Management Accounting Individual Assignment
Question 1: Cost estimation: High-low method and Least Squares regression
Motor Racer Pty Ltd is a manufacturer of timing components for speedways. The company's accountant, Casey Stoner is concerned with maintenance technician costs and has recently compiled the costs for the firm's Maintenance Department. He used the technician hours to quantify the Department's activity. Casey presents the following data for analysis.
|
Month
|
Technician hours
|
Maintenance costs
|
|
July
|
1,200
|
$62,500
|
|
August
|
1,600
|
$78,150
|
|
September
|
1,800
|
$83,000
|
|
October
|
1,330
|
$65,800
|
|
November
|
1,700
|
$79,900
|
|
December
|
1,600
|
$72,250
|
|
January
|
1,400
|
$66,600
|
|
February
|
1,350
|
$63,550
|
|
March
|
1,460
|
$69,110
|
|
April
|
1,660
|
$73,800
|
|
May
|
1,700
|
$79,500
|
|
June
|
1,500
|
$70,250
|
Required: Note all calculations are to be rounded to nearest cents
1. Using the high-low method, calculate;
a. Determine the highest point, the lowest point and the maintenance costs at theses points
b. The variable cost per unit of cost driver,
c. The fixed cost, and
d. Write the cost equation based on high-low method.
2. Casey wants to predict next month's maintenance cost using the high low cost equation. How much will be the maintenance costs when technician hours total 1,550.
3. Construct an Excel spreadsheet and use least squares regression analysis to estimate the Maintenance Department's:
a. Variable cost per unit of cost driver,
b. Fixed cost, and
c. Cost equation for the department's costs.
d. When is multiple regression required to explain cost behaviour?
4. What if Casey wants to use regression analysis cost formulae in Part 3 (c) to estimate maintenance cost for next month when he expects technician's hours to be 1,550. How much will be the estimated maintenance cost?
5. Explain the significance of the coefficient of determination measures for cost formulas. Why should these measures be considered when using the method of least squares?
6. Describe the method of least square. Why does the cost prediction estimate using the high- low and regression methods differ? Which method would you recommend? Justify your answer.
Question 2: Standard costing
Sydney Production Company has developed the following standards for one of its products:
|
STANDARD VARIABLE COST CARD: One Unit of Product
|
|
Materials: 30 square metres × $5.00 per square metre
|
$150.00
|
|
Direct labour: 16 hours × $7 per hour
|
$112.00
|
|
Variable manufacturing overhead: 16 direct labour hours × $5 per hour
|
$ 80.00
|
|
Fixed overhead (1 DL hour @ $4)
|
$4.00
|
|
Total standard cost per unit
|
$346.00
|
The company records materials price variances at the time of purchase. The following activity occurred during the month of April:
|
Materials purchased:
|
80,000 sq. metre at $5.30 per sq. metre
|
|
Materials used:
|
74,000 square metres
|
|
Units produced:
|
2,500 units
|
|
Direct labour:
|
42,000 hours at $6.70 per hour
|
|
Actual variable manufacturing overhead:
|
$228,000
|
|
Actual fixed overhead
|
$180,500
|
Required: Note: SHOW ALL WORKINGS and indicate whether the variances are favorable or unfavorable
1. Calculate the following variances for direct material;
a. Price variance.
b. Usage variance
c. Explain why the direct material price variance is often calculated at the point of purchase rather than at the point of purchase.
2. Calculate the following variances for direct labour
a. Rate variance
b. Efficiency variance
c. Suggest two possible causes of an unfavorable direct labour efficiency variance.
3. Calculate the following variances for variable overheads
a. Spending variance
b. Efficiency variance
c. Explain why the variable overhead spending variance is not a pure price variance.
4. Calculate the following variances for fixed overheads
a. Spending variance
b. Volume variance
c. What is the course of an unfavorable volume variance? Does the volume variance convey any meaningful information to managers?
Question 3: Plant-wide rate, departmental overhead rates and ABC
Sydney Electronics Company produces two types of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products:
|
Product-Related Data
|
|
Scientific
|
Business
|
|
Units produced per year
|
75,000
|
750,000
|
|
Prime costs
|
$250,000
|
$2,500,000
|
|
Direct labor hours
|
100,000
|
1,000,000
|
|
Machine hours
|
50,000
|
500,000
|
|
Production runs
|
100
|
150
|
|
Inspection hours
|
2,000
|
3,000
|
|
Maintenance hours
|
2,250
|
9,000
|
|
Department Data
|
|
Department 1
|
Department 2
|
|
Direct labour hours:
|
|
|
|
Scientific calculator
|
75,000
|
25,000
|
|
Business calculator
|
112,500
|
887,500
|
|
Total
|
187,500
|
912,500
|
|
Machine hours:
|
|
|
|
Scientific calculator
|
25,000
|
25,000
|
|
Business calculator
|
400,000
|
100,000
|
|
Total
|
425,000
|
125,000
|
|
Overhead costs:
|
|
|
|
Setup costs
|
225,000
|
$225,000
|
|
Inspection costs
|
$175,000
|
175,000
|
|
Power
|
250,000
|
150,000
|
|
Maintenance
|
200,000
|
250,000
|
|
Total
|
$850,000
|
$800,000
|
Required:
1. Compute the overhead cost per unit for each product using a plant wide, unit-based rate using direct labor hours.
2. Compute the overhead cost per unit for each product using departmental rates. In calculating departmental rates, use machine hours for Department 1 and direct labor hours for Department 2.
3. Repeat using direct labor hours for Department 1 and machine hours for Department 2.
4. Calculate the activity rate for each activity using activity-based costing.
5. Compute the overhead cost per unit for each product using activity-based costing.
6. Comment on the ability of departmental rates to improve the accuracy of product costing. Which method of costing would you recommend to management, plant-wide, departmental rates or ABC and why.
Question 4: Support department cost allocation
Blue Point Ltd. has two support departments, Personnel and Maintenance, and two producing departments, Blending and Finishing. Estimated direct costs and hours of services used by these departments are as follows:
|
Support Departments.
|
Producing Departments
|
|
Personnel
|
Maintenance
|
Blending
|
Finishing
|
|
Personnel Hrs
|
-
|
800
|
4,800
|
2,400
|
|
Maintenance Hrs
|
1,500
|
-
|
6,000
|
7,500
|
|
Direct costs
|
$9,000
|
$13,500
|
$40,000
|
$35,000
|
The budgeted machine hours for the Blending department are 60,000 and the budgeted direct labour hours for the finishing department are 20,000. These activities are used to allocate manufacturing costs to products in the 2 departments.
Required:
1. Prepare a schedule allocating the support department costs to the producing departments using the direct allocation method and determine the predetermined overhead rates for the two producing departments.
2. Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method and determine the predetermined overhead rates for the two producing departments.
3. Explain the main differences between the direct, sequential and reciprocal methods of support department cost allocations.
Question 5: Preparation of budget
Kevin Limited owns a retail store that sells new and used sporting equipment. Recently the managing director Kevin is concerned about the cash flow situation of the company. He has asked his management accountant to prepare cash budget in order to look at future cash requirements for the company. Kevin provides the following information.
1. Kevin Limited has a sales budget for March of $440,000. About 10% are cash sales and the remainder is sold on account.
2. The company expects that 60% of credit sales will be collected in the month of the sale, 25% in the next month and 10% in the following month.
3. Materials purchased on account are expected to be $250,000. Kevin pays 35% in the month of the purchase, 50% in the month following the purchase and the remaining 15% in the second month after the purchase.
4. Salaries and wages of the workers are approximately $45,000 per month. The employees are paid weekly so on average 95% of their wages are paid in the month to which they relate and the remaining 5% is paid in the following month.
5. Utilities average $4,300 per month.
6. Rent on the building is $9,000 per month.
7. Insurance is $3,000 per month and advertising costs are $1,000 per month.
8. February sales were $320,000 and purchases of materials in February were $170,000; January sales were $200,000 and purchases of materials in January were $130,000.
9. The cash balance on 1st March is $5,400.
Required:
1. Prepare the following for the month of March. Please round all figures to the nearest dollar amount.
a. Schedule of cash receipts for March
b. Schedule of cash payments for March
2. Prepare a cash budget for March.
Question 6: Cost-Volume-Profit Analysis, Multiple products
Travel On Limited sells luggage. The company sells a duffle bag, a carry-on suitcase and a deluxe suitcase. The price and variable cost for each type of luggage is listed below.
|
Price
|
Variable Cost
|
|
Duffle bag
|
$100
|
$25
|
|
Carry-on
|
$180
|
$40
|
|
Deluxe
|
$300
|
$120
|
The total fixed costs for Travel On Limited equals $60,000. For every 8 duffle bags Travel On sells it sells 3 carry-on suitcases and 1 deluxe suitcase.
Required:
1. Calculate the package contribution margin.
2. Calculate the package break-even point in units for duffle bags, carry-on suitcases and deluxe suitcases.
3. If Travel On Limited has a target income for the coming year of $300,000, how many packages will company have to sell?
4. Based on your answer in Part 3, prepare a contribution margin income statement for the coming year.
5. What is the company's margin of safety in packages?
Question 7: Quality Cost Report
At the beginning of the year, Candy Company initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for 2016 and 2015:
|
2015
|
2016
|
|
Sales
|
$5,000,000
|
$5,000,000
|
|
Quality training
|
6,000
|
9,000
|
|
Material inspections
|
15,000
|
12,000
|
|
Scrap
|
80,000
|
60,000
|
|
Rework
|
15,000
|
12,000
|
|
Product inspection
|
25,000
|
30,000
|
|
Product warranty
|
150,000
|
120,000
|
Required:
1. Prepare a Quality Cost Report for the two years (4 Marks) and compute each category of quality costs as a percentage of sales for each year. (Round to two decimal places).
2. How much has profit increased as a result of quality improvements?
3. If quality costs can be reduced to 2.5 percent of sales, how much additional profit would result?
Question 8: Process costing
Xanadu Company manufactures a product that passes through two departments, Assembly and Finishing. In the Finishing Department, materials are added at the end of the process. Conversion costs are incurred uniformly throughout the process. During the month of January, the Finishing Department received 60,000 units from the Assembly Department. The transferred-in cost of the 60,000 units was $69,900.
Costs added by Finishing during January included the following:
Direct materials - $35,200
Direct labour - $56,000
Overhead - $25,600
On January 1, the Finishing Department had 10,000 units in inventory that were 30 percent complete with respect to conversion costs. On January 31, 12,000 units were in inventory, one- third complete with respect to conversion costs. The costs associated with the 10,000 units in beginning inventory were as follows:
Transferred-in cost - $11,650
Direct labour - $8,750
Overhead - $4,000
Required:
1. Prepare a cost of production report for the Finishing Department using the weighted average method.
2. Explain the role of the departmental production report in process costing and name the five steps for completing the departmental production report.
3. Explain how non-uniform inputs and multiple departments affect process costing.