Assignment 1 (25 points)

BO & BA Ltd manufactures traditional beer of the brand HAN for the Chinese market.

The company has provided you with the following information on variable costs per barrel of HAN beer for 2012:

Direct labour: € 40

Direct materials: € 128

Variable overheads: € 24

______ +

Total variable costs € 192

Fixed costs: € 326,400

Selling price per barrel: € 240

Expected sales volume: 70,000 barrels of HAN beer

The sales targets for next year, 2013, has been set at 80,000 barrels of HAN beer, and fixed costs are expected to rise to € 360,000. The selling price would rise to € 250 per barrel of HAN beer and the variable costs would increase by € 8 per barrel of HAN beer.

Assignments:

1.1 The total profit for 2012 and 2013. (6 points)

1.2 The break-even point (sales volume) for 2012 and 2013. (6 points)

1.3 The sales level that would have attained in 2013 in order to generate a profit equal to that, which was earned in 2005. (6 points)

1.4 The maximum amount which could be spent on additional fixed costs at a sales level of 65,000 barrels of HAN beer in 2013 and to produce a profit of € 2,000,000. (7 points)

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Assignment 2 (25 points)

Shown below is an extract from next year’s plans for a business manufac-turing three products A, B and C, in three production departments.

A B CUnits of production 4,000 3,000 6,000Direct material costs € 7 per

unit€ 4 per unit € 9 per unit

Direct labour skilled cut-ting

3 hours/unit

5 hours/unit 2 hours/unit

Direct labour unskilled cut-ting

6 hours/unit

1hour/unit 3 hours/unit

Direct labour machining dep.

½ hour/unit

¼ hour/unit ⅓ hour/unit

Direct labour pressing dep. 2 hours/unit

3 hours/unit 4 hours/unit

Machine requirements 2 hours/unit

1½hours/unit

2½ hours/unit

The skilled operatives employed in the cutting department are paid € 8 per hour and the unskilled operatives are paid € 5 per hour. All the operat-ives in the machining and pressings departments are paid € 6 per hour.

CuttingDep.

Machin-ing Dep.

Press-ingDep.

Engin-eering Dep.

Person-nel Dep.

Total overheads € 154,482

€ 64,316 € 58,452

€ 56,000 € 34,000

Engineering ser-vices1

20% 45% 35%

Personnel services2 55% 10% 20% 15%

Engineering and personal department are service departments.

The business operates a full absorption costing system.

Assignments:

2.1 Calculate, as equitable as possible, the total planned cost of one complete unit of product A. (20 points)

2.2 Give some (2) theoretical comments on a cost price based on ab-sorption costing (compared with a system of activity based costing) and/or target costing. (5 points)

1 Service department costs incurred of other departments: Engineering services2 Service department costs incurred of other departments: Personnel services

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Assignment 3 (25 points)

Normal manufacturing support costs of Volta Telecommunication Services Ltd for September 2010 are as follows:

Cost Pools Normal CostsPower $ 40,000Materials handling $ 90,000Setups $ 80,000Quality inspec-tions

$ 40,000

Total $ 250,000

The present cost accounting system allocates support costs to final products based on machine hours. Estimated machine hours for September 2010 are 50,000. After losing several bid recently, Frank Anderson, the CEO3, asked the controller to implement an activity-based costing system, because he was told that activity-based costing provides more accurate product cost estimates. The controller collected the following data:

Activities Cost Drivers Available Capa-city

Costs

Electric Power Kilowatt hours (kwh) 20,000 kwh $ 40,000Materials hand-ling

Material moves 5,000 moves $ 90,000

Setup Machine set ups 1,000 set ups $ 80,000Quality inspection Number of inspec-

tions2,000 inspections $ 40,000

Total $ 250,000

The company recently received a request for a bid to supply 1,000 units of its product M5. The following estimates were prepared for the production of 1,000 units of M5:

Item AmountDirect material costs $ 20,000Direct labour costs $ 18,000Machine hours 1,800Direct labour hors 2,000Kilowatt hours of electricity 2,000Number of material moves 40Number of machine setups 5Number of quality inspections 20

3 CEO = Chief Executive Officer

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Assignments:

3.1 What is the estimated cost per unit of M5 under the present cost accounting system? (10 points)

3.2 What is the estimated cost per unit of M5 if activity-based costing (ABC) is used? (10 points)

3.3 Which of the two methods of cost-price calculation provide the management the best decision tool? Explain your choice. (5 points)

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Assignment 4 (25 points)

Bradley-Allen Ltd makes one standard product. Its budgeted operating statement for May is as follows:

Sales (800 units) £ 64,000

Direct material Type A

£ 12,000

Direct material Type B

£ 16,000

Direct labour skilled £ 4,000Direct labour un-skilled

£ 10,000

Fixed overheads £ 12,000

Total Costs £ 54,000

Operating profit £ 10,000

The standard costs were as follows:

Direct materialso Type A £ 50/kgo Type B £ 20/metre

Direct labouro Skilled £ 10/houro Unskilled £ 8/hour

During May, the following occurred:

1. 950 units were sold for a total of £ 73,0002. 310 kilos (costing £ 15,200) of type A material was used in produc-

tion3. 920 metres (costing £ 18,900) of type B materiall were used in pro-

duction4. Skilled workers were paid £ 4,628 for 445 hours5. Unskilled workers were paid £ 11,275 for 1,375 hours6. Fixed overheads cost £ 11,960

There was no inventory of finished production or work in progress at either the beginning or end of May.

Required:

4.1 Prepare a statement that reconciles the original budget (via the flexed budget) to the actual profit of the business for May. (10 points)

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4.2 Calculate and analyse all the variances (11) between the 3 profit fig-ures in as much detail as you are able. (15 points)

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