THE UNIVERSITY OF THE WEST INDIES

ST. AUGUSTINE
SALCC St. Lucia & St. Kitts

EXAMINATIONS OF APRIL/MAY 2007

Code and Name of Course: ACCT 1003 (MS 15F) Introduction to Cost & Management Accounting Paper:
B.Sc.

Date and Time: Duration: 2 hrs.

INSTRUCTIONS TO CANDIDATES: This paper has 10 pages and 3 questions.

INSTRUCTIONS:

- This paper contains three questions ALL must be attempted.

- Total marks for examination 75 marks.

- Question 1 consists of 10 multiple choice questions each worth 1 marks. Answer sheets are
provided to record your responses. You are to record your responses by shading the appropriate
letter that matches your answer choice. Only one choice can be made for each question in the
event that you wish to change your answer please completely erase your first answer and shade
your new answer. Ensure that you attach the completed multiple choice answer sheet to the final
examination script.

- Questions 2 and 3 are structured questions, each worth 30 marks.

- Show all workings.

- The use of silent, non-programmable calculators is allowed.

The University of the West Indies Course Code: ACCT 1003 07//

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet), to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20//.. Date: 20//

 page 2
Question One (15 marks)

This question contains 10 multiple choice, each carries 1 marks.

For each of the multiple choice questions select the BEST answer.

1. Which of the following statements is correct?

a. Period Costs are properly inventories on the Balance Sheet

b. Direct Labour is a typical example of a period cost
c. Product costs are expensed as incurred
d. Direct material is a typical product cost

2. The formula for computing the predetermined manufacturing overhead rate is estimated annual overhead
costs divided by an expected annual operating activity, expressed as:

a. Direct labour costs

b. Direct labour hours

c. Machine hours

d. Any of the above

3. Claxton Manufacturing Co. had 800 units in process at the beginning of the current accounting period.
The company started 3,000 units and completed 3,400 units. The number of units started and completed in
the current period were:

a. 2,600

b. 3,400

c. 2,200

d. 3,000

4. Traditionally, overhead has been assigned based on direct labour hours or machine hours. What effect
does this have on the cost of a high volume item?

a. Over-costs the product

b. Under-costs the product

c. Has no effect on the product costs

d. Cost per unit is unaffected by product volume

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 3
5. Multimedia publisher sells a calendar for $6.50. The variable cost per calendar is $3.00 at the current
annual sales volume of 200,000 units. The firm is currently at the break-even point on its calendar sales.

What are the companys fixed costs?

a. $200,000.

b. $600,000.

c. $700,000.

d. $1,300,000.

6. Harrah Company provided the following information for the month of October:

Beginning Cash Balance $ 35,000.

Cash Receipts 460,000.
Cash Disbursements 485,000.

Harrahs policy is to keep a minimum end of the month cash balance of $30,000. How much will Harrahs
need to borrow during August?

a. $20,000.

b. $25,000.

c. $10,000.

d. $0.

7. What is the primary difference between a static budget and a flexible budget?

a. The static budget contains only fixed costs, while the flexible budget contains only variable costs.

b. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for
different levels of activity.

c. The static budget is constructed using input from only upper level management, while a flexible
budget obtains input from all levels of management

d. The static budget is prepared only for units produced, while a flexible budget reflects the number of
units sold.

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 4

8. Truckel Inc. currently manufactures a wicket as its main product. The costs per unit are as follows:

Direct Materials & Direct Labour $ 11.00

Variable Overhead 5.00
Fixed Overhead 8.00
Total $ 24.00

The fixed overhead is an allocated common cost. How much is the relevant cost of the wicket?

a. $24.00

b. $16.00

c. $11.00

d. $19.00

9. Partridge Co. has produced a product with a total unit cost of $60 and a desired ROI per unit of $20. If
Partridge Co.s target selling price is $80, what is its percentage markup on cost?

a. 125%

b. 100%

c. 50%

d. 33.3%

10. Horizontal analysis is a technique for evaluating financial statement data

a. Within a time period

b. Over a period of time

c. On a certain date

d. As it may appear in the future

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 5
Question Two (30 marks)

PART A (10 marks)

Listed below are ten cost items that are found in organizations.

1. Hamburger buns in a Wendys outlet

2. Advertising by a dental office

3. Apples processed and canned by Del Monte

4. Shipping canned apples from a Del Monte plant to customers

5. Insurance on a Bausch & Lomb factory producing contact lenses

6. Insurance on IBMs corporate headquarters

7. Salary of a supervisor overseeing production of printers at Hewlett-Packard

8. Commissions paid to Encyclopedia Britannica salespersons

9. Depreciation of factory lunchroom facilities at a General Electric plant

10. Steering wheels installed in BMWs

Required:

Classify each cost as being either variable or fixed with respect to the number of units produced and sold. Also
classify each cost as either a selling and administrative cost or a product cost.

Guidelines for presentation of candidates answer:

Do not write back the question.
The question is to be answered in the answer booklet not the question paper.
Present your answer using the tabular format as shown below. Place an X in the appropriate columns to
show proper classification of each cost. The data currently on the table is hypothetical and is only there
to guide you in presenting your answer.

COST BEHAVIOR
Selling &
Product
Cost Item No. Variable Fixed Administrative
Cost
Cost
20 X X
21
22

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 6

PART B (10 marks)

Santa Fe Manufacturing uses a FIFO process costing system to accumulate production costs. Selected data
applicable to January of the current year follow.

Beginning work in process inventory: 8,000 units, complete, cost - $17,500

Number of units started in January 20,000

Total units completed 22,000

Ending work in process inventory: 6,000 units, 2/3 complete

Direct materials used in January: $60,000

January conversion cost: $42,000

Required:

i. Compute Januarys equivalent production figures for materials and conversion cost. Materials are added at
the start of the process; conversion costs are incurred evenly throughout manufacturing.

[4 marks]

ii. Compute the equivalent-unit costs for materials and conversion costs.

[3 marks]

iii. Determine the costs of goods completed during January and the ending work in process inventory.

[3 marks]

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 7

PART C (10 marks)

Universal Bats, Inc. manufactures cricket bats that it sells to university athletic departments. Universal has
developed the following per unit standard costs for 2XX7 for each baseball bat:

Manufacturing
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Wood) 1/2 hour 1/2 hour
Standard Price $4.00 $10.00 $6.00
Unit Standard Cost $8.00 $5.00 $3.00

In 2XX7, the company planned to produce 40,000 cricket bats at a level of 20,000 hours of direct labor.

Actual results for 2XX7 are presented below:

Direct materials purchased were 82,000 pounds of wood which cost $344,400.
Direct materials used were 73,000 pounds of wood
Direct labor costs were $187,200 for 19,500 direct labor hours actually worked.
Total manufacturing overhead was $117,000.
Actual production was 38,000 cricket bats.

Required:

Compute the following variances:

i. Direct materials price.

ii. Direct materials quantity.
iii. Direct labor price.
iv. Direct labor quantity.
v. Total overhead variance.

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 8

Question Three (30 marks)

PART A (10 marks)

Voltar Company manufactures and sells a specialized cordless telephone. The companys contribution format
income statement for the most recent year is given below

Percent of
Total ($) Per Unit ($) Sales
Sales (20,000 units) 1,200,000 60 100%
Less variable expenses 900,000 45 ?%
Contribution margin 300,000 $15. ?%
Less fixed expenses 240,000
Net Operating Income $ 60,000.

Management is anxious to improve the companys profit performance and has asked for an analysis of a number
of items.

Required:
i. Compute the companys contribution margin ratio and variable expense ratio.
[2 marks]

ii. Compute the companys break-even point in both units and sales dollars.
[2 marks]

iii. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how
much will the companys net operating income increase? Use the contribution margin ratio to determine
your answer.
[2 marks]

iv. Refer to the original data. Assume that next year management wants the company to earn a minimum
profit of $90,000. How many units will have to be sold to meet this target profit?
[2 marks]

v. Refer to the original data. Compute the companys margin of safety in both dollar and percentage form.
[2 marks]

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 9
PART B (10 marks)
The condensed financial statements of Groves Corporation for 2XX5 are presented below.

Groves Corporation Groves Corporation

Balance Sheet Income Statement
December 31, 2XX5 For the Year Ended December 31, 2XX5

Assets Revenues $2,000,000

Current assets Expenses
Cash and short-term Cost of goods sold 1,020,000
investments $ 60,000 Selling and administrative
Accounts receivable 70,000 expenses 680,000
Inventories 140,000 Interest expense 50,000
Total current assets 270,000 Total expenses 1,750,000
Property, plant, and Income before income taxes 250,000
equipment (net) 730,000 Income tax expense 100,000
Total assets $1,000,000 Net income $ 150,000

Liabilities and Stockholders' Equity

Current liabilities $ 100,000
Long-term liabilities 380,000
Stockholders' equity 520,000
Total liabilities and
stockholders' equity $1,000,000

Additional data as of December 31, 2XX4: Inventory = $100,000; Total assets = $800,000; Stockholders' equity
= $480,000.

Required:

Compute the following listed ratios for 2XX5 showing supporting calculations.

i. Current ratio
ii. Debt to total assets ratio
iii. Inventory turnover
iv. Return on stockholders' equity
v. Return on assets
[10 marks]

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//

 page 10
PART C (10 marks)

The following transactions were undertaken by Odessa Corporation during the year 2XX1.

1. Sold for $194,000 used machinery with a book value of $128,000.

2. Issued common stock for cash, $300,000.

3. Purchased land to be held for future expansion, $550,000.

4. Paid off a long-term $180,000 note payable plus interest of $19,000

5. Purchased machinery, giving $80,000 cash and a two year, 12% note payable for $180,000

6. Purchased Odessa Corporation common stock to be held as treasury stock paying $172,000.

7. Sold long-term bond investment, with a book value of $192,000, for $212,000, including $10,000 accrued
interest.

8. Purchased common stock of Koshina Corporation to be held as a long-term investment, paying $360,000.

9. Issued bonds payable at par value for $1,200,000.

10. Declared and paid cash dividends of $170,000.

11. Purchased and retired 20,000 shares of Odessa Corporation $20 par value preferred stock for $194,000.

Required:

Prepare the net cash flow from investing activities section of Odessa Corporations Statement of Cash Flows.

END OF EXAMINATION

The University of the West Indies Course Code: ACCT 1003 07/..../...../

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

.. ..
First Examiner University Examiner

.. ..
Second Examiner External Examiner (where applicable)

Date: 20// Date: 20//