US$1000 Reward if every question is correct

Please do all questions in the attachment. Show all workings and formulas. Please do in Microsoft word.

UNIVERSITY OF TECHNOLOGY, JAMAICA COLLEGE: BUSINESS AND MANAGEMENT SCHOOL: BUSINESS ADMINISTRATION Project: Semester 2, Academic Year 2016/17 Module Name: Advanced Cost and Management Accounting Module Code: ACC3009 Theory/Practical: Theory Groups: BBA4 INSTRUCTIONS: Please read the following carefully: 1. The due date is Friday, April 21, 2017 at COBAM Student Affairs Center. 2. This assignment is worth 20% of the overall grade for the course. 3. Groups should not exceed six (6) and not be less than four (4). 6. We will not entertain any request for an extension of the deadline. 7. Students are encouraged to communicate with their lecturers/tutors to brief them on their progress and/or to discuss problems that they have encountered. These interactions must be on a timely manner and must be initiated by the group. 8. Students are encouraged to make multiple back-ups as they work to safe-guard against man-made events and acts of God. 9. Each member of the group should be prepared to answer questions posed by the lecturer /tutor pertaining to the assignment. 10. We will be watchful for, but do not expect any two assignments to be duplicates. In case this happens, however, the University's policy relating to academic misconduct will apply. 11. The names and IDs of the members of each group should be clearly stated on the project. 12. Email addresses for lecturers/tutors are as follows: Rosemarie Dixon-Doldron rdixon-doldron@utech.edu.jm 1 Instruction: Answer ALL Questions. Question 1 (30 marks) Senior Management at Pennants Distributors Limited is currently considering whether to invest in one of two machines: Vinnie and Cam. Both machines have a useful life of four years and are to be depreciated using the straight line basis. The cost, insurance and freight (CIF) of the Vinnie is Jamaican equivalent $20,000,000. The custom duty on the asset is J$5,000,000. The asset is to be depreciated to a residual value of $1,000,000. The Vinnie is to be bought in Miami, Florida. Meanwhile, the CIF of the Cam is Jamaican equivalent $24,000,000 and can be depreciated to a residual value of $2,000,000. The Cam is sold by a supplier in New York. The custom duties on the asset is J$6,000,000. The useful lives of the machines are the same as the project. However, the machines are mutually exclusive. The assets expect to increase efficiency by reducing annual operating costs. The annually savings from each machine were analyzed by the production manager and provided in a report to senior management below: Year 1 2 3 4 Vinnie $10,000,000 $16,500,000 $18,000,000 $17,000,000 Cam $16,000,000 $16,000,000 $16,000,000 $12,000,000 The entity's projects are discounted using the weighted average cost of capital. The company's marginal tax rate is 40% and depreciation is an allowable deduction for income tax purposes. It is assumed that all cash inflows occur at the end of each year. Projects are to be financed with 50% debt. The cost of debt is 12%. On the other hand, the cost of equity is determined using the capital asset pricing model. The risk free rate is half the cost of debt and the average return on the market is 16%. The stock's beta is 1.50. Required: a. Compute and explain briefly, the term cost of capital b. Compute the following for each of the machines above: i. Net present value ii. Accounting rate of return using initial investment iii. Internal rate of return c. Advise senior management as to which machine is more feasible [6 marks ] [ 16 marks ] [ 4 marks ] [ 2marks ] [ 2 marks ] 2 Question 2 (29 marks) Montego Bay Ice produces three products, Light, Medium and Hard, all made from the same material. Until now, it has used traditional absorption costing to allocate overheads to its products. The company is now considering an activity based costing system in the hope that it will improve profitability. Information for the three products for the last year is as follows: Production sales volume Sales price per unit Raw material usage (kg) per unit Direct labour hours per unit Machine hours per unit Number of production runs per annum Number of purchase orders per annum Number of deliveries per annum Light 15,000 $7.50 2 0.1 0.5 Medium 12,000 $12 3 0.15 0.7 Hard 18,000 $13 4 0.2 0.9 16 12 8 24 48 28 30 42 62 The price for raw materials remained constant throughout the year at $2 per kg. Similarly, the direct labour cost for the whole workforce was $1480 per hour. The annual overhead costs were as follows: Machine set-up costs 26,550.00 Machine running costs 66,400.00 Procurement costs 48,000.00 Delivery costs 54,320.00 Required: a. Calculate the full cost per unit for all three products under the traditional method [8 marks] b. Calculate the full cost per units for all three products under the ABC method [15 marks] c. Identify and briefly explain three differences between the ABC and the traditional costing system [ 6 marks ] 3 Question 3 (22 marks) Part A No. Units Sold Per Day 300 Sales Price 40 Direct Materials Cost per unit 25 Other Factory Costs per Day 7000 No. Hours of bottleneck used per day 8 Required: (i) Calculate the Return Per Factory Hour. [ 2 marks] (ii) Calculate the Throughput Accounting Ratio and advise on production. [ 5 marks] (iii) Suggest how could the ratio be improved. [ 5 marks] Part B A company is able to sell 2500 units per month at a price of $120. An increase in the selling price to $130 will lead to a fall in demand to 1800 units. The variable cost per unit is $43 and the fixed costs per month are $60,000. What is the optimum price and the maximum profit? [ 10 marks] Question 4 (20 marks) A builder has been asked to quote for a job and has the following information available about the costs: Item Direct Materials Bricks Detail 200,000 at $100 per thousand. 200,000 at $120 per thousand. Other Materials Direct Labour Skilled Unskilled 3,200 hrs at $12 per hour 2,000 hrs at $6 per hour Other Costs Scaffolding hire Depreciation of general purpose machinery General overheads Plans Total Cost Profit Suggested Price 5,200 hrs at $1 per hour $ Note 20,000.00 24,000.00 Note 1 5,000.00 Note 2 38,400.00 12,000.00 Note 3 Note 4 3,500.00 Note 5 2,000.00 Note 6 5,200.00 2,000.00 112,100.00 22,420.00 134,520.00 Note 7 Note 8 Note 9 4 Notes: 1.The contract requires 400,000 bricks of this standard type. The builder has 200,000 already in stock and will need to buy 200,000. The 200,000 at $100 per 1,000 in the quote above were bought at that price earlier in the year. The current replacement cost for this type of brick is $120 per 1,000. If the bricks are not used on this project the builder is confident that he will be able to use them later on in the year. 2.This is the purchase price of other materials that will be bought in as required. 3.The builder intends to work 800 hours of the skilled work himself and hire the rest in on an hourly basis at $12 per hour. If the builder does not take on this job he can either work for other builders at $12 per hour or complete urgently required work to his own house for which he has been quoted $12,000 by another builder. 4.The builder has 4 unskilled labourers employed on a contract guaranteeing them 40 hours per week at $6 per hour. They are currently idle and have spare time available to complete the job. 5.This is the estimated cost of hiring scaffolding. 6.The job will take 20 weeks and the machine will not be used on any other job if this job is not taken on. 7.This represents the cost of the storage yard used by the builder. If this is not used it can be rented out to a competitor for the 20-week period at a rent of $500 per week. 8.This is the cost of drawing up the plans for the project. These were drawn up several weeks ago. 9.A mark up of 20% is added to all jobs. Required: (i) Explain how each item described above should be treated. (9 marks) (ii) Using relevant costing principles, calculate the lowest price that the builder could quote for the building work. (11 marks) Question 5 (29 marks) PART A Cement Co is a company specialising in the manufacture of cement, a product used in the building industry. The company has found that when weather conditions are good, the demand for cement increases since more building work is able to take place. Last year, the weather was so good, and the demand for cement was so great, that Cement Co was unable to meet demand. Cement Co is now trying to work out the level of cement production for the coming year in order to maximise profits. The company doesn't want to miss out on the opportunity to earn large profits by running out of cement again. However, it doesn't want to be left with large quantities of the product unsold at the end of the year, since it deteriorates quickly and then has to be disposed of. The company has received the following estimates about the probable weather conditions and corresponding demand levels for the coming year: Weather Good Average Poor Probability 25% 45% 30% Demand 350,000 bags 280,000 bags 200,000 bags 5 Each bag of cement sells for $9 and costs $4 to make. If cement is unsold at the end of the year, it has to be disposed of at a cost of $050 per bag. Cement Co has decided to produce at one of the three levels of production to match forecast demand. It now has to decide which level of cement production to select. Required: (1) Construct a payoff table to show all the possible profit outcomes. (8 marks) (2) Decide the level of cement production the company should choose, based on the following decision rules: (i) (ii) (iii) Maximin(1 mark) Maximax(1 mark) Expected value (4 marks) You must justify your decision under each rule, showing all necessary calculations. (3) Describe the 'maximin' and 'expected value' decision rules, explaining when they might be used and the attitudes of the decision makers who might use them. (6 marks) PART B A firm manufactures and sells part ABC123. The part has a selling price for $520 and costs $515 to be manufactured by the firm. Total cost to make the part includes direct material and direct labour. The entity has budgeted to sell 510,000 units based on a 25% market share. The total market volume is two million and actual sales are 520,000 units. The product is made from two different materials: X and Y. The standard information relating to each units of Part ABC123 are as follows: Material Material X Material Y Details 5 kg @ $40 per kg 15 kg @$20 per kg $ 200 300 During the month of July 2014, the entity produced 20,000 parts which used 110,000 kilograms of material X and 280,000 kilograms of material Y. Required: a) Calculate the sales volume variance. (2 marks) b) Determine the material usage variances. Split the usage variance into mix and yield variances. ( 7 marks) END OF PAPER 6