INTRODUCTORY MANAGEMENT ACCOUNTING ASSIGNMENT

Problem 1 -

Rango Company manufactures two types of sofas, cloth and leather. Cloth sofas require no polishing activities. Rango Company adopts the activity-based costing system (ABC) with two direct-cost categories (direct materials and direct manufacturing labor) and four indirect-cost pools to allocate its manufacturing overhead costs.

The following is the company's activity cost pools and related data for the current year:

In the month of May, both types of sofas are produced. The relevant production costs and data are as follows:

Additional information:

Direct labor is paid $25 per hour.

The company's non-manufacturing activities are as follows: product design of the leather sofa is at $10 each and that of the cloth sofa is at $15 each. Support costs allocated are $50 per leather sofa and $80 per cloth sofa.

Required -

(a) Compute total manufacturing costs of the leather and cloth sofas for May.

(b) Compute manufacturing costs per unit of the leather and cloth sofas for May.

(c) Compute product cost per unit of the leather and cloth sofas including the non-manufacturing costs for May.

Problem 2 -

ACCT Manufacturing produces two products, X1 and X2. ACCT expects to sell 20,000 units of X1 and 10,000 units of X2. ACCT plans on having an ending inventory of 4,000 units of X1 and 2,000 units of X2. Currently, ACCT has 1,000 units of X1 in its inventory and 800 units of X2. Each product requires two labor operations: molding and polishing. Product X1 requires one hour of molding time and one hour of polishing time. Product X2 requires one hour of molding time and two hours of polishing time. The direct labor rate for molders is $20 per molding hour, and the direct labor rate for polishers is $25 per polishing hour.

Required:

(a) Prepare a direct labor budget in hours and dollars for each product.

(b) Describe the benefits to an organization of preparing an operating budget. 

Problem 3 -

The following data for the telephone company pertain to the production of 450 rolls of telephone wire during June. Selected items are omitted because the costing records were lost in a windstorm.

Direct Materials (All materials purchased were used.)

• Standard cost per roll: a pounds at $4.00 per pound.
• Total actual cost: b pounds costing $9,600.
• Standard cost allowed for units produced was $9,000.
• Materials price variance: c .
• Materials efficiency variance was $80 unfavorable.

Direct Manufacturing Labor:

Standard cost is 3 hours per roll at $8.00 per hour.

• Actual cost per hour was $8.25.
• Total actual cost: d .
• Labor price variance: e .
• Labor efficiency variance was $400 unfavorable.

Required:

(a) Fill in the missing elements in the report represented by the lettered items (Supporting calculations are not required).

(b) Give three possible reasons to explain the unfavorable efficiency variance for direct manufacturing labor.

Problem 4 -

VL Company has budgeted to manufacture 200,000 units for the year ended December 31, 2010. The standard cost sheet specifies two direct labor-hours for each unit manufactured. Total manufacturing overhead was budgeted at $900,000 for the year with a fixed manufacturing overhead rate of $1.50 per direct labor-hour. Both fixed and variable manufacturing overhead costs are assigned to products on the basis of standard direct labor-hours. The actual data for the year ended December 31, 2010, follow:

Units manufactured - 198,000

Direct labor-hours worked - 440,000

Variable manufacturing overhead incurred - $352,000

Fixed manufacturing overhead incurred - $575,000

Required - Determine the following for the year just completed:

1. Total standard direct labor hours for the units manufactured.

2. Total amount of fixed manufacturing overhead cost budgeted.

3. Standard variable manufacturing overhead rate per direct labor-hour.

4. Variable overhead efficiency variance.

5. Variable overhead spending variance.              

6. Fixed overhead spending variance.

7. Production volume variance.

8. Variance overhead flexible-budget variance.

9. Fixed overhead flexible-budget variance.

(You are not required to show your workings.)

Problem 5 -

HKBT Corp. produces beach towels. Its facilities provide the firm with the capacity to produce 48,000 units per month.

For the month of March 2011, 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 2011 is as follows:

The firm's variable manufacturing overhead is $3 per unit, and its variable selling expense is $2 per unit. There are no variable administrative expenses.

This morning, the firm received a special order from Sanya Ltd. for 10,000 units at a selling price of $15 per unit. For the special order, the direct material cost per unit will be 10% greater than the amount per unit for budgeted production. The unit costs for direct labor and variable manufacturing overhead will be the same as those for budgeted production.

If the special order is accepted, fixed manufacturing overhead and fixed selling expenses will not change, but the fixed administrative expenses will increase by $5,000. However, there will be no variable selling expense associated with this order.

Required: If HKBT Corp. accepted the special order, what would be the change in the firm's net income? Show all calculations.