MID-TERM EXAM

ACADEMY OF
December 2021
POLICY AND DEVELOPMENT
International School of Economics and Finance Management Accounting
Duration: 120 minutes

TEST CODE: 03

Instructions
Please read the instruction carefully before you start.
 There are 3 questions in this paper.
 Each question carries different marks and full marks can be obtained for complete
answers to all the questions.
 There are 10 marks available on this paper.
 A hand-held calculator may be used when answering questions on this paper but it must
not be pre-programmed or able to display graphics text of algebraic equations.
 Other materials are not allowed in the examination.
 Cheating is forbidden and will result in the mark of ZERO.

Note: This is closed-book exam. 1

Question 1: (3.5 points)

Moonphase Manufacturing produces premium juice and uses process costing. There are
two processing departments: Crushing and Packaging. In the Packaging Department,
direct materials are added at the end of the process. Conversion costs are added evenly
throughout each process. The weighted-average method of process costing is used. Data
from November for the Packaging Department are as follows:

Packaging Department

Units:

Beginning work in process: 450 bottles

Transferred in from the Crushing Dept. during November: 1,370 bottles

Completed and transferred out during the period: 1,700 bottles

Ending work in process (70% complete as to conversion work): 120 bottles

Costs:

Beginning work in process $2,302.2

(transferred in cost, $2,025; conversion costs, $277.2)

Transferred in from the Crushing Dept. during November $6,165

Materials cost added during November $2,380

Conversion costs added during November $1,685.2

Requirements

1. Prepare a timeline for Packaging Department. (0.5 point)

2. Prepare a production cost report for the Packaging Department in November.

(3.0 points)

Note: This is closed-book exam. 2

Question 2: (3.5 points)
Grace, Inc. is a consulting firm that offers optimal legal solutions. Grace’s systems
consultants provide direct labor at a rate of $235 per hour. Clients are billed at 170% of
direct labor cost. Last month, Grace 's consultants spent 246 hours on Boswell, Inc.
The president of Grace decides to develop an ABC system to allocate these indirect costs.
She estimates indirect costs for this year amount to $290,000 and the company is
expected to work 11,600 direct labor hours during the year. She identifies three activities
related to the total indirect costs - documentation preparation, travel and information
technology (IT) support. She figures that documentation costs are driven by the number
of pages, travel costs are driven by the number of miles travelled, and IT support costs
are driven by the number of direct labor hours worked. Estimates of the costs and
quantities of the allocation bases follow:

Estimated Estimated quantity

Activity Allocation base
costs of allocation base
Documentation preparation Pages $ 87,000 4,350 pages
Travel Miles travelled $98,600 49,300 miles
IT Support Direct labor hours $104,400 11,600 DLH
Total $290,000
The Boswell job used the following resources last month:
Cost Driver Boswell
Direct labor hours 246
Pages 812
Miles travelled 913

Requirements
1. Compute the cost allocation rate for each activity. (1.0
point)
2. Compute the cost assigned to the Boswell job, using the ABC system. (1.0
point)
3. Compute the operating income from the Boswell job, using the ABC system.
Note: This is closed-book exam. 3
 (0.5 point)
4. Assuming that Grace uses traditional costing method to allocate indirect cost
(based on direct labor hours), calculate the operating income from the Boswell
job. Comment on the results obtained. (1.0 point)

Question 3: (3.0 points)

Raquez Company is an umbrella manufacturer. Raquez sells a product for $17 per unit.
Variable costs are $8 per unit, and fixed costs are $37,800 per year.
Requirements

1. Use the income statement equation approach to compute the number of units Raquez
must sell each year to break even. (0.5
point)

2. Use the contribution margin ratio CVP formula to compute the dollar sales Raquez
needs to earn $18,000 in operating income for 2020.
(0.5 point)

3. Graph Raquez’s CVP relationships. Show the breakeven point, the sales revenue line,
the fixed cost line, the total cost line, the operating loss area, the operating income
area, and the sales in units and dollars when operating income of $18,000 is earned.
(1.0 point)

4. Raquez is considering a quality improvement program that will increase the variable
costs by $2 and the fixed costs by $12,400. Selling price will now be $21 per unit.
Compute the required sales in dollars in order to keep the operating income
unchanged.
(1.0 point)

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Note: This is closed-book exam. 4