Management Costing problems

ASSESSMENT RESOURCE – FNSACC613A

Prepare and Analyse Management Accounting Information

PORTFOLIO – Grade Weight is 60%

Management Accounting: Principles and Applications – Case

Analysis & Problems Solving

Basic Management Accounting Concept

Manufacturing, cost classification, cost tracing and the income statement No Good Burger produces and sells hamburgers. Each burger sells for $1.50. During December No Good Burger's sold 10,000 burgers (the average amount sold each month. The restaurant employs cooks, servers and one supervisor (the owner, Mr. Ozford College). All cooks and servers are part-time employees. No Good Burger maintains a pool of part time employees so that the number of employees scheduled can be adjusted to changes in demand. Demand varieson a weekly as well A cleaner is hired to clean the building on a weekly basis. The building is leased from a local real estate company. The building has no seating capabilities. All orders are filled on a drive-through basis.The supervisor schedules the work, locks and unlocks the building, counts the cash, organise the advertising, and is responsible for hiring and firing. The following costs were incurred during December:

 

Hamburger Meat $16,000 Power and water $5,000

Lettuce $3,000 Depreciation:

Tomatoes $2,500 Cooking Equipment $2,000

Buns $3,000 Cash register $500

Other ingredients $200 Advertising $1,000

Cook's wages $25,500 Cleaner's wages $1,200

Servers' wages $20,320 Cleaning supplies $500

Supervisor's salary $20,000 Rent $8,000

 

1. Classify the cost for No Good Burger's December operations into the following categories: direct materials, direct labour, overheads, selling and administrative

2. Prepare an Absorption-Costing Income Statement for the month of December. 15

ASSESSMENT RESOURCE – FNSACC613A

Prepare and Analyse Management Accounting Information ack Collins Pty Ltd accounting records showed the following operating expenses for

Direct Labour $87,000

Marketing $74,000

Overheads $125,000

Distribution $32,000

Administration $24,000

Direct materials $108,000

 

Jack Collins operates on just-in-time principles and therefore does not carry any inventories. It is the pricing policy of the business to quote all orders at cost plus 50%. The office manager is soon to retire and the production manager is interested in applying for the position. The production manager approaches you with recommended adjustments to the latest production costs. It is pointed that an amount of $40,000 included in the overheads relates to the salary of the factory supervisor and therefore this amount should be shown as part of the administration costs. The production manager stresses that there is nothing illegal about transferring this cost as it will make no difference to the bottom line.

 

1. What is the gross profit and net profit based on the original costing/figures?10

2. How would the proposed changes affect the gross and net profits? Show supporting calculations. 10 marks

3. How will the proposed changes advantage the production manager? 5 marks

4. What ethical issues arise (if there's any).Briefly explain your answer. 5 marks

 

Activity Cost Behaviour

Galang Manufacturing Company has three (3) salaried accounts payable staff responsible for processing purchase invoices. Each one is paid a salary of $30,000 and is capable of processing 5,000 invoices per year (working efficiently). In addition to the salaries, Galang spends $9,000 per year for forms, postage, cheques and so on (assuming 15,000 invoices are processed). During the year, 12,500 invoices were:

1. Calculate the activity rate for the purchase orders activity. Separate the activity into fixed and variable components. 5 marks

2. Calculate the total activity availability and separate this into activity usage and unused activity. 5 marks

3. Calculate the total cost of resources supplied and separate this into activity usage and unused activity. 5 marks

Activity Based Costing

Toy Factory Ltd manufactures two (2) products, Beauty and Beast. Production is scheduled in batches according to the demand for each product. In the past, Toy Factory Ltd has applied overheads using a single-plant wide rate of $400.00 per direct labour hour. The cost department has identified four separate activities associated with the manufacture of Beauty and Beast and has prepared the following date Activity Cost driver Rate

 

Designing Design hours $ 200 per hour

Machining Machine hours $ 50.00 per machine hour

Assembly No. of parts $0.250 per part

Quality Control No. of tests $ 500 per test

Statistics on an actual production run indicated the following:

Beauty Beast

Batch size 1,500 units 500 units

Direct labour hours 95 hours 30 hours

Designing 25 hours 20 hours

Matching 80 hours 50 hours

Assembly 6,400 parts 3,400 parts

Quality Control 16 tests 4 tests

Calculate the overhead cost per unit for Beauty and Beast using the following:

1. Traditional plant-wide overhead application rate (10 marks)

2. Activity-based costing (10 marks)

Break-Even Point – Single Product

1. A company sells a single product for $20 per item. The variable costs are $12 for each item sold and fixed costs total of $28,000.

1. Calculate the break-even sales in dollars using the contribution margin per unit approach. (5 marks)

2. A company has prepared the following budget summary for the year ahead.

Revenue Budget $ $

Sales 70,000

Variable costs 28,000

Fixed costs 30,000 58,000

Profit 12,000

a. Calculate the contribution margin ratio? (5 marks)

b. Calculate the break-even dollar sales using the contribution margin ratio calculated in a. (5 marks)

3. A company has prepared the following budget information for analysis

Budget Profit Statement

Sales ($25 per unit) 250,000

Direct materials 30,000

Direct labour 75,000

Variable 25,000

Fixed 15,000 145,000

Marketing and administration Variable 50,000

Fixed 41,000 91,000

Operating Profit 14,000

a. What is the break-even point in sales dollars? (5 marks)

b. What sales are needed to achieve a profit of $ 35,000? (5 marks)

c. What sales are needed to achieve a profit of 15% if sales? (5 marks)

d. It has been proposed that an increase in variable marketing and administration expenses of 25% will provide a 20% improvement in the number of items sold.

This change will allow fixed marketing costs to be reduced by $ 4,250. What will be the new break-even point in sales units if this proposal is adopted (5 marks)

Margin of Safety

The budget for 2010 shows the following costs and sales.

Budget for 2010

Sales 80,000

Variable costs 54,400

Fixed costs 22,400

a. Calculate the contribution margin percentage (5 marks)

b. Calculate the break-even sales (5 marks)

c. Calculate the profit margin (5 marks)

d. What is the margin of safety percentage (5 marks)

e. What profit margin will result from a margin of safety of 30%?(5 marks)

Effects of Sales Mix

A business sells two products and provides the following budget information for yourItems Gamma Delta

Sales (units) 4,800 3,200

Selling price per unit $ 20.00 $ 30.00

Variable cost per unit $ 12.00 $ 15.00

Total fixed costs 62,100

The manager of the business has noticed that Delta has a higher contribution margin per unit than Gamma and wants to investigate the impact on the profits if the two items were sold in a ratio of 50:50.

a. What profit is expected based on the current sales mix? (5 marks)

b. What is the break-even point based on the current sales mix? (5 marks)

 

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