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日期:2024-04-26 01:15

ACCT2002 Cost Analysis for Decision Making

Semester 1 and Trimester 1A, 2024

Portfolio Questions

QUESTION ONE

Santana Company is a small manufacturer and retailer of guitars. The company

produces wooden guitars that are made in-house and sold exclusively in-store.

These guitars were originally hand-made, but over the years, production of guitars  has slowly been automated as automation produced guitars with consistent quality. As of 2023, no more wooden guitars were hand-made by Santana Company.

Brenda Wellington, the assistant manager, is in the process of working out a cost     formula for overhead expenses. She assumes that in some way, overhead expense is related to sales, either in units or in dollars.

She has collected data for sales and overhead expenses for January 2022 through December 2023. During her collection of the data for the last two years, she has

established that the overhead expenses in February 2022 was exceptionally low as there was an electrical fire that year that caused wide-spread damage.

REQUIRED:

This question must be completed using EXCEL.

A.  Assist Brenda in developing the regressions for supplies expenses under  normal circumstances, for sales (both in units and in dollars). Hint: Do not attempt a multiple regression(4 marks)

B.  Explain what you did in part A (ie why did you do it the way you did it). (2 marks)

C.  Evaluate both regressions and determine which regression would be more appropriate. (4 marks)

(Total: 10 marks)

QUESTION ONE (cont’d)

QUESTION TWO

Adam Sandler is the financial controller for Plantation Fittings, a manufacturer of furniture. In June 2023 (end of the financial year), Sandler had prepared the

following flexible budgets for direct labour and manufacturing overhead for the

2023/2024 financial year. Though the factory has a capacity of 150,000 direct labour  hours per year, Sandler has estimated that the normal usage is 120,000 direct labour hours in a typical year.

Manufacturing Overhead

Direct-Labor Hours

Variable

Fixed

100,000

$325,000

$216,000

120,000

390,000

216,000

140,000

455,000

216,000

Sandler is now analysing overhead costs for the month of May, 2024. He has gathered the following information:

Labour

Direct-labour hours:

Job 77

3,500

Job 78

3,000

Job 79

2,000

Labor costs:

Direct-labour wages

$ 51,000

Indirect-labour wages (4,000 hours)

15,000

Supervisory salaries

6,000

Material

Inventories, May 1:

Raw materials and supplies

$ 10,500

Work in process (job 77)

54,000

Finished goods

112,500

Purchases of raw material and supplies:

Raw material

$135,000

Supplies (indirect material)

15,000

Direct material and supplies requisitioned for production:

Job 77

$  45,000

Job 78

37,500

Job 79

12,000

Supplies (indirect material)

12,000

Total

$120,000

Other

Building occupancy costs (heat, lightdepreciation, etc.)

Factory facilities

$ 6,400

Sales offices

1,600

Administrative offices

1,000

Total

$ 9,000

Production equipment costs:

Power

$ 4,100

Repairs and maintenance

1,500

Depreciation

1,500

Other

1,000

Total

$ 8,100

During May, Job 77 and 78 were completed.

REQUIRED:

A.  Calculate the appropriate predetermined overhead rate for the financial year 2023/2024. (1 mark)

B.  Calculate the total cost of Job 77. (3 marks)

C.  Calculate the amount of over- or underapplied overhead for the month of May. (3 marks)

D.  Using the appropriate method, dispose of the over- or underapplied overhead. Explain what other methods can be used and why you used the method that    you did. (3 marks)

(Total: 10 marks)

QUESTION THREE

McKnight Handcraft produces picture frames for large retailers. The process-costing  system at McKnight has a single direct-cost category (direct materials) and a single   indirect cost category (conversion costs). Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the

process. McKnight uses the weighted-average method of process costing.

A burst pipe in April caused the loss of some information , but they have been able to retrieve others. The retrieved information is listed below. On 1 April, the work-in-process was 20 percent complete as to conversion, while on 30 April, the work-in- process was 60 percent complete as to conversion.

Work in process, 1 April (in units) … ....... ...........................................................            ?

Units started during April … ............................................................................ ....        60,000

Total units to account for … ........................................................................ ........        75,000

Units completed and transferred out during April … … … … … … … … … … … .......              ?

Work in process, 30 April (in units) … ......................................................... .......        10,000

Total equivalent units: direct material … ..... ........................................................        75,000

Total equivalent units: conversion … ...... ......................................... ...................             ?

Work in process, 1 April: direct material … .........................................................      $135,000

Work in process, 1 April: conversion … .............. ................................................             ?

Cost incurred during April: direct material … .... ..................................................             ?

Cost incurred during April: conversion … ....... .....................................................     $832,250

Work in process, 1 April: total cost … ......... ........................................................      $172,500

Total costs incurred during April … ............... .............................................. ........    $1,402,250

Total costs to account for … ........................ ................................................. .......    $1,574,750

Cost per equivalent unit: direct material … ........ ..................................................        $9.40

Cost per equivalent unit: conversion … .............. ......................................... ........            ?

Total cost per equivalent unit … ......... ................................................... ..............       $21.65

Cost of goods completed and transferred out during April … .... .........................             ?

Cost remaining in ending work-in-process inventory: direct material … .............             ?

Cost remaining in ending work-in-process inventory: conversion … ...... ............       $73,500

Total cost of 30 April work-in-process … ............................................................      $167,500

REQUIRED:

A.  Prepare McKnight’s production report for April. (4 marks)

B.  Define the term equivalent unit and explain how the concept is used in process costing. (3 marks)

C. What is the purpose of a departmental production report prepared using process costing? (3 marks)

(Total: 10 marks)

QUESTION FOUR

Boddington Veterinary Clinic is a small-town partnership that offers two primary

services, farm animal services and pet care services.  Providing veterinary care to

farm animals requires travel to the farm animal (house calls), while veterinary care to

pets generally requires that the pet be brought into the clinic.  As part of an

investigation to determine the contribution that each of these two types of services makes to overall profit, one partner argues for allocating overhead using activity-

based costing while the other partner argues for a simpler overhead cost allocation   on the basis of direct labour hours.  The partners agree to use next year’s budgeted data, as prepared by their public accountant, for analysis and comparison purposes. The following overhead data were collected to develop the comparison.

REQUIRED:

A.  Using traditional product costing as proposed by the one partner, compute the total overhead cost assigned to both services of Boddington Veterinary Clinic. (1 mark)

B.  Using activity based costing as proposed by the other partner, compute the total overhead cost assigned to both services of Boddington Veterinary Clinic. Show all workings. (6 marks)

C.  Comment on the comparative overhead cost assigned to two services under both traditional costing and ABC. (3 marks)

(Total: 10 marks)



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