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.
Required:
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 |
Required:
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 |
Required:
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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