Sydney Graduate School of Management
School of Business
200494 Management Accounting
Individual Assignment (20%), Quarter 2, 2017
Key factors to keep in mind when writing your submission are:
1. The due date for the hard copy of the individual assignment is at the beginning of your seminar in Week 8, week commencing 22 May 2017. The electronic copy is to be lodged on vUWS by 12:00 midnight on Monday, 22 May 2017
2. You must submit Microsoft Word (electronic) copy of your assignment through vUWS by 12:00 midnight on Monday, 22 May 2017. Please also refer to instructions within the Learning Guide.
3. The file name for the electronic copy must follow the following pattern: your student ID number followed by 200494Assignment. For example if your student ID number is 17432968, the file name should be 17432968_200494Assignment.
4. Students are to keep a copy of all assignments submitted for marking.
5. Ensure you use accurate spelling and grammar. It is often best to state things simply and clearly rather than using complicated language in the wrong context. Prior to submission make sure you use tools like spelling and grammar checkers in WORD. You may also want to make use of online tools (e.g. the Writer’s Diet http://writersdiet.com/WT.php?home to improve the quality of your written work).
6. All sources of information must be appropriately acknowledged. Ensure that all in-text references are accurate and comply with the Harvard referencing style. A guide is available on the UWS Library website with examples to assist you. Ensure you use only credible sources appropriate to your level of studies. Wikipedia, for example, is not a credible source. A Reference list of all works cited in your submission must be provided.
7. THIS IS AN INDIVIDUAL ASSIGNMENT CONTAINING EIGHT (8) QUESTIONS. IT IS NOT A GROUP ASSIGNMENT. Please refer to the Misconduct Policy. For the full definition of academic misconduct and the consequences of such behaviour, you are advised to read the Student Misconduct Rule at
http://www.westernsydney.edu.au/about_uws/leadership/governance/student_misconduct_rule. Each student must present their own work. Failure to do so could lead to accusations of academic misconduct.
8. As a guide to what is expected from you for the assignment, a previous semester’s assignment with solution, marking guide and feedback is available on vUWS. This will assist in the preparation and presentation of your assignment as you can be more aware of and better able to avoid some of the pitfalls.
9. Use the Assignment Cover Sheet and include your Name and Student ID on the cover sheet. Ensure that the declaration is signed and dated on the Assignment Cover Sheet.
10. In addition to loss of marks for incorrect answers, marks may be deducted for untidy presentation including inappropriate formatting, poor numerical punctuation, not adhering to other requirements of the assignment. Begin each question on a new page. All journals, tables and statements must have appropriate headings and be presented in a proper format. All answers must be supported by relevant calculations.
11. Solutions to the questions contained in this assignment may require research beyond the recommended textbook.
12. Assessment percentage 20% (out of 100% total for the unit). Assignment will be marked out of 100 and converted to 20%. Marks for each question are shown alongside the question number.
Question 1: Cost estimation: High-low method and Least Squares regression (14 Marks)
Motor Racer Pty Ltd is a manufacturer of timing components for speedways. The company's accountant, Casey Stoner is concerned with maintenance technician costs and has recently compiled the costs for the firm's Maintenance Department. He used the technician hours to quantify the Department's activity. Casey presents the following data for analysis.
Month Technician hours Maintenance costs
July 1,200 $62,500
August 1,600 $78,150
September 1,800 $83,000
October 1,330 $65,800
November 1,700 $79,900
December 1,600 $72,250
January 1,400 $66,600
February 1,350 $63,550
March 1,460 $69,110
April 1,660 $73,800
May 1,700 $79,500
June 1,500 $70,250
Required: Note all calculations are to be rounded to nearest cents
1. Using the high-low method, calculate;
a. Determine the highest point, the lowest point and the maintenance costs at theses points
b. The variable cost per unit of cost driver,
c. The fixed cost, and
d. Write the cost equation based on high–low method. (4 marks)
2. Casey wants to predict next month’s maintenance cost using the high low cost equation. How much will be the maintenance costs when technician hours total 1,550. (1 mark)
3. Construct an Excel® spreadsheet and use least squares regression analysis to estimate the Maintenance Department’s:
a. Variable cost per unit of cost driver, (1 Marks)
b. Fixed cost, and (1 Marks)
c. Cost equation for the department's costs. (1 mark)
d. When is multiple regression required to explain cost behaviour? (1 mark)
4. What if Casey wants to use regression analysis cost formulae in Part 3 (c) to estimate maintenance cost for next month when he expects technician’s hours to be 1,550. How much will be the estimated maintenance cost? (1 Marks)
5. Explain the significance of the coefficient of determination measures for cost formulas. Why should these measures be considered when using the method of least squares? (2 Marks)
6. Describe the method of least square. Why does the cost prediction estimate using the high– low and regression methods differ? Which method would you recommend? Justify your answer. (2 Marks)
Question 2: Standard costing (12 marks)
Sydney Production Company has developed the following standards for one of its products:
STANDARD VARIABLE COST CARD: One Unit of Product
Materials: 30 square metres × $5.00 per square metre $150.00
Direct labour: 16 hours × $7 per hour $112.00
Variable manufacturing overhead: 16 direct labour hours × $5 per hour $ 80.00
Fixed overhead (1 DL hour @ $4) $4.00
Total standard cost per unit $346.00
The company records materials price variances at the time of purchase. The following activity occurred during the month of April:
Materials purchased: 80,000 sq. metre at $5.30 per sq. metre
Materials used: 74,000 square metres
Units produced: 2,500 units
Direct labour: 42,000 hours at $6.70 per hour
Actual variable manufacturing overhead: $228,000
Actual fixed overhead $180,500
Note: SHOW ALL WORKINGS and indicate whether the variances are favorable or unfavorable
1. Calculate the following variances for direct material;
a. Price variance.
b. Usage variance
c. Explain why the direct material price variance is often calculated at the point of purchase rather than at the point of purchase.
2. Calculate the following variances for direct labour
a. Rate variance
b. Efficiency variance
c. Suggest two possible causes of an unfavorable direct labour efficiency variance.
3. Calculate the following variances for variable overheads
a. Spending variance
b. Efficiency variance
c. Explain why the variable overhead spending variance is not a pure price variance.
4. Calculate the following variances for fixed overheads
a. Spending variance
b. Volume variance
c. What is the course of an unfavorable volume variance? Does the volume variance convey any meaningful information to managers?
(1 Marks each)
Question 3: Plant-wide rate, departmental overhead rates and ABC (12 marks)
Sydney Electronics Company produces two types of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products:
Units produced per year 75,000 750,000
Prime costs $250,000 $2,500,000
Direct labor hours 100,000 1,000,000
Machine hours 50,000 500,000
Production runs 100 150
Inspection hours 2,000 3,000
Maintenance hours 2,250 9,000
Department 1 Department 2
Direct labour hours:
Scientific calculator 75,000 25,000
Business calculator 112,500 887,500
Total 187,500 912,500
Scientific calculator 25,000 25,000
Business calculator 400,000 100,000
Total 425,000 125,000
Setup costs 225,000 $225,000
Inspection costs $175,000 175,000
Power 250,000 150,000
Maintenance 200,000 250,000
Total $850,000 $800,000
1. Compute the overhead cost per unit for each product using a plantwide, unit-based rate using direct labor hours. (2 marks)
2. Compute the overhead cost per unit for each product using departmental rates. In calculating departmental rates, use machine hours for Department 1 and direct labor hours for Department 2. (2 marks)
3. Repeat using direct labor hours for Department 1 and machine hours for Department 2. (1 marks)
4. Calculate the activity rate for each activity using activity-based costing. (1 marks)
5. Compute the overhead cost per unit for each product using activity-based costing. (4 marks)
6. Comment on the ability of departmental rates to improve the accuracy of product costing. Which method of costing would you recommend to management, plant-wide, departmental rates or ABC and why. (2 marks)
Question 4: Support department cost allocation (14 marks)
Blue Point Ltd. has two support departments, Personnel and Maintenance, and two producing departments, Blending and Finishing. Estimated direct costs and hours of services used by these departments are as follows:
Support Departments. Producing Departments
Personnel Maintenance Blending Finishing
Personnel Hrs - 800 4,800 2,400
Maintenance Hrs 1,500 - 6,000 7,500
Direct costs $9,000 $13,500 $40,000 $35,000
The budgeted machine hours for the Blending department are 60,000 and the budgeted direct labour hours for the finishing department are 20,000. These activities are used to allocate manufacturing costs to products in the 2 departments.
1. Prepare a schedule allocating the support department costs to the producing departments using the direct allocation method (3 Marks), and determine the predetermined overhead rates for the two producing departments. (2 Marks)
2. Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method (4 Marks), and determine the predetermined overhead rates for the two producing departments. (2 Marks)
3. Explain the main differences between the direct, sequential and reciprocal methods of support department cost allocations. (3 Marks)
Question 5: Preparation of budget (13 marks)
Kevin Limited owns a retail store that sells new and used sporting equipment. Recently the managing director Kevin is concerned about the cash flow situation of the company. He has asked his management accountant to prepare cash budget in order to look at future cash requirements for the company. Kevin provides the following information.
1. Kevin Limited has a sales budget for March of $440,000. About 10% are cash sales and the remainder is sold on account.
2. The company expects that 60% of credit sales will be collected in the month of the sale, 25% in the next month and 10% in the following month.
3. Materials purchased on account are expected to be $250,000. Kevin pays 35% in the month of the purchase, 50% in the month following the purchase and the remaining 15% in the second month after the purchase.
4. Salaries and wages of the workers are approximately $45,000 per month. The employees are paid weekly so on average 95% of their wages are paid in the month to which they relate and the remaining 5% is paid in the following month.
5. Utilities average $4,300 per month.
6. Rent on the building is $9,000 per month.
7. Insurance is $3,000 per month and advertising costs are $1,000 per month.
8. February sales were $320,000 and purchases of materials in February were $170,000; January sales were $200,000 and purchases of materials in January were $130,000.
9. The cash balance on 1st March is $5,400.
1. Prepare the following for the month of March. Please round all figures to the nearest dollar amount.
a. Schedule of cash receipts for March (4 Marks)
b. Schedule of cash payments for March (4 Marks)
2. Prepare a cash budget for March (5 Marks)
Question 6: Cost-Volume-Profit Analysis, Multiple products (11 marks)
Travel On Limited sells luggage. The company sells a duffle bag, a carry-on suitcase and a deluxe suitcase. The price and variable cost for each type of luggage is listed below.
Price Variable Cost
Duffle bag $100 $25
Carry-on $180 $40
Deluxe $300 $120
The total fixed costs for Travel On Limited equals $60,000. For every 8 duffle bags Travel On sells it sells 3 carry-on suitcases and 1 deluxe suitcase.
1. Calculate the package contribution margin. (3 Marks)
2. Calculate the package break-even point in units for duffle bags, carry-on suitcases and deluxe suitcases. (5 Marks)
3. If Travel On Limited has a target income for the coming year of $300,000, how many packages will company have to sell? (1 Mark)
4. Based on your answer in Part 3, prepare a contribution margin income statement for the coming year. (1 Mark)
5. What is the company’s margin of safety in packages? (1 Mark)
Question 7: Quality Cost Report (10 marks)
At the beginning of the year, Candy Company initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for 2016 and 2015:
Sales $5,000,000 $5,000,000
Quality training 6,000 9,000
Material inspections 15,000 12,000
Scrap 80,000 60,000
Rework 15,000 12,000
Product inspection 25,000 30,000
Product warranty 150,000 120,000
1. Prepare a Quality Cost Report for the two years (4 Marks) and compute each category of quality costs as a percentage of sales for each year. (Round to two decimal places). (2 Marks)
2. How much has profit increased as a result of quality improvements? (2 Marks)
3. If quality costs can be reduced to 2.5 percent of sales, how much additional profit would result? (2 Marks)
Question 8: Process costing. (14 marks)
Xanadu Company manufactures a product that passes through two departments, Assembly and Finishing. In the Finishing Department, materials are added at the end of the process. Conversion costs are incurred uniformly throughout the process. During the month of January, the Finishing Department received 60,000 units from the Assembly Department. The transferred-in cost of the 60,000 units was $69,900.
Costs added by Finishing during January included the following:
Direct materials $35,200 Direct labour $56,000
On January 1, the Finishing Department had 10,000 units in inventory that were 30 percent complete with respect to conversion costs. On January 31, 12,000 units were in inventory, onethird complete with respect to conversion costs. The costs associated with the 10,000 units in beginning inventory were as follows:
Transferred-in cost $11,650
Direct labour $8,750
1. Prepare a cost of production report for the Finishing Department using the weighted average method. (10 Marks)
1. Explain the role of the departmental production report in process costing and name the five steps for completing the departmental production report. (2 Marks)
2. Explain how non-uniform inputs and multiple departments affect process costing. (2 Marks)