Voguish Couches Voguish Couches is a small company which makes sofas. The company is owned by the couple Lennox and Stewart. You are an intern working at Voguish Couches. For the sake of simplicity, this assignment does not consider taxes and other fees and there is no stock or work in process in the beginning or end of every year. As a consequence, all the amount of stock produced is sold during the year, hence the amount of sales equals the number of goods produced. You might have to use information from previous questions for answering information for following questions and whenever possible support your arguments with your calculations. 1,500 m Question 1 Varnish Lennox and Steward decided they need a management accountant for helping them understand their business and hired a person named Coombes for this role. Coombes has obtained a bachelor's in accounting twenty years ago but has never worked as an accountant and has spent most of his time playing the guitar. Further, during these years he did not engage in any continuing professional development. Required Please state the ethical standard, as provided by the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice', which is being jeopardized by Lennox and Steward hiring Coombes as a management accountant and justify why this standard is being jeopardized. (There is only one ethical standard being jeopardized, hence an answer with more than one ethical standard, the first one will be marked, and the remainder will be ignored). (Chapter 1, 10 marks) Five years ago $1,400 550 Below is a table listing all the material used during the past year to manufacture 500 sofas and the costs incurred. There was no stock or work in process in the beginning or end of the year. Table 2 - Material costs Material Quantity Total Cost Fabric $3,000 Timber 6,000 Units $36,000 Foam 500 Kilograms $250 Button stud 5,000 Units $500 500 Litres $10,000 Bolt bon 5,000 Units $500 5500 The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $30 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per sofa. Once the timber is ready for being assembled a casual staff is paid $25 per hour for assembling the sofa with the bolts and adding the paddings (fabric, foam, and button studs). The assembling takes only 1 hour per sofa. The final stage of manufacturing is varnishing the sofa. A casual staff is paid $27 per hour for varnishing the sofa and this task takes 2 hours. Required a) Coombes is having some trouble crunching the numbers and has asked for your help identifying and classifying all the costs between (a) fixed, mixed, or variable, (b) direct or indirect, and (c) product cost or period cost. Use a table for presenting the answer to this question, as format suggested below. (Chapter 2, 10 marks) Cost item Fixed, mixed, or variable cost Direct or indirect cost Product or period cost [cost item #1] cost item #2] [cost item #3] [...] b) Use the high-low method for estimating the cost function for annual delivery costs. (Chapter 9, 10 marks) c) Coombes is also having trouble and asked for your help in calculating the total product cost and unit product cost for the past year for Voguish Couches. (Chapter 2, 10 marks) Question 2 Question 3 Coombes is examining the activities for the past year. Voguish Couches rents a small administrative office in Melbourne's central business district (CBD) for $30,000 per year and a large warehouse in Tullamarine for $40,000 per year. The cost with salary for staff in the administrative office in the CBD is $90,000 per year. Voguish Couches has hired a firm for managing the sales and this firm charges a commission of $50 for each completed sale. The invoicing system used by Voguish Couches is outsourced and for each sale completed the firm charges $5. The administrative office had in the past year other miscellaneous costs of $5,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come. A full-time employee gets paid $80,000 per year for supervising the casual staff working in the warehouse in Tullamarine. Like the administrative office, the warehouse had other miscellaneous costs of $5,000 in the pa past year and is expected to remain the same amount for years to come. Voguish Couches has a contract with a delivery firm for delivering the copies of the sofas to their clients, but Coombes is not able to find the contract and is not sure how much the firm charges per transaction. The only information he can gather is regarding the past years: Table 1 - Annual unit delivery and costs Year Delivery Cost Units Delivered Two years ago $1,500 600 Three years ago $1,420 575 Four years ago $1,480 580 To have a better picture of what has happened during the previous year Lennox and Steward want to see Voguish Couches operating profit, and Coombes has asked for your help preparing this information. The sofas are sold for $900 each. Required a) Prepare a variable-costing income statement for the previous year for Voguish Couches. (e-g., Panel A, Exhibit 7.3, Chapter 7, 5 marks) b) Prepare an absorption-costing income statement for the previous year for Voguish Couches. (e.g., Panel B, Exhibit 7.3, Chapter 7,5 marks) Question 4 In the current year, Lennox and Steward were approached by Le Bon who wants to buy 60 sofas. Lennox and Steward want to know the manufacturing costs for this job, considering Voguish Couches has a production budget 600 sofas for the current year. For allocating the manufacturing overhead (i.e., indirect cost pool) Voguish Couches uses the direct labour-hours (i.e., cost-allocation base), but Coombes is struggling with job costing in manufacturing and has asked for your help. Required a) Calculate the direct manufacturing costs, the indirect manufacturing costs, and the total manufacturing costs of this job. (Job costing in manufacturing, Chapter 3, 10 marks) b) Using a mark-up percentage of 30%, how much should Lennox and Steward charge for the order of 60 sofas? Considering the actual figures for the current year follow what has been budgeted, Will Voguish Couches be profitable if Lennox and Steward use a mark-up percentage of 30% for all sales during the current year? Use your calculations for supporting your argument. (Cost plus pricing, Chapter 12, 10 marks) Regarding the Ultra-Model Couch, applying the extra coat of fancy varnish takes an additional 2 hours of direct manufacturing activity (varnishing) for each sofa and an additional 1 litre of fancy varnish is used for each sofa. This fancy varnish is 50% more expensive than the normal varnish used for the standard product. Regarding the Super Bright Couch, adding the extra shiny bolts take an additional 1 hour of assemblage for each sofa and 10 additional shiny bolts for each sofa. These shiny bolts are 200% more expensive than the normal bolts used for the standard product. Whereas a copy of the sofa is sold by $900, Coombes says the Ultra-Modern Couch could be sold by $1,000 and Voguish Couches would make more money with this new product. However, Coombes is not sure which price would be appropriate for the Super Bright Couch. Required Lennox and Steward are sceptical about these new products and have asked you to crunch the numbers and show whether it is worth processing the standard product into the Ultra-Modern Couch and selling it for $1,000. Lennox and Steward also want to know which is the minimum price Voguish Couches should charge for a Super Bright Couch for it being worth processing further from a standard product. (Sell or process further, Chapter 6, 10 marks) Question 5 Voguish Couches has a production budget of 600 sofas for the current year and for allocating the manufacturing overhead (i.e., indirect cost pool) Voguish Couches uses the direct labour-hours (i.e., cost- allocation base). Lennox and Steward are not sure whether the production budget will be met and some of its consequences. Required a) If the quantity produced in the current year reaches the budgeted amount of 600 sofas whereas in the past year the production was 500 sofas, Coombes says the unit product cost in the current year will decrease when compared to the previous year because the production has increased. Is Coombes right or wrong in his statement and why? Use calculations for supporting your argument. (Chapter 2, 10 marks) b) Considering Voguish Couches uses budgeted indirect costs during the year, if the quantity produced in the current year is only 500 sofas whereas the production budget for the current year is 600 sofas, Coombes says there will be an overallocation of indirect costs. Is Coombes right or wrong in his statement? What could lead to an overallocation or underallocation of indirect costs specifically for Voguish Couches? Use calculations for supporting your argument. (Budgeted indirect costs and end- of-period adjustments, Chapter 3, 10 marks) Question 6 Coombes wants propose to Lennox and Steward two new products for Voguish Couches, the Ultra-Modern Couch and the Super Bright Couch. These new products are the standard product manufactured by Voguish Couches (i.e., a sofa) with some further work on them. For the Ultra-Modern Couch, an extra coat of fancy varnish is applied, and for the Super Bright Couch, extra shiny bolts are added. Voguish Couches Voguish Couches is a small company which makes sofas. The company is owned by the couple Lennox and Stewart. You are an intern working at Voguish Couches. For the sake of simplicity, this assignment does not consider taxes and other fees and there is no stock or work in process in the beginning or end of every year. As a consequence, all the amount of stock produced is sold during the year, hence the amount of sales equals the number of goods produced. You might have to use information from previous questions for answering information for following questions and whenever possible support your arguments with your calculations. 1,500 m Question 1 Varnish Lennox and Steward decided they need a management accountant for helping them understand their business and hired a person named Coombes for this role. Coombes has obtained a bachelor's in accounting twenty years ago but has never worked as an accountant and has spent most of his time playing the guitar. Further, during these years he did not engage in any continuing professional development. Required Please state the ethical standard, as provided by the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice', which is being jeopardized by Lennox and Steward hiring Coombes as a management accountant and justify why this standard is being jeopardized. (There is only one ethical standard being jeopardized, hence an answer with more than one ethical standard, the first one will be marked, and the remainder will be ignored). (Chapter 1, 10 marks) Five years ago $1,400 550 Below is a table listing all the material used during the past year to manufacture 500 sofas and the costs incurred. There was no stock or work in process in the beginning or end of the year. Table 2 - Material costs Material Quantity Total Cost Fabric $3,000 Timber 6,000 Units $36,000 Foam 500 Kilograms $250 Button stud 5,000 Units $500 500 Litres $10,000 Bolt bon 5,000 Units $500 5500 The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $30 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per sofa. Once the timber is ready for being assembled a casual staff is paid $25 per hour for assembling the sofa with the bolts and adding the paddings (fabric, foam, and button studs). The assembling takes only 1 hour per sofa. The final stage of manufacturing is varnishing the sofa. A casual staff is paid $27 per hour for varnishing the sofa and this task takes 2 hours. Required a) Coombes is having some trouble crunching the numbers and has asked for your help identifying and classifying all the costs between (a) fixed, mixed, or variable, (b) direct or indirect, and (c) product cost or period cost. Use a table for presenting the answer to this question, as format suggested below. (Chapter 2, 10 marks) Cost item Fixed, mixed, or variable cost Direct or indirect cost Product or period cost [cost item #1] cost item #2] [cost item #3] [...] b) Use the high-low method for estimating the cost function for annual delivery costs. (Chapter 9, 10 marks) c) Coombes is also having trouble and asked for your help in calculating the total product cost and unit product cost for the past year for Voguish Couches. (Chapter 2, 10 marks) Question 2 Question 3 Coombes is examining the activities for the past year. Voguish Couches rents a small administrative office in Melbourne's central business district (CBD) for $30,000 per year and a large warehouse in Tullamarine for $40,000 per year. The cost with salary for staff in the administrative office in the CBD is $90,000 per year. Voguish Couches has hired a firm for managing the sales and this firm charges a commission of $50 for each completed sale. The invoicing system used by Voguish Couches is outsourced and for each sale completed the firm charges $5. The administrative office had in the past year other miscellaneous costs of $5,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come. A full-time employee gets paid $80,000 per year for supervising the casual staff working in the warehouse in Tullamarine. Like the administrative office, the warehouse had other miscellaneous costs of $5,000 in the pa past year and is expected to remain the same amount for years to come. Voguish Couches has a contract with a delivery firm for delivering the copies of the sofas to their clients, but Coombes is not able to find the contract and is not sure how much the firm charges per transaction. The only information he can gather is regarding the past years: Table 1 - Annual unit delivery and costs Year Delivery Cost Units Delivered Two years ago $1,500 600 Three years ago $1,420 575 Four years ago $1,480 580 To have a better picture of what has happened during the previous year Lennox and Steward want to see Voguish Couches operating profit, and Coombes has asked for your help preparing this information. The sofas are sold for $900 each. Required a) Prepare a variable-costing income statement for the previous year for Voguish Couches. (e-g., Panel A, Exhibit 7.3, Chapter 7, 5 marks) b) Prepare an absorption-costing income statement for the previous year for Voguish Couches. (e.g., Panel B, Exhibit 7.3, Chapter 7,5 marks) Question 4 In the current year, Lennox and Steward were approached by Le Bon who wants to buy 60 sofas. Lennox and Steward want to know the manufacturing costs for this job, considering Voguish Couches has a production budget 600 sofas for the current year. For allocating the manufacturing overhead (i.e., indirect cost pool) Voguish Couches uses the direct labour-hours (i.e., cost-allocation base), but Coombes is struggling with job costing in manufacturing and has asked for your help. Required a) Calculate the direct manufacturing costs, the indirect manufacturing costs, and the total manufacturing costs of this job. (Job costing in manufacturing, Chapter 3, 10 marks) b) Using a mark-up percentage of 30%, how much should Lennox and Steward charge for the order of 60 sofas? Considering the actual figures for the current year follow what has been budgeted, Will Voguish Couches be profitable if Lennox and Steward use a mark-up percentage of 30% for all sales during the current year? Use your calculations for supporting your argument. (Cost plus pricing, Chapter 12, 10 marks) Regarding the Ultra-Model Couch, applying the extra coat of fancy varnish takes an additional 2 hours of direct manufacturing activity (varnishing) for each sofa and an additional 1 litre of fancy varnish is used for each sofa. This fancy varnish is 50% more expensive than the normal varnish used for the standard product. Regarding the Super Bright Couch, adding the extra shiny bolts take an additional 1 hour of assemblage for each sofa and 10 additional shiny bolts for each sofa. These shiny bolts are 200% more expensive than the normal bolts used for the standard product. Whereas a copy of the sofa is sold by $900, Coombes says the Ultra-Modern Couch could be sold by $1,000 and Voguish Couches would make more money with this new product. However, Coombes is not sure which price would be appropriate for the Super Bright Couch. Required Lennox and Steward are sceptical about these new products and have asked you to crunch the numbers and show whether it is worth processing the standard product into the Ultra-Modern Couch and selling it for $1,000. Lennox and Steward also want to know which is the minimum price Voguish Couches should charge for a Super Bright Couch for it being worth processing further from a standard product. (Sell or process further, Chapter 6, 10 marks) Question 5 Voguish Couches has a production budget of 600 sofas for the current year and for allocating the manufacturing overhead (i.e., indirect cost pool) Voguish Couches uses the direct labour-hours (i.e., cost- allocation base). Lennox and Steward are not sure whether the production budget will be met and some of its consequences. Required a) If the quantity produced in the current year reaches the budgeted amount of 600 sofas whereas in the past year the production was 500 sofas, Coombes says the unit product cost in the current year will decrease when compared to the previous year because the production has increased. Is Coombes right or wrong in his statement and why? Use calculations for supporting your argument. (Chapter 2, 10 marks) b) Considering Voguish Couches uses budgeted indirect costs during the year, if the quantity produced in the current year is only 500 sofas whereas the production budget for the current year is 600 sofas, Coombes says there will be an overallocation of indirect costs. Is Coombes right or wrong in his statement? What could lead to an overallocation or underallocation of indirect costs specifically for Voguish Couches? Use calculations for supporting your argument. (Budgeted indirect costs and end- of-period adjustments, Chapter 3, 10 marks) Question 6 Coombes wants propose to Lennox and Steward two new products for Voguish Couches, the Ultra-Modern Couch and the Super Bright Couch. These new products are the standard product manufactured by Voguish Couches (i.e., a sofa) with some further work on them. For the Ultra-Modern Couch, an extra coat of fancy varnish is applied, and for the Super Bright Couch, extra shiny bolts are added