Final Exam - Fall 2018
Final Exam - Fall 2018
Final Exam - Fall 2018
INSTRUCTIONS
MSB does not condone academic fraud, an act by a student that may result in a false academic
evaluation of that student or of another student. Without limiting the generality of this
definition, academic fraud occurs when a student commits any of the following offences:
plagiarism or cheating of any kind, use of books, notes, mathematical tables, dictionaries or
other study aid unless an explicit written note to the contrary appears on the exam, to have
in his/her possession cameras, tape recorders, cell phones, or any other communication device
which has not been previously authorized in writing.
Signature: ______________________________________
Note: an examination copy or booklet without that signed statement will not be graded
and will receive a final exam grade of zero.
Important notes:
- Make sure your handwriting is clear and readable.
- Only clear, neat and readable answers are considered.
Activity Usage
Activity overhead
Activity Cost Driver (Number of cost driver
rate
for the order)
Electrical
$20 per engineering
engineering design Engineering hours 20 engineering hours
hour
48 tests
Product testing Number of tests $25 per test
Assembly Direct labor hours $18 per direct labor 260 direct labor hours
10,000 packages
Packaging Number of packages $0.04 per package
Required:
1. Use the traditional costing approach to compute the total cost of the Stay Connect order.
Compute the cost per unit.
2. Calculate the manufacturing overhead cost under the ABC costing system.
3. Use ABC to compute the total cost of the Stay Connect order. Compute the cost per unit.
4. Explain the difference between the unit cost calculated under the two systems.
Required:
1. Using the high-low method, separate mixed costs into their variable and fixed
components. Use the hours worked as the activity level.
2. Suppose you conducted a least squares regression and obtained the following results:
R square 0.9043
Intercept 870.73
x variable 1 3.3036
Put these results into a linear equation format (y = a + bx) and explain what each component
means.
3. Which of the results, requirement 1 or 2, should the manager use to estimate the utilities costs
for the upcoming year? Argue your answer.
4. Why can actual utilities costs vary from the amount computed using the utilities cost formula.
Required:
1.1 Given the budgeted selling price and cost data, how many units would McLennon have to sell
to break even? (Hint: Be sure to consider selling and administrative expenses.)
1.2 What would be the operating income if the company sells 100,000 units? Use the Unit
Contribution Margin (UCM) to answer this question.
II. The company is considering producing air filters as a new product (in addition to the water
pumps). This will increase the fixed costs by $25,000. The variable cost per unit (for the air filters)
is $3 and the selling price is $9. The product mix is 60% for water pumps and 40% for air filters.
2.1. How many units should the company sell to breakeven, under the assumption of selling water
pumps and air filters?
2.2. Compute the number of units the company should sell to earn a profit of $95,000.
Required:
1. Assume Antiquities, Ltd. has excess capacity, compute the incremental profit (or
loss) from accepting the special order.
2. Should Antiquities, Ltd. accept the special order?
3. What would change if Antiquities, Ltd. is operating at full capacity? (Hint: no
calculations are required for this question).