Fundamentals of Management Accounting Assignment

Question 1-

Multiple Choice Questions - This part consists of 20 multiple choice questions. Answers to these questions must be indicated on the separate answer sheet provided.

1. What determines the difference between a direct and an indirect cost?

A. Whether it changes when activity levels change.

B. Whether it is relevant to a particular decision.

C. Whether it can be traced to a specific cost object.

D. Whether it is related to manufacturing or nonmanufacturing activities.

2. Which of the following would not be classified as a product cost?

A. Direct materials.

B. Direct labour.

C. Indirect materials.

D. Sales commissions.

3. Which of the following is not a period cost?

A. Legal costs.

B. Public relations costs.

C. Sales commissions.

D. Wages of assembly-line workers.

Questions 4-8 relate to the following information.

Annenbaum Corporation uses the weighted average method in its process costing system. The company has the following information available for the month of June.

Work in process, 1 June - 400 units

Direct material: 65% complete - $5,700

Conversion costs: 45% complete - 6,800

A total of 6500 units were started and 5900 units were transferred out.

Costs incurred during June:

Direct material: $125,500

Conversion costs: 207,000

Work in process, 30 June

Direct material: 50% complete

Conversion costs: 35% complete

(Note: Your answers may differ from those offered below due to rounding errors. In all cases, select the answer that is the closest to the answer you computed)

4. What are the equivalent units for conversion costs for the month?

A. 6,250

B. 5,900

C. 350

D. 6,900

5. The cost per equivalent unit for conversion costs for the month?

A. $30.99

B. $35.92

C. $33.12

D. $34.21

6. The cost per equivalent unit for materials for the month?

A. $19.01

B. $19.61

C. $20.50

D. $18.19

7. The total cost of units completed and transferred out during the month is:

A. $332,500

B. $345,000

C. $322,777

D. $377,485

8. The cost of ending work in process inventory for the month is:

A. $19,148

B. $22,223

C. $54,708

D. $27,354

9. Auto repairers would be classified as a:

A. Mass services

B. Wholesaler

C. Service shop

D. Professional service

10. Upstream costs consist of

A. R & D; Manufacturing; Distribution

B. Customer service; Distribution; Marketing

C. Manufacturing; Customer service, Supply

D. R & D; Product Design; Supply

11. Which of the following does the value chain for a merchandising entity include?

i. Design

ii. Customer support

iii. Purchasing

iv. Production/sales transaction

A. i, ii and iii

B. ii, iii and iv

C. i and iv

D. iii and iv

Questions 12-14 relate to the following information.

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing) and two support departments (Janitorial and Personnel). The usage of the two support departments in 2012 is as follows:

The budgeted costs in the support departments of 2012 were as follows:

Personnel - $90 000

Janitorial - $50 000

12. Using the direct method, what is the Janitorial Department cost allocated to the Assembly Department?

A. $28,948

B. $21,053

C. $34,158

D. $25,000

13. Using the step-down method, what is the amount of Janitorial Department cost allocated to the Finishing Department?

A. $28,947

B. $34,158

C. $32,450

D. $27,500

14. Using the reciprocal method, what is the amount of Personnel Department cost allocated to the Assembly Department?

A. $92,965

B. $59,296

C. $55,779

D. $61,977

15. Service department costs are

A. Generally treated as period costs rather than product costs.

B. Reported as selling and administrative expenses on the income statement.

C. Eventually applied by the user departments to the units produced.

D. Seldom found in manufacturing organizations.

16. The net profit of a company for a year on a variable costing basis is $85 000 and on an absorption costing basis, the net profit is $73,000. Fixed manufacturing overhead costs per unit were the same in both the prior and current year ($1.20 per unit). What was the change in inventory over the year?

A. Decrease of 10,000 units

B. Increase of 10,000 units

C. Increase of 12,000 units

D. Decrease of 8,000 units

17. Monex reported $65,000 in net profit for the year using absorption costing. The company had no units in beginning inventory, planned and actual production was 20,000 units and sales were 18,000 units during the year. Variable manufacturing costs were $20 per unit and total budgeted fixed manufacturing overhead was $100,000. There was no under-applied or over-applied overhead reported during the year. Determine the net profit under variable costing.

A. $115,000

B. $75,000

C. $65,000

D. $55,000

18. Where the fixed overhead rate in both opening and closing inventories is the same, which of the following statements is correct?

A. If inventory remains the same, absorption costing profit will be greater than variable costing profit.

B. If inventory has decreased, absorption costing profit will be greater than variable costing profit

C. Absorption costing profit is always greater than variable costing profit

D. If inventory has increased, absorption costing profit will be greater than variable costing profit

19. When a traditional, volume-based costing system is used, which of the following products is most likely to suffer from cost distortion?

A. high-volume, medium-complexity product

B. A low-volume, low-complexity product

C. A low-volume, medium-complexity product

D. A low-volume, high-complexity product

20. Ploughing Company produces two products as a result of a joint process. The process yields 48,000kg of Product 1 and 72,000kg of Product 2. Product 1 sells for $12 per kg, Product 2 sells for $7 per kg. Product 2 can be further processed with additional costs incurred amount to $28,000, and the product can then be sold for $10 per kg. Joint costs incurred were $200,000. Using the relative sales value method, the joint costs allocated to Product 1 would be approximately:

A. $93,333

B. $106,667

C. $88,889

D. $90,852

Question 2 -

(a) The accountant for Halifax Photographic Supply Ltd has estimated the following activity cost pools and activity drivers for the coming year:

Halifax Photographic Supply Ltd has received an order for 1000 boxes of film development chemicals. In addition to direct material costing $120 per box and direct labour costing $40 per box, the order has the following production requirements:

Required:

(i) If Halifax Photographic Supply Ltd were to use a plant wide predetermined overhead rate based on machine hours, compute the total manufacturing cost of the order.

(ii) Compute the total manufacturing cost of the order using activity based costing.

(iii) Explain why these two product costing systems result in such widely differing costs. Which system do you recommend?

(b) "Worrying about the identification of different types of overhead costs and cost drivers to implement ABC system is a waste of time. In the end, all the overhead is charged to production and therefore a plant wide rate should be used to apply overhead costs to products." Critically evaluate this statement.

Question 3 -

CoverUp Corporation makes three different sizes of quilt covers in its manufacturing plant in Sydney. Data concerning these quilt covers appears below:

All three quilt covers are sold in highly competitive markets, so the company is unable to raise its prices without losing an unacceptable numbers of customers. The manufacturing plant has the following fixed costs:

Required:

(a) Calculate the unit contribution margin for each product type.

(b) Determine the weighted-average unit contribution margin.

(c) Calculate the number of units of each product that must be sold to break even.

(d) Determine the total number of units of each product that must be sold to obtain a target profit of $65,900 for the company (ignore taxes). Assume a constant sales mix.

(e) What is the safety margin? What is the purpose of calculating safety margin?

Question 4 -

(a) Rianne Company produces a light fixture with the following unit cost:

Direct material: $2

Direct labour: 1

Manufacturing overhead*: 5

Unit cost: $8

*40% of manufacturing overhead costs are fixed overheads.

The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totaling $500,000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each.

At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs.

Required:

(i) Based on a quantitative analysis, should the company accept the order? Show calculations to support your answer.

(ii) If the customer offered to buy 200,000 fixtures instead, should the company accept the order?

(iii) Identify three qualitative factors that Rianne should consider prior to making a final decision regarding whether to purchase the light fixtures.

(b) Define the terms "sunk cost" and "opportunity cost", and discuss how they are treated when making decisions?

Question 5 -

Firex Ltd manufactures two products - Product A and Product B. Both products require three operations - cutting, gluing and finishing. The manager of the firm has collected the following data on the products:

Machine hours required (per unit)

The manager has also determined that during each day, 112 machine hours are available for cutting, unlimited machine hours are available for gluing, and 72 machine hours are available for finishing.

Required:

(a) Formulate the objective function to maximize the contribution margin.

(b) Formulate the constraints based on the limited resources available.

(c) Graph the constraints and determine how many of each product should be produced to maximize the total contribution margin.

Question 6 -

Chow Company manufactures children's chairs made of PVS plastic tubing and heavy canvas material. Each chair requires 8 metres of the PVC tubing and 3 metres of material. Budgeted sales are 20,000 chairs for June, 25,000 chairs for July and 30,000 chairs for August. Ending finished goods inventory is budgeted at 10% of the current month's sales. Ending materials inventories are budgeted at 10% of the current month's production requirements.

Required:

(a) Prepare a production budget for each of the months of June and July. Assume the beginning finished goods inventory of chairs in June was 2,500 units.

(b) Prepare schedules showing purchase requirements for PVC tubing and for material for the month of June. Assume 16,000 metres of PVC tubing and 6,000 metres of material are on hand at the beginning of June.

(c) How can managers create budgetary slack? Provide two (2) reasons why managers may create budgetary slack.

Question 7 -

Su's Plastics Company manufactures a single product, Jasmain. The standard cost specification sheet shows the following standards for one unit of Jasmain:

The fixed overhead allocation rate is based on normal monthly capacity of 15,000 direct labour hours. Fixed overhead and production are expected to be spread evenly throughout the year.

A total of 5,500 Jasmains were produced during July.

Actual costs incurred during July were:

25,000 kg of material X were purchased @ $12.50 per kg.

21,000 kg of material X were used.

18,000 direct labour hours were worked at an average wage rate of $1 I per hour.

Actual overhead incurred:

Fixed - $80,000

Variable - $34,000

Required:

(a) Compute the following variances:

 i. Direct material price variance

ii. Direct material quantity variance

iii. Direct labour rate variance

iv. Direct labour efficiency variance

v. Variable overhead spending variance

vi. Variable overhead efficiency variance

vii. Fixed overhead budget variance

viii. Fixed overhead volume variance

(b) Explain two (2) advantages of using a flexible budget for control.

(c) "The process of reporting and following up only significant cost variances is called management by exception'. List four factors that could be considered in determining which variances are significant and therefore warrant investigation?