COST ACCOUNTING

YANBU UNIVERSITY COLLEGE MANAGEMENT SCIENCE DEPARTMENT

1

ACCT 315 – COST ACCOUNTING SEMESTER 151

CASE STUDY PROJECT

Name: _________________________ Id No: _______________ Section: ____1__

Name: __________________________ Id No: ________________

Name: __________________________ Id No: ________________

Name: __________________________ Id No:_________________

Due Date: 14 December 2015

CLO PLO Total Marks Marks

Awarded

3 PS4 20

4 AS3 20

4 AS3 20

TOTAL MARKS AWARDED 60

QUESTION 1 (PS4) 20 Marks

Eco green Company manufactures cloth shopping bags that it plans to sell for $5 each. Budgeted

production and sales for these bags for 2011 is 800,000 bags, with a standard of 400,000

machine hours for the whole year. Budgeted fixed overhead costs are $470,000 and variable

overhead cost is $1.60 per machine hour. Because of increased demand, actual production and

sales of the bags for 2010 are 900,000 bags using 440,000 actual machine hours. Actual variable

overhead costs are $699,600 and actual fixed overhead is $501,900. Actual selling price is $6 per

bag. Direct materials and direct labor actual costs were the same as standard costs, which were

$1.20 per unit and $1.80 per unit respectively.

Required:

1. Calculate the variable overhead and fixed overhead variances (spending, efficiency, spending and volume)

2. Create a chart showing the Flexible Budget Variances and Sales Volume Variances for revenue, costs, contribution margin and operating income.

3. Calculate the operating income based on budgeted profit per shopping bag. 4. Reconcile the budgeted operating income from requirement 3 to the actual operating

income from your chart in requirement 2.

Prepared by: Dr Wan Azmimi Wan Mohamed

2

5. Calculate the operating income volume variance and show how the sales volume variance is comprised of the production volume variance and the operating income volume

variance.

QUESTION 2 (AS3) 20 Marks

Spirit Training Inc. manufactures athletic shoes and athletic clothing for both amateur and

professional athletes. The company has two product lines (clothing and shoes), which are

produced in separate manufacturing facilities; however, both manufacturing facilities share the

same support services for information technology and human resources. The following shows

total costs for each manufacturing facility and for each support department.

Variable Costs Fixed Costs Total Costs by

Department (in

thousands)

Information

Technology (IT)

$500 $1500 $2000

Human Resources

(HR)

$100 $900 $1000

Clothing $3000 $7000 $10000

Shoes $2500 $5500 $8000

Total Costs $7100 $16900 $24000

The total costs of the support departments (IT and HR) are allocated to the production

departments (clothing and shoes) using a single rate based on the following:

Information Technology - Number of IT labor hours worked by department

Human Resources - Number of employees supported by department

Data on the bases, by department, are given as follows:

Department IT Hours (used) Number of Employees

Clothing 5000 120

Shoes 3000 40

Information Technology - 40

Human Resources 2000

Required:

1. What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology and human resources have been

allocated using the reciprocal method?

2. Assume that all the work on the IT department could be outsourced to an independent company for $97.50 per hour. If Spirit Training no longer operated its own IT

department, 30% of the fixed costs of the IT department could be eliminated. Should

Spirit outsource its IT services?

YANBU UNIVERSITY COLLEGE MANAGEMENT SCIENCE DEPARTMENT

3

Question 3 (AS3) 20 Marks

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

tomatoes. During the summer of 20X5, 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:

Product

Units

Produced

(Cases)

Sales Value at

Split off Point Separable Costs

Units Sold

(Cases) Selling Price

Catsup 100,000 $6 per case $3.00 per case 90,000 $28 per case

Juice 150,000 8 per case 5.00 per case 100,000 25 per case

Canned 200,000 5 per case 2.50 per case 180,000 10 per case

Required:

Compute Red Sauce Canning income for Catsup, Juice and Canned when joint costs are

allocated using the following:

i. Sales Value at Split off Point ii. Net Realizable Value Method

END OF QUESTIONS