Part I: Multiple Choice (5 M/C Questions)

1.         Blazer Inc. had the following information for the past six months:

Month             Cost                        Machine Hours

July                 \$21,900           2,150

August              21,400 2,100

September         24,850 2,400

October             27,700 2,800

November         27,500 2,900

December          24,100 2,500

Using the high-low method, the cost function for Blazer would be:

a) Y = \$4,862.50 + \$7.875X

b) Y = \$2,500 + \$9.00 X

c) Y = \$5,387.50 + \$7.625X

d) Y = \$5,650 + \$7.875X

Use the following information to answer Multiple Choice 2 and 3 (treat each

independently).

Kruger company has identified the following cost drivers for the coming year.

Item                            Budgeted Overhead       Cost Driver                Budgeted Total Level

Setup Cost                   \$   140,000                        # of setups                   4,000

Machine Cost               2,350,000                        Kilowatt hours             500,000

Total Budgeted direct labour hours for the year (all jobs) is expected to be 124,500 hours.

2.   Assume Kruger is using an Activity Based Costing system, One of the jobs Kruger finished in March was Job C-14. The information related to Job C-14 is presented below:

Job C-14 actual cost

Direct Material            \$   950

Direct Labour              \$1,400

Units completed          250

# of setups                   5

Kilowatt hours used    1,600

The per unit cost of Job C-14 is:

A.      \$40.18

B.      \$74.48

C.      \$49.10

D.      \$30.78

3. Assume Kruger had been using a plantwide overhead allocation basis where they allocated manufacturing overhead based on direct labour hours. If the actual hours worked to complete all jobs were 128,000 hours and actual total manufacturing overhead bills paid had been \$2,600,000, then Kruger would have which of the following:

Use the following information for questions 4 and 5.

Duffy has the following sales budget actual and expectations:

September            October            November            December

Units               8,000               10,000                        9,000               14,000

Cash Sales       \$18,000            \$24,000            \$22,000            \$40,000

Credit              \$74,000            \$92,000            \$76,000            \$88,000

4. Historically, Duffy collects 60% of the credit sales in the month of sale, 35% in the month

following the sale and the rest uncollectable. What is the amount of collections for the month of November?

a) \$94,200

b) \$77,800

c) \$98,400

d) \$99,800

5. The company requires 10% of the following months sales in ending inventory and each

unit requires 0.2 hours to complete, how many labour hours should they budget for November.

a) 2,080 hours

b) 1,800 hours

c) 1,900 hours

d) 1,700 hours

Part 2: Problems

Question 1

Marlin Company’s produces ice boxes for frozen food market. The company had been

struggling with meeting their budget, and determined that it was largely due to labour issues and

an inexperienced workforce as they were late entrants into the market. At the beginning of

January, they started hiring more experienced workers from one of their competitors to try to fix

their labour issue. During February, the company produced 1,250 boxes.

Actual costs incurred for the month of February:

Actual Labour (6,000 direct labour hours)                           \$117,000

Actual Material (24,600 kilograms purchased and used)   \$56,580

The Standard Cost Per One Unit:

Direct Labour (5.0 hours @ \$18.00 per hour)                                 \$90.00

Direct Material (20 kg. @ \$2.20 per kg.)                                44.00

Variable Overhead (5.0 hours @\$1.50 per hour)                        7.50

Fixed Overhead (5.0 hours @ \$2.80 per hour)                                   14.00

Per Unit Cost                                                              \$155.50

Required:

a) From the foregoing information, compute the following variances. Identify whether the variance is favourable (F) or unfavourable (U):

i) Material price variance

ii) Material quantity variance

iii) Direct labour rate variance

iv) Direct labour efficiency variance

b) Comment on whether Marlin was able to effectively fix the problem with regards to their labour issue.

Question 2

You have been provided with the following information for Dinah Corporations 2 divisions, Dubai and Paris. Both divisions are decentralized, autonomous (make their own decisions) units and managers are evaluated currently on ROI. (dollars are in Cdn \$\$).

Dubai                          Paris                                    Total

Revenue                                              \$3,350,000                  \$7,400,000                  \$10,750,000

Variable Cost (% of Revenue)              1,507,500                    2,590,000                        4,097,500

Fixed Cost                                             1,390,000                    2,850,000                        4,240,000

Net Income                                         \$   452,500                  \$1,960,000                  \$  2,412,500

Net Assets                                           \$3,600,000                  \$12,300,000                \$15,900,000

Required:

1. Compute the return on investment and residual income (assuming a 13% required rate of return for shareholders) for each division. (rounded to 2 decimal points)
2. Dinah has the opportunity to invest in a new project which requires an investment of \$600,000 with an expected ROI of 14%. Which if any manager would accept this proposal?  Why? Should it be accepted by either division? Explain.

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