INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

EPGP 13 Batch
End Term CMA 2021
Quarter- IV
Name: ______________________________ Roll No. _________________

Invigilator’s Signature…………………………………….

Max Time: 2 hr 30 min + 15 min for uploading Date:

Max Marks: 100
Read Instructions Carefully
a) FOR INCORRECT METHODS/incomplete steps-- THERE IS NO STEP MARKS
b) Please ensure that the rough work if any, notes and assumptions are properly mentioned/shown.
c) Marks are shown against each question.
d) All questions are compulsory. This is an open Book exam.
e) ENSURE THAT YOU WRITE YOUR ROLL NUMBER and page number
f) You are allowed an additional 15 mins to scan the answer sheet and upload it in the link
provided for the purpose. Negative marks will added for late submissions and will be decided
by the subject professor.

Q1. Generally, companies follow one of two broad cost strategies: offering a quality product
at a low price, or offering a unique product or service priced higher than the
competition. Is it possible to follow a strategy that is "in the middle"? (4 marks) (Max
10 lines) (8 min)
Q2. Why do organizations use budgeted rates instead of actual rates to allocate the costs of
support departments to each other and to user departments and divisions? Explain (4
marks) (max 10 lines) (10 min)
Q3. Harris, Inc., has just completed two jobs: Job A and Job B, which were similar in terms
of complexity, production processes, and units manufactured. Job A was manufactured
by Joe who earns Rs. 14 per hour, whereas Job B was completed by Susan who earns
Rs. 20 per hour. If Joe and Susan are equally efficient, would the company be better off
using direct labor cost or direct labor hours as the cost driver in its predetermined
overhead rate? Briefly explain. (4 marks) (Max 10 lines) (8 min)
Q4. In discussing the operation of her automobile, a doctor once observed that gasoline is a
fixed cost because the cost per gallon is relatively stable. Insurance, on the other hand,
is a variable cost because the cost per mile varies inversely with the number of miles
driven. Do you agree with the doctor's observations? Give your reasons for yes/no. (4
marks) (Max 10 lines) (8 min)
Q5. Madi Corporation has a single facility that it uses for manufacturing, sales, and
administrative activities. Should the company's building depreciation charge be
 expensed in its entirety or is a different accounting procedure appropriate? Think in
different types of cost. Explain. (4 marks) (Max 10 lines) (8 min)
Q6. Poco Merchandising anticipated selling 30,000 units of a major product and paying
sales commissions of $7 per unit. Actual sales and sales commissions totalled 32,500
units and $185,700, respectively. What would be the cost variance, if the company
used a static budget and a flexi budget for performance evaluations? (4 marks) (10
min)

Q7. Creta’s makes all sales on account, subject to the following collection pattern: 22% in
the month of sales, 23% in the first month after sales, 44% in the second month after
sales, and 10% in the third month after sales. (1% is not collected). If sales were
65000, 75000, and 85000 respectively for the month of July, August and September.
Calculate the budgeted collection for August and budgeted receivables outstanding on
30 September? (18 marks) (20 min)

Q8. Coffee Platch is an espresso stand in a downtown office building. The average selling
price of a cup of coffee is 2.39 and the average variable expense per cup is 0.47. Other
information are as follows:
i. The average fixed expense per month is 1255.
ii. The target profit for the month is 2600.
iii. Sales increases by 15%

Determine the following:

a. Cups of coffee would have to be sold to attain the target profit.
b. Sales revenue that must be generated to attain the target profits
c. CM per unit
d. CM ratio
e. BE in units
f. BE in sales
g. MOS in Units
h. MOS ratio
i. MOS
j. OL
h. Increase in profit %
(18 marks) (20 min)

Q9. Avenger’s Inc. began operations on January 1 of the current year with a $25,000 cash
balance. 40% of sales are collected in the month of sale; 60% are collected in the month
following sale. Similarly, 45% of purchases are paid in the month of purchase, and 55%
are paid in the month following purchase. The following data apply to January- Sales
$75000, purchases $60000 and operating expenses- $9000 and February – Sales $
80000, purchases $65000 and operating expenses - $18000. If operating expenses are
paid in the month incurred and include monthly depreciation charges of $5000,
determine the change in Avenger's cash balance during January and February month
separately and the cash balance at the end of January and February. (10 marks) (10
min)
Q10. Look at the following data:
 Service departments Operation departments
Admin Bacs Accounting others
Department Rs 180000 Rs 90000 Rs 190000 Rs 900000
cost before
allocation
No. of 15 10 20 80
employees
No. of PCs 2 20 18 102

Other information is as follows: Bacs: Business administration computer services

What are the service departments? Show the allocation bases with respect to the service
departments. Then, rank the service departments for step down method of redistribution
of OH. Give proper reasons for your ranking of service departments. (8 marks) (10
min)

Q11. The following data relate to the manufacture of a standard product during a four week
period ending June 30, 2019: (in ) Rs.
DM 3000
Wages 7000
Machine hours worked 1000
Machine hour rate 0.50
Office OH @ 20% on work cost
Selling OH per unit 0.06
Units produced 20000
Units sold @ Re. 1 per unit 17000
Prepare a cost sheet for total and per unit; and profit total and per unit (10 marks) (10
min)

Q12 to 19. (12marks) (30 min)

Q12 Moyas Corporation sells a single product for $20 per unit. Last year, the company's
sales revenue was $230,000 and its net operating income was $39,000. If fixed
expenses totaled $76,000 for the year, the break-even point in unit sales was:
A) 1,500 units
B) 5,750 units
C) 13,450 units
D) 7,600 units

Q13. Purves Corporation is using a predetermined overhead rate that was based on estimated
total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the
period. The company incurred actual total fixed manufacturing overhead of $113,000
and 10,900 total direct labor-hours during the period. The predetermined overhead rate
is closest to
A) $10.37
B) $12.10
C) 11.10
D) 11.30
Q14. Which of the following is the correct formula to compute the predetermined overhead
rate?
A) Predetermined overhead rate = Estimated total units in the allocation base ÷
Estimated total manufacturing overhead costs
B) Predetermined overhead rate = Estimated total manufacturing overhead costs ÷
Estimated total units in the allocation base
C) Predetermined overhead rate = Actual total manufacturing overhead costs ÷
Estimated total units in the allocation base
D) Predetermined overhead rate = Estimated total manufacturing overhead costs ÷
Actual total units in the allocation base.

Q15. The Silver Corporation uses a predetermined overhead rate to apply manufacturing
overhead to jobs. The predetermined overhead rate is based on labor cost in Department
A and on machine-hours in Department B. At the beginning of the year, the
Corporation made the following estimates:
Department A Department B
Direct labor cost $ 60,000 $ 40,000
Manufacturing overhead $ 90,000 $ 45,000
Direct labor-hours 6,000 9,000
Machine-hours 2,000 15,000

What predetermined overhead rates would be used in Department A and Department B,

respectively?
A) 67% and $3.00
B) 150% and $5.00
C) 150% and $3.00
D) 67% and $5.00

16. Mishoe Corporation has provided the following contribution format income statement.
Assume that the following information is within the relevant range

Sales (1,000 units) $50,000

Variable expenses 32,500
Contribution margin 17,500
Fixed expenses 12,250
Net operating income $5,250
The break-even point in unit sales is closest to: (Round your intermediate
calculations to 2 decimal places.)
A) 0 units
B) 895 units
C) 700 units
D) 650 units
Q17 A partial listing of costs incurred during March at Febbo Corporation appears below:
Factory supplies $ 9,000
Administrative wages and salaries $ 85,000
Direct materials $ 126,000
Sales staff salaries $ 30,000
Factory depreciation $ 33,000
Corporate headquarters building rent $ 43,000
Indirect labor $ 26,000
Marketing $ 65,000
Direct labor $ 99,000
The total of the period costs listed above for March is:
A) $68,000
B) $293,000
C) $291,000
D) $223,000

Q18. Sabv Corporation's break-even-point in sales is $960,000, and its variable expenses are
75% of sales. If the company lost $46,000 last year, sales must have amounted to:
A) $914,000
B) $868,000
C) $776,000
D) $674,000

Q19. Awtis Corporation has a margin of safety percentage of 25% based on its actual sales.
The break-even point is $294,000 and the variable expenses are 45% of sales. Given
this information, the actual profit is:
A) $78,400
B) $53,900
C) $14,700
D) $40,425