Four questions of Cost accounting

ACC00146 – 2014 S3

ASSIGNMENT 2

Question 1 (5 marks)

You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting of company assets to personal use. Briefly describe the steps you might take to resolve this dilemma and use a real world example (not hypothetical) to support your approach.

Question 2 (5 marks)

Kenworth Company has the following projected account balances for June 30, 2014:

Accounts payable $40,000 Sales $800,000

Accounts receivable 100,000 Capital stock 400,000

Depreciation, factory 24,000 Retained earnings ?

Inventories (5/31 & 6/30) 180,000 Cash 56,000

Direct materials used 200,000 Equipment, net 240,000

Office salaries 80,000 Buildings, net 400,000

Insurance, factory 4,000 Utilities, factory 16,000

Plant wages 140,000 Selling expenses 60,000

Bonds payable 160,000 Maintenance, factory 28,000

Required:

a. Prepare a budgeted income statement for June 2014.

b. Prepare a budgeted balance sheet as of June 30, 2014

c. How do we use computer-based budgeting in sensitivity analysis?

d. Explain how the choice of the type of responsibility center affects behaviour.

Question 3 (5 marks)

The Alex Miller Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:

Budgeted costs of the operating the plant

for 10,000 to 20,000 hours:

Fixed operating costs per year $240,000

Variable operating costs $10 per hour

Practical capacity 20,000 hours per year

Budgeted long-run usage per year:

Lamp Division 800 hours × 12 months = 9,600 hours per year

Flashlight Division 450 hours × 12 months = 5,400 hours per year

Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June.

Required:

a. If a single-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?

b. For the month of June, if a single-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.

c. If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?

d. For the month of June, if a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

e. Explain which method is the most practical?

Question 4 (5 marks)

a. Oregon Lumber processes timber into four products. During January, the joint costs of processing were $280,000. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows: (2 marks)

		Sales Value at
Product	Board feet	Splitoff Point	Ending Inventory
2 x 4's	6,000,000	$0.30 per board foot	500,000 bdft.
2 x 6's	3,000,000	0.40 per board foot	250,000 bdft.
4 x 4's	2,000,000	0.45 per board foot	100,000 bdft.
Slabs	1,000,000	0.10 per board foot	50,000 bdft.

Required:

Determine the value of ending inventory if the sales value at splitoff method is used for product costing and explain why product costing is important. Round to 3 decimal places when necessary.

b. Silver Company uses one raw material, silver ore, for all of its products. It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods. (3 marks)

Required:

Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?