Module 1: The Manager and Management Accounting Question 1 (4 marks) Compaq Computer incurs the following costs: a) Electricity costs for the plant assembling the Presario computer line of products. b)Transportation costs for shipping the Presario line of products to a retail chain. c) Payment to David Kelley Designs for design of the Armada Notebook. d) Salary of computer scientist working on the next generation of minicomputers. e) Cost of Compaq employees' visit to a major customer to demonstrate Compaq's ability to interconnect with other computers. Purchase of competitors' products for testing against potential Compaq products. g) Payment to television network for running Compaq advertisements h) Cost of cables purchased from outside supplier to be used with Compaq printers. Requirement: Classify each of the cost items (a-h) into one of the business functions of the value chain. Module 2: Cost-Volume-Profit Analysis Question 2 (4 marks) Simplex Inc. sells its product at $80 per unit with a contribution margin of 40%. During 2016, Simplex sold 540,000 units of its product; its total fixed costs $2,100,000 were Requirements: 1) Calculate (a) the total contribution margin, (b) the total variable costs, and (c) the overall operating income. 2) The production manager of Simplex has proposed modernizing the whole production process in order to save labor costs. However, the modernization of the production process will increase the annual fixed costs by $3,800,000. The variable costs are expected to decrease by 20%. Simplex expects to maintain the same sales volume and selling price next year. How would the acceptance of the production manager's proposal affect your answers to in requirement 1? 3) Should Simplex accept the production manager's proposal? Explain. (a) and (c) Module 3: Job Costing Question 3 (4 marks) Carolina Chemicals produces a range of chemical products for industries on getting bulk orders. It uses a job-costing system to calculate the cost of a particular job. Materials and labours used in the manufacturing process are direct in nature, but manufacturing overhead is allocated to different jobs using direct manufacturing labour costs. Carolina provides the following information: Budget for 2017 $2,750,000 $1,830,000 $3,294,000 Actual Results for 2017 Direct material costs $3,000,000 $2,250,000 Direct manufacturing labour costs Manufacturing overhead costs $3,780,000 Requirements: 1) Compute the actual and budgeted manufacturing overhead rates for 2017. 2) During March, the job-cost records for Job 635 contained the following information: $73,500 Costs of direct materials used Costs of direct manufacturing labour Compute the cost of Job 635 using: (a) actual costing, and, (b) normal costing. 3) At the end of 2017, compute the under- or over-allocated manufacturing overhead under normal costing. Why is there no under- or over-allocated overhead under actual costing? 4) Why might managers at Carolina Chemicals prefer to use normal costing? $51,000
