Question 1: Process Costing (20 marks in total) Lake Surf Company uses an automated process to clean and polish its merchandise items. For March 2017, the company conducted the following activities:...

Title page
Running Head ; ACC512 - Management Accounting for Costs & Control
Assessment item 2
TABLE OF CONTENTS
SR.
NO.
Particulars Page no.
Question 1: Process Costing
1a. The number of equivalent units 1
1b. Cost per equivalent unit 2
1c. Ending work in process inventory 2
1d. Cost of normal and abnormal spoilage 3
1e. Cost of goods completed and transferred out during March, 2017 3
Question 2: Budget
2a. Preparation of production budgets in units for January and February 4
2b.
Preparation of materials usage budget in kilograms and dollars for
January
4
2c.
Preparation of materials purchases budget in kilograms and dollars
for January
5
2d.
Explaining some benefits to an organization of preparing an
operating budget
5
Question 3: Variance Analysis
3a. Calculate and show flexible budget variance for each cost item. 6&7
3b. Calculation of Various Variances 8 &9
Question 4: Relevant Costs and Decision Making
4a. Finding out relevant Cost 10
4b. Explaining the acceptance or rejection of special offer 10
4c. Relevant cost of accepting the special offer 11
4d. Two Potential Problems 12
Question 5
Balanced Scorecard 13,14 & 15
References 16
Page No. 1
Solution of 1
st
Question
1a. the number of equivalent units
Equivalent Units
Flow of Production Physical
Units
Direct
Materials
Conversion
costs
Work in Process , Beginning 3,000
Started During Current Period 12,000
To account for 15,000
Good Units completed and transferred out
during
Current Period (9000 *100%), (9000 *100%)

9,000 9,000 9,000
Normal Spoilage (15000 *5%) = (750*100%),
(750*100%)
750 750 750
Abnormal Spoilage (15000 – 9000 -250 -5000) = 250
(250*100%), (250*100%)
250 250 250
Work in Process, Ending (5000 *100%), (5000*60%) 5,000 5,000 3,000
Accounted for 15,000
Equivalent units 15,000 13,000
Page No. 2
1b. Cost per equivalent unit
Total
Production
Costs
Direct
Materials
Conversion
costs
Work in Process , Beginning 2,585 2,100 485
Costs added in current Period 19,045 9,000 10,045
Total Costs to account for 21,630 11,100 10,530
Cost incurred to date (A ) 11,100 10,530
Equivalent Units ( B ) 15,000 13,000
Cost Per Equivalent Unit ( A / B ) .74 .81
1c. ending work in process inventory
Flow of Production Physical Units Direct Materials Conversion costs
Work in Process, Ending
(5000 *100%), (5000 *60%)
5,000 5,000 3,000
Cost of ending Inventory
(5000 *.74) , (3000*.81)
3,700 2,430
Page No. 3
1d. Cost of normal and abnormal spoilage
Total Production Costs Direct Materials Conversion
costs
Total
Normal Spoilage in units ( A ) 750 750
Cost Per Unit ( B ) .74 .81
Cost of Normal Spoilage ( A * B ) = ( C ) 555 607.5 1,162.5
Abnormal Spoilage in units (D ) 250 250
Cost Per Unit ( E ) .74 .81
Cost of Abnormal Spoilage ( D* E ) = ( F ) 185 202.5 387.5
Total Cost ( C + F ) 740 810 1,550
1e. Cost of goods completed and transferred out during March, 2017
Total Production Costs Direct Materials Conversion
costs
Total
Good Units completed and transferred ( A ) 9,000 9,000
Cost Per Unit ( B ) .74 .81
Cost of Good Units completed and
transferred ( A*B )
(9000 * .74) , (9000*.81)
6,660 7,290 13,950
Page No. 4
Solution of Question 2: Budget
2a. Preparation of production budgets in units for January and February
Production Budget
Particulars January February
Budgeted Unit Sales ( A ) 48,000 84,000
Add Desired Ending inventory (84000 +60000*25%),
(60000 +72000*25%) (B )
99,000 78,000
Total Estimated Units Required ( A + B ) = ( C ) 147,000 162,000
Less finished Goods Beginning Inventory ( D ) (69,000) (99,000)
Units to be produced ( C – D ) 78,000 63,000
2b. Preparation of materials usage budget in kilograms and dollars for January
Direct Material Budget in Kilograms and in Dollars
Particulars January
Units to be produced ( A ) 78,000
Per Unit ( B ) 2
Direct Material usage Budget in Kg ( A * B ) = ( C ) 156,000
Direct Material to be used this period (156000 *20) 3,120,000
Page No. 5
2c. Preparation of materials purchases budget in kilograms and dollars for January
Direct Material Budget in Kilograms and in dollars
Particulars January
Quantity of Direct Material to be used ( A ) 156,000
Add Desired Ending inventory (126000*40%) ( B ) 50,400
Total Requirements ( A + B ) = ( C ) 206,400
Less Raw Material Beginning Inventory (156000*20%) ( D ) (31,200)
Purchases to be made in Kg ( C –D ) 175,200
Purchases in dollars (175200 *20) 3,504,000
2d. Explaining some benefits to an organization of preparing an operating budget
Budget is considered as the backbone of the company. Various types of budgets are prepared
such as sales budget, production budget, purchases budget, operating budget etc. On the basis of
sales budget other budgets are prepared. The following are the benefits
1) The track of the entire business is kept by Operating budget because it tells what the cash
outflows are and what the sources of cash inflows are.
2) The financial responsibilities on manager is put by the operating budgets because it tells
the managers in advance what expenses they have to incur in a month and therefore, it
becomes the responsibility of the manager to put the money set aside for covering those
expenses.
3) The operating budgets are liberalized instead of restricting. It helps in building reserves
so that in future if the business suffers any setback it can easily overcome with those
problems.
4) Another advantage from operating budget is that it attracts the investment from the
potential investors because they know that business will operate with in their budget.
Page No. 6
Solution of 3
rd
Question
3a. Calculation of flexible budget variance for each cost item.
...