Question 2: Manufacturing Statement and Income Statement (20 marks in total)


Lake Ltd.’s accounting department provided following financial information:

Depreciation Expense – Factory Equipment $       90,000
Direct Labour $  1,284,000
Raw Material Inventory (1st July, 2016) $     183,000
Raw Material Inventory (30th June, 2017) $     186,000
Factory Rent $     152,820
Finished Goods (1st July, 2016) $     264,000
Finished Goods (30th June, 2017) $     345,000
Indirect Labour $       75,000
Indirect Materials $       52,500
Sales Revenue $  6,751,500
Administration Expenses $     600,000
Selling & Distribution Expenses $  1,200,000
Purchase of Raw Material $  1,200,360
Freight In $       90,000
Work in Process (1st July, 2016) $       60,600
Work in Process (30th June, 2017) $       57,330


Required: prepare a statement of Cost of Goods Manufactured and an Income Statement for Lake Ltd. for the year ended 30th June 2017.




Question 3: Job order costing (20 marks in total)

The Port Furniture Company manufactures tables. In March 2017, the two production departments had budgeted allocation bases of 4,000 machine-hours in Department A and 8,000 direct manufacturing labour-hours in Department B. The budgeted manufacturing overheads for the month were $57,500 and $62,500, respectively. Job X incurred 800 Machine Hours in Department A and 300 Direct Labour- Hours in Department B. For Job X, the actual costs incurred in the two departments were as follows:

Financial Information for Job X
Department A Department B
Direct materials purchased on account $        110,000.00 $       177,500.00
Direct materials used $          32,500.00 $         13,500.00
Direct labour $          52,500.00 $         53,500.00
Indirect labour $          11,000.00 $            9,000.00
Indirect materials used $            7,500.00 $            4,750.00
Lease on equipment $          16,250.00 $            3,750.00
Manufacturing Utilities $            1,000.00 $            1,250.00


The company uses a budgeted overhead rate for applying overhead to production.



3a. Determine the budgeted manufacturing overhead rate for each department.

3b. Prepare necessary journal entries to summarise the March transactions for Department A.

3c. Determine the total cost of Job X.


Question 4: Service department cost allocation (20 marks in total)


Inns Battery Company has two service departments: Maintenance and Personnel. Maintenance Department costs are allocated on the basis of budgeted maintenance-hours. Personnel Department costs are allocated based on the number of employees. Data on budgeted maintenance-hours and number of employees are as follows:

Support Departments Production Departments
Maintenance Department Personnel Department A B
Budgeted costs $180,000 $30,000 $80,000 $120,000
Budgeted maintenance-hours n/a 240 720 240
Number of employees 20 n/a 60 120



4a. Using the direct method, determine the amount of support department costs to be allocated to Production Department A.

4b. Using the step-down method, determine the amount of Maintenance Department costs to be allocated to Production Department A, if the service department with the highest percentage of interdepartmental support service is allocated first.

4c. Using the reciprocal method, determine the amount of maintenance department costs to be allocated to Production Department A (round up to nearest dollar).



Question 5: Activity Based Costing (20 marks in total)

Come-On-In company produces two types of entry doors: Standard and Deluxe. The assignment basis for manufacturing overheads has been direct labour hours. For 2016, the company complied the following data for the two products:

Standard Deluxe
Sales units 400,000 Doors 50,000 Doors
Sales price per unit $                  475 $               690
Direct material cost per unit $                    90 $               120
Direct labour cost per unit $                    40 $                 60
Manufacturing overhead cost per unit $                  120 $                 80


During 2016, the company purchased a state-of-art robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. The information gathered is as follows:

Activity Cost Driver Standard Deluxe Total Cost
Setups Number of setups 100  400 500 $          2,900,000
Machine-related Number of machine hours          300,000          300,000          600,000 $        44,100,000
Packing Number of shipments          200,000         50,000          250,000 $          5,000,000



5a. Using the current cost system, determine the total cost of manufacturing one unit of each product and the profit per unit for each product.

5b. Under the current cost system, estimated manufacturing overhead per unit are less for the deluxe door ($80) than the standard door ($120). What is a likely explanation for this?

5c. Using the activity-based costing data, compute the cost driver rate for each overhead activity.

5d. Compute the revised manufacturing overhead cost per unit for each type of product.

5e. Is the deluxe door as profitable as the original data estimated using previous cost system? Why or why not? Explain.


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