Harry is a recent graduate of the Beauxbatons Academy of Managerial Accountants and has recently been hired by Hogwarts Inc to reinforce the ranks of its already well-established accounting department. It has only been a few days since Harry started, but he has already been introduced to all the top executives team and has been entrusted with a few tasks to complete by the end of the week. Help Harry with his work.

The accounting records at Hogwarts Inc were not 100% in order during the year 2018. For example, the amount charged to production for broomcorn, a very important part of the star product line Nimbus 2000, needed to be rectified. Harry was able to obtain the following information to help him in his task:

- There was no opening stock (beginning inventory) for broomcorn.

- On 1.1.18 400 units were purchased for $0.40 per unit

- On 10.1.18 100 units were issued to production.

- On 15.1.18 200 units were purchased for $0.45 per unit

- On 31.1.18 300 units were issued to production.

Required:

Compute the amount that would be charged to production on 31 January 2018 for the issue of material on that date using each of the following materials pricing methods:

a) LIFO

b) FIFO

c) Continuous Weighted Average

d) Using your own words, briefly explain what is meant by “responsibility accounting”. Cite your sources.

e) Using your own words, briefly explain what is meant by a cost center, a profit center and an investment center. Cite your work.

f) Using your own words, briefly explain what total cost of sales is made up of. Cite your work.

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TASK II (15 points)________________________________________________________________________

Harry was provided with the following indirect cost information relating to Hogwarts Inc for the year to 31 March 2020:

Cost center: $

Production 1: indirect expenses (to units) 20000

Production 2: indirect expenses (to units) 12000

Service Cost Center A: allocated expenses 17000

Service Cost Center B: allocated expenses 7000

Service Cost Center C: allocated expenses 2000

The estimated benefit provided by service cost centers to the other cost centers is as follows:

Service cost center A: Production 1 55%; Production 2 35%; Service cost center B 5%; Service cost center C 5%.

Service cost center B: Production 1 75%; Production 2 20%; Service cost center C 5%.

Service cost center C: Production 1 55%; Production 2 45%

Required:

a) Using your own words, briefly explain what a production cost center is. Cite your sources.

b) Using your own words, briefly explain what a service cost center is. Cite your sources.

c) Using your own words, briefly explain three ways that service center costs may be charged to other cost centers. Cite your sources.

d) Using your own words, briefly explain what is meant by “reciprocal service costs” and indicate three ways to deal with them.

e) Calculate the total amount of overhead to be charged to cost center units for both Production cost

center 1 and Production cost center 2 for the year to 31 March 2020. Show your work.

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TASK III (15 points)_______________________________________________________________________

Harry would like to establish a forecast for the sales for Nimbus 2000 for the year to come.

Year Number of units of Nimbus 2000 sold

2015 78

2016 82

2017 87

2018 92

2019 97

Required:

a) Find a 3-year moving average forecast of sales for 2020. Show your work.

b) Find a 2-year weighted moving average forecast of sales (use a weight of 0.8 for previous period and

0.2 for the period before that) for 2020. Show your work.

c) Find a naïve forecast for 2020. Show your work.

d) Find MAD for all three methods and comment on the quality of each forecast. Show your work.

e) As a manager, Harry needs to use all the information at his disposal and make a judgement call as to

what number to use as the final forecast for year 2020. What do you recommend Harry to do?

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TASK IV (15 points)_______________________________________________________________________

Assume that the answer to the previous question was 100.

Harry would now like prepare the budget for product Nimbus 2000, the only product sold by the firm. The following information relates to the preparation of the budget for the year to 31 March 2020:

1. Sales budget details for Nimbus 2000:

Expected selling price per unit: $3500

Expected sales in units: 100

2. Nimbus 2000 requires 28 heads of broomcorn and 1 wooden stick. Broomcorn is expected to cost

$0.50 per unit (one head of broomcorn) and wooden stick is expected to cost $2 per unit.

3. Two departments are involved in producing Nimbus 2000: machining and assembly.

The following information is relevant:

Direct Labour per Direct Labour rate

Unit of product per hour

(hours)

Machining 0.5 $5

Assembling 0.25 $6

4. Finished production overhead costs are expected to amount to $50 000

5. There is no beginning inventory neither for the final product nor for its components. Ending

inventory of both final product and its components are planned to be 0.

6. Administration, selling and distribution overhead is expected to amount to $60 000

Required:

a) Using your own words, briefly explain what a budget is and list its essential features. Cite your sources.

b) Prepare the sales budget. Show your work.

c) Prepare the production budget. Show your work.

d) Prepare the direct materials usage budget. Show your work.

e) Prepare the direct materials purchases budget. Show your work.

f) Prepare the direct labour budget. Show your work.

g) Calculate the cost of goods sold for the total number of units expected to be sold, as well as cost of

goods sold per unit.

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TASK V (BONUS TASK, 10 points)_________________________________________________ ___________

If total unit variable costs to produce Nimbus 2000 are $1 300 per unit, selling price is $3 500 and total fixed costs per year are $110 000, find the number of units of Nimbus 2000 that need to be sold in order for Hogwarts Inc to break even.