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The Chinese University of Hong Kong
Course Examination 2
nd
Term 2010-2011
Course Code & Title f fi:

Time allowed :
Student LD. No. Seat No. _
ISection A Multiple Choices (30 points)1
Answer all MC Questions on the MC Answer Sheet. Choose the best answer.
Multiple-Choice and/or
questions, etc. are not provIded
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ISection B Problem (70 points)1
Show all supporting calculations except instructed otherwise.
Problem 1 (14 points)
Rango Company manufactures two types of sofas, cloth and leather. Cloth sofas require no polishing
activities. Rango Company adopts the activity-based costing system (ABC) with two direct-cost cate
gories (direct materials and direct manufacturing labor) and four indirect-cost pools to allocate its
manufacturing overhead costs.
The following is the company's activity cost pools and related data for the current year:
Activity
cost pool
Parts sorting
Sewing
Assembly
Leather Polishing
Estimated
cost
$ 400,000
1,200,000
3,000,000
1,320,000
Cost driver used as
allocation base
Number of parts
Machine hours
Direct labor hours
Number of sofas polished
Estimated volume for
cost driver
800,000 parts
40,000 hours
150,000 hours
60,000 sofas
In the month of May, both types of sofas are produced. The relevant production costs and data are as
follows:
Units Direct Machine Number Direct
produced material hours of parts labor hours
Leather sofas 5,000 $600,000 5,000 100,000 6,000
Cloth sofas 1,000 200,000 500 10,000 3,000
Additional information:
Direct labor is paid $25 per hour.
The company's non-manufacturing activities are as follows: product design of the leather sofa is at $10
each and that of the cloth sofa is at $15 each. Support costs allocated are $50 per leather sofa and $80 per
cloth sofa.
Required
(a) Compute total manufacturing costs of the leather and cloth sofas for May. (8%)
(b) Compute manufacturing costs per unit of the leather and cloth sofas for May. (2%)
(c) Compute product cost per unit of the leather and cloth sofas including the non-manufacturing
costs for May. (4%)
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Problem 2 (12 points)
ACCT Manufacturing produces two products, Xl and X2. ACCT expects to sell 20,000 units of X I and
10,000 units ofX2. ACCT plans on having an ending inventory of 4,000 units of Xl and 2,000 units of
X2. Currently, ACCT has I ,000 units of Xl in its inventory and 800 units ofX2. Each product requires
two labor operations: molding and polishing. Product Xl requires one hour of molding time and one
hour of polishing time. Product X2 requires one hour of molding time and two hours of polishing time.
The direct labor rate for molders is $20 per molding hour, and the direct labor rate for polishers is $25 per
polishing hour.
Required:
(a) Prepare a direct labor budget in hours and dollars for each product. (9%)
(b) Describe the benefits to an organization of preparing an operating budget. (3%)
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Problem 3 (18 points)
The following data for the telephone company pertain to the production of 450 rolls of telephone wire
during June. Selected items are omitted because the costing records were lost in a windstorm.
Direct Materials (All materials purchased were used.)
Standard cost per roll: ~ pounds at $4.00 per pound.
Total actual cost: l pounds costing $9,600.
Standard cost allowed for units produced was $9,000.
Materials price variance: _c_.
Materials efficiency variance was $80 unfavorable.
Direct Manufacturing Labor
Standard cost is 3 hours per roll at $8.00 per hour.
Actual cost per hour was $8.25.
Total actual cost: -iL .
Labor price variance: ~ .
Labor efficiency variance was $400 unfavorable.
Required:
(a) Fill in the missing elements in the report represented by the lettered items (Supporting calcula
tions are not required). (15%)
(b) Give three possible reasons to explain the unfavorable efficiency variance for direct manufac
turing labor. (3 %)
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Problem 4 (13 points)
VL Company has budgeted to manufacture 200,000 units for the year ended December 31,2010. The
standard cost sheet specifies two direct labor-hours for each unit manufactured. Total manufacturing
overhead was budgeted at $900,000 for the year with a fixed manufacturing overhead rate of$1.50 per
direct labor-hour. Both fixed and variable manufacturing overhead costs are assigned to products on the
basis of standard direct labor-hours. The actual data for the year ended December 31, 2010, follow:
Units manufactured ~ 198,000
Direct labor-hours worked .440,000
Variable manufacturing overhead incurred $352,000
Fixed manufacturing overhead incurred $575,000
Required
Determine the following for the year just completed:
1. Total standard direct labor hours for the units manufactured. (1%)
2. Total amount of fixed manufacturing overhead cost budgeted. (1%)
3. Standard variable manufacturing overhead rate per direct labor-hour. (1%)
4. Variable overhead efficiency variance. (2%)
5. Variable overhead spending variance.
(2%)
6. Fixed overhead spending variance.
(2%)
7. Production volume variance. (2%)
8. Variance overhead flexible-budget variance.
(1%)
9. Fixed overhead flexible-budget variance. (1%)
(You are not required to show your workings.)
ApriI11,201112:19PM
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Problem 5 (13 points)
HKBT Corp. produces beach towels. Its facilities provide the firm with the capacity to produce 48,000
units per month.
For the month of March 2011, the firm's budgeted production is 40,000 units. Due to a sudden surge in
demand for beach towels last month, the firm began this month with zero units in inventory. The firm's
budgeted income statement for March 2011 is as follows:
Sales revenue (40,000 units) $1,000,000
Cost of goods sold:
Direct materials
Direct labour
$ 160,000
240,000
Manufacturing overhead
Gross margin
Selling expenses
$
220,000
120,000
620,000
$ 380,000
Administrative expenses 25,000 145,000
Operating profit $ 235,000
Income tax expense
Net income $
84,600
150AOO
The firm's variable manufacturing overhead is $3 per unit, and its variable selling expense is $2 per unit.
There are no variable administrative expenses.
This morning, the firm received a special order from Sanya Ltd. for 10,000 units at a selling price of $15
per unit. For the special order, the direct material cost per unit will be 10% greater than the amount per
unit for budgeted production. The unit costs for direct labor and variable manufacturing overhead will be
the same as those for budgeted production.
If the special order is accepted, fixed manufacturing overhead and fixed selling expenses will not change,
but the fixed administrative expenses will increase by $5,000. However, there will be no variable selling
expense associated with this order.
Required:
IfHKBT Corp. accepted the special order, what would be the change in the firm's net income? Show all
calculations.
***END***
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