1. QUESTION 1 (14 marks)
3. The following seven questions have 2 marks each. For multiple choice or true/false questions, please circle the right answer.

(i)The following data are available for the R&R Chairs, Inc. and the single product it makes:

Unit Selling Price	$20
Variable Cost per Unit	$12
Annual Fixed Costs	$280,000
Average Operating Assets	$1,500,000

How many units must R&R sell each year to have an ROI of 16%?

1. 35,000 units.
2. 30,000 units.
3. 65,000 units.
4. 40,000 units
5. 56,000 units.

1. Wits End B&B is a bed and breakfast establishment in a converted 100-year-old mansion. The B&B's guests appreciate its gourmet breakfasts and individually decorated rooms. The B&B's overhead budget for the most recent month appears below:

Activity level	90 guests
Variable overhead costs:
Supplies	$234
Laundry	315
Fixed overhead costs:
Utilities	220
Salaries and wages	4,290
Depreciation	2,680
Total overhead cost	$7,739

QUESTION1(continued)

The B&B's variable overhead costs are driven by the number of guests. Assuming that the activity levels of 90 guests and 99 guests are within the same relevant range and rounding to the nearest dollar, what would be the total budgeted overhead cost for a month if the activity level is 99 guests?

1. $7,794.
2. $7,739.
3. $ 257.
4. $ 604.
5. $ 824.
6. Hubert Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below.

Small MediumLarge

Unit selling price $430 $550 $1,230

Unit costs:

Variable manufacturing (200) (320) (700)

Fixed manufacturing (50) (140) (240)

Fixed selling and admin. (90) (25) (130)

Unit profit $90 $65 $160

Demand in units 170 130 170

Machine-hours per unit 70 40 170

The maximum machine-hours available are 6,200 per week. What could be a probable optimal product mix per week for Hubert Appliances?

1. 0 130 7.
2. 170 70 40.
3. 170 0 170.
4. 14 130 0.
5. 130 70 0.

1. Purchase of poor quality materials will likely result in a favourable materials price variance and a favourable labour efficiency variance.

TRUE/FALSE? (please circle the right alternative)

QUESTION1(continued)

(v) How does the absorption costing method incent managers to produce more than the company can sell? Explain briefly the key mechanism.

1. During the month of June, Reardon Company incurs $17,000 of direct labour and $8,500 of manufacturing overhead, and purchases $15,000 of raw materials. Between the beginning and the end of the month, the raw materials inventory increases by $2,000, the finished goods inventory increases by $1,500 and the work in process inventory decreases by $3,000. What is the cost of goods manufactured?

a) $43,500.

b) $38,500.

c) $40,500.

d) $41,500.

e) $35,500.

1. At a sales level of $300,000, James Company's gross margin is $15,000 higher than its contribution margin, its operating income is $50,000, and its total selling and administrative expenses are $120,000. At this sales level, what is the company's contribution margin?

a) $185,000.

b) $155,000.

c) $170,000.

d) $250,000.

e) $105,000.