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Management accounting ACC00146 S3, 2014

Assignment 1 (20 marks)

QUESTION 1 (5 MARKS)

Why are product costs sometimes called inventoriable costs? Describe the flow of such costs in a manufacturing company from point of incurrence until they finally become expenses on the income statement. You can use T accounts to show the flow of costs.

 

QUESTION 2 (5 MARKS)

Selected account balances for the year ended May 31, 20x1 are provided below for Super Cheapart: Raw materials inventory, June 1, 20x0 $ 40,000 Raw materials inventory, May 31, 20x1 30,000 Purchases of raw materials 150,000 Insurance, factory 12,000 Work in process, June 1, 20x0 ? Utilities, factory 25,000 Indirect labour 60,000 Finished goods inventory, June 1, 20x0 85,000 Direct labour ? Indirect materials 30,000 Work in process, May 31, 20x1 48,000 Rent, factory building 120,000 Finished goods inventory, May 31, 20x1 ? Maintenance, factory 16,000 The goods available for sale for the year totaled $635,000, the total manufacturing costs were $563,000, and the cost of goods sold totaled $560,000 for the year. Required: 1. Prepare a schedule of cost goods manufactured in the form illustrated in Figure 2–8 in the textbook and a schedule of cost goods sold. (1 mark) 2. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced during the year. Calculate the unit cost for direct materials. Calculate the unit cost for rent on the factory building. (1 mark) 3. Assume in 20x2 that the company produces 50,000 units. What would be the per unit and total cost that you would expect to be incurred for direct materials? For rent on the factory building?(1 mark) 4. As the manager in charge of production costs, explain to the president the reason for any difference in unit costs between (2) and (3) above. (2 marks)

 

QUESTION 3 (5 MARKS)

The May 2014 income statement for Frutex Company is given below: Sales (10,000 units) $ 100,000 Less variable costs 70,000 ------------- Contribution margin 30,000 Less fixed costs 24,000 ------------- Net income $ 6,000 ======= The Frutex Company has ample unused capacity and is studying various ways of improving profits. Required: Each of the situations below is independent of the other. Provide the information requested. 1. New equipment has come onto market that would allow Frutex Company to automate a portion of its operations. Variable costs could be reduced by $3 per unit. However, fixed costs would increase by $30,000 each month. Firstly, prepare two contribution-type income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. Secondly, as a manager, what factors would be paramount in your mind in deciding whether to purchase the new equipment? Explain. (3 marks) 2. Refer to the original data. Frutex Company is thinking about changing its marketing method. Under the new method sales would increase by 15 percent each month, and net income would increase by one third. Fixed cost could be slashed to only $15,000 per month. Calculate the breakeven point for the company before and after the change in marketing method. (1 mark) 3. Refer to the original data. Due to a sudden and unprecedented surge in demand, the company’s sales increased by 25 percent during June 2014. During that month, net income increased by $3,000, or by 50 percent. By how much should net income have increased? Would you congratulate management for an outstanding performance, or would you chastise management for not doing its job well during the period? Explain. (1 mark)

 

QUESTION 4 (5 MARKS)

Lennox Company uses a job order costing system. The company uses predetermined overhead rates in applying manufacturing overhead costs to individual jobs. The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct labor cost. At the beginning of 2014, the company’s management has made the following estimates for the year: Department A Department B Direct labour-hours 15,000 30,000 Machine-hours 50,000 12,000 Direct labour cost $80,000 $172,000 Manufacturing overhead 162,500 215,000 Job 145 was initiated into production on August 1 and completed on September 15. The company’s cost records show the following information on the job: Department A Department B Direct labour-hours 22 40 Machine-hours 80 20 Direct material used $450 $250 Direct labour cost 120 180 Required: 1. Compute the predetermined overhead rates that should be used during 2014 in Department A and B. (1 mark) 2. Compute the total overhead cost applied to job 145. (1 mark) 3. What would be the total cost of job 145? If the job contained 10 units, what would be the cost per unit? (1 mark) 4. At the end of 2014, the records of Lennox Company reveal the following actual cost and operating data for all jobs work on during the year: Department A Department B Direct labour hours 14,500 32,000 Machine-hours 48,000 13,000 Direct labour cost $78,000 $174,000 Manufacturing ovherhead 160,000 216,000 Compute the amount of underapplied or overapplied overhead in each department at the end of 2014 and explain most likely reasons why the underapplication or overapplication has taken place. (2 marks)

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