YORK UNIVERSITY - Atkinson School of Administrative Studies
ACCOUNTING 3510 – MID TERM EXAM 2 – 2013 WINTER
Last Name: First Name: Student Number:
Date : March 17, 2013 (4-6 pm)
Location: LAS B & C
SOLUTIONS
Duration: 120 Minutes Instructors:
Jamie Aldcorn/Douglas Kong
INSTRUCTIONS:
• This is a closed book examination and no collaboration is allowed.
• There is a total of 100 marks and 6 pages including this cover page.
• Put your name and student number at the top of the page AND in your answer booklet(s).
• Answer each question on the blank booklet provided. Raise your hand if you need
another booklet.
• You may write with a pencil or pen.
• A calculator is permitted.
• Two hours are allowed to complete the exam.
• If you leave early, please respect your fellow students by leaving quietly. No one is
allowed to leave within the last 15 minutes of the exam.
• Place photo identification on your desk during the examination to facilitate verification.
• Please read each question carefully – your Professor and Invigilators will not
answer nor clarify anything in the exam paper EXCEPT if you need another exam
paper or more answer booklets or need to leave the exam room.
Good Luck!
Summary of Marks:
Question 1 Question2 Question 3 Question 4 Total
(18 marks) (31 marks) (21 marks) (15 Marks) (85 marks)
Page 1 of 7
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, YORK UNIVERSITY - Atkinson School of Administrative Studies
ACCOUNTING 3510 – MID TERM EXAM 2 – 2013 WINTER
Question 1 – Solution
(a) In absorption (full) costing, as currently employed by David Roost Corporation, fixed
manufacturing overhead is considered a product cost rather than a period cost. Fixed
manufacturing overhead is applied to production based upon a normal production volume of
1,000,000 kg. Thus, the fixed manufacturing overhead is applied to products in the same
manner as variable costs even though they do not vary with production. In addition, if
production and sales are not equal during the year, fixed manufacturing overhead costs are
deferred as part of inventory costs (production exceeds sales) or released upon sales of
inventory (sales exceeds production)
During 2012, production exceeds sales resulting in a portion of the fixed manufacturing
overhead costs being inventoried in finished goods rather than being recognized as an expense
of the period. This resulted in 2012 income before taxes being higher than might be expected.
In 2013, sales exceeded production resulting in more fixed manufacturing overhead costs being
recognized as an expense of the period rather than being incurred. Also, fixed manufacturing
overhead was under applied in 2013 because only 850,000 units were produced. This gave rise
to an unfavourable volume variance that was charged to Cost of Goods Sold. Both of these
occurrences increased Cost of Goods Sold and resulted in a reduction of gross margin and
income before taxes in 2013. (4 marks)
(b) Income Statement & Reconciliation
David Roost Corporation Marks
Operating Income Statement
For the Year ended November 30, 2013
Sales $ 11,200 1
Variable cost of goods sold:
600,000 kg at $ 5.00 (BI - used 2012 costs) $ 3,000 1
400,000 kg at $ 5.50 (from 2013 production) $ 2,200 $ 5,200 1
Contribution Margin $ 6,000
Fixed Costs:
Manufacturing Overhead $ 3,300 2
Selling and administrative $ 1,500 $ 4,800 1
Income before tax $ 1,200 6
Reconciliation:
Net Income 2013 - Direct Costing $ 1,200
Net Income 2013 - Absorption Costing $ 885
Difference $ 315 1
Accounted for as follows:
Fixed Overhead in Opening Inventory
(600,000 kg x $ 3.00) $ 1,800 2
Fixed Overhead in Ending Inventory
(450,000 kg x $ 3.30)* $ 1,485 2
$ 315 5
* -
Beginning Inventory 600,000 kg
+ Production (Note 1) 850,000
- Sales 1,000,000
= Ending Inventory 450,000 kg
Note 1 - Manufacturing Overhead Applied of ($ 3,300,000 - $ 495,000)/3.30 kg = 850,000 kg
Page 2 of 7
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https://www.coursehero.com/file/19350635/Mid-Term-2-Solutions/
ACCOUNTING 3510 – MID TERM EXAM 2 – 2013 WINTER
Last Name: First Name: Student Number:
Date : March 17, 2013 (4-6 pm)
Location: LAS B & C
SOLUTIONS
Duration: 120 Minutes Instructors:
Jamie Aldcorn/Douglas Kong
INSTRUCTIONS:
• This is a closed book examination and no collaboration is allowed.
• There is a total of 100 marks and 6 pages including this cover page.
• Put your name and student number at the top of the page AND in your answer booklet(s).
• Answer each question on the blank booklet provided. Raise your hand if you need
another booklet.
• You may write with a pencil or pen.
• A calculator is permitted.
• Two hours are allowed to complete the exam.
• If you leave early, please respect your fellow students by leaving quietly. No one is
allowed to leave within the last 15 minutes of the exam.
• Place photo identification on your desk during the examination to facilitate verification.
• Please read each question carefully – your Professor and Invigilators will not
answer nor clarify anything in the exam paper EXCEPT if you need another exam
paper or more answer booklets or need to leave the exam room.
Good Luck!
Summary of Marks:
Question 1 Question2 Question 3 Question 4 Total
(18 marks) (31 marks) (21 marks) (15 Marks) (85 marks)
Page 1 of 7
This study source was downloaded by 100000899606070 from CourseHero.com on 06-14-2025 15:03:19 GMT -05:00
https://www.coursehero.com/file/19350635/Mid-Term-2-Solutions/
, YORK UNIVERSITY - Atkinson School of Administrative Studies
ACCOUNTING 3510 – MID TERM EXAM 2 – 2013 WINTER
Question 1 – Solution
(a) In absorption (full) costing, as currently employed by David Roost Corporation, fixed
manufacturing overhead is considered a product cost rather than a period cost. Fixed
manufacturing overhead is applied to production based upon a normal production volume of
1,000,000 kg. Thus, the fixed manufacturing overhead is applied to products in the same
manner as variable costs even though they do not vary with production. In addition, if
production and sales are not equal during the year, fixed manufacturing overhead costs are
deferred as part of inventory costs (production exceeds sales) or released upon sales of
inventory (sales exceeds production)
During 2012, production exceeds sales resulting in a portion of the fixed manufacturing
overhead costs being inventoried in finished goods rather than being recognized as an expense
of the period. This resulted in 2012 income before taxes being higher than might be expected.
In 2013, sales exceeded production resulting in more fixed manufacturing overhead costs being
recognized as an expense of the period rather than being incurred. Also, fixed manufacturing
overhead was under applied in 2013 because only 850,000 units were produced. This gave rise
to an unfavourable volume variance that was charged to Cost of Goods Sold. Both of these
occurrences increased Cost of Goods Sold and resulted in a reduction of gross margin and
income before taxes in 2013. (4 marks)
(b) Income Statement & Reconciliation
David Roost Corporation Marks
Operating Income Statement
For the Year ended November 30, 2013
Sales $ 11,200 1
Variable cost of goods sold:
600,000 kg at $ 5.00 (BI - used 2012 costs) $ 3,000 1
400,000 kg at $ 5.50 (from 2013 production) $ 2,200 $ 5,200 1
Contribution Margin $ 6,000
Fixed Costs:
Manufacturing Overhead $ 3,300 2
Selling and administrative $ 1,500 $ 4,800 1
Income before tax $ 1,200 6
Reconciliation:
Net Income 2013 - Direct Costing $ 1,200
Net Income 2013 - Absorption Costing $ 885
Difference $ 315 1
Accounted for as follows:
Fixed Overhead in Opening Inventory
(600,000 kg x $ 3.00) $ 1,800 2
Fixed Overhead in Ending Inventory
(450,000 kg x $ 3.30)* $ 1,485 2
$ 315 5
* -
Beginning Inventory 600,000 kg
+ Production (Note 1) 850,000
- Sales 1,000,000
= Ending Inventory 450,000 kg
Note 1 - Manufacturing Overhead Applied of ($ 3,300,000 - $ 495,000)/3.30 kg = 850,000 kg
Page 2 of 7
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