You are the lucky inheritor of your great uncles mines which is located in the mineral rich mountains of Lulity and produces raw mineral extract called LLT, which is processed into three types of minerals called Lu, Li and Ty. The following scenario pertains to this mine:

The mine has been in your family for the last decade, and was managed by your great uncle profitably in that time. For the last year, your great uncle has been ill, and so the mine had been subcontracted to a firm that charges $40 per ton of LLT mineral extracted. This LLT mineral extract is taken to the factory and processed to give three minerals, Lu, Li and Ty. The local government also charges an environmental tax of $13 per ton of LLT extracted. To transport the LLT from the mountain to the factory, a contract transport company is paid $1,500 per month to transport up to 100 tons per batch per day. Hence for 0 to 100 tons, the charge is $1,500 per month, for 101-200 tons, the charge is $3,000 per month and so on.

Of the three processed minerals, Lu and Li have high sales value as compared to total sales value of all products, while Ty has a low sales value as compared to total sales value of all products, even though it is extracted in the greatest quantity.

i. After you take over the mine, you find that this month, 180 tons of LLT are extracted for 25 days of the month. What are the variable costs, fixed costs and total costs incurred in this month? Show workings. [5]

ii. With relation to the above scenario, explain the concept of relevant range. You may make use of a graph to explain your point. [4]

iii. If market based data is used to allocate joint costs for Lu and Li, which methods would be appropriate. Explain any one method. [4]

iv. Which type of product is Ty and why do you think so? Explain which methods are available to account for Ty, and give one advantage and disadvantage of each. [4]

v. If you have set a target profit of $140,000 for this month, how many tons of LLT should be sold to meet this target, if relevant range is up to 200 tons. Assume LLT is not processed further, and selling price per ton of LLT is $2,110 per ton. Make the income statement for the mine for this month, given above details. [10]

vi. You sell units of output of Lu to a chemicals factory that uses it to produce soda ash, which is a powdery salt, used to make paint. Which costing method do you think the chemicals factory applies, given the nature of its production process? Give reasons for your choice. [3]

vii. The chemical factory purchased 70 tons of Lu, at $3,170 per ton this month. The cost of labor and manufacturing overhead this month came to $175,000. At the end of the month, 40 tons of soda ash was manufactured. 20 tons were 70% complete in raw material and 15 tons were 60% complete in conversion. Calculate the equivalent units for each cost category, showing clear workings. [5]

viii.You also sell units of output of Li to a premium builder. They manufacturer building materials and use their own products to build residential or commercial projects. This company only orders units of Li when they have a client with specialized requirements of building materials. This month, they have a client who needs water resistant, indigo dyed bricks for their unique home. The building company has signed a contract to build this house for their clients and needs 300 tons of Li, to manufacture the water resistant, indigo dyed bricks. What type of costing method would be most suitable for the building company and why? What do you think the building company should be careful about when allocating general administrative expenses to its various building projects? [3+3]

ix. This month, you find that $30,000 was incurred on the cost of running the head office and administrative expenses. What do you think would be a suitable basis for allocation of this cost? The number of direct and indirect employees in the office is 20, while in the production facilities, it is 100. By deciding upon a cost driver, show at what rate this amount should be absorbed by the production facility, if full costing is used. Also show how much of this cost will be allocated to Production department I, which has 27 employees, both direct and indirect. [2+4+3]

x. You are in an ethical conundrum: You find that your friend, who has been your steady and loyal companion in good times and bad times for the last five years, is unable to solve most of the final paper of Cost and management accounting. You also know that he/she is capable of solving it, but did not manage to allocate time to studying this subject and so is unprepared for the exam. You also know that you stayed up every night for the past week, studying for this course. When you see the paper, you realize you know it but it is lengthy. Write a brief note, explaining what you would do in this scenario and why. If possible, write one point for and against your choice of action.