and state your assumptions in your answer. Do not ask the instructor or proctor to interpret or provide further guidance on the questions. yShow all calculations. yAll questions must be answered in the exam answer books distributed at the exam. Work handed in on the question sheet or materials not distributed at the exam will not be graded. yYou must hand in the exam answer books as well as the question sheet at the end of the examination. Please place the question sheet within your exam answer book and hand in both. yOrganization and logical development of arguments are required! Random or scattered statements will not be rewarded. The instructor will not interpret your answer. You must state your response clearly. yThis exam has 3 questions and is worth 100 marks in total. yThis exam is worth 40% of your final grade in the course.

GOOD LUCK! Question 1 (26 marks, 46 minutes) Premier Corporation sells two models of home ice cream makers, Mister Ice Cream and Cold King. Current sales total 60,000 units, consisting of 21,000 Mister Ice Cream units and 39,000 Cold King units. Selling price and variable cost information follow. Mister Ice Cream $37.00 20.50 Cold King $43.00 32.50

Selling price Variable cost

Salespeople currently receive flat salaries that total $200,000. Management is contemplating a change to a compensation plan that is based on commissions in an effort to boost the company's presence in the marketplace. Two plans are under consideration: Plan A: Plan B: 10% commission computed on gross dollar sales. Mister Ice Cream sales are expected to total 19,500 units; Cold King sales are anticipated to be 45,500 units. 30% commission computed on the basis of production contribution margins. Mister Ice Cream sales are anticipated to be 39,000 units; Cold King sales are expected to total 26,000 units.

Required: 1. (15 marks) Comparing Plan A to the current compensation arrangement: a) (3 marks) Will Plan A achieve management's objective of an increased presence in the marketplace? Briefly explain.

b) (3 marks) From a sales-mix perspective, will the salespeople be promoting the product that one would logically expect? Briefly discuss.

c) (3 marks) Will the sales force likely be satisfied with the results of Plan A? Why?

d) (7 marks) Will Premier likely be satisfied with the resulting impact of Plan A on company profitability? Why?

2. (11 marks) Assume that Plan B is under consideration. a) (4 marks) Compare Plan A and Plan B with respect to total units sold and the sales mix. Comment on the results.

b) (7 marks) In comparison with flat salaries, is Plan B more attractive to the sales force? To the company? Show calculations to support your answers. Adapted from Managerial Accounting, Hilton and Faverre-Marchesi, Canadian Ed., McGraw-Hill Ryerson, 2010. Question 2 (20 marks, 36 minutes) Redstone Industrial Resources Company (RIRC) has several divisions. However, only two divisions transfer products to other divisions. The Mining Division refines toldine, which is then transferred to the Metals Division. The toldine is processed into an alloy by the Metals Division, and the alloy is sold to customers at a price of $450 per unit. The Mining division is currently required by RIRC to transfer its total yearly output of 400,000 units of toldine to the Metals Division at total actual manufacturing cost plus 10 percent. Unlimited quantities of toldine can be purchased and sold on the open market at $270 per unit. While the Mining Division could sell all the toldine it produces at $270 per unit on the open market, it would incur a variable selling cost of $15 per unit. Brian Jones, manager of the Mining Division, is unhappy with having to transfer the entire output of toldine to the Metals Division at 110 percent of cost. In a meeting with the management of Provo, he said, Why should my division be required to sell toldine to the Metals Division at less than market price? For the year just ended in May, Metals' contribution margin was over $57 million on sales of 400,000 units, while Mining's contribution was just over $15 million on the transfer of the same number of units. My division is subsidizing the profitability of the Metals Division.

We should be allowed to charge the market price for toldine when transferring to the Metals Division. The following table shows the detailed unit cost structure for both the Mining and Metals divisions during the most recent year: Mining Division Transfer price from Mining Division Direct material Direct labour Manufacturing overhead Total cost per unit
*

$36 48 96* $180

Metals Division $198 18 60 75 $351

Manufacturing-overhead cost in the Mining Division is 25 percent fixed and 75 percent variable. Manufacturing-overhead cost in the Metals Division is 60 percent fixed and 40 percent variable. Required: 1. (2 marks) Explain why transfer prices based on total actual costs are not appropriate as the basis for divisional performance measurement.

2. (8 marks) Using the market price as the transfer price, determine the unit and total contribution margin for both the Mining Division and the Metals Division.

3. (4 marks) If Redstone Industrial Resources Company were to institute the use of negotiated transfer prices and allow divisions to buy and sell on the open market, determine the price range for toldine that would be acceptable to both the Mining Division and the Metals Division. Explain your answer.

4. (4 marks) Use the general transfer-pricing rule to compute the lowest transfer price that would be acceptable to the Mining Division. Is your answer consistent with your conclusion in requirement (3)? Explain.

5. (2 marks) Identify which one of the three types of transfer prices (cost-based, market-based, or negotiated) is most likely to elicit desirable management behaviour at RIRC. Explain your answer.

Adapted from Managerial Accounting, Hilton and Faverre-Marchesi, Canadian Ed., McGraw-Hill Ryerson, 2010. Question 3 (54 marks, 98 minutes) The Undergraduate Business Council (UBC) is the Schulich undergraduate student representative council for students in the BBA and iBBA program. One of the main objectives of the UBC is to further connect the Schulich Community, through the organization of various social and networking events. One of the social events that was recently held is the 2011 gradation prom for undergraduate students at the Schulich School of Business (2011 Undergrad Prom). Michael Quaritch is the chief coordinator for the 2011 Undergrad Prom. He felt that the event was a great success, with attendance to the event at its all time high. This success is further demonstrated by the fact that net profit for the event exceeded budget by $2,140. Michael attributed the success of the event to his aggressive marketing campaign which includes spending $5,000 in advertising the event at various social media networks. In addition, during the last two weeks of the ticket sales window, the event manager made a $20 discount coupon available on line in which students could download and receive a discount when buying their tickets. Michael prepared the following performance report at the UBC executive board meeting.

Prior to the commencement of the ticket sales window, Michael submitted the budget for the event to the president of UBC, Jack Sully. The 2011 budget for the event was based on the following assumptions 1. The amount of budgeted revenue is determined by multiplying the regular ticket price of $150 per person with the number of expected attendees for the event of 200. 2. The amount of budgeted food expenses is based on the 2010 MBA students graduation prom (2010 MBA Prom) budget of $40 per course of meal. It is assumed that 1 course of meal would be served to each attendee. 3. The amount of budgeted beverage expenses is based on the 2010 MBA Prom budget of $10 per drink and 3 drinks per person. 4. The amount of budgeted disc jockey expense is based on the 2010 signed contract with the disc jockey of $1,000 for the event. 5. The amount of budgeted salaries and wages for servers is based on the 2010 signed contract of $25 per hour per server. One server is required for every table, which can seat 10 attendees throughout the duration of the graduation prom. 6. The amount of budgeted facility rental expenses is based on the 2010 MBA Prom which was held at the Pandora. Pandora is a 5-star banquet hall located in downtown Toronto.

The 2011 Undergrad Prom was held at the RDA banquet hall, a 3-star banquet hall facility that has the capacity for 28 tables. The rent for the facility was $3,000. Similar to the other graduation proms, the 2011 Undergrad Prom was 10 hours in total length (started from 6PM in the evening and ended at 3AM in the morning). There were 300 attendees at the event. Michael hired a total of 25 servers for the event at a rate of $26 per hour. In addition, the banquet hall also reported that 330 courses of meals and 1,300 drinks were served during the event. Jack was once a coop student at the Coca-Cola Company. Through his relationship with the Vice-president of marketing, the Coca-Cola Company agreed to sponsor the 2011 Undergrad Prom provided that competing non-alcoholic beverages are not being served at the event. The amount of sponsorship would equal to $3 per drink that is served at the event. The UBC has received the sponsorship funding from Coca-Cola and the benefit of the sponsorship amount have been netted against beverage expense in the above income statement. The UBC obtains a satisfaction survey from its attendees on every graduation prom it organizes. For the 2011 Undergrad Prom, a sample of comments collected through the satisfaction survey is as follows: yI am a vegetarian and have indicated my dietary restrictions in my information form. However, three different servers brought me roast beef dishes as my main entre. yI had a really good time drinking. Even though it is supposed to be 3 drinks per person, it is really an open bar as there is nothing to keep track of how many drinks that we ordered. yIt was pretty crowded. The tables are very close together. The dance hall also looks a bit too small. yI ordered an orange juice but the server brought me a Pepsi. I tried to have the order fixed but it took forever to get the server to respond to my request.

Michael has recently approached Jack and requested a raise. You are the vice president of finance of the UBC. Jack would like you to briefly evaluate the meaningfulness of the performance report prepared by Michael. In addition, Jack would also like you to evaluate the performance of Michael. Your evaluation should include a detailed analysis on Michaels performance with respect to the 2011

Undergrad Prom including a detailed variance analysis on each revenue and expense item on the performance report. Required: Prepare the report for the president of UBC. Carl Ching, 2011. ------------------------------------------------- End of exam -------------------------------------------------

YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 V & W FINAL EXAMINATION April 7, 2011 PLEASE READ ALL OF THE FOLLOWING

MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 4 questions. You must answer them all. The exam has 7 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctors knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret questions. 9. Please do not write your name on the examination booklets. Identify

yourself with your student number and your section only. GOOD LUCK! QUESTION 1 (42 marks; 75 minutes) Monica Appleby manages Lakeside Suites, a hotel in Oakville. Lakeside Suites has a capacity of 320 suites and offers a small, but well-managed, conference centre. Since opening, Lakeside Suites has established a good reputation among small and medium-sized business clients as a nice place to hold annual meetings and conferences. Monica is currently in a quandary regarding hotel bookings for the last weekend in February. One of Lakesides long-standing clients, Reginald Printing, recently called Monica about the possibility of holding its annual three-day sales conference at the end of February. Reginald wants to reserve 75 rooms each day (= 225 total room days). Per its usual arrangement, Reginald would pay $120 per day per room and $5,000 per day for use of the convention centre. Because this is a bulk booking, the room rate is lower than the normal rate of $150 per day. Like most clients, however, the Reginald attendees would spend additional money at the hotel; Monica expects this miscellaneous revenue to be $25 per person per day. Shortly after receiving the call from Reginald, Monica received a call from Margucci Original Designers. Margucci, a prospective first-time client, wants to hold its annual three-day fashion event at Lakeside Suites at the end of February. Margucci would book 225 suites per day (for a total of 675 room days) and is willing to pay $120 per suite per day. Monica predicted Lakeside Suites could earn additional revenues of $25 per person per day on food, laundry, and other incidental charges from Margucci attendees similar to individual customers. Also, Margucci would be willing to pay the normal daily rate of $5,000 for use of the convention centre, although it wants Monica to construct a runway at a cost of $3,000. Monica was ecstatic to receive the Margucci call until she realized that the dates Margucci wants coincide with Reginalds annual sales meeting. Trying to figure a way out, Monica calls both Margucci and Reginald to see if either party would be willing to move its event to different dates. However, both Margucci and Reginald are committed to holding their respective events at the end of February. Next, Monica looks at her reservations chart to see if she can hold both events. She realizes that 60 suites are already committed to other individual clients during that time. Monica believes strongly that she must honour these reservations.

Monica provides you with the following summary financial data for a typical month of operations. QUESTION 1 (Contd.)
Summary Financial Data for a Typical Month of Operations Number of occupied suite-days Average suite rate Revenue: Suites Food, telephone, movies, and other incidentals Convention centre Total revenues Variable Costs: Food, laundry, supplies, telephone, and movies Labour (kitchen help, cleaning staff) Contribution margin Fixed costs: Labour (hotel management) Building and grounds Profit before taxes $125,000 350,000 $140,000 $180,000 210,000 $615,000 $780,000 150,000 75,000 $1,005,000 6,000 $130

Monica also informs you that if she chooses Reginald, she is likely to sell another 57 suites to individual parties for each of the three days at the standard rate of $150 per suite. If she accepts Margucci, she will be able to sell the remaining 35 suites to individual parties for each of the three days at the standard rate of $150 per suite. Monica usually pays hourly staff overtime premium when the hotel is at 100% occupancy rate. As booking Margucci would cause an abnormally high occupancy rate, Monica anticipates the need to pay her hourly staff an overtime premium of 50% for the three-day period. Required: a. Identify Monicas decision options and prepare a financial analysis, explaining which option maximizes profits. (22 marks) b. Provide your recommendation based on the financial analysis in (a) and an evaluation of qualitative factors. (12 marks)

c. Suppose 75 and 225 suites per day is the number of suites that Reginald and Margucci wish to block for their conventions. However, the actual demand associated with the booking of Reginald and of Margucci might be less than this estimate. While Reginald is sure to occupy at least 60 suites, Margucci estimates that total demand might range from 150 to 225 suites. Because actual demand would not be known until late, Monica would not be able to fill unused suites with paying guests. With appropriate calculation, explain how this information might affect your recommendation provided in (b). (8 marks)
Adapted from Managerial Accounting, Canadian Edition, Balakrishnan, Sivaramakrishnan, Sprinkle, Carty, Ferraro, Wiley. 2011.

QUESTION 2 (20 marks; 30 minutes) Universal System assembles PCs and uses flexible budgeting and a standard cost system. Universal System allocates overhead based on the number of direct materials parts. The companys performance report includes the following selected data:
Static Actual Budget Results (20,000 PCs) (22,000 PCs) Sales (20,000 PCs x $400) (22,000 PCs x $420) Variable manufacturing expenses: Direct materials (200,000 parts x $10.00) (214,200 parts x $9.80) Direct labour (40,000 hr x $14.00) (42.500 hr x $14.60) Variable overhead (200,000 parts x $4.00) (214,200 parts x $4.10) Fixed manufacturing expenses: Fixed overhead Total cost of goods sold Gross profit $8,000,000 $9,240,000 2,000,000 2,099,160 560,000 620,500 800,000 878,220 900,000 4,260,000 $3,740,000 930,000 4,527,880 $4,712,120

Required a. Describe how Universal Systems managers can benefit from the standard costing system. (4 marks)

b. Prepare a flexible budget of COGS based on the actual number of PCs sold. Have Universal Systems managers done a good job or a poor job controlling material and labour costs? Why? (12 marks) c. Compute the quantity variances for direct materials and direct labour. (4 marks)
Adapted from Managerial Accounting, Canadian Edition, Braun, Tietz, Harrison, Pyper, Pearson Canada, 2012.

QUESTION 3 (22 marks; 40 minutes) Each autumn, as a hobby, Katherine Middleton weaves cotton placemats to sell at a local crafts shop. The mats sell for $20 per set of four. The shop charges a 10% commission and remits the net proceeds to Middleton at the end of December. Middleton has woven and sold 25 sets each of the last two years. She has enough cotton in inventory to make another 25 sets. She paid $7 per set for the cotton. Middleton uses a four-harness loom that she purchased for cash exactly two years ago. It is depreciated at the rate of $10 per month. The accounts payable relate to the cotton inventory and are payable by September 30. Middleton is considering buying an eight-harness loom so that she can weave more intricate patterns in linen. The new loom costs $1,000; it would be depreciated at $20 per month. Her bank has agreed to lend her $1,000 at 6 % interest, with $200 principal plus accrued interest payable each December 31. Middleton believes she can weave 15 linen placemats sets in time for the Christmas rush if she does not weave any cotton mats. She predicts that each linen set will sell for $50. Linen costs $18 per set. Middletons supplier will sell her linen on credit, payable December 31. Middleton plans to keep her old loom whether or not she buys the new loom. The balance sheet for her weaving business at August 31 is as follows:
KATHERINE MIDDLETON, WEAVER Balance Sheet August 31 Current assets: Cash Inventory of cotton Fixed assets: Loom $ 25 175 200 500 Current liabilities: Accounts payable $ 74

Owners equity:

386

Accumulated depreciation Total assets

(240) 260 $460

Total liabilities and owners equity

$460

Required a. Prepare a combined cash budget for the four months ending December 31, for two alternatives: (i) weaving the placemats in cotton using the existing loom and (ii) weaving the placemats in linen using the new loom. For each alternative, prepare a budgeted income statement for the four months ending December 31. (16 marks) b. When Katherine reviews the budgeted statements you prepared in part (a), what other factors does she need to consider before buying the new loom? (6 marks)
Adapted from Managerial Accounting, Canadian Edition, Braun, Tietz, Harrison, Pyper, Pearson Canada, 2012.

QUESTION 4 (16 marks; 30 minutes) Gokart Corporation (GC), a subsidiary of New Concept Industries, manufactures go-carts and other recreational vehicles, which mainly are sold to recreational centres. GC has been receiving some pressure from New Concepts management to diversify into some of these other recreational areas. The recent trend for recreational centres is to feature not only go-cart tracks but miniature golf, batting cages, and arcade games. Game Leasing Inc. (GLI), one of the largest firms that leases arcade games to family recreational centers, is looking for a friendly buyer. New Concepts top management believes that GLIs assets could be acquired for an investment of $3.2 million and has strongly urged Matt Frieco, division manager of GC, to consider acquiring GLI. New Concept Industries traditionally has evaluated all of its divisions on the basis of return on investment. The desired rate of return for each division is 20 percent. The management team of any division reporting an annual increase in the ROI is automatically eligible for a bonus. The management of divisions reporting a decline in the ROI must provide convincing explanations for the

decline in order to be eligible for a bonus. Moreover, 50 percent of the bonus is paid to divisions reporting an increase in ROI. Frieco has reviewed GLIs financial statements with his controller, Dona Connelly, and they believe the acquisition may not be in the best interest of GC. If we decide not to do this, the New Concept people are not going to be happy, said Frieco. If we could convince them to base our bonuses on something other than return on investment, maybe this acquisition would look more attractive. How would we do if the bonuses were based on residual income, using the companys 15 percent cost of capital? In the following table are condensed financial statements for both GC and GLI for the most recent year. GLI -----$3,100,000 (1,300,000) (1,200,000) $ 600,000 $1,900,000 1,100,000 $3,000,000 $ 850,000 1,200,000 950,000 $3,000,000 GC $9,500,000 -----(6,000,000) (1,500,000) $2,000,000 $2,300,000 5,700,000 $8,000,000 $1,400,000 3,800,000 2,800,000 $8,000,000

Sales revenue Leasing revenue Variable expenses Fixed expenses Operating income Current assets Long-lived assets Total assets Current liabilities Long-term liabilities Stockholders equity Total liabilities and stockholders equity

QUESTION 4 (Contd.) Required: a. If New Concept Industries continues to use ROI as the sole measure of divisional performance, explain why GC would be reluctant to acquire Game Leasing Inc. (4 Marks)

b. If New Concept Industries could be persuaded to use residual income to measure the performance of GC, explain why GC would be more willing to acquire GLI. (4 Marks) c. Discuss how the behaviour of division managers is likely to be affected by the use of the following performance measures: (a) return on investment and (b) residual income. Please identify at least two examples of the effects on the behaviours of division managers. (8 Marks)
Adapted from CMA

Actg. 2020T,V,W Final Examination M. Annisette & S. Hsu Winter 2010 7 YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020T,V,W FINAL EXAMINATION April 19, 2010

PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: M. Annisette & S. Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 4 questions. You must answer them all. The exam has 7 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctors knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret

questions. 9. Please do not write your name on the examination booklets. Identify yourself with your student number only. GOOD LUCK! QUESTION #1 (33 Marks, 50 Minutes) Our losses have shrunk from over $75,000 a month at the beginning of the year to only $26,000 for September. If we can just isolate the remaining problems with products A and C, well be in the black by the first of next year. said Tom Anderson, president of Telco Products. The companys absorption costing income statement for the latest month (September) is presented below:
TELCO PRODUCTS Income Statement For September Total Company Sales Less cost of good sold Gross margin Less operating expenses: Selling Administrative Total operating expenses Operating income (loss) $1,500,000 922,000 578,000 424,000 180,000 604,000 $ (26,000) Product A $600,000 372,000 228,000 162,000 72,000 234,000 $ (6,000) Product B $400,000 220,000 180,000 112,000 48,000 160,000 $20,000 Product C $500,000 330,000 170,000 150,000 60,000 210,000 $(40,000)

What recommendations did that business consultant make? asked Mr. Anderson. We paid the guy $100 an hour; surely he found something wrong. He says our problems are concealed by the way we make up our income statements, replied Emily Brown, the executive vice president. He left us some data on what he calls traceable and common costs that he says we should be isolating in our reports. The data to which Ms. Brown was referring are shown below:
Total Company Product A Product B Product C

Variable costs:* Manufacturing (materials, labour, and variable overhead) Selling Traceable fixed costs: Manufacturing Selling Common fixed costs: Manufacturing Administrative *as a percentage of sales

18% 10% $180,000 $102,000 -----

32% 8% $36,000 $80,000 -----

20% 10% $160,000 $100,000 -----

$376,000 $282,000 $210,000 $180,000

I dont see anything wrong with our income statements, said Mr. Anderson. Bill, our chief accountant, says that he has been using this format for over 20 years. Hes also very careful to allocate all of our costs to the products. Ill admit that Bill always seems to be on top of things, replied Ms. Brown. QUESTION #1 (Contd.) The following additional information is available on the company: a. Work in process and finished goods inventories are negligible and can be ignored. b. Products A and B each sell for $250 per unit, and product C sells for $125 per unit. Strong market demand exists for all three products. Required 1. Prepare an income statement for the month of September that would better reveal the companys problems. (12 marks) 2. What insights revealed by this statement would you bring to managements attention? (6 marks) 3. Assume that Mr. Anderson is considering the elimination of product C due to the losses it is incurring. Based on the statement you prepared in (1) above, what points would you make for or against elimination of product C? (4 marks)

4. Because of the strong demand for all three products, the company has the opportunity to produce more products with its excess production capacity next month. Which product would you first recommend the company to devote its excess capacity to producing? Explain. (4 marks) 5. Before the company starts to expand its production as you suggested in part (4), the purchasing manager informs Mr. Anderson that the RX-7 chips which are used in products A, B, and C are on back order and wont be available for several weeks. From the looks of Septembers income statement, which product would you recommend to concentrate the remaining inventory of RX-7 chips on? Explain. (Two RX-7 chips are used in product A, and one chip is used in product B and product C). (7 marks)
Managerial Accounting, 7 Ed. Garrison et al. McGraw Hill Ryerson.
th

QUESTION #2 (19 Marks, 30 Minutes) Ontario University (OU) is preparing its master budget for the upcoming academic year. Currently, 12,000 students are enrolled on campus; however, the admissions office is forecasting a 5 percent growth in the student body despite a tuition hike to $75 per credit hour. The following additional information has been gathered from an examination of university records and conversations with university officials: OU is planning to award 180 tuition-free scholarships. The average class has 25 students, and the typical student takes 15 credit hours each semester. Each class is three credit hours. OU operates two semesters per year and has no summer term. OUs faculty members are evaluated on the basis of teaching, research, and university and community service. Each faculty member teaches five classes during the academic year. Required 1. Prepare a tuition revenue budget for the upcoming academic year. (6 marks) 2. Determine the number of faculty members needed to cover classes. (4 marks) 3. Assume there is a shortage of full-time faculty members. List at least five actions that OU might take to accommodate the growing student body. (5 marks)

4. You have been requested by the universitys administrative vice-president (AVP) to construct budgets for other areas of operation (e.g., the library, grounds, dormitories, and maintenance). The AVP notes: The most important resource of the university is its faculty. Now that you know the number of faculty needed, you can prepare the other budgets. Faculty members are indeed the key driver without them we dont operate. Does the administrative vice-president really understand the linkages within the budgeting process? Explain. (4 marks)
Managerial Accounting, Canadian Edition, Hilton, Favere-Marchesi, McGraw Hill Ryerson, 2010.

QUESTION #3 (24 Marks, 45 Minutes) Superior Manufacturing Inc. (SMI) produces electronic components in three divisions: industrial, commercial, and consumer products. All divisions are profit centres. The commercial products division annually purchases 10,000 units of part X23 from the industrial division for use in manufacturing one of its own products. The commercial division is growing rapidly. The commercial division is expanding its production and now wants to increase its purchase of part X23 to 15,000 units per year. The problem is that the industrial division is at full capacity and no new investment in the division has been made for some years because top management sees little future growth in industrial products. Hence, its capacity is unlikely to increase soon. The commercial division can buy part X23 from Advanced Tech Inc. or from Britton Electric, a customer of the consumer division, purchasing 850 units of part Z88.
Industrial division Data on part X23: Price to commercial division Variable manufacturing costs Fixed manufacturing costs Price to outside buyers Consumer division Data on part Z88: Variable manufacturing costs Fixed manufacturing costs Sales price Other suppliers of part X23: Advanced Tech Inc., price Britton Electric, price $185 155 25 205 $ 80 20 125 $200 210

Required 1. Assuming you were the manager of the industrial division, are you willing to sell part X23 to the commercial division at $185? Why? What transfer price would you set if SMI allows you to negotiate with the commercial division? Explain. (4 marks) 2. Assuming the consumer divisions sales to Britton would not be affected by the commercial divisions decision about part X23. What is the proper decision for SMI Inc. regarding where the commercial division should purchase the additional 5,000 parts? Support your answer with a quantitative analysis. (6 marks) 3. Ignore the assumption stated in part (2). Assume that the consumer divisions sales of Z88 to Britton would increase to 1,700 units if the commercial division buys X23 from Britton. What is the proper decision for SMI Inc. regarding where the commercial division should purchase the additional 5,000 parts of X23? Support your answer with a quantitative analysis. (4 marks) 4. What qualitative factors would you consider before making your recommendations on the basis of the scenario stated in part (3)? (10 marks)
Cost Management: A Strategic Emphasis, Blocher, Stouf & Cokins, 5th Ed. McGraw-Hill Irwin.

QUESTION #4 (24 Marks, 45 Minutes) Alan Fletch, BusiSoft Corporations president was looking forward to seeing the performance reports for October because he knew the companys sales for the month had exceeded budget by a considerable margin. BusiSoft, a distributor of business software packages, had been growing steadily for approximately two years. Fletchs biggest challenge at this point was to ensure that the company did not lose control of expenses during this growth period. When Fletch received the October reports, he was dismayed to see the large unfavourable variance in the companys Monthly Selling Expense Report that follows. BUSISOFT CORPORATION Monthly Selling Expense Report For the Month of October Annual October October

October

Budget Budget Actual Unit sales 2,000,000 280,000 310,000 Orders 54,000 6,500 5,800 processed 90 90 96 Sales $24,800,00 $160,000,000 $22,400,00 personnel/mont 0 $39,600,000 0 $3,320,000 h 3,000,000 $3,300,000 250,000 Dollar sales 2,592,000 250,000 230,800 6,400,000 216,000 992,000 Advertising 3,564,000 896,000 325,200 Staff salaries 8,160,000 297,000 716,800 Sales salaries 13,500,000$76,816,00 760,000 1,953,000 Commissions 0 1,805,000 $7,787,800 Per diem $7,524,000 expense Office expenses Shipping expenses Total expenses

Variance 30,000 (700) (6) $2,400,00 0 $20,000 U --14,800 U 96,000 U 28,200 U 43,200 F 148,000 U $ 263,800 U

Fletch called in the companys new controller, Daisy Porter, to discuss the implications of the variances reported for October and to plan a strategy for improving performance. Porter suggested that the companys reporting format might not be giving Fletch a true picture of the companys operations. She proposed that BusiSoft implement flexible budgeting. Porter offered to redo the Monthly Selling Expense Report for October using flexible budgeting so that Fletch could compare the two reports and see the advantages of flexible budgeting. The total compensation paid to the sales force consists of a monthly base salary and a commission; the commission varies with sales dollars. Sales office expense is a mixed cost with the variable portion related to the number of orders processed. The fixed portion of office expense is $6,000,000 annually and is incurred uniformly throughout the year. Subsequent to the adoption of the annual budget for the current year, BusiSoft decided to open a new sales territory. As a consequence, approval was given to hire six additional salespeople effective October 1. Porter

decided that these additional six people should be recognized in her revised report. Per diem reimbursement to the sales force, while a fixed amount per day, is variable with the number of sales personnel and the number of days spent travelling. BusiSofts original budget was based on an average sales force of 90 people throughout the year with each sales person travelling 15 days per month. The companys shipping expense is a mixed cost with the variable portion, $6 per unit, dependent on the number of units sold. The fixed portion is incurred uniformly throughout the year. Required 1. Citing the benefits of flexible budgeting, explain why Daisy Porter would propose that BusiSoft use flexible budgeting in this situation. (6 marks) 2. Prepare a revised Monthly Selling Expense Report for October that would permit Alan Fletch to more clearly evaluate BusiSofts control over selling expenses. The report should have a line for each selling expense item showing the appropriate budgeted amount, the actual selling expense and the monthly dollar variance. (18 marks)
Managerial Accounting, Canadian Edition, Hilton & Favere-Marchesi, McGraw-Hill Ryerson, 2010.

Final Examination - Section A &B YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020A & B FINAL EXAMINATION February 20, 2009 PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 3 questions. You must answer them all. The exam has 7 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctors knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret questions.

9. Please do not write your name on the examination booklets. Identify yourself with your student number only. GOOD LUCK! QUESTION 1: (38 marks, 60 minutes) Dakoda is a wholesale distributor supplying a wide range of moderately priced sports equipment to large chain stores. About 60 percent of Dakodas products are purchased from other companies while the remainder of the products are manufactured by Dakoda. Bill Vanderweidt, the production manager for Dakoda Corporation, had requested to have lunch with the company president. Vanderweidt wanted to put forward his suggestion to add a new product line. As they finished lunch, Peggy Dickenson, the company president, said, Ill give your proposal some serious thought, Bill. I think youre right about the increasing demand for skateboards. What Im not sure about is whether the skateboard line will be better for us than our snowboards. Those have been our bread and butter the past few years. Vanderweidt responded with, Let me get together with one of the controllers people. Well run a few numbers on this skateboard idea that I think will demonstrate the lines potential. Currently snowboards are manufactured by a Plastic Molding Factory. Dakoda is able to manufacture and sell 10,000 snowboards annually, making full use of its direct-labor capacity at available work stations of the Plastic Molding Factory. The selling price and costs associated with snowboards are as follows: Selling price per snowboard Costs per snowboard: Molded plastic Other material Direct labor ($16.00 per hour) Manufacturing overhead Selling and administrative cost Profit per snowboard $ 10.0 9.5 20.0 13.5 18.0 71.0 $19.0 $90.0

Because Dakodas sales manager believes the firm could sell 12,000 snowboards if it had sufficient manufacturing capacity at the Plastic Molding Factory, the company has looked into the possibility of purchasing the

snowboards for distribution. Maxim Products, a steady supplier of quality products, would be able to provide up to 9,000 snowboards per year at a price of $69.00 per snowboard delivered to Dakodas facility. Vanderweidt has a market study that indicates an expanding market for skateboards and a need for additional suppliers for snowboards. Vanderweidt believes that Dakoda could expect to sell 12,500 skateboards annually at a price of $52.00 per skateboard. After his lunch with the company president, Vanderweidt worked out the following estimates with the assistant controller and concluded that the company could make better use of its Plastic Molding Factory by manufacturing skateboards. Selling price per skateboard Costs per skateboard: Molded plastic Wheels, hardware Direct labor ($16.00 per hour) Manufacturing overhead Selling and administrative cost Profit per skateboard QUESTION 1: (Contd.) In the Plastic Molding Factory, Dakoda uses direct-labor hours as the application base for manufacturing overhead. Included in the manufacturing overhead costs of the Plastic Molding Factory for the current year is $50,000 of factorywide, fixed manufacturing overhead costs. For each unit of product that Dakoda sells, regardless of whether the product has been purchased or is manufactured by Dakoda, there is an allocated $6.00 fixed cost per unit for distribution that is included in the selling and administrative cost for all products. For the purchased snowboards, total selling and administrative costs would be $13 per unit. Required: 1. Prepare a financial analysis and explain why Bill thinks that the company could make better use of its Plastic Molding Department by manufacturing skateboards. (14 marks) $52.0 $ 6.6 7.5 8.0 5.4 10.5

38.0 $14.0

2. In order to maximize the companys profitability, determine an option makes the best use of its scarce resources. How many skateboards and snowboards should be manufactured? Should the company buy snowboards from Maxim? If yes, how many snowboards should be purchased? (12 Marks) 3. Calculate the improvement in Dakodas total contribution margin if it adopts the optimal strategy rather than continuing with the current strategy. (4 Marks) 4. Provide a general evaluation of the skateboard idea, which states clearly whether Dakoda should manufacture skateboards. (8 Marks)
Adapted from CMA

QUESTION 2: (16 marks; 30 minutes) Gokart Corporation (GC), a subsidiary of New Concept Industries, manufactures go-carts and other recreational vehicles, which mainly are sold to recreational centres. EC has been receiving some pressure from New Concepts management to diversify into some of these other recreational areas. The recent trend for recreational centres is to feature not only go-cart tracks but miniature golf, batting cages, and arcade games. Game Leasing Inc. (GLI), one of the largest firms that leases arcade games to family recreational centers, is looking for a friendly buyer. New Concepts top management believes that GLIs assets could be acquired for an investment of $3.2 million and has strongly urged Matt Frieco, division manager of GC, to consider acquiring GLI. New Concept Industries traditionally has evaluated all of its divisions on the basis of return on investment. The desired rate of return for each division is 20 percent. The management team of any division reporting an annual increase in the ROI is automatically eligible for a bonus. The management of divisions reporting a decline in the ROI must provide convincing explanations for the decline in order to be eligible for a bonus. Moreover, 50 percent of the bonus is paid to divisions reporting an increase in ROI. Frieco has reviewed GLIs financial statements with his controller, Dona Connelly, and they believe the acquisition may not be in the best interest of GC. If we decide not to do this, the New Concept people are not going to be happy, said Frieco. If we could convince them to base our bonuses on something other than return on investment, maybe this acquisition would look

more attractive. How would we do if the bonuses were based on residual income, using the companys 15 percent cost of capital? In the following table are condensed financial statements for both GC and GLI for the most recent year. GLI GC -----$9,500,000 $3,100,000 -----(1,300,000) (6,000,000) (1,200,000) $ 600,000 $1,900,000 1,100,000 $3,000,000 $ 850,000 1,200,000 950,000 $3,000,000 (1,500,000) $2,000,000 $2,300,000 5,700,000 $8,000,000 $1,400,000 3,800,000 2,800,000 $8,000,000

Sales revenue Leasing revenue Variable expenses Fixed expenses Operating income Current assets Long-lived assets Total assets Current liabilities Long-term liabilities Stockholders equity Total liabilities and stockholders equity

QUESTION 2: (Contd.) Required: 1. If New Concept Industries continues to use ROI as the sole measure of divisional performance, explain why Entertainment Corporation would be reluctant to acquire Game Leasing Inc. (4 Marks) 2. If New Concept Industries could be persuaded to use residual income to measure the performance of GC, explain why GC would be more willing to acquire GLI. (4 Marks) 3. Discuss how the behaviour of division managers is likely to be affected by the use of the following performance measures: (a) return on investment and (b) residual income. Please identify at least two examples of the effects on the behaviours of division managers. (8 Marks)

 Adapted from CMA

QUESTION 3: (18 marks, 30 minutes) North York Hospital has an outpatient clinic. James White, the hospitals chief administrator, is very concerned about cost control and has asked that performance reports be prepared that compare budgeted and actual amounts for medical assistants, clinic supplies, and lab tests. Past financial studies have shown that the cost of clinic supplies and lab tests are highly correlated with the number of patients served. The following information is available for June: yMedical assistants North Yorks standard wage rate is $14 per hour, and each assistant is expected to spend 30 minutes with a patient. Assistants totaled 840 hours in helping the 1,580 patients seen, at an average pay rate of $15.50 per hour. yClinic supplies - The cost of clinic supplies used is budgeted at $6 per patient, and the actual cost of supplies used was $9,150. yLab tests - Each patient is anticipated to have three lab tests, at an average budgeted cost of $65 per test. Actual lab tests for June cost $318,054 and averaged 3.3 per patient. Required: 1. Prepare a report that shows budgeted and actual costs for the 1,580 patients served during June. Compute the differences (variances) between these amounts and identify them as favorable or unfavorable. (10 Marks) 2. By performing a detailed analysis, determine the price and quantity variances for lab tests. (4 Marks) 3. Based on the detailed analysis for lab tests, evaluate the performance of cost control at North York. Does it appear that North York has any significant problems with the cost of its lab tests? Briefly explain. (4 Marks)

 Adapted from Managerial Accounting, Seventh Edition, Hilton, McGraw-Hill Ryerson.

QUESTION 4: (28 marks, 45 minutes) Beauty Inc., a distributor of cosmetics throughout Ontario, is in the process of assembling a cash budget for the first quarter of 2010. The following information has been extracted from the companys accounting records: yAll sales are on account. Sixty percent of customer accounts are collected in the month of sale; 35 percent are collected in the following month. Uncollectibles amounting to 5 percent of sales are anticipated, and management believes that only 20 percent of the accounts outstanding on December 31, 2009, will be recovered and that the recovery will be in January 2010. ySeventy percent of the merchandise purchases are paid for in the month of purchase; the remaining 30 percent are paid for in the month after acquisition. yThe December 31, 2009, balance sheet disclosed the following selected figures: cash, $20,000; accounts receivable, $55,000; and accounts payable, $22,000. yBeauty Inc. maintains a $20,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 8 percent interest rate, with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time. yAdditional data: January $150,000 90,000 31,000 ___ February $180,000 100,000 24,000 ____ March $185,000 140,000 45,000 5,000

Sales revenue Merchandise purchases Cash operating costs Proceeds from sale of equipment Required:

1. Prepare a schedule that discloses the firms total cash collections for January through March. (8 Marks) 2. Prepare a schedule that discloses the firms total cash disbursements for January through March. (7 Marks) 3. Prepare a schedule that discloses the firms cash needs, if any, for January through March. The schedule should present the following information in the order cited: Beginning cash balance, total receipts (from requirement (1)), total payments (from requirement (2)), the cash excess (deficiency) before financing, borrowing needed to maintain minimum balance, loan principal repaid, loan interest paid, and ending cash balance. (9 Marks) 4. A member of the board of directors of Beauty Inc. stated, The monthly cash budget shows the companys cash surplus or deficiency and assures us that and unexpected cash shortage will not occur. Comment on this statement. (4 Marks)
Adapted from Managerial Accounting, Seventh Edition, Hilton, McGraw-Hill Ryerson.

Final Examination - Sections T, U YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 T & U FINAL EXAMINATION April 26, 2007

PLEASE READ ALL OF THE FOLLOWING

MARKS: 100 Marks TIME: 3 Hours INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 5 questions. You must answer them all. The exam has 6 pages (including the cover page). Make sure you have them all. 3. Show all supporting calculations. A correct answer without supporting calculations will not be given any marks. 4. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 5. Please enclose the examination with your responses -- also enclose all books given to you. Number each book; 1 of X, 2 of X, 3 of X, etc.

6. Do not communicate with anyone except the proctor. Please do not leave the room without the proctors knowledge. 7. Make any required assumptions; proctors are not permitted to interpret questions. 8. Please do not write your name on the examination booklets. Identify yourself with your student number only. GOOD LUCK! QUESTION #1 (14 Marks, 30 Minutes) Allison Collins joined a new firm that was manufacturing a revolutionary type of fitness equipment. Allison was made the general manager at the start of operations, and the firm seemed to be doing extremely well. The president was extremely pleased with the companys first-year performance, and at the beginning of the second year (2007) promised Allison a $20,000 bonus if the companys net income were to increase by 25% in 2007. During 2007, Allison sold 25% more units that she had in 2006 and was so confident that she would receive her bonus that she bought non-refundable airline tickets to Paris. At the end of 2007, Allison received fiscal 2007s income statement, which showed that the companys income had decreased from 2006 even though it had sold considerably more units. Allison did not get along very well with the accountant and felt that he had deliberately distorted the financial statements for 2007. The following are the reports that Allison received: Production (in units) Sales (in units) Unit selling price Unit costs: Variable manufacturing Variable selling Fixed manufacturing Fixed selling 2006 6,000 4,000 $ 500 $ 300 20 180,000 100,000 2007 3,000 5,000 $ 500 $ 300 20 210,000 140,000

Income Statement (FIFO) Sales 2006 Cost of goods sold $2,000,000 Gross margin 1,320,000 Selling 680,000 Net income 180,000 $ 500,000

2007 $2,500,000 1,770,000 730,000 240,000 $ 490,000

Required 1. Prepare variable costing income statements for fiscal 2006 and 2007. (8 Marks) 2. Explain to Allison why she lost her $20,000 bonus. Which set of income statements more accurately measures performance? Why? (6 marks)
Adapted from Managerial Accounting, Second Canadian Edition, Mallouk, Spraakman, Raiborn, Barfield, Kinney, Thomson Nelson.

QUESTION #2 (24 Marks, 40 Minutes) Bal Resources Company (BRC) has several divisions. However, only two divisions transfer products to other divisions. The Mining Division refines toldine, which is then transferred to the Metals Division. The toldine is processed into an alloy by the Metals Division, and the alloy is sold to customers at a price of $150 per unit. The Mining division is currently required by BRC to transfer its total yearly output of 400,000 units of toldine to the Metals Division at total actual manufacturing cost plus 10 percent. Unlimited quantities of toldine can be purchased and sold on the open market at $90 per unit. While the Mining Division could sell all the toldine it produces at $90 per unit on the open market, it would incur a variable selling cost of $5 per unit. Jeff Mayhew, manager of the Mining Division, is unhappy with having to transfer the entire output of toldine to the Metals Division at 110 percent of cost. In a meeting with the management of BRC, he said, Why should my division be required to sell toldine to the Metals Division at less than market price? For the year just ended in May, Metals contribution margin was over $19 million on sales of 400,000 units, while Minings contribution was just over $5 million on the transfer of the same number of units. My division is subsidizing the profitability of the Metals Division. We should be allowed to charge the market price for toldine when transferring to the Metals Division.

The following table shows the detailed unit cost structure for both the Mining and Metals divisions during the most recent year. Mining Division Metals Division $12 6* 16 20 32 $60 25 $51

Direct Material Direct Labour Manufacturing overhead Total

*Not including the transfer price for toldine.

Manufacturing overhead cost in the Mining Division is 25 percent fixed and 75 percent variable; manufacturing overhead cost in the Metals Division is 60 percent fixed and 40 percent variable. Required 1. State two reasons why transfer prices based on total actual costs are not appropriate as the basis for divisional performance measurement (4 marks) 2. Using the market price as the transfer price, determine the total contribution margin for both the Mining Division and the Metals Division. (6 marks) 3. If Bal Resources Company were to institute the use of negotiated transfer prices and allow divisions to buy and sell on the open market, determine the price range for toldine that would be acceptable to both the Mining Division and the Metals Division. Explain your answer. (8 marks) 4. Identify which one of the three types of transfer prices (cost-based, marketbased, or negotiated) is most likely to elicit desirable management behavior at BRC. Explain your answer (i.e. provide three advantages of that type of transfer price which you have identified). (6 marks)
Adapted from CMA.

QUESTION #3 (30 Marks, 55 Minutes) Dublin Fashions Inc., a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming season. Dublin Fashions supplies retailers in Europe.

Four yards of material are required to lay out the dress pattern. Some material remains after cutting, which can be sold as remnants. The leftover material also could be used to manufacture a matching cape and handbag. However, if the leftover material is to be used for the cape and handbag, more care will be required in the cutting operation, which will increase the cutting costs. The company expects to sell 1,250 dresses, if cape and handbag are not manufactured. Market research reveals that dress sales will be 20 percent higher if a matching cape and handbag are available. The market research indicates that the cape and handbag will be salable only as accessories with the dress. If a matching cape and handbag are available, the combination of dresses, capes, and handbags expected to be sold by retailers are as follows: Percent of Total 70% 6 15 9 100%

Complete sets of dress, cape, and handbag Dress and cape Dress and handbag Dress Total

The material used in the dress costs $12.50 a yard, or $50.00 for each dress. The cost of cutting the dress if the cape and handbag are not manufactured is estimated at $20.00 a dress, and the resulting remnants can be sold for $5.00 per dress. If the cape and handbag are manufactured, the cutting costs will be increased by $9.00 per dress and there will be no salable remnants. The selling prices and the costs to complete the three items once they are cut are as follows: Unit Cost to Manufacture (excludes costs of material Selling Price per Unit and cutting operation) $200.00 $80.00 27.50 19.50 9.50 6.50

Dress Cape Handbag

Required 1. Calculate Dublin Fashions incremental profit or loss from manufacturing the capes and handbags in conjunction with the dresses. (24 Marks)

2. Identify three qualitative factors that could influence the companys management in its decision to manufacture capes and handbags to match the dresses, in addition to the analysis on incremental profit/loss shown in requirement (1). (6 marks)
Adapted from CMA.

QUESTION #4 (26 Marks, 45 Minutes) Letsgo Trailer Inc. has an automated production process, and production activity is quantified in terms of process hours. A standard-costing system is used. The annual static budget for 2007 called for 6,000 units to be produced, requiring 30,000 machine hours. The standard overhead rate for the year was computed using this planned level of production. The 2007 manufacturing cost report follows. Letsgo Trailer, Inc. Manufacturing Cost Report For 2007 (in thousands of dollars) Static Budget Flexible Budget 30,000 31,000 32,000 Machine Machine Machine Hours Hours Hours $330.0 507.0 24.0 129.0 80.0 144.0 50.0 200.0 $1,464.0 $341.0 523.9 24.8 133.3 82.0 147.0 50.0 200.0 $1,502.0 $352.0 540.8 25.6 137.6 84.0 150.0 50.0 200.0 $1,540.0

Actual Cost

Cost Item Direct Material Direct labor Manufacturing overhead: Supplies Maintenance Supervision Inspection Insurance Depreciation Total cost

$353.0 537.0 25.0 130.0 81.0 147.0 50.0 200.0 $1,523.0

Letsgo develops flexible budgets for different levels of activity for use in evaluating performance. A total of 6,200 units was produced during 2007, requiring 32,000

machine hours. The preceding manufacturing cost report compares the companys actual cost for the year with the static budget and the flexible budget for two different activity levels. Required Assume management has determined that the actual fixed overhead cost in 2007 amounted to $320,000. Compute the following amounts. For variances, indicate whether favorable or unfavorable where appropriate. Answers should be rounded to two decimal places when necessary. 1. The variable-overhead rate per machine hour in a flexible-budget formula. (Hint: Use the high-low method to estimate cost behavior.) (4 marks) 2. The standard fixed-overhead rate per machine hour used for product costing. (4 marks) 3. The variable-overhead spending variance. (6 marks) 4. The variable-overhead efficiency variance. (5 marks) 5. The fixed-overhead budget variance. (3 marks) 6. The fixed-overhead volume variance. (4 marks)
Adapted from CMA.

QUESTION #5 (6 Marks, 10 Minutes) Managerial accounting emphasizes that the distinction between period costs and product costs is essential for the majority of manufacturing companies, because of its effect on net income for a period. Failure to make the distinction can affect the cost of goods manufactured and cost of goods sold. Required You are an accountant working in a manufacturing company which adopts the just-intime technique. Would the need to make the distinction between product costs and period costs still be essential in term of the impact on net income? Explain.
Adapted from Managerial Accounting, Seventh Canadian Edition, Garrison, Noreen, Brewer, Chesley, Carroll, McGraw-Hill Ryerson.

YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 A & B FINAL EXAMINATION December 21, 2010 PLEASE READ ALL OF THE FOLLOWING

MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 4 questions. You must answer them all. The exam has 8 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctors knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret questions. 9. Please do not write your name on the examination booklets. Identify

yourself with your student number and your section only. GOOD LUCK! QUESTION 1 (18 marks; 40 minutes) York Inc. operates its divisions as autonomous units, giving its divisional managers great discretion in pricing and other decisions. Each division is expected to generate a minimum required rate of return of at least 14% on its operating assets. The Switch Division of York Inc. produces a small switch that is used by various companies as a component part in their products. The Switch Division has average operating assets of $700,000. The switches are sold for $5 each. Variable costs are $3 per switch, and fixed costs total $462,000 per year. The division has a capacity of 300,000 switches each year. Required: 1. How many switches must the Switch Division sell each year to generate the desired rate of return on its assets? What is the margin earned at this level of sales? What is the turnover at this level of sales? (8 marks) 2. Refer to the original data. Assume that the normal volume of sales is 280,000 switches each year at a price of $5 per switch. Another division of the company is currently purchasing 20,000 switches each year from an overseas supplier, at a price of $4.25 per switch. The manager of the Switch Division has refused to meet this price, pointing out that it would lead to a decline in the performance for his division: Selling price per switch $ 4.25 Cost per switch: Variable $3.00 Fixed ($462,000300,000 switches) 1.54 4.54 Operating loss per switch $( 0.29) The manager of the Switch Division also points out that the normal $5 selling price barely allows his division to earn the required 14% rate of return. If we take on some business at only $4.25 per unit, then our ROI is obviously going to suffer, he reasons, and maintaining that ROI figure is the key to my future. Besides, taking on these extra units would require us to increase our operating assets by at least $50,000 due to the larger inventories and accounts receivable we would be carrying. Would you recommend that the Switch Division sell to the other division at $4.25? Explain. (5 marks)

3. Refer to the original data. Assume that the normal volume of sales is 290,000 switches each year at a price of $5 per switch. Another division of the company is currently purchasing 20,000 switches each year from an overseas supplier, at a price of $4.25 per switch. What would your recommendation be regarding the internal sale of switches to the other division at $4.25? Explain. (5 marks)
Adapted from Garrison, Chesley, Carroll Webb, Managerial Accounting, Eighth Canadian Edition, McGraw-Hill Ryerson.

QUESTION 2 (22 marks; 40 minutes) Stoney Company produces precast ingots for industrial use. Eric Evans, who was recently appointed production manager, has just been handed the companys income statement for October. Budget Actual Ingots 4,500 5,000 Sales $ 225,000 $ 250,000 Variable expenses: Variable cost of goods sold* 72,000 94,050 Variable selling expenses 18,000 22,340 Total variable expenses 90,000 116,390 Contribution margin 135,000 133,610 Fixed expenses: Manufacturing overhead 58,000 59,000 Selling and administrative 70,000 75,000 Total fixed expenses 128,000 134,000 Operating income (loss) $ 7,000 $ ( 390)
* Contains direct materials, direct labour, and variable manufacturing overhead.

Mr. Evans was shocked to see the loss for the month, particularly since sales were exactly as budgeted. He stated, I sure hope the company has a standard cost system in operation. If it doesnt, I wont have the slightest idea of where to start looking for the problem. Stoney does use a standard cost system, with the standard variable cost per ingot details shown below.

Standard quantity or hours Standard rate or price Standard cost Direct materials 4.0 kilograms $ 2.50 per kilogram $10.00 Direct labour 0.6 hours $ 9.00 per hour 5.40 Variable manufacturing overhead 0.3 hours* $ 2.00 per hour 0.60 Total standard variable cost $ 16.00 * Based on machine-hours. Mr. Evans has determined that during October the company produced 5,000 ingots and incurred the following costs: a. Used 19,800 kilograms of materials which were purchased at $2.95 in production. (Finished goods and work in process inventories are insignificant and can be ignored.) QUESTION 2 (Contd.) b. 2,700 direct-labour hours were scheduled in October. Stoney paid 3,600 direct labour-hours at a cost of $8.70 per hour in October. c. 1,350 machine-hours were scheduled in October. Stoney incurred a total variable manufacturing overhead cost of $4,320 for the month. A total of 1,800 machine-hours was recorded. It is the companys policy to close all variances to cost of goods sold on a monthly basis. Required: 1. Compute the following variances for October: (18 Marks) a. Direct materials price and quantity variances. b. Direct labour rate and efficiency variances. c. Variable manufacturing overhead spending and efficiency variances. 2. Pick out the two most significant variances that you computed in (1) above and explain to Mr. Evans possible causes of these variances. (4 marks)
Adapted from Garrison, Chesley, Carroll Webb, Managerial Accounting, Eighth Canadian Edition, McGraw-Hill Ryerson.

QUESTION 3 (24 marks; 40 minutes) The balance sheet of Finch Inc. a distributor of photographic supplies, as of May 31 is given below: FINCH INC. Balance Sheet May 31 Assets Cash $ 8,000 Accounts receivable 72,000 Inventory 30,000 Buildings and equipment, net of depreciation 500,000 Total assets $ 610,000 Liabilities and Shareholders Equity Accounts payable $ 90,000 Note payable 15,000 Common shares 420,000 Retained earnings 85,000 Total liabilities and shareholders equity $ 610,000 Finch Inc. has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month ahead namely, June. The company has assembled the following budgeted data relating to June: a. Sales are budgeted at $250,000. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a months credit sales are collected in the month the sales are made, and the remainder is collected the following month. All of the May 31 accounts receivable will be collected in June. b. Purchases of inventory are expected to total $200,000 during June. These purchases will all be on account. Forty percent of all inventory purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June. c. The June 30 inventory balance is budgeted at $40,000.

d. Selling and administrative expenses for June are budgeted at $51,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month. e. The note payable on the May 31 balance sheet will be paid during June. The companys interest expense for June (on all borrowing) will be $500, which will be paid in cash. QUESTION 3 (Contd.) f. New warehouse equipment costing $9,000 will be purchased for cash during June. g. During June, the company will borrow $18,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year. Required: 1. Provide five benefits that Finch Inc. would gain from implementing a budgeting system. (5 marks) 2. Prepare a cash budget for June. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases. (13 marks) 3. Prepare a budgeted income statement for June. (6 marks)
Adapted from Garrison, Chesley, Carroll Webb, Managerial Accounting, Eighth Canadian Edition, McGraw-Hill Ryerson.

QUESTION 4 (36 marks, 60 minutes) Dako Inc. is a wholesale distributor supplying a wide range of moderately priced sports equipment to large chain stores. About 70 percent of Dakos products are purchased from other companies while the remainder of the products are manufactured by Dako. Bill Wiley, the production manager for Dako, had requested to have a meeting with the company president. Wiley had prepared a proposal of adding a new product line. As they finished the meeting, Pat Dickenson, the company president, said, Ill give your proposal some serious thoughts, Bill. I think youre right about the increasing demand for skateboards. What Im not sure about is whether the skateboard line will

be better for us than our snowboards. Those have been our cash cow the past few years. Wiley responded with, Let me get together with one of the controllers people. Well run a few numbers on this skateboard idea that I think will demonstrate the lines potential. Currently the Plastic Molding Factory only manufactures snowboards. Dako is able to manufacture and sell 10,000 snowboards annually, making full use of its direct-labor capacity at available work stations of the Plastic Molding Factory. The selling price and costs associated with snowboards are as follows: Selling price per snowboard Costs per snowboard: Molded plastic Other material Direct labor ($16.00 per hour) Manufacturing overhead Selling and administrative cost Profit per snowboard $90.0 $ 10.0 9.5 20.0 13.5 18.0

71.0 $19.0

Because Dakos sales manager believes the firm could sell 12,000 snowboards if it had sufficient manufacturing capacity at the Plastic Molding Factory, the company has looked into the possibility of purchasing the snowboards for distribution. MAX Products, a steady supplier of quality products, would be able to provide up to 9,000 snowboards per year at a price of $69.00 per snowboard delivered to Dakos facility. Wiley has a market study that indicates an expanding market for skateboards and a need for additional suppliers for snowboards. Wiley believes that Dako could expect to sell 12,500 skateboards annually at a price of $52.00 per skateboard. After his meeting with the company president, Wiley worked out the following estimates with the assistant controller and concluded that the company could make better use of its Plastic Molding Factory by manufacturing skateboards. QUESTION 4 (Contd.) Selling price per skateboard Costs per skateboard: $52.0

Molded plastic Wheels, hardware Direct labor ($16.00 per hour) Manufacturing overhead Selling and administrative cost Profit per skateboard

$ 6.6 7.5 8.0 5.4 10.5

38.0 $14.0

In the Plastic Molding Factory, Dako uses direct-labor hours as the application base for manufacturing overhead. Included in the manufacturing overhead costs of the Plastic Molding Factory for the current year is $50,000 of factorywide, fixed manufacturing overhead costs. For each unit of product that Dako sells, regardless of whether the product has been purchased or is manufactured by Dako, there is an allocated $6.00 fixed cost per unit for distribution that is included in the selling and administrative cost for all products. For the purchased snowboards, total selling and administrative costs would be $13 per unit. Required: 1. Prepare a financial analysis and explain why Bill thinks that the company could make better use of its Plastic Molding Department by manufacturing skateboards. (15 marks) 2. In order to maximize the companys profitability, determine an option that makes the best use of its scarce resources. How many skateboards and snowboards should be manufactured? Should the company buy snowboards from MAX? Explain. If yes, how many snowboards should be purchased? (9 marks) 3. Calculate the improvement in Dakos total contribution margin if it adopts the optimal strategy as you show in (2) rather than continuing with the current strategy. (4 marks) 4. Provide a general evaluation of the skateboard idea, which includes at least three qualitative factors. What would you recommend to Pat Dickenson? (8 Marks) (CMA, adapted)

SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020A & B FINAL EXAMINATION December 11, 2009

PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 4 questions. You must answer them all. The exam has 6 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctors knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret questions. 9. Please do not write your name on the examination booklets. Identify

yourself with your student number only. GOOD LUCK! Question #1 (26 Marks; 55 Minutes) Sam Gains is the owner of EcoLand Inc. which provides commercial landscaping services. Sam develops cost estimates that he can use to prepare bids on jobs. After analyzing the firms costs, Sam has developed the following preliminary cost estimates for each 1,000 square feet of landscaping. He usually charges 30% mark-up of the total costs as the bidding price. Direct material Direct labour (5 direct-labour hours at $12 per hour) Overhead (at $18 per direct-labour hour) Total cost per 1,000 square feet $500 60 90 $600

Sam is quite certain about the estimates for direct material and direct labour. However, he is not as comfortable with the overhead estimate. The estimate for overhead is based on the overhead costs that were incurred during the past 12 months as presented in the following schedule. He used total direct labour hours to estimate overhead cost per 1,000 square feet. The estimate of $18 per direct-labour hour was determined by dividing the total overhead costs for the 12-month period ($648,000) by the total direct-labour hours (36,000).
Total Total Overhead DirectLabour Hours January February March April May $ 53,600 47,100 48,000 55,700 57,000 3,100 2,330 2,550 2,800 3,320 Regular DirectLabour Hours Overtime Direct-Labour Hours*

2,910 190 2,310 20 2,510 40 2,690 110 3,010 310

June July August

65,300 64,000 56,100

4,150 4,080 3,400 2,890 2,430 2,150 2,800

3,390 760 3,390 690 3,050 350 2,830 60 2,400 30 2,120 30 2,560 240 33,170 2,830

September 52,000 October 47,900

November 47,300 December 54,000

$648,000 36,000

* The overtime premium is 50 percent of the direct-labor wage rate. Question #1: (Contd.) Required: a. He discussed with his friend, Matt Chen who is an accountant, about his estimation of overhead costs. Matt told him that the estimate of $18 per directlabour hour might not be a good estimate based on the overhead cost information given. Please explain why Matt argued that the estimate of $18 per direct-labour hour might not be a good estimate. (3 marks) b. Sam believes that monthly overhead is driven by total direct-labour hours. Please use the high-low method to provide a new estimate of overhead cost rate per direct-labour hour and express the cost formula of the overhead cost. (6 marks) c. Sam has been asked to submit a bid on a landscaping project for the city government consisting of 200,000 square feet. He estimates that 20 percent of the direct-labour hours required for the project will be on overtime. This project will take two months to complete. Since this project will start in February which is not in a busy season, Sam is very interested in winning this project. Calculate the incremental costs that should be included in any bid that Sam would submit on this project, assuming the cost estimate in part (b) is accurate. (7 marks)

d. What is the minimum price for bidding this government project you would suggest, assuming the cost estimate in part (b) is accurate? Provide your explanation. (3 marks). e. Would Sam bid at the same price as the one you suggested in part (d) if the project is to be started in June? Explain. (You do not have to provide with a bidding price.) (7 marks)

Adapted from CMA

Question #2: (24 marks, 40 minutes) Maria Stone and Rick Nyman recently started their own small business after graduating from the same university. They hoped this would provide more flexibility in their personal lives for a few years. Since both of them enjoyed cooking, they decided on a business selling vegetarian wraps and fruit juices from a street cart near their alma mater. They used $1,000 of their personal savings and they borrowed $8,000 from Marias parents. They agreed to pay interest on the outstanding loan balance each month based on an annual rate of 6 percent. They bought a small enclosed cart for $7,000 that was set up for selling food. They spent $1,800 for the cost for supplies to get started, a business license, and street vendor license. They will repay the principal over the next two years as cash becomes available. After two months in business, September and October, they had average monthly revenues of $8,200 and spent out-of-pocket costs of $5,400 for ingredients, napkins and other supplies. Rick thinks they should repay some of the money they borrowed from Marias parents, but Maria thinks they should prepare a set of forecasted financial statements for their first year in business before deciding whether or not to repay any principal on the loan. She thinks the results from their first two months in business can be extended over the next 10 months to prepare the budget they need. They estimate the cart will last at least four years after which they expect to sell it for $1,000 and move on to something else in their lives. Maria agrees to prepare a forecasted income statement, and statement of cash flows for their first year in business, which includes the two months already passed. Required a. Prepare the budgeted income statement and statement of cash flows for

the next 6 months that you would expect Maria to prepare based on her expectations for the business. Assume no principal will be repaid on the loan and all sales and purchases are cash basis. (18 marks) b. When Maria reviews the budgeted statements you prepared in part (a), what other factors does she need to consider before deciding to repay the loan? (6 marks)
Fundamental Managerial Accounting Concepts, T. Edmonds, B. Tsay and P. Olds, 5th Edition, McGrawHill Irwin.

Question #3 (22 Marks; 40 Minutes) VIN Electronics Corporation makes a modem that it sells to retail stores for $80 each. The variable cost to produce a modem is $40 each and the variable selling cost is $5 each. The total fixed cost is $4,000,000. VIN is operating at 80 percent of capacity and is producing 200,000 modems annually. The average operating assets of VIN are $20,000,000. VINs parent company, York Corporation, notified VINs president that another subsidiary company, Advance Technologies Inc., has begun making computers and can use VINs modem as a part. Advance needs 40,000 modems annually; the cost of acquiring similar modems from the market is $72 each. Computers are sold for $820; variable selling expense per computer is $70 and unit fixed selling expense is $50. Other variable manufacture costs of the computer are $470, excluding the cost of the modem; unit fixed manufacturing costs are $120. York Corporation uses the return on investment (ROI) to evaluate the performance of each subsidiary company and expects each subsidiary company to generate the rate of return of at least 15% on the subsidiarys operating asset. Under instructions from the parent company, the presidents of VIN and Advance meet to negotiate a price for the modem. VIN insists that its market price is $80 each and will stand firm on that price. Advance, on the other hand, wonders why it should even talk to VIN since it can get modems from the market at $72 each. Required a. Should VIN insist to sell modems to Advance for $80 each? Explain. (4 marks) b. How would the performance of VIN be affected if VIN agrees to sell

modems at $72 each? Explain. (6 marks) c. From the perspective of the parent company, York Corporation, what would be the suboptimality cost, assuming VIN refuses to sell modems to Advance? (4 marks) d. If Advances demand increases to 70,000 modems, should VIN sell to Advance at $72 each? Why or why not? If you are the president of York Corporation, what would be your suggestion to VIN and Advance regarding the internal sale of modems? (8 marks)
Adapted

from CMA

Question #4 (28 Marks; 45 Minutes) Pine Inc. makes picnic tables of 2 x 4 planks of treated pine. It sells the tables to large retail discount stores such as Wal-Mart. After reviewing the following data generated by Pines chief accountant, Diana Hatherly, Shane Fisher, the company president, expressed concern that the total manufacturing cost was more than $0.5 million above budget ($7,084,800 - $6,520,000 = $564,800).
Actual Results Master Budget Cost of planks per table Cost of labour per table Total variable manufacturing cost per table Total number of tables produced Total variable manufacturing cost Total fixed manufacturing cost Total manufacturing cost $ 44.10 26.10 70.20 82,000 5,756,400 1,328,400 $7,084,800 $ 40.00 25.50 65.50 80,000 5,240,000 1,280,000 $6,520,000

Mr. Fisher asked Diana to explain what caused the increase in cost. Diana responded that things were not as bad as they seemed. She noted that part of the cost variance resulted from making and selling more tables than had been expected. Making more tables naturally causes the cost of materials and labour to be higher. She explained that the flexible budget cost variance was less than $0.5 million. Required a. Prepare the flexible budget of the manufacturing cost that Diana suggests,

and the performance report. (3 marks) b. Based on the following information, determine the direct material price and quantity variances. (6 marks)
Actual Data Number of planks per table Price per plank Material cost per table $ 21 X 2.10 $44.10 Standard Data $ 20 X 2.00 $40.00

c. Based on the following information, determine the direct labour rate and efficiency variances. (6 marks)
Actual Data Number of hours per table Price per hour Labour cost per table $ 2.9 X 9.00 $26.10 Standard Data $ 3.0 X 8.50 $25.50

d. The standard fixed overhead rate for the year was computed using the planned level of production. Determine the amount of the fixed manufacturing overhead cost budget and volume variances. (5 marks) e. Discuss how Mr. Fisher should react to the variance information. (8 marks)
Fundamental Managerial Accounting Concepts, T. Edmonds, B. Tsay and P. Olds, 5th Edition, McGrawHill Irwin.

YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020A & B FINAL EXAMINATION December 9, 2008

PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 180 Minutes INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 3 questions. You must answer them all. The exam has 6 pages (including the cover page). Make sure you have them all. 3. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 4. Please enclose the examination with your responses -- also enclose all books given to you. 5. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Please do not leave the room without the proctors knowledge. 7. Do not communicate with anyone except the proctor. 8. Make any required assumptions; proctors are not permitted to interpret questions. 9. Please do not write your name on the examination booklets. Identify

yourself with your student number only. GOOD LUCK! Question #1 (57 Marks; 75 Minutes) Georgina Company, Ltd., a small manufacturing company, manufactures three types of engines used for various automobiles. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all engines were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. The company is manufacturing at capacity and is selling all the engines it produces. The 2008 third-quarter results for the current year show recent experience. Georgina Company Ltd. Income Statement For the quarter ended September 30, 2008 (In thousands) Opal Emerald Jade Sales $1,900 $3,520 $2,800 Cost of Good Sold 1,990 2,496 2,440 Gross Margin $(90) $1,024 $360 Selling and General Administrative Costs 280 740 470 Income before tax $ (370) $284 ($110)

Total $8,220 $6,926 $1,294 $1,490 ($196)

Mary Grants, the companys president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: 1. Discontinue the Opal line immediately. Opal would not be returned to the product line unless the problems with this product line can be identified and resolved. 2. Increase quarterly sales promotion by $200,000 on the Emerald product line in order to increase sales volume by 30 percent.

3. Cut production on the Jade product line by 50 percent, and cut the traceable advertising and promotion for this line to $40,000 each quarter. Johnny Smith, the controller, suggested a more careful study of the financial relationships to determine the possible effects on the companys operating results of the presidents proposed course of action. The president agreed and assigned Ann Brown, the assistant controller, to prepare an analysis. Brown has gathered the following information. yAll three engines are manufactured with common equipment and facilities. Each unit of the three engines uses the same rate of common equipment. yThe price and unit manufacturing costs for the three products are as follows: Opal $ 190 Emerald $220 Jade $140

Price

Direct material $54 $31 $17 Direct labour 60 40 20 Variable manufacturing overhead 45 45 45 Fixed manufacturing overhead 40 40 40 yThe general selling and administrative expense is allocated to the three engines lines based on average sales over the past three years. ySpecial selling expenses (primarily advertising, promotion, and shipping) are incurred directly for each engine and are set based on managements discretionary evaluation as follows: Quarterly Advertising and Promotion 80,000 $320,000 200,000 Shipping Expenses $8 per unit $10 per unit $4 per unit

Opal Emerald Jade Required

1. Ann Brown says that Georginas product-line income statement for

the third quarter is not suitable for analyzing proposals and making decisions such as the ones suggested by Mary Grants. a. Explain why the product-line income statement as presented is not suitable for analysis and decision making. Describe an alternative income statement format that would be more suitable for analysis and decision making, and explain why it is better. (6 marks) b. Following your suggestion in (a), prepare an income statement which would be more suitable for analysis. (19 marks) 2. Use the operating data presented for Georgina Company and assume that the presidents proposed course of action had been implemented at the beginning of the third quarter. Evaluate the three suggestions and specifically answer the following questions. Support your answer with a quantitative analysis that shows the net impact on income before taxes for each of the three suggestions: a. Was the president correct in proposing that the Opal line be eliminated? Explain your answer. Are there any qualitative factors that Georgina Companys management should consider before it drops the Opal line? (10 marks) b. Was an increase in quarterly sales promotion on the Emerald product line proposed by the president costeffective? (4 marks) c. Do you agree on the proposal of a reduction in production on the Jade line and the direct promotion costs? Explain. (4 marks) 3. Explain why the president proposes to promote the Emerald line rather than the Jade line. (4 marks) 4. Provide a general evaluation of the proposed course of action which combines the three suggestions. Does the proposal make effective use of the companys capacity? Explain your answer. (10 marks)
Adapted from CMA

Question #2 (20 Marks; 40 Minutes)

CleanAir produces industrial ventilation fans. The company plans to manufacture 36,000 fans evenly over the first quarter and budgeted the following costs: direct material, $1,440,000; direct labor, $360,000; variable manufacturing overhead, $450,000; and fixed manufacturing overhead, $900,000. The last amount includes $72,000 of straight-line depreciation and $108,000 of supervisory salaries. Shortly after the end of January, CleanAir reported the following costs: Direct material used. $432,500 Direct labor 110,600 Variable manufacturing overhead Depreciation.. Supervisory salaries. Other fixed manufacturing overhead. Total.. 152,000 24,000 37,800 239,000 $995,900

John Chapman, the manager of the production department, and his crews turned out 10,000 fans during the montha remarkable feat given that the firms manufacturing plant was closed for several days because of storm damage and flooding. Chapman was especially pleased with the fact that overall financial performance for the period was favorable when compared with the budget. His pleasure, however, was very short-lived, as the controller issued a stern warning that performance must improve, and improve quickly, if Chapman had any hopes of keeping his job. Required: 1. Prepare a performance report that compares budgeted and actual costs for the period just ended (i.e., the report that Chapman likely used when assessing his performance). (6 marks) 2. Prepare a performance report that compares budgeted and actual costs for the period just ended (i.e., the report that the controller likely used when assessing Chapmans performance). (4 marks)

3. Which of the two reports is preferred, providing a fair evaluation of managers performance? Explain. (3 marks) 4. Should Chapman be praised for outstanding performance or is the general managers warning appropriate? Explain, citing any apparent problems for the firm. (7 marks)
Adapted from Managerial Accounting, Seventh Edition, Hilton, McGraw-Hill Ryerson.

Question #3 (23 Marks; 55 minutes) York Business Associates, a division of Red Stone Services Corporation, offers management and computer consulting services to clients throughout Canada and the northwestern United States. The division specializes in Web site development and other Internet applications. The corporate management at Red Stone Services is pleased with the performance of York Business Associates for the first nine months of the current year and has recommended that the division manager, Alan Epworth, submit a revised forecast for the remaining quarter, as the division has exceeded the annual plan year-to-date by 20 percent of operating income. An unexpected increase in billed hour volume over the original plan is the main reason for this increase in income. The original operating budget for the first three quarters for York Business Associates follows. YORK BUSINESS ASSOCIATES 2008 Operating Budget
1st Quarter Revenue: Consulting fees: Computer system consulting Management consulting Total consulting fees Other revenue Total revenue Expenses: Consultant salary expenses Travel and related expenses General and administrative expenses Depreciation expense 2nd Quarter $421,875 315,000 $736,875 30,000 $766,875 $386,750 45,625 110,000 45,000 60,000 $647,375 $119,500 3rd Quarter Total for First Three Quarters $421,875 315,000 $736,875 30,000 $766,875 $386,750 45,625 110,000 45,000 60,000 $647,375 $119,500 $1,265,625 945,000 $2,210,625 90,000 $2,300,625 $1,160,250 136,875 330,000 135,000 180,000 $1,942,125 $ 358,500

$421,875 315,000 $736,875 30,000 $766,875 $386,750 45,625 110,000 45,000 60,000 $647,375

Corporate expense allocation Total expenses Operating income

$119,500

Epworth will reflect the following information in his revised forecast for the fourth quarter. yYork Business Associates currently has 25 consultants on staff, 10 for management consulting and 15 for computer systems consulting. Three additional management consultants have been hired to start work at the beginning of the fourth quarter in order to meet the increased client demand. yThe hourly billing rate for consulting revenue will remain at $90 per hour for each management consultant and $75 per hour for each computer consultant. However, due to the favorable increase in billing hour volume when compared to the plan, the hours for each consultant will be increased by 60 hours per quarter. yThe budgeted annual salaries and actual annual salaries, paid monthly, are the same: $50,000 for a management consultant and $46,000 for a computer consultant. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants, while the new consultants will be compensated at the planned rate. yThe planned salary expense includes a provision for employee fringe benefits amounting to 30 percent of the annual salaries. However, the improvement of corporate-wide employee programs will increase the fringe benefits to 40 percent in the fourth quarter. yThe original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. These are expenses previously determined hourly rate and have proven to be adequate to cover these costs. yOther revenue is derived from temporary rentals and interest income and remains unchanged for the fourth quarter.

yGeneral and administrative expenses have been favorable at 10 percent below the plan; this 10 percent savings on fourth quarter expenses will be reflected in the revised budget. yDepreciation of office equipment and personal computers will stay constant at the projected straight-line rate. yDue to the favorable experience for the first three quarters and the divisions increased ability to absorb costs, the corporate management at Red Stone Services has increased the corporate expense allocation by 50 percent. Required: 1. Prepare a revised operating budget for the fourth quarter for York Business Associates that Alan Epworth will present to corporate management. (20 marks) 2. Discuss the reasons why an organization would prepare a revised operating budget. (3 marks)
Adapted from CMA

YORK UNIVERSITY SCHULICH SCHOOL OF BUSINESS ACCOUNTING 2020 A & B FINAL EXAMINATION December 7, 2007

PLEASE READ ALL OF THE FOLLOWING MARKS: 100 Marks TIME: 3 Hours INSTRUCTOR: Sylvia Hsu 1. This is a closed book examination. No notes or other aids are permitted in the exam, except for a calculator with only mathematical functions. Calculators that store text are not permitted. Use only paper provided at the exam. If you require paper for rough work, use an exam booklet. 2. The exam has 4 questions. You must answer them all. The exam has 6 pages (including the cover page). Make sure you have them all. 3. Show all supporting calculations. A correct answer without supporting calculations will not be given any marks. 4. Please use ink and write on every other line do not write on unlined pages. (There is a 4-mark penalty if you do not do so!!) 5. Please enclose the examination with your responses -- also enclose all books given to you. Number each book; 1 of X, 2 of X, 3 of X, etc. 6. Do not communicate with anyone except the proctor. Please do not leave the room without the proctors knowledge. 7. Make any required assumptions; proctors are not permitted to interpret

questions. 8. Please do not write your name on the examination booklets. Identify yourself with your student number only. GOOD LUCK! QUESTION #1 (33 Marks, 50 Minutes) Dean Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the three regions. The three regions are about the same size, and each has its own manager and sales staff. The products that the company distributes vary widely in profitability. Because losses have been incurred at Dean Corporation for 2007, management has requested that the monthly income statement be segmented by sales region in order to evaluate the performance of each segment; hence, management is able to isolate the problem and improve the companys performance. The companys first effort at preparing a segmented statement is given below. This statement is for December, the most recent month of activity. Cost of goods sold and shipping expense are both variable; other costs are all fixed. Sales Region West Central East $800,000 $450,000 $750,000 280,000 200,000 88,000 12,000 28,000 32,000 640,000 160,000 32,000 50,000 82,000 $ 78,000 139,500 108,000 90,000 13,500 27,000 17,100 395,100 54,900 18,000 50,000 68,000 ($13,100) 376,500 210,000 135,000 15,000 30,000 28,500 795,000 (45,000) 30,000 50,000 80,000 ($125,000)

Sales Less regional expenses (traceable): Cost of goods sold Advertising Salaries Utilities Depreciation Shipping expense Total regional expenses Regional income (loss) before corporate expenses Less corporate expenses: Advertising (general) General administrative

expense Total corporate expenses Operating income (loss) Required 1. Explain the basis that is apparently being used to allocate the corporate expenses to the regions. Do you agree with these allocations in preparing a segmented report? Explain. (4 marks) 2. List at least three disadvantages or weaknesses that you see to the statement format illustrated above. (3 marks) 3. Present an income statement for December in a format which you consider would be more appropriate for evaluating the performance of each segment and providing recommendations to management. (16 marks) 4. Analyze the statement that you prepared in part (3) shown previously. What points that might help to improve the companys performance would you bring to managements attention? (10 Marks)
Managerial Accounting, Seventh Canadian Edition, Garrison, Noreen, Brewer, Chesley Carroll, McGraw-Hill Ryerson.

QUESTION #2 (18 Marks, 25 Minutes) The ATT Sweater Company produces sweaters. The company buys raw wool and processes it into wool yarn from which the sweaters are woven. Originally, all of the wool yarn was used to produce sweaters, but in recent years a market has developed for the wool yarn itself. The yarn is purchased by other companies for use in production of wool blankets and other wool products. Since the development of the market for the wool yarn, a continuing dispute has existed in the ATT Sweater Company as to whether the yarn should be sold simply as yarn or processed into sweaters. Current cost and revenue data on the yarn are given below: Per Spindle of Yarn Selling price $22.00 Cost to manufacture: Raw materials (raw wool) $9.00 Direct labour 3.60

Manufacturing overhead 5.40 18.00 $ 4.00 The market for sweaters is temporarily depressed, due to unusually warm weather in the western provinces where the sweaters are sold. This has made it necessary for the company to discount the selling price of the sweaters to $34 from the normal $45 price. One spindle of wool yarn is required to produce one sweater. The costs and revenues associated with the sweaters are given below: Per Sweater Selling price $34.00 Cost to manufacture: Raw materials: Buttons, thread, lining $ 4.50 Wool yarn 18.00 Total raw materials 22.50 Direct labour 5.80 Manufacturing overhead 8.70 37.00 Manufacturing profit (loss) $(3.00) Since the market for wool yarn has remained strong, the dispute has again surfaced over whether the yarn should be sold outright rather than processed into sweaters. The sales manager thinks that the production of sweaters should be discontinued; she is upset about having to sell sweaters at a $3.00 loss when the yarn could be sold for a $4.00 profit. However, the production superintendent does not want to close down a large portion of the factory. He argues that the company is in the sweater business, not the yarn business, and that the company should focus on its core strength. QUESTION #2 (Contd.) All of the manufacturing overhead costs are fixed and would not be affected even if sweaters were discontinued. Manufacturing overhead is assigned to products on the basis of 150% of direct labour cost. Materials and direct labour costs are variable. Required 1. Would you recommend that the wool yarn be sold outright or processed into

sweaters? Support your answer with appropriate computations and explain your reasoning. (11 Marks) 2. What is the lowest price that the company should accept for a sweater? Support your answer with appropriate computations and explain your reasoning? (7 Marks)
Managerial Accounting, Seventh Canadian Edition, Garrison, Noreen, Brewer, Chesley Carroll, McGraw-Hill Ryerson.

QUESTION #3 (10 Marks, 20 Minutes) Schulich Company uses a standard cost accounting system and applies manufacturing overhead to products on the basis of machine hours. The following information is available for the year just ended: Standard variable overhead rate per hour: $2.50 Standard fixed overhead rate per hour: $4.00 Planned activity during the period: 20,000 machine hours Actual production: 10,700 finished units Machine-hour standard: Two completed units per machine hour Actual variable overhead: $55,440 Actual total overhead: $155,900 Actual machine hours worked: 23,100 Required 1. Compute the variable-overhead spending variance and efficiency variance. (4 marks) 2. Calculate the companys fixed-overhead volume variance and budget variance. (4 marks) 3. On the basis of the data presented, does it appear that Schulich suffered a lengthy strike during the year by its production workers? Briefly explain. (2 marks)
Adapted from Managerial Accounting, Seventh Edition, Hilton, McGraw-Hill Ryerson.

QUESTION #4 (39 Marks, 80 Minutes) Max Industries is a decentralized organization which has several independent divisions. Each division is evaluated as a profit centre. Maxs TV Division has identified a new opportunity to manufacture a new model of TV in addition to

its existing products. TV Division management has determined that the new model will be priced at $160 per unit. The new model will require a tuner which will have to be purchased by TV Division. In addition to the tuner, the new model will require $35 per unit of variable costs and will be allocated $40 per unit of fixed overhead. TV Division management would like to find a reliable supplier for the tuners. Once such a supplier has been identified TV Division plans to sign them to a 3 year supply contract. TV Division has received price quotations from three external suppliers for the required tuner at $60, $65 and $70 per unit. All three potential suppliers have been eager to offer attractive prices in order to get TV Divisions business. TV Division management was advised that another division of Max Tuner Division specializes in manufacturing the same kind of tuners that the new model will require. Tuner Division usually sells its tuners for $75 per unit. Variable costs are $50 per unit and allocated fixed overhead is $15 per unit. Tuner Division has a good reputation among its customers, and usually operates at full capacity. However, during this current year, Tuner Division has enough excess capacity to supply TV Divisions tuner requirements. This is because one of Tuner Divisions largest customers experienced a strike during the year and hence did not purchase as many tuners as it usually does. The strike experienced by this customer has since been resolved and normal purchase levels will resume next year. Required 1. From the perspective of Max as a whole, should TV Division purchase the tuners from Tuner Division or one of the three external suppliers? Discuss with full reasoning the various issues that would have to be considered. (24 marks) 2. Max has a policy that states that any internal transfers between divisions should occur at the midpoint between the selling divisions cost and the buying divisions external purchase price. Under this policy, will TV Division and Tuner Division transact? Is this policy a goal congruent solution for Max? (15 marks)