200494 Management Accounting Assignment (20 marks) Due beginning of Session 8 commencing Monday 17th August, 2015 Please refer also to instructions within the Learning Guide This assignment will be scored out of 100 marks. Marks for each question are shown alongside the question number. In addition to loss of marks for incorrect answers, marks may be deducted for untidy presentation including inappropriate formatting. 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. Solutions to the questions contained in this assignment may require research beyond the recommended textbook. All sources of information must be appropriately acknowledged THIS IS AN INDIVIDUAL ASSIGNMENT CONTAINING EIGHT (8) QUESTIONS. IT IS NOT A GROUP ASSIGNMENT. Students should carefully read the section on page 22 of the Learning Guide "Academic Misconduct" 200494 Management Accounting Assignment, Quarter 3, 2015 2 of 9 Question 1: High-Low Method, Scatterplot, Regression (10 Marks) Dubbo Regional Hospital has collected data on all of its activities for the past 16 months. Data for mental nursing care follow: Y X Cost Hours of Nursing Care Jan-14 $59,600 1,400 Feb-14 $57,150 1,350 Mar-14 $61,110 1,460 Apr-14 $65,800 1,600 May-14 $69,500 1,700 Jun-14 $64,250 1,550 Jul-14 $52,000 1,200 Aug-14 $66,000 1,600 Sep-14 $83,000 1,800 Oct-14 $66,550 1,330 Nov-14 $79,500 1,700 Dec-14 $76,000 1,600 Jan-15 $68,500 1,400 Feb-15 $73,150 1,550 Mar-15 $73,175 1,505 Apr-15 $66,150 1,290 REQUIRED: 1. Using the high-low method, calculate; a. The variable rate per hour for the nursing care activity b. The fixed cost for the nursing care activity and c. The cost equation. 2. Run a regression on the data, using hours of nursing care as the independent variable. a. Write the regression cost equation b. What is the value of R2 and what does it mean? c. Predict the cost for the mental nursing care for May 2015 if 1,400 hours of nursing care are forecast. Evaluate the regression equation. How comfortable are you with the predicted cost for May 2015? 200494 Management Accounting Assignment, Quarter 3, 2015 3 of 9 Question 2: Weighted average process costing: manufacturer (10 Marks) Aussie Tyres Ltd manufactures highly specialised tyres that are used extensively in the racing car industry. The following data have been compiled for the month of June. Conversion activity occurs uniformly throughout the production process. Work in process, 1 June – 60 000 units Direct material: 100% complete $221 000 Conversion: 40% complete 44 750 Balance in work in process, 1 June $265 750 Units started during June 200 000 Units completed during June and transferred to finished goods inventory 150 000 Work in process, 30 June: Direct material: 100% Conversion: 60% complete Costs incurred during June: Direct material $500 000 Conversion costs: Direct labour $250 000 Manufacturing overhead 200 000 Total conversion costs $450 000 Required: 1 Prepare schedules to accomplish each of the following process costing steps for the month of June. Use the weighted average method of process costing. a) Analysis of physical flow of units. b) Calculation of equivalent units. c) Calculation of unit costs. d) Analysis of total costs. 2 Describe the flow of costs through the manufacturing accounts in a process costing system where there are two or more production departments. 200494 Management Accounting Assignment, Quarter 3, 2015 4 of 9 Question 3: Support department cost allocation (15 marks) Parramatta Guitar Company manufactures guitars for the music industry. The company has two production departments: Machining and Finishing. There are also three support departments: Human Resources (HR), Maintenance and Design. The budgeted overhead costs for the year for each department are as follows: The budgeted machine hours for the Machining Department are 60 000, and the budgeted direct labour hours for the Finishing Department are 20 000. These activities are used to allocate manufacturing overhead costs to products in the two departments. The usage of the support departments' output for the year is as follows: Required: 1. Explain briefly the main differences between the direct, sequential and reciprocal services methods of support department cost allocation. 2. Use the direct method to allocate support costs to the two production departments. Calculate the predetermined manufacturing overhead rates for the two production departments. 3. Explain the sequence that should be used to allocate the support department costs to production departments using the sequential method. 4. Use the sequential method to allocate support costs to the two production departments. Calculate the predetermined manufacturing overhead rates for the two production departments. HR $500 000 Maintenance $460 000 Design $700 000 Machining $1 600 000 Finishing $800 000 Provision of Service Output (hours of service) Provider of the service User of service HR Maintenance Design HR - - - Maintenance 500 - - Design 500 500 - Machining 4000 3500 4500 Finishing 5000 4000 1500 Total 10000 8000 6000 200494 Management Accounting Assignment, Quarter 3, 2015 5 of 9 Question 4: Conventional and activity-based product costing (15 marks) Campbelltown Manufacturing Ltd (CML) manufactures two products, Simple and Advanced, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $400,000 and 12,500 hours respectively. Information about the company's products follows. Simple: Estimated product volume 1,500 units Direct material cost $12.50 per unit Direct labour per unit 3 hours at $12 per hour Advanced: Estimated product volume 2,000 units Direct material cost $20 per unit Direct labour per unit 4 hours at $12 per hour CML's overhead of $400,000 can be identified with three major activities: (i) order processing ($75,000), (ii) machine processing ($280,000) and (iii) product inspection ($45,000). The cost drivers of these activities are respectively driven by: (i) number of orders processed, (ii) machine hours worked, and (iii) inspection hours. Data relevant to these activities follow. Orders processed Machine hours worked Inspection Hours Simple 150 9,000 1,000 Advanced 100 11,000 4,000 Total 250 20,000 5,000 The Chief Financial Officer (CFO) is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed. This machinery was expected to produce significant operating efficiencies. REQUIRED: 1. Assuming use of direct labour hours to apply overhead to production, (a) Calculate the pre-determined overhead rate (b) Calculate the unit manufacturing costs of the Simple and Advanced products if the expected manufacturing volume is attained. 2. Assuming the use of activity-based costing, calculate the activity rates for order processing, machine processing and product inspection. 3. Using the activity rate calculated in 2 above, calculate the unit costs for order processing, machine processing and product inspection of the Simple and Advanced products. 4. Assuming the use of activity-based costing, calculate the unit manufacturing costs of the Simple and Advanced products if the expected manufacturing volume is attained. Using direct labour hours as an application base, which product is over-costed and which product is under-costed if activity based costing is used? Calculate the amount of the cost distortion for each product. Question 5: Preparation of the budget (15 marks) 200494 Management Accounting Assignment, Quarter 3, 2015 6 of 9 Sydney Boxes manufactures two types of cardboard boxes used in shipping canned food, and fruit and vegetables. The canned food box (type X) and the perishable food box (type Y) have the following material and labour requirements: Types of box X Y Direct material required per 100 boxes: Paperboard ($0.30 per kilogram) 20 kilograms 30 kilograms Corrugating medium ($0.15 per kilogram) 30 kilograms 70 kilograms Direct labour required per 100 boxes ($18 per hour) 0.25 hour 0.5 hour The following inventory information is available for the coming year: Inventor 1 January Desired ending inventory 31 December Finished goods: Box type X 10 000 boxes 5 000 boxes Box type Y 20 000 boxes 15 000 boxes Direct material Paperboard 15 000 kilograms 5 000 kilograms Corrugation medium 5 000 kilograms 10 000 kilograms The sales forecast is as follows: Sales volume Sales price Box type X 800 000 boxes $270.00 Per hundred boxes Box type Y 1 200 000 boxes $390.00 Per hundred boxes Required: Prepare the following budget for boxes X and Y for the coming year 2016. 1. Sales budget in units and in dollars 2. Production budget (in units). 3. Direct material budget for Paperboard only 4. Direct labour budget. 5. Discuss two internal and two external factors an organisation might consider when developing a sales budget. 200494 Management Accounting Assignment, Quarter 3, 2015 7 of 9 Question 6: Linear programming; formulate and solve graphically: (9 Marks) The Blacktown Chemical Company manufactures two industrial chemical products, called Zanide and Kreolite. Two machines are used in the process, and each machine has 24 hours of capacity per day. The following data are available: Zanide Kreolite Selling price per drum $36 $42 Variable cost per drum $28 $28 Hours required per drum on machine I 2 hours 2 hours Hours required per drum on machine II 1 hour 3 hours The company can produce and sell partially full drums of each chemical. For example, a half drum of Zanide sells for $18. Required: 1. Formulate the product mix problem as a linear program. 2. Solve the problem graphically. 3. What is the value of the objective function at the optimal solution? 200494 Management Accounting Assignment, Quarter 3, 2015 8 of 9 Question 7: Cost volume profit calculations (11 marks) Gilford Backpacks Pty Ltd has estimated that budgeted production and sales of its backpacks during the coming year will be 70,000 units at an average price of $30 per unit. Variable manufacturing costs are estimated to be $12 per unit, and variable marketing costs $6 per unit sold. Fixed costs are expected to amount to $540,000 for manufacturing and $216,000 for marketing. There will be no beginning or ending work in process inventory, or finished goods inventory. (Ignore income taxes.) Required: 1. Calculate the company's budgeted break-even point for the coming year; a. In units b. In sales dollars. 2. Calculate the number of sales units required to earn a net profit of $540,000 during the coming year. 3. If the company's variable manufacturing costs are 20 per cent higher than budgeted, calculate the break-even point in sales dollars. 4. The company has estimated that if sales are less than 50,000 units, then budgeted manufacturing fixed costs will drop to $300,000. Other budgeted costs remain unchanged. Calculate the break-even point when sales fall below 50,000 units. 200494 Management Accounting Assignment, Quarter 3, 2015 9 of 9 Question 8: Productivity Measurement (15 marks) Auburn Company produces handcrafted leather purses. Virtually all of the manufacturing cost consists of materials and labour. Over the past several years, profits have been declining because the cost of the two major inputs has been increasing. Janice Singh, the Chief Financial Officer of the company, has indicated that the price of the purses cannot be increased. The only way to improve or at least stabilize profits is to increase overall productivity. At the beginning of 2015, Janice implemented a new cutting and assembly process that promised less materials waste and a faster production time. At the end of 2015, Janice wants to know how much profits have changed from the prior year because of the new process. In order to provide this information to Janice, the Management Accountant of the company gathered the following data: 2014 2015 Unit selling price $20 $20 Purses produced and sold 36,000 48,000 Materials used 72,000 80,000 Labour used 18,000 20,000 Unit price of materials $4 $5 Unit price of labour $9 $10 Required: 1. Compute the productivity profile for each year. Comment on the effectiveness of the new production process. 2. Compute the increase in profits attributable to increased productivity. 3. Calculate the price-recovery component, and comment on its meaning