ACC 322 - Managerial Accounting Final Examination The exam is to be completed individually. The exam can be completed with the use of a calculator, as well as any reference material. Ignore the effect...

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ACC 322 - Managerial Accounting Final Examination The exam is to be completed individually. The exam can be completed with the use of a calculator, as well as any reference material. Ignore the effect of income taxes in your analysis. Name: k Student ID: k Part 1 (25 marks) Midwest Industries Ltd. is a manufacturing company in Central Alberta that produces a wide range of attachments to heavy equipment. You have been hired by the CFO of Midwest as a controller into their bucket attachment division, these buckets are generally custom made and are attached onto a variety of loaders and excavators. The CFO is wondering about various costing systems that could potentially be used and asks for your input. The CFO is particularly curious about activity-based costing, job costing & process costing. She is also wondering if they should be using actual or budgeted costs in their costing system & what the benefit is to either. The CFO is currently unsure what system is in use & unfortunately due to an untimely death of the predecessor controller, you are unable to interview him for advice. The CFO has indicated that she is very worried about under costing there products as they have numerous departments and want to make sure they are pricing everything appropriately. Through research you determine the following about Midwest Industries • The typical job for Midwest is large in nature and customizable. Although there is a basic shell design for each bucket, customers choose different types of bottom (tapered or flat), bucket size & material (Light-weight, industrial strength, etc.). Midwest is willing to consider any modification in the design process • Costs are categorized as either direct or indirect/overhead or period within the specific manufacturing facility. There is an offsite head office, that you work at. The company uses FIFO for their direct materials. • The record keeping within the department is strong and the staff has indicated that if required they could track the overhead costs more specifically. • In the fall Midwest undertakes a significant budgeting process and budgets all major costs, including direct labour, direct materials & various individual overhead costs A typical job for Midwest looks like this: Job B115 Sales Price $68,000 Direct Manufacturing Labour $15,000 Direct Materials $24,000 Total Budgeted Manufacturing Overhead Costs $14,910,000 Direct Budgeted Manufacturing Machine Hours 21,000 Actual Machine Hours Job B115 30 hours Budgeted Machine Hours Job B115 32 hours Required: • Prepare a memo for the CFO regarding costing at Midwest Industries. The CFO is very unfamiliar with costing and therefore would like a summary of the three types of costing mentioned above (Job, Activity Based & Process) including the pros and cons of each type, and what type of organizations typically use the different types. Discuss the uses of actual or budgets costs in this process. As well the difference between direct, overhead & period costs. (maximum 1,000 words) • To support your analysis, prepare a summary calculation for the CFO for job B115. Please prepare the calculation under job costing. Additionally, explain to the CFO what additional information is needed for the job to be costed under Activity based costing & which category of expenses are different. Part 2 (20 marks) The CFO is very impressed with your costing memo & she is wanting your help on a second issue. The CFO indicates that she is working on developing compensation structures for the various departments and wants your advice. She is considering compensating managers based on departmental performance and is wondering what metrics she should be using that best reflects the performance of the department. The company’s philosophy is one of growth and departmental managers are empowered to make decisions on acquisitions. Midwest does not want to harm managers that take a chance on an acquisition. The CFO indicates that she has heard that the required rate of return & weighted cost of capital is 20%, but she’s not quite sure what that means. She is considering four compensation structures and wants your input on which one to pick. She is considering a year end bonus based on either, return on investment, residual income, economic value added or operating income. To help your analysis the CFO has provided you with a departmental income statement for two divisions the bucket & grappler divisions. (in thousands) Grappler Division Bucket Division Total sales 15,000 21,000 Total costs 12,300 18,100 Operating income 2,700 2,900 Current assets 300 200 Long-term assets 11,000 15,000 Total Assets 11,300 15,200 Current liabilities 3,000 8,000 Required: • Prepare a memo to the CFO that discusses the four mentioned compensation possibilities for the department discussing the pros and cons of each method & why the performance for each department would look different under the four methods. Be sure to discuss her comment regarding wanting managers to always look for investment opportunities and how each method handles that as well as providing an explanation on what rate of return & WACC are. Provide a recommendation to the CFO with what should be picked • To support your analysis please prepare a calculation of the of the four methods discussed above for each division Part 3 (20 marks) The CFO approaches you and wants to discuss a delicate matter. She indicates that they are looking at the possibility of outsourcing the rakes department as she believes that it is low performing. She has done some initial research and has found a manufacturer out of Vietnam that can provide these rakes for $39,000/each. She provides you with a departmental carve-out income statement from the rake’s division. The CFO also remarks that she believes she remembers from her management accounting class that there is a concept of avoidable cost & sunk cost that might play a role in this analysis, she is hoping you can explain that to her as part of your memo. Additionally, she is worried about a specific piece of machinery that is used in the rakes department that cost $3,500,000 to buy and would have no other uses, the CFO believes it could be sold for $120,000. Per 100 units sold Sales $ 4,500,000 Direct Materials 2,200,000 Direct Labour 1,000,000 Fixed expenses Salaries 400,000 Sales staff commissions 275,000 Rent 200,000 Amortization - specialized equipment 175,000 (cost is mentioned above) Training 115,000 Data processing 105,000 Insurance 75,000 Total Fixed Expenses 1,345,000 Net operating income (45,000) From your research you have determined the following: • The salaries are made up of 25% salaried management level employees & the rest are hourly wages from production staff. This department employees about 15 employees some of which are part-time • Commissions are paid strictly on the sales of rakes • Rent & data processing are allocated by head office • Training is to instruct new staff on the specialized piece of equipment • Insurance is 75% the rakes division share of Midwest’s general liability policy, the other 25% is specifically held for the specialized equipment, that can be cancelled with no penalty. Required: • Prepare a memo to the CFO that discusses her mentioned concerns regarding the avoidable and non-avoidable costs and why selling a product line with a negative operating income does not always make sense. Also discuss sunk costs & the specialized piece of equipment. In addition, provide some qualitative factors that need to be considered when deciding whether to outsource (maximum 1,000 words) • To support your analysis, prepare a calculation for the Rakes Division based on the above information Part 4 (10 marks) On your day off you are talking with a friend who mentions that she is looking into starting up a new business venture and wants your input. The friend is thinking about starting a small business she read about on the internet. The advertisement indicated that you would “be your own boss”, “only need to sell 10 units to breakeven” & “low fixed costs”. She says that it seems like an easy side gig but admits that she is unsure what breakeven point is & or even what a fixed or non- fixed (variable?) cost
Answered Same DayApr 23, 2021

Answer To: ACC 322 - Managerial Accounting Final Examination The exam is to be completed individually. The exam...

Nirav answered on Apr 24 2021
123 Votes
managerial accounting
ASSIGNMENT
Table of Contents
1. Answer Question of part 1 ........................................................................ 3
2. Answer Question of part 2......................................................................... 6
3. Answer Question of part 3 .........................................................................8
4. Answer Question of part 4..........................................................................11
5. References.................................................................................................
.13
Answer Part : 1
1.
First I explain the three different type of costing method use that is Job costing , Activity base costing and third one is process costing.
Job Costing :
· Job costing is method of recording manufacturing cost on job wise instead of process this is most efficient method for costing. Its related to job so in any company particularly work on job or project its use job costing method.
· Accountant can track record of costing on each job wise, maintaining data which is often more relevant to the operation of the business.
· Job costing generally use to track expense of creating a unique product. Due to fact that certain project such as construction required different operation, accountant use this methodology to trace the expenses of each job. This is most efficient methodology.
· So we can say job costing is method to use for particular job making all expenses are related with this Job only.
· Job costing involves the accumulation of all cost of material, labour, and overhead for specific job.
· Example of Job costing is appropriate for deriving the cost of construction a custom machine , design software programme, manufacturing of small batch of products.
· Its is mainly use to create specific job for example to develop any software any cost related to this job is whether its direct or indirect attributable to this job only.
· Job costing is mainly use in that industries where require various job to produce the product example in construction industries, heavily machine manufacturing company, furniture, designing.
· Example of industries use job costing. (1) Medical service business (2) Heavily machine manufacturing company (3) Software development company (4) Construction industries.
Activity Base Costing :
· Activity base costing method is accounting method to use find the total cost of activity necessary to make product.
· Its know as ABC this is costing method use by manufacturing company to total cost of of the product which allocated to activity wise to make the product.
· The basic feature of activity base costing its focus on activities as fundamental cost object. Its uses activities as the basis for calculating the cost of product or services.
· The ABC approach is more expensive than traditional approach of costing method.
· Its use in the industries where product passes through different activities.
· Disadvantage of activity base costing is not possible to divide some overhead cost as CFO salary on a pre product usage basis.
· Activity base costing mostly use in manufacturing industries its enhances the reliability of cost data. Its good method of costing which is more appropriate reliable method of costing. Hence producing nearly true cost and better classification the cost incurred by the company during its product process.
· Example to use activity base costing is in university to assess more precisely the cost of one unit of product Product means student. There are lot of indirect cost that need to be accounted for.
· Generally ABC method is use in manufacturing industries where product is required to be completed required different activity. This costing method is more reliable and appropriate costing method then the other costing method.
· In this costing method actual expense incurred direct expenses example Material cost, Labour cost its directly attributable to activity.
Process Costing :
· Process costing is term used in cost accounting to describe one method for collecting and assigning manufacturing cost to the unit produce. A processing cost system is used when nearly identical unit are mass produced.
· Its reliable costing method for manufacturing of product. Its costing method use for product possess through various process. Cost is ascertained base on the process of th product it is mainly used in manufacturing company.
· Process costing is used in manufacturing company to produce large no. of unit and pass through process its defined costing method of process direct expenses like material cost , labour cost required for process wise it is very useful costing method to control cost of the product.
· Example to use the process costing best example in textile industries product pass through spinning weaving colouring. Chemical industries.
· Process costing used mainly in manufacturing where unit are continuously mass produced through one or more process. Example of this include the manufacture of erasers, chemical or processed food.
· Important of process costing is that many companies engage in to keep track of whether their money is being spent in the production and distribution processes. It is very important that a company chooses the appropriate type of costing system for their product type and industries.
· In process costing method accountant use product process and each process required its cost also considered the wastage time and all other factor for making the product.
· It is costing method is process wise so direct expenses i.e material , Labour ascertained base on the process of the product so we can control the expenses base on the process of the product.
For this these three above costing method Job costing , activity base costing , and process costing firstly we prepare the budget for the...
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