Winter 2011 final exam-Exam-w-solution-answersheets.doc

+ CONCORDIA UNIVERSITY Course: Managerial Accounting, No.: COMM 305 ALL SECTIONS & ACCO 240 Examination: Final Date: April 10, 2011 No. of Pages: 11 Pages including the cover page Material Allowed: This is a closed book examination; no reference to notes, etc. is allowed. However, a silent hand-held four-function calculator and one standard (not electronic) dictionary are permitted. Special Instructions: Answer all multiple choice questions in the Answer Sheet IBM Form no. 4521 Return the exam questions with your answers. The Answer Sheet IBM Form no. 4521 & answer booklet Student Name: _ Student ID No.: _ Section: _ Instructor: _ Please read the questions carefully and budget your time carefully. COMM 305 ALL SECTIONS & ACCO 240 Final Exam April 2011 page 1

S how details of all your work in the lined examination answer booklet Write all your final answers in the Answer Sheet provided with the exam page 12. QUESTION I. 15 POINTS Use the following information to calculate and answer the next 6 questions. (SHOW YOUR WORK) Labrador Company produces a single product. It sold 75,000 units last year with the following results: Sales $1,875,000 Variable costs $750,000 Fixed costs 300,000 1,050,000 Net income before taxes 825,000 Income taxes (45%) 371,250 Net income $ 453,750 In an attempt to improve its product, Labrador is considering replacing a component part in its product that has a cost of $5 per unit with a new and better part costing $10 per unit during the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $90,000, with a useful life of six years and no salvage value. The company uses straight-line amortization on all plant assets. 1. Labrador's break-even point in units last year was =20,000 units → $300k/$15 per unit 2. Product's units that Labrador would have to sell in the past year to earn $247,500 in net income after taxes are 50,000→ $247,500/.55 = $450,000; $450,000+300,000/$15 = 50,000 units 3. If it holds the sales price constant and makes the suggested changes, Labrador's break-even point in units in the coming year will be 31,500 units → ($300,000 + 90,000/6)/10 = 31,500 units 4. If it holds the sales price constant and makes the suggested changes, Labrador have to sell to make the same net income before taxes as last year will be 114,000 units → $825,000+315,000above/10= 114,000 units 5. If Labrador wishes to maintain the same contribution margin ratio, selling price per unit of product must it charge next year to cover the increased materials costs will be $37.5→ C/M ratio is 60%, thus V/C = 40%, new V/C = $15 so S/P = $15/.4 = 37.50 new S/P 6. The effect on the company's net income before tax if the sales increased by 10% last year will be Do not prepare income statement. $112,500 increase =DOL X increase of sales X net income OR → sales units = 75000*1.1=82,500 ($15)-300,000 = 937.5K, was 825K, thus increase by 112.5K QUESTION II-A. 7.5 POINTS Use the following information to calculate and answer the next 3 questions. (SHOW YOUR WORK) Taylor Enterprises sells its product for $40 per unit. It currently produces 100,000 units per year, operating at normal capacity, which is about 80% of full capacity. Taylor recently received a special order from a customer for 20,000 units. Production costs per unit for regular sales are direct materials $ 6, direct labour $14, and manufacturing overhead $12. The $12for manufacturing overhead is based on $400,000 of annual fixed manufacturing overhead that is allocated using the normal capacity. COMM 305 ALL SECTIONS & ACCO 240 Final Exam April 2011 page 2

7. Suppose the special order price is $520,000 for all 20,000 units, and assume that Taylor has sufficient capacity to fill the special order. Should it be accepted or not and how much the effect on the net income? No, because profits will decrease by $40,000 Variable overhead = $12 - $400,000/100,000 = $8 Total Variable cost per unit = $ 6 + 14 + 8 = $28 X 20,000 units = $560,000 - special order price is $520,000 = loss $40,000 8. Suppose that Taylor would like to earn $40,000 on this order and assume that there is sufficient capacity to fill the special order. What price per unit should Taylor charge for the special order? Total Variable costs for 20,000 units = $560,000 + to earn $40,000 on this order / 20,000 = $30 9. Suppose that the special order price is $650,000 for all 20,000 units, but there is not sufficient capacity to fill the order; 10,000 units of regular business will be replaced by the special order if it is accepted. Should Taylor accept the special order or not how much the effect on the net income? Total Variable cost per unit = $ 6 + 14 + 8 = $28 - SELLING PRICE $40 = $12 OPPORTUNITY COST FOR 10,000 UNITS = $ 120,000 + TVC $560,000 = $680,000 - SP $650,000 = LOSS $30,000 QUESTION II-B. 7.5 POINTS Use the following information to calculate and answer the next 3 questions. (SHOW YOUR WORK) X&Y, Inc. makes 3 products, A, B, and C. X&Y, Inc only has 150 machine hours available each week. Contribution margin, machine hour requirements, and weekly customer demand information is as follows: A B C Contribution margin per unit $8 $4 $7 Machine hours required per unit 0.8 0.2 0.2 Weekly customer demand 400 600 500 10. In what order should the products be produced? A B C Contribution margin per unit $8 $4 $7 Machine hours required per unit 0.8 0.2 0.2 CM PER HR $10 $20 $35 C B A → 11. How many units of each product should be produced? 150 TOTAL HOURS AVA D 500 X .2= 100 HRS -150 HRS = 50 /.6 B = 250 B 250 UNITS + A 0 UNITS + C 500 UNITS → C- 500 units * 0.2 hrs = 100 hrs, balance of 50 hrs, → B- 50hr/.2 = 250 units, balance 0 hrs. 12. What is the maximum amount that Clark would be willing to pay, above the normal cost, for one more machine hour per week? ANY EXTRA UNIT COME FROM B MARKET BECAUSE Weekly customer demand is COMM 305 ALL SECTIONS & ACCO 240 Final Exam April 2011 page 3