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RMIT Classification: Trusted ASSESSMENT COVER SHEET EXAM DETAILS Course Code: ACCT1064 Course Description: Cost Analysis and Organisational Decisions Total number of pages (incl. this cover sheet): 4 ALLOWABLE MATERIALS AND INSTRUCTIONS TO CANDIDATES 1) Write your full name and student number on the answer booklet. 2) Commence each question on a new page. Carry out the instructions on the front cover of the exam script book and the front of this exam paper. 3) This assessment contains three questions. Attempt ALL questions and ALL parts of questions. 4) This assessment adds to 50 marks and comprises 50% of the total marks allocated in this course. To obtain a pass in this course, you must achieve at least 50 % overall in course assessment. Question 1 Amron Ltd has three production departments: M, N, and O and two service departments P and Q. The following particulars are available for the month of March 2020: Particulars Amount ($) Lease rental 35,000 Industrial power and fuel 420,000 Wages to supervisor of production departments 6,400 Electricity 5,600 Depreciation on machinery 16,100 Depreciation on building 18,000 Payroll expenses 21,000 Canteen expenses 28,000 Superannuation contribution 58,000 Further information regarding the above indirect expenses are as follows: Particulars M N O P Q Floor space (square meters) 1,200 1,000 1,600 400 800 Electricity connection points 42 52 32 18 18 Cost of machines ($) 1,200,000 1,000,000 1,400,000 400,000 600,000 Number of employees 48 52 45 15 25 Direct wages ($) 172,800 166,400 153,000 36,000 53,000 Horse power of machines 150 180 120 - - Working hours 1,240 1,600 1,200 1,440 1,440 Working hours multiplied by horsepower of machines provides a basis for allocating industrial power and fuel charges. Direct material amounts to 150% of direct wages. Required: (a) Calculate the total cost of the production and service departments after allocating the above listed indirect expenses to production and service departments using appropriate allocation bases. (12 Marks) (b) Recalculate the total cost of production departments after reallocating the cost of service departments to production departments based on reciprocal method (simultaneous equations method). The percentage of support provided by the service departments to the other departments is as follows: (8 Marks) Particulars M N O P Q Support provided by department P 30% 35% 25% - 10% Support provided by department Q 40% 25% 20 15% - (12 + 8 = 20 Marks) Question 2 Sata Ltd is a shoe manufacturer who has an operating profit of $25 per pair on selling price of $143 per pair. Sata Ltd is currently producing 6,000 pairs per annum which is 60% of the practical capacity. The cost per pair is as follows: Particulars Amount ($) Direct materials 35.00 Direct wages 12.50 Works overheads (50% fixed) 62.50 Administrative overheads 6.00 For the next year the manufacturer estimates the demand to remain at 6,000 pairs per annum. The manufacturer also anticipates that the fixed overheads to go up by 10% while the rate of direct labour and direct materials will increase by 8% and 6% respectively. The company incurs other fixed costs of $12,000 per annum which do not form part of the product costs. Due to the intense competition, Sata Ltd will not be able to increase the selling price of the shoes next year and will continue to sell the shoes at $143 per pair. Sata Ltd is approached by a large retailer to supply shoes on a onetime only special-order basis equating to 20% of practical capacity. Sata Ltd would like to earn an overall profit of $167,300 next year. Required: (a) Prepare marginal costing income statements showing operating profit for Sata Ltd. (from regular demand of 6,000 units per annum) for the current year and for the next year. (9.5 Marks) (b) Determine the minimum price per pair of shoes at which you would recommend Sata Ltd to accept the one time only special order? (5.5 Marks) (9.5 + 5.5 = 15 Marks) Question 3 Tsunamy Ltd. is a leading home appliances manufacturer. The company uses just-in-time manufacturing processes and holds no inventory. Manufacturing is done in batches of 150 units each which cannot be altered without significant cost implications. Although the products are produced in batches of 150 units, they are sold as single units at the market price. Due to fierce competition in the market, the company is forced to follow market price for each product. The following table provides the financial results of its four unique products. Particulars Alpha Beta Gamma Theta Total Units sold 210,000 250,000 260,000 250,000 Revenue $2,730,000 $4,625,000 $3,900,000 $3,250,000 $14,505,000 Less: Material cost $600,000 $1,820,000 $1,880,000 $1,000,000 $5,300,000 Less: Labour cost $800,000 $2,080,000 $1,280,000 $1,200,000 $5,360,000 Less: Overheads $800,000 $780,000 $320,000 $1,200,000 $3,100,000 Operating profit / (loss) $530,000 ($55,000) $420,000 ($150,000) $745,000 Since the company is concerned about loss in manufacturing and selling of two products, it has approached you to get a clear picture on its products and costs. You have conducted a detailed analysis whose findings are below: The overhead absorption rate of $2 per machine hour has been used to allocate overheads into the above product costs. Further analysis of the overhead cost shows that some of it is caused by the number of machine hours used, some is caused by the number of batches produced and some are product specific fixed overheads that would be avoided if the product were discontinued. Other general fixed overhead costs would be avoided only by the closure of the factory. Numeric details are summarised below: Particulars Amount ($) Amount ($) Machine hour related overheads 620,000 Batch related overheads 460,000 Product specific fixed overheads: · Alpha 500,000 · Beta 600,000 · Gamma 100,000 · Theta 220,000 1,420,000 General fixed overheads 600,000 Total 3,100,000 The other relevant information is as follows: Particulars Alpha Beta Gamma Theta Total Machine hours 420,000 370,000 150,000 610,000 1,550,000 Labour hours 100,000 260,000 160,000 150,000 670,000 Required: (a) Prepare a profitability statement that is more useful for decision making than the profit statement prepared by Tsunamy Ltd. (9 Marks) (b) Calculate the break-even volume in batches and also in approximate units for each of the four products. (6 Marks) (9 + 6 = 15 Marks) --- END OF ASSESSMENT --- ACCT1064 DEF Final Assessment (Melbourne), Semester 2, 2020