Calculate the net operating income under variable costing

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Reference no: EM131443947

Management Accounting Assignment

QUESTION 1: BioChem produces trail mix packaged for sale in convenience stores. At the beginning of April 2015, BioChem has no inventory of trail mix. Demand for the three month period from April to June is expected to remain constant at 50,000 bags per month. However, considering the fact many of the employees take holiday in May, BioChem plans to produce 70,000 bags in April. The costs and revenues for April are expected to be as follows:

Sales revenue $6.00 per bag

Direct materials cost $0.80 per bag

Direct manufacturing labour cost $0.45 per bag

Variable manufacturing overhead cost $0.30 per bag

Variable selling cost 2.5% of sales

Fixed manufacturing overhead costs $105,000 per month

Fixed administrative costs $35,000 per month

Actual sales in April 50,000 bags

Required:

(a) Compute the unit product cost under variable costing and absorption costing.

(b) Calculate the net operating income under variable costing.

(d) Reconcile the variable costing and absorption costing net operating incomes in (b) and (c) above.

(e) Critics of absorption costing have increasing emphasised its potential for leading to undesirable incentives for managers. State two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of plant manager.

QUESTION 2: PART A

Wollongong Pathology is a medical testing laboratory situated in Wollongong. Dr. Curin Strong the CEO of the centre is in the process of making estimation on the cost of X-rays of the centre. The number of X-rays taken and X-ray costs over the last nine months in Wollongong Pathology are given below:

Month	X-Rays Taken	X-Ray Costs($)
January	6,250	$28,000
February	7,000	$29,000
March	5,000	$23,000
April	4,250	$20,000
May	4,500	$22,000
June	3,000	$17,000
July	3,750	$18,000
August	5,500	$24,000
September	3,250	$16,000

Required:

(a) Using High-Low method, estimate the cost formula for X-ray costs.

(b) Estimate the cost of X-rays for October using both regression and high-low methods, assuming a least-square regression analysis estimated the total fixed costs to be $5,920 per month and the variable cost to be $3.38. The number of X- rays for October is expected to be 4,000. Comment on the accuracy of your high-low estimates.

PART B - SuperCools Company is the exclusive distributer for revolutionary two types of cooling bag Deluxe and Superior. The budgeted income statement for next period is as follows:

	Deluxe	Superior	Total
Sales Mix Units sold	187 500	62 500	250 000
Revenues	$5 250 000	$3 125 000	$8 375 000
Variable	$3 375 000	$1 875 000	$5 250 000
Contribution margins	$1 875 000	$1 250 000	$3 125 000
Fixed cost			$2 250 000
Profit			$ 875 000

Required: Calculate the estimated break-even point in units and dollars that the planned sales mix is attained.

QUESTION 3: ABC & Associates is a public accounting firm that specialises in providing accounting and auditing service. Its job-costing system has one direct cost pool, professional labour and a single indirect cost pool that includes all supporting costs of running the office. The support costs are allocated to clients on the basis of professional labour-hours. In addition to the two senior partners, ABC has six partners who work directly with clients. Each of the eight partners is expected to work for approximately 2 650 hours a year. Budgeted and actual costs for 2016 were:

Budgeted professional labour costs	$4 240 000
Budgeted support costs	$2 000 000
Actual professional labour costs	$4 893 000
Actual support costs	$2 400 000
Actual total professional hours	23 300 hours

Required: Calculate the direct costs rate per professional labour-hour under:

(a) Actual costing

(b) Normal costing

Reference no: EM131443947

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