Determine the cost of the ending finished goods

Reference no: EM131218312

QUESTION 1

John Ltd. manufactures a product which passes through 2 departments, Boiling and Cooling.

Processing first begins in the Boiling department. After boiling of all the materials have been completed, the product is transferred to Cooling department. In the Cooling department, further materials are added when processing is 25% complete (all the materials in the Cooling department are added at this point only).

Conversion costs are incurred uniformly throughout the process in the Cooling department.

Work in process in the Cooling Department as at 1 Nov amounted to 50,000 units (40% complete). The costs included in these units are as follows :

Boiling Department	$900,000
Cooling Department :
- Direct materials	$740,000
- Direct labour	$210,000
- Overheads	$?

During the month of Nov, 140,000 units were completed in the Cooling Department and transferred to finished goods inventory. Units transferred in from Boiling in Nov were charged at $19 per unit. Cooling Nov were :

Materials added $2,850,000

Direct labour $2,225,000

Overheads ?

Overhead is allocated on the basis of 110% of direct labour cost.

At the end of the month, 60,000 units were still in process in Cooling. These were estimated to be 30% complete.

Required :

(a) Prepare the Cooling Department production cost report for the month of Nov 2015 using (round up to 2 decimal place) :

(i) Weighted Average method

(ii) FIFO method

QUESTION 2

Instructions (for Q2 only) :

(i) Based on the following case study information, build a spreadsheet model using Excel 2003 (or later) to answer the accompanying problems.

(ii) The spreadsheet model should include a "Data Input- Section" (whereby all raw / original data from the case should be entered), "Additional Information Section" (whereby other relevant information for the individual problems should be entered) and an "Output Section" (whereby the final answers to each problem is presented).

(iii) Program your spreadsheet to perform all necessary calculations. Do not "hard code" any amounts, use the addition, subtraction, multiplication, division operations or any other specialised formulas.

(iv) Print a copy of the spreadsheet with the answers / results to the problems.

(v) Print a copy of the spreadsheet showing the formulas used therein.

Note : Please submit a copy of your CD with your Excel file.

Case study information :

Timmy Inc. produce 2 types pf product, "Ronny" and "Sonny". It expects to produce 70,000 units of Ronny and 60,000 units of Sonny. Total direct material cost in 2015 is expected to be $55.00 per unit for Ronny and $100.00 per unit for Sonny.

Timmy expects to pay wages of $20.00 per direct labour hour. Ronny requires 2 direct labour hours per unit, whilst Sonny requires 1 direct labour hours per unit to complete. Other manufacturing costs are considered as overhead. The estimated total annual overhead for the year is $3,500,000. Currently, Timmy allocates its overheads based on direct labour hours.

The company is considering the use of activity-based costing (ABC) system to allocate all its overheads based on the following information :

Moulding

(Machine hours)

Quality control

(No of inspections)

Shipping

(No of customer orders)

Ronny

36,000

500

Sonny

44,000

1,500

Timmy estimates that Moulding related costs amounts to $2,800,000; Quality control related costs amounts to $150,000; and Shipping related costs amounts to $550,000.

Required :

(a) Calculate the total cost of each product (assuming that the expected no. of units are produced) using the traditional costing system.

(b) Calculate the total cost of each product (assuming that the expected no. of units are produced) using the activity-based costing system.

(c) Suppose the company decides to use ABC to set their selling price. What would be the minimum selling price per unit for each product if the company requires a gross profit margin of 45% for all products?

(d) Assume that Moulding cost increased by 20% and Shipping cost decreased by $150,000. Calculate the total cost of Ronny only (assuming that the expected no. of units are produced and the total driver units remains the same) using the activity-based costing system.

(e) Distinguish between an activity s trigger and its root cause (give an example of each). The product line manager commented Although in the past this product has been very profitable, based in our recent reports, it appears that we might need to drop this product , with reference to this statement, explain why a new product costing system might be required. There are many challenges when implementing ABC / ABM. Human behaviour is one such challenge. Explain why human behaviour might affect the successful implementation of ABC / ABM. (Word limit : 500).

QUESTION 3

Starwalker Ltd. manufactures 2 joint products. Both products require additional processing beyond the split-off point. Litesaber sells for $35 per unit and Megasbaer sells for $50 per unit.

There were no opening inventories at 1 Nov 2015. The following information relates to the month of Nov :

	Litesaber	Megasaber
Production (units)	120,000	80,000
Additional processing costs	$800,000	$500,000

Total joint processing costs for Nov were $2,800,000. The ending finished goods as at 30 Nov 2015 amounted to 30,000 units of Litesaber and 15,000 units of Megasaber.

Required :

(a) Determine the cost of the ending finished goods of each of the products as at 30 Nov 2015 using the physical method.

(b) Determine the cost of the ending finished goods of each of the products as at 30 Nov 2015 using the net realisable value method.

(c) Determine the cost of the ending finished goods of each of the products as at 30 Nov 2015 using the constant gross margin method.

(d) Starwalker is considering to further process "Litesaber" into "Nanosaber" at the additional cost of $800 per unit. "Nanosaber" could be sold at $45.00 per unit. Should the company produce "Nanosaber"? Show the necessary computation to justify your decision.

Reference no: EM131218312

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