ACT 202 SPRING 2020 FINAL ASSIGNMENT (SEC 10 & 11)

SUBMISSION DATE: JUNE 04, 2020

Part One Total Points : 40

Question 01 (10 Points)

Mountain Goat Cycles is now producing the heavy-duty gear shifters used in its most popular
line of mountain bikes. The company’s Accounting Department reports the following costs of
producing 8,000 units of the shifter internally each year:

Per 6000
Unit Units

Direct materials 6 36000

Direct Labor 4 24000
Variable Overhead 1 6000
Supervisors Salary 3 18000
Depreciation of Special Equipment 2 12000
Allocated general overhead 5 30000
Total Cost 21 126000

An outside supplier has offered to sell 8,000 shifters a year to Mountain Goat Cycles
at a price of only $19 each. Should the company stop producing the shifters internally
and buy them from the outside supplier?

But what if the space now being used to produce shifters could be used for some
other purpose? Assume that the space now being used to produce shifters could be used
to produce a new cross-country bike that would generate a segment margin of $70,000 per year.

Question 02 (10 Points)

Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires
four small “chips” that cost $2.5 each and are purchased from an overseas supplier. Micro Products
has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter
of Year 3, as shown below:

Year 02 Year 03
1st 2nd 3rd 4th 1st
Budgeted Production, in bottles 60,000 90,000 150,000 100,000 80,000

The chip used in production of the calculator is sometimes hard to get, so it is necessary to
carry large inventories as a precaution against stockouts. For this reason, the inventory of chips at
the end of a quarter must equal 25% of the following quarter’s production needs. A total of 36,000
chips will be on hand to start the first quarter of Year 2.

Required:
Prepare a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your
budget, show the dollar amount of purchases for each quarter and for the year in total.
Question 03 (10 Points)
Sonne Company produces a perfume called Whim. The direct materials and direct labor standards
for one bottle of Whim are given below:

Standard Quantity Standard Price Standard

or Hours or Rate Cost
Direct materials 7.2 Ounces 2.5 per ounce 18
Direct Labor 0.4 Hours 10 per Hour 4

During the most recent month, the following activity was recorded:
a. Twenty thousand ounces of material were purchased at a cost of $2.40 per ounce.
b. All of the material was used to produce 2,500 bottles of Whim.
c. Nine hundred hours of direct labor time were recorded at a total labor cost of $10,800.

Required:
1. Compute the direct materials price and quantity variances for the month.
2. Compute the direct labor rate and efficiency variances for the month.

Question 04 (10 Points )

Mosbach Corporation has a standard cost system in which it applies overhead to products based
on the standard direct labor-hours allowed for the actual output of the period. Data concerning the
most recent year are as follows:

Variable overhead cost per direct labor-hour . . . . . . . . . . . . . . . . . . . . . . $3.50

Total fixed overhead cost per year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000
Budgeted standard direct labor-hours (denominator level of activity) . . . . 80,000
Actual direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000
Standard direct labor-hours allowed for the actual output . . . . . . . . . . . . . 82,000

Required:
1. Compute the predetermined overhead rate for the year.
2. Determine the amount of overhead that would be applied to the output of the period.

Sonne Company produces a perfume called Whim. The direct materials and direct labor
standards for one bottle of Whim are given below: During the most recent month, the following
activity was recorded. a. 14, 850 ounces of material were purchased at a cost of $2.00 per
ounce. b. All of the material was used to produce 1, 500 bottles of whim. c. 600 hours of direct
labor time were recorded at a total labor cost of $4, 200. 1. Compute the direct materials price
and quantity variances for the month.
Part two : Total Marks : 30

Question 01 (15 Points)

EagleEye Ltd. produces and sells a single product, a wooden hand
loom for weaving small items such as scarves. Selected cost and operating
data relating to the product for two years are given below:

Selling price per unit . . . ………….. . . . . . . . . . . . . . . . . . . …………………. 65

Manufacturing costs:
Variable per unit produced:
Direct materials . . . . . . . . . . . . . . . . . . . . . . …………………..……………….. $12
Direct labor . . ………………………. . . . . . . . . . . . . . . . . . . . . . ………….. $6
Variable manufacturing overhead . . . . . . . . …………………………………….. 3
Fixed manufacturing overhead per year . . . . . . …………………………….. $120,000

Selling and administrative expenses:

Variable per unit sold . . . . . . . . . . . . . . . . . . . …………..…………………. 4
Fixed per year . . . . . . . . . . . . . . . . . . . . . . . . ……………………………….. 70000

Year 01 Year 02
Units in beginning inventory . . . . . . . . . . ………………..
0 4000
Units produced during the year . . . . . . . …………… 12000 6000
Units sold during the year . . . . . . . . . . . ……………..
8000 8000
Units in ending inventory . . . . . . . . . . . . ……………….
4000 2000

Required:
1. Assume the company uses absorption costing.
a. Compute the unit product cost in each year.
b. Prepare an income statement for each year.

2. Assume the company uses variable costing.

a. Compute the unit product cost in each year.
b. Prepare an income statement for each year.

3. Reconcile the variable costing and absorption costing net operating incomes.
Explain why operating income differ when prepared under variable and absorption costing
systems.
Question 02 (15 Points)
Calgon Products, a distributor of organic beverages, needs a cash budget for September.
The following information is available:

a. The cash balance at the beginning of September is $9,000.

b. Actual sales for July and August and expected sales for September are as follows:

July August September

Sales on Account 26500 35250 47400

Sales on account are collected over a three-month period as follows: 10% collected in the
month of sale, 70% collected in the month following sale, and 18% collected in the second
month following sale. The remaining 2% is uncollectible.

c. Purchases of inventory will total $25,000 for September. Twenty percent of a month’s inventory
purchases are paid for during the month of purchase. The accounts payable remaining
from August’s inventory purchases total $16,000, all of which will be paid in September.

d. Selling and administrative expenses are budgeted at $13,000 for September. Of this amount,
$4,000 is for depreciation.

e. Equipment costing $18,000 will be purchased for cash during September, and dividends totaling
$3,000 will be paid during the month.

f. The company maintains a minimum cash balance of $5,000. An open line of credit is available
from the company’s bank to bolster the cash balance as needed.

Required:
1. Prepare a schedule of expected cash collections for September.
2. Prepare a schedule of expected cash disbursements for inventory purchases for September.
3. Prepare a cash budget for September. Indicate in the financing section any borrowing that will
be needed during September. Assume that any interest will not be paid until the following month.
Part 03: Total Points :30

Question 01 (15 Points )

Bikkhato restaurant mainly manufactures and sell one product called Crab curry. Relevant cost and sales data are
given below:

Variable cosrs: Fixed Costs (per month) :

Price per Crab 35 Rent 16000

Fried Rice 10 Salary 30000
Salad 15 Utility Bills 5000
Others 10 Other Charges 5000
Total variable cost 70 Total Fixed cost 56000

Other information:
Selling price per plate : 120 tk
Daily sales 50 Pcs

Requirement:

I Generate contribution format incomestatement showing total, per unit and percentage column.
II Calcualte break-even point in terms of taka sales and sales in units.
III Draw break-even graph showing all the relevant information.
IV Identify sales of the company assuming target profit of 50000 taka per month.
V What is the margin of safety in sales and percentage at current level of sales
VI Calculate degree of operating leverage (DOL) and explain its significance
VII Due to recent increase in the price of onion salad cost has gone up by 50% taka per plate
moreover rent of the factory has increased by 1000 taka per month. Considering the recent
changes recompute income satement of the company.
VIII If price is reduced to 100 taka then the company expects to increase sales by 10% per month.
Would you recommend the company to change ?
Question 02 (15 Marks)
Rehm Company manufactures a product that is available in both a deluxe model and a regular
model. The company has manufactured the regular model for years. The deluxe model was introduced
several years ago to tap a new segment of the market. Since introduction of the deluxe
model, the company’s profi ts have steadily declined, and management has become increasingly
concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing
rapidly.
Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current
year, the company has estimated that it will incur $6,000,000 in manufacturing overhead cost
and produce 15,000 units of the deluxe model and 120,000 units of the regular model. The deluxe
model requires 1.6 hours of direct labor time per unit, and the regular model requires 0.8 hours.
Material and labor costs per unit are as follows:

Model
Deluxe Regular
Direct Materials 154 112
Direct Labor 16 8

Required:
1. Using direct labor-hours as the base for assigning manufacturing overhead cost to products,
compute the predetermined overhead rate. Using this rate and other data from the problem,
determine the unit product cost of each model.
2. Management is considering using activity-based costing to apply manufacturing overhead
costs to products for external financial reports. The activity-based costing system would have
the following four activity cost pools:
Estimated
Activity Cost Pool Activity Measures Overhead Costs
Purchase Orders No Of Purchase orders 252000
Scrap/rework Orders No of scrap/rework orders 648000
Product Testing Number of tests 1350000
Machine Related Machine - Hours 3750000
Total Overhead Cost 6000000

Expected Activity
Activity Measures Deluxe Regular Total
No Of Purchase orders 400 800 1200
No of scrap/rework orders 500 400 900
Number of tests 6000 9000 15000
Machine - Hours 20000 30000 50000

Compute the predetermined overhead rates (i.e., activity rates) for each of the four activity cost pools.

3. Using the predetermined overhead rates computed in part (2) above, do the following:
a. Compute the total amount of manufacturing overhead cost that would be applied to each
model using the activity-based costing system. After these totals have been computed,
determine the amount of manufacturing overhead cost per unit for each model.
b. Compute the unit product cost of each model (materials, labor, and manufacturing
overhead).
4. From the data you have developed in (1) through (3) above, identify factors that may account
for the company’s declining profits

--------------------------------------------Good Luck-------------------------------------------------------------