This is a Marginal and Absorption costing Question... The only question I want help with from the attachment is question number 4.. I have done all the other questions and I am sure they are correct. Please do all of question 4 and show workings so I can fully interpret and understand it. Thank you
UNIVERSITY OF TECHNOLOGY, JAMAICA COLLEGE: Business & Management SCHOOL: School of Business Administration Group Project, Semester two, 2015-16 Module Name: Introduction to Costing Module Code: ACC3002 Date: April 11, 2016 Theory/ Practical: Theory Groups: BBA3 & E/PBBA4-Western Campus INSTRUCTIONS: Please read the following carefully: 1. Deliverables shall include soft copy emailed to the lecturer and hard copy presented to the lecturer/tutor or his nominee on or before the due date. 2. The due date is MONDAY, April 11, 2016 by 7.00 p.m. 3. This assignment is worth 20% of the overall grade for the course. 4. Groups should not exceed five (5) and be less than four (4). 5. We will not entertain any request for an extension of the deadline. QUESTION No. Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 TOPIC Overhead Allocation Overhead Allocation Inventory control Marginal Costing Inventory Valuation Process Costing VALUE 34 50 42 25 23 15 Marks Marks Marks Marks Marks Marks Question One [ 34 marks ] Value Fruit Ltd is preparing its overhead budgets for the December 2015 period. The entity makes a product that passes through three production department and is also affected by two service departments. The three production departments are milling, processing and packaging, and two service departments are stores and inspections. The following budgeted overheads and budgeted activity levels have been produced: Overhead cost Machine hours Milling $1,000,000 200,000 Processing $1,500,000 250,000 Packaging $2,850,000 400,000 Stores $1,200,000 Inspections $800,000 Overhead is absorbed on a machine hour basis. It has been estimated that service department usage is as follows: Stores Requisitions Number of Inspections Milling 5,000 500 Processing 2,500 150 Packaging 2,000 250 Stores 100 Inspections 500 - However, during the period ended December 31, 2015, actual overheads in department milling, processing and packaging were as follow respectively: $1,400,000, $1,900,000 and $3,500,000; while, actual activity levels for all three were 250,000, 275,000 and 380,000 machine hours for milling, processing and packaging respectively. Required: a. Use the direct method to derive the re-allocated overheads to production departments and derive the overhead absorption rates for these departments [ 9 marks ] b. From the information calculate in part (a) above, derive the under/under absorption of overheads in each departments [ 6 marks ] c. Use the step down method to derive the re-allocated overheads to production departments and derive the overhead absorption rates for these departments [ 13 marks ] d. From the information calculate in part (c) above, derive the under/under absorption of overheads in each departments [ 6 marks ] Question two ( 50 marks) Salem Distributors Limited (SDL) makes product XYX123 that passes through two departments: refining and assembly. The production process depicts that assembly is labour intensive while refining is highly machine intensive. The company also has two service cost centres: stores and maintenance. Based on the nature of the entity, stores issue material to maintenance and maintenance provides service to store. During the period, the following allocated overheads were recorded: Allocated Indirect Material Indirect labour Refining Assembly $35,000,000 $50,000,000 $25,000,000 $30,000,000 Stores $25,000,000 $15,000,000 Maintenance $15,000,000 $15,000,000 Additionally, the management accountant provides the following overhead data that relates to the period: Budgeted Overheads Heat and lighting $100,000,000 Plant and machine insurance $50,000,000 Plant and machine depreciation $40,000,000 Rent and Rates $25,000,000 Power $25,000,000 The following bases below were presented by the production manager who thinks it is appropriate to apportion power based on kilowatt hours (KWH), rent and rates based on floor area, while maintenance costs are to be re-apportioned based on maintenance hours: Basis Floor area (m2) Plant and machine values Maintenance hours KWH Number of requisitions Machine hours Labour hours Refining 10,000 $100,000,000 50,000 100,000 5,000 5,000,000 1,000,000 Assembly 5,000 $50,000,000 30,000 75,000 4,000 1,000,000 4,000,000 Stores 2,500 $30,000,000 20,000 15,000 Maintenance Total 2,500 20,000 $20,000,000 $200,000,000 100,000 10,000 200,000 1,000 10,000 6,000,000 5,000,000 The purchasing manager indicates that the average cost of raw material for this product is $200 per kilogram, while the HR department listed the average direct labour rate as $50 per hour. The company applies a mark-up of 25% on each unit cost in arriving at the price of the product. The following per unit data is related to product XYZ123: Direct material in kilogram 15 Direct labour hours 12 Machine hours 25 Note: where a basis is not given, the most suitable basis should be chosen that has a persuasive relationship between those costs. Marks will be awarded only for choosing the most suitable basis. Required: a. Prepare an overhead cost analysis sheet. Note: the analysis should include a total column and the appropriate bases used in a separate column. [ 24 marks ] b. Calculate the OARs[ Use simultaneous equations to re-apportion service department costs ] [22 marks ] Calculate the total cost and selling price of XYZ123 .Note total cost should be divided into prime cost and overheads. Overheads should be sub-divided into refining and assembly. [4 marks ] Question three [42 marks] Regal bakery Limited is the main supplier of hard dough breads to customers in Montego Bay. The company currently makes 10,000,000 loaves of bread annually which uses baking flour. Production takes place evenly during the year. A single loaf uses 0.0001 kilogram of baking flour. The baking flour is utilised evenly during the period. Regal sells hard dough bread for $290 per loaf. The production manager thinks that profits could be increased if the company departs from the current policy. Currently, the company makes four equal orders per year; that is, the entity orders four time annually and orders are made instantaneously without any delays. However, the chief financial officer (CFO) does not believe that the current order quantity is the optimal order quantity. As a result, he spent $100,000.000 last year to ascertain whether the optimal order quantity is different from the current policy. Moreover, he held discussion with the main suppliers of baking flour and was told that the current purchase cost for baking flour is $100 per kilogram. Further discussions indicated that the cost per kilogram varies based on the quantity to be bought. A 2% discount will be given for orders of at least 500 kilograms, 3% discount for orders of at least 750, a 4% discount for orders of at least 1,000 and a 12% discount for orders greater than 1,250 kilograms. It is also expected that orders will be made instantaneously and there will be no lead time between ordering and receiving the raw material. No discounts are given for orders of less than 500 kilograms. It was further ascertained that the incremental ordering cost is to be $450 per order, while the cost of storing is to be $5 per unit of average stock. Additionally, the opportunity cost of holding one kilogram is expected by be 5% of the current purchase cost. Required: a. Calculate the EOQ based on the formula [ 4 marks ] b. Calculate the total cost based on the EOQ [4 marks ] c. Calculate the total cost for each individual alternate order quantities including the current policy. [ 20 marks ] d. Which order quantity is considered the optimal order quantity and why? [ 2 marks ] e. Draw the following source documents in the material control process: i. ii. iii. iv. Purchase requisition form Purchase order Receiving report Vendors' invoice [ 3 marks ] [ 3 marks ] [ 3 marks ] [ 3 marks ] Question four [25 marks] A company manufactures buns which are considered the main product for its store located in Montego Bay, St. James. On January 1, 2015, management budgeted fixed production overheads to amount to $48,000,000. Based on the company's policies, overheads are absorbed based on the budgeted direct labour hours to be worked. At the start of the year, the entity had budgeted direct labour cost amounting to $60,000,000. Additionally, the production manager estimated that the budgeted direct labour hour (DLH) rate is $25. The rate is the same as the actual rate below. For the year ended December 31, 2015 the following actual results are depicted below: Production (units) Sales (units) Sales price per unit Direct materials per unit Direct labour cost per unit Variable production overheads per unit Variable selling costs per unit Total fixed selling costs Fixed Overheads cost 1,500,000 1,250,000 $200 $100 $25 $25 $25 $6,000,000 $45,000,000 Note: each bun actually uses one direct labour hour (DLH). The entity had no inventory at the start of the period. Required: a. Using variable costing approach, prepare an income statement for the year ended December 31, 2015. [ 10 marks ] b. Using absorption costing, calculate under or over absorption of overheads. [ 5 marks ] c. Using absorption costing approach, prepare an income statement for the year ended December 31, 2015 [ 10 marks ] Question five [ 23 marks ] A company applies a standard mark-up of 25% on all products sold. At the end of the period, the financial controller wants to assess the value of inventory for financial reporting purposes. The accounting policy states a fist in first out method. Below are the transactions conducted for the year ended December 31, 2015: Date January 10, 2015 March 29, 2015 April 10, 2015 May 30, 2015 August 15, 2015 October 25, 2015 November 29, 2015 December 30,2015 Receipts 1,500 1,000 Unit cost $800 $860 Sales in units 500 1,500 1,000 $900 2,000 $1,000 1,200 2,100 Required: a. Prepare an income statement showing profits for the year b. Derive the inventory balance at the end of the period [ 15 marks ] [ 5 marks ] c. State three other methods which can be used to value inventory [ 3 marks ] Question six [ 20 marks ] A company uses a process cost system to manufacture soaps to be sold locally. The following information pertains to the operations for the month of May 2015: Beginning work-in-process inventory, May1 Started in production during June Ending work-in-process inventory, May 31 Units 20,000 80,000 25,000 The beginning inventory was 75 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 80 percent complete for materials and 50 percent complete for conversion costs. The entity uses a weighted average system. Costs pertaining to the month of May are as follows: Beginning inventory costs are: Materials $5,000,000 Direct Labour $4,500,000 Factory Overhead $5,500,000. Costs incurred during May are: Materials used $15,000,000 Direct Labour $10,500,000 Factory Overhead $24,500,000 Required: a. Prepare the process account [ 15 marks ] b. State five reasons why it is important to control labour turnover [ 5 marks ]
