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MANAGEMENT ACCOUNTING FOR MANAGERS

 


 

Question 1

 

Golden Tech Access had no work in process inventory or finished goods Inventory at the

 

beginning of October. The company reported that Job GT1 and GT5 were conducted in the

 

month. Job GT1 was completed and sold at the end of the month and Job GT5 was incomplete.

 

The company uses direct labor hours as the basis of the predetermined manufacturing overhead

 

rate. The following additional information for both Job GT1 and Job GT5 in the month of

 

October is available:

 

RM

 

24,500

 

5

 


 

Estimated total fixed manufacturing overhead

 

Estimated total fixed manufacturing overhead per direct labor hours

 

Estimated total direct labor hours

 

Total actual total manufacturing overhead costs incurred

 


 

Direct materials

 

Direct Labor

 

Actual direct labor hours

 


 

Hours

 

3,700

 


 

43,000

 


 

Job GT1

 

RM

 

30,000

 

18,000

 


 

Job GT5

 

RM

 

21,000

 

6,000

 


 

Hours

 

2,900

 


 

Hours

 

700

 


 

Required

 

1. What is the company?s pre-determine manufacturing overhead rate?

 

(5 marks)

 

2. How much manufacturing overhead cost was allocated to Job GT1 and Job GT5?

 

(4 marks)

 

3. Is there any over-allocation or under-allocation of manufacturing overhead cost? If so,

 

what is the amount of over-allocation or under-allocation?

 

(8 marks)

 

4. Compute the finished goods inventory for Job GT1.

 

(8 marks)

 

(Total 25 marks)

 


 

1

 


 

MANAGEMENT ACCOUNTING FOR MANAGERS

 


 

Question 2

 

Kulit Craft Sdn Bhd manufactures leather goods. The Company?s profits have been declining

 

over the past few months. Management is concern over the decline in profits and is examining

 

each of its product line closely to determine the reason for the decline.

 

One of the Company?s main product is leather belts. The belts are produced in a single

 

continuous process in it?s factory in Kajang. During the manufacturing process, the leather strips

 

are sewn, punched and dyed. The belts then enter a final finishing stage to conclude the

 

manufacturing process. Labor and overheads are continually applied during the manufacturing

 

process. All materials are added at the beginning of the process and the company uses a

 

weighted-average method to calculate unit cost.

 

The leather belts produced at the Kajang Factory are sold to wholesalers at a price of RM 14.50

 

Management wants to compare the current manufacturing cost to the wholesale price.

 

Management has a policy to earn at least 25% margin above cost to ensure that the overall

 

profitability of the Company is maintained. Currently, the cost per belt used for planning and

 

control purposes is RM 11.50.

 

Top management has asked the factory accountant in Kajang to submit the relevant data on the

 

cost of manufacturing the leather belts for the month of October.

 

These cost data will be used to determine whether modifications in the production process should

 

be initiated or whether an increase in selling price is justified.

 

The factory accountant submitted the following data:

 

The work in process inventory consist of 500 partially completed units on 1st October. The belts

 

were 30% complete as to conversion. The cost included in the Inventory on 1 st October is as

 

follows:

 


 

RM

 

1,650

 

350

 

500

 

2,000

 

4,500

 


 

Leather strips

 

Buckles

 

Direct labor

 

Manufacturing Overhead

 

Total Cost

 


 

2

 


 

MANAGEMENT ACCOUNTING FOR MANAGERS

 


 

During the month of October, 8,000 leather strips were started into production. A total of 8,100

 

leather belts were completed. The work-in-process inventory on 30 th October consisted of 400

 

belts that were 40% complete as to conversion.

 

The costs charged to production during the month of October is as follows:

 

RM

 

41,000

 

8,000

 

15,800

 

39,520

 

104,320

 


 

Leather strips

 

Buckles

 

Direct labor

 

Manufacturing Overhead

 

Total Cost

 

Required

 

1.

 


 

In order to provide cost data on the manufacture of leather belts in the Kajang factory to top

 

management, calculate the following amounts for the month of October:

 


 

(a) Equivalents units of material and conversion cost.

 

(5 marks)

 

(b) Cost per equivalent units for material; conversion cost and total unit cost.

 

(6 marks)

 

(c) Assignment of production cost to leather belts completed and transferred out and to the

 

October 31 ending work in process.

 

(4 marks)

 

(d) Compare the total unit cost for the leather belt and the current selling price. Draft a MEMO

 

to the CEO of Kulit Craft and include the following:

 

(i) Why the profits of the company has been declining.

 

(ii) The proposed revised new selling price for leather belts.

 

(iii) Recommendations.

 

(10 marks)

 

(Total 25 marks)

 


 

3

 


 

MANAGEMENT ACCOUNTING FOR MANAGERS

 


 

Question 3

 

Kopi Tarik Sdn Bhd (KPSB) is a processor and distributor of a variety of blends of coffee. The

 

company buys coffee beans from around the world and roasts, blends and packages them for

 

resale. KPSB offers a large variety of different coffees that it sells to gourmet shops in one pound

 

bags. The major cost of the coffee is raw materials. However, the company?s predominantly

 

automated roasting, blending and packing processes require a substantial amount of overhead.

 

The company uses relatively little direct labor.

 

Some of KPSB?s coffee are very popular and sells in large volumes, while a few of the newer

 

blends sells in very low volumes. KPSB prices its coffees at manufacturing cost plus a markup of

 

25% with some adjustments made to keep the company?s prices competitive.

 

For the coming year, KPSB?s budget includes estimated manufacturing overhead cost of

 

RM2,200,000. KPSB assigns manufacturing overhead to products on the basis of direct labor

 

hours. The expected direct labor cost totals RM 600,000 which represents 50,000 hours of direct

 

labor time. Based on the sales budget and expected raw materials costs, the company will

 

purchase and use $5,000,000 of raw materials ( mostly coffee beans) during the year.

 

The expected costs for direct materials and direct labor for one pound bags of two of the

 

company?s products appear below:

 

Blue Coffee

 

(RM)

 

4.50

 

0.24

 


 

Direct materials

 

Direct labor (0.02 hrs per bag)

 


 

White Coffee

 

(RM)

 

2.90

 

0.24

 


 

KPSB?s controller believes that the company?s traditional costing system may be providing

 

misleading cost information. To determine whether or not this is correct, the controller has

 

prepared an analysis of the year?s expected manufacturing overhead costs, as shown in the table

 

below:

 


 

Activity Cost Pool

 


 

Activity Measure

 


 

Purchasing

 

Material Handling

 

Quality Control

 

Roasting

 

Blending

 

Packaging

 

Total Manufacturing

 

Overhead Cost

 


 

Purchase Orders

 

Number of Setups

 

Number of batches

 

Roasting hours

 

Blending hours

 

Packaging hours

 


 

Expected Activity for

 

the Year

 

2,000 orders

 

1,000 setups

 

500 batches

 

95,000 roasting hours

 

32,000 blending hours

 

24,000 packaging hours

 


 

Expected Cost For

 

the Year (RM)

 

560,000

 

193,000

 

90,000

 

1,045,000

 

192,000

 

120,000

 

2,200,000

 


 

4

 


 

MANAGEMENT ACCOUNTING FOR MANAGERS

 


 

Data regarding the expected production of Blue Coffee and White Coffee are presented below:

 

Expected Sales (Production)

 

Batch Size

 

Set up

 

Purchase order size

 

Roasting time per 100 pounds

 

Blending time per 100 pounds

 

Packaging time per 100 pounds

 


 

Blue Coffee

 

80,000 pounds

 

5,000 pounds

 

2 per batch

 

20,000 pounds

 

1.5 roasting hrs

 

0.5 blending hrs

 

0.3 packaging hrs

 


 

White Coffee

 

4,000 pounds

 

500 pounds

 

2 per batch

 

500 pounds

 

1.5 roasting hrs

 

0.5 blending hrs

 

0.3 packaging hrs

 


 

Required

 


 

1. Using direct labor hours as the base for assigning manufacturing overhead cost to the

 

products:

 

(a) Determine the predetermined overhead rate that will be used during the year

 

(5 Marks)

 

(b) Determine the unit product cost of one pound of Blue Coffee and one pound of White

 

Coffee.

 

(6 Marks)

 

2. Using activity ? based costing as the basis for assigning manufacturing overhead cost to

 

products:

 

(a) Determine the total amount of manufacturing overhead cost assigned to Blue Coffee

 

and White Coffee for the year. Please show all schedules & workings.

 

(30 Marks)

 

(b) Using the data developed in (2a) above, compute the amount of manufacturing

 

overhead cost per pound of the Blue Coffee and the White Coffee. Round up to the

 

nearest whole cents.

 

(3 Marks)

 

(c) Determine the unit product cost of one pound of Blue Coffee and one pound of White

 

Coffee.

 

5

 


 

MANAGEMENT ACCOUNTING FOR MANAGERS

 


 

(2 Marks)

 

(d) Write a brief memo to the president of KTSB explaining what you have found in (1)

 

and (2) above and discussing the implications to the company using direct labor hours

 

as the basis for assigning manufacturing overhead cost to products.

 

(4 Marks)

 

(Total: 50 Marks)

 


 

6

 


 

 







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