managerial accounting individual assignment

DIPLOMA IN MANAGEMENT STUDIES

ACC 2103 MANAGEMENT ACCOUNTING (April– June 2021)

INDIVIDUAL ASSIGNMENT (50 marks; 30% of the overall weightage)

QUESTION 1 (11 marks)

You have also been given the following information from the company, Faithful and True

Limited for the month of December 2020:

$’000

Beginning raw materials inventory 5,000

Ending raw materials inventory 10,000

Beginning work in process inventory 15,000

Ending work in process inventory 24,000

Beginning finished goods inventory 20,000

Ending finished goods inventory 28,000

Purchases of raw materials 80,000

Direct labour 10,000

Indirect materials 10,000

Indirect labour 15,000

Distribution expenses 7,600

Property tax on Factory 6,500

Factory Supplies 5,800

Administrative expenses 6,700

Factory utilities 10,000

Office printing expenses 2,000

Sales 400,000

Required:

(a) A Statement of cost of goods manufactured for December 2020, showing clearly the details of the costs.

(6 marks)

(b) A Statement of cost of goods sold for December 2020. (2 marks)

(c) An Income statement for December 2020. (3 marks)

QUESTION 2 (26 marks)

Job the Builder is a leading construction company. It produces glass panel walls for the

industry. The annual income statement of Job the Builder for year ended 31 December 2020 is

as follows:

Sales revenue (60,000 units) $3,600,000

Less: Cost of goods sold

Direct materials $480,000

Direct labour $600,000

Variable manufacturing overheads $120,000

Fixed overheads $300,000 $1,500,000

$2,100,000

Less : Selling & administrative expenses

Sales commission (% of sales revenue) $288,000

Fixed selling & admin expenses $420,000 $ 708,000

Net operating income $1,392,000

Required: ( Treat each case independently. Round off all computations as whole

numbers.)

(a) Compute the break-even point in units and in sales dollars . What is the current margin of

safety in sales dollars?

(8 marks)

(b) The company believes that they are able to earn a targeted profit of $1,500,000 next year,

how many glass panels walls must they sell to achieve this target.

(2 marks)

(c) With reference to the answers in (a) and (b), explain the significance of break-even analysis

and margin of safety to management.

(4 marks)

(d) In order to improve its profitability, the sales manager is proposing a 5% reduction in the

selling price because he believes it will lead to a 25% increase in number of units sold. Assume

fixed costs remain unchanged, should Management accept this proposal? Explain clearly with

workings showing the impact of this proposal on profitability.

(4 marks)

(e) For 2021, Management is proposing to export its glass panel walls to Indonesia. As a trial

for the initial expansion, the company will incur additional annual fixed expense of $60,000.

Direct materials are expected to increase by $10 but no sales commission will be paid for sales

commission.

How many glass panel walls must be sold to Indonesia if Job the Builder wants to maintain

its current profit level as a whole assuming that all other revenue and costs remain unchanged.

(4 marks)

(f) Explain how would an understanding of cost behaviour help the managers in decision-

making and planning.

( 4 marks)

QUESTION 3 (13 marks)

( Question is to be considered independently )

Job the Builder is also exploring the possibility of investing in a company, QQ Tiles Pte Ltd.

QQ Tiles Pte Ltd has furnished the following records of the total overheads and the number of

machine hours over a six-months period in 2020.

Month Machine Hours Total Overhead Costs ($)

July 1,364 32,290

August 2,406 51,119

September 842 22,912

October* 607 15,139

November 725 19,545

December 2,108 46,700

*The components of October’s total overhead costs were as follows:

$ Cost Behavior

Factory utilities 8,180 Mixed

Factory supplies 4,249 Variable

Rental of facilities 2,710 Fixed

15,139

(a)Using the high-low method, construct the cost formula for factory utilities.

(10 marks)

(b) Using the cost formula derived in (a), estimate the total overhead costs if the total machine

hours are expected to be 2,000 for the next month .

(3 marks)