Reference no: EM131456844

INTRODUCTORY MGT ACCOUNTING

Problem 1 - Wind Wheels Company manufactures two products, Turbo and Standard, and uses a traditional normal costing system. Overhead cost is allocated using departmental rate and the cost allocation base is direct labor-hours for both departments.

For 2013, the company budgets $1,000,000 total factory overhead cost for its operations:

	Production Department A	Production Department B
Overhead costs	$200,000	$800,000
Direct labor-hours	20,000 hours	10,000 hours

The following information relates to the company's operations for the month of January in 2013:

	Turbo	Standard
Units produced and sold	200	800
Unit cost of direct materials	$100	$50
Direct labor hourly wage rate	$25	$20
Direct labor-hours in Department A per unit	2	2
Direct labor-hours in Department B per unit	1	1

Wind Wheels Company is considering adopting an activity-based costing (ABC) system. The fol¬lowing information related to activity cost analysis for 2013:

Driver Consumption  for January 2013
Activity	Cost Driver	Budgeted Annual Overhead	Budgeted Annual Quantity	Turbo	Standard
Material handling	Number of production runs	$             7,000	350	15	20
Equipment setups	Number of equipment se­tups	400,000	500	25	50
Inspections	Number of units inspected	588,000	19,600	200	800
Delivery	Number of deliveries	5,000	250	50	100
	Total	$1,000,000

Required:

1. Calculate the unit product cost for each of the two products under the existing normal costing system.

2. Calculate the overhead rates for cost drivers under the proposed ABC system.

3. Calculate the unit product cost for each of the two products under the proposed ABC system for January 2013.

Problem 2 - Part A -

A&A Company manufactures stereo headphones. A&A has developed the following sales budget for the first six months of the coming year:

Month	Sales in Units
January	30,000
February	50,000
March	70,000
April	80,000
May	60,000
June	50,000

The beginning inventory on January 1 is 8,000 units. The desired ending inventory for the coming year is 25 percent of next month's sales.

Each unit requires 6 units of material X at $8 per unit and 3 units of material Y at $2 per unit. There are 15,000 units of X and 4,500 units of Y on hand on January 1 and the desired ending inventory for these materials will be 30 percent of next month's production needs for the coming year.

Required: Using the preceding information, compute the following amounts.

1. Production of headphones in units for (a) February and (b) March.

2. Budgeted purchases of Material X in units and dollars for February.

3.  Budgeted purchases of Material Y in units and dollars for February.

Part B -

Rock Stone Company, a distributor of car tyres, has projected sales and purchase for the second quarter of the coming year as follows:

	April	May	June
Sales in units	5,000	4,000	6,000
Purchase in units	6,000	5,000	5,000

All units are sold on account for $340 each.

The historical analysis of accounts receivable for the payment patterns of their customers has pro¬vided the following percentages:

• 60 percent in month of sale
• 30 percent in month after sale
• 10 percent in second month after sale

Accounts receivable on March 31 totals $748,000, which consists of $187,000 from February's sales and the remainder from March.

The purchase price of the tyres is budgeted at $240 per unit. Of these purchase costs, 40% are paid in the month of purchase and the balance are paid in the following month. The accounts payable balance on March 31 totals $864,000, which will be paid in April.

Rock Stone paid all its selling and administrative costs in the month incurred. Monthly expenses are budgeted as follows:

1. Shipping expense is 5% of sales

2. Advertising is $4,500

3. Sales commission is 3% of sales

4. Salaries and wages are fixed at $29,000 per month

5. Other administrative expenses are amount to $120,000. Of this amount, it includes a monthly depreciation expense of $20,000.

In April, the company expects to purchase a piece of equipment for $11,000 and will pay the total amount in May.

Required: Compute each of the following items for the company for the month of April.

1. Total budgeted cash collections from customers.

2. Total budgeted cash payments for the purchase of tyres.

3. The cash balance at the end of April. On April 1, the cash balance is $110,000.

Problem 3 -

The following data for the ACCT Garden Supplies Company pertains to the production of 2,500 garden spades during May. The spade consists of a wooden handle and a metal forged tool that comes in contact with the ground.

Direct Materials:

• Standard cost per spade: $1.00 per handle and $3.50 per metal tool.
• All materials purchased in May were used.
• Total actual cost: $11,350.
• Direct Materials efficiency variance was $650 unfavorable.

Direct Manufacturing Labor:

• Standard cost per spade: 0.2 hour at $20.00 per hour.
• Actual cost per direct labor hour was $21.00.
• Direct labor efficiency variance was $400 favorable.

Required: Compute each of the following items for ACCT Garden Supplies Company for the month of May:

1. Standard direct materials cost per spade

2. Total direct materials flexible-budget variance

3. Direct materials price variance

4. Standard direct labor cost per spade

5. Total actual cost of direct labor incurred

6. Direct labor price variance

Problem 4 - Part A:

HKBT Corp. produces beach towels. Its facilities provide the firm with the capacity to produce 40,000 units per month.

For the month of March 2013, the firm's budgeted production is 40,000 units. Due to a sudden surge in demand for beach towels last month, the firm began this month with zero units in inventory. The firm's budgeted income statement for March 2013 is as follows:

Sales revenue (40,000 units)		$1,000,000
Cost of goods sold:
Direct materials	$160,000
Direct labor	240,000
Manufacturing overhead	220,000	620,000
Gross margin		$380,000

The firm uses standard costing and allocates its manufacturing overhead costs on the basis of standard direct-labor hours. The budgeted overhead rate is calculated based on annual overhead budgets of $2,640,000 (including $1,200,000 for variable overhead and $1,440,000 for fixed overhead) and 960,000 annual budgets of direct manufacturing labor-hours. The firm's standard for direct-labor is 2 hours per unit at $3 per hour.

The actual production during March is 38,000 units. The firm's actual income statement for the month (before the adjustment of variances) is the following:

Sales revenue (38,000 units)		$931,000
Cost of goods sold:
Direct materials	$ 161,500
Direct labor	235,258
Manufacturing overhead
Variable	101,270
Fixed	121,600	619,628
Gross margin		$311,372

Direct-labor price variance for March is $1,558 unfavorable.

Required: Calculate the following amounts for HKBT Corp. for March 2013.

(1) Variable manufacturing overhead spending variance

(2) Variable manufacturing overhead efficiency variance

(3) Fixed manufacturing overhead spending variance

(4) Fixed manufacturing overhead production-volume variance

Part B: Is there production-volume variance for variable manufacturing overhead costs? Explain.

Problem 5 -

Fancy T-Shirt Co. (FTS) is a small Hong Kong company manufacturing specialty clothing, primarily T-shirts with imprinted slogans and brand names. FTS has been offered a contract by the Children's Fund for 1,000 T-shirts printed with artwork publicizing a fund-raising event that will be held in Central. FTS can produce all these 1,000 T-shirts in one batch. The Children's Fund offers to pay $9.00 for each shirt. FTS's cost budget for the current year is as below, assuming there is no non-manufacturing cost.

Cost Element	Cost Per Unit	Cost Per Batch	Fixed Cost
Shirt	$3.25
Ink	$0.95
Operating labour	$0.85
Subtotal	$5.05
Setup		$130
Inspection		$30
Materials handling		$40
Subtotal		$200
Machine related			$315,000
Other			$90,000
Total	$5.05	$200	$405,000

Assume that FTS is operating at full capacity. Accepting the order from Children's Fund would cause the loss of sales of two batches of other T-shirts. These two batches of T-shirts are from two existing customers, with 500 units in each batch. The selling prices of these two batches of T-shirts are $9.5 and $10 respectively.

Required: Should FTS accept the order from the Children's Fund if financial concern is the only concern? Show your calculation.