PART ONE OF A TWO PART PAPER QUESTION BOOKLET
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1 PART ONE OF A TWO PART PAPER QUESTION BOOKLET 22 November 2010 FNSACCT613A/B Prepare and Analyse Management Accounting Information Aids to be supplied by college: None. Instructions to students: Time allowed Three hours plus Ten minutes reading time 7 Pages in this Question Booklet ALL Questions to be attempted TOTAL MARKS AVAILABLE = 100 Mobile phones are to be turned off and removed from your person. You cannot access a mobile phone during this test. Answer all questions in the Answer Booklet provided. Answers may be written in pencil provided the writing is legible. Neatness and presentation will be taken into account when awarding marking. The Answer Booklet has a spare last page for additional answers or working. Aids permitted where indicated: Standard Dictionaries Bilingual Dictionaries Technical Dictionaries Programmable Calculators Non-programmable Calculators Electronic Devices No Yes No No Yes No
2 - 2 - QUESTION 1. (18 ) Muskrat Enterprises uses direct costing in accounting for its only product. However, for external reporting, it must convert its financial reports to absorption costing. Its budgeted manufacturing overhead rates are based on 180,000 units, with fixed overhead costs being $1,800,000 and the variable cost per unit $20. Factory overhead is applied using a predetermined overhead rate. All other costs have remained constant in recent months; therefore opening stock is to be valued at the same cost as closing inventory. Muskrat s actual results cost for April and May are as follows: April May $ $ Direct Material (per unit) Direct Labour (per unit) Variable factory overhead (per unit) Variable selling and administration (per unit) Fixed selling and administration 52, , Fixed factory overhead 150, , Inventory data: Units Units Opening inventory 2,000? Production 15,000 18,000 Sales 16,000 17,000 Closing Inventory? The selling price is $75.00 per unit for each month. Under or over-applied overhead is to be closed to cost of goods sold on a monthly basis. 7 (a) Income Statement for the month of May 2010, using Absorption Costing. 7 (b) Income Statement for the month of May 2010, using Direct Costing. 2 (c) Reconcile the Net Profits derived under the two methods for the month. 2 (d) The direct costing method may be used for internal reporting only. Briefly describe ONE benefit or advantage from using direct costing for internal reporting.
3 - 3 - QUESTION 2. (18 ) The Duesbury Corporation produces three parts for the aircraft components market: P1, P2 and P3. Management is considering changing from a single overhead application rate based on Direct Labour Hours to Activity Based Costing and the plant manager has supplied the budgeted overhead information below. Expected activity levels Activity Centre Traceable costs Cost driver P1 P2 P3 Design improvements $52,596 No. Of Designs 2,000 1,600 7,200 Materials checked $47,260 No. Of Checks ,800 Setup Costs $26,838 No. Of Setups Testing $67,568 No. Of Tests 1,200 1,600 5,400 Quality Inspections $19,240 No. Of Inspections 3, ,800 Reworking $32,220 Direct Labour Hours??? Total $245,722 Note: Reworking is to be allocated on Direct Labour Hours. The following is the prime cost budget for the year 2010: Direct Labour Hours 9,000 P1 P2 P3 Number of Units Direct Material, cost per unit $ $ $ Direct Labour, cost per unit $ $ $ Labour Hours per unit (a) Assuming the company decides to adopt activity based costing to apply overhead cost to products, calculate: (i) (ii) The overhead recovery rate for each of the cost drivers, (round to 2 decimal places). The total cost to produce each product and the cost per unit of each product (round to 2 decimal points). 2 (b) If the company continues to use Direct Labour Hours as the application base, what would the overhead application rate be (rounded to 2 decimal points)? 3 (c) Calculate the cost to manufacture one unit of each product using the traditional costing method.
4 - 4 - QUESTION 3. (17 ) The Chook Company commenced business on 1 September marinating chicken eggs for the overseas market. Below are the details for Department Number 3 where eggs in their jars, transferred in from Department Number 2, have marinade added and are then transferred to Department Number 4, where lids and labels are added. Production Details in Units Department 3 Work in process September 1 Nil Transferred In 156,000 units Good units completed and transferred out 143,000 units Work in process September 30 6,000 units Percentage complete September 30 60% Actual costs for September Transferred In Eggs in jars $399,360 Direct Material Marinade $89,232 Direct Labour $229,440 Factory Overhead $215,500 Additional Information: Eggs in jars are transferred into the start of Department Number 3; the marinade is added at 75% of the way through the process. Overhead is applied at 75% of Direct Labour Cost. Normal spoilage is 4% of good output. It is discovered at inspection at the end of the process in Department Number 3. The cost of normal spoilage is added to good units leaving production. Abnormal spoilage occurred at 50% of the way through the process when a production belt broke. Management requires abnormal spoilage to be charged to a special account. 14 (a) A cost of production report for Department Number 3 using FIFO, clearly showing: (i) Equivalent units produced and the cost per equivalent unit to 3 decimal places, for each item of material, labour and overhead cost. (ii) Total cost of transfers to Department Number 4. 3 (b) A work in Process ledger account for Department Number 3.
5 - 5 - QUESTION 4. (13 ) Joanne s Fashions, a small fashion manufacturer, specialises in making School sweat shirts. They use operation costing to make three types of sweatshirt-plain, Year only and Year & Name on the back. All three sweat shirts pass through the Cutting and Sewing Departments while only the Year and Year & Name pass through the Over-locking Department where the transfers are sewn on. Production for the month of June 2006 was: Year & Name Year Plain Units Produced 2,400 1, Direct Material Cutting $24,000 $8,880 $10,800 Over-locking $12,000 $4,440 The company s conversion costs for June are: Cutting Sewing Over-locking Direct Labour $5,200 $33,000 $9,600 Factory Overhead $6,000 $45,800 $6,600 5 (a) Calculate the total cost of each sweat shirt and the cost per unit for June Round to two decimal points. 8 (b) Prepare general journal entries for all three departments. Assume that there is no opening or closing work in process and all goods are transferred to finished goods on completion.
6 - 6 - QUESTION 5. (18 ) Orca Fisheries produces 3 products from its fish: caviar, tinned fish, and frozen fish; and one by-product, fish meal. All fish are initially prepared in the Cleaning Department: all products emerge from this process. Caviar is then processed further in the Egg Packaging Department. The tinned fish and frozen fish are further processed in the Tinned Department and the Freezing Department, respectively. The by-product is processed further in the Mincing Department. The net realisable value of the by-product is credited back to the joint process in the Cleaning Department after allowing for extra processing costs, selling expenses of $3,500 and a profit of 10% on sales. The costs for the year are: Cleaning Department $300,000 Egg Packing Department $50,000 Tinned Department $350,000 Freezing Department $150,000 Mincing Department $1,000 Production volumes for the year and the sales prices of each product are shown below: Product Production kgs Sales kgs Sales price Per kg Caviar 30,000 22,000 $14.00 Tinned fish 1,080,000 1,052,470 $2.00 Frozen fish 360, ,275 $3.00 Fish meal 30,000 29,680 $0.50 Total 1,500,000 There are no inventory opening balances in any department. 12 (a) Calculate the unit cost to 4 decimal places for each product using the estimated net realisable value method. 4 (b) Calculate the value of closing inventory for all products. 2 (c) What was the total amount of gross profit made from the sale of Caviar for the year?
7 - 7 - QUESTION 6. (16 ) Vincent Proprietary Limited manufactures a single product employing a standard cost system to plan and control its production. The current standard material, labour and overhead cost to produce each unit is expected to be: Direct Materials each $57.60 Direct Labour 3 $10.25 per hour $30.75 Factory Overhead 1.5 machine $12.00 per mach. hour $18.00 $ Budgeted factory overhead per year $10,800 Budgeted fixed overhead per year $8,865 Normal Operating Capacity 900 machine hours Actual production for the year is Actual machine hours for the year: 500 units. 880 hours Actual costs for the business for the year are as follows: $ Direct Materials Purchased: 6,200 parts 22,444 Direct Materials used: 7,600 parts Direct Labour incurred: 1,650 hours x $10.30 per hour 16,995 Factory overhead incurred 10,824 Materials price variance is calculated as early as possible. There is no opening or closing work in process. 14 (a) Calculate seven variances for material, labour and overhead as early as possible. (All workings must be shown and clearly labelled.) 2 (b) Write a brief explanation to factory management explaining what caused the Factory Overhead Volume Variance calculated above. Your explanation should NOT repeat the calculations involved. END OF PART ONE
SECTION I. Sh ,000 10,200 16,680 14,000 2,600 4,200 13,300 2,520 1,600 10,500 12, ,000
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