Tutorial 4 Q.docx

SEMESTER A182 BKAM2013 MANAGEMENT ACCOUNTING I TUTORIAL 4 SUBMISSION: 25 March 2019

Question 1 (will be assessed using CTPS rubric) Reynolds Printing Company specializes in wedding announcements. Reynolds uses an actual JOC system. An actual overhead rate is calculated at the end of each month using actual direct labor hours and overhead for the month. Once the actual cost of a job is determined, the customer is billed at actual cost plus 50%. During April, Mrs Lucky, a good friend of owner Jane Reynolds, ordered three sets of wedding announcements to be delivered May 10, June 10 and July 10 respectively. Reynolds scheduled production for each order on May 7, June 7 and July 7, respectively. The orders were assigned job numbers 115, 116 and 117, respectively. Reynolds assured Mrs Lucky that she would attend each of her daughters’ weddings. Out of sympathy and friendship, she also offered a lower proce. Instead of cost plus 50%, she gave her a special price of cost plus 25%. Additionally, she agreed to wait until the final wedding to bill for the three jobs. On August 15, Reynolds asked her accountant to bring her the completed JOC sheets for Jobs 115, 116 and 117. She also gave instructions to lower the price as had been agreed upon. The cost sheets revealed the following information: Job 115

Job 116

Job 117

$250.00

$250.00

$250.00

25.00

25.00

25.00

200.00

400.00

400.00

Total cost

475.00

675.00

675.00

Total Price

593.75

843.75

843.75

500

500

500

Cost of direct materials Cost of direct labor (5 hours) Cost of overhead

Number of announcements

Reynolds could not understand why the overhead costs assigned to Jobs 116 and 117 were so much higher than those for job 115. She asked for an overhead cost summary sheet for the months of May, June and July, which showed that actual overhead costs were $20,000

each month. She also discovered that direct labor hours worked on all jobs were 500 hours in May and 250 hours each in June and July. REQUIRED: 1.

2. 3.

4. 5.

Identify what is happening with regard to Jobs 115,116 and 117 and explain how Mrs Lucky will feel when she receives the bill for the three sets of wedding announcements? Analyse how the overhead costs were assigned to each job. Assume that Reynolds’s average activity is 500 hours per month and that the company usually experiences overhead costs of $240,000 each year. Can you recommend a better way to assign overhead costs to jobs? Recompute the cost of each job and its price given your method of overhead cost assignment. Decide which method is best in your opinion? Explain why you think so?

QUESTION 2 The Pisano Company uses a job-costing system at its Dover, Delaware, plant. The plant has a machining department and a finishing department. Pisano uses normal costing with two direct-cost categories (direct material and direct manufacturing labor) and two manufacturing overhead cost pools (the machining department with machine hours as the allocation base and the finishing department with direct manufacturing labor costs as the allocation base). The 2014 budget for the plant is as follows: Manufacturing overhead costs Direct manufacturing labor costs Direct manufacturing laborhours Machine-hours

Machining Dep. RM9,065,000 RM970,000

Finishing Dep. RM8,181,000 RM4,050,000

36,000

155,000

185,000

37,000

1. What is the budgeted manufacturing overhead rate in the machining department? In the finishing department? 2. During the month of January, the job-cost record for Job 431 shows the following: Machining Dep. Direct materials used RM13,000 Direct manufacturing labor RM900 costs Direct manufacturing labor- 20 hours Machine-hours 140

Finishing Dep. RM5,000 RM1,250 70 20

Compute the total manufacturing overhead cost allocated to Job 431.

3. Assuming that Job 431 consisted of 300 units of product, what is the cost per unit? 4. Amounts at the end of 2014 are as follows:

Machining Dep. Manufacturing overhead RM10,000,000 incurred Direct manufacturing labor costs RM1,030,000 Machine-hours 200,000

Finishing Dep. RM7,982,000 RM4,100,000 34,000

Compute the under-or overallocated manufacturing overhead for each department and for the Dover plant as a whole. 5. Why might Pisano use two different manufacturing overhead cost pools in its jobcosting system?

QUESTION 3 Koko Lili Enterprise (KLE) is a company that produces custom-made furniture using exotic woods such as cedar, teak and agarwood. Each furniture is unique and is made based on customer requirement. On 1st January 2018, three jobs were in process with the following costs:

Direct Materials Direct Labour Applied Overhead Total

Job C110 RM 2,100 4,400 3,740 10,240

Job T145 RM 6,150 7,000 5,950 19,100

Job A086 RM 12,900 12,600 10,710 36,210

During the month of January, two more jobs were started, C111 and T146. Material and labour costs incurred by each job in January are as follows:

Direct Materials Direct Labour

Job C110 RM 6,000 3,000

Job T145 RM 5,500 2,000

Job A086 RM 7,700 2,400

Job C111 RM 23,100 21,000

Job T146 RM 1,900 2,400

Job A086 and C111 were completed and sold in January 2018. REQUIRED: 1.

If overhead is applied on the basis of direct labor cost, what is the predetermined overhead rate?

2.

Calculate total cost for each of the five jobs in process for January.

3.

If KLE prices its jobs at cost plus 30%, calculate the selling price for Job A086 and C111.

4.

Prepare KLE’s income statement for the month of January, assuming a sum of RM26,350 selling and administrative expenses were incurred.