Management Accounting Fundamentals Assignment

Question 1 -

Bob Marsden manages the Victorian plant of George Manufacturing. He has been approached by a representative of Garfield Engineering regarding the possible replacement of a large piece of manufacturing equipment that George uses in its process with a more efficient model. While the representative made some compelling arguments in favour of replacing the 3-year-old equipment, Bob is hesitant. He is hoping to be promoted next year to manager of the larger New South Wales plant, and he knows that the accrual-basis net operating income of the Victorian plant will be evaluated closely as part of the promotion decision. The following information is available concerning the equipment replacement decision:

The historical cost of the old machine is $300,000. It has a current carrying amount of $120,000, two remaining years of useful life and a market value of $72,000. Annual depreciation expense is $60,000. It is expected to have a salvage value of $0 at the end of its useful life.

The new equipment will cost $180,000. It will have a two-year useful life and a $0 salvage value. George uses straight-line depreciation on all equipment. The new equipment will reduce electricity costs by $35,000 per year and will reduce direct manufacturing labour costs by $30,000 per year.

For simplicity, ignore income taxes and the time value of money.

Required:

1. Assume that Bob Marsden's priority is to receive the promotion, and he makes the equipment replacement decision based on next year's accrual-based net operating income. Which alternative would he choose? Show your calculations.

2. What are the relevant factors in the decision? Which alternative is in the best interest of the company over the next two years? Show your calculations.

3. At what cost of the new equipment would Bob Marsden be willing to purchase it? Explain.

Question 2 -      

Chan uses a standard costing in its manufacturing plant for car parts. The standard cost of a particular car part, based on a denominator level of 4000 output units per year, included 6 machine hours of variable manufacturing overhead at $8 per hour and 6 machine hours of fixed manufacturing overhead at $15 per hour. Actual output produced was 4400 units. Variable manufacturing overhead incurred was $245,000. Fixed manufacturing overhead incurred was $373,000.Actual machine hours were 28,400.

Required:

1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances, using a 4 variance analysis.

2. Describe how individual fixed manufacturing overhead items are controlled from day to day.

3. Discuss possible causes of the fixed manufacturing overhead variance.

Question 3 -

Nihon Ltd is a manufacturer of digital cameras. It has two departments: Assembly and Testing. In January 2014, the company incurred $850,000 on direct materials and $898,000 on conversion costs, for a total manufacturing cost of $ 1,748,000.

1. Assume there was no beginning inventory of any kind on 1 January 2013. During January, 10,000 cameras were placed into production and all 10,000 were fully completed at the end of the month. What is the unit cost of an assembled camera in January?

2. Assume that during February 10,000 cameras are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9,000 cameras are fully complete at the end of the month. All direct materials have been added to the remaining 1,000 cameras. However, on average, these remaining 1,000 cameras are only 50% complete as to conversion costs.

a. What are the equivalent units for direct materials and conversion costs and their respective costs per equivalent unit for February?

b. What is the unit cost of an assembled camera in February 2013?

3. Explain the difference in your answers to requirements 1 & 2.

Question 4 -

TabComp Ltd is a retail distributor for MZB-33 computer hardware and related software and support services. TabComp prepares sales forecasts of which the first six months of 2014 are presented here.

Cash sales account for 25% of total sales, 30% of total sales are paid by bank credit card and the remaining 45% are on open account. The cash sales and cash from bank credit cards sales are received in the month of sale. Bank credit card sales are subject to a 4% discount. The cash receipts for sales on the open account are 70% in the month following the sale and 28% in the second month after the sale. The remaining accounts receivables are estimated to be uncollectible.

TabComp's month end inventory requirements for computer hardware units are 30% of the next month's sales. TabComp's purchase price for the computer units is 60% of the selling price.

TabComp Ltd

Sales Forecast for first six months of 2014

                     Hardware Sales       Software Sales & Support     Total revenues

                  Units       $                           $                                       $

January      130      390,000                     160,000                          550,000

February     120     360,000                     140,000                          500,000

March         110      330,000                     150,000                          480,000

April            90        270,000                   130,000                          400,000

May             100     300,000                    125,000                          425,000

June            125     375,000                    225,000                          600,000

Total           675     2,025,000                  930,000                         2,955,000

Required:

1. Calculate the cash that TabComp can expect to collect during April 2014. Show all calculations.

2. TabComp is planning the purchase of MZB-33 computer hardware units for March 2014.

a. Determine the number of units that will need to be purchased.

b. Calculate the total costs of this purchase.

3. As part of the annual budget process, TabComp prepares a cash budgert by month for the entire year. Explain why a company such as TabComp prepares a cash budget month by month for the entire year.

Question 5 -

United Partners provides management consulting services to government and corporate clients. United has two support departments - Administrative Services (AS) and Information Systems (IS) and two operating departments -Government Consulting (GC) and Corporate Consulting (CC). For the first quarter of 2013 United's records indicate the following:

                                                                SUPPORT                                             OPERATING

Required:

1. Allocate the two support department costs to the two operating departments using the following methods:

a. Direct method

b. Step-down method (allocate AS first)

2. Compare and explain differences in the support department costs allocated to each operating department.