WRITTEN QUESTIONS
For questions 1, 2 and 3, refer to the scenario provided below:
A factory producing and supplying automobile parts to local distributors has identified the months of December, January, and February to be the busiest months for orders, deliveries and services, with a sharp decline of orders during the months of April, May, and June.
During the peak months, the factory employs a fixed number of contractual delivery personnel, factory workers, and project-based supervisors, to meet this demand.
For the purpose of this assessment, consider the following elements of production and delivery costs:
a. Factory rent
b. Salary for contractual employees
c. Raw materials purchased
d. Salary for regular employees
1. Describe the cost behaviour characteristics of each of the different cost elements listed below:
Factory Rent
Salary for contractual employees
Raw materials purchased
Salary for regular employees
2. Determine whether the cost being described is a Fixed Cost, a Variable Cost, or a Mixed Cost.
An example of this is office rent expenses.
This cost increases when more units are produced and decreases when fewer units are produced.
These costs will incur even if no units are produced.
An example of this is cost for raw materials.
An example of this is cost for telephone expense.
3. In your own words, briefly explain the following terminologies:
a. Cost Element
b. Cost Behaviour
4. Briefly describe the following principles:
a. Double entry bookkeeping
b. Accrual based accounting
5. List two key features of typical organisational policies and procedures applying to costing systems, and discuss how they apply to organisations using different costing systems.
6. Match the following costing systems to their correct descriptions.
a. Direct Costing
b. Activity-Based Costing
c. Process Costing
d. Operation Costing
It focuses on processes that incur costs and enables management to view costs from the perspective of what causes the cost
The fixed manufacturing overhead is not debited to the work in process account but is written off as an expense in the period within which it is incurred
A hybrid cost accounting system and is suitable for organisations that manufacture batches of similar products
Costs accumulated by each department or step through which the product passes are allocated to inventories according to the number of units completed by each department.
7. Match the following management accounting information to their correct descriptions.
a. Forecast
b. Budget
c. Variance Analysis
This is the comparison of the actual realised expenses with the budgeted expenses.
This is the analysis of past revenue, sales and growth statistics, used to predict outcome of future operations.
This is the allocation of money for the estimated future costs and liabilities.
8. List two key principles of budget preparation and explain how their implementation helps business organisations.
Principle 1
Principle 2
How do these principles help budget preparation?
9. List two examples of best practices in budget preparation and explain how their implementation helps business organisations.
How do these practices help business organisations?
10. Briefly discuss how variance analysis relates to costing system integrity.
11. Describe appropriate system procedures to manage, record and safeguard inventory and materials including:
a. the storage of inventory;
b. the purchase of new materials;
c. the issue of new stock.
PRACTICAL ASSESSMENT
The following exercises involve the calculation and analysis of cost data within a manufacturing and service organisation.
1. Pretori Industries Pty Ltd is a small manufacturing company that does not use a perpetual inventory system. 15,000 units were produced in the month of July. The following information was provided with respect to factory operations for 31 August XXXX:
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$
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Work in process 1/8/XX
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9,300
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Machine maintenance
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800
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Depreciation on machinery
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1,500
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Supervisor's wages
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8,500
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Wages for machine operators
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36,000
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Rent for the factory
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4,000
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Cleaning costs for the factory
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800
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Purchases of raw materials
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70,000
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Freight inwards on raw materials
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1,800
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Stock of raw materials on hand 1/8/XX
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7,500
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Stock of raw materials on hand 31/8/XX
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8,600
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Work in process 31/8/XX
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5,800
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Accrued wages for machine operators
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9,000
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Electricity
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1,200
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You are required to:
a) Prepare a manufacturing statement for Pretori Industries Pty Ltd for month of August XX. Assume that all Direct Materials, Direct Labour, and Factory Overheads are added to the Work in Progress Asset account.
b) Calculate the cost per unit for the month for:
a) Direct materials
b) Direct labour
c) Factory overhead
c) Perform a percentage analysis of each element of production based on the cost of production.
d) Prepare the journal entry to record the transfer of the Assets "Work In Progress" (WIP) to the Cost of Goods Sold "Transfers from WIP" account.
2. Montville Products Pty Ltd, a manufacturing company, has the following transactions for the month of April XXXX.
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$
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Apr 2
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Purchase of materials on credit. GST paid $5,000
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55,000
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Apr 5
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Issue of direct materials to production
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34,000
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Apr 10
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Indirect materials issued to production
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4,500
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Apr 12
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Gross amount of factory payroll paid
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46,000
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Apr 15
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Direct labour incurred
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28,000
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Apr 18
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Indirect labour incurred
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18,000
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Apr 20
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Invoices for factory overhead on credit. GST $3,000
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33,000
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Apr 23
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Accrued telephone factory charges
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1,200
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Apr 28
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Cost of finished goods in April
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95,000
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Apr 29
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Sales in April on credit. GST collected $14,000
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154,000
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Apr 29
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Goods returned WIP to Raw Materials Inventory
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800
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Apr 30
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??
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??
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You are required to first discuss this exercise with your supervisor, (Trainer) and then prepare journal entries for these transactions for the month of April in accordance with instructions.
You know an additional transaction occurred on Apr 30, however it is not listed above. Ask your supervisor (trainer) for the missing transaction data.
3. Oswald Lighting Products Pty Ltd has 20 employees. Fifteen (15) employees are employed in the factory and five (5) employees are employed in the administration department. The average wage rate for each factory employee is $23 per hour. The average wage rate for each office worker is $30 per hour. Each factory employee works a 40 hour week and the administration workers work a 37½ hour week. Each employee is entitled to four (4) weeks' annual leave plus 17 ½% loading and two (2) weeks' sick leave per year. The gross factory wages for the month of October are $82,387 made up of the following:
Direct labour $55,200
Direct labour overtime $2,300
Indirect labour $22,500
Annual leave for one factory worker for 2 weeks plus 17½% loading
One day's sick leave for one office worker
Deductions from gross wages are as follows:
PAYG withholding $18,432
Superannuation deductions to Sunsuper $975
Union fees $480
You are required to:
a. Calculate (to the nearest dollar amount) the provision for annual and sick leave for October;
b. Prepare journal entries for:
a. Monthly provision for annual and sick leave for October;
b. Allocations to the work in process and factory overhead accounts (time sheet analysis).
c. Accruals, deductions and payroll clearing (Factory payroll for October).
4. ACI Computer Services has the following income statement for the year ended 30 June XXXX.
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$
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Sales
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900,000
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Less cost of goods sold:
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Direct materials
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384,000
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Direct labour
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204,000
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Variable factory overhead
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88,000
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Fixed factory overhead
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28,000
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704,000
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Gross profit
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196,000
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Less operating expenses:
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Selling
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Variable expenses
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66,000
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Fixed expenses
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11,040
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77,040
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Administration
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118,960
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Variable expenses
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50,000
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Fixed expenses
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23,200
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73,200
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Net profit
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45,760
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You are required to:
a) Recast the income statement to determine the contribution margin;
b) Perform cost volume profit ("CVP") analysis to determine the breakeven point e.g. the number of units that must be sold in order to break even and the dollar value at breakeven point if 180, 000 units are produced;
c) Confirm your calculations in (b) are approximately correct by performing a break even analysis using the contribution margin ratio method;
d) What if net profit increased by $30,000, determine the new breakeven point for no of units to be sold;
e) If the new net profit figure is required after tax, calculate the new profit before tax if the company pays tax at the rate of 30%;
f) What is the margin of safety between budgeted sales and break even sales amounts expressed as a percentage?
g) What are three (3) limitations with respect to the assumptions made in cost volume profit ("CVP") analysis?
5. A manufacturer has the following areas of activity, cost drivers and application rates:
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Activity area
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Cost driver
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Application rate
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Design of product
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Changes to design
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$1,000 per change
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Materials
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No of requisitions
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$150 per requisition
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Assembly
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Machine hours
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$100 per machine hrs
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Packing
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Labour hours
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$60 per labour hour
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Sales and distribution
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No of sales orders
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$50 per unit
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During an accounting period the following cost driver information is gathered:
No of design changes - 4
No of material requisitions - 40
Machine hours for assembling - 3,000 hours
Labour hours - 1,800 labour hours
Sales orders - 60
If 500 units are produced and using activity based costing ("ABC") calculate:
a) total cost of production;
b) cost per unit for activity level.
6. Below are two costs incurred for two months by a printing company. Identify the cost behaviour for each cost.
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Cost
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Month
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Cost
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Units Produced/Delivered
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Printing costs
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Month 1
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$7,004
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778
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Month 2
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$9,306
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1,163
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Delivery costs
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Month 1
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$6,080
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800
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Month 2
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$5,168
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680
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Advertising and marketing costs
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Month 1
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$5,600
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778
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Month 2
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$5,600
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1,163
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6.1 Write the letters corresponding to the correct cost behaviour on the space provided:
a. Fixed Cost
b. Variable Cost
c. Mixed Cost
6.2 Explain your answer briefly
7. Pristine Manufacturing produces a product using a process cost system. Information for December XXXX is as follows: 5,000 units were commenced at the beginning of the month and at the end of the month 400 are 50% complete. Costs for the month are:
$
Direct materials250,000
Direct labour182,400
Factory overhead288,000
You are required to prepare a cost of production report for the month of December XXXX to show the physical and equivalent completed units and the allocation of costs to direct materials, direct labour and factory overhead.
8. Medica Express, a medical equipment manufacturing company, presents the following data for 2016 for their hospital beds:
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Opening inventory
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0 units
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Sales
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800 units
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Production
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10,000 units
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Closing inventory
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200 units
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Direct materials
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$240
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Direct labour
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$280
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Variable manufacturing overhead expenses
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$100
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Variable selling and administrative expenses
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$40
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Fixed manufacturing overhead expenses
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$1,200,000
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Fixed selling and administrative expenses
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$800,000
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Compute the unit product cost of one hospital bed using the variable costing system.
Show your solution on the space provided
CASE STUDIES
1. You are employed in the finance section of Marchioness Industries Pty Ltd, a small manufacturing company. Your role is to assist the manager responsible for the performance of the company. This role involves setting budgets, comparing budgeted figures against actual results, calculating and preparing performance reports and performing an overhead analysis. The manager is responsible for ensuring revenues and costs are in accordance with budget estimates (+ or - 5%) and the organisation's business performance objectives.
A summary of budgeted figures for the month of July XXXX is set out below:
Statement of Income
Net sales $438,000, COGS $252,000, Expenses $145,000
Statement of Financial position
Current assets $236,000, Non-current assets $360,000, Current Liabilities $195,000, Non-current liabilities $200,000.
Actual results obtained are as follows:
Statement of Comprehensive Income
Net sales $452,000, COGS $262,000, Expenses $150,000
Statement of Financial position
Current assets $240,000, Non-current assets $364,000, Current Liabilities $205,000, Non-current liabilities $215,000.
Annual budgeted overhead for Marchioness Industries Pty Ltd was $300,000 consisting of $130,000 fixed overhead and $170,000 variable overhead. Budgeted direct labour hours are 5,000 hours. Actual overhead incurred is $295,000 and actual direct labour hours were 5,500.
You are required to:
a) Prepare a statement of income performance report in summary format for the month of July to show variances and variance percentages as a percentage of sales. Calculate variance percentage to two (2) decimal places.
b) Prepare a statement of financial position performance report in summary format showing variances and variance as a percentage of sales. Calculate variance percentage to two (2) decimal places.
c) With respect to the variance analysis you have performed, summarise any amounts that have deviated significantly from the budget and need to be investigated. Why do you think the variance/s occurred?
d) Perform overhead analysis to show the overhead recovery rates and under or over applied overhead. Calculate spending and capacity variances and reconcile amounts with total under or over applied overhead. How effective is the cost assignment process?
e) Prepare a new Statement of Income budget for the month of August based on the information set out below.
Sales figure of $438,000 to be increased by 4%
COGS figure of $252,000 to be increased by 4%
Selling expenses figure of $30,000 increased by 2%
Administration figure of $104,500 increase by 1%
Financial expenses figure$10,500 increased by 1%
The annual budgeted overhead is $295,000 and the budgeted direct labour hours are 5,500. Fixed overhead is $130,000 and variable overhead is $165,000. Calculate the direct overhead recovery rate per hour for variable and fixed overhead.
Attachment:- Assessment.rar