Question 1. Gafat Engineering Ethio Plc manufactures two types of TV sets - LCD and CRT - both having only one model. The LCD and CRT television sets sell for Br 9,000 and Br5,000, respectively. The company sells its products through its own stores and other outlets. Total fixed expenses are Br15,000,000 per month. Variable expenses and monthly sales data are given below:
LCD CRT
Variable expenses Br5,000 Br2,000
Monthly sales in units 2,000 3,000
Required: (unless stated figures should be computed for one month)
a) Determine breakeven total volume of sales and sales volume for each product.
b) Determine sales volume and sales revenue for the company to earn Br500,000 profit after 30% profit tax.
c) The company has planned to incur Br 200,000 monthly selling (promotional) expenses to increase sales volume for its LCD TV sets to 4,000. If the plan materializes and other things remain constant, determine breakeven sales volume and sales revenue for the company.
d) The company has planned to buy new and improved technology that reduces variable production expenses for its LCD TV set to Br4,000 while increasing its monthly fixed production costs by Br500,000. If the plan materializes and other things remain constant, determine breakeven sales volume and sales revenue for the company.
e) If the company is guaranteed with total sales volume of 10,000 TV sets in a given month, should it go for option "c" or "d" above given that sales mix remained constant as provided in each of the two options? Why? What if the guaranteed total sales volume of 7,000 instead of 10,000? Why? What should be the guaranteed total sales volume for the two options to provide equal profit to the company?
Question 2. Sino-woodworks Ethiopia Ltd makes office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Preparation Department is based on machine-hours, and the rate in the Fabrication Department is based on direct materials cost. At the beginning of the year, the company's management made the following estimates for the year:
|
Department |
|
|
Preparation |
Fabrication |
| Machine-hours |
80,000 |
21,000 |
| Direct labor-hours |
35,000 |
65,000 |
| Direct materials cost |
$190,000 |
$400,000 |
| Direct labor cost |
$280,000 |
$530,000 |
| Manufacturing overhead cost |
$416,000 |
$720,000 |
Job-C was started on April 1 and completed on May 12. The company's cost records show the following information concerning the job:
|
Department |
|
|
Preparation |
Fabrication |
| Machine-hours |
350 |
70 |
| Direct labor-hours |
80 |
130 |
| Direct materials cost |
$940 |
$1,200 |
| Direct labor cost |
$710 |
$980 |
Required:
a) Compute the predetermined overhead rate used during the year in the Preparation and Fabrication Departments.
b) Compute the total overhead cost applied to Job-C.
c) What would be the total cost recorded for Job-C? If the job contained 25 units, what would be the unit product cost?
d) At the end of the year, the records of the company revealed the following actual cost and operating data for all jobs worked on during the year:
|
Department |
|
|
Preparation |
Fabrication |
| Machine-hours |
73,000 |
24,000 |
| Direct labor-hours |
30,000 |
68,000 |
| Direct materials cost |
$165,000 |
$420,000 |
| Manufacturing overhead cost |
$390,000 |
$740,000 |
What was the amount of under-applied or over-applied overhead in each department at the end of the year?
3. Sino-electronics East-Africa Ltd manufactures electric meters for sale to its African and Middle-East customers. The product goes through three departments. The following information is available for the first department during June, 2014.
|
|
Percent Completed |
|
Units |
Materials |
Conversion |
| Work in process, beginning |
70,000 |
70% |
40% |
| Started into production |
460,000 |
|
|
| Completed and transferred out |
450,000 |
|
|
| Work in process, ending |
80,000 |
75% |
25% |
|
|
Materials |
Conversion |
| Work in process, beginning |
|
$36,550 |
$13,500 |
| Cost added during June |
|
$391,850 |
$287,300 |
Required: Assume that the company uses the weighted-average process costing.
a) Determine the equivalent units for June for the first process.
b) Compute the costs per equivalent unit for June for the first process.
c) Determine the total cost of ending work in process inventory and the total cost of units transferred to the second process in June.
d) Reconcile the total costs assigned to the ending work in process inventory and the units transferred out with the costs in beginning inventory and costs added during the period.
4. Sino-Afro Electronics manufactures different optical switch for networking uses in different industries. During 2013, the company completed an order for a special optical switch for a new customer, Ethio-telecom. This customer did not order any other products during the year. Data concerning that order follow:
|
Data related to Ethio-telecom order
|
|
Selling price
|
$295 per unit |
|
Units ordered
|
100 units |
|
Direct materials
|
$264 per unit |
|
Direct labor hours
|
0.50 hrs per unit |
|
Direct labor rate
|
$25 per direct labor hr
|
Currently, the company is concerned whether to accept this special order, thus, contracts your professional advice. The company traditionally uses direct labor hours to allocate manufacturing overhead costs. Total direct labor hours was estimated to be 20,000 in 2013. Other operating data for the year 2013 is provided in the following table. Note that 80% of the overhead costs are related to production while the remaining 20% are selling and administrative.
Overhead Costs
Wages and salaries................... $350,000
Other overhead costs ................... 200,000
Total overhead costs ..................... $550,000
| Activity Cost Pool |
Activity Measure |
Total Activity |
| Direct labor support |
Number of direct labor hours |
10,000 DLHs |
| Order processing |
Number of orders |
500 orders |
| Customer support |
Number of customers |
100 customers |
| Other |
These costs are not allocated to products or customers |
Not applicable |
|
Distribution of Resource Consumption |
|
Across Activity Cost Pools |
|
Direct Labor Support |
Order Processing |
Customer Support |
Other |
Total |
| Wages and salaries |
30% |
35% |
25% |
10% |
100% |
| Other overhead costs |
25% |
15% |
20% |
40% |
100% |
Required:
a) Shall the company accept the special order if the traditional costing system is in use? Why?
b) Shall the company accept the special order if activity-based costing system is in use? Why?
c) Does the costing system affect your advice regarding acceptance of the special order? Why?