INTRODUCTORY MANAGEMENT ACCOUNTING ASSIGNMENT

Problem 1 -

Sunny Company specializes in processing and the distribution of a variety of blends of coffee. Sunny buys coffee beans from around the world and roasts, blends, and packages them in small one-pound bags and sells them to retail shops.

Currently the company offers 15 coffees to gourmet shops in one-pound bags. Some of the coffees are very popular and sell in large volumes; a few of the newer brands have very low volumes. Sunny prices its coffee to cover all its production cost, including allocated overhead, plus a markup of 30 percent. The company competes primarily on the quality of its products, but customers are price conscious as well.

The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor.

Data for the 2011 budget include factory overhead of $3,000,000, which has been allocated by its current costing system on the basis of each product's direct labor cost. The budgeted direct labor cost for 2011 totals $600,000.

The budgeted direct costs for one-pound bags of two of the company's products are as follows:

Sunny's controller, Amy Chan, believes that its current product costing system could be providing misleading cost information. A team consists of members from product design, manufacturing, and accounting, is formed to use an ABC approach to refine its job-costing system. The two direct-cost categories were retained. The team decides to replace the single indirect-cost pool with six indirect-cost pools. The cost pools represent six activity areas at the facility, each with its own supervisor and budget responsibility.

The resulted 2011 budgeted factory overhead costs are as follow:

Data regarding the 2011 production of two of its lines, Dark Sweet and Dark Beauty, follow. There is no beginning or ending direct materials inventory for either of these coffees.

Required:

1. Using Sunny Company's current product costing system,

a. Determine the company's predetermined budgeted overhead rate using direct labor cost as the single cost driver.

b. Determine the total manufacturing costs of one pound of Dark Sweet coffee and one pound of Dark Beauty coffee. (Supporting calculations are not required)

2. Using the activity-based costing data presented above,

a. compute the cost-allocation rate for each overhead activity.

b. compute the manufacturing overhead cost per pound for the six activities of each type of coffee.

c. compute the revised total manufacturing costs of one pound of each type of coffee. (Supporting calculations are not required)

3. Comment on the results. What new insights are available with the activity-based information on (a) product costing and (b) cost reduction and process improvement?

Problem 2 -

Hong Kong Sports Corp. manufactures plastic boards used for riding the waves at the beach. The standard cost for material and labor is $89.20 per board. This includes 8 kilograms of direct materials at a standard cost of $5 per kilogram and 6 hours of direct labor at $8.20 per hour. The following data pertain to January, 2012:

• Purchase of material: $255,440 (all materials purchased were used).
• Total actual labor costs: $311,402.
• Actual hours of labor: 37,700 hours.
• Direct material efficiency variance: $1,500 unfavorable.
• Work-in-process inventory on January 1: $0
• Work-in-process inventory on January 31: $0
• Units completed: 6,400 (i.e., all 6,400 units are started on January and transferred to Finished-Goods Inventory account).

Required: Compute the following amounts. Indicate whether each variance is favorable or unfavorable (supporting calculations are not required).

(1) Direct manufacturing labor price variance.

(2) Direct manufacturing labor efficiency variance.

(3) Actual kilogram of material used in the production process during January.

(4) Actual price paid per kilogram of direct material in January.

(5) Total amount of direct material and direct labor cost transferred to Finished-Goods Inventory during January.

Problem 3 -

Amigo Company has the following information for its budgeting process for June 2012.

-The ending cash balance as at May 31, 2012 is $15,000.

-The budgeted sales for June 2012 are $290,000.

-All sales are on account.

-Sales proceeds are collected as follows: 80% the month of sale, 10% the following (second) month, and 10 % the third month.

-Accounts receivable are $44,000 on May 31, 2012, consisting of $20,000 from April sales and $24,000 from May sales.

-The budgeted purchases for June 2012 are $192,000.

-The company pays 25% of purchases during the month of purchase and the remaining balance in the following month.

-Accounts payable on May 31, 2012 are $145,000.

-All operating expenses requiring cash are paid during the month of recognition, except that insurance is paid annually in December for the forthcoming year.

-The following operating expenses included in the budgeted income statement for June 30, 2012:

• Salaries $36,000
• Utilities 5,000
• Marketing 10,000
• Depreciation 1,000
• Office expense 4,000
• Insurance 3,000

Required: Compute the following amounts for Amigo Company for June 2012. Please show supporting calculations.

(1) Total cash collections.

(2) Total cash disbursements.

(3) Ending cash balance.

Problem 4 -

McKenna Company uses standard costing. It allocates manufacturing overhead (both variable and fixed) to products on the basis of standard direct manufacturing labor-hours (DLH). The budgeted overhead rate is calculated based on annual budgets for overhead and direct manufacturing labor-hours. The manufacturing overhead budget for 2012 is based on budgeted output of 390,000 units, which requires 1,950,000 direct manufacturing labor-hours.

During March 2012, a total of 35,750 output units were produced and total direct manufacturing labor-hours used were 170,625. Manufacturing overhead (MOH) costs incurred for March 2012 amounted to $186,500. Additional information is provided as follow:

Required: Calculate the following amounts for McKenna Company for March 2012 (supporting calculations are not required):

a. Total manufacturing overhead costs allocated              

b. Variable manufacturing overhead spending variance

c. Fixed manufacturing overhead spending variance

d. Variable manufacturing overhead efficiency variance

e. Production-volume variance

Problem 5 - Show all supporting calculations

Part I) Cat Furniture Limited manufacturing old-fashion dinning room furniture is approached by a foreign customer to fulfill a one-time-only special order for a product similar to one offered to domestic regular customers.  Cat Furniture Limited has excess capacity in manufacturing.  No extra marketing cost will be incurred for this special order. The following per unit data apply for sales to regular customers:

Direct materials - $80

Direct labor - 40

Manufacturing support (Variable 45%; Fixed 55%) - 160

Marketing costs (Variable 35%; Fixed 65%) - 70

Selling price is equal to full cost plus 45% of full cost as mark up

Required:

1) What are the full cost and the selling price of the product per unit?

2) What is the contribution margin per unit?

3) What is the minimum acceptable price of this special order?

4)  What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $360 per unit?

5) Will you advise the management to accept the one-time-only special order at a minimum acceptable price?  Why and why not? (Consider also non-financial factors)

Part II) Dog Company manufactures a part for use in its production of automobiles. When 10,000 units are produced, the costs per unit are:

Direct materials - $ 12

Direct manufacturing labor - 60

Variable manufacturing overhead - 24

Fixed manufacturing overhead - 32

Total - 128

Money Company has offered to sell Dog Company 10,000 units of the part for $120 per unit.  If Dog Company  accepts  the  supplier's  offer,  the  plant  facilities  could  be  used  to  manufacture  another product with expected revenue of  $180,000.  In addition, $20 per unit of fixed manufacturing over­head on the original part would be eliminated.

Required: What is the relevant per unit cost for the original part? Which alternative (financially) is better for Dog Company? Show your supporting calculations.