TELFER VOTRE LIEN AVEC CE QUI COMPTE — CONNECTS YOU TO WHAT MATTERS ADM2341B Managerial Accounting Third Quiz November 24, 2016 Instructor: B. La Rochelle, Ph.D., CPA, CMA 45 minutes 5% of your final grade Note to students: This is a closed-book exam, containing 3 questions, worth 35 marks in total. Apart from sundry writing materials (pens, pencils and the like) and a noiseless, hand-held calculator, no examination aids are permitted NAME: STUDENT #: ‘Statement of Academic Integrity The School of Management does not condone academic fraud, an act by a student that may result in a false academic evaluation of that student or of another student. Without limiting the generality of this definition, academic fraud occurs when a student commits any of the following offences: plagiarism or cheating of any kind, use of books, notes, mathematical tables, dictionaries or other study aid unless an explicit written note to the contrary appears on the quiz, to have in his/her possession cameras, radios (radios with head sets), tape recorders, pagers, cell phones, or any other communication device which has not been previously authorized in writing, Statement to be signed by the student: | have read the text on academic integrity and | pledge not to have ‘committed or attempted to commit academic fraud in this quiz. Signed: Note: A quiz without this signed statement will not be graded and willreceive a grade of zero. Question 1 Layton Corporation operates two divisions, the A Division and the B Division. Both divisions manufacture and sell logs to paper manufacturers. The company is considering disposing of the B Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2015 are presented below: A Division B Division Total Sales $400,000 $300,000 $700,000 Cost of goods sold 150,000 200,000 330,000 Gross profit 250,000 100,000 350,000 Selling & administrative expenses 200,000, 120,000 320,000 Net income 50,000 (20,000) ‘$30,000 Assume that in each division, 80% of cost of goods sold is variable costs and 20% of selling and administrative expenses are variable costs. The remaining costs include 50% of traceable costs. Required (15 marks total): 1. (8 marks) Redo the ineome statement using the contribution format. 2. (7 marks) Management feels it can save 60 % of all traceable costs if it discontinues operation of the B Division. Determine whether the company should discontinue operating the B Division.Question 2 Movie House has 4,000 machine hours available to use to produce either Product A or Product B, The cost accounting department developed the following unit information for each of the produets: Product A. Product B Sales price $20.00 $40.00 Direct materials 5.00 8.00 Direct labour 3.00 2.00 Variable manufacturing overhead 450 5.00 Fixed manufacturing overhead 3.00 5.00 Machine time required 15 minutes 75 minutes Required (6 marks): Management wants to know which product to produce, in order to maximize the company's income, calculations. Question 3 Management of ABC Inc. presents you with the following information, in relation to the production of a particular item of furniture; Units in beginning inventory - Units produced 25,000 Units sold 21,500 Direct materials 200,000 Fixed manufacturing overhead 75,000 Direct labour 250,000 Fixed selling and administrative 110,000, Variable manufacturing overhead 50,000 Commissions 100,000 Required (14 marks total): (a) (10 marks) Compute operating income using (i) variable costing and (ii) absorption costing. (b) (4 marks) Discuss the comparative utility of variable costing versus absorption costing, including a breakeven analysis as part of your discussion,DIRE Lest Lesu cartes weet sole Hest posse Eerie Lore répon est Amol espe Amos operat On nw cable hier Amoie Ge not autre Rest Durant appare wa pas Tout at Lotus: ‘Quicon fraude esta Tout ev ropes Lunive autres t sevint Goshen 1 A @ Tobe & Soles NO.aG 3e0,000 ‘Yer, 000 kes Voriolle CoG 5 126,00 160,000 286 , co SeAry + Aden 4a,coo 24,000. —H4,000 [60,060 £4,000 344 00h Gabedboher Moga 246,000 (NG oc 56,000 less) Feds, Hoguftebwory ot — 2000 4e,co0 0 e,060 Selly & Admin __ 160,000 6,006 2s (9,006, (26,006 , & Gartey Prcome 50,000, 20,000) 30,090 2) sox [16% (COGS Sy FC tec So% (60% (Silry § aedown) = FC treceable (6.5 )(0.2)(20¢,000 > 20,00 > Coes (3) (0-8 \(1ac,cee) = _4E,cee et & > Casts aronded So,cec {+ (4F, esaf) Ee nd dicate Asn Bane fhe opens Tincome ove! Lae Onnm € 20 C00Qi A Deindion 6 Davison Thal 00,009 Bixee _Coshs Pree MoH 5,005 Pixee Selig Jd bens (12, ooo Ogararery incomeAbsaghon Gshing Fixed Mow =!25,009 45,000 = £3 fant PU lanl Sales "§ Co, 000 Vocias 9§) of sels OT © rod uebon We L23/aait =~ 4575 000 Ct 5,500 £23 fant = _( 80 ,500) : BS 500 Varah Slug £dmn — 21,500 X4.65lo4= 00 , ovo 265,500 Fives les Te Fixed Sellag & Ad mun (10, ovo Opsakny Trcone (ss (S00 Lo) Varvabge costing 3B fe tre, boush represent abon of a Compiay’s Moeme, Tt 7 ee Feet Ror rrano gas ant In Urine reporting pur canst be usee & rept tx benally dae Fe pegulations, Ab so cphon Cosduny invendories Ayed OM am We Endy Farevtarre leading bh an Untous wank) x genvatee Sltly Fim pr duckie. Raw y nly (Costing metre? accepted Be a) Vasa\s Abovipteon COM [amb Mo - Ades <15.48 CM ua = M0 01.65 2 10.3 Yer Po = 185 009 ——__ brat-trea= 9 o90/T, 35/an'b Greakever 2 fL%S 000/15, 45 fant f E807 we) 05% unk? — huge dfferore CG@) 1) Variable Losing Oweck materials €200,000 + 25,000), Direct labour — €250,000= 25,000) Vanatole monufactuning overle cd C¥50,000 = 25,000) Unit product cost Sales (21,600 x S40) Vowialole expenses Variable cost of goods sold Bequning invenbory Add: Cost of goods manufactured (5,000 « 20) Goods avateble for sale less: Ending inventor (C25, 000 “21, 600) x +g0] Varidlle st of goods sold Com missions Contmoutron inavgin Fixed expenses, Fyed manufactunng oRrhead Fed selling Gnd admin Total Axed ex, Operating No ses $8 Fo 92 $20 $860, C00 Foo 500, 000 500,000 (0,000 ) 430,000 100,000 530,000. 330,000 15,000 Mo ,000 \85,000, ¥ 145,000\\) Absorption costing Dect matertals Omrect laloour Voviable manufactuning overhead Axed manulactunng overhead (#15,000 = 95,000 units) Unit product cost , Sales (01,500 x #40) Cost of goods sod Beginning lavenntory Add: Cost of gvods manulactured (#83 x 95,000) Goods availolde for Sale Lass Ending invent (23x (95,000 -21,, 500) J Gross margin Operating expenses Fxed selling and adr in. Commissions Operating mcome K 10 zu 3 $23 860,000 Fo 515,000 375,000 (%0,500) NA, 500 wo B6S;S00 10,000” Iu,d00 210,000 $ (55,500b) Breakeven pont m units = Axed Se S Unt cm (15,000 + \10,000) »- (9330,000 = 21,500 units) 1098 aes fan be used M the contrbutrn format Moome statement, whereas absorption tostig Can't. This is because Change Wanwertory does not affect absorption Costing » as only cbenhnd devas WW. The 410,500 ( $3% 3, s00unit from ending inventory is def itp the inventory account under Gosorplhon costwg, so ing it for Comparison Qurpeses Would | be imaccurerte. Vovialole costing Break even pont in dollars = Ayed expenses CM tho = (15000 4 110,000) = 342,12]