Show all calculations when answering the following questions. State your final answer in a sentence

1. Activity based costing: Jancroft Corporation produces a line of baseball caps in batches. To manufacture a batch of caps Jancroft Corporation must setup the cutting and sewing machines. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up cutting and sewing machines for different styles of baseball caps.

Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup hours. The following information pertains to June.

Static-budget Actual

Amounts Amounts

Baseball caps produced and sold 15,000 14,400

Batch size (number of caps per batch) 500 450

Setup hours per batch 5 4

Variable overhead cost per setup hour $63 $58

Total fixed setup overhead costs $32,100 $30,000 Required:

1. Calculate the rate and efficiency variances for variable overhead setup costs. (3 marks)

ii. Explain to the production manager what the efficiency variance tells us about the efficient usage of setup costs. Your answer should be specific to Jancroft and should use at least one pertinent figure from your calculations in part (i)

2. Service department costing: Mayberry Studios rents out its studio facilities to local marketing firms to produce advertisements. The cost accountant wants to allocate the costs incurred by the Janitorial department to the Filming and Postproduction departments.

The manager of the Janitorial department determined at the beginning of the year that the annual fixed costs would be $261,250. She also determined that the cost for labour and cleaning supplies would be classified as variable costs and budgeted at $0.76 per square metre of floor space cleaned. At the end of the year, actual fixed costs were $310,000 and actual cost per square metre cleaned was $0.80.

Managers of the Filming and Postproduction Departments provided the following information:

	Filming Department	Postproduction Department
Budgeted floor space (Square metres)	112,500	25,000
Actual floor space cleaned (Square metres)	107,500	27,500

If a dual-rate cost allocation method is used, what amount of Janitorial department costs will be allocated to the Filming Department? Use the application methodology that best measures the responsible use of the Janitorial departments services.

3. Analysis of cost behaviour: Pam's Stables used two different predictor variables (trainer hours and number of horses) in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows:

Trainer's hours:

Variable	Coefficient	Standard Error	t-Value
Constant	913.32	2.093	4.44
Predictor Variable	20.90	2.844	3.50

r2 = 0.56

Number of horses:

Variable	Coefficient	Standard Error	t-Value
Constant	4764.50	0.812	4.61
Predictor Variable	864.98	0.294	3.40

r2 = 0.83

What is the estimated total cost for the coming year if 13,000 trainer hours are incurred and the stable has 400 horses to be trained, based on the best cost driver?

.

d. Analysis of cost behaviour: Tillie Makris, works in the cost-estimating department of Byndham Hotels and Resorts, a large chain of international hotels. Her job is to develop cost functions for the various products and services provided by Byndham. She does this by meeting with supervisors and managers who operate the processes that provide the products and services. This is because these individuals know the most about the processes and the behaviours of those costs.

Explain which cost estimation method is used by Byndham Hotels and Resorts.

5. Byproduct costing: Girard Enterprises processes 24,000 kilograms of raw coffee beans to product two products. The first product is roasted coffee that is sold for $25.00 per kilogram. The second product is the shell of the bean, called the husk. The husk is sold as a fertilizer for plant crops. Because it is sold for only $3.50 per kilogram, it is a by-product of coffee processing. The following information is available for the month of July:

Activity in kilograms	Roasted Coffee	Husks
Production	21,000	2,600
Sales	17,300	2,200

There were no beginning inventories. Costs to process the raw coffee beans were $189,700.

Calculate the cost of ending inventory for the month of July using the Production method of accounting for byproducts.

f. Service department costing :Top2Toe is a boutique store that sells high-fashion hats and shoes in the downtown section of the city. The companys controller assesses the manager of each department on their ability to control costs. As such, he wants to properly allocate the cost of their two major service departments; Janitorial and Human resources to their two sales departments, Shoes and Hats.

Note that Janitorial and Human resources also provide services to each other. Janitorial costs are allocated by square feet and Human resources costs are allocated by number of employees. Data for August are provided below.

August data	Human resources	Janitorial	Shoes	Hats
Budgeted costs	$13,800	$6,400	$40,000	$31,500
Actual costs	$14,300	$5,800	$52,000	$29,500
Actual square feet of department	612	1,200	1,088	1,700
Actual number of employees	10	21	15	24

Currently, the controller uses the Step method to allocate service department costs to operating departments. Human resources is allocated first, then Janitorial.

Required

1. Calculate the costs of the Janitorial department that would be allocated to the Shoes Department for August using the appropriate figures and the controllers current method of service department cost allocation.
2. The controller is aware of the direct and reciprocal methods and wants to know if he should use one of those methods instead of the step method. You do a quick analysis of both methods which results in the following allocations:

Total cost of service department costs allocated using:	Shoes	Hats
Direct method	$7,805	$12,394
Reciprocal method	$7,825	$12,375

Explain which method should be used and why.