Reference no: EM131685896 , Length: 18

Question 1 -

Angel Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:

Activity Cost Pools (and Activity Measures	Estimated Overhead Cost
Machine related (machine-hours)	£81,600
Batch setup (setups).	£387,000
General factory (direct labour-hours).	£274,800

 

		Expected Activity
Activity Cost Pools	Total	Product X	Product Y
Machine related	8,000	3,000	5,000
Batch setup	10,000	2,000	8,000
General factory	12,000	7,000	5,000

Angel Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system:

Activity Cost Pools (and Activity Measures	Estimated Overhead Cost
Machine related (machine-hours)	£81,600
Batch setup (setups).	£387,000
General factory (direct labour-hours).	£274,800

 

		Expected Activity
Activity Cost Pools	Total	Product X	Product Y
Machine related	8,000	3,000	5,000
Batch setup	10,000	2,000	8,000
General factory	12,000	7,000	5,000

Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to:

Forrest Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs:

Wages and salaries	£70,000
Other expenses.	£40,000
Total	£110,000

Distribution of resource consumption:

	Activity Cost Pools
	Making Bouquets	Delivery	Other	Total
Wages and salaries	55%	35%	10%	100%
Other expenses	45%	25%	30%	100%

The 'Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs. The amount of activity for the year is as follows:

Activity Cost Pool	Activity
Making bouquets	20,000 bouquets
Delivery	1,000 deliveries

Required - What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool?

Question 2 -

The manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year:

Activity	Total Activity at the Westfield Branch
Opening accounts	500 new accounts opened
Processing deposits and withdrawals	100,000 deposits and withdrawals processed
Processing other customer transactions	5,000 other customer transactions processed

In the table below the first-stage allocation of the costs of the Westfield branch of Security Home Bank is provided.

	Opening Accounts	Processing Deposits and Withdrawals	Processing Other Customer Transactions
Teller wages	£8,000	£104,000	£32,000
Assistant branch manager salary	11,250	3,750	22,500
Branch manager salary	4,000	0	8,000
Total cost	23,250	107,750	62,500

The lowest costs reported by other branches for these activities are displayed below:

Activity	Lowest Cost Among All Security Home Bank Branches
Opening accounts	£26.75 per new account
Processing deposits and withdrawals	£1.24 per deposit or withdrawal
Processing other customer transactions	£11.86 per other customer transaction

Required:

1. Using the first-stage allocation and the above data, compute the activity rates for the activity-based costing system.

2. Which of the following could reasonably explain the apparent differences in the costs of the activities at the various branches?

The other branches may have something to learn from Westfield concerning processing deposits.

There are inaccuracies in employees' reports of the amount of time they devote to the activities.

Westfield will benefit greatly from learning about how some of the other branches handle withdrawals.

The branches have been following different strategies.

Question 3 -

European International has 3 separate business units in the following countries. Data for each of the business units is given below:

	France	Spain	Italy
Selling price per unit	£35	£38	£42
Manufacturing cost	£4,000 per month plus £17 per unit	£3,500 per month plus £18 per unit	£5,000 per month plus £20 per unit
Administrative expense	£2,500 per month plus £2.50 per unit	£2,900 per month plus £2.90 per unit	£3,500 per month plus £3.50 per unit
Sales commissions	15% of sales	16% of sales	20% of sales
Advertising expense	£2,000 per month	£3,000 per month	£2,000 per month

If the business unit in Spain plans to produce and sell 3,000 units next month, the expected contribution margin would be:

European International has 3 separate business units in the following countries. Data for each of the business units is given below:

	France	Spain	Italy
Selling price per unit	£35	£38	£42
Manufacturing cost	£4,000 per month plus £17 per unit	£3,500 per month plus £18 per unit	£5,000 per month plus £20 per unit
Administrative expense	£2,500 per month plus £2.50 per unit	£2,900 per month plus £2.90 per unit	£3,500 per month plus £3.50 per unit
Sales commissions	15% of sales	16% of sales	20% of sales
Advertising expense	£2,000 per month	£3,000 per month	£2,000 per month

If the business unit in France expects to produce and sell 5,000 units next month, the expected operating income would be:

European International has 3 separate business units in the following countries. Data for each of the business units is given below:

	France	Spain	Italy
Selling price per unit	£35	£38	£42
Manufacturing cost	£4,000 per month plus £17 per unit	£3,500 per month plus £18 per unit	£5,000 per month plus £20 per unit
Administrative expense	£2,500 per month plus £2.50 per unit	£2,900 per month plus £2.90 per unit	£3,500 per month plus £3.50 per unit
Sales commissions	15% of sales	16% of sales	20% of sales
Advertising expense	£2,000 per month	£3,000 per month	£2,000 per month

If the business unit in Italy expects to produce and sell 5,000 units next month, the expected net operating income would be:

The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were:

Month	Guest-days of occupancy	Custodial supplies expense
March	4,000	£7,500
April	6,500	8,250
May	8,000	10,500
June	10,500	12,000
July	12,000	13,500
August	9,000	10,750
September	7,500	9,750

Guest-days is a measure of the overall activity at the hotel. For example, a guest stay at the hotel lasting for three days is counted as three guest-days.

Required:

1. Using the high-low method, estimate a cost formula for custodial supplies expense.

2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days?

Question 4 -

The European Electronics Company has 3 divisions. The following budgeted data is available.

	German	Italian	Sweden
Sales	2,500 units	2,500 units	2,500 units
Selling price	£80 per unit	£85 per unit	£90 per unit
Variable expense	£35 per unit	£40 per unit	£38 per unit
Fixed expense	£37,500	£40,000	£50,000

Italian Division: If the unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, and all other data remain as in the budget, net operating income will be:

Lindon Company is the exclusive distributor for an automotive product. The product sells for £40 per unit and has a CM ratio of 30%. The company's fixed expenses are £180,000 per year.

Required:           

1. What are the variable expenses per unit?

2. Using the equation method:

(a) What is the break-even point in units?

What is the break-even point in sales pounds?

(b) What sales level in units is required to earn an annual profit of £60,000?

What sales level in sales pounds is required to earn an annual profit of £60,000?

(c) Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by £4 per unit. What is the company's new break-even point in units?

What is the company's new break-even point in sales pounds?

3. Using the unit contribution method:

(a) What is the break-even point in units?

What is the break-even point in sales pounds?

(b) What sales level in units is required to earn an annual profit of £60,000?

What sales level in sales pounds is required to earn an annual profit of £60,000?

(c) Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by £4 per unit. What is the company's new break-even point in units?

What is the company's new break-even point in sales pounds?

Question 5 -

Required: Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. (Hint: One way to find the missing amounts would be to prepare a contribution statement of profit or loss for each case, enter the known data, and then compute the missing items.)

(a) Assume that only one product is being sold in each of the four following case situations: (Input all amounts as positive values except loss amounts which should be indicated with a minus sign.)

Case	Unit Sold	Sales	Variable Expenses	Contribution Margin per Unit	Fixed Expenses	Net profit (loss)
1	15,000	£180,000	£120,000	£?	£50,000	£?
2	?	100,000	?	10	32,000	8,000
3	10,000	?	70,000	13	?	12,000
4	6,000	300,000	?	?	100,000	-10,000

(b) Assume that more than one product is being sold in each of the four following case situations: (Input all amounts as positive values except loss amounts which should be indicated with a minus sign.)

Case	Sales	Variable expenses	Contribution margin (per cent)	Fixed expenses	Net profit (loss)
1	£500,000	£?	20	£?	£7,000
2	400,000	260,000	?	100,000	?
3	?	?	60	130,000	20,000
4	600,000	420,000	?	?	-5,000

Question 6 -

Al's Car Wash charges £4 to wash a car. The variable costs of washing a car are 15% of sales. Fixed expenses total £1,700 monthly.

Required: How many cars must be washed each month for Al to break even?

Question 7 -

Company manufactures and sells a single product. The company's sales and expenses for the last quarter follow:

	Total	Per unit
Sales	£450,000	£30
Less variable expenses	180,000	12
Contribution margin	270,000	18
Less fixed expenses	216,000
Profit	54,000

Required:

1. What is the quarterly break-even point in units sold?

What is the quarterly break-even point in sales pounds?

2. Without resorting to computations, what is the total contribution margin at the break-even point?

3. How many units would have to be sold each quarter to earn a target profit of £90,000? Use the unit contribution method. (Input all amounts as positive values.)

4. Refer to the original data. Compute the company's margin of safety in pound term.

5. What is the company's CM ratio? (Round your answer to the nearest whole.)

If sales increase by £50,000 per quarter and there is no change in fixed expenses, by how much would you expect quarterly profit to increase? (Do not prepare a statement of profit or loss; use the CM ratio to compute your answer.) (Round your answer to the nearest whole.)

Question 8 -

The Kafusi Company has the following budgeted sales:

	April	May	June	July
Credit Sales	£320,000	£300,000	£350,000	£400,000
Cash Sales	£ 70,000	£ 80,000	£ 90,000	£ 70,000

The regular pattern of collection of credit sales is 30% in the month of sale, 60% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts. The budgeted cash receipts for July would be:

The Kafusi Company has the following budgeted sales:

	April	May	June	July
Credit Sales	£320,000	£300,000	£350,000	£400,000
Cash Sales	£ 70,000	£ 80,000	£ 90,000	£ 70,000

The regular pattern of collection of credit sales is 30% in the month of sale, 60% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts. The budgeted accounts receivable balance on May 31 would be:

	Cash Sales	Credit Sales
July	£50,000	£150,000
August	55,000	170,000
September	45,000	130,000
October	50,000	145,000
November	60,000	200,000
December.	80,000	350,000

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

Collections on credit sales:

• 60% in month of sale
• 30% in month following sale
• 10% in second month following sale

Assume that the accounts receivable balance on July 1 was £75,000. Of this amount, £60,000 represented uncollected June sales and £15,000 represented uncollected May sales. Given these data, the total cash collected during July would be:

	Cash Sales	Credit Sales
July.	£50,000	£150,000
August	55,000	170,000
September	45,000	130,000
October	50,000	145,000
November	60,000	200,000
December.	80,000	350,000

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

 

Collections on credit sales:

• 60% in month of sale
• 30% in month following sale
• 10% in second month following sale

Required - What is the budgeted accounts receivable balance on December 1?

Question 9 -

The Adams Company, a merchandising firm, has budgeted its activity for November according to the following information:

• Sales at £450,000, all for cash
• Merchandise inventory on October 31 was £200,000.
• The cash balance November 1 was £18,000.
• Selling and administrative expenses are budgeted at £60,000 for November and are paid for in cash.
• Budgeted depreciation for November is £25,000.
• The planned merchandise inventory on November 31 is £230,000.
• The cost of goods sold is 70% of the selling price.
• All purchases are paid for in cash.

The budgeted cash receipts for November

The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for £24 and has a unit variable cost of £18. The company has budgeted the following data for November:

• Sales of £1,152,000, all in cash.
• A cash balance on November 1 of £48,000.
• Cash disbursements (other than interest) during November of £1,160,000.
• A minimum cash balance on November 30 of £60,000.

If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of £1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November.

The amount of cash that must be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is:

The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for £24 and has a unit variable cost of £18. The company has budgeted the following data for November:

• Sales of £1,152,000, all in cash.
• A cash balance on November 1 of £48,000.
• Cash disbursements (other than interest) during November of £1,160,000.
• A minimum cash balance on November 30 of £60,000.

If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of £1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November.

The amount of cash that must be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is:

Question 10 -

Super Drive is a computer hard drive manufacturer. The company's balance sheet for the fiscal year ended on November 30 appears below:

Super Drive, Inc. Statement of Financial Position For the year ended November 30
Assets:
Cash	£ 52,000
Accounts receivable	150,000
Inventory	315,000
Property, plant, and equipment	1,000,000
Total assets	£1,517,000
Liabilities and stockholders' equity:
Accounts payable	£ 175,000
Common stock	900,000
Retained earnings	442,000
Total liabilities and stockholders' equity	£1,517,000

Additional information regarding Super Drive's operations appear below:

• Sales are budgeted at £520,000 for December and £500,000 for the upcoming January.
• Collections are expected to be 60% in the month of sale and 40% in the month following sale. There are no bad debts.
• 80% of the disk drive components are purchased in the month prior to the month of the sale, and 20% are purchased in the month of the sale. Purchased components comprise 40% of the cost of goods sold.
• Payment for components purchased is made in the month following the purchase.
• Assume that the cost of goods sold is 80% of sales.

Required - The balance in accounts payable on the budgeted balance sheet for December 31 should be.

Question 11 -

The direct labour budget of Krispin Company for the upcoming fiscal year includes the following budgeted direct labour-hours.

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted direct labour-hours	5,000	4,800	5,200	5,400

The company's variable manufacturing overhead rate is £1.75 per direct labour-hour and the company's fixed manufacturing overhead is £35,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is £15,000 per quarter.

Required:

1. Prepare the company's manufacturing overhead budget for the upcoming fiscal year.

2. Compute the company's manufacturing overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.

Question 12 -

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations:

1. The cash balance on 1 December will be £40,000.

2. Actual sales for October and November and expected sales for December are as follows:

	October	November	December
Cash sales	£ 65,000	£ 70,000	£ 83,000
Sales on account	400,000	525,000	600,000

Sales on account are collected over a three-month period in the following ratio: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectable.

3. Purchases of inventory will total £280,000 for December and 30% of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total £161,000, all of which will be paid in December.

4. Selling and administrative expenses are budgeted at £420,000 for December. Of this amount, £50,000 is for depreciation.

5. A new web server for the Marketing Department costing £76,000 will be purchased for cash during December, and dividends totalling £9,000 will be paid during the month.

6. The company must maintain a minimum cash balance of £20,000. An open line of credit is available from the company's bank to bolster the cash position as needed.

Requirement 1: Prepare a schedule of expected cash collections for December.

Requirement 2: Prepare a schedule of expected cash disbursements during December to suppliers for materials for inventory purchases.

Requirement 3: Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month.

Question 13 -

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimetres (cc) of solvent H300 (Material A) are required to manufacture each unit of Supermix, one of the company's products. The company is now planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on 30 June is budgeted to be 10,000 units.

2. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on 30 June is budgeted to be 54,000 cc of solvent H300.

A sales budget for Supermix for the last six months of the year follows.

	Budgeted sales in units
July	35,000
August	40,000
September	50,000
October	30,000
November	20,000
December	10,000

Requirement 1: Prepare a production budget for Supermix for the months July-October.

Requirement 2: Examine the production budget which was prepared in requirement 1.                  

Requirement 3: Prepare a budget showing the quantity of solvent H300 to be purchased for July, August and September, and for the quarter in total.

Question 14 -

P Ltd manufactures a specialist photocopier. Increased competition from a new manufacturer has meant that P Ltd has been operating below full capacity for the last two years.

The budgeted information for the last two years was as follows:

	Year 1	Year 2
Annual sales demand (units)	70	70
Annual production (units)	70	70
Selling price (for each photocopier)	£50,000	£50,000
Direct costs (for each photocopier)	£20,000	£20,000
Variable production overheads (for each photocopier)	£11,000	£12,000
Fixed production overheads	£525,000	£525,000

Actual results for the last two years were as follows:

	Year 1	Year 2
Annual sales demand (units)	30	60
Annual production (units)	40	60
Selling price (for each photocopier)	£50,000	£50,000
Direct costs (for each photocopier)	£20,000	£20,000
Variable production overheads (for each photocopier)	£11,000	£12,000
Fixed production overheads	£500,000	£530,000

There was no opening inventory at the beginning of Year 1.

Required:

1. Prepare the actual profit and loss statements for each of the two years using:

(a) absorption costing

(b) marginal costing

2. Calculate the budgeted break-even point in units and the budgeted margin of safety as a percentage of sales for Year 1 and then again for Year 2.

3. (a) An increase in variable overheads will lead to a lower breakeven point.

(b) The margin of safety represents the difference between the budgeted and the breakeven sales volume.

Attachment:- ACCOUNTING ASSIGNMENT.rar