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Question 3, (Budgeting) 25 Marks DR Hikvm Co's fiscal year begins on April 1. The following is an extract from a trial balance at May

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Question 3, (Budgeting) 25 Marks DR Hikvm Co's fiscal year begins on April 1. The following is an extract from a trial balance at May 31, 2019: CR Cash $3,500 Accounts Receivable527,200 Bad Debt Allowance $2,240 Inventory Merchandise 516,000 Accounts Payable Merchandise$7,000 Data concerning company's purchase of merchandise inventory: Purchase price per unit $8 75% of any month's purchases ae payable in the month of purchase while the rest is due and paid for in the following month. At end of each month the company's policy is to have an inventory equal to 50% of the following month's unit sales. I Sales Data: Selling price per unit April actual sales revenue May actual sales revenue June estimated sales revenue $16 $32,000 S48,000 564,000 July estimated sales revenue Total sales expected in fiscal par $56,000 $800 000 Question 4, (Activity-Based-Costing) 20 Marks XY Ltd (XY) produces three products-L.M and N. During the previous fiscal year of 2018 XY incurred $4,000,000 of manufacturing overhead costs and produced 400,000 units product L, 40,000 units of product M and 100,000 units of product N. XY's overhead application rate was 520 per direct labour hour. Based on this rate, the cost per unit for each product group in 2018 was as follows: Product Product M Product N Direct materials 58.00 530.00 58.00 Direct labour $12.00 590.00 $30.00 Overhead $4.00 $60.00 540.00 Total $24.00 $220.00 $75.00 The profitability of XY has been declining for the past three years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product Mat a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - 5200,000 I Purchase orders - 5200,000 Scheduling $3,000,000 Quality inspections. $600,000 Total $4,000,000 The task force determined that it will use the following allocation bases: Machine Setups - Number of setups Purchase orders: Number of purchase orders Scheduling Number of production orders Quality Inspections. Number of units produced Volume measures for 2019 for each product and each allocation base were as follows: Product A Products Product C Total Number of setups 400 500 BOO 2,000 Number of purchase orders 200 500 300 1,000 Number of production orders 500 3,000 1,500 5,000 201 PM ONS pasaree years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product Mat a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - $200,000 Purchase orders - $200,000 Scheduling $3,000,000 Quality Inspections. $600,000 Total $4,000,000 The task force determined that it will use the following allocation bases: Machine Setups - Number of setups Purchase orders - Number of purchase orders Scheduling Number of production orders Quality Inspections- Number of units produced Volume measures for 2019 for each product and eachiyallocation base were as follows: Product A Products Aroduct C Total Number of setups 400 800 800 2,000 Number of purchase orders 200 500 300 1,000 Number of production orders 500 3,000 1,500 5,000 Number of units produced 200,000 1,200,000 600,000 2,000,000 Required: a) Calculate the unit costs of the three products under the new activity-based costing system b) What insight is provided by the new profitability analysis? c) What should XY do to improve profitability? Question 3, (Budgeting) 25 Marks DR Hikvm Co's fiscal year begins on April 1. The following is an extract from a trial balance at May 31, 2019: CR Cash $3,500 Accounts Receivable527,200 Bad Debt Allowance $2,240 Inventory Merchandise 516,000 Accounts Payable Merchandise$7,000 Data concerning company's purchase of merchandise inventory: Purchase price per unit $8 75% of any month's purchases ae payable in the month of purchase while the rest is due and paid for in the following month. At end of each month the company's policy is to have an inventory equal to 50% of the following month's unit sales. I Sales Data: Selling price per unit April actual sales revenue May actual sales revenue June estimated sales revenue $16 $32,000 S48,000 564,000 July estimated sales revenue Total sales expected in fiscal par $56,000 $800 000 Question 4, (Activity-Based-Costing) 20 Marks XY Ltd (XY) produces three products-L.M and N. During the previous fiscal year of 2018 XY incurred $4,000,000 of manufacturing overhead costs and produced 400,000 units product L, 40,000 units of product M and 100,000 units of product N. XY's overhead application rate was 520 per direct labour hour. Based on this rate, the cost per unit for each product group in 2018 was as follows: Product Product M Product N Direct materials 58.00 530.00 58.00 Direct labour $12.00 590.00 $30.00 Overhead $4.00 $60.00 540.00 Total $24.00 $220.00 $75.00 The profitability of XY has been declining for the past three years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product Mat a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - 5200,000 I Purchase orders - 5200,000 Scheduling $3,000,000 Quality inspections. $600,000 Total $4,000,000 The task force determined that it will use the following allocation bases: Machine Setups - Number of setups Purchase orders: Number of purchase orders Scheduling Number of production orders Quality Inspections. Number of units produced Volume measures for 2019 for each product and each allocation base were as follows: Product A Products Product C Total Number of setups 400 500 BOO 2,000 Number of purchase orders 200 500 300 1,000 Number of production orders 500 3,000 1,500 5,000 201 PM ONS pasaree years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product Mat a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - $200,000 Purchase orders - $200,000 Scheduling $3,000,000 Quality Inspections. $600,000 Total $4,000,000 The task force determined that it will use the following allocation bases: Machine Setups - Number of setups Purchase orders - Number of purchase orders Scheduling Number of production orders Quality Inspections- Number of units produced Volume measures for 2019 for each product and eachiyallocation base were as follows: Product A Products Aroduct C Total Number of setups 400 800 800 2,000 Number of purchase orders 200 500 300 1,000 Number of production orders 500 3,000 1,500 5,000 Number of units produced 200,000 1,200,000 600,000 2,000,000 Required: a) Calculate the unit costs of the three products under the new activity-based costing system b) What insight is provided by the new profitability analysis? c) What should XY do to improve profitability

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