ACC00146 – 2016 S2 ASSIGNMENT 2

ACC00146 – 2016 S2
ASSIGNMENT 2 (20 marks)
QUESTION 1 (5 MARKS)
Russell Company has the following projected account balances for June 30, 20X5:
Accounts payable
$40,000
Accounts receivable 100,000
Depreciation, factory
24,000
Inventories (5/31 & 6/30)180,000
Direct materials used 200,000
Office salaries
80,000
Insurance, factory
4,000
Plant wages
140,000
Bonds payable
160,000

Sales
$800,000
Capital stock
400,000
Retained earnings
?
Cash
56,000
Equipment, net
240,000
Buildings, net
400,000
Utilities, factory
16,000
Selling expenses
60,000
Maintenance, factory 28,000

Required:
a.
Prepare a budgeted income statement for June 20X5. (1 mark)
b.
Prepare a budgeted balance sheet as of June 30, 20X5 (1 mark)


QUESTION 2 (5 MARKS)
The Alex Miller Corporation operates one central plant that has two divisions, the
Flashlight Division and the Night Light Division. The following data apply to the coming
budget year:
Budgeted costs of the operating the plant
for 10,000 to 20,000 hours:
Fixed operating costs per year
$240,000
Variable operating costs
$10
Practical capacity
20,000
Budgeted long-run usage per year:
Lamp Division
800 hours × 12 months = 9,600
Flashlight Division 450 hours × 12 months = 5,400

per hour
hours per year
hours per year
hours per year

Assume that practical capacity is used to calculate the allocation rates. Further assume
that actual usage of the Lamp Division was 700 hours and the Flashlight Division was
400 hours for the month of June.
Required: (1 MARK EACH)

a. If a single-rate cost-allocation method is used, what amount of operating costs will be
budgeted for the Lamp Division each month? For the Flashlight Division each month?
b. For the month of June, if a single-rate cost-allocation method is used, what amount of
cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual
usage is used to allocate operating costs.
c. If a dual-rate cost-allocation method is used, what amount of operating costs will be
budgeted for the Lamp Division each month? For the Flashlight Division each month?
d.
For the month of June, if a dual-rate cost-allocation method is used, what amount
of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume
budgeted usage is used to allocate fixed operating costs and actual usage is used to
allocate variable operating costs.
e.

Explain which method is the most practical?

QUESTION 3 (5 MARKS)
a. Oregon Lumber processes timber into four products. During January, the joint costs of
processing were $280,000. There was no inventory at the beginning of the month.
Production and sales value information for the month is as follows: (2 marks)
Sales Value at
Board
Product
feet
2 x 4's 6,000,000
2 x 6's 3,000,000
4 x 4's 2,000,000
Slabs
1,000,000

Splitoff Point
$0.30
0.40
0.45
0.10

per
per
per
per

board
board
board
board

foot
foot
foot
foot

Ending Inventory
500,000
250,000
100,000
50,000

bdft.
bdft.
bdft.
bdft.

Required:

Determine the value of ending inventory if the sales value at splitoff method is used for
product costing. Round to 3 decimal places when necessary.
b. Silver Company uses one raw material, silver ore, for all of its products. It spends
considerable time getting the silver from the ore before it starts the actual processing of
the finished products, rings, lockets, etc. Traditionally, the company made one product at
a time and charged the product with all costs of production, from ore to final inspection.
However, in recent months, the cost accounting reports have been somewhat disturbing to
management. It seems that some of the finished products are costing more than they
should, even to the point of approaching their retail value. It has been noted by the
accounting manager that this problem began when the company started buying ore from
different parts of the world, some of which require difficult extraction methods. (3 marks)
Required:

Can you explain how the company might change its accounting system to reflect the
reporting problems better? Are there other problems with the purchasing area?
QUESTION 4 (5 MARKS)
An examination of the cost records of the Wilson River P/L indicates that the materials
price variance is favorable but that the materials efficiency variance is unfavorable by a
substantial amount. What might this indicate? Explain using examples to support your
statements.