Cost Accounting Questions and Solutions for Manufacturing Companies

Sunshine Ltd manufactures custom made solar panels for residential and commercial properties. The production process is classified into TWO production departments, Solar Cell Cutting and Panel Assembly. There are TWO service departments, the Canteen and Materials Purchasing.

Material Purchasing department purchases materials used in the production of the solar panels.

The Canteen offers services to all other departments. The Canteen total budgeted cost needs to be charged to the remaining three departments.

Budgeted information for the period ahead is as follows:

Indirect Costs that need to be traced to each department are as follows:

a)Apportion the overhead costs over the Solar Cell Cutting, Panel Assembly, Canteen and Materials Purchasing departments using an appropriate basis for each. (Round your answers to the nearest whole number.)                                                                                  

b)Reallocate the Canteen and Materials Purchasing departments to the two production departments. (Round your answers to the nearest whole number.)

c)Calculate the overhead recovery rates per direct labour hour for each production department.  (Round you answers to TWO decimal places.)   

d)Calculate the overhead cost that should be added to a solar panel that spends 7 hours in the Solar Cell Cutting department and 4 hours in the Panel Assembly department. (Round your answers to TWO decimal places.)   

e) Explain the rule used for deciding which department should be chosen  first when apportioning the service department costs to production departments for Sunshine Ltd.   

Question 2

Amethyst Ltd specializes in manufacture of a single product. The standard cost for this product is presented in the following standard cost card:

The annual budgeted fixed overheads of £840,000 are assumed to be incurred evenly throughout the year. The actual results for the month of July are:

Manufacturing variable overheads are charged to production on the basis of direct labour hours. Actual production and sales for the month were 5,500 units.

Required:

(a)Calculate the Material Total, Price and Usage variances.

(b)Calculate the Labour Total, Rate and Efficiency variances.

(c)Calculate the Variable Overhead Total, Rate and Efficiency variances.     

(d)Calculate the Fixed Overhead Expenditure variance.

(e)Prepare a Variance Report for the period.

(f)Suggest possible causes for the detailed Direct Labour variances you have calculated.   

Question 3

Juno Ltd is planning to produce a new dry food for pets product and has compiled the following data.

The expected budgeted annual production is 270,000 units and the fixed production overhead is budgeted as £2,430,000 per annum.

Unit Marginal and Absorption costs for a 2kg bag of the pet food are as follows:

The Selling Price per unit is £17.

The Variable Selling cost per unit is £0.50.

Fixed Administration overheads are estimated to be £120,000 per year.

There was no opening stock at the beginning of January.

(a)Prepare profit statements for January and February using:

(i)Marginal Costing

(ii)Absorption Costing.

(b)Explain why the profit calculated using Absorption Costing is higher than the profit calculated for Marginal Costing for the month of January.

(c)Explain how any under or over absorption is calculated using the results for February above to illustrate your answer.

Question 4

WeCare Ltd  is a leading manufacturer of medical equipment with a mission statement of “total reliability”.  WeCare Ltd  currently uses a component supplied by an outside supplier based in another country.  There have been a number of faults reported by customers concerning the component and the company is considering manufacturing the component in-house.  The company has identified two options for new machinery that would enable them to manufacture the components in-house.

WeCare Ltd has a cost of capital of 10% and targeted accounting rate of return is 12%.

WeCare Ltd has calculated the cashflows arising if either of the two new machines are purchased. All the cashflows are expected to arise on the last day of the year and are given below:

(a)Calculate the amount paid for direct materials purchases in each of the months of October, November and December.

(b)Calculate the amount received from sales in each of the months of October, November and December.

(c)Prepare cash budgets for the months October, November and December.

EcoSheds Ltd is experiencing falling sales which could be due to seasonal demand factors for sheds and garden summer houses. What advice would you offer the company given the forecast closing cash balances.