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ACCT6004 Management Accounting - Laureate International Universities

Learning Outcome 1) Identify and analyse ethical and organisational issues confronting contemporary management accountants.

Learning Outcome 2) Categorise and identify the nature of various types of costs, cost objects and cost behaviours and use cost estimation techniques to develop cost functions.

Learning Outcome 3) Apply cost accounting techniques to calculate the cost of a range of cost objects, as well as analyse costs.
e) Apply cost information to planning, control and decision-making.

Learning Outcome 4) Critically evaluate the relevance of both quantitative and qualitative costing information to management decision making.

Question 1

Activeware Limited manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same support services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support department.

	Variable Costs	Fixed Costs	Total Costs by Department (in thousands)
Information technology (IT)	$500	$1,500	$2,000
Human resources (HR)	$100	$900	$1,000
Clothing	$3,000	$7,000	$10,000
Shoes	$2,500	$5,500	$8,000
Total costs	$6,100	$14,900	$21,000

The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based on the following:

Information technology: Number of IT labour hours worked by department

Human resources: Number of employees supported by department Data on the bases, by department, are given as follows:

Department	IT Hours Used	Number of Employees
Clothing	5,000	120
Shoes	3,000	40
Information technology	-	40
Human resources	2,000	-

Required:

1. Report the total costs of the production departments (clothing and shoes) after the support department costs of information technology and human resources have been allocated using each of the following methods:
a. the direct method
b. the step-down method

c. the reciprocal method

2. Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Activeware Limited no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Activeware Limited outsource its IT services?

Question 2

Crumpler Bags (CB) is a designer of high-quality backpacks and purses. Each design is made in small batches. Each spring, CB comes out with new designs for the backpack and for the purse. The company uses these designs for a year, and then moves on to the next trend. The bags are all made on the same fabrication equipment that is expected to operate at capacity. The equipment must be switched over to a new design and set up to prepare for the production of each new batch of products. When completed, each batch of products is immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. Budgeted information for the year is as follows:

Crumpler Bags
Budget for costs and Activities
For the Year Ended 30 June 2020
Direct materials-purses	$379,290
Direct materials-backpacks	412,920
Direct manufacturing labour -purses	98,000
Direct manufacturing labour -backpacks	120,000
Setup	65,930
Shipping	73,910
Design	166,000
Plant utilities and administration	243,000
Total	$1,559,050

Other Budget information follows:

	Backpacks	Purses
Number of bags	6,050	3,350
Hours of production	1,450	2,600
Number of batches	130	60
Number of designs	2	2

Required:

1. Identify the cost hierarchy level for each cost category.
2. Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.
3. Calculate the budgeted cost per unit of cost driver for each cost category.
4. Calculate the budgeted total costs and cost per unit for each product line.
5. Explain how you could use the information in requirement 4 to reduce costs.

Question 3

Anchor Homes Ltd manufactures modular homes. The company has two main products that it sells commercially: a 1,000 square foot, one-bedroom model and a 1,500 square foot, two- bedroom model. The company recently began providing emergency housing (huts) to Emergency Management Australia (EMA). The emergency housing is similar to the 1,000 square foot model.

EMA has requested Anchor Homes Ltd to create a bid for 150 emergency huts to be sent for flood victims in the east. Your boss has asked that you prepare this bid. In preparing the bid, you find a recent invoice to EMA for 200 huts provided after tropical cyclone Debbie. You also have a standard cost sheet for the 1,000 square foot model sold commercially. Both are provided as follows:

Standard cost sheet: 1,000 sq. ft. one-bedroom model
Direct materials	$8,000
Direct manufacturing labour (30 hours)	600
Manufacturing overhead* ($3 per direct labour dollar)	1,800
Total cost	$10,400
Retail markup on total cost	20%
Retail price	$12,480
*Overhead cost pool includes inspection labour ($15 per hour), setup labour ($12 per hour), and other indirect costs associated with production.

INVOICE:
DATE: September 15, 2017 BILL TO: EMA
FOR: 200 Emergency Huts
SHIP TO: Townsville, Queensland
Direct materials	$1,840,000
Direct manufacturing labour **	138,400
Manufacturing overhead	415,200
Total cost	2,393,600
Government contract markup on total cost	15%
Total due	$2,752,640
**Direct manufacturing labour includes 28 production hours per unit, 4 inspection hours per unit, and 6 setup hours per unit

Required:

1. Calculate the total bid if you base your calculations on the standard cost sheet assuming a cost plus 15% government contract.
2. Calculate the total bid if you base your calculations on the September 15, 2017, invoice assuming a cost plus 15% government contract.
3. What are the main discrepancies between the bids you calculated in #1 and #2?
4. What bid should you present to your boss? What principles from the CIMA's Code of Ethics should guide your decision?

Question 4

Yarra Valley, manufactures convenience foods, including potato chips and corn chips. Production of corn chips occurs in four departments: cleaning, mixing, cooking, and drying and packaging. Consider the drying and packaging department, where direct materials (packaging) are added at the end of the process. Conversion costs are added evenly during the process. The accounting records of a Yarra Valley plant provide the following information for corn chips in its drying and packaging department during a weekly period (week 37):

	Physical Units (Cases)	Transferred- In Costs	Direct Materials	Conversion Costs
Beginning work in processa	1,200	$26,750	$0	$4,020
Transferred in during week 37 from	4200
Completed during week 37	4,000
Ending work in process, week 37b	1,400
Total costs added during week 37		$91,510	$23,000	$27,940
aDegree of completion: transferred-in costs, 100%; direct materials, 0%; conversion costs, 25%.
bDegree of completion: transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.

Required:

1. Using the weighted-average method, summarize the total drying and packaging department costs for week 37, and assign total costs to units completed (and transferred out) and to units in ending work in process.
2. Assume that the FIFO method is used for the drying and packaging department. Under FIFO, the transferred-in costs for work-in-process beginning inventory in week 37 are
$28,920 (instead of $26,750 under the weighted-average method), and the transferred-in costs during week 37 from the cooking department are $93,660 (instead of $91,510 under the weighted-average method). All other data are unchanged. Summarize the total drying and packaging department costs for week 37 and assign total costs to units completed and transferred out and to units in ending work in process using the FIFO method.

Question 5

Anthony Warbrick owns three upscale hair salons: Hair Suite I, II, and III. Each of the salons has a manager and 10 stylists who rent space in the salons as independent contractors and who pay a fee of 10% of each week's revenue to the salon as rent. In exchange they get to use the facility and utilities but must bring their own equipment.

The manager of each salon schedules each customer appointment to last an hour, and then allows the stylist 10 minutes between appointments to clean up, rest, and prepare for the next appointment. The salons are open from 10 A.M. to 6 P.M., so each stylist can serve seven customers per day. Stylists each work five days a week on a staggered schedule, so the salon

is open seven days a week. Everyone works on Saturdays, but some stylists have Sunday and Monday off, some have Tuesday and Wednesday off, and some have Thursday and Friday off.

Anthony Warbrick knows that utility costs are rising. Anthony wants to increase revenues to cover at least some part of rising utility costs, so Anthony tells each of the managers to find a way to increase productivity in the salons so that the stylists will pay more to the salons. Anthony does not want to increase the rental fee above 10% of revenue for fear the stylists will leave, and each salon has only 10 stations, so he feels each salon cannot hire more than 10 full-time stylists.

The manager of Hair Suite I attacks the problem by simply telling the stylists that, from now on, customers will be scheduled for 40-minute appointments and breaks will be five minutes. This will allow each stylist to add one more customer per day.

The manager of Hair Suite II asks the stylists on a voluntary basis to work one extra hour per day, from 10 A.M. to 7 P.M., to add an additional customer per stylist per day.

The manager of Hair Suite III sits down with the stylists and discusses the issue. After considering shortening the appointment and break times, or lengthening the hours of operation, one of the stylists says, "I know we rent stations in your store, but I am willing to share my station. You could hire an eleventh stylist, who will simply work at whatever station is vacant during our days off. Since we use our own equipment, this will not be a problem for me as long as there is a secure place I can leave my equipment on my days off." Most of the other stylists agree that this is a good solution.

Required:

1. Which manager's style do you think is most effective? Why?
2. How do you think the stylists will react to the managers of salons I and II? What can they do to indicate their displeasure, assuming they are displeased?
3. In Hair Suite III, if the stylists did not want to share their stations with another party, how else could they find a way to increase revenues?
4. Refer again to the action that the manager of Hair Suite I has chosen. How does this relate to the concept of stretch targets?