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QUESTION

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Spring
1

MBA_C604_S8W1-15_Midcourse_YourLastName_YourFirstInitial

Spring
2

MBA_C604_S8W2-15_Midcourse_YourLastName_YourFirstInitial

Summer
1

MBA_C604_M8W1-15_Midcourse_YourLastName_YourFirstInitial

Summer
2

MBA_C604_M8W2-15_Midcourse_YourLastName_YourFirstInitial

Fall
1

MBA_C604_F8W1-15_Midcourse_YourLastName_YourFirstInitial

Fall
2

MBA_C604_F8W2-15_Midcourse_YourLastName_YourFirstInitial

Where
“15” = 2015

2.
The instructor will make this midcourse assessment available to the class on
the day and in the manner indicated in the course syllabus. Not
later than the due date and time indicated in the course syllabus, (i)
complete the assessment according any further directions stated below and (ii)
submit it in the manner (via the Course Mail tool or RegisNet email using
INsite) set forth in the Facilitator Expectations posting.
Four
problems/questions comprise the midcourse assessment with maximum point values
indicated below:

Topic

Maximum
points possible

Your
points earned

Estimated minutes required to complete

1 – CVP analysis and Contribution Margin method
of presenting operating results

20

20

2 – Manufacturing overhead cost allocation for
product cost determinations

25

25

3 – Financial reporting objective and definitions
of financial statement elements

27

25

4 –
Financial reporting assumptions, principles, and constraints; desired
qualitative characteristic of accounting information (14 items, 2 points
each)

28

20

Total

100

90

Students
must complete this assessment individually,
not in collaboration with others.
The course syllabus sets forth the university’s academic integrity policy and the various sanctions that the
university may impose on students for violations of that policy, including
use of inappropriate sources of information on examinations.

Topic 1 (20 points)
The board of directors of Midwest
Manufacturing Company recently approved the company’s budget and production
plan for its coming fiscal year, 2015.
Budgeted units of production equal budgeted unit sales for the company’s
single product. Using the information
below, included in the budget and production plan:
a.
Compute
the amount of required sales – number of units and dollars – necessary to achieve the company’s budgeted net
income for its fiscal year ended (FYE) December 31, 2015
b.
Prepare
the company’s budgeted income statement for its FYE December 31, 2015 using the
Variable Costing Method (Contribution Margin Format).
Show
all computations in good form and label properly all amounts presented.

Budgeted
amounts:

Budgeted
amounts:

Per
unit

Sales units

?

Product selling price (SP)

$350.00

Sales dollars

?

Variable manufacturing costs:

Fixed costs:

Direct materials (DM)

$73.50

Manufacturing overhead (MOH) costs

$5,250,000

Direct labor (DL)

$61.25

Selling and administrative (S&A) costs

$5,625,000

Manufacturing overhead (MOH) costs

$82.50

Research and development (R&D) costs

$3,750,000

Variable selling and admin. (S&A) costs

$32.50

Net income

$6,000,000

Estimated combined effective tax rate

40.0% (i.e., 0.40)

a.
Amount of required sales – number of units and dollars – necessary to achieve the
company’s budgeted net income for its fiscal year ended (FYE) December 31,
20X6:

b.
Prepare the company’s budgeted income statement for its
FYE December 31, 20X6 using the Variable Costing Method (Contribution Margin
Format)

Midwest Manufacturing
Company

Budgeted Income
Statement

Fiscal year ended
December 31, 20X6

Units:

Per unit:

Total:

Sales

$

$

Variable expenses:

Cost of goods sold

$

$

Total variable expenses

$

$

$

Topic 2 (25 points)
The board of directors of Jupiter Manufacturing
Company recently approved the company’s budget and production plan for its
coming fiscal year (FY). The company
manufactures two products – door latches and door hinges – from a single plant
that comprises four activities – machine setup, fabrication, assembly, and
plant administration. The company uses
the same resources (including machinery and equipment, supervision and
administrative services) to manufacture both products. Management uses the traditional approach to
allocate manufacturing overhead (MOH) costs, based on direct labor hours (DLH)
incurred in its two production departments, to determine the unit cost of each
product. The company’s budget includes
the following MOH allocation and related computations:

Per unit:

Door latches

Door hinges

Selling price (SP)

$23.75

$12.98

Product costs:

Direct material (DM)

$ 6.20

$ 2.70

Direct labor (DL)

7.00

5.50

MOH (A) x (B)

3.87

2.58

Total

$17.37

$10.78

Gross profit (GP)

$ 6.38

$ 2.20

Gross margin (GM) GM = GP / SP (see Note 1 below)

26.9%

16.9%

Budgeted total units of production for fiscal
year (FY)

75,000

225,000

Budgeted batch size (units per batch)

300

1,500

(A) Direct labor hours (DLH) per unit

0.30

0.20

(B) MOH cost per direct labor hour (DLH)

(C)

$12.90

(C)

$12.90

(C) Budgeted FY total MOH cost, $870,000 / Budgeted
FY total DLHs, 67,500

Note 1– Management set the selling prices for its
products to achieve gross margins of 25 percent on latches and 12.5 percent
on hinges, based on its analysis of competitors’ prices and the targeted
return on equity capital set by the company’s board.

Management
is considering adopting the Activity-based Costing (ABC) method to determine
its product unit costs.
a.
Using
the information included in the table below (taken from the company’s budget
and production plan) complete the table according to the ABC method to compute the per-unit MOH cost, total cost, gross
profit, and gross margin of each product.
b.
Describe
briefly the apparent effect that managers’ use of the traditional MOH
allocation method has had on its pricing decisions, compared to using the ABC
method.
The budget and production plan reflect normal
levels of production resource availability and capacity utilization (i.e.,
activity resource consumption) for the company.

a.

Activity

Budgeted MOH cost (Note A)

Activity cost driver (Driver type)

Budgeted level or volume of cost driver

MOH driver rate (dollars)

Consumption of cost driver

Door latches

Door hinges

Hours

Cost

Hours

Cost

Service depts.:

Machine setup

$156,000

Setup hrs (Batch)

1,560

$

4.8

$

2.4

$

Plant admin.

270,000

DLH in both prod. depts. (Unit)

$

0.30

$

0.20

$

Production depts.:

Fabrication

150,000

Machine hrs (Unit)

15,000

$

0.10

$

0.05

$

Assembly

120,000

DLH (Unit)

30,000

$

0.20

$

0.10

$

Total

$696,000

MOH costs:

Total batch-related (above)

$

$

Divide: Budgeted batch size (units)

Batch-related costs per unit

$

$

Total unit-related costs (above)

$

$

Total MOH cost per unit

$

$

Selling price (SP)

$

$

Product costs:

Direct material (DM)

$

$

Direct labor (DL)

$

$

MOH (from above)

$

$

Total

$

$

Gross profit (GP)

$

$

Gross margin (GM)

%

%

Note A: MOH costs include:

Machine setup: Indirect labor of
setup employees and supervision

Plant administration:
Indirect labor of plant manager; human resources and accounting employees;
office equipment and supplies, telecommunications, and contract payroll services

Fabrication: Primarily, costs of machinery and equipment (depreciation,
rent, refurbishments, property taxes, and insurance)

Assembly: Primarily, indirect supervisory labor of
Assembly department production employees

b.
(Limit the length of your response to 100 words)

Replace this text with your
response.

Topics
3 and 4 (55 points)
A. (27 points) Demonstrate your ability to
explain the objective of financial
reporting and to apply the definitions
of financial statement elements to
identify events and transactions that businesses recognize in their accounting
information systems. Limit the length of
your response to a maximum of 150 words.
Spell-check and grammar-and-style-check your completed response using MS
Word’s tool for this purpose, being sure
to correct any matters identified by these checking tools.

Situation

In
2014, Universal Company experienced the total loss of one of its assembly
plants in the Midwest to a fire. The
carrying amount (net book value) of the plant in the company’s balance sheet
at the date of the fire was $12 million (original cost of $32 million, less
accumulated depreciation of $20 million).
The company filed immediately a claim for recovery from the loss under
its insurance policy. The policy
provided an annual coverage limit of $28 million, and a per-occurrence
deductible of $4 million. The
insurance claim remained unsettled on the date Universal issued its 2014
financial statements,
First,
state whether the company should
recognize in its 2014 financial statements a loss related to the fire, a
recovery (gain) related to the insurance policy, or both. If so, indicate the amounts of such loss and/or recovery (gain). Then, provide your reasoning, by referring to the relevant:
¾
Definitions of financial
statement elements,
¾
Basic principles of financial
reporting, and the
¾
Desired qualitative
characteristics
of accounting information
Each
as discussed in the background paper, Financial
Statement Concepts and Financial Reporting.

Student’s response

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Topics
3 and 4 (Continued)
B. (28 points) Demonstrate your ability to
identify the basic assumptions, principles, and desired
qualitative characteristics of financial reporting and accounting
information. Listed below are the accounting assumptions, principles, and qualitative characteristics
contained in the FASB’s Conceptual Framework for financial reporting.

A

Periodicity assumption

E

Full disclosure principle

I

Representational faithfulness

B

Monetary unit assumption

F

Revenue recognition principle

J

Comparability (incl. Consistency)

C

Going concern assumption

G

Historical cost principle

K

Relevance

D

Economic entity assumption

H

Matching principle

L

Materiality

M

Conservatism

Provide the letter corresponding to the SINGLE, PRIMARY
assumption, principle, or qualitative characteristic that corresponds with each
of the following statements.

1.

A company records in its financial statements (FS) the
estimated costs of expected product warranty claims by customers at the same
time it records the related sale.

2.

A company presents its consolidated FS, even though
its legal structure includes a non-operating parent (holding) company and
legally separate subsidiary companies in 27 U.S. states and foreign
countries.

3.

A company relies on quoted market prices to determine
the fair value of investments securities reported in its balance sheet,
rather than employing valuation consultants for this purpose.

4.

A company’s FS describe its refinancing of maturing
debt securities, which managers completed after the date of the balance sheet
but before they issued the FS.

5.

A company’s FS provide a schedule of its lease and
loan payment obligations for each of the five years following the balance
sheet date.

6.

A
company’s revenues derive from contracts with customers for the construction
of municipal infrastructure requiring (on average) 3 years to complete,
though it issues FS quarterly and annually.

7.

A company records the receipt of cash in exchange for
merchandise delivered to a customer as a deposit liability because the
customer has the right to return the goods any time.

8.

A company presents its recognized assets and
liabilities in the balance sheet primarily at their historical costs, rather than their expected liquidation
values.

9.

A company’s FS do not disclose a pending patent
infringement lawsuit against the company because managers, in consultation
with counsel, concluded the suit is frivolous and without merit.

10.

A company recognizes a loss as a result performing a
lower-of-cost-or-market analysis of existing inventory, but does not
recognize appreciation in the market value of inventory as a result such
analyses.

11.

The amount of total assets reported in a company’s
balance sheet includes the depreciated cost of production facilities placed
in service 17 years ago and goods manufactured within the past 6 months.

12.

A company changes from the accelerated depreciation
method to the straight-line depreciation method after reviewing FS of
competitors, which disclose their use of the later method.

13.

A company’s accounting policies and FS presentation
practices facilitate securities analysts’ use of the FS in preparing
fundamental analyses (intrinsic valuations) of the company’s stock.

14.

A company recognizes equipment in its FS at its
acquisition cost, net of accumulated depreciation, even though this amount is
less than the amount it could receive in a current sale of the equipment.

 

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