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REQUIRED:.

Complete the following questions. Please ensure the work is your own. Students may be selected to justify their answers verbally in an interview situation.

QUESTION 1                (15 marks)

Azzurri Italia mass produces identical reclining chairs (“recliners”). Every recliner passes through several departments, including the assembly department. The process-costing system at the firm has a single direct-cost category (direct materials) and a single     indirect-cost category (conversion costs). All direct materials are added at the beginning of  the process. Conversion costs are added evenly during the assembly department’s process.

Azzurri uses the FIFO method of process costing. Consider the following data for the assembly department in March 2023:

Work in process, March 1a          Started during March 2023        Completed during March 2023  Work in process, March 31b       Total costs added during March

2023

Physical Unit

(Couches)

120

1,020

?

240

Direct

Materials

$3,060

$35,700

Conversion Costs

$312

$23,088

_________________________________________________

a  Degree of completion for conversion costs, 50%.

b Degree of completion for conversion costs, 30%.

REQUIRED:

A)  Under what circumstances do organisations normally choose to use process costing rather than job costing? How does this apply to Azzurri? (3 marks)

B)  Summarize total assembly department costs for March 2023, and assign them to units completed (and transferred out) and to units in ending work-in-process inventory using the FIFO method of process costing (all 5 steps in process costing). (10 marks)

C)  What is the main advantage of using the FIFO method of process costing over the weighted average method? (2 marks)

QUESTION 2                  (20 marks)

Erling & Kevin Ltd, a manufacturer of soccer balls, makes both high-end balls for professional and semi-professional use and regular balls for the amateur and children’s markets. The firm is organised into two operating divisions – one for each generic product   type and two support departments (human resources and information systems). Balls made in the professional division are hand-stitched whereas this is done by machines in the regular division. Each operating division conducts merchandising and marketing operations independently and produces a variety of different types of soccer balls.

Erling & Kevin Ltd uses the number of employees to allocate human resources costs and IT depreciation expenses to allocate information systems costs to the operating divisions. In terms of allocation of overheads to products, the company does not use a full   ABC system but does try to choose an allocation basis for each operating division that best reflects the nature of what causes overhead costs. However at present information is limited to labour hours and machine hours. The following data is available for April 2023:

Budgeted (overhead) costs incurred before any

inter-department cost allocations

SUPPORT                              OPERATING

DIVISIONS                               DIVISIONS

Human      Information       Professional      Regular

Resources      Systems

$258,900       $449,600           $1,073,869     $2,395,710

Support work supplied by human

resources department

Budgeted number of employees

Support work supplied by information systems department

Budgeted IT depreciation

expense

(in $)

3

35,000

5

97,500

14

159,500

9

187,000

Budgeted Labour hours

Budgeted Machine hours

480

-

800

-

3,080

2,500

1,440

7,200

REQUIRED:

A)  Define the main features of the three methods of allocating support department costs. (3  marks)

B)  Allocate the support departments’ costs (human resources and information systems) to the two operating departments using the reciprocal method. (7 marks)

C)  Using the most appropriate basis for allocation calculate the overhead cost for the signature product of the professional division (“Pro-Shot”) and the regular division (“Sure-Shot”), given the following additional information:

(7 marks)

D)  What information does the company need to move to a full ABC system to allocate divisional overhead costs to products and would you advocate they do so? (3 marks)

QUESTION 3              (15 marks)