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Homework answers / question archive / HI5017 Managerial Accounting Question 1 (7 marks) Part A Asco Company has a relevant range of production between 15,000 and 30,000 units

HI5017 Managerial Accounting Question 1 (7 marks) Part A Asco Company has a relevant range of production between 15,000 and 30,000 units

Accounting

HI5017 Managerial Accounting

Question 1 (7 marks)

Part A

Asco Company has a relevant range of production between 15,000 and 30,000 units. The following cost data represents average variable costs per unit for 25,000 units of production.   

 

                                                                                                                                                              Average Cost per unit

Direct materials                                                                                                                                  $ 13

Direct labor                                                                                                                                  8

Fixed manufacturing overhead                           6

Variable manufacturing overhead                                              3

 

 

 

 

 

 

 

Required:

 

a) If 25,000 units are produced, what is the variable cost per unit? (1 mark)

b) If 16,000 units are produced, what is the variable cost per unit? (0.5 mark)

c) Comment briefly on your answers to (a) and (b). (1 mark)

d) If 18,000 units are produced, what are the total variable costs? (1 mark)

 

 

Part B

GEM Ltd leases a photocopy machine with terms that include a fixed fee each month plus a charge for each photocopy made. GEM made 5,000 copies and paid a total of $600 in January. In April, they paid $400 for 3,000 copies.

 

 

Required:

 

a) What is the variable cost per copy if GEM uses the high-low method to analyze costs? (1.5 marks)

b) How much would GEM Ltd pay if it made 7,500 copies? (Hint: Need to solve for Fixed cost) (2 marks)

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Question 2                                                                                                                                 (11 marks)

Henry’s Kitchens makes two types of sandwich makers: Basic and Deluxe. The company expects to manufacture 70,000 units of Basic, which has a per-unit direct material cost of $10 and a per-unit direct labor cost of $60. It also expects to manufacture 30,000 units of Deluxe, which has a per-unit material cost of $15 and a per-unit direct labor cost of $40. It is estimated that Basic will use 140,000 machine hours and Deluxe will require 60,000 machine hours. Historically, the company has used the traditional overhead allocation method and applied overhead at a rate of $21 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is shown:

 

Machine setups

$  90 000

Machine processing

 4 000 000

Material requisitions

  100 000

Total overhead

$ 4 190 000

 

The cost driver for each cost pool and its expected activity is shown:

 

 

Basic

Deluxe

Total

Machine setups

100

200

300

Machine hours

140 000

60 000

200 000

Parts requisitions

80

120

200

 

 

Required:

 

a) What is the per-unit cost for each product under the traditional overhead allocation method? (3 marks)

b) What is the per-unit cost for each product under ABC costing? (4 marks)

c) Briefly comment on the overhead applied per unit under the two overhead allocation methods. i.e. How much was overhead under or overapplied for each product? Further, would you recommend a change to ABC costing for Henry’s Kitchens? Why or why not? (4 marks)

 

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Question 3                                                                                                                                    (7 marks)

Relevant data from Picta Company’s operating budgets are presented below. The company’s financial year ends on 30 June.

             

 

Quarter 1

Quarter 2

Sales

$248,470

$251,539

Direct material purchases

120,295

128,832

Direct labor

76,553

74,289

Manufacturing overhead

26,000

24,400

Selling and administration expenses

33,500

33,500

Depreciation included in selling and administration expenses

 

2,000

 

2,500

 

 

 

Collection from customers

230,524

220,116

Cash payments for purchases

114,345

118,346

 

Additional data:

Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000.

 

The company has a 15% open line of credit for $70 000 with their bank.

 

Required:

 

a) Use this information to prepare a cash budget for the first two quarters of the year. (5 marks)

bi) Briefly comment on Picta Company’s expected cashflow position in the first two quarters of the year. (2 marks)

 

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Question 4                                                                                                                                    (7 marks)

 

Forklift Electrical Ltd

Income Statement Comparison

 

                                                Current year              Prior Year

              (amounts in thousands)

 

Sales                                                                                                            $ 33,750                                    $ 24,750

Cost of goods sold                                                21,938                      16,830

Gross profit                                                                                              $ 11,812                          $  7,920

 

Wages                                                                                         $ 8,775                 $  6,188

Utilities                                                                                                                       675                                                                                 250

Repairs                                                                                                                                  169                                                                                           325

Selling                                                                         506                          200

Total expenses                                                  $ 10,125                                         $  6,963

 

Total assets (investment base)    $  4,500                                                         $  1,500

The income statement for Forklift Electrical Ltd for two years are shown below:

 

Required:

a) Determine the operating income (loss) (dollars) for each year. (1 mark)

b) The company made a strategic decision to invest in additional assets in the current year. These

  amounts are provided. Using the amounts of the total assets as the investment base, calculate          the return on investment. (1 mark)

c) Was the decision to invest additional assets in the company successful? Explain. (1 mark)

d) Assuming an 8% cost of capital, calculate the residual income for each year. (2 marks)

e) Would the management of Forklift Electrical Ltd have been more likely to accept the          investment opportunity if the residual income had been used as a performance measure               instead of ROI? Explain your answer. (2 marks)

 

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Question 5                                                                                                                                 (11 marks)

Micol & Co. Ltd sells a single product, baby hamper, with a selling price of $150 and variable costs per baby hamper of $100. The company’s monthly fixed expenses are $200,000.

 

Required:

a) What is the company’s break-even point in units? (2 marks)

b) What is the company’s margin of safety in dollars, assume sales is expected to be $800,000? (2 marks)

c) How many baby hampers will Micol & Co. Ltd need to sell (in sales dollars) in order to realize a target profit of $500,000? (2 marks)

d) Construct a contribution margin income statement for the first month (in July) that reflects $2,400,000 in sales revenue for Micol & Co. Ltd. (3 marks)

e) Provide two suggestions to Micol & Co. Ltd on how it can increase profit in subsequent months? (2 marks)

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Question 6                                                                                                                                    (7 marks)

Technology Inc. Ltd sells desktop computer printers for $65 per unit. Unit product costs are:

             

Direct materials                                              $12

Direct labor                                                                20

Manufacturing overhead                 6

Total                                                                                              $38

 

 

 

 

A special order to purchase 10,000 desktop computer printers has recently been received from another company, and Technology Inc. has the idle capacity to fill the order. The company will incur an additional $1.50 per printer for additional labor costs due to a slight modification the buyer wants to be made to the original product. One-third of the manufacturing overhead costs are fixed and will be incurred no matter how many units are produced. $2,100 of existing fixed administrative costs will be allocated to the order as “part of the cost of doing business”.

 

Required:

a) Which of the data above should be ignored in making the special-order decision? For what reason? (2 marks)

b) Should Technology Inc. Ltd accept the order if the buyer offers $38 per unit for 10,000 desktop computer printers? (3 marks)

c) What factors must any company consider before accepting a special-order contract? (2 marks)

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