Variable Cost and Bakery Manager Essay

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School of Administrative Studies
Atkinson Faculty of Liberal and Professional Studies
York University
ADMS2510 Final Examination 2027
Instructions:
- This is a closed book examination and no collaboration is allowed.
- There are a total of 100 marks.
- Write your name, student number, and section at the top of the page.
- There are five questions. Answer each question on the examination paper, and on the back of a page if necessary.
- You must write in pencil or pen. Programmable calculators are not allowed. Cell phones cannot be used as calculators. Dictionaries are not allowed.
- Place photo identification on your desk at the beginning of the examination to facilitate verification. Good luck.
Question 1: ________
Question 2: ________
Question 3: ________
Question 4: ________
Question 5: ________
Total:

/100

1

Question 1 (20 marks – 36 minutes)
Part A (10 marks)
Atkinson Technologies has determined that a single overhead application rate no longer results in a reasonable allocation of overhead to its diverse products. Accordingly, the company has restructured its overhead application. It has established six cost pools and identified appropriate cost drivers. The new cost pools, allocation bases, and rates are as follows: Cost Pool
Application Rate
Setup costs
$70 per setup
Machine costs
30 per machine hour
Labour-related costs
15 per direct labour hour
Material handling costs
2 per kilogram of material received
Quality costs
150 per customer return
Other costs
8 per machine hour
During 2006, the company experienced the following volume for each cost application base:
Setups
300
Machine hours
9,000
Direct labour hours
8,000
Kilograms of material received
100,000
Customer returns
250
Required:
a.
Determine the amount of overhead applied in 2006.
b.
Assume that the company incurred $740,000 in actual overhead costs in 2006.
Compute the company’s underapplied or overapplied overhead.
c.
Prepare the journal entries to records the inderapplied or overapplied overhead.
a.

b.

c.

Applied OH:
Setups
MHs
DLHs
#s rec'd
Returns
Other

300 × $70 =
9,000 × $30 =
8,000 × $15 =
100,000 × $2 =
250 × $150 =
9,000 × $8 =

$ 21,000
270,000
120,000
200,000
37,500
72,000
$720,500

$720,500 - $740,000 = $(19,500) underapplied

Cost of Goods Sold
Applied Overhead

$19,500
$19,500

2

Question 1
Part B (10 marks)
Newmarket Cosmetic Hospital is under increasing pressure for the charges it assesses its patients. Except for an explicit consideration of direct costs for surgery, medication, and other treatments, the current pricing system is an ad hoc one based on pricing norms for the geographical area. As the hospital controller, you have suggested that pricing would be less arbitrary if there were a tighter relationship between costs and patient charges. As a first step, you have determined that most costs can be assigned to one of the following three cost pools.
Cost Pool
Amount
Activity Driver
Quantity
Professional salaries $1,100,000
Professional hours
40,000 hours
Building costs
500,000
Square metres used
20,000 square metres
Risk management
400,000
Patients served
2,000 patients
Hospital services are classified into three broad categories. The services and their volume measures follow.
Service
Professional Hours Square Metres
Number of Patients
Surgery
6,000
1,200
200
Inpatient care
20,000
12,000
500
Outpatient care
4,000
1,800
300
Required:
a.
Determine the allocation rate for each cost pool.
b.
Allocate costs among the three hospital services using the
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