ACCOUNTING 200116 Bob Marsden manages the Victorian plant of George Manufacturing. He has been

Bob Marsden manages the Victorian plant of George Manufacturing. He has been
approached by a representative of Garfield Engineering regarding the possible
replacement of a large piece of manufacturing equipment that George uses in its
process with a more efficient model. While the representative made some compelling
arguments in favour of replacing the 3-year-old equipment, Bob is hesitant. He is
hoping to be promoted next year to manager of the larger New South Wales plant,
and he knows that the accrual-basis net operating income of the Victorian plant will
be evaluated closely as part of the promotion decision. The following information is
available concerning the equipment replacement decision:
The historical cost of the old machine is $300,000. It has a current carrying amount
of $120,000, two remaining years of useful life and a market value of $72,000.
Annual depreciation expense is $60,000. It is expected to have a salvage value of $0
at the end of its useful life.
The new equipment will cost $180,000. It will have a two-year useful life and a $0
salvage value. George uses straight-line depreciation on all equipment. The new
equipment will reduce electricity costs by $35,000 per year and will reduce direct
manufacturing labour costs by $30,000 per year.
For simplicity, ignore income taxes and the time value of money.
Required:
1. Assume that Bob Marsden’s priority is to receive the promotion, and he makes the
equipment replacement decision based on next year’s accrual-based net operating
income. Which alternative would he choose? Show your calculations.
(4 marks)
2. What are the relevant factors in the decision? Which alternative is in the best
interest of the company over the next two years? Show your calculations. (4 Marks)
3. At what cost of the new equipment would Bob Marsden be willing to purchase it?
Explain.

200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

(4 Marks)

1

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

2

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

3

Question 2

12.23

(10 Marks)

Chan uses a standard costing in its manufacturing plant for car parts. The standard
cost of a particular car part, based on a denominator level of 4000 output units per
year, included 6 machine hours of variable manufacturing overhead at $8 per hour
and 6 machine hours of fixed manufacturing overhead at $15 per hour. Actual output
produced was 4400 units. Variable manufacturing overhead incurred was $245,000.
Fixed manufacturing overhead incurred was $373,000.Actual machine hours were
28,400.
Required:
1. Prepare an analysis of all variable manufacturing overhead and fixed
manufacturing overhead variances, using a 4 variance analysis.

(4 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

4

___________________________________________________________________
___________________________________________________________________
2. Describe how individual fixed manufacturing overhead items are controlled from
day to day.

(2 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

3. Discuss possible causes of the fixed manufacturing overhead variance.
(4 Marks)
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

5

___________________________________________________________________
___________________________________________________________________
Question 3 modelled on 5.28
(9 Marks)
Nihon Ltd is a manufacturer of digital cameras. It has two departments: Assembly
and Testing. In January 2014, the company incurred $850,000 on direct materials
and $898,000 on conversion costs, for a total manufacturing cost of $ 1,748,000.
1. Assume there was no beginning inventory of any kind on 1 January 2013. During
January, 10,000 cameras were placed into production and all 10,000 were fully
completed at the end of the month. What is the unit cost of an assembled camera
in January?

(2 Marks)

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

2. Assume that during February 10,000 cameras are placed into production. Further
assume the same total assembly costs for January are also incurred in February,
but only 9,000 cameras are fully complete at the end of the month. All direct
materials have been added to the remaining 1,000 cameras. However, on
average, these remaining 1,000 cameras are only 50% complete as to conversion
costs.
a. What are the equivalent units for direct materials and conversion costs and
their respective costs per equivalent unit for February?
b. What is the unit cost of an assembled camera in February 2013?

(4 Marks)
(1 Marks)

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

6

_________________________________________________________________________
_________________________________________________________________________
________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
________________________________________________________________________

3. Explain the difference in your answers to requirements 1 & 2.

(2 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

7

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Question 4

10.27

(10 Marks)

TabComp Ltd is a retail distributor for MZB-33 computer hardware and related
software and support services. TabComp prepares sales forecasts of which the first
six months of 2014 are presented here.
Cash sales account for 25% of total sales, 30% of total sales are paid by bank credit
card and the remaining 45% are on open account. The cash sales and cash from
bank credit cards sales are received in the month of sale. Bank credit card sales are
subject to a 4% discount. The cash receipts for sales on the open account are 70%
in the month following the sale and 28% in the second month after the sale. The
remaining accounts receivables are estimated to be uncollectible.
TabComp’s month end inventory requirements for computer hardware units are 30%
of the next month’s sales. TabComp’s purchase price for the computer units is 60%
of the selling price.
TabComp Ltd
Sales Forecast for first six months of 2014
Hardware Sales
Units

$

Software Sales & Support
$

Total revenues
$

January

130

390,000

160,000

550,000

February

120

360,000

140,000

500,000

March

110

330,000

150,000

480,000

April

90

270,000

130,000

400,000

May

100

300,000

125,000

425,000

June

125

375,000

225,000

600,000

Total

675

2,025,000

930,000

2,955,000

200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

8

Required:
1. Calculate the cash that TabComp can expect to collect during April 2014. Show all
calculations.

(4 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

9

2. TabComp is planning the purchase of MZB-33 computer hardware units for March
2014.
a. Determine the number of units that will need to be purchased. (2 Marks)
b. Calculate the total costs of this purchase.

(2 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
3. As part of the annual budget process, TabComp prepares a cash budgert by
month for the entire year. Explain why a company such as TabComp prepares a
cash budget month by month for the entire year.

(2 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

10

Question 5

13.19

(9 Marks)

United Partners provides management consulting services to government and
corporate clients. United has two support departments – Administrative Services
(AS) and Information Systems (IS) and two operating departments –Government
Consulting (GC) and Corporate Consulting (CC). For the first quarter of 2013
United’s records indicate the following:

SUPPORT

OPERATING

AS

IS

GC

CC

Budgeted overhead costs
before any interdepartmental
cost allocations

$600,000

$2,400,000

$8,756,000

$12,452,000

Support work supplied by AS
(budgeted head count)

-

25%

40%

35%

Support work supplied by IS
(budgeted computer time)

10%

-

30%

60%

Required:
1. Allocate the two support department costs to the two operating departments
using the following methods:
a. Direct method

(2 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

200116 Management Accounting Fundamentals Deferred Examination Autumn 2014

11

b. Step-down method (allocate AS first)

(3 Marks)

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

2. Compare and explain differences in the support department costs allocated to
each operating department.
(4 Marks)
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
_______________________...