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Answered: - ACCT 361 MANAGEMENT ACCOUNTING WINTER 2016 ASSIGNMENT 2 DU


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ACCT 361 MANAGEMENT ACCOUNTING

 

WINTER 2016

 

ASSIGNMENT 2

 

DUE TUESDAY MARCH 29TH 2016

 

1. Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near

 

Quebec. The following table provides data concerning the company?s budgeted costs:

 

Fixed Cost per

 

Month

 

Cleaning supplies

 

Electricity

 

Maintenance

 

Wages and salaries

 

Depreciation

 

Rent

 

Administrative expenses

 


 

$ 1,400

 

$ 4,700

 

$ 8,300

 

$ 2,100

 

$ 1,800

 


 

Cost per Car Washed

 

$ 0.70

 

$ 0.10

 

$ 0.30

 

$ 0.40

 

$ 0.05

 


 

The company expects to charge customers an average of $5.90 per car washed. For November Auto

 

Lavage had assumed that 8,000 cars would washed.

 

The actual revenues and expenses for November are given below:

 


 

Sales

 

Variable expenses

 

Cleaning supplies

 

Electricity

 

Maintenance

 

Wages and salaries

 

Administrative expenses

 

Fixed expenses

 

Electricity

 

Wages and salaries

 

Depreciation

 

Rent

 

Administrative expenses

 


 

Actual Data for

 

8,100 Cars

 

$ 49,300

 

6,075

 

891

 

2,187

 

3,402

 

486

 

1,450

 

4,700

 

8,300

 

2,100

 

1,745

 


 

Required: (25)

 

a.

 


 

Prepare the budget for November. (10)

 


 

b.

 


 

Prepare the flexible budget variance report for November and indicate the flexible budget

 

variance, sales volume variance and static-budget variance. (15)

 


 

2. Knockoffs Unlimited, a nationwide distributor of low-cost imitation designer necklaces, has an

 

exclusive franchise on the distribution of the necklaces, and sales have grown so rapidly over the past

 

few years that it has become necessary to add new members to the management team. To date, the

 

company?s budgeting practices have been inferior, and, at times, the company has experienced a cash

 

shortage. You have been given responsibility for all planning and budgeting. Your first assignment is

 

to prepare a master budget for the next three months, starting April 1. You are anxious to make a

 

favourable impression on the president and have assembled the information below.

 

The necklaces are sold to retailers for $10 each. Recent and forecasted sales in units are as follows:

 

January (actual)

 

February (actual)

 

March (actual)

 

April

 

May

 

June

 

July

 

August

 

September

 


 

20,000

 

26,000

 

40,000

 

65,000

 

100,000

 

50,000

 

30,000

 

28,000

 

25,000

 


 

The large buildup in sales before and during May is due to Mother?s Day. Ending inventories should

 

be equal to 40% of the next month?s sales in units.

 

The necklaces cost the company $4 each. Purchases are paid for as follows: 50% in the month of

 

purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and

 

payable within 15 days. The company has found, however, that only 20% of a month?s sales are

 

collected by month-end. An additional 70% is collected in the following month, and the remaining

 

10% is collected in the second month following sale. Bad debts have been negligible.

 

The company?s monthly selling and administrative expenses are given below:

 

Variable:

 

Sales commissions

 

Fixed:

 

Advertising

 

Rent

 

Wages and salaries

 

Utilities

 

Insurance

 

Depreciation

 


 

4% of sales

 

$ 200,000

 

18,000

 

106,000

 

7,000

 

3,000

 

14,000

 


 

All selling and administrative expenses are paid during the month, in cash, with the exception of

 

depreciation and insurance. Insurance is paid on an annual basis, in November of each year. The

 

company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment

 

during June; both purchases will be paid in cash. The company declares dividends of $15,000 each

 

quarter, payable in the first month of the following quarter. The company?s balance sheet at March 31

 

is given below:

 

Assets

 

Cash

 

Accounts receivable ($ 26,000 February sales; $ 320,000 March sales)

 

Inventory

 

Prepaid insurance

 

Fixed assets, net of depreciation

 

Total assets

 


 

$

 


 

74,000

 

346,000

 

104,000

 

21,000

 

950,000

 

$ 1,495,000

 


 

Liabilities

 

Accounts payable

 

Dividends payable

 

Total liabilities

 


 

$ 100,000

 

15,000

 

115,000

 

Shareholders? Equity

 


 

Common shares

 

Retained earnings

 

Total shareholders? equity

 

Total liabilities and shareholders? equity

 


 

800,000

 

580,000

 

1,380,000

 

$ 1,495,000

 


 

The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at

 

the beginning of the month, with any repayments made at the end of the month. The interest rate on

 

these loans is 1% per month and must be paid at the end of each month based on the outstanding loan

 

balance for that month.

 

Required: (35)

 

Prepare a master budget for the three-month period ending June 30. Include the following detailed

 

budgets:

 

a. A sales budget by month and in total. (2)

 

b. A schedule of expected cash collections from sales, by month and in total. (4)

 

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in

 

total. (4)

 

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

 

(4)

 

e. A cash budget. Show the budget by month and in total. (7)

 

f. A budgeted income statement for the three-month period ending June 30. Use the variable

 

costing approach. (7)

 

g. A budgeted balance sheet as of June 30. (7)

 


 

3. Oxford Concrete Inc. (OCI) processes and distributes various types of cement. The company buys

 

quarried local rock, limestone, and clay from around the world and mixes, blends, and packages the

 

processed cement for resale. OCI offers a large variety of cement types that it sells in one-kilogram

 

bags to local retailers for small do-it-yourself jobs. The major cost of the cement is raw materials.

 

However, the company?s predominantly automated mixing, blending, and packaging processes

 

require a substantial amount of manufacturing overhead. The company uses relatively little direct

 

labour.

 

Some of OCI?s cement mixtures are very popular and sell in large volumes, while a few of the

 

recently introduced cement mixtures sell in very low volumes. OCI prices its cements at

 

manufacturing cost plus a 25% markup, with some adjustments made to keep the company?s prices

 

competitive.

 

For the coming year, OCI?s budget includes estimated manufacturing overhead cost of $4,400,000.

 

OCI assigns manufacturing overhead to products on the basis of direct labour-hours. The expected

 

direct labour cost totals $1,200,000, which represents 100,000 hours of direct labour time. Based on

 

the sales budget and expected raw materials costs, the company will purchase and use $10,000,000 of

 

raw materials (mostly quarried rock, limestone, and clay) during the year.

 

The expected costs for direct materials and direct labour for one-kilogram bags of two of the

 

company?s cement products appear below:

 

Direct materials

 

Direct labour (0.02 hours per bag)

 


 

Normal Portland

 

$ 9.00

 

$ 0.24

 


 

High Sulphate Resistance

 

$ 5.80

 

$ 0.24

 


 

OCI?s controller believes that the company?s traditional costing system may be providing misleading

 

cost information. To determine whether this is the case, the controller has prepared an analysis of the

 

year?s expected manufacturing overhead costs, as shown in the following table:

 

Activity Cost Pool

 


 

Activity Measure

 


 

Purchasing

 

Materials handling

 

Quality control

 

Mixing

 

Blending

 

Packaging

 


 

Purchase orders

 

Number of setups

 

Number of batches

 

Mixing hours

 

Blending hours

 

Packaging hours

 


 

Expected Activity for the

 

Year

 

4,000 orders

 

2,000 setups

 

1,000 batches

 

190,000 mixing hours

 

64,000 blending hours

 

48,000 packaging hours

 


 

Total MOH cost

 


 

Expected Cost for the

 

Year

 

$ 1,120,000

 

$ 386,000

 

$ 180,000

 

$ 2,090,000

 

$ 384,000

 

$ 240,000

 

$ 4,400,000

 


 

Data regarding the expected production of Normal Portland and High Sulphate Resistance cement

 

mixes are presented below:

 

Expected sales

 

Batch size

 

Setups

 

Purchase order size

 

Mixing time per 100 kilogram

 

Blending time per 100 kilogram

 


 

Normal Portland

 

160,000 kilograms

 

10,000 kilograms

 

4 per batch

 

20,000 kilograms

 

3 mixing hours

 

1 blending hour

 


 

High Sulphate Resistance

 

8,000 kilograms

 

500 kilograms

 

4 per batch

 

500 kilograms

 

3 mixing hours

 

1 blending hour

 


 

Packaging time per 100 kilogram

 


 

0.6 packaging hours

 


 

0.6 packaging hours

 


 

Required: (40)

 

a. Using direct labour-hours as the base for assigning manufacturing overhead cost to products, do

 

the following:

 

i. Determine the predetermined overhead rate that will be used during the year. (2)

 

ii. Determine the unit product cost of one kilogram of the Normal Portland cement and one

 

kilogram of the High Sulphate Resistance cement. (3)

 

b. Using ABC as the basis for assigning manufacturing overhead cost to products, do the following:

 

i. Determine the total amount of manufacturing overhead cost assigned to the Normal

 

Portland cement and to the High Sulphate Resistance cement for the year. (8)

 

ii. Using the data developed in b. i. above, compute the amount of manufacturing over-head

 

cost per kilogram of the Normal Portland cement and the High Sulphate Resistance

 

cement. Round all computations to the nearest whole cent. (12)

 

iii. Determine the unit product cost of one kilogram of the Normal Portland cement and one

 

kilogram of the High Sulphate Resistance cement. (5)

 

c. Write a brief memo to the president of OCI explaining what you found in (a) and (b) above, and

 

discuss the implications to the company of using direct labour as the base for assigning

 

manufacturing overhead cost to products. (10)

 


 

 


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