QUESTION
1 (9 marks)
John Ltd. manufactures a product which
passes through 2 departments, Boiling and Cooling.
Processing first begins in the Boiling
department. After boiling of all the materials have been completed, the product
is transferred to Cooling department. In the Cooling department, further
materials are added when processing is 25% complete (all the materials in the
Cooling department are added at this point only).
Conversion costs are incurred uniformly
throughout the process in the Cooling department.
Work in process in the Cooling Department
as at 1 Nov amounted to 50,000 units (40% complete). The costs included in
these units are as follows :
|
Boiling |
$900,000 |
|
Cooling – Direct materials – Direct labour – Overheads |
$740,000 $210,000 $? |
During the month of Nov, 140,000 units were
completed in the Cooling Department and transferred to finished goods
inventory. Units transferred in from Boiling in Nov were charged at $19 per
unit. Cooling department’s costs in Nov were :
|
Materials added Direct labour Overheads |
$2,850,000 $2,225,000 $? |
Overhead is allocated on the basis of 110%
of direct labour cost.
At the end of the month, 60,000 units were still
in process in Cooling. These were estimated to be 30% complete.
Required :
(a) Prepare the Cooling Department
production cost report for the month of Nov 2015 using (round up to 2 decimal
place) :
(i)
Weighted Average method
(ii)
FIFO method (9
marks)
QUESTION
2 (28 marks)
Instructions
(for Q2 only) :
(i)
Based on the following case
study information, build a spreadsheet model
using Excel 2003 (or later) to answer
the accompanying problems.
(ii)
The spreadsheet model should
include a “Data Input Section” (whereby all
raw / original data from the case
should be entered), “Additional Information
Section” (whereby other relevant
information for the individual problems
should be entered) and an “Output
Section” (whereby the final answers to each
problem is presented).
(iii)
Program your spreadsheet to
perform all necessary calculations. Do not “hard
code” any amounts, use the addition,
subtraction, multiplication, division
operations or any other specialised
formulas.
(iv) Print a copy of the spreadsheet
with the answers / results to the problems.
(v) Print a copy of the spreadsheet
showing the formulas used therein.
Note
: Please submit a copy of your CD with your Excel file.
Case
study information :
Timmy Inc. produces 2 types of products,
“Ronny” and “Sonny”. It expects to produce 70,000 units of Ronny and 60,000
units of Sonny. Total direct material cost in 2015 is expected to be $55.00 per
unit for Ronny and $100.00 per unit for Sonny.
Timmy expects to pay wages of $20.00 per
direct labour hour. Ronny requires 2 direct labour hours per unit, whilst Sonny
requires 1 direct labour hours per unit to complete. Other manufacturing costs
are considered as overhead. The estimated total annual overhead for the year is
$3,500,000. Currently, Timmy allocates its overheads based on direct labour
hours.
The company is considering the use of
activity-based costing (ABC) system to allocate all its overheads based on the
following information :
Moulding Quality control Shipping
(Machine
hours) (No of inspections) (No of customer orders)
Ronny 36,000
20
500
Sonny
44,000 30
1,500
Timmy estimates that Moulding related costs
amounts to $2,800,000; Quality control related costs amounts to $150,000; and
Shipping related costs amounts to $550,000.
Required :
(a) Calculate the total cost of each
product (assuming that the expected no. of units are produced) using the
traditional costing system.
(b) Calculate the total cost of each
product (assuming that the expected no. of units are produced) using the
activity-based costing system.
(c) Suppose the company decides to use ABC
to set their selling price. What would be the minimum selling price per unit
for each product if the company requires a gross profit margin of 45% for all
products?
(d) Assume that Moulding cost increased by
20% and Shipping cost decreased by $150,000. Calculate the total cost of Ronny
only (assuming that the expected no. of units are produced and the total driver
units remains the same) using the activity-based costing system.
(Parts (a) to (d) – 21 marks)
(e) Distinguish between an activity’s
“trigger” and its root cause (give an example of each). The product line
manager commented “Although in the past this product has been very profitable,
based in our recent reports, it appears that we might need to drop this
product”, with reference to this statement, explain why a new product costing
system might be required. There are many challenges when implementing ABC /
ABM. Human behaviour is one such challenge. Explain why human behaviour might
affect the successful implementation of ABC / ABM. (Word limit : 500). (7
marks)
QUESTION
3 (8 marks)
Starwalker Ltd. manufactures 2 joint
products. Both products require additional processing beyond the split-off
point. Litesaber sells for $35 per unit and Megasbaer sells for $50 per unit.
There were no opening inventories at 1 Nov
2015. The following information relates to the month of Nov :
Litesaber Megasaber
Production (units)
120,000 80,000
Additional processing costs $800,000 $500,000
Total joint processing costs for Nov were
$2,800,000. The ending finished goods as at 30 Nov 2015 amounted to 30,000
units of Litesaber and 15,000 units of Megasaber.
Required
:
(a) Determine the cost of the ending
finished goods of each of the products as at 30 Nov 2015 using the physical
method. (1 mark)
(b) Determine the cost of the ending
finished goods of each of the products as at 30 Nov 2015 using the net
realisable value method. (3 marks)
(c) Determine the cost of the ending
finished goods of each of the products as at 30 Nov 2015 using the constant
gross margin method. (2 marks)
(d) Starwalker
is considering to further process “Litesaber” into “Nanosaber” at the additional
cost of $8.00 per unit. “Nanosaber” could be sold at $45.00 per unit. Should
the company produce “Nanosaber”? Show the necessary computation to justify your
decision.
(2 marks)
