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Name:______________________________ Student Number: _____________________ Section:_____________________________

YORK UNIVERSITY Atkinson Faculty of Liberal & Professional Studies ADMS2510 3.0 Final Examination Winter 2005: 13th April 2005: 7-10 pm Instructions: A: B: C: D: E: F: G: H: I: J: This is a closed book examination and no collaboration is allowed. There are four compulsory questions worth 25 marks each. Put your name and student number at the top of this page. Answer each question on the examination paper. You may write with a pencil or a pen. Place photo identification on your desk during the examination to facilitate verification. Marks will be posted to the course website as soon as they are available. You are allowed to use a simple calculator. You are allowed to use a dictionary. Show all workings.

Question 1: (25 marks: allow about 45 minutes): You have been hired by the President of Electric Motors & Computing Corp. (EM&CC) to provide advice on 3 issues. EM&CC has a number of divisions, each with their own manager. The following information is taken from the 2003 accounting records of East Coast Marketing, a division of EM&CC. Sales $12,000,000 Variable costs 4,000,000 Contribution margin $ 8,000,000 Direct fixed costs 5,000,000 Segment income $ 3,000,000 ========= At the beginning and end of 2003, East Coast Marketing had total assets of $6,000,000 and $4,000,000 respectively. Required: Issue 1: (8 marks) 1a) Compute the asset turnover ratio (3 marks)

1b)

Calculate the profit margin ratio (based on segment income) (2 marks)

1c)

Calculate the return on investment (3 marks).

Issue 2: (11 marks): The Cambridge Division of EM & CC manufactures circuit breakers. The company evaluates managers on the basis of both financial and non-financial results. The following data relate to the throughput of the Cambridge plant: Units started into production: Good units completed: Total production hours: Value-added production hours: Required: 2a) Calculate the manufacturing cycle efficiency (2 marks): 350,000; 300,000; 20,000; 17,500.

2b)

Calculate the process productivity (3 marks);

2c)

Calculate the process quality yield (3 marks):

2d)

Calculate the throughput per hour (3 marks):

Required: Issue 3: (6 marks) The President wants to know how the compensation plan that is used to provide annual pay increases to managers should relate to the overall goals and objectives of EM & CC.

Question 2 (25 marks: allow about 45 minutes) The Gasket Division is an autonomous division of Precision Parts Inc. It is producing 120,000 gaskets per month, which represents full capacity utilization. All its production is sold to outside buyers. The Rebuilt Engine Division of Precision Parts Inc is negotiating to buy 20,000 gaskets from the Gaskets Division. These are in various sizes and shapes, but one commonly used gasket (type XL5) is being used to set the transfer price. The outside purchase price of XL5 is $7.50. The Gasket Divisions cost estimates for XL5 are as follows: Direct materials: Direct labour: Fixed manufacturing overhead: Variable selling costs: Fixed selling costs: Fixed administrative costs: $2.00 1.00 0.60 1.80 0.80 0.30

The variable selling costs are mostly commission paid to sales representatives. This would not be incurred on an internal sale. Required: a) What would be a fair transfer price for the Gasket Division to supply product XL5 to the Rebuilt Engine Division (explain why it is fair)? (5 marks)

b)

What would be a fair transfer price for the Rebuilt Engine Division to buy product XL5 from the Gasket Division (explain why it is fair)? (5 marks)

c)

Should the management of Precision Parts Inc. take any action in respect of the transfer price or the sourcing of these gaskets, and if so, what and why? (5 marks)

d)

If the Gasket Division had excess capacity, in what ways would your answers to (a) (b) and (c) above change? (5 marks)

e)

Define an avoidable cost, and give one example (5 marks)?

Question 3: (25 marks: allow about 45 minutes) Kline Co. makes a product that has a variable production cost of $15 and a selling price of $65. Variable selling costs per unit are $7.50. Fixed manufacturing costs total $250,000 and fixed selling costs total $175,000. The companys tax rate is 40%. The product requires 10 kg of steel. Steel costs $1.50 per kg. The production plan for the next three months is: May: 12,000 units; June: 15,000 units; July: 20,000 units. They always plan to have enough raw materials inventory on hand at the start of each month to manufacture all of that months output. Required: a. Kline Co. wants to earn $212,500 before taxes. How many units must it sell? (5 marks)

b.

Kline Co. wants to earn $255,000 after taxes. How many units must it sell? (5 marks)

c)

What is the cost of raw material budgeted to be purchased in the month of June? (5 marks)

d)

If normal production is 12,500 kg per month, what is the standard manufacturing cost per unit produced? ( 5 marks)

e)

If, in the month of May actual production was 10,000 units, and 100,000 kg of steel costing $180,000 was used, what was the material price variance? (5 marks)

Question 4: (25 marks: allow about 45 minutes) Chips For You manufactures microchips for computers. They use the weighted average method of process costing. All their manufacturing activities are treated as a single process for accounting purposes. The following data refers to the first two months of 2005: January Direct material used: Direct labour incurred: Total manufacturing costs: $420,000 380,000 $800,000 February $420,000 380,000 $800,000

There was no WIP inventory at the beginning of January. In January 10,000 chips were started into production and 10,000 good chips were produced and sold. There was no closing inventory at the end of January. There was no opening WIP inventory at the beginning of February. In February 10,000 chips were started into production, but only 9,000 were completed. The remaining 1,000 chips were complete in respect of materials, but only 50% complete in respect of conversion costs. Required: a) Prepare a production report for January 2005 (10 marks)

b)

Prepare a production report for February 2005 (15 marks)