Final Exam-Questions- Solutions

# Final Exam-Questions- Solutions - CONCORDIA UNIVERSITY...

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+ CONCORDIA UNIVERSITY Course: Managerial Accounting, No.: Examination: Final Date: April 17, 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: Page 1 of 18

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QUESTION I 20 POINTS Part-A – 10 Points The management of York Manufacturing Company has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, called Vera, is a component of York's finished product. An analysis of the accounting records and the production data revealed the following information for the year ending December 31, 2008: 1. The machinery department produced 35,000 units of Vera. 2. Each Vera unit requires 10 minutes to produce. Three people in the machinery department work full-time (2,000 hours per year each) producing Vera. Each person is paid \$12 per hour. 3. The cost of materials per Vera unit is \$2.20. 4. Manufacturing costs directly applicable to the production of Vera are as follows: indirect labour, \$6,000; utilities, \$1,500; small tools, \$1,800; property taxes and insurance, \$1,000. All of the costs will be eliminated if Vera is purchased. 5. The lowest price for a Vera from an outside supplier is \$4 per unit. Freight charges would be \$0.50 per unit, and a part-time receiving clerk at \$8,500 per year would be required. 6. If Vera is purchased, the excess space that becomes available will be used to store York's finished product. Currently, York rents storage space at approximately \$0.80 per unit stored per year. Approximately 5,000 units per year are stored in the rented space. Instructions (a) Prepare an incremental analysis for the make-or-buy decision. Should York Manufacturing Company make or buy the part? Why? (b) Prepare an incremental analysis, assuming the released facilities (freed-up space) can be used to produce \$12,000 of net income in addition to the savings on the rental of storage space. What decision should now be made? (c) What non-financial factors should be considered in the decision? Page 2 of 18
Part-B – 10 Points Brookfield Co. manufactures four different products. Because the quality of its products is high, the demand for the products is more than the company can produce. Based on the enquiries made by current and potential customers, you have estimated the following for the coming year: Product Estimated Demand in Units Selling Price per Unit Direct Materials Cost per Unit Direct Labour Cost per Unit A 8,000 \$ 50 \$ 5 \$ 5 B 24,000 60 10 9 C 20,000 150 25 30 D 30,000 100 15 20 The following information is also available: 1. The direct labour rate is \$15 per hour and the factory has a capacity of 80,000 hours. For the next year, Brookfield Co. is unable to expand this capacity.

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## This note was uploaded on 11/09/2011 for the course ECON 220 taught by Professor John during the Spring '11 term at University of Arkansas – Fort Smith.

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Final Exam-Questions- Solutions - CONCORDIA UNIVERSITY...

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