HI5017 Managerial Accounting : Henry s Kitchens
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Question 1
Part A
Asco Company has a relevant range of production between 15,000 and 30,000 units. The following cost data represents average variable costs per unit for 25,000 units of production.
Average Cost per unit
Direct materials $ 13
Direct labor 8
Fixed manufacturing overhead 6
Variable manufacturing overhead 3
Required:
a) If 25,000 units are produced, what is the variable cost per unit?
b) If 16,000 units are produced, what is the variable cost per unit?
c) Comment briefly on your answers to (a) and (b).
d) If 18,000 units are produced, what are the total variable costs?
Part B
GEM Ltd leases a photocopy machine with terms that include a fixed fee each month plus a charge for each photocopy made. GEM made 5,000 copies and paid a total of $600 in January. In April, they paid $400 for 3,000 copies.
Required:
a) What is the variable cost per copy if GEM uses the high-low method to analyze costs?
b) How much would GEM Ltd pay if it made 7,500 copies? (Hint: Need to solve for Fixed cost)
Question 2
Henry’s Kitchens makes two types of sandwich makers: Basic and Deluxe. The company expects to manufacture 70,000 units of Basic, which has a per-unit direct material cost of $10 and a per-unit direct labor cost of $60. It also expects to manufacture 30,000 units of Deluxe, which has a per-unit material cost of $15 and a per-unit direct labor cost of $40. It is estimated that Basic will use 140,000 machine hours and Deluxe will require 60,000 machine hours. Historically, the company has used the traditional overhead allocation method and applied overhead at a rate of $21 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is shown:
|
Machine setups |
$ 90 000 |
|
Machine processing |
4 000 000 |
|
Material requisitions |
100 000 |
|
Total overhead |
$ 4 190 000 |
The cost driver for each cost pool and its expected activity is shown:
|
Basic |
Deluxe |
Total |
|
|
Machine setups |
100 |
200 |
300 |
|
Machine hours |
140 000 |
60 000 |
200 000 |
|
Parts requisitions |
80 |
120 |
200 |
Required:
a) What is the per-unit cost for each product under the traditional overhead allocation method?
b) What is the per-unit cost for each product under ABC costing?
c) Briefly comment on the overhead applied per unit under the two overhead allocation methods. i.e. How much was overhead under or overapplied for each product? Further, would you recommend a change to ABC costing for Henry’s Kitchens? Why or why not?
Question 3
Relevant data from Picta Company’s operating budgets are presented below. The company’s financial year ends on 30 June.
|
Quarter 1 |
Quarter 2 |
|
|
Sales |
$248,470 |
$251,539 |
|
Direct material purchases |
120,295 |
128,832 |
|
Direct labor |
76,553 |
74,289 |
|
Manufacturing overhead |
26,000 |
24,400 |
|
Selling and administration expenses |
33,500 |
33,500 |
|
Depreciation included in selling and administration expenses |
2,000 |
2,500 |
|
Collection from customers |
230,524 |
220,116 |
|
Cash payments for purchases |
114,345 |
118,346 |
Additional data:
Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000.
The company has a 15% open line of credit for $70 000 with their bank.
Required:
a) Use this information to prepare a cash budget for the first two quarters of the year.
b) Briefly comment on Picta Company’s expected cashflow position in the first two quarters of the year.
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