Question 3 Belknap Manufacturing has approached you, a CGA, with a problem. The company makes two products: A12 and B15. Demand for BiS has been overwhelming; there is virtually no competition for this item and several customers have offered to pay up to $48.00 for this product, which Belknap has priced at $27.00 per unit. The prime cost of manufacture for B15 is 56.26. Fatima, the company president, is puzzled since the demand for B15 has not resulted in increased company profitability. The company's costing system assigns overhead to the products based on direct labour-hours. The following information has been made available to you: Overhead (OH) cost pools and activity levels for 2008: OH Cost Pool Activity Base Planned Activity Level Budget (5) Rate (5) Setup Batches 30 batches 24.000 800 Material moves Material moves 90 moves 90,000 1,000 Order processing Number of orders 140 orders 210,000 1,500 Engineering Engineering hours 10,000 hours 200,000 20 Machine maintenance Machine hours 18,000 hours 162,000 For 2008, the company anticipates a total of 27,440 direct labour-hours will be used. Planned activity for product B15, which is produced in batches of 1,000 units, are as follows: Activity Planned Activity Level Planned production 10,000 units Material moves 20 moves Number of orders 50 orders Engineering hours 2,500 hours Machine hours 6,000 hours Direct labour-hours 5,000 hours Required Write a brief memo to Fatima explaining why product B15 has not increased Belknap's profitability. Provide supporting calculations. Your memo should clearly explain why there is no apparent competitio for product B15, why customers are willing to pay almost double the price per unit for this product, and what action(s) you recommend for Fatima. Your memo should be three or four paragraphs and must not exceed 350 words in length. You should perform all of the necessary calculations first and then write yo memo. Note: 8 marks for calculations; 4 marks for memo 20 DO2 Question 3 Allerdyce Corporation Ltd. (ACL) prepares external financial statements using absorption costing and operations of ACL for the past 2 years: Internal financial statements using variabile costing You have the following information regarding the 2002 2001 Sales in units @ $35 per unit) 35,000 25,000 Production in units 30,000 30,000 Variable production costs per unit $20.00 $20.00 Fixed production costs $ 120,000 $ 120,000 Pixed marketing costs $ 50,000 $ 50,000 Beginning inventory nil or 0 ? Required a. Prepare absorption costing income statements for the years ended December 31, 2001 and 2002. Include a column for totals for the two years. b. Prepare variable costing income statements for the years ended December 31, 2001 and 2002. Include a column for totals for the two years. c. Prepare a reconciliation for the year-to-year differences in net incomo under the two methods. 7 7 6 Question 3 Absorbo Company makes and sells computer stands for the home office market. The following information is available regarding the company's operations, sales, and costs. 2008 (Actual) 2009 (Expected) Sales Quantity 54,000 units 54,000 units Revenue $ 13,500,000 $13,500,000 Production Quantity 60,000 units 50,000 units Costs Cost of goods manufactured $11,800,000 $10,250,000 Fixed expenses Selling and administrative $ 300,000 $ 300,000 Net income (absorption costing) ? $ 560,000 $ Fixed manufacturing costs deferred in inventory 100,000 0 Fixed manufacturing costs released from inventory $ 250,000 Note: All unit variable costs were assumed in 2009 to remain at their 2008 levels. In addition, fixed manufacturing costs were also assumed to bo the same in 2009 as in 2008. Required a. Calculate the variable costing net income for 2009 by adjusting the absorption costing net income. b. Determine the following: 1) Fixed manufacturing cost per unit in 2009 ii) Total fixed manufacturing costs for 2009 iii) Contribution margin for 2009 c. Prepare a variable costing income statement for 2009 showing the variable selling, variable manufacturing, and fixed selling costs. 5 $ 30,000 (dr) 100,800 (de) 2,240 (or) 21,000 (dr) 16 Question 5 M04 OMB Ltd.'s September balance sheet contains the following information: Cash Accounts receivable Allowance for doubtful accounts Merchandise inventory Management has designated $30,000 as the firm's minimum monthly cash balance. Other information about the firm and its operations is as follows: Sales revenues of $280,000, $336,000, and $250,000 are expected for October, November, and December, respectively. All goods are sold on account. The collection pattern for accounts receivable is 55% in the month of sale, 44% in the month following the month of sale, and 1% uncollectible, which is set up as an allowance. 1. 2. 3. Cost of goods sold is 60% of sales revenues. 4. Management's target ending balance of merchandise inventory is 10% of the current month's sales. 5. All accounts payable for inventory are paid in the month of purchase. 6. Other monthly expenses are $37,800, which includes $2,800 of amortization but does not include bad debt expense. 7. Borrowings and investments can only be made in $5,000 increments at the end of a mont Interest is charged at the rate of 10% per year; interest will be earned at the rate of 8% per year. Required a. Prepare a cost of purchases schedule for October and November. b. Prepare the cash budgets for October and November including the effects of financing (borrowing or investing). Peak Company uses a standard cost system to control its production costs. For 2009 the company reported Question 4 22,000 the following operating data: Units produced (actual) Master production budget Direct materials Direct labour Overhead $ 60,000 $ 160,000 $ 180,000 Standard cost per unit Direct materials $1.60 * 5 kg per unit of output Direct labour $16 per hour * 0.5 hours per unit of output Variable overhead $12 per direct labour-hour Actual costs Direct materials purchased and used $183,600 (102,000 kg) Direct labour $160,000 (10,700 hours) Overhead $204,000 (32% is fixed) Variable overhead is applied on the basis of direct labour-hours. Required Calculate the following variances: Direct materials price and quantity variances. & b Direct labour rate and efficiency variances. c. Variable overhead spending and efficiency variances. mes of model haping and verhead en activ 24 Question 4 A company makes a product called goop for home use. The standard cost card for one case (10 containers) of goop is: Raw materials Containers Direct labour Variable overhead Fixed overhead (2 litres @ $4) (10 @ $0.10) (0.5 hour @ $8) (0.5 hours @ $2) (0.5 hours @ 50) $ 8.00 1.00 4.00 1.00 2.00 $16.00 Finished goods Work in process Sales Overhead standards are computed as follows: Y-S16,000 + $2 x direct labour-hours. Inventory, production, and sales data for the period are as follows: Issued to Production Opening Inventories Ending Inventories Raw materials 1,000 litres 7,400 litres 13,600 litres 400 cases 200 cases Containers 0 0 62,000 0 0 Production 6,000 cases 6,200 cases @ 24/cases Direct labour used 2,800 hours @ $8.10/hour Actual variable overhead cost $6,500 Actual fixed overhead cost $18,000 Selling and administration $38,000 ($30,000 fixed) Raw materials actual cost $3.80 per litre Container actual cost $0.09 Required a. Calculate the direct cost variances (price and efficiency variances for raw materials, containers, and direct labour) b. Calculate the variable overhead variances. c. Calculate the fixed overhead variances. 6 6 6 6 d. Prepare journal entries to account for the following, assuming that standard costing is used: 1) Purchase of containers, including the price variance. it) Application of raw materials to work in process, including the efficiency variance. iii) Incurrence of variable overhead, application of variable overhead to work in process, and the isolation of the variable overhend variances. Assume that the actual cost is credited to accounts payable. iv) Completion of production and transfer to finished goods inventory at standard cost