ADMS2510S01Final

ADMS2510S01Final - 5 School of Admmtstrattve Studzes...

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Unformatted text preview: . . . . 5?? School of Admmtstrattve Studzes Atkinson Faculty of Liberal and Professional Studies York University Ak/Adms 2510 Management Accounting Final Examination Date: August 20,2001 Instructor: P.Roy Duration: Three hours Instructions: 1. Record your answers in the booklets provided. Use every second line, and the right hand side only. ”’ Ix} Start each question on a new page! 3. You can use pencil or pen. 4. Calculators are permitted. 5. If you feel a question is ambiguous, make and state any assumptions you feel are necessary for you to proceed with the question. Do not ask the exam supervisor interpretive questions about the exam. 6. You have three hours and six questions, so budget your time. Question 1 (15 marks) An Ontario law permits a game of chance called Bingo when it is offered by specific nonprofit institutions, including churches. Reverend Jill Bond, the pastor of a new parish in suburban Mississauga, is investigating the desirability of con- ducting weekly Bingo nights. The parish has no hall, but a local hotel would be will- ing to commit its hall for a lump-sum rental of $800 per night. The rent would include cleaning, setting tip and taking down the tables and chairs, and so on. I. Bingo cards would be provided by a local printer in return for free advertising therein. Door prizes would be donated by local merchants. The services of clerks, callers, a security force, and others would be donated by volunteers. Admission would be $4.00 per person, entitling the player to one card; extra cards would be $1.50 each. Reverend Bond also learns that many people buy extra cards, so there would be an average of four cards played per person. What is the maximum in total cash prizes that the church may award anti still break even if 200 persons attend each weekly session? 2. Suppose the total cash prizes are $900. What will be the church’s operat- ing income if 100 persons attend? If 200 persons attend? if 300 persons attend? Briefly explain the effects of the cost behaviour on income. 3. After operating for 10 months, Reverend Bond is considering negotiating a different rental arrangement but keeping the prize money unchanged at $900. Suppose the rent is S400. weekly plus $2 per person. Compute the operating income for attendance of 100, 200, and 300 persons, respectively, Explain why the results differ from those in requirement 2. Question 2 (15 marks) As the chief executive officer of Tiger Shoe Companv, you examined the following measures of the performance of three divisions (in thousands of dollars): OPERATING INCOME NET ASSETS BASED ON BASED ON“ HISTORICAL REPLACEMENT HISTORICAL REPLACEMENT DIVISION COST COST COST COST Shoes 815.000 $15,000 $2,700 $2.700 Clothing 45,000 55000 6,750 6150 Accessories 30.000 48.000 4.800 3.900 'The differences in operating income between historical and replacement cost are attributable to the differences in depreciation expenses. 1. Calculate for each division the rate of return on net assets and the residual income based on historical cost and on replacement cost. For purposes of calculating residual income, use 10 percent as the mini- mum desired rate of return. 2. Rank the performance of each division under each of the four different measures computed above. 3. What do these measures indicate about the performance of the divi- sions? Of the division managers? Which measure do you prefer? Why? Question 3 (15 marks) Peterborough Medical Devices makes devices and equipment that it sells to hospitals. The organization has a profit-sharing plan that is worded as follows: The company will make available a profit-sharing pool that will be the lower of the following two items: 1. 4 % of net income before taxes in excess of the target profit level, which is 1.8% of net assets, or 2. $7 million The individual employee is paid a share of the profit-sharing pool equal to the ratio of that employee’s salary to the total salary paid to all employees. REQUIRED (a) if the company earned $45 million of profits and had net assets of $100 million, what would be the amount available for distribution from the profit-sharing pool? (b) Suppose that Marg Watson’s salary was $68,000 and that total salaries paid in the company were $25 million. What would Marg’s profit share be? (c) What do you like about this profitosharing plan? id) What do you dislike about this profit—sharing plan? Question 4 (15 marks) V Delta Screens Corporation is currently operating at 60% of capacity in producing 6000 screens annually Delta recently received an offer from a company in Germany to purchase 2000 screens at $500 per unit‘ Delta has not previously sold products in Germany. Budgeted production costs for 6000 and 8000 screens follow: NUMBER OF UNITS PRODUCED ........................................... star‘aagagi; """""""""""" 3956566 """""" ' ' Sided-Coo Direct labor 750,000 l,000,000 Support 2,i00,000 2,400,000 Total costs $3,600,000 $4,400,000 Full cost per unit 5600 $550 Delta has been selling its product at a markup of 10% above full cost. Delta/s marketing manager believes that although the price offered by the German cus- tomer is lower than current prices, Delta should accept the order to gain a foothold in the German market. The production manager, however, believes that Delta should reject the order because the unit cost is higher than the price offered. REQUIRED (a) Explain what causes the apparent decrease in cost from $600 per unit to $550 per unit when production increases from 6000 to 8000 units. (b) If the president of Delta Screens Corporation calls on you to resolve the dif— ference in opinions, what will you recommend? Why? Question 5 (20 marks) Macready Company is consider- ing introducing a new model of personal compact disc players at a price of $105 per unit. lts controller has compiled the following incremental cost in— formation based on an estimate of 120,000 units of sales annually for the new product: Direct materials cost $3,600,000 Direct labor cost $2,400,000 Variable manufacturing support $1,200,000 Sales commission 10% of sales Fixed cost $2,000,000 The average inventory levels for the new product are estimated as follows: Raw materials 2 months of production Work in progress (100% complete for materials and 50% complete for labor and variable manufacturing support) 1 month of production Finished goods 2 months of production Annual inventory carrying costs not included in the variable manufacturing support listed earlier are estimated to be 12% of inventory value. in addition, the sales manager expects the introduction of the new model to result in a reduction in sales of the existing model from 300,000 to 240,000 units. The contribution margin for the old product is 520 per unit. REQUIRED (a) Determine the total impact on Macready’s profit from the introduction of the new product. (b) Should Macready introduce the new product? Explain. (ci Determine the breakeven point tin units] for the new product. That is, deter- mine the required sales in units for the company to earn zero profit. Assume that sales of the old product decrease by one unit for every two-unit increase in the sales of the new product. ...
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ADMS2510S01Final - 5 School of Admmtstrattve Studzes...

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