QUESTION ONE

Katondo Ltd uses a job costing system at its Mukobeko, Kabwe plant. The plant has a machining department and a finishing department. Katondo Ltd uses normal costing with two direct-cost categories (direct materials and direct manufacturing labour) and two manufacturing overhead cost pools (the machining department with machine - hours as the allocation base, and the finishing department with direct manufacturing labour costs as the allocation base). The 2021 budget for the plant is as follows:

Machining Finishing

Department Department

K'000 K'000

Manufacturing Overhead cost 21 320 14 754

Direct manufacturing labour cost 1 880 7 600

Direct manufacturing labour hours (lh) 72 000 lh 290 000 lh

Machine hours (mh) 410 000 mh 64 000 mh

Required

1. prepare an overview diagram depicting the job-costing system in Katondo Ltd.
2. compute the budgeted manufacturing overhead rate in:

• The machine department
• The finishing department

1. During the month of January 2021, the job-cost record for job XYZ shows the following:

Machining Finishing

Department Department

K'000 K'000

Direct material used 31 000 10 000

Direct manufacturing labour cost 800 2 2000

Direct manufacturing labour hours 100 lh 100 lh

Machine hours 260 mh 40 mh

Compute the total manufacturing overhead cost allocated to job XYZ.

1. Assuming that job XYZ consisted of 400 units of product, compute the cost per unit?
2. The following amounts were obtained at the end of 2021:

Machining Finishing

Department Department

K'000 K'000

Manufacturing Overhead incurred 22 140 16 472

Direct manufacturing labour cost 2 000 8 800

Machine hours (mh) 420 mh 62 mh

Compute the under-over allocated manufacturing overhead for each department for the Mukobeko plant as a whole.

1. Explain why Katondo Ltd uses two different manufacturing overhead cost pools in its job costing system.

QUESTION TWO

Monze Ltd produces two models of a cellar phone super and deluxe and operates at capacity. Data related to the two models are presented below:

SUPER DELUX

Annual Production in units 50 000 100 000

Direct material cost K150 000 K300 000

Direct labour cost K50 000 K100 000

Direct labour hours 2500 5000

Machine hours 25 000 50 000

Number of production runs 50 50

Inspection hours 1000 500

Total manufacturing overhead costs are as follows:

Total

Machining costs K375 000

Setup costs K120 000

Inspection cost K105 000

Required

1. For each overhead cost pool, choose a cost driver and calculate the manufacturing overhead cost per unit for each model.
2. Compute the manufacturing cost per unit for each model of product.

QUESTION THREE

Solwezi Ltd manufactures and sells two products: Thingone and Thingtwo. In July 2021, Solwezi Ltd's budget department gathered the following data to prepare budgets for 2022:

2022 Projected Sales

Product Units Price

Thingone 60,000 $165

Thingtwo 40,000 $250

2022 Inventories in Units

Expected Target

Product January 1, 2022 December 31, 2022

Thingone 20,000 25,000

Thingtwo 8,000 9,000

The following direct materials are used in the two products:

Amount Used per Unit

Direct Material Unit Thingone Thingtwo

A pound 4 5

B pound 2 3

C each 0 1

Projected data for 2022 with respect to direct materials are as follows:

Expected Inventories Target Inventories

Direct Material Anticipated Purchase price January 1, 2012 December 31, 2022

A $12 32,000 lb 36,000 lb

B 5 29,000 lb 32,000 lb

C 3 6,000 units 7,000 units

Projected direct manufacturing labor requirements and rates for 2022 are as follows:

Product Hours per Unit Rate per Hour

Thingone 2 $12

Thingtwo 3 16

Manufacturing overhead is allocated at the rate $20 per direct manufacturing labour-hour.

Based on the preceding projections and budget requirements for Thingone and Thingtwo, prepare the following budgets for 2022:

1. Revenues budget (in dollars)
2. Production budget (in units)
3. Direct material purchases budget (in quantities)
4. Direct material purchases budget (in dollars)
5. Direct manufacturing labor budget (in dollars)
6. Budgeted finished goods inventory at December 31, 2022 (in dollars).

QUESTION FOUR

Lusakasa Corporation produces baseball bats for kids that it sells for $32 each. At capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats are as follows.

Cost per Bat Total Costs

Direct materials $12 $600, 000

Direct manufacturing labour 3 150,000

Variable manufacturing overhead 1 50,000

Fixed manufacturing overhead 5 250,000

Variable selling expenses 2 100,000

Fixed selling expenses 4 200,000

Total costs $27 $1,350,000

1. Suppose Lusakasa is currently producing and selling 40,000 bats. At this level of production and sales is fixed costs are the same as given in the preceding table. Rufusa Corporation wants to place a one-time special order for 10,000 bats at $25 each. Lusakasa will incur no variable selling costs for this special order. Should Lusakasa accept this one-time special order? Show your calculations.
2. Now suppose Lusakasa is currently producing and selling 50 000 bats. If Lusakasa accepts Rufusa's offer it will have to sell 10 000 fewer bats to its regular customers.
3. On financial considerations alone, should Lusakasa accept this one-time special order show your calculation.
4. On financial consideration alone, at what price would Lusakasa be indifferent between accepting the special order and continue to sell to its regular customers at K32 per bat.
5. What other factors should Lusakasa consider in deciding whether to accept the one-time special order.