Assignment Dept Accts

Topics: Costs, Cost, Cost accounting Pages: 5 (657 words) Published: July 28, 2013
ASSIGNMENT

Accounting Manager Decision Making

Submitted by: Ashish Lakhani
Submitted to: Tariq Shameem

Case 5-35
| (a)| Stage 1: Allocation of S1 and S2 costs to production departments| | | | Department P1| Department P2|
| | Directly traceable| $480,000| $780,000|
| | S1| 1,176,000 × = 420,000| 1,176,000 × = 756,000| | | | | |
| | S2| 1,120,000 × = 280,000| 1,120,000 × = 840,000| | | | | |
| | Total support| $1,180,000| $2,376,000|
| | | | |
| | Direct Labour Hours (DLH)| 80, 000| 120,000|
| | | | |
| | Cost driver rate| $14.75 per DLH| $19.80 per DLH| | | | | |

| | Stage 2: Allocation of P1 and P2 costs to products|
| | | Product R361| Product R572|
| | P1| | |
| | | | |
| | P2| | |
| | | | |
| | | | |

Product costing

| | | Product R361| Product R572|
| | Direct materials| | |
| | | | |
| | Direct labor: P1| | |
| | | | |
| | Direct labor: P2| | |
| | | | |
| | Support| | |
| | | | |
| | Total cost| | |
| | | | |
| | Total units| 500,000| 400,000|
| | | | |
| | Unit cost| $17.0132| $16.0235|
| | | | |
| | Sales price| | |
| | | | |
| | Gross margin| $1.9868| $3.9765|
| | | | |
| | Gross margin in percentage| 10.4600%| 19.88%|
| | | | |

(b) Let x denote the number of hours required for each R361 setup. Then the number of hours required for each R572 setup = 1.5x.

| | | R361| R572  |
| | | | |
| | Number of setups| 2,000| 4,000|
| | | | |
| | Setup hours| 2,000x| 6,000x = 4,000 1.5x|
| | | | |
| | | (25%)| (75%)|
| | | | |

| | |      Number of transactions     | |
| | Activity Cost Drivers| Traceable Costs| Total| R361| R572| Activity Cost Driver Rate| | | P1-DLH| $240,000| 80,000 | 60,000 | 20,000| $3/P1 DLH| | | | | | | | |
| | P2-DLH| 360,000| 120,000 | 72,000 | 48,000| $3/P2 DLH| | | | | | | | |
| | Setup hours| 1,676,000| 8,000x| 2,000x| 6,000x| | | | | | | | | |
| | P1-MH| 380,000| 40,000 | 30,000 | 10,000 | $9.50/P1 MH| | | | | | | | |
| | P2-MH| 900,000| 120,000 | 72,000 | 48,000 | $7.50/P2 MH| | | | | | | | |

| | |           Total Support Costs           | | | Activity Cost Drivers| Product R361| Product R572| | | | | |
| | P1-DLH| $3 60,000 = $180,000| |
| | | | |
| | P2-DLH| $3 72,000 = 216,000| |
| | | | |
| | Setup hours| | |
| | | | |
| | P1-MH| | |
| | | | |
| | P2-MH| | |
| | | | |
| | | | |
| | | | |

Alternatively,

| | Activity Cost|           Total Support Costs          | | | Drivers| Product R361| Product R572|
| | | | |
| | P1-DLH| | |
| | | | |
| | P2-DLH| | |
| | | | |
| | Setup hours| | |
| | | | |
| | P1-MH| | |
| | | | |
| | P2-MH| | |
| | | | |
| | | | |
| | | | |

Product costing

| | | Product R361| Product R572|
| | Direct materials| $4,000,000 | $4,000,000 |
| | | | |
| | Direct labor: P1| 900,000| 300,000 |
| | | | |
| | Direct labor: P2| 1,296,000 | 864,000 |
| | | | |
| | Support costs| $1,640,000 | $1,916,000 |
| | | | |
| | Total cost| $7,836,000| $7,080,000 |
| | | | |
| | Total units| 500,000 | 400,000 |
| | | | |
| | Unit cost| $15.672 | $17.700 |
| | | | |
| | Sales price| 19.000 | 20.000 |
| | | | |
| | Gross margin| $3.328 | $2.300 |
| | | | |
| | Gross margin %| 17.520%| 11.500%|
| | | | |

(c)The old cost accounting system...
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