ACCT2002 Cost Analysis for Decision Making
Semester 1 and Trimester 1A, 2024
Portfolio Questions
QUESTION ONE
Santana Company is a small manufacturer and retailer of guitars. The company
produces wooden guitars that are made in-house and sold exclusively in-store.
These guitars were originally hand-made, but over the years, production of guitars has slowly been automated as automation produced guitars with consistent quality. As of 2023, no more wooden guitars were hand-made by Santana Company.
Brenda Wellington, the assistant manager, is in the process of working out a cost formula for overhead expenses. She assumes that in some way, overhead expense is related to sales, either in units or in dollars.
She has collected data for sales and overhead expenses for January 2022 through December 2023. During her collection of the data for the last two years, she has
established that the overhead expenses in February 2022 was exceptionally low as there was an electrical fire that year that caused wide-spread damage.
REQUIRED:
This question must be completed using EXCEL.
A. Assist Brenda in developing the regressions for supplies expenses under normal circumstances, for sales (both in units and in dollars). Hint: Do not attempt a multiple regression. (4 marks)
B. Explain what you did in part A (ie why did you do it the way you did it). (2 marks)
C. Evaluate both regressions and determine which regression would be more appropriate. (4 marks)
(Total: 10 marks)
QUESTION ONE (cont’d)
QUESTION TWO
Adam Sandler is the financial controller for Plantation Fittings, a manufacturer of furniture. In June 2023 (end of the financial year), Sandler had prepared the
following flexible budgets for direct labour and manufacturing overhead for the
2023/2024 financial year. Though the factory has a capacity of 150,000 direct labour hours per year, Sandler has estimated that the normal usage is 120,000 direct labour hours in a typical year.
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Manufacturing Overhead
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Direct-Labor Hours
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Variable
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Fixed
|
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100,000
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$325,000
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$216,000
|
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120,000
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390,000
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216,000
|
|
140,000
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455,000
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216,000
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Sandler is now analysing overhead costs for the month of May, 2024. He has gathered the following information:
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Labour
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|
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Direct-labour hours:
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|
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Job 77
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3,500
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Job 78
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3,000
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Job 79
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2,000
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Labor costs:
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|
|
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Direct-labour wages
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$ 51,000
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Indirect-labour wages (4,000 hours)
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15,000
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Supervisory salaries
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6,000
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Material
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|
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Inventories, May 1:
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|
|
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Raw materials and supplies
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$ 10,500
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Work in process (job 77)
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54,000
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Finished goods
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112,500
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Purchases of raw material and supplies:
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|
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Raw material
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$135,000
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Supplies (indirect material)
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15,000
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Direct material and supplies requisitioned for production:
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|
|
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Job 77
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$ 45,000
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Job 78
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37,500
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Job 79
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12,000
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Supplies (indirect material)
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12,000
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Total
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$120,000
|
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Other
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|
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Building occupancy costs (heat, light, depreciation, etc.)
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|
|
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Factory facilities
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$ 6,400
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Sales offices
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1,600
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Administrative offices
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1,000
|
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Total
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$ 9,000
|
|
Production equipment costs:
|
|
|
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Power
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$ 4,100
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Repairs and maintenance
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1,500
|
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Depreciation
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1,500
|
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Other
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1,000
|
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Total
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$ 8,100
|
During May, Job 77 and 78 were completed.
REQUIRED:
A. Calculate the appropriate predetermined overhead rate for the financial year 2023/2024. (1 mark)
B. Calculate the total cost of Job 77. (3 marks)
C. Calculate the amount of over- or underapplied overhead for the month of May. (3 marks)
D. Using the appropriate method, dispose of the over- or underapplied overhead. Explain what other methods can be used and why you used the method that you did. (3 marks)
(Total: 10 marks)
QUESTION THREE
McKnight Handcraft produces picture frames for large retailers. The process-costing system at McKnight has a single direct-cost category (direct materials) and a single indirect cost category (conversion costs). Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the
process. McKnight uses the weighted-average method of process costing.
A burst pipe in April caused the loss of some information , but they have been able to retrieve others. The retrieved information is listed below. On 1 April, the work-in-process was 20 percent complete as to conversion, while on 30 April, the work-in- process was 60 percent complete as to conversion.
Work in process, 1 April (in units) … ....... ........................................................... ?
Units started during April … ............................................................................ .... 60,000
Total units to account for … ........................................................................ ........ 75,000
Units completed and transferred out during April … … … … … … … … … … … ....... ?
Work in process, 30 April (in units) … ......................................................... ....... 10,000
Total equivalent units: direct material … ..... ........................................................ 75,000
Total equivalent units: conversion … ...... ......................................... ................... ?
Work in process, 1 April: direct material … ......................................................... $135,000
Work in process, 1 April: conversion … .............. ................................................ ?
Cost incurred during April: direct material … .... .................................................. ?
Cost incurred during April: conversion … ....... ..................................................... $832,250
Work in process, 1 April: total cost … ......... ........................................................ $172,500
Total costs incurred during April … ............... .............................................. ........ $1,402,250
Total costs to account for … ........................ ................................................. ....... $1,574,750
Cost per equivalent unit: direct material … ........ .................................................. $9.40
Cost per equivalent unit: conversion … .............. ......................................... ........ ?
Total cost per equivalent unit … ......... ................................................... .............. $21.65
Cost of goods completed and transferred out during April … .... ......................... ?
Cost remaining in ending work-in-process inventory: direct material … ............. ?
Cost remaining in ending work-in-process inventory: conversion … ...... ............ $73,500
Total cost of 30 April work-in-process … ............................................................ $167,500
REQUIRED:
A. Prepare McKnight’s production report for April. (4 marks)
B. Define the term equivalent unit and explain how the concept is used in process costing. (3 marks)
C. What is the purpose of a departmental production report prepared using process costing? (3 marks)
(Total: 10 marks)
QUESTION FOUR
Boddington Veterinary Clinic is a small-town partnership that offers two primary
services, farm animal services and pet care services. Providing veterinary care to
farm animals requires travel to the farm animal (house calls), while veterinary care to
pets generally requires that the pet be brought into the clinic. As part of an
investigation to determine the contribution that each of these two types of services makes to overall profit, one partner argues for allocating overhead using activity-
based costing while the other partner argues for a simpler overhead cost allocation on the basis of direct labour hours. The partners agree to use next year’s budgeted data, as prepared by their public accountant, for analysis and comparison purposes. The following overhead data were collected to develop the comparison.
REQUIRED:
A. Using traditional product costing as proposed by the one partner, compute the total overhead cost assigned to both services of Boddington Veterinary Clinic. (1 mark)
B. Using activity based costing as proposed by the other partner, compute the total overhead cost assigned to both services of Boddington Veterinary Clinic. Show all workings. (6 marks)
C. Comment on the comparative overhead cost assigned to two services under both traditional costing and ABC. (3 marks)
(Total: 10 marks)