Sample 2008 Entrance Examination

26. Answer: c.
Direct materials $140
Machine set up (3 x $180/60) 9
Materials handling ($15 x 35) 525
Milling ($50 x 6) 300
Assembly ($30 x 4) 120
Manufacturing cost per unit $1,094

Price to achieve gross margin of 35% = $1,094/.65 = $1,683 (rounded).

Choice a) Gross margin percentage is applied incorrectly: $1,094 x 1.35 = $1,477

(rounded)
Choice b) Direct materials costs are not included in manufacturing costs: ($9 + $525 +
$300 + $120)/.65 = $954/.65 = $1,468 (rounded)
Choice d) Cost of $1,094, i.e. markup is not applied
Choice e) Gross margin percentage is applied incorrectly: $1,094/.35 = $3,126
(rounded)

27. Answer: d.
Budgeted costing system uses budgeted costs and budgeted professional labour hours
(PLH) in establishing the direct and indirect cost rates.
Budgeted direct cost rate = ($92,000 x 8 + $41,600 x 10) 28,800 PLH
= $40.00 per PLH
Budgeted indirect cost rate = $691,200 28,800 PLH = $24.00 per PLH

Choice a) Incorrectly uses actual costs and actual PLH to determine the rates:
Actual direct cost rate = ($95,000 x 8 + $47,840 x 10) 29,200 PLH
= $42.41 per PLH
Actual indirect cost rate = $711,936 29,200 PLH = $24.38 per PLH

Choice b) Incorrectly uses actual costs to determine the rates:

Direct cost rate = ($95,000 x 8 + $47,840 x 10) 28,800 PLH
= $43.00 per PLH
Indirect cost rate = $711,936 28,800 PLH = $24.72 per PLH

Choice c) Incorrectly uses actual PLH to determine the rates:

Direct cost rate = ($92,000 x 8 + $41,600 x 10) 29,200 PLH
= $39.45 per PLH
Indirect cost rate = $691,200 29,200 PLH = $23.67 per PLH

Choice e) The direct and indirect cost rates are $40.00 and $24.00 per PLH,
respectively (choice a).

50 CMA Canada