ASSIGNMENT 2 (2O MARKS)

ASSIGNMENT 2 (2O MARKS)

QUESTION 1 (5 MARKS)

Should a company allocate its corporate costs to divisions? Discuss using real world

examples to support your discussion. You must disclose the source of your

information (referencing)

QUESTION 2 (5 MARKS)

Big Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and

canned tomatoes. During the summer of 2013, the joint costs of processing the

tomatoes were $420,000. There was no beginning or ending inventories for the

summer. Production and sales value information for the summer is as follows:

Required:   

1. Determine the amount allocated to each product if the estimated net realizable value method is used, and compute the cost per case for each product. (2 marks)

2. What pitfalls are there in allocating joint costs among joint products, from a decision-making point of view? (1.5 marks)

3. What guidelines can be used in determining whether a joint product should be sold at the split-off point or processed further? (1.5 marks)

QUESTION 3 (5 MARKS)

NR Toys Pty manufactures a toy called Faze. The company has recently established a

budgeted cost system to help control costs and has established the following budgets

for the Faze toy:

Direct material: 6 pieces per toy at $0.50 per piece.

Direct labour: 1.3 hours per toy at $8 per hour.

During the month of July 2013, the company produced 3,000 Faze toys. Production

data for the month on the toy follow:

Direct material: 25,000 pieces were purchased for use in production at a cost of $0.48

per piece. Some 5,000 of these pieces were still in inventory at the end of the month.

Direct labour: 4,000 direct labour hours were worked at a cost of $36,000

Required:

1. Calculate direct material price and efficiency variances (1 mark)

2. Calculate direct labour price and efficiency variances. (1 mark)

3. Why are variances generally segregated in terms of a price variance and an     efficiency variance? (1 mark)

4. Prepare a brief report explaining the significance and possible cause of each variance. (2 marks)

QUESTION 4 (5 MARKS)                                                                                                 

The following information pertains to Amigo Corporation:

      Month                           Sales                 Purchases

      July                             $30,000                    $10,000

      August                         34,000                      12,000

      September                    38,000                      14,000

      October                        42,000                      16,000

      November                    48,000                      18,000

      December                     60,000                      20,000

·    Cash is collected from customers in the following manner:

            Month of sale (2% cash discount)                    30%

            Month following sale                                        50%

            Two months following sale                              15%

            Amount uncollectible                                         5%

·    40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Required:

a.   Prepare a summary of cash collections for the 4th quarter. (1 mark)

b.   Prepare a summary of cash disbursements for the 4th quarter. (1 mark)

c.   Do you think that requiring managers to work towards such predetermined (budgeted) targets might stifle their skill, flair or enthusiasm? Explain. You must support your discussion by real world examples and disclose the source of your information. (1.5 marks)

d.   What is wrong with comparing current performance with past performance or the performance of others, in an effort to exercise control? Discuss. (1.5 marks)