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10-Sep-15

Solution
Trial final exam 2015 V1

Task 1
a)

Revenue
Variable expenses
Direct materials
Direct labor
Manufacturing overhead
Selling and administrative overhead
Contribution margin
Fixed expenses
Manufacturing overhead
Selling and administrative overhead
Income (loss)

Total
Unit
105,000
30
94,500
27
31,500
9
24,500
7
14,000
4
24,500
7
10,500
3
16,000
10,000
6,000
(5,500)

10-Sep-15

Task 1
b) Knowledge of cost behavior allows a manager
to assess changes in costs that result from
changes in activity. This allows a manager to
examine the effects of choices that change
activity.
Knowing what costs are variable and what costs
are fixed can help a manager make better cost
prediction and, ultimately, better business
decisions.

Task 2
a) The costs that can be avoided as a result of
purchasing from the external party are relevant in a
make-or-buy decision. The analysis is as follows:
Direct materials
Direct labour
Variable manufacturing overhead
Avoidable fixed manufacturing overhead
Opportunity cost
Cost of purchasing
Total relevant costs

Make
108,000
300,000
72,000
90,000
80,000
650,000

Buy

630,000
630,000

10-Sep-15

Task 2
b) Advantages of producing own parts:
1 less dependent on supplier, therefore able to ensure
a smoother flow of parts and materials for production
2 can control quality better by producing own parts
and materials
3 can remain jobs for workers, avoiding laying-off
workers which may harm the companys reputation.

Task 3
a) i) September production = 3,000 units. Gasket should
been used in production = SQ = 3,000 x 6 = 18,000

gaskets.
MPV = AQpurchased*(AP SP) = 25,000 *(0.48 - 0.50) =
500 (F)
MQV = SP*(AQused SQ) = 0.50*(20,000 18,000) =
1,000 (U)
a) ii) LRV = AH*(AR SR) = 4,000*(9 - 8) = 4,000 (U)

LEV = SR*(AH SH) = 8*(4,000 3,900) = 800 (U)

10-Sep-15

Task 3
b) Some of the other possible explanations for the
variances observed appear below:
Favorable MPV: (1) purchase of a lower grade
material at a discount, (2) buying in an unusually
large quantity to take advantage of quantity
discounts, (3) a change in the market price of the
material, (4) or particularly sharp bargaining by the
purchasing department.
Unfavorable MQV: (1) poorly trained or supervised
workers, (2) improperly adjusted machines, and (3)
defective materials.

Task 3
Unfavorable LRV: (1) an increase in wages that has
not been reflected in the standards, (2)
unanticipated overtime, and (3) a shift toward more
highly paid workers.
Unfavorable LEV: (1) poor supervision, (2) poorly
trained workers, (3) low-quality materials requiring
more labour time to process, and machine
breakdowns.

10-Sep-15

Task 4
a) The first proposal reduces the companys net income
by $2,300
Current sales
Sales
Variable expenses
Contribution margin
Fixed expenses
Income

180,000
126,000
54,000
30,000
24,000

Sales with
Difference
advertising budget
189,000
9,000
132,300
6,300
56,700
2,700
35,000
5,000
21,700
(2,300)

Task 4
b) The $2 increase in variable cost will cause the unit
contribution margin to decrease from $27 to $25 with the
following impact on net operating income:
Expected contribution margin with
higher grade cocoa bean (2,200 x 25).............55,000
Present total contribution margin (2,000 x 27)..54,000
Change in total contribution margin..$1,000
The second proposal increases income by 1,000

10-Sep-15

Task 4
c) Choose the second proposal. Assuming other factors
are constant, the first proposal will result in reduction
in income of $2,300, whilst the second proposal will
result in an increase in income of $1,000.

Task 5

Budgeted sales
Collection from Jan sales
Collection from Feb sales
Collection from Mar sales
Total collections

Jan
100,000

Feb
125,000

Mar
150,000

Total
375,000

68,600
68,600

20,000
85,750
105,750

6,000
25,000
102,900
133,900

94,600
110,750
102,900
308,250

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