Question 1: The expected costs and operating data for two manufacturers are presented below.
|Aloe Ltd||Basil Ltd.|
|Units Produced||104 000||83 960|
|Factory overhead costs||$499 200||$888 160|
|Direct labor hours||151 600||164 000|
|Direct labor costs||$996 000||$803 600|
Aloe Ltd applies factory overhead on the basis of units of production, whereas Basil Ltd uses direct labour hours. During the last financial year, Aloe Ltd produced 109 600 units and incurred factory overhead costs of $528 000, and Basil Ltd’s overhead costs were $860 000, using 174 000 direct labour hours.
- Calculate the predetermined factory overhead rate for each company.
- Indicate whether factory overhead was overapplied or underapplied for each company, and by how much.
Question 2: Bounce Athletics Ltd, which develops and runs athletics training programs for primary schools, has budgeted revenue for the first 6 months of 2020 as follows.
All revenue is provided on account and Bounce Athletics Ltd posts out the account statements on the last day of each month for that month’s services. Schools are given 14 days to pay and 70% of schools pay within the month. The other 30% usually pay the following month. In December 2019 Bounce Athletics Ltd provided no training programs as the schools were preparing for the end-of-year break. The company also made sure that all outstanding balances owed by schools from November were paid before the end of December 2019.
- Prepare a schedule of estimated cash collections from revenue for the first 6 months of 2020 for Bounce Athletics Ltd.
Question 3: David Booth operates Booth Bootcamp Pty Ltd. David is a graduate of a sports and a recreation course, offers customised adventures for business groups wanting to develop their staff. Two clients have approached Booth Bootcamp Pty Ltd to run an adventure in the first week of April but David can run only one adventure at a time and has to choose which alternative will maximise profit. Both adventures will require a week of David’s time at a cost of $1100 and the use of the company’s specially fitted-out SUV at a cost of $2800. One client wants a rock climbing adventure for 10 people and will pay up to $860 per person. The cost per person for food and equipment is $180 and fixed setup costs are $2500. The other client wants a white water rafting adventure for 8 people and will pay up to $900 per person. David estimates the cost per person for food and equipment is $170 and the fixed setup costs are $2500.
(a) Using only the differential income and expenses determine which adventure David should provide.
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