Question 1

Hi Tech Products manufactures three (3) types of CD players: Cheap, Econo and Deluxe. Hi Tech uses an activity-based product costing system. The company has identified five (5) activities. Each activity, its cost and related activity driver are identified below:


Activity                             Activity Cost     Activity Driver
Material handling     $225 000     Number of parts
Material insertion     $2 475 000     Number of parts
Automated machinery     $840 000     Machine hours
Finishing     $170 000     Labour hours
Packaging     $170 000     Orders shipped

Total manufacturing cost                                $3 880 000


The following information pertains to each product line of CD players:


  Cheap  Econo  Deluxe
Units to be produced 10 000 5000 2000
Orders to be shipped 1000 500 200
Number of parts per unit 10 15 25
Machine hours per unit 1 3 5
Labour hours per unit 2 2 2


Under an activity-based product costing system, what is the cost per unit of Cheap?


Question 2

Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units respectively. It takes half a kilogram of direct material to make one unit of finished product. Materials inventory is maintained at 10 per cent of the next month’s budgeted production needs. If the 30 June inventory of materials was 5000 kg, how many kilograms of direct material should be purchased during July?


Question 3

Cultco Company Ltd has set the following direct material standards per unit of product: 2.5 kg @ $3.00 per kg; $7.50 per unit. During April, actual direct material purchased and used amounted to 8000 kg at a cost of $3.10 per kg. Actual production amounted to 3000 units. Determine the total material variance.


Question 4

Fragrance Pty Ltd has two (2) divisions: the Cologne Division and the Bottle Division. The company is de-centralised and each division is evaluated as a profit centre.

The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division’s variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division’s external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division.

  1. Using the general rule, calculate the minimum transfer price from the Bottle Division to the Cologne Division.
  2. For the period just ended, Trek Corporation’s Trailer Division reported profit of $54 million and invested capital of $450 million. Assuming an imputed interest rate of 10 per cent, calculate Trailer’s return on investment (ROI) and residual income. Explain what each calculation of ROI and RI means for Trek.

Question 5

Chelonia Ltd manufactures small robot toys. It plans to introduce two products, Speedie and Spunkie. It is anticipated that the product mix will be 40% Speedie and 60% Spunkie. One unit of Speedie will be sold for $100, with variable cost equals $40. For a unit of Spunkie, the selling price will be $120 and the variable cost is $70. The fixed cost for producing the two products is $108 000.

  1. What is the break-even point in units for each product?
  2. The company plans to include a safety margin of $20 000 before tax. Assuming a tax rate of 30%, what should be the budgeted sales in units?

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