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COMMERCE 354
SAMPLE MIDTERM #2
EMCK Corp
15 minutes 20 MARKS
Bogus Inc
45 minutes 50 MARKS
Boulder Ltd
15 minutes 20 MARKS
Cociente Extension
15 minutes 20 MARKS
NOTE: You can refer to the original Cociente Question we covered in class for the last
question.
2008
25,000
20,000
2009
25,000
30,000
2. Calculate the breakeven point for 2008 using the familiar formula from Cost-Volume Profit
Analysis 5 Marks):
3.Comment on any discrepancies between your answer to 2 and your answer to 1 for 2008
using concepts acquired in Commerce 354. 5 Marks
Question2:BogusCompany(45Minutes)
TheBogusCompanybuildstwolinesofmousetraps,BetterTrapsandBestTraps.ThepopularBetter
Trapslinerepresentsafairlysimpletrap(withonlytwoworkingparts),whiletheBestTrapshave4
workingpartsandtrapmicemorehumanely.BetterTrapssellfor$5.60;BestTrapssellfor$5.90each,
andpricingpoliciesaimtoearna15%returnabovefullcost.
ThoughthecompanyonlyrecentlydevelopedandbeganthemanufactureofBestTraps,salesofthis
productarerapidlyincreasing.Incontrast,salesofBetterTrapshavebeensomewhatsluggish.
Productiontakesplaceintwostages.Inthefirststage,inahighlyautomatedprocess,thecomponents
ofthemousetrapsareproducedandassembledtogether.Inthesecondstage,themousetrapsare
inspectedandfinished.
Lastyear,theBogusCompanyusedasingleoverheadcostpooltoapplyoverheadcostsusingdirect
labordollarsastheactivitybase.Thisyear,thecompanyisconsideringswitchingtoseparate
departmentalrates,onefortheAssemblyDepartmentandonefortheFinishingDepartment.Overhead
inAssemblyDepartmentwillbeallocatedbasedonmachinehoursinthatdepartment,whileoverhead
intheFinishingDepartmentwillbeallocatedbasedondirectlaborcostsincurredinthatdepartment.
Forecastedcostsandactivitybasesareasfollows:
Assembly
Finishing
Directlaborcost
$60,000
$84,000
ManufacturingOverhead
$182,000
$96,000
Directlaborhours
3,000
4,200
Machinehours
6,000
2,000
Someproductinformationthatmayormaynotbeusefultoyouisasfollows:
BetterTrap
BestTrap
DirectMaterials/Trap
$0.50/trap
$0.75/trap
DirectLabor/trap
$1.50/trap(.625inAssembly,
$1.50/trap(.625inAssembly,
.875inFinishing)
.875inFinishing)
MachineHrs/trap
.1hrs
.15hrs
=(.05hrsinAssembly,.05hrsin =(.09hrsinAssembly,.06hrsin
Finishing)
Finishing
a)Provideanumericalanalysisoftheoriginalsinglepoolcostsystem,andtheproposedcostsystemat
Bogus.(20marks20minutes)
b)Doyouthinkthecompanywouldbenefitfromseparatedepartmentalrates?Explaincarefullyand
clearlywhyorwhynotandrelateyouranswertoSeligram.(15marks)
c)Ananalysisoftheoverheadintheassemblydepartmentrevealsthattheassemblycostpoolscontains
thefollowingitems:
$55,000
DepreciationonMachines,calculatedusingthestraightlinemethod;the
machinesneedquarterlymajormaintenance,andneedtobereplaced
afterbeinginactiveproduction12,500hours
$12,000
4hourstwiceperweek@30$perhourtoswitchproductionfromBetter
toBest(currently,thissetuptakesplaceonThursdaymorningandFriday
lateafternoonallowingfor8hoursofproductionofBestTraps)
$80,000
Assemblysupervisor
$15,000
Quarterlymaintenanceofmachines
$40,000
Otheroverheadcostthatthesupervisorbelievesarevariableinnature.
Required:Comment,insightfully,ontheseoverheadcomponents.Howdoesthisinformationaffect
yourassessmentofthedepartmentalsystem.Wouldyoumakefurtherchangestothecostingsystem?
(15Marks)
100,000
150,000
Patent
Building
Vehicles
250,000
300,000
350,000
50,000
1,200,000
Factory Insurance
Gross Margin
(200,000)
(275,000)
LOSS
(475,000)
They have no capacity constraint since the building is large and the equipment is low
technology. In fact the equipment has no market value and is fully depreciated.
The CEO has done a quick calculation and estimates the cost per unit at $24 ($1,200,000/
#50,000). This is hopeless since I know I cant raise the selling price. I could drop the selling
price to $19 and I know we could get about #70,000 units in sales but how does that make
sense when compared to the $24 cost?
You have been hired by the CEO to provide a recommendation for the upcoming year for
Boulder Ltd. As the consultant to the CEO, thoughtfully respond to his concerns and ideas.
Support your recommendation with calculations.
Year
Logs Bought
& Processed
E.F.
Sales in
Board Meters
2007
15,000
33.9
85
508,500
2008
18,000
34.6
88
622,800
2009
21,600
33.8
90
730,080
2010
25,000
35.0
98
875,000
2011
30,000
33.8
98
1,014,000
2012
35,000
34.5
98
1,207,500
Average
24,100
34.3
92.8
826,313
Management has the opportunity to renovate the factory at a cost of $99,000. The
accountant has decided that this would be amortized over 11 years. The production
manager knows that with the renovation he could lease large machines with annual
capacity of #20,000 units each. These would be annual leases at a rate of $190,000 per
large machine. There is ample room in the factory for more machines.
There would be a $13,000 safety training session required before Cociente employees
could use the large machines.
In 2010 Cociente began selling to Japan and now has a demand constraint estimated at
#2,000,000 board meters per year.