ACC2354.TT1.v3.

20F

ACC2354 – Managerial Accounting

Term Test 1 – Version 3
November 4, 2020

Time: 1 hour and 50 minutes

INSTRUCTIONS:

1. By submitting this exam, you certify that you have not communicated in any way with
another student to discuss this test or your solution.

2. This portion of the test is due at 3:50 pm. You must submit your test on time.
Brightspace will be closed for submissions at that time so don’t be late.

3. Save your work numerous times throughout this test.

4. All questions must be answered in Excel.

5. There are 6 pages in this test.

SHOW ALL DETAILS OF RELEVANT CALCULATIONS.

Available Your
Question Description Time Marks Mark

1 CVP 25 23
2 T accounts 20 20
3 CVP 20 14
4 Ethics 15 10
5 Cost behaviour 15 12
6 Various 15 12

Total 110 91

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Question 1 (25 Minutes, 23 Marks)

Northern Precious Stones Ltd. (“NPS”) is a precious stones wholesaler. You are the
chief financial officer and you presented the following budgeted income statement,
based on expected unit sales of 10,000, for 2021:

Sales…………………………………………………….$12,000,000
Cost of goods sold (100% variable)……………………..9,000,000
Selling and administrative expenses:
Sales agents’ commissions ((100% variable) ………… 1,200,000
Other (100% fixed)……………………………………………750,000
Income from operations………………………………..…$1,650,000

The corporate income tax rate is 30%.

During the annual meeting with company managers to review the budget, the following
comments were made:
 The marketing director stated that their main competitor just went bankrupt. He
thinks that even if NPS raises its selling price by 10%, overall units sold should
increase by 5%.
 The purchasing manager indicated that he expects suppliers will increase their
sales prices by 7.5%.
 The warehouse manager stated that NPS needs to purchase additional
warehouse equipment totaling $75,000. It is expected to have an estimated
useful life of 5 years with no salvage value at the end of the 10 years.

Required: SHOW ALL YOUR CALCULATIONS.

1. Calculate the break-even point in sales dollars based on the budget that was
presented at the meeting.
2. Calculate the break-even point in sales dollars if you decides to make the changes
suggested by the other managers.
3. Based on the original budget, calculate the sales dollars required if the company
wants to earn income after tax that would be 10% higher the income after tax in your
original budget.
4. What would happen to a firm’s BEP in units if the unit selling price and unit variable
costs increased by the same amount. (Answer in words, not numbers).
5. What does the margin of safety represent?

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Question 2 (20 MINUTES, 20 MARKS)

The following information is taken from the accounting records of Carthage
Manufacturing Company:

Raw Materials Accounts Payable

Open 50,000 60,000 Open

405,000
 

Ending 55,000   55,000 Ending

Work in Process Factory Wages Payable

Open 70,000   18,000 Open

DM
DL   102,000

O/H 320,000  
Ending 65,000     15,000 Ending

Finished Goods Cost of Goods Sold

Open 65,000  

   
Ending 58,000      

Notes: Accounts payable was used only for the purchase of raw
materials. There were no indirect materials nor indirect labour.

REQUIRED: Calculate the following amounts

1. Cost of Goods Sold
2. Factory wages paid
3. Cost of goods manufactured
4. If the ending balance of WIP included $8,000 of DL and $12,000 of O/H,
calculate the amount of DM in ending WIP
5. No calculations are required to answer this part of the question. Explain what
caused the balance in finished goods inventory to change during this accounting
period.

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Question 3 (20 MINUTES, 14 MARKS)

Part A
Sicilian Bakery had the following operating results, based on sales of 100,000 units, in
2020:

Sales $2,000,000
Total variable Expenses $1,200,000
Total fixed costs $400,000
The corporate tax rate was 25%.

REQUIRED:

1. If the company wanted to earn net income after tax of 7% of sales, what level of
sales would be required to earn that amount?
Part B
Calculate the correct amount for each question mark:

Sales ????
Total VC $9,750
Total CM ????
Total fixed costs $$$$
Operating income $364

# units sold 125

Selling price per unit $130
Variable cost per unit ????
CM per unit ????
CM ratio 40%
BEP in sales $$$ ????

Question 4 (13 MINUTES, 10 MARKS)

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Harold Kennedy was hired as President of Auburn Manufacturing two years ago. At the
time, Auburn was reporting shrinking profits and Harold was brought in to “stir things
up”.
The company has three divisions, electronics, fiber optics and plumbing supplies.
Harold has no interest in plumbing supplies as he views it as an outdated business.
One of his first actions was to put pressure on the Vice-President of Finance to
reallocate some of the company’s fixed costs away from the other two divisions to the
Plumbing Division. This had the effect of causing losses in the Plumbing Division. Prior
to Mr. Kennedy’s hiring, the Plumbing Division always showed low, but acceptable
profits.
Mr. Kennedy felt that this reallocation of costs would hold him in a favorable light with
the Board of Directors because it meant that the electronics and fiber optics divisions
would look like they were improving. Given that most members of the Board of
Directors felt that these two divisions were the businesses of the future, he believed that
it would reward him for the improvements in these two divisions. Without the shifting of
the fixed costs, these two divisions would not have shown any profit growth.
At the most recent Board meeting, the Chairman of the Board suggested that the
Plumbing Division be closed in order to save money. This would result in 50 long term
employees losing their jobs.

REQUIRED:

1. What is Harolds’s ethical dilemma?

2. Did Harold act ethically? Explain your answer.

Question 5 (15 MINUTES, 12 MARKS)

Patel Manufacturing had the following manufacturing costs incurred in May and
June, 2020:
May June
# units produced 20,000 25,000
Factory Electricity $81,000 $101,000
Indirect labour $95,000 $95,000
Shop supplies $60,000 $75,000
Factory Depreciation $15,000 $15,000
Direct labour $400,000 $500,000
Direct materials $100,000 $125,000

Required:
Calculate total manufacturing overhead for July assuming 30,000 units were
produced.

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Question 6 (15 MINUTES, 12 MARKS)

1. Carp Culverts, in its first year of operations, produced 50,000 culverts and sold
49,000 in its first year of operations. It carries its finished-goods inventory at the
average unit cost of production. There was no work in process at year-end.
Additional data follows:

Variable costs per unit: Annual fixed costs:

Direct materials $29 Selling & administrative $500,000
Direct labour 14 Manufacturing O/H $600,000
Manufacturing overhead 45
Sales commissions 02

REQUIRED:

A. Determine the cost of the ending finished goods inventory.

B. Calculate the total prime costs incurred.

2. Vanity Clothing is a retailer of high fashion women’s clothes. If they bought a

dress for $200 and then marked it up by 120%, calculate the gross profit
percentage on that dress.
The End.

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