Question 1: Management accounting information for resource management (10 Marks)

You have just been appointed as the management accountant for Close Up and Personal (CUP), a company that sells pottery items, jewellery and cool clothing, featuring personal digital photos. This company employs a team of 12 designers who design the pottery items, jewellery and clothing. These products are manufactured by independent companies. CUP then prints the customer ordered photos onto the products and sells them to customers through six sales outlets located in shopping malls.


1              Identify the specific types of management accounting information that may be needed by the following employees, on a monthly basis, to help them control operations:

(a)           Manager of each retail outlet.

(b)           Manager of the design team.

(c)           Marketing manager responsible for planning advertising campaigns and identifying customer needs.

(d)           Manager who manages and renegotiates contracts with the outside manufacturers.

2              The managing director of CUP is interested in developing more sophisticated planning systems, but has some doubts over the value of undertaking strategic planning. Prepare a report outlining the importance of planning systems. In your report, consider the interrelationships between the objectives of the company, its strategies and short-term planning systems. Explain how management accounting information may assist in improving the planning function of the company.


Question 2: Schedules of cost of goods manufactured and sold; income statement (10 Marks)


The following data refer to Flintoff Fashions for the current year:

Sales revenue                                                      $570 000

Work in process inventory, 31 December      18 000

Work in process inventory, 1 January             24 000

Selling and administrative expenses                              90 000

Income tax expense                                            54 000

Purchases of raw materials                               108 000

Raw material inventory, 31 December            15 000

Raw material inventory, 1 January                  24 000

Direct labour                                                         120 000

Electricity: plant                                                    24 000

Depreciation: plant and equipment                 36 000

Finished goods inventory, 31 December       30 000

Finished goods inventory, 1 January              12 000

Indirect material                                                   6 000

Indirect labour                                                      9 000

Other manufacturing overhead                        48 000


1              Prepare the schedule of cost of goods manufactured for Flintoff Fashions.

2              Prepare the schedule of cost of goods sold for Flintoff Fashions.

3              Prepare the income statement for Flintoff Fashions.

4              Construct an Excel® spreadsheet to solve all the preceding requirements. Include formulas in your spreadsheet wherever possible. Show how both cost schedules and the income statement will change if:

(a)           raw material purchases amounted to $110 400.

(b)           indirect labour was $9600.



Question 3: Cost behavior; engineered cost; committed and discretionary costs: manufacturer (10 Marks)

HappyDaze T-shirts manufactures and prints customised designs on T-shirts. Below is a list of some of their major costs.

(a)           Cost of daily radio advertising on the local community radio station.

(b)           Cost of the fabric used to make the T-shirts.

(c)           Cost of the ink used in the designs.

(d)           Salary of the managing director.

(e)           Wages of the production employees who sew and print the T-shirts.

(f)            Cost of movie tickets provided for the Employee of the Month award each month.

(g)           Depreciation of the sewing machines, calculated on a units of production basis.

(h)           Cost of electricity used in the factory building.

(i)            Rent of the building.

(j)            Wages of the staff who package the T-shirts.

(k)           Cost of sewing machine maintenance.

(l)            Cost of the new advertising sign at the front of the factory.

(m)          Cost of the company car used by the managing director.


For each cost:

1              Indicate whether it is fixed or variable.

2              If the cost is variable, indicate whether it is an engineered cost. Explain why.

3              If the cost is fixed, indicate whether it is committed or discretionary. Explain why.


Question 4: Cost of goods manufactured; overapplied or underapplied overhead; journal entries (10 Marks)

Cool Cooking Tools Ltd, manufacturer of gourmet cooking utensils, uses job costing. Manufacturing overhead is applied to production at a predetermined overhead rate of 150 per cent of direct labour cost. Any overapplied or underapplied manufacturing overhead is closed to cost of goods sold at the end of each month. Additional information:

Page 163

Job SR22, consisting of ceramic spoon rests, was the only job in process on 31 January, with accumulated costs as follows:

Direct material                                      $4000

Direct labour                                           2000

Applied manufacturing overhead       3000

Total                                                       $9000


Jobs BS67, TR29 and GT108 were started during February.

Direct materials requisitions during February totalled $26 000.

Direct labour cost of $20 000 was incurred during February.

Manufacturing overhead incurred in February was $32 000.


The only job still in process on 28 February was job number GT108, with costs of $2800 for direct material and $1800 for direct labour.


1              Calculate the cost of goods manufactured for February.

2              Calculate the amount of overapplied or underapplied overhead to be closed to cost of goods sold on 28 February.

3              Prepare journal entries to record the events described in requirements 1 and 2.

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