Reference no: EM132794786

HA2011 Management Accounting - Holmes Institute

Learning Outcome 1: Outline the differences between fixed costs, variable costs, and mixed costs by categorising various costs of an entity into these categories
Learning Outcome 2: Calculate fixed and variable costs, contribution margin, contribution margin ratio, break- even point in sales dollars and units, and target sales volume in dollars and units
Learning Outcome 3: Appraise how pricing decisions are made
Learning Outcome 4: Calculate both return on investment and residual income and explain how each method is use
Learning Outcome 5: Apply the concept of costs to various costing systems including justification of cost and system choices
Learning Outcome 6: Implement systems to plan and control business operations

Question 1
Bourbon House, a luxury waterfront restaurant, has store hours fluctuate from week to week. Its utilities costs and hours of operation for the last six (6) weeks are as follow:

Week	Hours of Operation	Utilities Cost
1	55	6 480
2	60	6 600
3	64	7 460
4	70	7 600
5	45	5 400
6	40	5 200

Required:
a) Use the high-low method to estimate the cost behaviour for the restaurant's utilities costs, assuming that variable costs vary in proportion to the hours of operation. Express the cost behaviour in a cost function (Y = a + bX).

b) During the second week of June, Bourbon House will be opened for 49 hours. Predict the restaurant's total utilities cost for the week.

c) Explain the impact of a decrease in the level of activity on (i) total variable cost; and (ii) variable cost per unit of activity.

Question 2

Bulla Ltd, which uses a job costing system, had one job in process at the start of the year: Job K1 ($78 000). The following information is available:

(i) The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $920 000 and 20 000 hours, respectively.

(ii) The company worked on three jobs during the first quarter (i.e. from 1st January to 31st March). Direct materials used, direct labour incurred and machine hours consumed were as shown in the following table:

Job Numbers	Direct Material	Direct Labour	Machine Hours
K1	$   -	$30 000	1 000
K2	50 500	23 000	600
K3	45 000	65 000	2 000

(iii) Manufacturing overhead incurred during the first quarter was $275 000.

(iv) Bulla Ltd completed Job K1 and Job K3 during the first quarter. Job K3 was sold on credit, producing a profit of $30 000 for the company.

Required:
a) Calculate the company's predetermined overhead rate.

b) Calculate manufacturing overhead applied to production for the first quarter.

c) Determine the cost of jobs completed in the first quarter.

d) Determine the cost of the jobs still in process at the end of the first quarter.

e) Describe how overhead may be under applied and give one reason for this.

Question 3

Lyon Productions manufactures two products, Chevalier and Dame. Estimates for the company's products for next year are provided below:

	Chevalier	Dame
Estimated Production Volume	6 000	4 000
Direct Material Cost	$30 / unit	$50 / unit
Direct Labour per Unit	3 hours @ $12 / hour	4 hours @ $12 / hour

The company's estimated overhead of $400 000 can be identified with three major activities: order processing ($75 000), machine processing ($280 000) and product inspection ($45 000). These activities are driven by number of orders processed, machine hours, and inspection hours respectively. Estimated activity levels for the next year are as follows:

Required:
Assuming that Lyon Productions uses activity-based costing (ABC) to apply overhead to production, calculate the total cost per unit for Chevalier and Dame if the estimated production volume is attained.

Question 4

Aqua Company Ltd manufactures recyclable soft drink cans. A unit of production is a case of twelve (12) dozen cans. The following standards have been set by the production engineering staff and the management accountant:

Direct Material	$3.12
Quantity	4 kg
Price	$0.78 per kg

Direct Labour	$4.025
Quantity	0.25 hour
Rate	$16.10 per hour

Actual costs incurred in the production of 50,000 units were as follows:

Direct Material	$170,100 for 210,000 kg
Direct Labour	$210,600 for 13,000 hours

All materials were purchased during this time period.

Required:

a) Use the variance formulas to calculate the direct material price and quantity variances and the direct labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.

b) Comment on the company's material variances.

Question 5

Memory Production manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished frames are then transferred to the Finishing Division, where the glass and other components are installed. The standard cost for the company's A4 side frame is detailed as follows:

	Frame Division	Finishing Division
Direct material	$4.50	$9.00 (exclude transfer)
Direct labour	6.00	4.50
Variable overhead	9.00	9.00
Total	19.50	22.50

The frame division can also sell half-finished frames to photo framing companies which install the glass and other components. The sales price of a half-finished frame is $24.00. The Finishing Division sells finished frames for $57.00.
Required:
a) Assume that there is no spare capacity in the Frame Division, use the general transfer pricing rule to calculate the transfer price for half-finished frames.
b) Assume that there is spare capacity in the Frame Division.
i. Use the general transfer pricing rule to calculate the transfer price for half- finished frames.
ii. Assume that the predetermined fixed overhead rate in the division is 135 per cent of direct labour cost, calculate the transfer price for half-finished frames based on standard absorption cost plus 10 per cent mark-up.
c) Provide two examples of non-financial performance measures that could be used to measure the performance of a hotel.

Question 6

QUIK Manufacturing Company Ltd produces two products from a joint process. Information about the two joint products is as follows:

Information	Product A	Product B
Budgeted production (in kg)	2 000	4 000
Selling price per kg at split-off	$ 10	$ 20
Additional processing costs per kg after split-off (all variable)	$ 15	$ 30
Selling price per kg after further processing	$40	$50

The cost of the joint process is $ 90 000.

Required:

a) Which of QUIK company's joint products should be sold at split-off point? Please support your answer with the necessary calculations.

b) Which of QUIK company's joint products should be processed further? Support your answer with the necessary calculations.

c) The company currently sells both products at the split-off point. If the company makes decisions that maximises profits, by how much would the company's profits increase by?

Attachment:- Management Accounting.rar