Johns Paint Products - Assignment Example

Question 1 John’s Paint Products Cost of Production Report for the Mixing Department for the Month of March 2011 Using the Weighted Average Method a. Physical flow of units of John’s Paint Products Mixing Department Report for March 2011 Units Information Units (litres) Units (litres) Inventory in process, March 1 ( Materials 100%, 60% labour and overhead) 2,500 Add Units started 40,000 Total units to account for: 42,500 Units completed 38,000 Work in Progress March 31 ( Materials 100%, 35% labour and overhead) 4,500 Total units to account 42,500 b. Equivalent units of John’s Paint Products Mixing Department for the month of March 2011 using the Weighted Average Method Work performed during the current period (stage of completion (%)) Equivalent produced units: input units × stage of completion in respect of Material Labour Overheads Material Labour Overheads Units transferred to next department 38,000 100% 100% 100% 38,000 38,000 38,000 Work in Progress March 31 ( Materials 100%, 35% labour and overhead) 4,500 100% 35% 35% 4,500 1,575 1,575 Total equivalent units accounted for 42,500 - - - 42,500 39,575 39,575 c. Calculation of unit costs for John’s Paint Products Mixing Department for the month of March 2011 using the Weighted Average Method Cost Information Cost to account for: Cost Material Labour Overheads Total cost Cost at the Beginning (work in progress ) $17,000 $11,500 $7,500 $36,000 Cost incurred during the period $ 340,000 $146,800 $91,437 $578,237 Total costs to account for $357,000 $158,300 $98,937 $614,237 Divided by equivalent units to assign cost 42,500 39,575 39,575 Cost per equivalent unit (Total costs to account for/ Divided by equivalent units) $8.40 $4.00 $2.50 $14.9000 d. Total Cost Accounted for Costs accounted for the Mixing Department for the month of March 2011 using the Weighted Average Method. According to Hansen et al (2007, p. 175), costs of goods transferred out computed by multiplying completed units by cost per equivalent unit. Cost of goods transferred out = Completed Units × Cost per equivalent unit Cost of goods transferred out = ($14.9000 × 38,000units) =$566,199.5199 Cost of ending work in progress = Cost of ending work in progress of each input × Cost per equivalent unit Materials = ($8.40 × 4,500) =$37,800.0000 Labour = ($4.00 ×4,500) =$18,000.0000 Overheads = ($2.50 ×4,500) =$11,249.9431 Cost of Closing work in progress = $37,800.0000 + $18,000.0000 + $11,249.9431 =$67, 049.9431 John’s Paint Products Cost of Production Report for the Canning Department for the Month of March 2011 Using the FIFO Method a. Physical flow of units of Canning Department Report for March 2011 Input Number of Units (completed or not) Units in process at the beginning as at March 1 (20%) 2,000 Add units introduced from Mixing Department in March 38,000 Total units in process to be accounted for: 40,000 b. Equivalent units for the Canning Department for the month of March 2011 using the FIFO Method Work performed during the current period (stage of completion (%)) Equivalent produced units: input units × stage of completion in respect of Material Labour Overheads Material Labour Overheads Inventory in process, March 1 (20% completed) 2,000 - 80% 80% - 1,600 1,600 Add Started and completed in March (32,000-2,000) 30,000 100% 100% 100% 30,000 30,000 30,000 Transferred out of Canning department in March 2011 32,000 - - - 30,000 31,600 31,600 Add completed equivalent units in process as at March 31 (70%) 8,000 100% 70% 70% 8,000 5,600 5,600 Total equivalent units accounted for 40,000 38,000 37,200 37,200 c. Calculation of unit costs for John’s Paint Products Canning Department for the month of March 2011 using the FIFO Method Cost Information Cost to account for: Cost Material Labour Overheads Total cost Cost at the Beginning (work in progress ) $12,950 $8,520 $11,060 $32,530 Cost incurred during the period 0 $120,000 $280,000 $400,000 Total costs to account for $12,950 $128,520 $291,060 $432,530 Divided by equivalent units to assign cost 38,000 37,200 37,200 38,000 Cost per equivalent unit (Total costs to account for/ Divided by equivalent units) $0.3408 $3.4548 $7.8242 d. Cost of goods transferred out = Cost per equivalent unit × Completed Units Materials = ($0.3408 × 38,000 units) =$12,950.4000 Labour = ($3.4548 × 37,200units) =$128,518.5600 Overheads = ($7.8242 × 37,200units) =$291,060.2400 Cost of goods transferred out = $12,950.4000 + $128,518.5600 + $291,060.2400 =$432,529.2000 e. Cost of ending work in progress = Cost of ending work in progress of each input × Cost per equivalent unit Materials = ($0.3408 × 8,000 units) =$2,726.4000 Labour = ($3.4548 × 5,600units) =$19,346.8800 Overheads = ($7.8242 × 5,600units) =$43,815.5200 Cost of Closing work in progress = $2,726.4000 +$19,346.8800 +$43,815.5200 =$65,888.8000 Question 2 Blackbird Company has three support departments and two producing departments. Blackbird’s Company Service proportion table for each department for 2010 Department Plant Machining Assemble Total   Administration Maintenance Cafeteria       Direct labour hours   5000 2000 10000 15000 32000 Service percentage   15.6250% 6.2500% 31.2500% 46.8750% 1 Square meters 1000   2500 17500 32500 53500 Service percentage 1.8692% 0.0000% 4.6729% 32.7103% 60.7477% 1 Number of employees 5 6   15 25 51 Service percentage 9.8039% 11.7647% 0.0000% 29.4118% 49.0196% 1 Blackbird’s Company Sequential Cost allocation for each department for 2010 Department Plant Machining Assemble Total   Administration Maintenance Cafeteria Budgeted overhead cost $ 60,000 $ 50,000 $25,000 $100,000 $200,000 $435,000 First step: Allocate Admin Cost $ (60,000) $9,375 $3,750 $18,750 $28,125   Second Step: Determine allocation percentages             Square meters    0 2500 17500 32500 52500 Service percentage   0% 5% 33% 62% 100% Number of employees   6  0 15 25 46 Service percentage   13% 0% 33% 54% 100% Allocate Plant Cafeteria - 3,261 (25,000) 8,152 13,587 $ - Third step: Determine allocation percentages             Square meters       17500 32500 50000 Service percentage       35% 65% 100% Allocate Plant Maintenance - (50,000) - 17,500 32,500 $ - Total overhead costs - 12,636 3,750 144,402 274,212 435,000 Divided by direct labor hours 10,000 15,000 Departmental OH rate per DLH $ 14.44 $18.28 Question 3 1. The activity level in direct labour hour for production at Sparrow Company = Expected production ÷ Number of hours per case The activity level in direct labour hour for production of 50,000 cases for; Formula 1 = 50,000 cases × 1hr/case =50,000 hours Formula 2 =50,000 cases × 1.2 hr/case = 60,000 hours 2. An overhead budget for the expected activity level of 50,000 cases for each product Sparrow Company’s overhead budget for the 50,000 cases of Formula 1 Out put 50,000 cases Direct labour hours per case 1hr Total Direct labour hours 50,000 hours Fixed overhead costs Maintenance $4,000 Utilities 0 Indirect labour 12500 Rent 6,000 Total Fixed costs $22,500 Variable overhead cost Maintenance (0.2 × 50,000) 10000 Utilities (0.10 × 50,000) 5000 Indirect labour(1 × 50,000) 50000 Total variable overhead cost 65000 Total cost $87,500 Sparrow Company’s overhead budget for the 50,000 cases of Formula 2 Out put 50,000 cases Direct labour hours per case 1.2 hr Total Direct labour hours 60,000 hours Fixed overhead costs Maintenance $4,000 Utilities 0 Indirect labour 12500 Rent 6,000 Total Fixed costs $22,500 Variable overhead cost Maintenance (0.2 × 60,000) 12000 Utilities (0.10 × 60,000) 6000 Indirect labour(1 × 60,000) 60000 Total variable overhead cost 78000 Total cost $100,500 3. Sparrow Company’s overhead budget for the 20% higher than expected activity level of 50,000 of Formula 1 Out put 60000 Direct labour hours per case 1hr Total Direct labour hours 60000 Fixed overhead costs Maintenance $4,000 Utilities 0 Indirect labour 12500 Rent 6,001 Total Fixed costs $22,501 Variable overhead cost Maintenance (0.2 × 60,000) 12000 Utilities (0.10 × 60,000) 6000 Indirect labour(1 × 60,000) 60000 Total variable overhead cost 78000 Total cost $100,501 Sparrow Company’s overhead budget for the 20% higher than expected activity level of 50,000 of Formula 2 Out put 60000 Direct labour hours per case 1.2 hr Total Direct labour hours 72000 Fixed overhead costs Maintenance $4,000 Utilities 0 Indirect labour 12500 Rent 6,001 Total Fixed costs $22,501 Variable overhead cost Maintenance (0.2 × 72,000) 14400 Utilities (0.10 × 72,000) 7200 Indirect labour(1 × 72,000) 72000 Total variable overhead cost 93600 Total cost $116,101 Question 4 Hawk Ltd would like to evaluate how environmental activities affect the cost of Product A and Product B. 1. The activity rates for each activity. Activity Cost pools   Total cost   Total activity Activity rate   Product A Product B Total Units Produced Process design $30,000 4,500 1,500 6,000 $5 per unit Waste management $120,000 10,000 30,000 40,000 $3 per unit Contamination testing $24,000 5,000 10,000 15,000 $2 per unit Waste clean-up $40,000 2,000 8,000 10,000 $4 per unit 2. A report for management showing the environmental costs per kilogram for each product. Product A Product B Units produced 100,000 units 50,000 units Cost of production Process design $22,500 $7,500 Add waste management $30,000 $90,000 Add contamination testing $8,000 $16,000 Add waste clean-up $8,000 $32,000 Total cost of environment activities $68,500 $68,500 $145,500 $145,500 Cost per kilogram = (68,500/100,000 units) 0.6850 145,500/50,000 units 2.9100 3. The product that appears to be most environmentally harmful is product B. This is because the amount of money used for environment activities per unit exceeds that of product A by $2.2250. This means that Hawk Ltd pays additional $2.2250 for every product B produced as compared to product B produced. Question 5 1. The Economic order quantity of Balmain Tea Company manufactures Economic order quantity (EOQ) refers to the size of an order that enables the purchasing department obtains materials or products at the least cost possible (Khan and Jain 2005 p. 3.30). =1095.4451 Where EOQ = economic order quantity A =Demand for the year C = Cost of placing a single order Ch = Cost of holding one unit of inventory annually 2. If the company works 250 days per year, on average the number of bags of spice used per day Bags per working day = Annual demand/ number of days =50,000 units÷ 250 days = 200 units 3. If the lead time for an order is normally 5 working days, the reorder point is R = (D ÷ number of days) × L = (50,000÷250) ×5 =1000 Where; R = reorder level D= the annual demand L =the lead time in days 4. If the company normally carries 50 bags as safety stock, the reorder point for the spice, with lead time of 5 working days is; R = ((DL) ÷ number of days) + safety stock = ((50,000÷250) ×5) + 50 =1050 Question 6 Table showing machines time and contribution margins of each model. Models The standard model the deluxe model Unit contribution margin $25 $50 Required machine time 1hour of machine time 4 hours of machine time 200 hours of machine time available per week Contribution margin per hour of machine time $25 $12.5 1. The optimal mix of the two models Standard model yields $25 of contribution margin per hour of machine time while deluxe model only yields $12.5 of contribution margin per hour of machine time. So it is rational to devote all the available 200 hours to the production of standard model. Units of standard model = 200 total hours / I hour per standard model= 200 units Optimal mix is 200 standard models and 0 deluxe models b. The total contribution margin for that optimal mix Total contribution margin for that optimal mix= 200× $25 =$5000 = 0× $50 =$0 2. Assume that market conditions will allow the sale of only 100 units of each product. a. the optimal mix of the two models Standard model yields $25 of contribution margin per hour of machine time while deluxe model only yields $12.5 of contribution margin per hour of machine time. So it is rational to devote all the available 200 hours to the production of standard model. However, if the market allows only 100 units each, then Priority is given to production of standard models and remainder to deluxe model. Units of standard model = 100 units. This leaves 100 hours remaining for production of deluxe model. Deluxe model produced = 100 total hours / 4 hour per deluxe model= 25 units Optimal mix is 200 standard models and 0 deluxe model Total contribution margin for that optimal mix= 200× $25 =$5000 = 0× $50 =$0 b. The total contribution margin for the revised mix Total contribution margin for that optimal mix= 100× $25 =$2500 = 25× $50 =$ 1250 Total = $3750 Question 7 Both activity based responsibility and strategic based responsibility accounting have similar elements. The common elements are assignment of responsibility, measuring performance, evaluating performance, and offering of rewards. According to Hansen and Mowen (2010 p. 636), strategic based responsibility added another element of a balanced score card. A balanced scorecard ensures that an organization converts its strategy into operational objectives and measures. The balance scorecard is comprised of financial perspective, the process perspective, the customer perspective, and learning and growth perspective. The perspectives are key in ensuring that company’s strategy is transformed into executable actions to ensure that the organization achieve its objectives. Question 8 Units produced = 11,000 and 88000 hours 1. Materials price variance Material price variance (MPV) is a measurement of differences in the actual and standard price of materials. It refers to the difference between the standard price (SP) and the actual price (AP) of materials, which is multiplied by the quantity of materials (QP) bought. MPV = (SP-AP) × QP = ($14 -$13.70) × 52,000 metres =$15,600 (Favourable) 2. Materials usage variance Material Usage Variances (MUV) measures the difference between standard quantities (SQ) needed for actual production and actual quantities (AQ) used which multiplied by the standard material price (SP). MUV = (SQ-AQ) ×SP = (44,000 metres-40,000 metres) ×$14 =$56,000 (Favourable) 3. Direct labour rate variance Direct labour rate variance (DLRV) is a measurement of differences in the actual and standard hour rate. It refers to the difference between the standard hour rate (SR) and the actual hour rate (AR) labour, which is multiplied by the number of hours actually worked. . DLRV = (SR-AR) ×AH = ($10 -$10) × 84,000 hours =0 (Favourable) 4. Direct labour efficiency variance Labour efficiency variance (DLEV) refers to difference between the standard labour hours for actual production (SH) and the actual labour hours worked (AH) multiplied by the standard wage rate per hour (SR). DLEV = (SH-AH) ×SR = (88,000 hours-84,000 hours) ×$10 =$40,000 (Favourable) 5. Variable overhead spending variance Variable manufacturing overhead spending variance VOSV = (SR-AR) ×AH = ($8 -$9) × 84,000 hours =-$84,000(Unfavourable) 6. Variable overhead efficiency variance VOEV = (SH-AH) ×SR = (88,000 hours -84,000 hours) ×$8 =$32,000 (Favourable) 7. Fixed overhead spending variance FOSV = (SR-84,000 hours) ×AH = ($12 -$11.9048) × 84,000 hours =$7,996.8000 (Favourable) 8. Fixed overhead volume variance. FOVV = (ST-AH) ×SR = (88,000 hours -84,000 hours) × $12 =$48,000 (Favourable) References Hansen, D. R., Mowen, M. M., & Guan, L. (2007). Cost management: accounting & control (6th ed.). New York: Cengage Learning. Hansen, R. D., and Mowen, M. M., (2010). Cornerstones of Cost Accounting. New York: Cengage Learning. Khan & Jain (2005). Cost Accounting & Financial Management (2nd ed.). New York: Tata McGraw-Hill Education. Read More