AFM112Assignment2, Trimester 2 2020
Important Notes:
1.Assignment2will be marked ‘Out of40’, and then scaled down to ‘out of 20’ as per the allocated weight for the assessment task.2.DO NOT reproduce questionsin your assignment;onlyprovide your responses to the questions with all necessary calculations/workings).3.All questions are independent of one anotherunless clearly indicated otherwise.
Question 1(10marks –2markseach)
You are working as Management Accountant atSydney Sussex Street (SSS)Company. Thecompany’s 2019 books reveal the following pieces of information:
DirectLabor(DL)cost- Budgeted
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$538,600
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Direct Labor (DL) cost - Actual
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$548,100
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Manufacturing overhead(MOH)costs- Budgeted
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$451,100
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Manufacturing overhead (MOH) costs - Actual
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$439,100
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Direct Labor (DL)Hours- Budgeted
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29,100
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Direct Labor (DL)Hours- Actual
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28,300
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SSS’s Chief Management Accountant (CMA) asks you for the following information (‘a’ to ‘e’).
Required:Using the2019information in the above table, work out the following information for onward submission to the CMA(Round offall final answers to one decimal place):
a) Budgeted MOHrateper unit of the cost driver if DLcostis usedas theMOH costallocation base
b) Budgeted MOH rate per unit of the cost driver if DL hours is used as the MOH cost allocation base
c) The MOH allocatedamount when DLcostis used as the MOH cost allocation base
d) The MOH allocated amount when DL hours is used as the MOH cost allocation base
e) The MOH Over- or Under-appliedamountwhen DL cost is used as the cost allocation base.
Question 2(5marks –2.5markseach)
i. Describein your own words how MOH is under-applied and what are the underlying reasons?
ii. Assumea company adjusts its under-applied MOH tocost of goods sold. Explainin your own wordswhyCost of Goods Sold needs to be increased (debited) when adjusting anunder-applied MOH amount?
Question3:(10 marks – 4 mark for ‘a’ and 6 marks for ‘b’)
Sydney Sussex Street (SSS)Companyproduces designer machines for stitching designershirts. The companyresorts toactivity-based costing(ABC) system in applying it MOH/Indirect costs to output. SSS’s Management Accountant identifiedfourmajoractivitiesin the company’s manufacturing process and she budgeted their respective costs for the month of December 2019 as given in the following table:
Activity
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Total Budgeted Cost
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Allocation Base
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Handling ofMaterials
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$156,900
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Number of parts
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Setting up ofMachine
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$117,800
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Number of setups
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Assemblingof parts
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$124,900
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Number of parts
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Packagingof completed output
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$109,700
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Number of finished units
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SSS has budgeted toproduce2,300designer machinesin the month of December2019. The machines arebudgetedto use31,700 partsin totalandwillneeda total of21machinesetups.
Required:Work out the following(Round offcalculated figures to two decimal places):
a)The budgetedcost allocation rate for eachof the fouractivities.
b)Thetotalmanufacturing costofthe entire output of thedesignermachineswhen each machine uses $201 worth ofdirect materialsand$59 worth of direct labor.
Question 4:(5marks – 2.5markseach)
Describein your own wordshow overhead costsare allocated to outputundertheconventional/traditional/Simple costing system and how is it different undertheactivity-based costing system(Word limit:between 120 and 150 words).
Question5:(10 marks –2 marks for ‘a’ and 8 marks for ‘b’)
Sydney Sussex Street (SSS) Companymanufacturescar steering wheelsthat it uses in the production of its designer motorcycles. WhenSSS produces11,900steering wheels, thecostsper steering wheelare:
Direct materials(DM)$1.86
Direct manufacturing labor(DL)$4.10
Manufacturing overhead/Indirect costs (Variable)$2.60
Manufacturing overhead/Indirect costs (Fixed)$2.70
Total $11.26
ArmidaleParts Manufacturing (APM) Company recentlyoffered toproduce andsell toSSS11,900car steering wheels of similar specificationsfor $10.00 per unit.If SSS accepts the offer, it could utilize the manufacturing facilitiessaved to produce tow bars that would result in a net savings of $13,900. In addition,SSS will be able to eliminate/avoid$1.75per unit ofthefixed manufacturing overheadthat it normally incurs when producing the steering wheels in-house.
SSS is currently evaluating as to whether it should accept APM’s offer or reject it.
Required:
a.Work outSSS’spersteering wheelmanufacturingcoststhat are ‘relevant’ to the decision under consideration?
b.On financial considerations alone, shouldSSS accept APM’s offer or reject it?By how much amount is the chosen alternative lucrative to SSS?Show all necessary calculations.For this requirement use the following format/table to work out your answer(Hint:Under the ‘Effect of Buyingdecision’ column, for each row, indicate ‘decrease in cost’ asapositive figure and ‘increase in cost’ as a negative figure; this will help you determine whether the ‘net effect’ of the ‘buy’ decision was costlier or cheaper for SSS):
Make Buy Effect of BuyingDecision
Purchasecost………………………………….$ $
Savings in space………………………………$ $
Direct materials……………$ $
Direct mfg. labor…………..$ $
Variable overhead…………$ $
Fixed overhead saved……..$ $
Totals……………
Your decision, based on your calculations/working out:
The best alternative is to…..