Question 1 (5 marks)

At a recent professional conference, two accountants discussed product costing problems in their

respective companies. Both accountants are familiar with ABC systems, but neither of their firms

utilise this method.

Accountant A reported that part of the problem in product costing in his firm is major

differences between product lines as to volume of units, utilisation of various activities, quality

assurance requirements established by customers and size of the products.

Accountant B noted that in her firm, which produces consumer products, all products undergo

the same basic production processes and in the same sequence, but in an increasing variety of

colours and packaging modes.

Both accountants are worried about the potential distortion of product costs under their

conventional product costing systems.

Required: Which accountant should be more concerned about the potential distortion?

Explain.

(5 marks)

Question 2 (5 marks)

1) Explain the fundamental characteristics of a balanced scorecard. 2.5 marks

2) Explain the different ways in which benchmarking may be achieved and the limitations

of each. (2.5 marks)

Question 3 (5 marks)

In the not too distant future XYZ enterprises will introduce a new printer for desktop computers.

This printer is expected to compete successfully with other models that are anticipated to sell for

$300. Hamptons printer has several unique features and management believes that a slightly

higher price

(10 per cent) is justified. The companys normal profit margin is 25 per cent of selling price.

Required

1. What is the printers target selling price, target cost and target profit? ( 2.5 marks)

2. Suppose that XYZ engineers and cost accountants conclude that the present design of the

printer will result in a unit cost of $260. Explain the concept of value engineering and how it

may assist XYZ to achieve its goals. (2.5 marks)

Question 4 (5 marks)

Bath Products Ltd manufactures a variety of bath and beauty products for specialty stores.

The company has recently introduced the concept of identifying cost of quality and has identified

the following costs for the month:

Training of quality control supervisors $10,800

Customer complaints $5,500

Inspection of purchased ingredients $3,600

Rework time $7,000

Cost of defective products that cannot be reused $6,000

Laboratory testing for safety $9,000

Product liability $500

Required: Prepare a cost of quality report.

Question 5 10 marks

Pizza Company delivers pizzas to the residential halls and units near a major university.

The companys annual fixed expenses are $20,000. The sales price of a pizza is $8, and it costs

the company $4 to make and deliver each pizza. (ignore income taxes.)

Required

1. Using the contribution margin approach, calculate the companys break-even point in

units (pizzas).

2. What is the contribution margin ratio?

3. Calculate the break-even sales revenue. Use the contribution margin ratio in your

calculation.

4. How many pizzas must the company sell to earn a target net profit of $50,000? Use the

equation method.

Question 6 (10 marks)

The accountant for Photographic Company has established the following overhead cost pools

and activity drivers.

Overhead Cost Pool Budgeted Overhead Cost Activity Driver

Machine set-ups $100,000 Number of setups

Material handling $50,000 Weight of raw material

Hazardous waste

Control $25,000 Weight of hazardous chemicals used

Quality control

Inspection $37,500 Number of inspections

Other overhead costs $100,000 Machine hours

Total $312,500

Overhead Cost Pool Budgeted Level for Activity OVERHEAD RATE

Driver

Machine set-ups 100 $1,000 per setup

Material handling 50,000 kilos $1 per kilo

Hazardous waste

Control 10,000 kilos $2.50 per kilo

Quality control

Inspection 1,000 $37.50 per inspection

Other overhead costs 20,000 $5 per machine hour

An order for 1,000 boxes of film development chemicals has the following production

requirements:

Machine set-ups 4 Set-ups

Raw material l0,000 kilos

Hazardous materials 2,000 kilos

Inspections 10 inspections

Machine hours 500 machine hours

REQUIRED

1. Calculate the total overhead that should be assigned to the development chemical order.

2. What is the overhead cost per box of chemicals?

3. Suppose Photographic Company was to use a single, predetermined overhead rate based

on machine hours. Calculate the rate per hour.

4. Using the single plantwide rate, what is the total overhead assigned and the overhead cost

per box of chemicals?

5. Discuss the merits of an activity-based overhead costing system.