Question 3 (3 marks) Management accounting guidelines. For each of the following items, identify which of the management accounting guidelines applies: cost-benefit approach, behavioral and technical considerations, or different costs for different purposes. 1. Analyzing whether to avail an export order for which overtime payments are required. 2. Deciding on a short-term shutdown of a factory because of the lack of demand for products due to the seasonal factor. The short-term shutdown may save some overhead costs, but will result in incurring compensations to the retrenched workers. 3. Considering whether to replace old machinery to save frequent repair costs, production losses due to break-downs, compensations to workers on the incidence of accidents, and several other costs. 4. Deciding to impose supervisory control to limit the wastage of materials. 5. Considering introducing a performance bonus scheme to increase the productivity of employees. 6. Contemplating changing the production process to save production time resulting in increased production. Question 6 (5 marks) Luzent Company produces two types of entry doors: Deluxe and Standard. The assignment basis for support costs has been direct labor Dirhams. For 2018, Luzent compiled the following data for the two products: Sales units Sales price per unit Prime costs per unit Direct materials cost per unit Direct labor costs per unit Manufacturing support costs per unit Deluxe 50,000 Dh650.00 Dh180.00 Dh95.00 Dh75.00 Dh 80.00 Standard 400,000 Dh475.00 Dh130.00 Dh75.00 Dh55.00 Dh120.00 Last year, Luzent Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 2018: Activity Setups Machine-related Packing Cost Driver of setups of machine hours of shipments Cost Total Dh 500,000 500 Dh44,000,000 600,000 Dh 5,000,000 250,000 Deluxe 400 300,000 50,000 Standard 100 300,000 200,000 Required: a. Using the current system, what is the estimated 1. total cost of manufacturing one unit for each type of door? 2. profit per unit for each type of door? b. Using the current system, estimated manufacturing overhead costs per unit are less for the deluxe door (Dh80 per unit) than the standard door (Dh120 per unit). What is a likely explanation for this? c. "ABC systems may result in misallocation of indirect costs." Do you agree? Give reasons for your answer. d. What considerations need to be examined when determining a sales mix strategy? e. While implementing an ABC system for the first time, achieving a significant change overnight is difficult and this may de motivate employees. How can managers overcome this problem? 6 increased production. Question 4 (2 marks) Direct, indirect, fixed, and variable costs. Sumitomo Cable manufactures various types of aluminum and copper cables which it sells directly to retail outlets through its distribution channels. The manufacturing process for producing cables includes a process called wire draw in which the aluminum and copper rods are pulled through a series of synthetic dies, which gradually decrease in size. The wires are then passed through an extruder, where either a single or a double coating of plastic is applied. These insulated wires are twisted into pairs by the Twisting and Stranding Department. The final shape is given to the wires by the Jacketing and Packaging department after carrying out the process of quality control. Required: Costs involved in the different processes are listed below. For each cost, indicate whether it is a direct variable, direct fixed, indirect variable, or indirect fixed cost, assuming that the "units of production of each kind of wire is the cost object. Costs: Aluminum and copper rods Quality control Insulating materials Repairs to machines Wages for wire draw Normal wastages and spoilages Depreciation on machineries Store-keeper's salary Depreciation on factory building Material testing Insurance on factory building Materials used by jacketing and packaging department Consumable stores and dies Factory general utilities Wages for machine operators Fuel for factory generator Power Supervisors' salaries 4 Question 3 (3 marks) Management accounting guidelines. For each of the following items, identify which of the management accounting guidelines applies: cost-benefit approach, behavioral and technical considerations, or different costs for different purposes. 1. Analyzing whether to avail an export order for which overtime payments are required. 2. Deciding on a short-term shutdown of a factory because of the lack of demand for products due to the seasonal factor. The short-term shutdown may save some overhead costs, but will result in incurring compensations to the retrenched workers. 3. Considering whether to replace old machinery to save frequent repair costs, production losses due to break-downs, compensations to workers on the incidence of accidents, and several other costs. 4. Deciding to impose supervisory control to limit the wastage of materials. 5. Considering introducing a performance bonus scheme to increase the productivity of employees. 6. Contemplating changing the production process to save production time resulting in increased production. Question 6 (5 marks) Luzent Company produces two types of entry doors: Deluxe and Standard. The assignment basis for support costs has been direct labor Dirhams. For 2018, Luzent compiled the following data for the two products: Sales units Sales price per unit Prime costs per unit Direct materials cost per unit Direct labor costs per unit Manufacturing support costs per unit Deluxe 50,000 Dh650.00 Dh180.00 Dh95.00 Dh75.00 Dh 80.00 Standard 400,000 Dh475.00 Dh130.00 Dh75.00 Dh55.00 Dh120.00 Last year, Luzent Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 2018: Activity Setups Machine-related Packing Cost Driver of setups of machine hours of shipments Cost Total Dh 500,000 500 Dh44,000,000 600,000 Dh 5,000,000 250,000 Deluxe 400 300,000 50,000 Standard 100 300,000 200,000 Required: a. Using the current system, what is the estimated 1. total cost of manufacturing one unit for each type of door? 2. profit per unit for each type of door? b. Using the current system, estimated manufacturing overhead costs per unit are less for the deluxe door (Dh80 per unit) than the standard door (Dh120 per unit). What is a likely explanation for this? c. "ABC systems may result in misallocation of indirect costs." Do you agree? Give reasons for your answer. d. What considerations need to be examined when determining a sales mix strategy? e. While implementing an ABC system for the first time, achieving a significant change overnight is difficult and this may de motivate employees. How can managers overcome this problem? 6 increased production. Question 4 (2 marks) Direct, indirect, fixed, and variable costs. Sumitomo Cable manufactures various types of aluminum and copper cables which it sells directly to retail outlets through its distribution channels. The manufacturing process for producing cables includes a process called wire draw in which the aluminum and copper rods are pulled through a series of synthetic dies, which gradually decrease in size. The wires are then passed through an extruder, where either a single or a double coating of plastic is applied. These insulated wires are twisted into pairs by the Twisting and Stranding Department. The final shape is given to the wires by the Jacketing and Packaging department after carrying out the process of quality control. Required: Costs involved in the different processes are listed below. For each cost, indicate whether it is a direct variable, direct fixed, indirect variable, or indirect fixed cost, assuming that the "units of production of each kind of wire is the cost object. Costs: Aluminum and copper rods Quality control Insulating materials Repairs to machines Wages for wire draw Normal wastages and spoilages Depreciation on machineries Store-keeper's salary Depreciation on factory building Material testing Insurance on factory building Materials used by jacketing and packaging department Consumable stores and dies Factory general utilities Wages for machine operators Fuel for factory generator Power Supervisors' salaries 4