Question 1: (30 Marks)

Garmin Ltd. manufactures two types of GPS devices, (GPSMAP 64) and (GPSMAP 78).The costs for the products are shown herebelow:

(GPSMAP 64)

(GPSMAP 78)

Units sold

900

1,600

Unit sales price

$290

$170

Variable cost per unit

Raw material

Labor

$75

$64

$60

$48

Total fixed costs = $50,000

Required:

Compute the contribution margin per unit for each of the twp products, GPSMAP 64 and 78. (10 Marks)

Assuming the fixed costs are allocated based on the units produced. Compute the selling price per unit of each product to achieve a profit margin of 35%. (10 Marks)

Assume that Garmin has a maximum working labor capacity of 2,940 labor hours. Labour hours are paid at a rate of $32 per hour. Which of the two products, (GPSMAP 64) or (GPSMAP 78) is most profitable for Garmin Ltd? Show your calculations (10 Marks)

Question 2: (40 Marks)

Ashville Manfuraturing Ltd. produces construction equipment and several components for the construction industry. Part of its manufacturing includes a component (QR20) that it uses in several of its equipment. Ashvilles management is considering whether to continue manufacturing theses components on its premises or to purchase them from an outside source. The following information is available:

a- The company needs 6,000 of these components annually. These components (QR20) can be purchased from an outside supplier at a cost of $15 per component.

b- The unit cost of manufacturing this component is $35, computed as follows:

Direct materials

$ 50,000

Direct labor

65,000

Factory overhead:

Variable

35,000

Fixed

60,000

Total manufacturing costs

$210,000

Cost per unit ($210,000 6,000 components)

$ 35

c- Discontinuing the manufacture of the components (QR20) will eliminate all the raw materials and direct labor costs but will eliminate only 70% of the variable factory overhead costs.

d- If the components (QR20) are purchased from an outside source, machinery used in the production of components will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $3,000 of the fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of components.

Required:

1- Determine the incremental cost or benefit of buying the component (QR20) from the outside supplier. Would you recommend that Ashville manufactures these components or purchases them from the outside source? (Prepare a schedule to determine the incremental cost or benefit of buying the components from outside supplier). (25 marks)

2- Assume that if the component (QR20) are purchased from the outside source, the factory space previously used to produce this component can be used to manufacture an additional 4,000 units of another component (QD33) per year. These components (QD33) have an estimated contribution margin of $8 per unit. The manufacture of these additional components (QD33) would have no effect on fixed factory overhead. Would this new assumption change your recommendation as to whether to make or buy the original components (QR20)? In support of your conclusion, prepare a schedule showing the incremental cost or benefit of buying the compnent (QR20) from the outside source and using the factory space to produce the additional components (QD33). (10 marks)

3- What nonfinancial concerns should Ashville Manufacturing Ltd. take into consideration? (5 marks)

PART B (30 Marks)

Financial accounting provides information to enable stockholders, creditors, and other stakeholders to make informed decisions. This information can be used to evaluate and make decisions for an individual company or to compare two or more companies. On the other hand, and also known as management accounting or cost accounting, managerial accounting provides information to managers and other users within the company in order to make more informed decisions. These types of information are critical for all types of businesses to make sound decisions in order to efficiently and effectively run business operations on a daily basis.

Johns Delights company makes many different organic dairy products. Johns managers need to track their costs for certain jobs. One of the companys top-selling ice creams is their seasonal variety; a new flavor is introduced every three months and sold for only a six-month period. The cost of these specialty ice creams is different from the cost of the standard flavors for reasons such as the unique or expensive ingredients and the specialty packaging. John wants to compare the costs involved in making the specialty ice cream and those involved in making the standard flavors of ice cream. This analysis will require that John track not only the cost of materials that go into the product, but also the labor hours and cost of the labor, plus other costs, known as overhead costs (rent, electricity, insurance, etc.), that are incurred in producing the various ice creams. Once the total costs for both the specialty ice cream and the standard flavored ice cream are known, the cost per unit can be determined for each type.

Suppose you have been hired by Johns Delights as a market analyst. Your first assignment is to evaluate the sales of various standard and specialty ice creams within the Northeast region where Johns Delights operates. You also need to determine the best-selling flavors of ice cream in other regions of the country as well as the selling patterns of the flavors. Keep in mind that one of the strategic goals of the company is to increase market share, and the first step in meeting this goal is to sell their product in 10 percent more stores within their current market, so your research will help upper-level management carry out the companys goals.

Required

1. There are many important differences between management accounting and financial accounting in their reporting functions. Briefly discuss at least 5 of these differences (5 Marks).

2. As the market analyst of Johns Delights, where would you find and gather the information necessary to analyse the companys situation? (5 Marks)

3. What types of information would you as an analyst need? (5 Marks)

4. How would Johns Delights determine the impact of this type of change on the business? (5 Marks)

5. If implemented, what information would Johns Delights need to assess the success of the plan? (5 Marks)

6. How do the subject matter of reports and the verification of reports differ between financial accounting and managerial accounting? (5 Marks)