2200 Introduction to Management Accounting Sample A – Exam Paper
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Sample A – Exam Paper
Department of Accounting
2200
Introduction to Management Accounting
2 hours 10 minutes
Question 1
Peter Pan Dance Studio (PPDS) runs three dance programs: (1) for primary students; (2) for high school students; and (3) for university students. PPDS has developed a reputation as a top dance studio in Victoria. PPDS has achieved this status because it constantly re-examines its processes. PPDS’s budget for 2013 follows:
Professional salaries:
16 dance teachers x $80000 $1,280,000
08 teacher assistants – level A x $62000 496,000
08 teacher assistants – level B x $59000 472,000
Total professional salaries $2,248,000
Supplies (dance accessories) 225,000
General overhead 785,000
Total $3,258,000
PPDS has been using a single, organization-wide overhead allocation rate. Alan Blue, the management accountant of PPDS believes that the studio can make better process improvements if it uses more disaggregated cost information. He is keen on determining the cost of each dance program. Blue complied the following data describing employee allocations to individual programs:
|
|
(1) Program for Primary Students |
(2) Program for High School Students |
(3) Program for University Students |
|
Dance teachers |
3 |
6 |
7 |
|
Teacher assistants – level A |
3 |
3 |
2 |
|
Teacher assistants – level B |
3 |
3 |
2 |
Blue has recently become aware of activity-based costing as a method to refine costing systems. He is planning to apply this technique and collected the following information:
General overhead costs consists of:
Rent, maintenance and utilities $290,000
Administrative salaries 345,000
Marketing expenses 150,000
Total 785,000
Administrative salaries and consumption of supplies depend on the number of
participants in the programs.
Rent, maintenance and utility costs depend on square meters of space occupied by
each program.
The number of advertisements drives the marketing expenses of each program.
Other information about individual programs are:
|
|
(1) Program for Primary Students |
(2) Program for High School Students |
(3) Program for University Students |
|
Square meters of space occupied by each program |
111 |
231 |
249 |
|
Number of participants |
1,090 |
1,591 |
987 |
|
Number of advertisements |
34 |
45 |
92 |
Required:
a) Using an activity based costing (ABC) approach to cost analysis, calculate the total cost of each program and the cost per participant of each program. (13 marks)
b) Discuss the benefits that can be obtained by implementing the ABC system at PPDS. (4 marks)
c) The owner of PPDS believes that all companies should adopt ABC approach to cost analysis. Do you agree? Explain. (3 marks)
(13 + 4 + 3 = 20 marks)
Question 2
QRS Company manufactures circuit boards for inclusion in laptop computers. It has two support departments (Administration and Maintenance) and three production departments (Fabricating, Assembly, and Finishing). Costs and activities are as follows:
|
|
Administration |
Maintenance |
Fabricating |
Assembly |
Finishing |
|
Budgeted costs |
$50,000 |
$30,000 |
$40,000 |
$50,000 |
$25,000 |
|
Number of employees |
|
10 |
30 |
40 |
20 |
|
Square feet |
2,000 |
|
10,000 |
28,000 |
15,000 |
|
Direct labour hours |
|
|
4,400 |
5,100 |
1,850 |
|
Direct labour cost per hour |
|
|
$45 |
$30 |
$25 |
Budgeted costs are split equally in each department between fixed and variable costs. Administrative services are allocated based on the number of employees; maintenance services are allocated based on square footage. Overhead rates for the three production departments are based on direct labor hours. QRS produces many different product lines, the most popular being the B-100 circuit board. Per unit production data regarding this product is as follows:
|
Direct material cost |
$62.50 |
|
Fabricating direct labour hours |
3 |
|
Assembly direct labour hours |
3 |
|
Finishing direct labour hours |
1.5 |
|
Selling price |
$500 |
Required:
a) What is the difference between a production department and a support department? Why is this distinction important in terms of allocating overhead costs? (2 marks)
b) Describe how the direct and step-down methods of overhead allocation treat the interaction among support departments? (2 marks)
c) Determine the overhead application rates for each production department using the reciprocal allocation method. (8 marks)
d) How many units of B-100 must QRS sell in order to make a target net profit of $12,266 for this product line? (6 marks)
(2 + 2 + 8 + 6 = 18 marks)
Question 3
Alice Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. Its manufacturing plant has the capacity to produce 9000 engines each month. Current production and sales capacity is 80 per cent. The normal selling price of an engine is $134. Alice engineering has just received a special one- time only order for 1800 engines at $122 per engine. Alice Engineering makes engines for its existing customers in batch sizes of 100 engines (72 batches x 100 engines per batch = 7200 engines). The special order requires Alice engineering to make the engines in 18 batches of 100 each. Cost information for current activity level is as follows:
|
Variable costs that vary with number of units produced |
|
|
-Direct materials |
$332,000 |
|
-Direct labour |
450,000 |
|
Variable costs that vary with number of batches 72 batches x $112 per batch |
8,064 |
|
Fixed costs |
|
|
- Fixed manufacturing costs |
456,000 |
|
- Fixed marketing costs |
225,125 |
|
Total costs |
$1,471,189 |
Required:
a) Should Alice Engineering accept this special order? Show calculations to support your answer. (7 marks)
b) Suppose plant capacity was only 8000 engines instead of 9000 engines each month. The special order must either be taken in full or be rejected completely. Should Alice
Engineering accept the special order? Show calculations to support your answer. (6 marks)
c) Assume that monthly capacity is 9000 engines and Alice Engineering is planning to accept the special order. However, Alice Engineering is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $4 in the month in which the special order is being filled. Should Alice Engineering accept
the special order under these conditions? Show calculations to support your answer. (4 marks)
d) Explain how the existence of spare production capacity can affect the choice of whether to accept or reject a special order. (3 marks)
(7 + 6 + 4 + 3 = 20 marks)
Question 4
Garcia Manufacturing uses a job order costing system and applies overhead to production on the basis of direct labour hours. In 2013, costs and production data were estimated to remain the same as 2012 with total manufacturing overhead costs estimated to be $1,050,000, direct labour costs estimated to be $35 an hour, and direct labour hours to be 20,000. On January 1, 2013, Job No. 50 was the only job in process. The production data incurred prior to January 1 on this job were as follows: direct materials - $20,000 and direct labour – 320 hours.
As of January 1, 2013, Job No. 49 had been completed and was part of the finished goods inventory. The production data for this job were as follows: direct materials - $30,000 and direct labour – 600 hours. There was also a $15,000 balance in the Raw Materials Inventory account on January 1.
During the month of January, Garcia Manufacturing began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold during the month for $122,000 and $158,000, respectively. The following additional costs incurred during January:
• Purchased additional raw materials of $90,000
• Incurred manufacturing overhead costs as follows: indirect materials - $17,000; indirect labour - $15,000; depreciation expenses - $19,000; and electricity - $20,000.
2023-04-06