Question 1:
Willis Company had a operating profit of £75,000 using variable costing and a operating profit of £57,000 using absorption costing. Variable production costs were £15 per unit. Total fixed manufacturing overhead was £120,000 and 10,000 units were produced. During the year, the inventory level
increased by 1,200 units.
increased by 1,500 units.
decreased by 1,500 units.
decreased by 1,200 units.
Question 2:
Ida SidhaKarya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):
|
Units in beginning inventory
|
0
|
|
Units produced
|
250
|
|
Units sold
|
225
|
|
Units in ending inventory
|
25
|
|
Variable costs per unit:
|
|
|
Direct materials
|
Rp 100
|
|
Direct labour
|
320
|
|
Variable manufacturing overhead
|
40
|
|
Variable selling and administrative
|
20
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
Rp 60,000
|
|
Fixed selling and administrative
|
20,000
|
Required:
1. Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs. (Enter your answer in thousands of rupiahs.)
Direct materials Rp
Direct labour
Variable manufacturing overhead
Fixed manufacturing overhead (Rp60,000 ÷ 250 units)
Unit product cost Rp
2. Under variable costing, only the variable manufacturing costs are included in product costs. (Enter your answer in thousands of rupiahs.)
Direct materials Rp
Direct labour
Variable manufacturing overhead
Unit product cost Rp
Question 3:
Ida SidhaKarya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):
|
Units in beginning inventory
|
0
|
|
Units produced
|
250
|
|
Units sold
|
225
|
|
Units in ending inventory
|
25
|
|
Variable costs per unit:
|
|
|
Direct materials
|
Rp 100
|
|
Direct labour
|
320
|
|
Variable manufacturing overhead
|
40
|
|
Variable selling and administrative
|
20
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
Rp 60,000
|
|
Fixed selling and administrative
|
20,000
|
Statement of profit or loss prepared under the absorption costing method by the company's accountant appears below (all currency values are in thousands of rupiahs):
|
Sales (225 units × Rp850)
|
|
Rp 191,250
|
|
Less cost of goods sold:
|
|
|
|
Beginning inventory
|
Rp 0
|
|
|
Add cost of goods manufactured (250 units × Rp ?)
|
175,000
|
|
|
Goods available for sale
|
175,000
|
|
|
Less ending inventory (25 units × Rp ?)
|
17,500
|
157,500
|
|
Gross margin
|
|
33,750
|
|
Less selling and administrative expenses:
|
|
|
|
Variable selling and administrative
|
4,500
|
|
|
Fixed selling and administrative
|
20,000
|
24,500
|
|
Profit
|
|
Rp 9,250
|
Required:
1. Determine how much of the ending inventory of Rp17,500 above consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Enter your answer in thousands of rupiahs.)
Fixed manufacturing overhead cost deferred in inventory to the next period Rp
2. (a) Prepare a statement of profit or loss for the year using the variable costing method. (Enter your answers in thousands of rupiahs. If no entry is required, please, enter "0". Enter all answers as positive values.)
Sales Rp
Less variable expenses:
Variable cost of goods sold:
Beginning inventory Rp
Add variable manufacturing costs Rp
Goods available for sale Rp
Less ending inventory Rp
Variable cost of goods sold Rp
Variable selling and administrative expenses Rp
Rp
Contribution margin Rp
Less fixed expenses:
Fixed manufacturing overhead Rp
Fixed selling and administrative expenses Rp
Rp
Net profit Rp
(b) The difference in net profit between variable and absorption costing can be explained by:
the deferral of fixed manufacturing overhead cost in inventory under variable costing.
the deferral of variable manufacturing overhead cost in inventory under absorption costing.
the deferral of fixed manufacturing overhead cost in inventory under absorption costing.
the deferral of variable manufacturing overhead cost in inventory under variable costing.
Question 4:
Matt Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 6,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:
|
|
Estimated
|
Expected Activity
|
|
Activity Cost Pool
|
Cost
|
Product A
|
Product B
|
Total
|
|
Activity 1
|
£20,000
|
100
|
400
|
500
|
|
Activity 2
|
£37,000
|
800
|
200
|
1,000
|
|
Activity 3
|
£91,200
|
800
|
3,000
|
3,800
|
The cost per unit of Product A under activity-based costing is closest to:
£2.40.
£3.90.
£10.59.
£6.60.
Question 5:
Bridget Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows.
|
|
Estimated
|
Expected Activity
|
|
Activity Cost Pool
|
Cost
|
Product A
|
Product B
|
Total
|
|
Activity 1
|
£9,000
|
400
|
350
|
750
|
|
Activity 2
|
£12,000
|
100
|
400
|
500
|
|
Activity 3
|
£48,000
|
400
|
1,200
|
1,600
|
The cost per unit of Product A under activity-based costing is closest to:
£6.00.
£9.60.
£8.63.
£13.80.
Question 6:
Angel Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:
|
Activity Cost Pools (and Activity Measures
|
Estimated
Overhead Cost
|
|
Machine related (machine-hours)
|
£81,600
|
|
Batch setup (setups).
|
£387,000
|
|
General factory (direct labour-hours).
|
£274,800
|
|
|
Expected Activity
|
|
Activity Cost Pools
|
Total
|
Product X
|
Product Y
|
|
Machine related
|
8,000
|
3,000
|
5,000
|
|
Batch setup
|
10,000
|
2,000
|
8,000
|
|
General factory
|
12,000
|
7,000
|
5,000
|
Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to:
£371,700
£387,000
£268,300
£149,000
Question 7:
Forrest Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
|
Wages and salaries
|
£70,000
|
|
Other expenses.
|
£40,000
|
|
Total
|
£110,000
|
Distribution of resource consumption:
|
|
Activity Cost Pools
|
|
|
|
Making Bouquets
|
Delivery
|
Other
|
Total
|
|
Wages and salaries
|
55%
|
35%
|
10%
|
100%
|
|
Other expenses
|
45%
|
25%
|
30%
|
100%
|
The ‘Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs.
The amount of activity for the year is as follows:
|
Activity Cost Pool
|
Activity
|
|
Making bouquets
|
20,000 bouquets
|
|
Delivery
|
1,000 deliveries
|
What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round your answer to the nearest whole pence).
£27.50
£38.50
£33.00
£34.50
Question 8:
The manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year:
|
Activity
|
Total Activity at the Westfield Branch
|
|
Opening accounts
|
500 new accounts opened
|
|
Processing deposits and withdrawals
|
100,000 deposits and withdrawals processed
|
|
Processing other customer transactions
|
5,000 other customer transactions processed
|
In the table below the first-stage allocation of the costs of the Westfield branch of Security Home Bank is provided.
|
|
OpeningAccounts
|
ProcessingDeposits andWithdrawals
|
ProcessingOtherCustomerTransactions
|
|
Teller wages
|
£
|
8,000
|
|
£
|
104,000
|
|
£
|
32,000
|
|
|
Assistant branch manager salary
|
|
11,250
|
|
|
3,750
|
|
|
22,500
|
|
|
Branch manager salary
|
|
4,000
|
|
|
0
|
|
|
8,000
|
|
|
Total cost
|
|
23,250
|
|
|
107,750
|
|
|
62,500
|
|
The lowest costs reported by other branches for these activities are displayed below:
|
Activity
|
Lowest Cost Among All Security Home BankBranches
|
|
Opening accounts
|
£26.75 per new account
|
|
Processing deposits and withdrawals
|
£1.24 per deposit or withdrawal
|
|
Processing other customer transactions
|
£11.86 per other customer transaction
|
Required:
1. Using the first-stage allocation and the above data, compute the activity rates for the activity-based costing system. (Use Exhibit "Computation of activity rates" as a guide.) (Round all computations to the nearest whole cent. Leave no cell blank. Enter 'Zero' wherever required.)
2. Which of the following could reasonably explain the apparent differences in the costs of the activities at the various branches? (Check all that apply.)
Westfield will benefit greatly from learning about how some of the other branches handle withdrawals.
The other branches may have something to learn from Westfield concerning processing deposits.
The branches have been following different strategies.
There are inaccuracies in employees' reports of the amount of time they devote to the activities.
Question 9:
Updraft Systems, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:
|
Activity Cost Pool
|
Activity Measure
|
|
Supporting direct labor
|
$18 per direct labor-hour
|
|
Order processing
|
$192 per order
|
|
Custom designing
|
$261 per custom design
|
|
Customer service
|
$426 per customer
|
Management would like an analysis of the profitability of a particular customer, Eagle Wings, which has ordered the following products over the last 12 months:
|
|
Standard
|
Custom
|
|
|
Model
|
Design
|
|
Number of gliders
|
10
|
2
|
|
Number of orders
|
1
|
2
|
|
Number of custom designs
|
0
|
2
|
|
Direct labour-hours per glider
|
28.50
|
32.00
|
|
Selling price per glider
|
£1,650
|
$2,300
|
|
Direct materials cost per glider
|
£462
|
$576
|
The company's direct labour rate is $19 per hour
Required:
Using the company's activity-based costing system, compute the customer margin of Eagle Wings.
(Round to the nearest whole number.)
Sales $
Costs:
Direct materials $
Direct labour
Supporting direct labour
Order processing
Custom designing
Customer service
Customer margin $
Question 10:
Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company's profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.
Manufacturing overhead is assigned to products on the basis of direct labour-hours. For the current year, the company has estimated that it will incur £900,000 in manufacturing overhead cost and produce 5,000 units of the deluxe model and 40,000 units of the regular model. The deluxe model requires two hours of direct labour time per unit, and the regular model requires one hour. Material and labour costs per unit are as follows:
|
|
Model
|
|
|
Deluxe
|
Regular
|
|
Direct materials
|
£40
|
|
£25
|
|
|
Direct labour
|
14
|
|
7
|
|
Required:
1. Using direct labour-hours as the base for assigning overhead cost to products, compute the predetermined overhead rate.
Predetermined overhead rate £
Using the predetermined overhead rate calculated above and other data from the problem, determine the unit product cost of each model.
Deluxe unit product cost £
Regular unit product cost £
2. Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports. The activity-based costing system would have the following four activity cost centres:
|
Activity cost pool
|
Activity measure
|
Estimated overhead cost
|
|
Purchasing
|
Purchase orders issued
|
£204,000
|
|
|
Processing
|
Machine-hours
|
182,000
|
|
|
Scrap/rework
|
Scrap/rework orders issued
|
379,000
|
|
|
Shipping
|
Number of shipments
|
135,000
|
|
|
|
|
£900,000
|
|
|
Activity measure
|
Expected activity
|
|
Deluxe
|
Regular
|
Total
|
|
Purchase orders issued
|
200
|
|
400
|
|
600
|
|
|
Machine-hours
|
20,000
|
|
15,000
|
|
35,000
|
|
|
Scrap/rework orders issued
|
1,000
|
|
1,000
|
|
2,000
|
|
|
Number of shipments
|
250
|
|
650
|
|
900
|
|
Determine the predetermined overhead rate for each of the four activity cost pools. (Round your answers to 2 decimal places.)
Activity Predetermined Manufacturing Overhead Rate
Purchasing £ /order
Processing £ /hour
Scrap/rework £ /order
Shipping £ /shipment
3. Using the predetermined overhead rates you computed in requirement 2 above, do the following:
(a) Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based costing system. (Round predetermined manufacturing overhead rates to two decimal places in your intermediate calculations.)
|
|
Deluxe Model
|
Regular Model
|
|
Purchasing
|
£
|
|
£
|
|
|
Processing
|
£
|
|
£
|
|
|
Scrap/rework
|
£
|
|
£
|
|
|
Shipping
|
£
|
|
£
|
|
|
Total overhead cost
|
£
|
|
£
|
|
Determine the amount of manufacturing overhead cost per unit of each model. (Round your intermediate calculations to two decimal places.Round your answers to 2 decimal places.)
Overhead cost per unit of Deluxe Model £ /unit
Overhead cost per unit of Regular Model £ /unit
(b) Compute the unit product cost of each model. (Round your intermediate calculations to two decimal places. Round your answers to 2 decimal places.)
Deluxe Regular
Direct materials £ £
Direct labour £ £
Manufacturing overhead £ £
Total unit product cost £ £
4. From the data you have developed in requirements 1-3 above, which of the following factors may account for the company's declining profits? (Check all that apply.)
Unit costs appear to be distorted as a result of using direct labour-hours as the base for assigning overhead cost to products.
The regular model is very expensive to manufacture as compared to the deluxe model.
Unit costs for the deluxe model are badly understated.
The regular model is not being assigned enough overhead cost.
Question 11:
The direct labour budget of Krispin Company for the upcoming fiscal year includes the following budgeted direct labour-hours.
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
|
Budgeted direct labour-hours
|
5,000
|
4,800
|
5,200
|
5,400
|
The company's variable manufacturing overhead rate is £1.75 per direct labour-hour and the company's fixed manufacturing overhead is £35,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is £15,000 per quarter.
Required:
1. Prepare the company's manufacturing overhead budget for the upcoming fiscal year.
2. Compute the company's manufacturing overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.
Question 12:
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations:
1. The cash balance on 1 December will be £40,000.
2. Actual sales for October and November and expected sales for December are as follows:
|
October
|
November
|
December
|
|
Cash sales
|
£ 65,000
|
£ 70,000
|
£ 83,000
|
|
Sales on account
|
400,000
|
525,000
|
600,000
|
Sales on account are collected over a three-month period in the following ratio: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectable.
3. Purchases of inventory will total £280,000 for December and 30% of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total £161,000, all of which will be paid in December.
4. Selling and administrative expenses are budgeted at £420,000 for December. Of this amount, £50,000 is for depreciation.
5. A new web server for the Marketing Department costing £76,000 will be purchased for cash during December, and dividends totalling £9,000 will be paid during the month.
6. The company must maintain a minimum cash balance of £20,000. An open line of credit is available from the company's bank to bolster the cash position as needed.
Requirement 1: Prepare a schedule of expected cash collections for December.
Requirement 2: Prepare a schedule of expected cash disbursements during December to suppliers for materials for inventory purchases.
Requirement 3: Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month.
Question 13:
Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimetres (cc) of solvent H300 (Material A) are required to manufacture each unit of Supermix, one of the company's products. The company is now planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:
1. The finished goods inventory on hand at the end of each month must be equal to 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on 30 June is budgeted to be 10,000 units.
2. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on 30 June is budgeted to be 54,000 cc of solvent H300.
A sales budget for Supermix for the last six months of the year follows.
|
Budgeted sales in units
|
|
July
|
35,000
|
|
August
|
40,000
|
|
September
|
50,000
|
|
October
|
30,000
|
|
November
|
20,000
|
|
December
|
10,000
|
Requirement 1: Prepare a production budget for Supermix for the months July-October.
Requirement 2: Examine the production budget which was prepared in requirement 1.
Requirement 3: Prepare a budget showing the quantity of solvent H300 to be purchased for July, August and September, and for the quarter in total.
Question 14:
P Ltd manufactures a specialist photocopier. Increased competition from a new manufacturer has meant that P Ltd has been operating below full capacity for the last two years.
The budgeted information for the last two years was as follows:
|
Year 1
|
Year 2
|
|
Annual sales demand (units)
|
70
|
70
|
|
Annual production (units)
|
70
|
70
|
|
Selling price (for each photocopier)
|
£50,000
|
£50,000
|
|
Direct costs (for each photocopier)
|
£20,000
|
£20,000
|
|
Variable production overheads (for each photocopier)
|
£11,000
|
£12,000
|
|
Fixed production overheads
|
£525,000
|
£525,000
|
Actual results for the last two years were as follows:
|
Year 1
|
Year 2
|
|
Annual sales demand (units)
|
30
|
60
|
|
Annual production (units)
|
40
|
60
|
|
Selling price (for each photocopier)
|
£50,000
|
£50,000
|
|
Direct costs (for each photocopier)
|
£20,000
|
£20,000
|
|
Variable production overheads (for each photocopier)
|
£11,000
|
£12,000
|
|
Fixed production overheads
|
£500,000
|
£530,000
|
There was no opening inventory at the beginning of Year 1.
Required:
1. Prepare the actual profit and loss statements for each of the two years using:
(a) absorption costing
(b) marginal costing
2. Calculate the budgeted break-even point in units and the budgeted margin of safety as a percentage of sales for Year 1 and then again for Year 2.
3. (a) An increase in variable overheads will lead to a lower breakeven point.
(b) The margin of safety represents the difference between the budgeted and the breakeven sales volume.