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BUS 2010 MIDTERM UPDATED EXAM|RATIONALE Q&A GUARANTEED 100% (VERIFIED)
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BUS 2010 MIDTERM UPDATED EXAM|RATIONALE Q&A GUARANTEED 100% (VERIFIED)
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BUS 2010 MIDTERM UPDATED EXAM|RATIONALE Q&AGUARANTEED 100% (VERIFIED)
Question 1 (9 marks) chapter 9
Using one unit of product as the cost object, complete the following matrix by placing an X
under the all headings that apply. Note, negative marking will apply (ie if you choose an
incorrect heading, or fail to include a correct heading you will lose marks).
Manufactur- Direc Indirect Variable Fixed
Direct Direct Period
Cost Item ing t Cost Cost Cost
Materials Labour Costs
Overhead Cost
a) materials
used
X X X
directly in
product
b)
X X X
Advertising
c)
Depreciatio
n on X X X
production
equipment
d) Rent on
office X X X
building
e) wages for
production
employees
X X X
that help
assemble
units
f)
Production
X X X
supervisor
salary
, Question 2: (8 marks) Low high Method
Fredericton Company incurred the following costs and machine hours for the months of January
and February.
Type of cost January February
Insurance $10,000 $10,000
Direct labour 20,000 30,000
Maintenance 5,500 5,750
Machine hours 1,000 1,500
Required:
a. Assuming that the driver for all costs is machine hours, determine the cost behaviour of
each of the three types of costs above (fixed, variable, or mixed). Show calculations. (3 marks)
b. For any mixed costs identified in part a), use the high low method to determine the fixed
and variable components of the cost. (3 marks)
c. Using your answers from parts a) and b), construct a total cost estimation equation for
Fredericton company. (2 marks)
Question 2 solution: Chapter 10 Low high Method
a. Insurance (Fixed)
Direct Labour (Variable) ($20,000/1000 = $20; $30,000/1500 = $20)
Maintenance (Mixed)
1 mark each
b. Variable Maintenance cost = $5,750-$5,500/(1,500-1,000) = $0.50 per MH (1.5 marks)
Fixed costs = $5,750-($0.50 x 1,500) = $5,000 (1.5 marks)
c. Total costs = $10,000 + $5,000 + $0.50 x MH + $20 x MH
2 marks; 1 mark for fixed costs; 1 mark for variable costs
Question 3: (11 marks) Chp 11
KLM Company sells a high-quality toaster that sells for $30 per unit. Variable costs are $18 per
unit, and fixed costs total $300,000 annually.
Required:
Answer the following independent questions:
1. What is the product's Contribution Margin ratio? (1 mark)
2. Calculate the break-even point in both sales dollars and units. (2 marks)
3. Calculate the company’s margin of safety in units if it plans to sell 45,000 units. (2 marks)
4. The company estimates that sales will increase by $60,000 during the coming year due to
increased demand. By how much should operating income increase? (2 marks)
5. Assume that the company sold 40,000 units last year. The sales manager is convinced that
a 10% reduction in the selling price, combined with a $30,000 increase in advertising
expenditures, would cause annual sales in units to increase by 20%. Would you
recommend that the company do as the sales manager suggests? Show calculations to
support your answer. (4 marks)
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