Part B: Calculation Based Questions. Answer any 4 Questions.

(15 Marks x 4 = 60 Marks)

Q1. Job Costing

Optic Vision Pty Ltd, a manufacturer of fibre-optic communications equipment, uses a job costing system. Since
the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours
using a predetermined overhead rate. The current annual rate estimation is based on estimated manufacturing
overhead costs of $3,500,000 and an estimated cost driver level of 70,000 machine hours. The labour is paid at
the standard rate of 20 per hour.

Summarised data as at 30 November are presented in the following table. No New Jobs were started in
December. Job numbers T11-007, N11-013 and N11-015 were completed during December. All completed jobs
except N11-015 had been sold to customers by the close of business on 31 December at a margin of 50%. The
material used on the jobs in the month of December is summarised in the material requisition document. The
Labour time record is summarised int labour card document. The machine hours used is summarised in machine
usage document.

The actual MOH expenses for the month of December include factory supervisor salary of $120,000, Material
handling and movement cost of $130,000, Plant insurance cost of $60,000, Plant Rent of $350,000, Plant
Electricity cost of $90,000 and Plant Depreciation of $150,000.

Details of WIP as on 30th November 2XXX

Job B’Forward Direct Direct Machine
Number Cost Materials Labour hours
  $ $ $ Hrs
T11-007 261,000 4,500 13,500 300
N11-013 165,000 12,000 36,000 1000
N11-015 0 76,800 80,100 1400
D12-002 0 113,700 60,000 2500
D12-003 0 78,000 50,400 800
  426,000 285,000 240,000 6000

Details of material requested in Dec 2XXX Details of labour Cards in Dec 2XXX
From Material From Labour Time Machine Hours
Job Number Requisition dockets Job Number Sheets a)
↓ $ ↓ HRS Hrs
T11-007 4,500 T11-007 500 100
N11-013 6,000 N11-013 400 400
N11-015 35,200 N11-015 900 1500
D12-002 18,300 D12-002 200 1000
D12-003 50,000 D12-003 200 2000
Factory Overheads 20,000 Factory Overhead 100 -----

Manufacturing OH Application Rate (1 Marks)

Application Rate

50 per machine hour

B. Prepare a summary of Job Costs for the month of December (8 Marks)

Job # B’Forward Cost ($) DM Used ($) DL Used ($) MOH Applied ($) Total Cost ($)

T11-007 294000 4500 10000 5000 313500

N11-013 263000 6000 8000 20000 297000
N11-015 226900 35200 18000 75000 355100
D12-002 298700 18300 4000 50000 371000
D12-003 168400 50000 4000 10000 322000
Total 1,251,000 114,000 44000 250000 1,659,000

C. Calculate the adjustment to COGS (2 Marks)

MOH Applied 250000

922000
Actual MOH

Adjustment to COGS +672000

D. Compute the following for the month of December (4 Marks)

915750
Revenue

610500 or 1,282,500 (Adjusted)

COGS

693400
Closing WIP Inventory

355100
Closing FG Inventory
Q2. Process Costing

Ritchie Company has two departments. Its first department (the Melting Department) the DM is added at
different stage of the process and hence the represented as % completed with respect to material. The
conversion cost is incurred evenly throughout the production process. The table below shows the following data
for the month of April:

Work in process, beginning:

Units 400

Stage of completion with respect to materials 60%

Stage of completion with respect to conversion 85%

Costs in the beginning inventory:

Materials cost $170

Labour cost $160

Overhead cost $300

Units started into production during the month 1,100

Units completed and transferred out 1,400

Costs added to production during the month:

Materials cost $1,300

Labour cost $800

Overhead cost $1,700

Work in process, ending:

Units in process ???

Stage of completion with respect to materials 70%

Stage of completion with respect to conversion 80%

Prepare the T ledger for the WIP Inventory showing the cost transferred to next dept using Weighted average
method. (15 marks)

1. Draw the Cost Flow Diagram to illustrate how cost is incurred in Moulding Department. (2 Marks)
2. Prepare and complete the T-ledger (8 Marks)

WIP - Dept. A (Mixing) 

Units & % $  
 
DM  170
 
400 CC  460    
Bal (begin)
(60%,85%) TI  -  
Total 630 Units $
DM  1300 DM 1400
Commenced CC  2500 Completed 1400 CC 2800
1100
(Transferred in) TI  - (Transferred out) TI -
Total  3800 Total  4200
DM 70  
CC 160  
100 (70%,
Bal (end)  
80%) TI -
  
Total 230  

3. Calculate the total cost to be assigned (1 mark)

Costs Physical Units & % DM CC TI

B-Forward 400 170 460
Current 1100 1300 2500
Total 1500 1470 2960

4. Calculate the Equivalent Units (EU) (2 Marks)

Costs Physical Units & % DM CC TI

Completed 1400 (100%) 1400 1400

Closing 100 (70%, 80%) 70 80
Total Units 1500 1470 1480

5. Calculate the Weighted Average Cost per Equivalent Units (1 Mark)

DM Cost per EU CC per EU TI Cost Per EU

Cost per EU 1 2

6. Assign the cost to completed and closing units (1 Mark)

Costs Physical Units & DM CC TI

%
Completed 1400 1400 2800
Closing 100 70 160

Q3. Activity Based Costing (15 Marks)

Sander Company produces mathematical and financial calculators and operates at capacity. Mathematical
Calculator is sold for $10 and Financial Calculator is sold for $15. Data related to the two products are
presented here:
Description Mathematical Financial
Production Units 45,000 90,000
DM Cost ($) 180,000 360,000
DL Cost ($) 90,000 180,000
Manufacturing Labour Hrs 4500 9000
Machine Hours 30,000 60,000
Number of Production Runs 45 45
Inspection Hours 1200 600

Total pooled manufacturing overhead costs are as follows:

Cost Pool Total Cost
Machining Cost $360,000
Set up Cost $108,000
Inspection Cost $117,000

1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost
application rate.
MOH Cost Allocation Base Allocation Rate
Machining Machine Hrs
360000 $4/Machine Hour
(90000)
Setup Production Runs
108000 $1200/Production Run
(90)
Inspection Inspection Hours
117000 $65/inspection Hr
(1800)

2. Calculate the Total Manufacturing Overhead cost per unit.

MOH Cost Mathematical Financial

Machining Applied 120000 240000

Set up Applied 54000 54000

Inspection Applied 78000 39000

Total MOH Applied 252000 333000

MOH Per Unit $5.6 $3.7

3. Calculate the total cost per unit.

Cost Item Mathematical Financial

Direct Material Per Unit $4 $4

Direct Labour Per Unit $2 $2

MOH Per Unit $5.6 $3.7

Total Cost Per Unit $11.6 $9.7

4. What is conclusion and recommendation with respect to these two products.

Product Conclusion Recommendation
Mathematica Costs higher than the Selling price due to Increase selling price.
l under costing using traditional method.
Hence current making loss.

Financial Costs much lower than the traditional Keep the selling price same.
costing.
Q4. Master Budgets

La Casa Division of Peters produces an intricate component used in peters major product line. The selling price is
$90 currently, but it has been revised to $100 from the month of July. Recently the divisional manager has been
tasked with preparation of the operational budgets for the 3 rd Quarter (July-Aug-Sep). 50% of the sales revenue is
collected in the same month. 40% is collected in the month following the sale and 10 % in the next month. The
budgeted sales for the May to October are as follows:

Projected Sales:

Month May June July Aug Sept Oct Nov

Sale 4000 4000 5000 6000 7000 7000 8000

The firm uses three raw material for the production RM101, RM211 and RM242. The desired ending inventory of
all the Direct Material is 90% of amount sufficient to produce the next month’s units. The details of the Raw
material is as follows:

Raw Material Units of RM per unit of Cost per unit Inventory as on 30th June
Finished Product
RM101 6 2 35,000
RM211 4 3 30,000
RM242 2 1 15,000

The Desired monthly ending units of the finished product is 80% of the next month’s sales. Production process is
divided into three stages and the labour time required is provided in the labour data sheet below:

Process Labours hours per unit of finished Cost per hour of labour
product
Forming 0.5 $50
Assembly 1.0 $40
Finishing 0.5 $30

Requirement.

a) Sales Budget (2017-2018) (1 Marks)

  May June July Aug Sept Oct Nov

Sales Units 4000 4000 5000 6000 7000 7000 8000
Selling Price 90 90 100 100 100 100 100
Revenue 360000 360000 500000 600000 700000 700000 800000

b) Production Budget for 2017 (2 Marks)

  June July August Sept Oct

Opening FG 3200 4000 4800 5600 5600
Units Sold 4000 5000 6000 7000 7000
Closing FG 4000 4800 5600 5600 6400
Units Produced 4800 5800 6800 7000 7800
C) RM101 DM Budget for 2017 (Units) (2 Marks)

  July Aug Sep Oct

DM Opening 35000 36720 37800
DM Used 34800 40800 42000 37200
DM Closing 36720 37800 46800
DM Purchased 36520 41880 51000
DM Purchase Value ($) 73040 83760 102000

D) RM211 DM Budget for 2017 (Units) (2 Marks)

  July Aug Sept Oct

DM Opening 30000 24480 25200
DM Used 23200 27200 28000 31200
DM Closing 24480 25200 28080
DM Purchased 17680 27920 30880
DM Purchase Value ($) 53040 83760 92640

E) RM242 DM Budget for 2017 (Units) (2 Marks)

  July Aug Sept Oct

DM Opening 15000 12240 12600
DM Used 11600 13600 14000 15600
DM Closing 12240 12600 14040
DM Purchased 8840 13960 15440
DM Purchase Value ($) 8840 13960 15440

F) DL Budget for 2017 (3 Marks)

  July Aug Sept Oct

Forming DL Used (Hrs) 2900 3400 3500
Assembly DL Used (Hrs) 5800 6800 7000
Finishing DL Used (Hrs) 2900 3400 3500
Forming DL Used ($) 145000 170000 175000
Assembly DL Used ($) 232000 272000 280000
Finishing DL Used ($) 87000 102000 105000
Total DL used ($) 464000 544000 560000

F) Collections (3 Marks)

  May June July Aug Sept

Sale 360000 360000 500000 600000 700000
50% Collection 180000 180000 250000 300000 350000
40% Collection 144000 144000 200000 240000
10% Collection 36000 36000 50000
Total     430000 536000 640000
Q5. Support Department Cost Allocation

Delta Printers provides printing services to General and Corporate clients. Delta has two support
departments—Design services (DS) and Administrative Services (AS)—and two operating departments—
General Clients and corporate clients. For the first quarter of 2017, Deltal cost records indicate the
following:
Support Department Revenue Department
Design Services Administrative General Clients Corporate clients
(DS) Services (AS) (GC) (CC)
Cost $800,000 $600,000 $1,600,000 $1,200,000
Number of Designs 80 240 180
Developed
No of 200 1400 2400
Administrative
Services provided

A. Allocate the support departments’ costs to the operating departments using the step-down method. (6 Marks)
B. Allocate the support departments’ costs to the operating departments using the Reciprocal method. (9 marks)
Q6. Decision Making Relevant Information

Janet’s Bakery is thinking about replacing the convection oven with a new, more energy-efficient model.
Information related to the old and new ovens follows:
Item Old Oven New Oven
Original Cost $21,000 $40,000
Accumulated Depreciation $6,000 NA
Current Book Value $15,000 NA
Current Disposal Value $10,000 NA
Removal/Installation Cost $1,000 $2,000
Annual Operating Cost $12,000 $6,000
Useful Life 7 Years 5 Years
Current Age 2 Years 0 Years
Remaining Useful Life 5 Years 5 Years
Terminal Disposal Value $4,000 $10,000

Ignore the effect of income taxes and the time value of money.

Required

a) Identify and list 3 information that is relevant and explain why it is relevant for the decision making (3
Marks).

Information Explanation
Current Disposal Value

Annual Operating Cost

Terminal Disposal Value

Removal & Installation Cost

b) Identify and list 3 information that is irrelevant and explain why it is relevant for the decision making
(3 Marks).

Information Explanation
Original Cost

Current Book Value

Useful Life
c) Should Janet’s Bakery purchase the new oven? Provide calculations in support of your answer (6
Marks).

d) At what purchase price would Janet’s Bakery be indifferent between purchasing the new oven and
continuing to use the old oven? (3 Marks)