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YORK UNIVERSITY FLA&PS - School of Administrative Studies AP/ADMS2510 3.0 Mid Term Exam II, Winter 2010 Sample Midterm II Instructions Turn off your cell phone. Please place books, notes, backpacks, coats, etc. to the side, rear or the front of the classroom before the midterm commences. Make sure that there is at least one empty seat between you and any other student sitting in the same row. Place photo identification on your desk during the examination to facilitate verification. Put your name and student number at the top of the page and on the Pink Scantron sheet. This is a closed book examination, no collaboration is allowed and no formula sheets are allowed or will be provided. Two hours are allowed to complete the exam (total of 25 marks). No additional time provided for lateness. You are allowed the use of a simple (non-programmable) calculator. Sharing of calculators is not permitted. Cell phones are not allowed as calculators. Answer the multiple choice questions on the Pink Scantron sheet provided, by completing it properly with a pencil. Answer the problems section with a pencil or a pen on the midterm pages where space is provided. To work out your answer you can use the examination paper. PLEASE DO NOT ASK ANY QUESTIONS from the Professor or the Invigilators. If it is necessary, state your assumptions on the midterm pages. If you leave early, please respect your fellow students by leaving quietly. DO NOT TAKE THE MIDTERM PAPER WITH YOU.

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Multiple choice questions Exercises: 1) 2) Total marks / 15 marks (50 minutes) / 10 marks (50 minutes) / 25 marks (100 minutes)

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Multiple choice questions To be answered on the Pink Scantron sheet (0.5 marks for each correct answer, total marks available 15) 1).Traditionally, to obtain the best element of control, material price variances have been based on raw materials ; a).Requisitioned from the warehouse. b).Used in production. c).Purchased. d).Budgeted. ANS C Source: Publisher 2).The determination of whether an activity is value-added or not should be made by ; a).Empowered employees. b).Customers. c).Top management. d).Competitors. ANS B Source: Publisher 3).Value-added time plus non-value-added time equals ; a).Product life cycle. b).Production time plus transfer time. c).Manufacturing cycle efficiency. d).Cycle time. ANS D Source: Publisher Use the information below to answer the following question(s). Nianrbd Co. produces personalized dinner arrangements. The following information is available for January 2010 : Standard Cost Card : Material : 1 pound per unit at $ 2 per pound Labour : 1 hour per unit at $ 5 per hour Actual Production Reports : Material purchased : 3,500 pounds at $ 2.10 per pound Material used : 3,100 pounds Direct labour : 3,200 hours at $ 4.95 per hour Units produced : 3,000 arrangements

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4).If calculated at the latest point of control, what is the material price variance ? a).$ 310 F. b).$ 310 U. c).$ 350 U. d).$ 350 F. ANS B = 3,100 pounds x ( $ 2.10 per pound - $ 2.00 per pound ) Source: Publisher 5).If calculated at the earliest point of control, what is the total materials variance ? a).$ 510 F. b).$ 510 U. c).$ 550 U. d).$ 550 F. ANS C = 3,500 pounds x ( $ 2.10 per pound - $ 2.00 per pound ) plus $ 2.00 per pound x ( 3,100 pounds - 3,000 pounds ) Source: Publisher 6).what is the labour effiency variance ? a).$ 1,010 F. b).$ 1,010 U. c).$ 1,000 U. d).$ 1,000 F. ANS C = $ 5.00 per hour x ( 3,200 hours - 3,000 hours ) Source: Publisher 7).what is the total labours variance ? a).$ 840 F. b).$ 840 U. c).$ 850 U. d).$ 850 F. ANS B = 3,200 hours x ( $ 4.95 per hour - $ 5.00 per hour ) plus $ 5.00 per hour x ( 3,200 hours - 3,000 hours ) Source: Publisher End of questions for provided information above to answer the above question(s).

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8).A company would generally not use participatory budgeting ; a).To reduce the chances of input from inexperienced subordinate managers. b).To generate better morale and higher motivation. c).To blend the overview of top management with operating details. d).To develop fiscal responsibility and budgetary skills of employees. ANS A Source: Publisher 9).Retsehc Dloc Inc. wants to maintain a finished goods inventory equal to 20 % of the following month's sales. For June, the company has budgeted a beginning inventory of 20,000 units and an ending inventory of 28,000 units. These figures indicate that sales in ; a).May are budgeted at 40,000 fewer units than sales in June. b).May are budgeted at 8,000 fewer units than sales in June. c).June are budgeted at 8,000 fewer units than sales in July. d).June are budgeted at 40,000 fewer units than sales in July. ANS D June sales = 20,000/0.2 = 100,000 units July sales = 28,000/0.2 = 140,000 units Source: Publisher 10).An achievable budget ; a).Increases managers' confidence in their ability to meet budgetary goals. b).Facilitates budget preparation because the numbers can be generated from the budget manual. c).Helps managers justify larger appropriations because the amounts are more likely to be met. d).Improves budgetary coordination because managers are more likely to approve of budgetary changes from the prior period. ANS A Source: Publisher Use the information below to answer the following question(s). The controller for Snuven Co. has calculated the companys overhead variances for the period just ended as follows ; Variable overhead spending variance $ 500 U Variable overhead efficiency variance $ 1,000 F Fixed overhead spending variance $ 400 F Volume variance $ 600 U Standard variable overhead $ 22,000 Applied fixed overhead $ 20,000 Standard units produced 12,000

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11).The total actual variable overhead incurred for the period is ; a).$ 21,500. b).$ 22,300. c).$ 22,000. d).$ 21,700. ANS A See table below Source: on-line tests 12).The total actual overhead incurred for the period is ; a).$ 42,500. b).$ 42,300. c).$ 42,000. d).$ 41,700. ANS D See table below Source: on-line tests 13).The total budgeted fixed overhead for the period is ; a).$ 19,400. b).$ 20,300. c).$ 20,600. d).$ 19,800. ANS C See table below Source: on-line tests 14).The total overhead variance for the period is ; a).$ 300 F. b).$ 300 U. c).$ 500 U. d).$ 500 F. ANS A See table below Source: on-line tests 15).What was the predetermined overhead application rate for the period is ; a).$ 4.50. b).$ 4.35. c).$ 4.25. d).$ 3.50. ANS D See table below Source: on-line tests End of questions for provided information above to answer the above question(s).
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Variable Overhead VOHSV VOHEV AR x AH SR x AH SR x SH $ 21,500 $ 21,000 $ 22,000 | $ 500 U || $ 1,000 F | | $ 500 F | Total Variable Overhead Variance Fixed Overhead FOHSV FOHVV AR x AH SR x BH SR x SH $ 20,200 $ 20,600 $ 20,000 | $ 400 F || $ 600 U | | $ 200 U | Total Fixed Overhead Variance = ( $ 22,000 + $ 20,000 ) / 12,000 = $ 3.50 16). In a highly automated environment, using direct labour hours to assign overhead costs to production will cause a).Overhead rates to be low because few direct labour hours and products will have minimal overhead attached. b).Overhead rates to be high and products using the greatest number of machine house to absorb the most overhead. c).Products using relatively higher amounts of direct labour to absorb primarily machinerelated overhead costs. d).The costs of products using a substantial amount of machine time to be overstated. ANS C Source: Publisher 17). To effectively implement activity-based management, a company should a).Prepare process maps for every organizational activity. b).Eliminate all overhead costs that do not occur at the unit-level. c).Analyze its activities and assess the ability of each to add customer value. d).Institute business process reengineering efforts that will allow mass customization of products. ANS C Source: Publisher 18). Production activities are classified as a).Non-value-added. b).Business-value-added. c).Value-added. d).All of the above. ANS D Source: Publisher
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19). In an organization in which it would be extremely difficult to eliminate transfer time, transfer time should be classified as a).Value-added. b).Non-value-added. c).A non-activity. d).Business-value-added. ANS B Source: Publisher 20). The primary reason for having a desired minimum cash balance is to a).Compensate for management's uncertainty in the budgeting process. b).Hedge against inflation during the budgetary period. c).Compensate for management's lack of discipline in controlling spending. d).Enhance the appearance of the balance sheet. ANS A Source: Publisher 21). The October 2010 budget for Eriksen Company is based on the following information. Sales (all credit) are budgeted at $300,000. A monthly provision for doubtful accounts is made at the rate of 3% of sales. Merchandise inventory was $70,000 on September 30, 2010, and an increase of $10,000 is planned for October. All merchandise sells at invoice cost plus 50%. Estimated monthly cash disbursements for selling and administrative expenses are $40,000. Monthly depreciation is $5,000. Eriksens projected October 2010 operating income is a).$96,000. b).$56,000. c).$55,000. d).$46,000. ANS D Cost of Sales = $300,000/1.5 = $200,000 Bad Debt Expense = $300,000 x 0.03 = $9,000 Operating Income = $300,000 - $200,000 - $40,000 - $9,000 - $5,000 = $46,000 Source: Publisher Use the information below to answer the following question(s). The January 31, 2010 balance sheet of Shellfish Corp. follows: Cash $ 8,000 Accounts Receivable - Net 40,000 Inventory 16,000 Property, Plant, & Equipment - Net 40,000 $104,000 ========

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Accounts Payable Common Stock Retained Earnings (deficit)

$ 84,500 50,000 (30,500) $104,000 ======== Additional information: February and March sales are budgeted at $110,000 and $120,000, respectively. Collections are expected to be 60% in the month of sale, 38% the next month, and 2% uncollectible. Shellfish's gross margin is 25% of sales. Monthly purchases are 75% of the next month's projected sales figure. Purchases are paid in full in the month following the purchase. Monthly cash expenses are expected to be $16,500. Monthly depreciation is $5,000. Bad debts expense is recorded in the month of sale. 22). What are budgeted cash collections for February 2010? a).$ 63,800. b).$ 66,000. c).$112,000. d).$106,000. ANS D = ( $110,000 x 0.60 ) + $ 40,000 = $106,000. Source: Publisher 23). What is the projected balance in Accounts Payable on the last day of February 2010? a).$ 82,500. b).$ 86,250. c).$ 90,000. d).$106,500. ANS C = ( $120,000 x 0.75 ) = $90,000. Source: Publisher 24). What is the pro forma income ( loss ) before income taxes for February 2010? a).$ ( 3,700 ). b).$ ( 1,500 ). c).$ 3,800. d).$ 6,000. ANS C Cost of Sales = ( $110,000 x 0.75 ) = $82,500. Bad Debt Expense = $110,000 x 0.02 = $2,200 Operating Income = $110,000 - $82,500 - $16,500 - $5,000 - $2,200 = $3,800 Source: Publisher End of questions for provided information above to answer the above question(s).

25). An activity-based costing system will not normally try to assign


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organizational-level costs to products because: a).The costs of allocating would exceed the benefits b).ERP systems cannot handle the data load. c).The allocation base would be too arbitrary. d).It would result in double counting the same costs. ANS C Source: Publisher 26). Costs incurred at the batch and product/process levels may also be allocated to products using a).Total production volume. b).Volume-related drivers. c).Total volume of organizational activity. d).Selling prices of specific items. ANS B Source: Publisher 27). If a relationship exists between a cost pool and a cost driver, then reducing or eliminating that cost driver should also a).Increase that cost. b).Reduce or eliminate that cost. c).Only reduce that cost. d).Have no impact on that cost. ANS B Source: Publisher 28). Activity-based costing a).Assigns costs to inventory based on physical attributes. b).Is probably necessary if a companys products all require a similar level of support services. c).Requires 20% of the time as a conventional costing system and produces 80% more accurate costs. d).Changes the traditional view of what constitutes product and period costs. ANS D Source: Publisher Use the information below to answer the following question(s). Erie Co. collects sales in the following manner: 70% in the month of sale; 15% in the month after the sale; and 14% in the second month after the sale. Erie has a 1% uncollectible rate for Aprils sales in the allowance for doubtful accounts at the end of May. Also at the end of May, Erie had a balance of $69,000 in Accounts Receivable, of which $48,000 was from May sales. Erie Co.s budgeted credit sales for June are $150,000 and budgeted cash sales are $85,000.

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29). What were total credit sales for April? a).$ 70,000. b).$ 72,414. c).$140,000. d).$150,000. ANS C = ( $69,000 - $48,000 ) / 0.15 = $140,000. Source: Publisher

30). How much cash does Erie Co. expect to collect in June? a).$235,000. b).$233,600. c).$201,000. d).$199,600. ANS B = April collections in June = $140,000 x 0.14 = $19,600. = May collections in June = ( $48,000 / 0.30 ) x 0.15 = $24,000. = June collections in June = ( $150,000 x 0.70 ) + $85,000 $190,000. = Total June collections = $19,600 + $24,000 + $190,000 $233,600. Source: Publisher End of questions for provided information above to answer the above question(s).

= =

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Problems To be answered in the spaces provided below (total marks available 10) Problem 1 (estimated time 25 minutes) Tight Hold Corp. makes womens belts and uses only one supplier for their raw material purchasing needs. Each belt requires forty inches of rawhide, forty inches of liner, and one brass belt buckle. The belts are adjustable to fit all waists up to 38 inches. Tight Hold Corp.s sales for the next few years are budgeted at 500,000 for 2010 and 540,000 belts for 2011 and 2012, respectively. Currently, in inventory there are 50,000 belts, 50,000 yards of rawhide, 60,000 yards of liner, and 40,000 belt buckles. There are 36 inches in a yard. Rawhide costs $ 0.80 per yard, liner costs $ 0.20 per yard, and buckles cost $ 2.00 each. Tight Hold Corp.s new finished goods inventory policy is to have one-tenth of the following years expected sales as ending inventory. This policy became effective on December 31, 2009. Raw materials existing inventory policy is that stock should be sufficient to produce 10 % of the following years production. Required; ( 5 Marks ) a).Prepare annual production budgets for the upcoming 2010 and 2011 years.( 1 mark ) b).Compute the total raw materials purchasing needs in dollars for the upcoming 2010 year. ( 4 marks )

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a). Annual Production Budgets Sales Ending inventory Total needs Beginning inventory Production requirements b). Annual Purchasing Budgets Production needs 1 560,000 Ending inventory Beginning inventory Purchases ( units ) Multiplied by Purchases ( dollars )

2010
500,000 units 54,000 554,000 ( 50,000 ) 504,000 =======

2011
540,000 units 54,000 594,000 ( 54,000 ) 540,000 ======= ( 1 mark )

Buckles Rawhide Liner 504,000 560,0001 54,000 ( 40,000 ) 518,000 ======= $2.00 $1,036,000 ======= 60,0002 ( 50,000 ) 570,000 ======== $0.80 60,0002 ( 60,000 ) 560,000 ======== $0.20

$456,000 $112,000 = $1,604,000 ======== ======== ======== ( 4 marks )

Rawhide & Liner ( yards ) 1 Production needs ( yards ) [ ( 504,000 x 40 ) / 36 ] 2 Ending inventory ( yards ) [ ( 54,000 x 40 ) / 36 ] Pages 322 to 324. Learning Objective 6.

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Problem 2 (estimated time 25 minutes) Abanirs Inc. manufactures coats overseas to take advantage of low labour wage rates. Abanirs Inc. presently is producing one type of coat. The standard costs for a dozen of these winter coats are: Standard Cost Card ( Units; dozen ) DM DL OH Total 30 yards at $ 0.55 3 hours at $ 2.45 3 hours at $ 2.00 $ 16.50 7.35 6.00 $ 29.85 ======

Actual Purchasing and Production Records During September 2010, Abanirs Inc. worked on three job orders for winter coats. Plant production records for the month disclose the following: Dozen Yards Units Material used Hours worked 1,000 34,100 2,980 1,700 50,440 5,130 1,200 38,825 2,890 3,900 123,365 11,000 ====== ====== ====== Additional actual purchasing and production information is also available from the company cost records: Abanirs Inc. purchased 95,000 yards of material during the month for $ 53,200. The material price variance is recorded when goods are purchased, and all inventories are carried at standard cost. Direct labour cost for the month was $ 27,500. Records showed that production employees were paid $ 2.50 per hour. Overhead is applied on the basis of direct labour hours. Total manufacturing overhead was $ 22,800 for September. Of that amount, $ 13,500 was variable overhead. A total of $ 288,000 was budgeted for overhead for the year 2010. This was based on estimated production at the plants normal capacity of 48,000 dozen coats per year. Overhead is 60 % variable and 40 % fixed at this level of production activity. In September, Jobs 1 and 2 were completed, and all material was issued for Job 3. Job 3 was 80 % complete as to labour and overhead at the end of the month. Job 1 2 3

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Required; ( 5 Marks ) a). Prepare a schedule computing the standard cost of Jobs 1, 2, and 3 for September 2010. ( 1.5 marks ) Job 1 ( 1,000 x $ 29.85 ) Job 2 ( 1,700 x $ 29.85 ) Job 3 ( 1,200 x $ 16.50 ) + [( 1,200 x .8 ) x $ 13.35] Total $ 29,850 50,745 32,616 $ 113,211 =========

( 1.5 Marks )
b). Prepare a schedule computing the variable overhead spending, variable overhead efficiency, fixed overhead spending and volume variances for September 2010 production. Indicate whether each variances is favourable or unfavourable. Round answers to the nearest dollar. ( 3.5 Marks ) Standard Hours Allowed = 3,660 equivalent units x 3 hours = 10,980 hours Variable Overhead VOHSV VOHEV AR x AH SR x AH SR x SH $ 13,500 $ 13,2002 $ 13,1763 | $ 300 U || $ 24 U | | $ 324 U | Total Variable Overhead Variance Fixed Overhead FOHSV FOHVV AR x AH SR x BH SR x SH $ 9,3001 $ 9,6004 $ 8,7845 | $ 300 F || $ 816 U | | $ 516 U | Total Fixed Overhead Variance
1 2

( $22,800 - $13,500 ) ( $27,500 / $2.50 ) x ( $2.00 x 0.60 ) 3 ( 3,660 equivalent units x 3 hours ) x ( $2.00 x 0.60 ) 4 [( $ 288,000 x 0.40 ) / 12 ] 5 ( 3,660 equivalent units x 3 hours ) x ( $2.00 x 0.40 )

( 3.5 Marks )
Pages 395 to 398. Learning Objective 3.

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