ACC203 Revision 2021 Jan Sem PDF

Preview

Summary

SUA variable cost changes, in total, when level of activity changes If production increases, variable cost will remain constant on a per unit basis Fixed costs vary on a per unit basis, and in total, remain unchanged as activity levels change.Which of the following is not an example of a manufacturi...

Description

SU2 A variable cost changes, in total, when level of activity changes If production increases, variable cost will remain constant on a per unit basis Fixed costs vary on a per unit basis, and in total, remain unchanged as activity levels change. Which of the following is not an example of a manufacturing overhead? Factory lighting Factory rent Depreciation of factory machinery Assembly line workers’ wages

Costs of goods purchased includes purchase cost AND transportation inward cost Indirect materials are materials required for the production process, which do not become an integral part of the finished product AND direct materials that are so insignificant in cost that it becomes unimportant to trace their costs to specific products

Prepare a schedule of cost of goods manufactured Australian Aluminium Company Schedule of Costs of Goods Manufactured For the year ended 31 December Direct material: Raw materials inventory, 1 January

147,400

Add: Purchases of raw materials

610,200

Raw material available for use

757,600

Less: Raw materials inventory, 31 December

171,400

Raw materials used

586,200

Direct Labour

977,000

Manufacturing Overhead Indirect Material

27,400

Indirect Labour

68,500

Depreciation of plant and equipment

274,000

Electricity

68,500

Other

82,200

Total Manufacturing Overhead

520,600

Total Manufacturing Costs

2,083,800

Add: Work in process inventory, 1 January

294,800

Subtotal

2,378,600

Less: Work in Process inventory, 31 December

281,100

Cost of goods manufactured

2,097,500

Prepare a schedule of COGS

Australian Aluminium Company Schedule of Costs of Goods Sold For the year ended 31 December Finished Goods inventory, 1 January

368,500

Add: Cost of goods manufactured

2,097,500

Cost of goods available for sale

2,466,000

Less: Finished Goods inventory, 31 December

402,800

Cost of goods sold

2,063,200

Prepare an Income Statement Australian Aluminium Company Schedule of Costs of Goods Sold For the year ended 31 December Sales revenue

3,027,700

Less: Cost of goods sold

2,063,200

Gross profit

964,500

Selling and administrative expenses

301,400

Profit before taxes

663,100

Income tax expense

265,240 (40%*663,100)

Net profit

397,860

SU3

Prepare a schedule of COGM Artisan Furniture Ltd Schedule of Costs of Goods Manufactured For the year ended 31 December Direct material: Raw materials inventory, 1 January

47,000

Add: Purchases of raw materials

415,200

Raw material available for use

462,200

Less: Raw materials inventory, 31 December

51,700

Raw materials used

410,500

Direct Labour

180,000

Manufacturing Overhead

378,000

Total Manufacturing Costs

968,500

Add: Work in process inventory, 1 January

61,500

Subtotal

1,030,000

Less: Work in Process inventory, 31 December

67,650

Cost of goods manufactured

962,350

Advanced Marine Technologies Ltd (AMT) manufactures outboard motors and an assortment of other marine equipment. The company uses a job costing system and manufacturing overhead is applied on the basis of machine hours. Estimated manufacturing overhead for the year is $2 868 000, and management expects that 75 000 machine hours will be used.

No 1

Transaction a

General Journal

Debit

Raw Material Inventory

8,850

Accounts Payable

2

b

Work-in-process inventory

8,850

275

Raw material inventory

3

c

MOH

275

40

Manufacturing-supplies inventory

4

d

MOH

40

1,000

Cash

5

e

WIP inventory

1,000

145,000

Wages payable

6

f

Selling and administrative

Credit

145,000

2,500

expense Prepaid insurance

7

g

Raw material inventory

2,500

6,000

Accounts payable

8

h

Accounts payable

6,000

1,700

Cash

9

i

MOH

1,700

26,000

Wages payable

10

j

MOH

26,000

22,000

Accumulated depreciation Equipment

11

k

Finished goods inventory

22,000

2,200

WIP inventory

12

l

WIP inventory

2,200

310,000 (8000*38.75)

MOH

13

m

Accounts receivable

310,000

350,000

Sales revenue COGS Finished goods inventory

350,000 139,000 139,000

The estimates used to calculate PDOR will generally prove to be incorrect to some degree, will usually result in a non-zero balance left in the MOH account at the end of the year and

are likely to result in either overapplied or underapplied overhead. SU4 Chomp Pet Foods manufactures canned dog food. The firm employs a process costing system for its manufacturing operations. All direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. The company’s production quantity schedule for June follows:

Equivalent units of direct material during June. Use the FIFO method. 6,800 Equivalent units of conversion during June. Use the FIFO method. 6,530 Equivalent units of direct material during June. Use the weighted average method. 11,000 Equivalent units of conversion during June. Use the weighted average method. 9,680

TeleFone Ltd assembles various components used in the telecommunications industry. The company’s major product, a relay switch, is made by assembling three parts: A453, B344 and C543. The following information relates to activities in March: Beginning work-in-process inventory: 20,000 units, 60 percent complete as to conversion;

cost, $1,000,000 (direct materials, $780,000; conversion cost, $220,000). ● Production started: 140,000 units. ● Production completed: 136,000 units. ● Ending work-in-process inventory: 24,000 units, 40 percent complete as to conversion. ● Direct materials used: A453, $620,000; B344, $1,500,000; C543, $1,000,000. ● Hourly wage of direct laborers, $20; total direct-labor payroll, $202,800. ● Overhead application rate: $32 per direct-labor hour. All parts are introduced at the beginning of TeleFone’s manufacturing process; conversion cost is incurred uniformly throughout production Determine the cost of goods completed during the month. Goods completed during March cost $4,013,360 (136,000 units x $29.51) as the following calculations show:

Determine the cost of the work-in-process inventory on 31 March

Direct Material (24,000*24.38)

585,120.00

Conversion Cost (9,600*5.13)

49,248.00

Total

634,368.00

With regard to the ending work-in-process inventory: How much direct material cost would be added to these units in April? -

No material would be added during April. All material is introduced at the start of the

manufacturing process and these units were started in March. What percentage of conversion would be performed on these units in April? -

Since the work-in-process inventory is 40 percent complete at the end of March, 60 percent of the conversion would be done in April.

Assume that the relay switch required the addition of another part (D775) at the 70 percent stage of completion. How many equivalent units with respect to part D775 would be represented in March’s ending work-in-process inventory? -

Given that the ending work-in-process inventory is at the 40 percent stage of completion, these units would not have reached the 70 percent point in April where D775 is added. Therefore, there would be zero equivalent units with respect to part D775 in the work-in-process inventory at the end of March

Steelworx Ltd accumulates costs for its single product using weighted average process costing. Direct material is added at the beginning of the production process, and conversion occurs uniformly throughout the process. All spoilage is detected at the quality inspection point, which occurs after production is 25 per cent complete. A partially completed production report for April follows:

Schedule for EU:

Use weighted-average process costing to compute the costs per equivalent unit

Use weighted-average process costing to compute the cost of goods completed and transferred out during April Cost of goods completed and transferred out during April: (number of units transferred out) × (total cost per equivalent unit) = 352,000 × $0.975= $343,200 Use weighted-average process costing to compute the cost of spoiled units during April.

Use weighted-average process costing to compute the cost remaining in the work-in-process inventory on 30 April. Cost remaining in work-in-process inventory at April 30 : Direct material: (number of equivalent units of direct material) × (cost per equivalent unit of direct material) = 32,000 × $0.575 = $18,400 Conversion: (number of equivalent units of conversion) × (cost per equivalent unit of conversion) = 25,600 × $0.40 = $10,240 Total cost of April 30 work in process = $18,400 + $10,240 = $28,640

Prepare a journal entry to record the transfer of the cost of goods completed and transferred out during April. Dr Finished Goods inventory 408,000 Cr WIP inventory 408,000

SU5 Tas Machinery manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $1,028,000 and 25,700 hours, respectively. Information about the company’s products follows:

Tas Machinery’s overhead of $1,028,000 can be identified with three major activities: order processing ($198,000), machine processing ($720,000) and product inspection ($110,000). These activities are driven by the number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow:

Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was

installed—machinery that was expected to produce significant operating efficiencies. Required: - Assuming use of direct labour hours to apply overhead to production, calculate the unit manufacturing costs of the basic and superior products if the expected manufacturing volume is attained. Predetermined overhead rate = budgeted overhead ÷ budgeted direct labour hours = $1,028,000 ÷ 25,700* = $40.00 per direct labour hour *25,700 budgeted direct labour hours = (3,100 units of Basic)(3 hrs/unit) + (4,100 units of Superior)(4 hrs/unit

-

Assuming use of activity-based costing, calculate the unit manufacturing costs of the basic and superior if the expected manufacturing volume is attained.

Activity-based overhead application rates

Order processing, machine processing and product inspection costs of a Basic unit and a Superior unit:

* $455,200 ÷ 3,100 units = $146.84 ** $572,800 ÷ 4,100 units = $139.71 The manufactured cost of a Basic unit is $208.84, and the manufactured cost of an Superior unit is $245.71:

Tas Machinery’s selling prices are based heavily on cost. (a) Using direct labour hours as an application base, which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each product. The Superior product is overcosted by the traditional product costing system. The labour-hour application base resulted in a $266.00 unit cost; in contrast, the more accurate ABC approach yielded a lower unit cost of $245.71. The opposite situation occurs with the Basic Product, which is undercosted by the traditional approach ($182.00 vs$208.84 under ABC). (b) Is it possible that overcosting and undercosting (i.e. cost distortion) and the subsequent determination of selling prices are contributing to the company’s profit woes? Explain.

Yes, especially since the company’s selling prices are based heavily on cost. An overcosted product will result in an inflated selling price, which could prove detrimental in a highly competitive marketplace. Customers will be turned off and will go elsewhere, which hurts profitability. With undercosted products, selling prices may be too low to adequately cover a product’s more accurate (higher) cost. This situation is also troublesome and will result in a lower income being reported for the company.

Secure Bank has two support departments: the human resources department and the computing department. The bank also has two departments that service customers directly: the deposits department and the loans department. Usage of the two support departments’ output in the year just ended was as follows

The budgeted costs in the two support departments for the year just ended were:

Use the direct method to allocate the budgeted costs of the human resources and computing departments to the deposits and loans departments

Secure Bank has two support departments: the human resources department and the computing department. The bank also has two departments that service customers directly: the deposits department and the loans department. Usage of the two support departments’

output in the year just ended was as follows:

The budgeted costs in the two support departments for the year just ended were:

Pristine Ltd manufactures two types of storage cabinets, deluxe and executive, and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows.

The management accountant has determined that the firm’s overhead can be identified with three activities: manufacturing setups, machine processing and product shipping. Data on the number of setups, machine hours and outgoing shipments, which are the activities’ three respective cost drivers, follow:

The firm’s total overhead of $4,620,000 is subdivided as follows: manufacturing setups, $1,008,000; machine processing, $2,772,000; and product shipping, $840,000

1. Calculate the unit manufacturing cost of Deluxe and Executive cabinets by using the company’s current overhead costing procedures. Deluxe manufacturing overhead cost: 16,000 machine hours x $120= $1,920,000 $1,920,000 ÷ 8,000 units = $240.000 per unit Executive manufacturing overhead cost: 22,500 machine hours x $120= $2,700,000 $2,700,000 ÷ 15,000 units = $180.00 per unit

2. Calculate the unit manufacturing cost of Deluxe and Executive cabinets by using activity-based costing. Activity-based application rates:

Manufacturing setup, machine processing and product shipping costs of a Deluxe unit and an Executive unit:

The manufactured cost of a Deluxe cabinet is $368.80 and the manufactured cost of an Executive cabinet is $287.04. 3. Is the cost of the Deluxe cabinet overstated or understated (i.e. distorted) by the use of machine hours to allocate total manufacturing overhead to production? If so, by how much? The Deluxe storage cabinet is understated. The use of machine hours produced a unit cost of $329.50; in contrast, the more accurate activity-based costing approach shows a unit cost of $368.80. The difference between these two amounts is $39.30. 4. Calculate the aggregate amount by which the Deluxe cabinet line is undercosted by the company’s current traditional overhead costing procedures. Then calculate the aggregate amount by which the traditional system overcosts the Executive cabinet line. Cost distortion: The Deluxe cabinet product line is undercosted by $314,400, and the Executive cabinet product line is overcosted by $314,400. Supporting calculations follow:

5. Assume that the current selling price of a Deluxe cabinet is $420 and the marketing manager is contemplating a $80 discount to stimulate sales. Is this discount advisable? Briefly discuss. No, the discount is not advisable. The regular selling price of $420, when compared against the more accurate ABC cost figure, shows that each sale provides a profit to the firm of $51.20 ($420.00 – $368.80). However, a $80 discount will actually produce a loss of $28.80 ($368.80 – $340.00), and the more units that are sold, the larger the loss. Notice that with the less accurate, machine-hour-based figure ($329.50), the marketing manager will be misled, believing that each discounted unit sold would boost income by $10.50($340.00 – $329.50).

SU6 Everywhere Sports is a retail store supplying sporting equipment to community sports clubs. Information about the store’s operations is as follows: ● November 20x1 sales amounted to $600,000. ● Sales are budgeted at $640,000 for December 20x1 and $600,000 for January 20x2. ● Receipts are expected to be 60 percent in the month of sale and 38 percent in the month following the sale. Two percent of sales are expected to be uncollectible. Bad debts expense is recognized monthly. ● The store’s gross margin is 20 percent of its sales revenue. ● A total of 70 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 30 percent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase. ● Other monthly expenses paid in cash amount to $47,200. ● Annual depreciation is $492,000. The company’s balance sheet as of November 30, is as follows:

Required: Compute the budgeted cash collections for December.

Compute the budgeted income (loss) before income taxes for December. (27,000)

Compute the projected balance in accounts payable on December 31. Projected balance in accounts payable on December 31: The December 31 balance in accounts payable will be equal to December's purchases of merchandise. Since the store's gross margin is 20 percent of sales, its cost of goods sold must be 80 percent of sales

Rockhampton Chemical Company produces three products using three different continuous processes. The products are Yarex, Darol and Norex. Projected sales in litres for the three

products for years 2 and 3 are as follows:

Inventories are planned for each product so that the projected finished goods inventory at the beginning of each year is equal to 7 per cent of that year’s projected sales. ● Because of the continuous nature of Rockhampton’s processes, work in process inventory for each of the products remains constant througho...