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 overhead $2,490,000
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:
- $40,000 Overapplied Manufacturing Overhead
- $110,000 Overapplied Manufacturing Overhead
- $40,000 Underapplied Manufacturing Overhead
- $110,000 Underapplied Manufacturing Overhead
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:
- 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)
- 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.
