Reference no: EM132303116

Assessment 1

Task

The purpose of Assessment item 1 is to establish the skills needed in the workplace for costing products and services using the appropriate processes and tools and applying analytical processes to construct accounting systems and models using workplace tools. Each question uses realistic data and the professional practices similar to that found in workplaces.

Question 1: Value Chains

Prepare a report which describes and explains the value chain of the organisation in which you work or for a business or organisation of which you have a deep understanding. Include in your report an evaluation of the value chain's ability to provide a suitable framework for considering management accounting issues within your organisation. Ensure that you have identified the key management accounting issues that are relevant to your organisation.

Information on report writing is in the Resources section of this subject site.

Question 2 Cost of Manufacturing Statement

The following data refer to Portland Precision Engineering Co Ltd for the year ended 31 December 2018.

Sales Revenue	$1,400,000
Raw material inventory, 1 January	67,200
Purchases of raw materials	194,600
Freight Inwards	2,800
Raw material inventory, 31 December	71,500
Direct labour costs incurred	490,000
Selling and Administrative expenses	22,880

Indirect labour costs incurred	77,200
Council rates	90,000
Depreciation on factory machinery	10,750
Income tax expense	32,400
Indirect material used	8,726
Depreciation on factory fittings	6,400
Factory rent expense	39,270
Advertising expense	20,800
Other manufacturing expenses	5,600
Insurance on factory and equipment	22,120
Interest expense	3,080
Sales salaries expense	121,520
Electricity for factory	58,800
Work in process inventory, 1 January	49,000
Work in process inventory, 31 December	50,700
Finished goods inventory, 1 January	210,000
Finished goods inventory, 31 December	201,500

Required:
1. Prepare a cost of goods manufactured statement for the year ended 31 December 2018. This must be prepared in Excel and cut and pasted into your Word document.
2. What was the company's cost of sales for the year ended 31 December 2018?
3. What was the company's gross profit for the year ended 31 December 2018?
4. What was the company's net profit for the year ended 31 December 2018?

Question 3 Cost Allocation

Bezos Ltd is developing departmental overhead rates based on machine hours for its moulding department and direct labour hours for its assembly department. The moulding department has 20 machines that each run for 2,000 hours per year. The assembly department employs 80 people, who each work 2,000 hours per year. The production related overhead costs distributed to the moulding and assembly departments are budgeted at $500,000 and $740,000 respectively. Two support departments, repairs and engineering, directly support the two production departments, moulding and assembly. These support departments have budgeted costs of $100,000 an $580,000 respectively. The production departments' overhead rate cannot by determined until the support department costs are allocated. The following schedule reflects use of the output of the repairs and engineering departments by the various departments.

Support Departments	Repairs	Engineering	Moulding	Assembly
Repairs (repair hours)	0	2,000	3,000	15,000
Engineering (kilowatt hours)	250,000	0	850,000	150,000

Required

1. Calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Use the direct method to allocate support department costs.

2. Estimate the overhead cost of a thingamebob, which is produced using 3 machine hours in the moulding department and 5 labour hours in the assembly department.

3. Using the step-down method to allocate support department costs, calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Allocate the repairs department costs first.

4. Now estimate the cost of the thingamebob using the overhead rates estimated in part 3.

5. Using the reciprocal services method to allocate support department costs, calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department.

6. Now estimate the cost of the thingamebob using the overhead rates estimated in part 5.

7. Prepare a short memo to the Chief Financial Officer of Bezos Ltd, explaining which of the three methods of support department cost allocation results in the most accurate overhead rates and product costs. Explain why this is the most accurate method and why accuracy is important.

Question 4 Job Costing

Collaroy Products Ltd uses a job order costing system to control costs in its two production departments. Factory overhead is applied on the basis of machine hours to the Preparation Department and on the basis of direct labour cost in the Finishing Department.

The company budgeted the following for last year:

	Preparation	Finishing
Manufacturing overhead	$ 285,600	$ 684,000
Machine hours	6,800	9,000
Direct labour hours	13,000	24,000
Direct labour cost	$ 240,000	$380,000

The accounting records for Job 842 reveal the following:

	Preparation	Finishing
Direct materials requisitioned	$1,300	$1,420
Direct labour cost	$ 1,640	$1,800
Direct labour hours	90	100
Machine hours	40	50

Required
1. Calculate the predetermined overhead rate for each department
2. Calculate the total cost of Job 842.
3. If the actual direct labour cost in the Finishing Department was $375,800 and the actual factory overhead was $682,500 was the overhead over-applied or under- applied?

Question 5 Process Costing
Pure Cotton Ltd manufactures organic cotton fabrics for the clothing industry. The following data relate to the weaving department for March:

	Weighted Average	FIFO
Total equivalent units of direct material	60,000	40,000
Total equivalent units of conversion	52,000	44,000
Units completed and transferred out during December	50,000	50,000

The cost data for March were as follows:

Work in process 1 March:	$
Direct material	188,000
Conversion	88,000
Costs incurred during March:
Direct material	328,000
Conversion	545,600

There were 20,000 units in process in the weaving department on 1 March (100% complete as to direct material and 40% complete as to conversion).

Required
1. Prepare a spreadsheet to calculate each of the following amounts using weighted average process costing:
cost of goods completed and transferred out of the weaving department during March
cost of the 31 March work in process inventory in the weaving department.
2. Repeat requirement 1 using the FIFO method.
3. Cut and paste your spreadsheet solution into your the word document for your assignment.

Assessment item 2

Task
Your assignment consists of different question styles including discussion questions, reports, exercises, problem questions and spreadsheet questions. It assesses learning outcomes as listed in the assignment rationale below.

The purpose of this assignment is to continue to develop skills in costing systems with an emphasis on the role of control in managing the production of goods and services efficiently in the workplace. Each question builds on the knowledge gained through the first assignment to develop the concepts of management accounting control through costing. Each question uses realistic data and professional practices similar to that found in workplaces.

Question 1: Budget

Resort Island University is preparing its budget for the upcoming academic year. This is a specialised private university that charges fees for all degree courses. Currently, 15,000 students are enrolled on campus. However, the university is forecasting a 5 % growth in student numbers in the coming year, despite an increase in fees of $3,500 per subject. The following additional information has been gathered from an examination of the university records and conversations with university managers:

• Resort Island is planning to award scholarships to 150 students, which will cover their fees.
• The average class has 80 students, and the typical student takes 4 subjects per semester. Resort Island operates 2 semesters per year.
• The average academic staff salary is $120,000 per annum including on-costs.
• Resort Island's academic staff are evaluated on the basis of teaching, research administration and professional/community service. Each of the academic staff teaches the equivalent of three subjects during the academic year.

Required:
1. Prepare a revenue budget for the upcoming academic year
2. Determine the number of staff needed to cover classes.
3. Assume there is a shortage of full-time academic staff. List at least five actions that Resort Island might take to accommodate the growing student numbers.
4. You have been requested by the university's deputy vice chancellor (DVC) to construct budgets for other areas of operation (such as library, grounds, cafeteria, and maintenance). The DVC noted: 'The most important resource of the university is academic staff. Now that you know the number of staff needed, you can prepare the other budgets. Academic staff are indeed the key driver - without them we don't operate.' Does the DVC really understand the linkages with the budgeting process? Explain.

Question 2: Standard Costing

Good Health Insurance Company uses a flexible overhead budget for its new policy department. The firm offers five types of policy, with the following standard hours allowed for policy clerical processing:

Health	1 hour
Life	1.5 hours
Automobile	2 hours
Renter	2 hours
Homeowner	5 hours

The following numbers of insurance applications were processed during April:

Health	375
Life	300
Automobile	150

Renter	600
Homeowner	300

The accountant estimates that the variable overhead rate in the application processing department is $10 per hour, and the fixed overhead costs will amount to $6,000 per month.

Required:

1. Calculate the number of standard clerical hours allowed in April, given the number of applications processed.

2. Explain why the company's flexible budget should be based on the number of clerical hours allowed rather than on the number of applications processed.

3. Using Excel, construct a formula flexible overhead budget for the company, and calculate the flexible budget for total overhead cost in April. Include both the formula view and results view of your spreadsheet in your Word document.

4. Prepare a short memorandum to the management of Good Health evaluating the benefits that standard costing systems can offer a business.

Question 3: Activity based costing

The Accountant for Pix Photographic supply Ltd has estimated the following activity cost pools and activity drivers for the coming year:

Activity	Budgeted overhead cost $	Activity driver	Required level for activity driver	Cost per unit of activity driver
Machine setups	300,000	No. of setups	100	$3,000 per setup
Material Handling	150,000	Weight of raw material	50,000 kg	$3 per kg
Hazardous waste control	75,000	Weight of hazardous chemicals used	10,000 kg	$7.50 per kg
Quality control	112,500	No. of inspections	1,000	$112.50 per inspection
Other overhead costs	300,000	Machine hours	20,000	$15 per machine hour
Total	937,500

An order for 1,000 boxes of film development chemicals has the following production requirements:

Machine setups	4 setups
Raw material	10,000 kg
Hazardous materials	2,000 kg
Inspections	10 inspections
Machine hours	500 machine hours

Required
1. Calculate the total overhead that should be assigned to the order for development of chemicals.
2. What is the overhead cost per box of chemicals?
3. If Pix Photographic Supply wee to use a plant-wide predetermined overhead rate based on machine hours, calculate he rate per hour.
4. Under the approach in requirement 3, how much overhead would be assigned to the order for development chemicals:
1. in total
2. per box of chemical?
5. Explain why these two product costing systems result in such widely differing costs. Which system do you recommend? Why?
6. Calculate the unit cost of a production order for 100 specially coated plates used in film development. In addition to direct material costing $180 per plate and direct labour costing $60 per plate, the order requires the following:

Machine setups	2 setups
Raw material	800 kg
Hazardous materials	300 kg
Inspections	3 inspections
Machine hours	50 machine hours

Question 4: Relevant information for decisions

Cool Pool Ltd produces equipment and chemical supplies for the swimming pool industry. In one joint process, 10,000 litres of GSX are processed into 7,000 litres of xenite and 3,000 litres of banolide. The cost of the joint process including the GSX, is $40,000. Cool Pool allocates $28,000 of the joint cost to the xenolite and $12,000 of the cost to the banolide. the 3,000 litres of banolide can be sold at the split-off point for $5,000, or they can be processed further into a product called kitrocide. The sales value of the 3,000 litres of kitrocide is $20,000, and the additional processing cost is $26,200.

Cool Pool also manufacture pool vacuum cleaners. A new product is now available from India and Cool Pool's management are considering buying in these new vacuum cleaners and badging them as Cool Pool cleaners.

Cool Pool's managing director has asked your consulting firm to make a recommendation as to whether the banolide should be sold at the split-off point or processed further and to provide them with details of the issues that they should consider when making the decision to outsource this product.

Required
1. Write a letter providing an analysis and a recommendation with respect to whether the banolide should be sold at split off or processed further. Also include in this letter the key issues that the management should consider when making the outsourcing decision.

Question 5: Variable costing
Slumberworld Pty Ltd's planned production for the current year was 15,000 units. This production level was achieved, but only 13,500 units were sold at $60 each. Other data are as follows:

	$
Direct material used	120,000
Direct labour cost incurred	60,000
Fixed manufacturing overhead (actual and planned)	75,000
Variable manufacturing overhead (actual and planned)	36,000
Fixed selling and administrative expenses	90,000
Variable selling and administrative expenses	13,500
Finished goods inventory, 1 January	None

The company uses normal costing. There were no work in process inventories at the beginning or end of the year.

Required
1. Prepare an income statement for Slumberworld for the current year using:
1. absorption costing
2. variable costing
2. Which costing method, absorption costing or variable costing, shows a higher operating profit? Why?

3. What would be Slumberworld's finished goods inventory cost on 31 December, under:
1. absorption costing
2. variable costing
4. Which costing method, variable or absorption, would you recommend to Slumberworld's management? Why?