Final Exam D (With Solution)

Final Exam D (With Solution) - + CONCORDIA UNIVERSITY...

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+ CONCORDIA UNIVERSITY Course: Managerial Accounting, No.: Examination: Final Date: June 18, 2009 No. of Pages: 7 including the cover page Material Allowed: Non-programmable calculators and dictionaries Special Instructions: Return the exam questions with your answers. Student Name: Student Id. No.: Section: Instructor: 1
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PROBLEM I 15 MARKS Steel Shop Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below: Operating income $ 9,000 $ 8,000 $ (3,000) $ 14,000 The company produces 1,000 units of each product. The company's capacity is 9,000 labour hours. The labour for each product is four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on labour hours. Instructions (a) If the current production levels are maintained, should the company eliminate Product C? Explain your reasoning. 3 marks (b) If the company can sell unlimited quantities of any of the three products, which product should be produced? 4 marks (c) Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order? 4 marks (d) The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin? 4 marks 2
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PROBLEM II 15 MARKS Tecko manufactures an electronic component for a high-end computer. The company currently sells 50,000 units a year at a price of $180 per unit. These units are produced using a machine that was purchased five years ago at a cost of $1.2 million. It currently has a book value of $600,000; however, due to its specialized nature, it has a market value today of only $70,000. The machine, which is expected to last another five years, will have no salvage value. The costs to produce an electronic component are as follows: Total variable costs per unit $144.60 The company expects the following changes for next year: The unit selling price will increase by 10 percent. Direct labour rates will increase by 15 percent. Sales are expected to increase to 52,000 units (within the capacity of present facilities) and remain at that level. Management is currently considering the replacement of the company's old machine with a new one that would cost $2.5 million and produce 52,000 units per year for five years. The new machine is expected to last five years and to have a salvage value of $107,375 (straight-line amortization is used). By using the new machine, management expects to cut direct labour hours to 3.5 hours per unit, but the company will have to hire an operator for the machine at $90,000 per year. Instructions
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This note was uploaded on 05/17/2011 for the course COMM 305 taught by Professor T.hutchison during the Spring '09 term at Concordia Canada.

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Final Exam D (With Solution) - + CONCORDIA UNIVERSITY...

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