Calculate advanced corporations breakeven point for 20x5 i

Question

Assignment

Question 1-

Wonderful Corporation has the following account balances (in millions):

For Specific Date in 20x5		For Year 20x5
Direct materials inventory, 1 Jan	$30	Purchases of direct materials	$650
Work-in-process inventory, 1 Jan	20	Direct manufacturing labor	200
Finished goods inventory, 1 Jan	140	Depreciation: plant and equipment	160
Direct materials inventory, 31 Dec	40	Plant supervisory salaries	10
Work-in-process inventory, 13 Dec	10	Miscellaneous plant overhead	70
Finished goods inventory, 31 Dec	110	Revenues	1,900
		Marketing, distribution, and customer- service costs	480
		Plant supplies used	20
		Plant utilities	60
		Indirect manufacturing labour	120

Ronald Tong, the management accountant of Wonderful, collected the following information:

i. Both the direct materials used and the plant and equipment depreciation are related to the manufacture of 1 million units of product for the year ended 31 December 20x5.

ii. Direct material costs behave as variable cost, and plant and equipment depreciation behaves as a fixed cost.

iii. Plant supervisory salaries are regarded as manufacturing overhead costs.

Required:

a. Prepare an income statement and a supporting schedule of cost of goods manufactured for the year ended 31 December 20x5.

b. How would the answer to (a) be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific.

c. Plant supervisory salaries are usually regarded as manufacturing overhead costs. When might some of these costs be regarded as direct manufacturing costs? Give an example.

d. Evaluate the unit cost for the direct materials assigned to those units and the unit cost for plant and equipment depreciation. Assume that yearly plant and equipment depreciation is computed on a straight- line basis.

e. Assume that the implied cost-behaviour patterns persist. Repeat the computations in requirement (d), assuming that the costs are being predicted for the manufacture of 1.2 million units of product. Explain how the total costs would be affected.

f. As a management accountant, explain concisely to the president why the unit costs differed in requirements (d) and (e).

Question 2-

Advanced Corporation produces an electronic part, EL20, for mobile phones. Summary data from its 20x5 income statement are as follows:

Revenues	$5,000,000
Variable costs	3,000,000
Fixed costs	2,160,000
Operating income	$ (160,000)

Amy Wong, Advanced's president, is very concerned about Advanced Corporation's poor profitability. She asks Mark Lui, production manager, and Leslie Tsui, controller, to see if there are ways to reduce costs.

After two weeks, Mark returns with a proposal to reduce variable costs to 52% of revenues by reducing the costs Advanced currently incurs for safe disposal of wasted metal. Leslie is concerned that this would expose     the company to potential environmental liabilities. He tells Mark, 'We would need to estimate some of these potential environment costs and include them in our analysis.' 'You can't do that,' Mark replies. 'We're not violating any laws. There's some possibility that we may have to incur environment costs in the future, but if we bring it up now, this proposal will not go through because our senior management always assumes these costs to be larger than they turn out to be.

The market is very tough, and we're in danger of shutting down the company and costing all of us our jobs. The only reason our competitors are making money is that they're doing exactly what I'm proposing.'

Required:

a. Calculate Advanced Corporation's breakeven point for 20x5 (i) in units, and (ii) in amount.

b. Calculate Advanced Corporation's breakeven point (i) in units, and (ii) in amount if variable costs are 52% of revenues.

c. Calculate Advanced Corporation's operating income for 20x5 if variable costs had been 52% of revenues.

d. Given Mark Lui's comments, what should Leslie Tsui do?

Question 3-

ePrint Limited prints custom letterhead papers, envelopes and memo pads for corporations. The business was started January 1, 20x4. The company uses a normal-costing system. It has two direct cost pools, materials and labour, and one indirect cost pool, overhead. Overhead is charged to printing jobs on the basis of direct labour cost. The following information is available for 20x4.

Budgeted direct labour costs	$150,000
Budgeted overhead costs	$180,000
Costs of actual material used	$126,500
Actual direct labour costs	$148,750
Actual overhead costs	$176,000

There were two jobs in process on 31 December 20x4: Job P13 and Job P14. Costs added to each job as of 31 December are as follows:

	Direct materials	Direct labor
Job P13	$3,620	$4,500
Job P14	$6,830	$7,250

ePrint Limited has no finished goods inventories because all printing jobs are transferred to cost of goods sold when completed.

Required:

a. Compute the overhead allocation rate.

b. Calculate the balance in ending work in process and cost of goods sold before any adjustment for under- or over-allocated overhead.

c. Calculate the ending balances in work in process and cost of goods sold if the under- or over-allocated overhead amount is as follows:

i. Written off to cost of goods sold

ii. Prorated using the ending balance (before proration) in cost of goods sold and work-in-process control accounts.

d. Advise ePrint Limited which of the methods in requirement (b) should be selected. Explain.

Question 4-

May Lau is examining customer-service costs in the Shatin branch of Unique Products. Unique Products has more than 200 separate electrical products that are sold with a six-month guarantee of full repair or replacement with a new product. When a product is returned by a customer, a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are as follows:

Week	Customer-Service Department Costs	Number of Service Reports
1	$27,400	190
2	41,800	275
3	26,000	115
4	37,600	395
5	28,000	265
6	43,000	455
7	33,800	340
8	42,000	305

Required:

a. Use the high-low method to compute the cost function, relating customer-service costs to the number of service reports.

b. Suggest the variables, in addition to number of service reports, might be the cost drivers of weekly customer-service costs of Unique Products.

Source: All questions are adapted from 2-34 (p. 83), 2-35 (pp. 83-84), 3-48 (p.126), 4-39 (p. 169), 10-23 (p. 433), Horngren, C T, Datar, S M and Rajan, M (2015) Cost Accounting: A Managerial Emphasis, 15th edn, Upper Saddle River, NJ: Pearson.