Midterm Mock Exam

(BBA 18 Actual Midterm Exam Paper)

Q1. Value Chain Cost Analysis (10 marks)

General Motors incurs the following costs on Chevrolet Camaro (Car). Classify each of the cost
items into one of the business functions of the value chain: Research and development; Design
of products and processes; Production; Marketing and sales; Distribution; Customer service.
After classifying the cost identify an appropriate cost driver for each of the cost item.
a. Electricity costs for the plant assembling the Chevrolet Camaro. Production, the number
of cars that are being assembled.
b. Transportation costs for shipping the Camaro to dealers. Distribution, the number of
cars that are being transported to the dealers
c. Payment to Shelby Designs for the design of the Camaro. Design of products and
processes, type of design of the car or the number of cars that are designed.
d. Salary of an engineer working on the next generation of Camaros to be launched in
future. R&D, the number of engineers working on the car, the number of cars being
launched.
e. Cost of GM employees' visit to an auto show to demonstrate the Camaro. Marketing
and Sales, the number of employees demonstrating the car.
f. Cost of Testing each one of the Camaro produced at the GM track. Customer Service,
the number of cars being tested.
g. Payment to television network for running Camaro advertisements. Sales and
Marketing, number of advertisements running on the TV.
h. Cost of brake pads purchased from outside supplier to be installed on the Camaro.
Production, The number of cars prepared, the number of break pads installed.
i. Cost of the team handling the customer complaints, queries and issues Customer
Service, number of customers being answered, the number of employees working in
the team
j. Cost of the steel used in making the car. Production, the number of cars produced, the
number of steel used to produce the car.

Q2. Cost Terminology (10 Marks)

The following are costs of Harley-Davidson, a manufacturer of Motorcycles. Categorize each
cost as 1. Product or Period, 2. Direct Material (DM), Direct Labour (DL), Manufacturing
Overhead (MOH), or Expenses 3. Variable or Fixed.
a. 1200 cc engine used in each motorcycle. Product, DM, Variable
b. Company CEO’s Salary Period, Exp, Fixed
c. Sales commission paid on each motorcycle sold Period, Exp, Var
d. Depreciation of the plant equipment Period, EXP, Fixed
 e. Salary of the team checking for any blemishes on the finished motorcycles Period, DL,
Fixed
f. Cleaning material used in the daily clean-up of the plant Product, MOH, Var
g. 2 tyres used for each motorcycle Product, DM, Variable
h. Product plant supervisor salary Period, EXP, Fixed
i. Production plant assembly line worker wages Period, DL, Variable
j. Depreciation on marketing manager’s car Period, Exp, Fixed

Q3. Cost Flow Analysis (10 Marks)

The following data are for Marvin Department Store. The account balances (in thousands) are
for 2017.
 Marketing and distribution costs $ 14,000
 Customer-service costs $ 37,000
 Merchandise inventory, January 1, 2017 $ 27,000
 Store Utilities $ 17,000
 General and administrative costs $ 43,000
 Merchandise inventory, December 31, 2017 $ 34,000
 Merchandise Purchases $ 160,000
 Miscellaneous Purchase costs $ 4,000
 Transportation-in $ 7,000
 Purchase returns and allowances $ 4,000
 Purchase discounts $ 6,000
 Revenues $ 300,000
Required:
a. Compute the cost of goods purchased (2 mark) FG Purchases = COGP (Purchased) +
Transportation Cost – Discount -Returns = 160,000+7000-4000-6000 = 157,000

b. Compute (a) the cost of goods sold (3 marks) Opening FG + COGP – Closing FG =
27000+157000-34000 = 150,000
c. Calculate the expenses for 2017. (1 mark) 115,000
d. Calculate the net income for 2017 if the tax rate is 25%. (2 marks) 26,250. Income
statement
e. Explain how the cost flow of Marvin Department Store is different from a firm that
would manufacture and sell the product. (2 marks) The difference is in the
manufacturing company there is there are Direct Material, Direct Labour and
Manufacturing Overhead. In the manufacturing company there is work in progress
inventory where as there is no work in progress inventory.
Q4. CVP Analysis (15 Marks)
National Training, Sydney recently started a business providing training events for corporations.
In order to better understand the profitability of the business, the owners asked you for an
analysis of costs for each training session. You have the following cost information:
 Trainer: $5,000 per session
 Venue: $5,000 per session plus $10 per attendee
 Materials: $2,500 per session plus $35 per attendee
 Catering Costs (subcontracted):
o Food: $75 per attendee
o Setup/cleanup: $25 per attendee
o Fixed fee: $5,000 per training session
National Training is pleased with the service they use for the catering and have allowed them to
place brochures on each dinner table as a form of advertising. In exchange, the caterer gives
National Training a $1,000 discount per session. When the Training is offered outside Sydney,
the Trainer Cost increases by additional $2,500 and the material cost also increases by $15 per
attendee.
Required:
a. Identify the cost object and an appropriate cost driver for National Training (2 mark)
Customer Service, Number of events taking place.
b. Compute the FC for Sydney and outside Sydney training event (2 Mark).FC for within
will be 16,500. FC for outside 19,000
c. Calculate the VC per attendee for training events in Sydney and outside Sydney (2
marks) VC for within 145 and VC for outside 160
d. If the attendee is required to pay $400 to attend the training event held in Sydney,
calculate the Break-Even Quantity and Break-Even Revenue for training event organised
in Sydney. (3 marks) SP = 400 (in Sydney) BEQ = FC/SP-VCPU = 16,500/400 – 145 = 65.
BER = BEQ * SP = 65 * 400 = 26,000
e. If the attendee is required to pay $500 to attend the training event held outside Sydney,
calculate the Quantity and Revenue to obtain a net profit of $5000 for training event
organised outside Sydney (20% Tax Rate). (3 marks) SP = 500 (outside Sydney) Consider
x as Operating Expense x- 20%(x) = 5000, = 5000/x = 80/100, = 6250, FC/SP-VCPU =
6250+19000/500-160 = 25250/340= 75, BEQ = 75, BER = SP * BEQ = 75 * 500 = 37500
f. Determine the quantity of ticket sales at which the net profit is equal to 20% of the sales
revenue for an event organised outside Sydney. (3 marks)

Q5. Absorption Costing & Variable Costing (15 Marks)

Jarvis Golf Company sells a special putter for $50 each. In March, it sold 28,000 putters while
manufacturing 30,000. There was 1000 special putter inventory on March 1. Production
information for March was:
 Direct manufacturing labor per unit 15 minutes
Fixed selling and administrative costs $ 40,000
Fixed manufacturing overhead actual $ 132,000
Direct materials cost per unit $ 20
Direct manufacturing labor per hour $ 24
Variable manufacturing overhead per unit $4
Variable selling expenses per unit $2

Jarvis uses labour hour as denominator level and estimated labour hours per year is 72,000
hours and estimated fixed manufacturing overhead is $120 000 per month.

Required:
a. Calculate the FMOH application rate per unit. (2 mark)
b. Calculate the total cost per unit manufactured under absorption costing approach. (1
mark)
c. Calculate the unadjusted COGS under absorption costing approach. (3 marks)
d. Calculate the adjustment to COGS under absorption costing approach. (1 mark)
e. Calculate the gross margin & operating Income under absorption costing approach. (2
mark)
f. Calculate the variable COGS. (3 mark)
g. Calculate the contribution margin and operating Income under VC approach. (2 mark)
h. Reconcile the AC operating income and VC operating income. (1 mark)