I QUESTION 1. [35 marks] Fox Books is a bookstore that has a caf as well as selling books and stationery. It currently allocates Administration, Selling and Other Operating Expenses using the Cost of Goods Sold of each product department. Fox Books wants to maximise the accurate pricing and cost management of each department. Management is questioning whether the accounting system is providing the best information for making cost decisions. Fox Books Department Information for 30 June 2024 Caf Books Stationery Revenues $1,472,432 $7,440,960 $4,630,720 Cost of Goods Sold $1,113.370 $5,313,454 $3,444 622 Caf Cleaning Expense $36,500 - - Number of Orders Flaced 4,000 5,600 5,000 Number of Deliveries Received 3,200 2,800 3,400 Hours of Loading Inventory 20,000 30,000 28,000 ltems Sold 736,216 372,048 347,304 y 0000 The following Administration, Selling & Other Expenses are incurred: Purchasing Department Expenses : Receiving Department Expenses $864,800 Inventory Loading Expenses $975,000 $949,000 Customer Support Expenses $273,552 . 7% . $3.062,352 Required: a) Prepare an income statement for each department using Cost of Goods Sold to allocate Administration, Selling & Other Expenses. b) ldentify and explain a better method for allocating Administration, Selling & Other Expenses across the 3 departments. Use your proposed method of allocation to prepare alternative income statements for each department and compare them with the results in a). [18 marks] c) Write a brief report to the management of Fox Books to summarise your recommendations for improvements to the accounting system, and how this information would be useful for management decisions. ACCM4100 Page 2 [9 marks] [8 marks] Assessment 4, T1 2024 I QUESTION 2. [25 marks] Nice & Natural manufactures muesli bars for health food stores. The management accountant, Lionel, is unhappy with the standard costing system used by the business. The standard and actual amounts for Direct Materials and Direct Manufacturing Labour for May were as follows: Muesli Bars Manufactured 12,000 13,464 Direct Materials Rice Flakes in Kilograms Direct Materials Carob in Kilograms Direct Manufacturing Labour Costs $54,000 $55,386 Direct Manufacturing Labour Hours 3,000 3,060 The standard costs are based on an independent survey conducted by an external consultant. Lionel had noticed that since the survey, unfavourable variances have been extremely rare. He has also observed that workers seem to have a lot of time to enjoy work breaks at the caf nearby. He is concerned that the production manager is aware of the spare time, however, he is unwilling to reduce the standard requirements because his performance looks better at the current standards. Required: a) Calculate the price and efficiency variances for Direct Materials - Rice Flakes and Carob, and Direct Manufacturing Labour in May. [ marks] b) Discuss the types of actions that employees may have taken to reduce the accuracy of the standards set by the external consultant. Why would employees take those actions? [6 marks] c) What actions should be taken by Lionel to correct the standards currently being used? [5 marks] d) If Lionel can obtain industry benchmarks for the estimated costs, discuss the advantages and disadvantages of using industry information to calculate the variances in a). [5 marks] ACCM4100 Page 3 Assessment 4, T1 2024 I QUESTION 3. [20 marks] Darylyn Chocolate company produces Rockyroady chocolate squares which are sold in brightly decorated canisters. Cool Canisters' sales manager has approached Darylyn with an offer to supply canisters at $1.50 each. Currently, Darylyn assigns the following costs to production of canisters: Direct Material $610,000 Direct Labour 11,000 Hours @ $ per Hour $495,000 Variable Overhead $20 per Direct Labour Hour $220,000 Fixed Overhead $50 per Direct Labour Hour $550,000 Total Cost $1,875.000 Number of Canisters 750,000 A conventional make-or-buy analysis suggests that Cool Canister's offer should be accepted, as the cost per canister would be more than $1.50. If Darylyn decides to buy the canisters, then $1,475,000 of total costs would be avoided, as $400,000 Fixed Overhead relates to Building Depreciation. The management accountant has requested that further detailed analysis should be conducted before a decision is made. The management accountant has also provided activity drivers that relate to both Variable and Fixed Overheads in the production of canisters as follows: Purchase Orders Inspections Setups 15 $400 per Setup Machine Hours 70,000 $2.50 per Hour Required: a) Explain how the $1,475,000 of cost savings was calculated using conventional make-or-buy analysis. [4 marks] b) Determine the costs that will be saved by purchasing the canisters using the activity drivers. [6 marks] c) Finalise the make-or-buy decision using the activity data. Should Darylyn buy the canisters? [4 marks] d) If the conventional and activity-based analyses produced different conclusions, explain why. [6 marks] ACCM4100 Page 4 Assessment 4, T1 2024