Managerial Accounting

Question 1: (Total 9 Marks)

Tamworth Truck manufactures part YYY used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Tamworth Truck has the option of purchasing part YYY from an outside supplier at $11.20 per unit. If part YYY is outsourced, 40% of the fixed costs cannot be immediately converted to other uses (i.e. cannot be avoided).

a. Describe ‘avoidable’ costs. What amount of the YYY production costs is avoidable?

b. Should Tamworth Truck outsource YYY? Why or why not?

c. What other items should Tamworth Truck consider before outsourcing any of the parts it currently manufactures?

Question 2: (Total 11 Marks)

Tamworth Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:

Required:

Assume a traditional costing systemapplies the $80,000 of overhead costs based on direct labor hours.

a. What is the total amount of overhead costs assigned to the standard model?

b. What is the total amount of overhead costs assigned to the deluxe model?

AND,

Assume an activity-based costing systemis used and that the number of setups and the number of componentsare identified as the activity-cost drivers for overhead.

c. What is the total amount of overhead costs assigned to the standard model?

d. What is the total amount of overhead costs assigned to the deluxe model?

e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

Question 3: (Total 13 Marks)

Tamworth Company has the following information:

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.

Required:

Prepare a purchases budget for April through June (one column for each month), giving ‘total figures’ for the quarter in the forth column.

Question 4: (Total 10 Marks)

Tamworth Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfil a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:

Tamworth Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.

 Required:

a. For Tamworth Cabinets, what is the minimum acceptable price of this one-time-only special order?

b. Other than price, what other items should Tamworth Cabinets consider before accepting this one-time-only special order?

c. How would the analysis differ if there was limited capacity?