:=JAMES COOK.

--=- UNIVERSITyr
AUSTRALIA
STUDY PERIOD 1, 2011 EXAMINATIONS
Cairns and Townsville CAMPUS
STUDENT NAME:
STUDENT NUMBER:
SUBJECT CODE: 8X2012:03
SUBJECT NAME: Cost and Management Accounting
EXAMINER: Dr. Rafiuddin Ahmed
Number of pages, including front page, exam paper
and any attachments: 5
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DURATION OF EXAMINATION (hours):
PERUSAL TIME (minutes):
TOTAL NUMBER OF QUESTIONS:
INSTRUCTIONS TO STUDENTS:
- Answer all questions
-Value of each question is shown in parenthesis
- Total weight of this exam is 60% (60 marks)
Two (2) Hours
Ten (10) Minutes
Four (4)
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BX2012:03
QUESTION ONE
1/4
Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies:
Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000
cookies based on the size of the ovens and cookie molds owned by the company. Based on
budgetary projections, the information listed below is available:
Macaroon Sugar Buttercream
Projected sales in units 500,000 800,000 600,000
PER UNIT data:
Selling price $0.80 $0.75 $0.60
Direct materials $0.20 $0.15 $0.14
Direct labor $0.04 $0.02 $0.02
Hours per 1000-unit batch:
Direct labor hours 2 1 1
Oven hours 1 1 1
Packaging hours 0.5 0.5 0.5
Total overhead costs and activity levels for the year are estimated as follows:
Activity
Direct labor
Oven
Packaging
Required:
Overhead costs
$210,000
$150,000
$360,000
Activity levels
2,400 hours
1,900 oven hours
950 packaging hours
(a) Determine the activity-cost-driver rates packaging and oven costs.
(2 mark)
(b) Using the ABC system, for the sugar cookie:
i. compute the estimated overhead costs per thousand cookies.
ii. compute the estimated operating profit per thousand cookies.
(5 marks)
(c) Using a traditional system (with direct labor hours as the overhead allocation base), for
the sugar cookie:.
i. compute the estimated overhead costs per thousand cookies.
ii. compute the estimated operating profit per thousand cookies.
(4 marks)
(d) Explain the difference between the profits obtained from the traditional system and the
ABC system. Which system provides a better estimate of profitability? Why?
(4 marks)
(Total marks in question: 15)
Copyright Reserved Continued Overleaf
BX2012:03
QUESTION TWO
2/4
Jordana Woolens is a manufacturer of wool cloth. The information for March production is as
follows:
Beginning work in process
,
10,000 units
Units started 20,000 units
Units completed 25,000 units
Beginning work-in-process direct materials $ 12,000
Beginning work-in-process conversion $ 5,200
Direct materials added during month $60,000
Direct manufacturinq labor durinq month $24,000
Factory overhead $ 10,000
Beginning work in process was 40% completed as to labor and overhead. Direct materials
are added at the beginning of the process. All conversion costs are incurred evenly
throughout the process. Ending work in process was 75% complete. The company uses
weighted average costing method to calculate cost of its products.
Required:
(a) How many units were processed during March?
(2 marks)
(b) How many units were completed and transferred to finished goods inventory, and
how many units remained incomplete at the end of March?
(2 marks)
(c) What is the total cost of the units processed (work-in-process) during March?
(3 marks)
(d) What is the cost per equivalent unit of direct materials and conversion costs?
(4 marks)
(e) Calculate the total costs assigned to finished goods inventory, and to closing work in
process inventory.
(4 marks)
(Total marks in question: 15)
Copyright Reserved Continued Over/eat
BX2012:03
QUESTION THREE
3/4
Tessmer Manufacturing Company produces inventory in a highly automated assembly plant
in Olathe, Kansas. The automated system is in its first year of operation and management is
still unsure of the best way to estimate the overhead costs of operations for budgetary
purposes. For the first six months of operations, the following data were collected:
January
February
March
April
May
June
Required:
Machine-hours
3,800
3,650
3,900
3,300
3,250
3,100
Kilowatt-hours
4,520,000
4,340,000
4,500,000
4,290,000
4,200,000
4,120,000
Total Overhead Costs
$138,000
136,800
139,200
136,800
126,000
120,000
(a) Use the high-low method to determine the estimating cost function with machine-
hours as the cost driver.
(5 marks)
(b) Use the high-low method to determine the estimating cost function with kilowatt-
hours as the cost driver.
(5 marks)
(c) For July, the company ran the machines for 3,000 hours and used 4,000,000
kilowatt-hours of power. The overhead costs totaled $114,000. Which cost driver was
the best predictor for July? Why?
(5 marks)
(Total marks in question: 15)
Copyright Reserved Continued Overleaf
BX2012:03
QUESTION FOUR
Part A
4/4
Duffy Corporation has prepared the following sales budget. Collections are 40% in the month
of sale, 45% in the month following the sale, and 10% two months following the sale. The
remaining 5% is expected to be uncollectible.
Month Cash Sales Credit Sales
May $16,000 $68,000
June 20,000 80,000
July 18,000 74,000
August 24,000 92,000
September 22,000 76,000
Required:
Prepare a schedule of cash collections for July through September.
(7 marks)
Part B
Wilson's Winter Woolens manufactures jackets and other wool clothing. A certain designed
ski parka requires the following:
Direct materials standard 2 square yards at $13.50 per yard
Direct manufacturing labor standard 1.5 hours at $20.00 per hour
During the third quarter, the company made 1,500 parkas and used 3,150 square yards of
fabric costing $39,375. Direct labor totaled 2,100 hours for $45,150.
Required:
(a) Compute the direct materials price and efficiency variances for the quarter.
(4 marks)
(b) Compute the direct manufacturing labor price and efficiency variances for the
quarter.
(4 marks)
(Total marks in question: 15)
Copyright Reserved End of Exam
Question Paper 2011

Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies:
Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies
based on the size of the ovens and cookie molds owned by the company. Based on budgetary
projections, the information listed below is available:

Macaroon Sugar Buttercream
Projected sales in units 500,000 800,000 600,000

PER UNIT data:
Selling price $0.80 $0.75 $0.60

Direct materials $0.20 $0.15 $0.14
Direct labor $0.04 $0.02 $0.02

Hours per 1000-unit batch:
Direct labor hours 2 1 1
Oven hours 1 1 1
Packaging hours 0.5 0.5 0.5

Total overhead costs and activity levels for the year are estimated as follows:

Activity Overhead costs Activity levels
Direct labor 2,400 hours
Oven $210,000 1,900 oven hours
Packaging $150,000 950 packaging hours
$360,000

Required:
a. Determine the activity-cost-driver rate for packaging costs.

b. Using the ABC system, for the sugar cookie:
1. compute the estimated overhead costs per thousand cookies.
2. compute the estimated operating profit per thousand cookies.

c. Using a traditional system (with direct labor hours as the overhead allocation base), for
the sugar cookie:.
1. compute the estimated overhead costs per thousand cookies.
2. compute the estimated operating profit per thousand cookies.

d. Explain the difference between the profits obtained from the traditional system and the
ABC system. Which system provides a better estimate of profitability? Why?
Answer:
a.
activity-cost-driver rate =packaging overhead / packaging hours
=$150,000 / 950 hours
=$157.89 per packaging hour
b.
1. To compute the estimated overhead costs for a batch of sugar cookies (using the ABC
system), first calculate the activity-cost-driver rate for the oven activity.

activity-cost-driver rate =oven overhead / oven hours
=$210,000 / 1,900 hours
=$110.53 per oven hour

Then calculate the overhead for a 1,000 cookie batch by multiplying the number of
activity hours per batch by the appropriate activity-cost-driver rate for each of the relevant
overhead activities and sum to get the total overhead for the batch.

(1 x $110.53) +(.5 x $157.89) =$189.48

2. To compute the estimated operating profit for a batch of sugar cookies (using the ABC
system), subtract the costs from the revenues:

Revenue =1,000 * $0.75 =$ 750.00
Direct Material =1,000 * $.015 =($150.00)
Direct Labor =1,000 * $.02 =($ 20.00)
Overhead =($189.48)

Operating Profit =$ 390.52

c. 1. To compute the estimated overhead costs for a batch of sugar cookies (using the
traditional system), first calculate the overhead rate per direct labor hour.

Overhead per direct labor hour =Total Overhead / Total Direct Labor Hours
=$ 360,000 / 2,400 hours
=$ 150.00 per direct labor hour

Since it takes 1 direct labor hour per 1,000 sugar cookies, the overhead is $150.00

2. To compute the estimated operating profit for a batch of sugar cookies (using the
traditional system), subtract the costs from the revenues:

Revenue =1,000 * $0.75 =$ 750.00
Direct Material =1,000 * $.015 =($150.00)
Direct Labor =1,000 * $.02 =($ 20.00)
Overhead =($150.00)

Operating Profit =$ 430.00

d. Traditional system: Operating profit per batch of sugar cookies is $430.00.
ABC system: Operating profit per batch of sugar cookies is $390.52.

Because the products do not all require the same proportionate shares of the direct labor
resources, the allocation of the total overhead on that basis is not as accurate as using the
ABC system. The ABC system allocates the overhead based on activity levels for the specific
categories as well as activity usage by the product lines.
Diff: 2
Terms: activity-based costing (ABC)
Objective: 1, 3, 5, 6
AACSB: Analytical skills