PART A PART B PART C

1. The globalization of business activity has resulted in which of the following?
a. Increased corruption and unethical behavior.
b. The FASB and IASB working jointly on a project to converge accounting standards.
c. The requirement that major Canadian companies use International Financial
Reporting Standards.
d. All of the above.
e. b and c.
2. The manipulation of the allowance for doubtful accounts by management would be best
indicated by when a company:
a. tightens its credit standards and the allowance account decreases.
b. lowers its credit standards and the allowance account decreases.
c. tightens its credit standards and the allowance account increases.
d. lowers its credit standards and the allowance account increases.
3. The best measure for determining how well a firm operates within its industry is
a. Gross Profit
b. Operating Profit
c. Earnings before Taxes
d. Net profit
4. A change in retained earnings from one year end to the next can result from cash flows
related to both operating and financing activities. (True/false)
5. Consider the following statements
I. The cash conversion cycle of a firm can be improved by decreasing the days inventory
held and days payable outstanding, while decreasing the average collection period.
II. The DuPont System helps the analyst see how a firm’s decisions and activities over an
accounting period interact to produce return on equity.
a.
b.
c.
d.

Only Statement I is true.
Only Statement II is true.
Both Statements I and II are true.
Both Statements I and II are false.

6. How should a company report total comprehensive income?
a. On the face of its income statement.
b. In a separate statement of comprehensive income.
c. In its statement of stockholders' equity.
d. All of the above ways are acceptable.

7. Currently, management accounting information within government and nonprofit
organizations is in greater demand because:
a. public and private donors are demanding accountability
b. citizens are requesting responsive and efficient performance from their governing
units
c. more nonprofit organizations are competing for limited funds
d. All of the above are correct.
8. The measurement of the objectives for the Balanced Scorecard
a. creates focus for the future.
b. communicates an important message to all employees.
c. focuses the entire organization on strategic implementation of company’s outcomes.
d. All of the above are correct.
9. The strategy MOST LIKELY to reduce the break-even point would be to:
a. increase both the capacity-related (fixed) costs and the contribution margin per unit.
b. decrease both the capacity-related (fixed) costs and the contribution margin per unit.
c. decrease the capacity-related (fixed) costs and increase the contribution margin per
unit.
d. increase the capacity-related (fixed) costs and decrease the contribution margin per
unit.
10. The major reason for using practical capacity as the denominator for activity driver
calculations is to:
a. avoid distortions created by the assignment of unused capacity costs to the products
produced or customers served.
b. simplify the calculations of the activity cost drivers.
c. reduce the cost of unused capacity.
d. place less emphasis on the cost of unused capacity.
11. An activity-based costing system is most useful when:
a. Operations throughout the plant are fairly similar.
b. There are small amounts of overhead costs.
c. Products produced in the company all show large profits.
d. Products make diverse demands on resources because of differences in volume,
process steps, batch size, or complexity.
12. Which of the following is NOT an option to transform breakeven or loss customers into
profitable ones?
a. Use more discipline in granting discounts and allowances.
b. Improve the process used to produce, sell, deliver and service the customer.
c. Use less menu-based pricing that allows customers to select features and services it
wishes to pay for.
d. Improve margins by lowering costs.

13. A performance measurement system should accomplish all of the following except:
a. communicate the company’s strategy.
b. motivate employees to achieve strategic objectives.
c. identify financial measures to evaluate an organization’s intangible assets.
d. help managers allocate resources to the most productive alternatives.
14. Committed costs are those that the organization agrees must be set aside to cover product
costs through the three major stages of the life cycle. (True/False)
15. Budgeting provides all of the following EXCEPT:
a. a means to communicate the organization's short-term goals to its members
b. support for the management functions of planning and coordination
c. a means to anticipate problems
d. an ethical framework for decision making

Part B - Short Answer (10 questions; 50 marks). Please highlight your answers and show
your work to receive partial credit for incorrect answers.
1. (2 marks) Assume that Zebra Company has no opening inventory. The following purchases
of inventory occurred during the year:
Date
Purchases (units)
Jan 2
2
Feb. 15
3
March 30
4
July 29
6
October 30
5

Purchase Price per Unit
$3
$5
$7
$6
$4

Assume Zebra sells 10 items on October 31 and uses the LIFO method of inventory
valuation.
Required: What amount would appear as cost of goods sold on the income statement?
2. (5 marks) The following calculations have been made for Rogers Company:
Growth Rate
2012 to 2013
10.5%
21.3%
2.6%

Net sales
Total accounts receivable
Allowance for doubtful accounts
2013
Allowance for doubtful accounts as a
percentage of total accounts receivable

2012

3.8%

5.4%

Required: Analyze the accounts receivable and allowance for doubtful accounts changes
and provide plausible explanations for the results.

3. (5 marks) Analyze the common size income statements below:
Net sales
COGS
Gross margin
Research and development
Selling, general and administrative
Restructuring, asset impairments and other charges
Income from operations
Interest expense
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Sales revenue increase, 2012 to 2013
Operating expense increase, 2012 to 2013

2013
100%
54
46
14
5
1
26
(1)
25
8
17%

2012
100%
63
37
20
9
8
0
(2)
(2)
0
(2)%

80%
31%

4. (7 marks) Yak Corporation reported the following information:
(1)
Net income for the year was $52 million.
(2)
Purchases of equipment were $12 million.
(3)
Customer accounts receivable decreased by $6 million.
(4)
Dividends paid to common shareholders were $10 million.
(5)
Depreciation expense was $18 million.
(6)
Income tax payable decreased by $3 million.
(7)
Long-term debt decreased by $14 million.
(8)
Accounts payable increased by $8 million.
(9)
Inventories decreased by $5 million.
(10) Opening cash balance was $4 million.
Required: Based on the above information, calculate the ending cash balance.

5. (4 marks) Able Manufacturing uses departmental cost driver rates to allocate manufacturing
support costs to products. Manufacturing support costs are allocated on the basis of
machine hours in Department A and on the basis of direct labor hours in Department B. At
the beginning of 2013, the following estimates were provided for the coming year:
Dept. A
Direct labor cost
$600,000
Manufacturing overhead costs $400,000
Direct labor-hours
25,000
Machine-hours
10,000

Dept. B
$1,800,000
$600,000
60,000
12,000

The accounting records of the company show the following data for Job #123:
Direct labor-hours
Machine-hours
Direct material cost

Dept. A
10
2
$100

Dept. B
20
15
$200

Required: Calculate the total manufacturing costs of Job #123.
6. (6 marks) Pete’s Publishing, Inc. has excess capacity. Company management is
approached by a new customer to fill a large one-time order for 1,000 books, a product
similar to one offered to regular customers. The following information applies to sales to
regular customers:
Sales (100,000 units)
Direct materials
Direct labor
Variable manufacturing support
Fixed manufacturing support
Total manufacturing costs
Profit

$12,000,000
$5,000,000
4,000,000
500,000
200,000
9,700,000
$2,300,000

Required: What is the minimum acceptable price at which overall profit will not change?
7. (3 marks) Bob’s Boots Ltd. manufactures three different products –boots, slippers, and
runners. Considerable market demand exists for all models. The following per unit data
apply:
Boots
Selling price
$150
Direct materials
100
Direct labor ($20 per hour)
20
Variable support costs ($4 per machine hour) 10
Fixed costs
8
Gross profit
12

Slippers
$20
8
5
2
4
1

Runners
$85
40
10
12
20
3

Required: If there is no excess capacity, what should the company do to maximize profits?

8. (8 marks) Engineers at Jones & Smith Ltd. developed the following standard costs for direct
material and direct labor for one of their major products:
Direct materials
Direct labor

Standard quantity
10 kilograms
0.5 hours

Standard price
$5 per kilogram
$30 per hour

During 2013, the company produced and sold 100,000 units using 990,000 kilograms of
direct materials at an average cost of $4.95 per kilogram,and total direct labour costs of
$1,428,000 (51,000 DLHs incurred).
Required: Calculate the 2013 price and quantity (efficiency) variances, and total variances,
for direct material and direct labour.
9. (5 marks) Mercury Manufacturing produces a single product that sells for $30. Variable
(flexible) costs per unit equal $20. Management believes that a 5% reduction in the selling
price will result in a 15% increase in unit sales, currently 10,000 units. The company
expects the total capacity-related costs to rise from $10,000 to $15,000 to accommodate
the required increase in production if this proposed reduction in selling price is
implemented.
Required: What will happen to profits?
10. (5 marks) Marcel’s Manufacturing, Inc., is considering reorganizing its plant into
manufacturing cells. The following estimates have been prepared to evaluate the benefits
from the reorganization:
Before the change
After the change
Total annual sales
$600,000
$800,000
Costs as a percentage of sales:
Direct materials
23%
20%
Direct labor
9%
7%
Manufacturing Support costs
18%
13%
Work-in-process inventory
$125,000
$ 90,000
Inventory carrying costs are estimated to be 10% per year.
Required: Calculate the amount that total benefits are projected to increase annually as a result
of switching to a cellular manufacturing operation.

Part C – Problems (3 problems, 65 marks in total). Show your work to receive partial
credit for incorrect answers.
Problem 1 (14 marks)
Over the years, Donna Dow has been a very successful investor. She investigates a company
thoroughly before purchasing its shares. Donna is interested in the common stock of IBU
Computers Limited. The following data are available for the company:
Current ratio*
Acid-test ratio
Accounts receivable turnover
Inventory turnover
Current liabilities
Sales
Gross Profit Ratio
Dividends paid per share**
Dividend yield ratio
Dividend payout ratio
Return on total assets
Return on common stockholders’ equity

2013
1.9
1.1
3.6X
4X
$1M
$10M
30%
$4
5.5%
40%
10%
8%

2012
2.0
1.0
3.5X
5X
$1M
$10M
30%
$3
5.5%
40%
12%
14.5%

2011
2.1
.9
3.0X
6X
$1M
$10M
30%
$2.50
5.5%
40%
8%
9%

* Current assets consist of cash, accounts receivable, and inventory.
**There were no changes in common stock outstanding over the three-year period.
Donna would like answers to a number of specific questions regarding this data. Respond in a
complete but concise manner to each of her questions.
1. Is the market price of the company’s stock going up or down?,
2. Is the earnings per share increasing or decreasing?
3. Is the company employing financial leverage to the advantage of the common
stockholders?
4. Is it becoming easier for the company to pay its bills as they come due?
5. Are customers paying their bills at least as fast now as they did in Year 1?
6. Is the total of accounts receiving increasing, decreasing, or remaining constant?
7. Is the level of inventory increasing, decreasing, or remaining constant?

Problem 2 (16 marks)
AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cash
needs for the month of January, 2013. In the past, AudioFile has had to borrow money during
the post-Christmas season to offset a significant decline in sales. The following information has
been assembled to assist in preparing a cash flow forecast for January.
a. January 2013 forecasted income statement:
Sales
$200,000
Cost of goods sold
150,000
Gross profit
50,000
Variable selling expenses $
10,000
Fixed administrative expenses
20,000
30,000
Forecast net operating income
$ 20,000
b. Sales are 10% for cash and 90% on credit.
c. Credit sales are collected over a three-month period with 40% collected in the month of
sale, 30% in the following month, and 20% in the second month following sale.
November 2012 sales totaled $300,000 and December sales totaled $500,000.
d. 40% of a month’s inventory purchases are paid for in the same month. The remaining
60% are paid in the following month. Accounts payable relate solely to inventory
purchases. At December 31, these totaled $400,000.
e. The company maintains its ending inventory levels at 60% of the cost of the
merchandise to be sold in the following month. The merchandise inventory at
December 31, 2012 was $90,000. February 2013 sales are budgeted at $150,000.
Gross profit percentage is expected to remain unchanged.
f. The company pays a $10,000 monthly cash dividend to shareholders.
g. The cash balance at December 31, 2012 was $30,000; the company must maintain a
cash balance of at least this amount at the end of each month.
h. The company can borrow on its operating loan in increments of $10,000 at the
beginning of each month, up to a total loan balance of $500,000. The interest rate on
this loan is 1% per month. There is no operating loan at December 31, 2012.
Required: Prepare a Cash Flow Forecast for AudioFile for the month of January 2013.
Include appropriate supporting schedules.

Problem 3 (35 marks)
In the past, the Big Dog Carworks Ltd. (BDCL) allocated indirect manufacturing costs based on
direct labour hours. Recently, management has decided to pilot a system of time-driven activitybased costing to allocate these costs. The division produces two small engine models: Basic
and Heavy Duty. The following information has been obtained from the company’s records over
the past year:
Basic
500,000
$40
$30
200,000
2
.1
2,000
.25
30

Units produced
Direct material cost per engine
Direct labour cost per hour
Direct labour hours incurred
Inspections per engine
Inspection time per engine (hrs.)
Engines packed and shipped per
batch
Individual engine packing time (hrs.)
Additional preparation time per batch
(hrs.)

Heavy
Duty
50,000
$60
$30
40,000
4
.3
500
.4
15

BDCL employs 245 employees to perform indirect labour functions, rotating among machine
setups, engine inspections, and shipping. Each employee is paid $50,000 per year on
average, including benefits. On average, each employee works 1,600 hours per year.
200 automated production machines are leased for $14,000,000 in total each year. Each
machine is available for 1,600 hours per year, including set up time. Once a machine is set
up, no labour is necessary to oversee it. Machine-related information for the year is as
follows:

Machining hours per engine
Set up time per run (hrs.)
Number of production runs

Basic
.4
300
100

Heavy
Duty
.6
600
50

Required
a. (7 marks). Determine the amount of indirect manufacturing costs allocated to one
engine of each type (Basic, Heavy Duty) based on the existing cost allocation basis
(direct labour hours).
b. (5 marks) Determine the total cost (direct material, direct labour, indirect manufacturing
overhead) of producing one engine of each type using the existing cost allocation basis.
c. (15 marks) Determine the indirect manufacturing support costs for one engine of each
type using time-driven activity-based costing.
d. (8 marks) Comment on the differences between results calculated in parts b and c.