YORK UNIVERSITY School of Administrative Studies. AP/ADMS Section A Summer 2013 Mid-Term Examination, Sunday, July 7 th, 12 noon 3 pm

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1 LAST NAME FIRST NAME STUDENT NUMBER - - SIGN IN # YORK UNIVERSITY School of Administrative Studies AP/ADMS Section A Summer 2013 Mid-Term Examination, Sunday, July 7 th, 12 noon 3 pm Instructions: - Please turn off your cell phone and place cell phone, books, notes, backpacks, coats, etc. to the side, rear or the front of the classroom before the mid-term examination commences. - Please make sure that there is at least one empty seat between you and any other student sitting beside you in the same row and have out for display your 2 pieces of independent photo-identification during the mid-term examination to facilitate verification. - Fill in your name and student number in the section above. Answer the multiple-choice questions by circling only 1 choice, multiple-answer responses will not be graded. Answer the rest of the problems in the space provided in this mid-term examination paper. To work out your answer, you can use the mid-term examination paper. You may write with a pencil or pen. However, if you do use pencil, you will not be able to submit your mid-term for re-appraisal. - This is a closed book mid-term examination; no collaboration is allowed and no formula sheets are allowed or will be provided. No additional time for lateness. - Three hours are allowed to complete the mid-term examination (total of 100 marks). - You are allowed the use of a simple (non-programmable) calculator. Sharing of calculators is not permitted. Cell phones are not allowed as calculators. - PLEASE DO NOT ASK ANY QUESTIONS from the Professor or the Invigilators. If it is necessary, state your assumptions on the mid-term examination pages. - If you leave early, please respect your fellow students by leaving quietly. Do not leave the room in the final 15 minutes of the mid-term examination. DO NOT TAKE THE MID-TERM EXAMINATION PAPER WITH YOU. Mutliple-Choice Questions Problem: 1 Problem: 2 Problem: 3 Problem: 4 / 40 marks (100 minutes) / 20 marks (25 minutes) / 20 marks (25 minutes) / 10 marks (15 minutes) / 10 marks (15 minutes) Total Marks / 100 marks (180 minutes)

2 1. David Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 20,000 units that were 80% complete with respect to conversion costs. The conversion cost in this beginning work-in-process inventory was $123,200. An additional 65,000 units were started into production during the month. There were 19,000 units in the ending work-in-process inventory of the Welding Department that were 10% complete with respect to conversion costs. A total of $389,250 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.) A. $ B. $ C. $ D. $ Baker Company uses the weighted-average method in its process costing system. The Assembly Department started the month with 8,000 units in its beginning work-in-process inventory that were 90% complete with respect to conversion costs. An additional 95,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 11,000 units in the ending work-in-process inventory of the Assembly Department that were 90% complete with respect to conversion costs. What were the equivalent units of production for conversion costs in the Assembly Department for the month? A. 94,700 units. B. 101,900 units. C. 98,000 units. D. 92,000 units. 3. The Assembly Department started the month with 35,000 units in its beginning work-in-process inventory. Additional units 472,000 were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 34,000 units in the ending work-in-process inventory of the Assembly Department. How many units were transferred to the next processing department during the month? A. 507,000 units. B. 473,000 units. C. 471,000 units. D. 541,000 units. 4. For which of the following industries would it NOT be appropriate to use process costing? A. Custom furniture building. B. Oil refining. C. Grain milling. D. Newsprint production. 5. Assume that there is no beginning work-in-process inventory, and the ending work-in-process inventory is 50% complete with respect to conversion costs. What would be the number of equivalent units of production with respect to conversion costs under the weighted-average method? A. The same as the units completed. B. The same as the units started during the period. C. Less than the units completed. D. Less than the units started during the period.

3 6. Expense A is a fixed cost; expense B is a variable cost. During the current year, the activity level has increased but is still within the relevant range. In terms of cost per unit of activity, you would expect which of the following statements to be true? A. Expense A has remained unchanged. B. Expense B has decreased. C. Expense A has decreased. D. Expense B has increased. 7. Which costs will change with a decrease in activity within the relevant range? A. Total fixed costs and total variable costs. B. Unit fixed cost and total variable costs. C. Unit variable cost and unit fixed cost. D. Unit fixed cost and total fixed costs. 8. Which of the following is an example of a discretionary fixed cost? A. Insurance. B. Taxes on real estate. C. Management training. D. Amortization of buildings and equipment. 9. Which of the following is an example of a committed fixed cost? A. A training program for salespersons. B. Executive travel expenses. C. Property taxes on the factory building. D. New product research and development. 10. In describing the cost formula equation Y = a + bx, which of the following statements is correct? A. The X term is the dependent variable. B. The a term is the fixed component. C. In the high-low method, the b term equals change in activity divided by change in costs. D. As the X term increases, the Y term decreases. 11. Which of the following costs/expenses is included in product costs under both absorption costing and variable costing? A. Supervisory salaries. B. Equipment depreciation. C. Variable manufacturing costs. D. Variable selling expenses. 12. Which of the following is normally included in product cost under the variable costing method? A. Direct materials cost, direct labour cost, but NOT manufacturing overhead cost. B. Direct materials cost, direct labour cost, and variable manufacturing overhead cost. C. Prime cost but NOT conversion cost. D. Prime cost and all conversion cost.

4 13. Which of the following statements is true for a firm that uses variable costing? A. The unit product cost changes as a result of changes in the number of units manufactured. B. Both variable selling costs and variable production costs are included in the unit product cost. C. Operating income moves in the same direction as sales. D. Operating income is greatest in periods when production is highest. 14. The term "gross margin" for a manufacturing company refers to the excess of sales over which of the following? A. Cost of goods sold, excluding fixed manufacturing overhead. B. All variable costs, including variable selling and administrative expenses. C. Cost of goods sold, including fixed manufacturing overhead. D. Variable costs, excluding variable selling and administrative expenses. 15. What is the costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques? A. Variable costing. B. Absorption costing. C. Process costing. D. Job-order costing. 16. Human resource management is an example of an activity at which of the following levels? A. Unit-level activity. B. Product-level activity. C. Batch-level activity. D. Organization-sustaining activity. 17. Which of the following would be classified as a product-level activity? A. Machine setup for a batch of a standard product. B. Cafeteria facilities available to and used by all employees. C. Human resource management. D. Advertising a product. 18. Why may departmental overhead rates NOT correctly assign overhead costs? A. Because of the use of direct labour hours in allocating overhead costs to products rather than machine time or quantity of materials. B. Because of the high correlation between direct labour hours and the incurrence of overhead costs. C. Because of the over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production. D. Because of the difficulties associated with identifying cost pools for the first stage of the allocation process. 19. Which of the following statements about overhead allocation based on volume alone is correct? A. It is a key aspect of the activity-based costing model. B. It will systematically overcost high-volume products and undercost low-volume products. C. It will systematically overcost low-volume products and undercost high-volume products. D. It must be used for external financial reporting.

5 20. What is a transaction driver? A. An event that causes a transaction to begin. B. A measure of the amount of time required to perform an activity. C. An event that causes a transaction to end. D. A simple count of the number of times an activity occurs. 21. Which of the following is defined as the difference between total sales in dollars and total variable expenses? A. Margin of safety. B. Operating income. C. The gross margin. D. The contribution margin. 22. Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio? A. Decrease Decrease B. Decrease No change C. No change Decrease D. No change No change 23. The contribution margin ratio always increases when which of the following occurs? A. Variable expenses as a percentage of sales increase. B. Variable expenses as a percentage of sales decrease. C. Break-even point increases. D. Break-even point decreases. 24. If the fixed expenses of a product increase while variable expenses and the selling price remain constant, what will happen to the total contribution margin and the break-even point? A. Increase Decrease B. Decrease Increase C. Unchanged Increase D. Unchanged Unchanged 25. The break-even in units sold will decrease if there is an increase in which of the following? A. Unit sales volume. B. Total fixed expenses. C. Unit variable expenses. D. Selling price.

6 26. A company increased the selling price for its product from $1.00 to $1.10 a unit when total fixed expenses increased from $400,000 to $480,000 and the variable expense per unit remained unchanged at $0.50. How would these changes affect the break-even point? A. The break-even point in units would increase. B. The break-even point in units would decrease. C. The break-even point in units would remain unchanged. D. The effect cannot be determined from the information given. 27. If company A has a higher degree of operating leverage than company B, then which of the following statements is true? A. Company A has higher variable expenses. B. Company A's profits are more sensitive to percentage changes in sales. C. Company A is more profitable. D. Company A is less risky. 28. A company has provided the following data: If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, what will the outcome be for operating income? A. Increase by $61,000. B. Increase by $20,000. C. Increase by $3,500. D. Increase by $11, A company has provided the following data: If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, what will the outcome be for operating income? A. Decrease by $31,875. B. Decrease by $15,000. C. Increase by $20,625. D. Decrease by $3, Last year, Twins Company reported $750,000 in sales (25,000 units) and an operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, which of the following statements is true? A. The company's contribution margin ratio is 40%. B. The company's break-even point is 24,000 units. C. The company's variable expense per unit is $9. D. The company's variable expenses are 60% of sales.

7 31. Which of the following variances in a comprehensive performance report using the flexible budget concept is the most appropriate for measuring efficiency of operations? A. Sales volume variance. B. Contribution margin variance. C. Flexible budget variance. D. Total static budget variance. 32. What is a continuous (or perpetual) budget? A. It is prepared for a range of activity so that the budget can be adjusted for changes in activity. B. It is a plan that is updated monthly or quarterly, dropping one period and adding another. C. It is a strategic plan that does not change. D. It is used in companies that experience no change in sales. 33. Which of the following best describes a method of budgeting in which the cost of each program must be justified every year? A. Operational budgeting. B. Zero-based budgeting. C. Continuous budgeting. D. Responsibility accounting. 34. Parlee Company's sales are 30% in cash and 70% on credit. Sixty percent of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following are budgeted sales data: What would be the budgeted total cash receipts in April? A. $27,230. B. $36,230. C. $38,900. D. $47,900.

8 35. Orion Corporation is preparing a cash budget for the six months beginning January 1. Shown below are the company's expected collection pattern and the budgeted sales for the period: Expected collection pattern: 65% collected in the month of sale 20% collected in the month after sale 10% collected in the second month after sale 4% collected in the third month after sale 1% uncollectible What would be the estimated total cash collections during April from sales and accounts receivables? A. $155,900. B. $167,000. C. $171,666. D. $173, Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. The company desires that the inventory on hand at the end of each month be equal to 40% of the next month's expected unit sales. Due to excessive production during March, there were 25,000 units of Product W in the ending inventory on March 31. Given this information, what should be Walsh Company's production of Product W for the month of April? A. 60,000 units. B. 65,000 units. C. 66,000 units. D. 75,000 units. 37. The Willsey Merchandise Company has budgeted $40,000 in sales for the month of December. The company's cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, what is the budgeted change in inventory levels over the month of December? A. $6,000 increase. B. $10,000 decrease. C. $15,000 increase. D. $22,000 decrease.

9 38. The Stacy Company makes and sells a single product: Product R. Budgeted sales for April are $300,000. Gross margin is budgeted at 30% of sales dollars. If the net income for April is budgeted at $40,000, what are the budgeted selling and administrative expenses? A. $50,000. B. $78,000. C. $102,000. D. $133,333. Multiple Choice Questions 39 and 40 are based on the following data: The LaGrange Company had the following budgeted sales for the first half of the current year: The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled: Collections on sales: 60% in month of sale 30% in month following sale 10% in second month following sale The accounts receivable balance on January 1 of the current year was $70,000, of which $50,000 represents uncollected December sales and $20,000 represents uncollected November sales. 39. What would be the total cash collected by LaGrange Company during January? A. $261,500. B. $331,500. C. $344,000. D. $274, What is the budgeted accounts receivable balance on June 1 of the current year? A. $56,000. B. $64,000. C. $76,000. D. $132,000.

10 Problem 1 (20 marks, 25 minutes) Wills & Co manufactures high-quality coated electrical wire in two departments: Weaving and Coating. Materials are introduced at various points during the work in the Weaving Department. After Weaving the materials are transferred to the Coating Department where a specialty plastic coating is applied. They use the weighted average method of process costing. Selected data for the Weaving Department for May follow: Kg in process May 1st 85,000 Materials 100% complete; conversion 80% complete Kg started into production during May: 365,000 Kg completed and transferred to Coating:? Kg in process at 31st May 55,000 Materials 65% Complete; conversion 30% complete Work-in-process inventory, May 1st Materials $101,000 Conversion Costs $51,000 Costs added in May: Materials $462,000 Conversion Costs $213,000 Required: 1. Compute the equivalent units of production (4 marks); 2. Compute the costs per equivalent unit (6 marks);

11 3. Determine the cost of ending inventory and the cost of units transferred to Coating (8 marks); 4. Prepare a cost reconciliation between the costs accounted for and the costs to be accounted for(2 marks);

12 Problem 2 (20 marks, 25 minutes) Alta Products Ltd has just created a new division to manufacture and sell personal video recorders (PVRs). The facility is highly automated and so has high monthly fixed costs. This schedule was prepared based on an expectation of a monthly production of 1,500 units. During August the following activity was recorded: Units Produced 1,500 Units Sold 1,200 Selling price per unit $275 Manufacturing costs Variable cost per unit Direct Material $100 Direct Labour $40 Variable Overhead $10 Total Fixed Overhead $90,000 Selling & Administrative costs Variable 5% of sales Fixed $60,000 Required: 1. Prepare an income statement for the month ended 31 st of August under absorption costing (5 marks);

13 2. Prepare an income statement for the month ended 31 st of August under variable costing (5 marks); 3. Beginning with absorption costing, reconcile the absorption costing and variable costing income figures for the month (3 marks); 4. What are some of the arguments in favour of using variable costing? What are some of the arguments in favour of using absorption costing? (2 marks);

14 Problem 3 (10 marks, 15 minutes) Yulikana Corp manufactures a line of Barrranutubes, a specialty product in a niche market. A simplified income statement for the most recent year is shown below. Sales (25,000 units) $2,500,000 Variable Costs 1,500,000 Fixed Expenses 800,000 Operating Income $200,000 1) Compute the company s CM ratio ( 2 marks) 2) Compute the break even point in both units and dollars (2 marks) 3) How many units must be sold to earn EBIT of $500,000 ( 2 marks) 4) Compute the degree of operating leverage from the existing income statement and using (a) this amount determine the percentage increase in operating income should says increase 12% and (b) prove this amount by preparing a detailed income statement (4 marks)

15 Problem 4 (10 marks, 15 minutes) The Business Plan for Victang Corporation is as follows Business Plan Sales and Production Units 8,000 Sales Dollars 200,000 Direct Materials 20,000 Direct Labour 12,000 Manufacturing Overhead 120,000 Gross Margin 48,000 Selling General and Administrative 40,000 Net Income before Taxes 8,000 Income Taxes 3,200 Net Income 4,800 Manufacturing Overhead is 2/3 fixed and 1/3 variable Selling General and Administrative - is 75 %Fixed and 25% variable Actual Sales units were 7600 units. In good form, prepare a flexible budget in contribution margin fashion that should be used to evaluate the actual results. (10 marks)

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