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ACC00146 - 2016 S2 ASSIGNMENT 2 (20 marks) QUESTION 1 (5 MARKS)
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ACC00146 ? 2016 S2

ASSIGNMENT 2 (20 marks)

QUESTION 1 (5 MARKS)

Russell Company has the following projected account balances for June 30, 20X5:

   Accounts payable          $40,000               Sales                         $800,000

   Accounts receivable      100,000               Capital stock              400,000

   Depreciation, factory      24,000               Retained earnings                  ?

   Inventories (5/31 & 6/30) 180,000             Cash                             56,000

   Direct materials used     200,000               Equipment, net           240,000

   Office salaries                 80,000               Buildings, net             400,000

   Insurance, factory             4,000               Utilities, factory           16,000

   Plant wages                   140,000               Selling expenses           60,000

   Bonds payable               160,000               Maintenance, factory   28,000

Required:

a.         Prepare a budgeted income statement for June 20X5. (1 mark)

b.         Prepare a budgeted balance sheet as of June 30, 20X5 (1 mark)

c.         How do we use computer-based budgeting in sensitivity analysis? (1.5 marks)

d.         Explain how the choice of the type of responsibility center affects managers? behaviour. (1.5 marks)

QUESTION 2 (5 MARKS)

The Alex Miller Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:

Budgeted costs of the operating the plant

for 10,000 to 20,000 hours:

      Fixed operating costs per year                           $240,000

      Variable operating costs                                              $10  per hour

Practical capacity                                                        20,000  hours per year

Budgeted long-run usage per year:

      Lamp Division            800 hours × 12 months =     9,600  hours per year

      Flashlight Division      450 hours × 12 months =     5,400  hours per year

Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June.

Required: (1 MARK EACH)

a.    If a single-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?

b.   For the month of June, if a single-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.

c.    If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?

d.         For the month of June, if a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

e.         Explain which method is the most practical?

QUESTION 3 (5 MARKS)

a. Oregon Lumber processes timber into four products. During January, the joint costs of processing were $280,000. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows: (2 marks)

Sales Value at

Product

Board feet

Splitoff Point

Ending Inventory

2 x 4's

6,000,000

$0.30 per board foot

500,000 bdft.

2 x 6's

3,000,000

0.40 per board foot

250,000 bdft.

4 x 4's

2,000,000

0.45 per board foot

100,000 bdft.

Slabs

1,000,000

0.10 per board foot

50,000 bdft.

Required:

Determine the value of ending inventory if the sales value at splitoff method is used for product costing. Round to 3 decimal places when necessary.

b. Silver Company uses one raw material, silver ore, for all of its products. It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods. (3 marks)

Required:

Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?

QUESTION 4 (5 MARKS)

When cost-based transfer pricing is used between subunits of a large organization, describe how to avoid making suboptimal decisions. Your discussion should be supported by research and real world examples.

  1. THE END

ACC00146 ? 2016 S2

 

ASSIGNMENT 2 (20 marks)

 

QUESTION 1 (5 MARKS)

 

Russell Company has the following projected account balances for June 30, 20X5:

 

Accounts payable

 

$40,000

 

Accounts receivable 100,000

 

Depreciation, factory

 

24,000

 

Inventories (5/31 & 6/30)180,000

 

Direct materials used 200,000

 

Office salaries

 

80,000

 

Insurance, factory

 

4,000

 

Plant wages

 

140,000

 

Bonds payable

 

160,000

 


 

Sales

 

$800,000

 

Capital stock

 

400,000

 

Retained earnings

 

?

 

Cash

 

56,000

 

Equipment, net

 

240,000

 

Buildings, net

 

400,000

 

Utilities, factory

 

16,000

 

Selling expenses

 

60,000

 

Maintenance, factory 28,000

 


 

Required:

 

a.

 

Prepare a budgeted income statement for June 20X5. (1 mark)

 

b.

 

Prepare a budgeted balance sheet as of June 30, 20X5 (1 mark)

 

c.

 

How do we use computer-based budgeting in sensitivity analysis? (1.5 marks)

 

d.

 

Explain how the choice of the type of responsibility center affects managers?

 

behaviour. (1.5 marks)

 

QUESTION 2 (5 MARKS)

 

The Alex Miller Corporation operates one central plant that has two divisions, the

 

Flashlight Division and the Night Light Division. The following data apply to the coming

 

budget year:

 

Budgeted costs of the operating the plant

 

for 10,000 to 20,000 hours:

 

Fixed operating costs per year

 

$240,000

 

Variable operating costs

 

$10

 

Practical capacity

 

20,000

 

Budgeted long-run usage per year:

 

Lamp Division

 

800 hours × 12 months = 9,600

 

Flashlight Division 450 hours × 12 months = 5,400

 


 

per hour

 

hours per year

 

hours per year

 

hours per year

 


 

Assume that practical capacity is used to calculate the allocation rates. Further assume

 

that actual usage of the Lamp Division was 700 hours and the Flashlight Division was

 

400 hours for the month of June.

 

Required: (1 MARK EACH)

 


 

a. If a single-rate cost-allocation method is used, what amount of operating costs will be

 

budgeted for the Lamp Division each month? For the Flashlight Division each month?

 

b. For the month of June, if a single-rate cost-allocation method is used, what amount of

 

cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual

 

usage is used to allocate operating costs.

 

c. If a dual-rate cost-allocation method is used, what amount of operating costs will be

 

budgeted for the Lamp Division each month? For the Flashlight Division each month?

 

d.

 

For the month of June, if a dual-rate cost-allocation method is used, what amount

 

of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume

 

budgeted usage is used to allocate fixed operating costs and actual usage is used to

 

allocate variable operating costs.

 

e.

 


 

Explain which method is the most practical?

 


 

QUESTION 3 (5 MARKS)

 

a. Oregon Lumber processes timber into four products. During January, the joint costs of

 

processing were $280,000. There was no inventory at the beginning of the month.

 

Production and sales value information for the month is as follows: (2 marks)

 

Sales Value at

 

Board

 

Product

 

feet

 

2 x 4's 6,000,000

 

2 x 6's 3,000,000

 

4 x 4's 2,000,000

 

Slabs

 

1,000,000

 


 

Splitoff Point

 

$0.30

 

0.40

 

0.45

 

0.10

 


 

per

 

per

 

per

 

per

 


 

board

 

board

 

board

 

board

 


 

foot

 

foot

 

foot

 

foot

 


 

Ending Inventory

 

500,000

 

250,000

 

100,000

 

50,000

 


 

bdft.

 

bdft.

 

bdft.

 

bdft.

 


 

Required:

 


 

Determine the value of ending inventory if the sales value at splitoff method is used for

 

product costing. Round to 3 decimal places when necessary.

 

b. Silver Company uses one raw material, silver ore, for all of its products. It spends

 

considerable time getting the silver from the ore before it starts the actual processing of

 

the finished products, rings, lockets, etc. Traditionally, the company made one product at

 

a time and charged the product with all costs of production, from ore to final inspection.

 

However, in recent months, the cost accounting reports have been somewhat disturbing to

 

management. It seems that some of the finished products are costing more than they

 

should, even to the point of approaching their retail value. It has been noted by the

 

accounting manager that this problem began when the company started buying ore from

 

different parts of the world, some of which require difficult extraction methods. (3 marks)

 

Required:

 


 

Can you explain how the company might change its accounting system to reflect the

 

reporting problems better? Are there other problems with the purchasing area?

 

QUESTION 4 (5 MARKS)

 

When cost-based transfer pricing is used between subunits of a large organization,

 

describe how to avoid making suboptimal decisions. Your discussion should be supported

 

by research and real world examples.

 


 

THE END

 


 

 







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