Part 1
QUESTION 1
HomeGardens Ltd is a manufacturer of garden fertiliser, and has two main products: VegieGrow and FlowerFood. At present, the company's management accountant allocates overhead using a factory-wide application rate based on direct labour costs. However, consideration is now being given to implementing an activity-based costing (ABC) system. Two activity cost pools have been developed as follows:
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Cost pool
|
Activity undertaken
|
Cost driver
|
|
1. Processing
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Acquisition and processing of raw materials processed
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Number of kilograms
|
|
2. Packaging
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Products packaged ready for delivery to customers
|
Number of units packaged
|
The following annual cost and activity data is available for the company's operations:
|
|
VegieGrow
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FlowerFood
|
|
Direct labour costs
|
$180,000
|
$420,000
|
|
Kilograms processed
|
192,000 kg
|
320,000 kg
|
|
Units packaged
|
90,000 units
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110,000 units
|
Total annual overhead cost is estimated at $960,000. Overhead cost allocated to the processing activity cost pool is $640,000, and $320,000 is allocated to the packaging activity cost pool.
Requirements:
a) Calculate the overhead rate using the traditional (factory-wide) approach and allocate the total overhead costs to the two products using this method.
b) Calculate the overhead rates using the ABC approach and allocate the total overhead costs to the two products using this method.
c) Explain how an organisation should select an appropriate "cost driver" for an activity cost pool.
QUESTION 2
Tudor Designs sells window treatments (shades, blinds and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year.
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Commercial
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Residential
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Revenues
|
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$300,000
|
|
$480,000
|
|
Direct materials costs
|
$ 30,000
|
|
$ 50,000
|
|
|
Direct labour costs
|
100,000
|
|
300,000
|
|
|
Overhead costs
|
85,000
|
215,000
|
150,000
|
500,000
|
|
Operating income (loss)
|
|
$85,000
|
|
($ 20,000)
|
The financial controller is concerned about the residential products line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two products lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed:
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Activity Cost Pools
|
Estimated Overhead
|
Cost Drivers
|
|
Scheduling and travel
|
$ 85,000
|
Hours of travel
|
|
Setup time
|
90,000
|
Number of setups
|
|
Supervision
|
60,000
|
Direct labour costs
|
|
Expected Use of Cost Drivers per Product
|
|
|
Commercial
|
Residential
|
|
Scheduling and travel
|
750
|
500
|
|
Setup time
|
350
|
250
|
Requirements:
a) Compute the activity-based overhead rates for each of the three cost pools and determine the overhead cost assigned to each product line.
b) Compute the operating income for each product line, using the activity-based overhead rates.
c) What do you believe the controller should do?
Part 2
QUESTION 1
Oceania Ltd makes three models of tasers. Information on the three products is given below:
|
|
Spotter
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Snooker
|
Stunner
|
|
Sales
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$ 300,000
|
$ 500,000
|
$ 200, 000
|
|
Variable expenses
|
150,000
|
200,000
|
145,000
|
|
Contribution margin
|
150,000
|
300,000
|
55,000
|
|
Fixed expenses
|
120,000
|
230,000
|
95,000
|
|
Net income
|
$ 30,000
|
$ 70,000
|
$ ( 40,000)
|
Fixed expenses consist of $ 300,000 of common costs allocated to the three products based on relative sales and additional fixed expenses of $30,000 (spotter), $ 80,000 (Snooker) and $ 35,000 (Stunner). The common costs will be incurred regardless of how many models are produced. The other expenses would be eliminated if a model is phased out. The managing director of the company feels the Stunner line should be discontinued to increase the company's net income.
Requirements:
a) Compute current net income for Oceania Ltd.
b) Compute net income by product line and in total for Oceania Ltd if the company discontinues the Stunner product line. (Hint: Allocate the $ 300,000 common costs to the two remaining product lines based on their relative sales).
c) Should Oceania eliminate the Stunner product line? Why or why not?
QUESTION 2
Tasman Company Ltd manufactures tennis rackets. Materials are added at the beginning of the production process and conversion costs are incurred uniformly. Production and costs data for the month of July 2017 are as follows:
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Production data - Tennis rackets
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Units
|
Percentage complete
|
|
Work in process units, July 1
|
500
|
60%
|
|
Units started into production
|
1,000
|
|
|
Work in process units, July 31
|
600
|
40%
|
|
Cost data - Tennis rackets
Work in process, July 1
|
|
|
|
Materials $750
|
|
|
|
Conversion costs 600
|
$ 1,350
|
|
|
Direct materials
|
2,400
|
|
|
Direct labour
|
1,580
|
|
|
Manufacturing overhead
|
1,240
|
|
Requirements:
a) Calculate the following.
1) The equivalent units of production for materials and conversion costs.
2) The unit costs of production for materials and conversion costs.
3) The assignment of costs to units transferred out and in process at the end of the accounting period.
b) Prepare a production cost report for the month of July for the tennis rackets.
Part 3
Note: students are strongly urged to read reviewed academic journal articles and provide at least three academic journal articles in the reference. Please provide relevant examples and where appropriate use graphs to illustrate your answers.
Carefully consider the following two quotations:
Quotation 1:
"Corporate scandals (i.e. Enron, Tyco, and WorldCom) in the early 2000s have demonstrated how accounting and auditing failures have resulted in corporate failures, destroying investor confidence, and harming capital markets. In response to these corporate accounting scandals, the U.S. Congress passed the Sarbanes-Oxley Act (SOX) in 2002, to protect investors from possible future scandals as well as to prevent fraudulent financial reporting by companies. In fact, these corporate failures are not peculiar to just one country or a geographical region, and they are not limited to a time frame; they occur in various countries at varying time intervals, as past harsh experiences have shown. A quick Google search produces a comprehensive list of such scandals across countries and intervals. In the context of Australia, Garry et al. (2014) reported that these corporate scandals were cyclical over four rounds of corporate failures (i.e. early 1960s, late 1980s, early 1990s and the early 2000s), and that these corporate scandals were followed by a series of changes in governance (i.e. legislative reforms relating to financial reporting or auditing) to prevent their recurrence. For example, in response to the crisis in the early 2000s, the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 Cwlth (CLERP 9 Act 2004) was enacted, which included increased disclosure requirements, tightened requirements for continuous disclosure, enhanced accountability, increased penalties for non-compliance, and increased auditors' independence (Australian Securities and Investments Commission, 2012). The adoption of corporate governance principles and the enactment of regulations to improve investor confidence in the marketplace were hastily put into place all around the world" (Uyar, Gungormus and Kuzey, 2017, p. 10).
The above quotation is taken from: Uyar, Ali; Gungormus, Ali Haydar; and Kuzey, Cemil (2017). "Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies", Australasian Accounting, Business and Finance Journal, 11(1), 9-27.
Quotation 2:
One of the key factors affecting the efficient use of resources, the increase of shareholders confidence in the managers of the company, the success in achieving objectives and economic efficiency is the system of corporate governance by which a company is managed and controlled. We cannot talk about a culture of corporate governance without thinking of the criteria of transparency, of responsibility in ensuring the accuracy of data from financial reports. Transparency is a prerequisite of good communication between the company and the interested parties (Man and Ciurea, 2016, p.41).
The above section is taken from: Man, Mariana and Ciurea, Maria (2016) "Transparency of Accounting Information in Achieving Good Corporate Governance. True View and Fair". Social Sciences and Education Research Review, 3(1), pp 41-62).
Required: Critically examine the significance of accounting information and financial reporting in enhancing corporate governance in business organisations.
NB: 1) Understanding the notions of financial reporting and corporate governance in business is more important than an enlargement with the advanced maths in many articles.
2) Do not plagiarise articles content-instead cite, or better yet, paraphrase it and always give full references. This shows that your opinions are informed opinions.