solutions to tutorial 4 assigned questions
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8/17/2019 Solutions to Tutorial 4 Assigned Questions
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Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
IRM t/a Langfield-Smith, Thorne, Smith, Hilton Management Accounting 7e
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SOLUTIONS TO PROBLEMS
PROBLEM 8.33 (60 minutes) Conventional and activity-based product costing:manufacturer
1 Overhead to be assigned to film development chemical order:
Activity
Cost per unit of
activity driver Level of activity driver Assigned overhead cost
Machine setups $3000 per setup 4 setups $ 12 000
Material handling $3 per kg 10 000 kg 30 000
Hazardous waste control $7.50 per kg 2000 kg 15 000
Quality control $112.50 per inspection 10 inspections 1 125
Other overhead costs $15 per machine hour 500 machine hrs 7 500
Total $65 625
2 Overhead cost per box of chemicals=$65 625
1000 boxes = $65.625 per box
3 Predetermined overhead rate=
total budgeted overhead cost
total budgeted machine hours
=$937 500
20 000 = $46.875 per machine hour
4 Overhead to be assigned to film development chemical order, given a single predetermined overhead rate:
(a) Overhead assigned=$46.875 per machine hour @ 500 machine hours
=$23 437.50 in total
(b) Overhead cost per box of chemicals=$23 437.50
1000 boxes = $23.44 per box (rounded)
5 The production of film development chemicals entails a relatively large number of machine setups, alarge amount of hazardous materials and several inspections. Thus, they are quite costly in terms of
driving overhead costs. Use of a single predetermined overhead rate obscures this characteristic of the production job. Underestimating the overhead cost per box could have adverse consequences forSnappy. For example, it could lead to poor decisions about product pricing. The simple activity-basedcosting system for overhead will serve management much better than the system based on a single,
predetermined overhead rate.
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Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
IRM t/a Langfield-Smith, Thorne, Smith, Hilton Management Accounting 7e
2
6 Calculation of overhead assigned to photographic plates:
Activity Cost per unit of Level of Assigned overhead cost
Machine setups $3000 per setup 2 setups $ 6 000.00
Material handling $3 per kg 800 kg 2 400.00
Hazardous waste control $7.50 per kg 300 kg 2 250.00
Quality control $112.50 per 3 inspections 337.50
Other overhead costs $15 per machine hour 50 machine hours 750.00
Total $11 737.50
Overhead cost per unit =$11 737.50
100 plates
=$117.38 per unit
Calculation of unit cost, per plate: Direct material $180.00
Direct labour 60.00
Manufacturing overhead 117.38
Total cost per plate $357.38
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Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
IRM t/a Langfield-Smith, Thorne, Smith, Hilton Management Accounting 7e
3
PROBLEM 7.41 (45 minutes) (appendix) Absorption versus variable costing:manufacturer
1
Cost per unit Variable Absorption
Direct material $5.00 $5.00
Direct labour 2.00 2.00Variable overhead 3.00 3.00
Fixed overhead * 2.00
$10.00 $12.00
* Fixed overhead = budgeted fixed overhead
budgeted level of production
= $300 000
150 000
= $2 per unit
2 (a)
Feeling Fab Ltd
Absorption Costing Income Statement
For the Year Ended 30 June
Sales revenue (125 000 units sold at $15 per unit) $1875 000
Less: Cost of goods sold (at absorption cost of $12 per unit) 1500 000
Gross margin375 000
Less: Selling and administrative expenses:
Variable (at $1 per unit) 125 000
Fixed 50 000175 000
Net profit$200 000
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