Question 2 - Week 3 (7 marks) Tik Tok Company manufactures customized coffee tables. The following relates to Job No. X10, an order for 150 coffee tables: Direct materials used $22 800 Direct labour hours worked 600 Direct labour rate per hour $16.00 Machine hours used 400 Applied factory overhead rate per machine hour $30.00 Required: a) What is the total manufacturing cost for Job No. X10? (3 marks) b) Calculate the cost per coffee table for Job No. X10? (2 marks) c) List two uses of this unit cost information to the managers at Tik Tok Company. (2 marks) SHOW YOUR WORKING Question 2 - Week 5 (11 marks) TikTok Electronics manufactures an aluminium fibre tripod model "TRI-X" which sells for $1,600. The production cost computed per unit under traditional costing for each model in 2019 was as follows: Traditional Costing TRIX Direct Materials $700 Direct Labour ($20/hour) $120 Manufacturing overhead ($38 per DLH) $228 Total per unit cost $1, 048 In 2019, TikTok Electronics manufactured 26,000 units of TRI-X. Under traditional costing, the gross profit on TRI-X was $552 ($1,600-$1,048). Management is considering phasing out TRIX as it has continuously failed to reach the gross profit target of $600. Before finalizing its decision, management asks TikTok Electronics management accountant to prepare an 3 analysis using activity-based costing (ABC). The management accountant accumulates the following information about overhead for the year ended December 31, 2019. Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Purchasing Number of orders $1,200,000 40,000 Machine setups Number of setups 900,000 18,000 Machining Machine hours 4,800,000 120,000 Quality Control Number of inspections 700,000 28,000 The cost drivers used: Cost Drivers TRI-X Product Purchase orders 17,000 Machine setups 5,000 Machine hours 75,000 Inspections 11,000 Required: 1. Calculate the activity rates for each of the overhead items using the four cost drivers. (3 marks) 2. Using the rates in (1) determine the unit cost for TRI-X. (4 marks) 3. Calculate the gross profit of each model of TRI-X based on ABC costings and recommend whether or not TRI-X should be discontinued. (4 marks) SHOW YOUR WORKING 4 Question 3 - Week 6 (11 marks) A new company, is being established to manufacture and sell an electronic tracking device: the Trackit. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Trackits per month within five months and will be at that level for the remainder of the first year. The owners will invest a total of $250,000 in cash on the first day of operations (that is the first day of July). They will also transfer non-current assets into the company. Extracts from the company's business plan are shown below. Sales The forecast sales for the first five months are: Month Trackits (units) July 1,000 August 1,500 September 2,000 October 2,400 November 2,600 The selling price has been set at $140 per Trackit. Sales receipts Sales will be mainly through large retail outlets. The pattern for the receipt of payment is expected to be as follows: Time of payment % of sales value Immediately 15 * One month later 25 Two months later 40 Three months later 15 The balance represents anticipated bad debts. * A 4% discount will be given for immediate payment Production The budget production volumes in units are: July August September October 1,450 1,650 2,120 2,460 5 Variable production cost The budgeted variable production cost is $90 per unit, comprising: $ Direct materials 60 Direct labour 10 Variable production overheads 20 Total variable cost 90 Direct materials: Payment for purchases will be made in the month following receipt of materials. There will be no opening inventory of materials in July. It will be company policy to hold inventory at the end of each month equal to 20% of the following month's production requirements. Direct labour will be paid in the month in which the production occurs. Variable production overheads: 65% will be paid in the month in which production occurs and the remainder will be paid one month later. Fixed overhead costs Fixed overheads are estimated at $840,000 per annum and are expected to be incurred in equal amounts each month. 60% of the fixed overhead costs will be paid in the month in which they are incurred and 15% in the following month. The balance represents depreciation of noncurrent assets. Required: a) Prepare a cash receipts budget schedule for each of the first three months (July - September), including the total receipts per month. (3 marks) b) Prepare a material purchases budget schedule for each of the first three months (July - September), including the total purchases per month. (4 marks) c) Prepare a cash budget for the month of July. Include the owners' cash contributions (4 marks) SHOW YOUR WORKING 6 Question 2 - Week 8 (7 marks) Perfumes Ltd has two divisions: the Perfume Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Perfume Division. The Bottle Division's variable manufacturing cost per unit is $3.00 and shipping costs are $0.20 per unit. The Bottle Division's external sales price is $4.00 per unit. No shipping costs are incurred on sales to the Perfume Division. The Perfume Division can purchase similar bottles in the external market for $3.50. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Perfume Division. Required: a) Using the general rule, determine the minimum transfer price. (2 marks) b) Assume the Bottle Division has no excess capacity and can sell everything produced externally. Would the transfer price change? (2 marks) c) Assume the Bottle Division has no excess capacity and can sell everything produced externally. What is the maximum amount Perfume Division would be willing to pay for the bottles? (2 marks) d) When is it more appropriate to use market-based transfer price rather than cost-based transfer price? (1 mark) SHOW YOUR WORKING 7 Question 3 - Week 10 (7 marks) International Printer Machines (IPM) builds three computer printer models: Alpha, Beta, and Gamma. Information for these three products is as follows: Alpha Beta Gamma Total Selling price per unit $250 $400 $1 500 Variable cost per unit $80 $200 $800 Expected unit sales (annual) 12,000 6,000 2,000 20,000 Sales mix 50 percent 40 percent 10 percent 100 percent Total annual fixed costs are $5,000,000. Assume the sales mix remains the same at all levels of sales. Required: a) Calculate the weighted average unit contribution margin, assuming a constant sales mix. (2 marks) b) How many units of each printer must be sold to break even? (3 marks) c) i) Explain what is margin of safety (1 mark) ii) Calculate in sales units the margin of safety for IPM, assuming projected sales are 25,000 units? (1 mark) SHOW YOUR WORKING 8 Question 3 - Week 11 (7 marks) GEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company's unit costs at this level of activity are as follow: Direct material $57.00 Direct labour 60.00 Variable manufacturing overhead 16.80 Fixed manufacturing overhead 30.00 Variable selling and administrative costs 10.20 Fixed selling and administrative costs 27.00 Total unit cost $201.00 GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead. Required: (a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEM to consider this order? (hint: GEM would not accept the order if it would reduce the company's profit) (3 marks) (b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain. (2 marks) (c) "All future costs are relevant in decision making." Do you agree? Explain. (2 marks)