Accounting Question

Question 1 (20 marks)
Management is often faced with the alternative of continuing to make a product or component
internally, or going to an external source and purchasing the product or component. In gathering
relevant information for these two alternatives, briefly identify the quantitative factors that should be
considered. Are there any qualitative factors that should also be considered?
Question 2 (20 marks)
ABC Company budgeted widget production for next year.
Fixed factory overhead is allocated using ABC.
The following estimates were provided:
10,000
Production
15,000
Capacity
$80,000
Direct Materials
$600,000
Direct Labour
$20.00
Per Hour Direct Labour
$3.00
Hours per Unit Direct Labour
$50,000
Variable Manufacturing Overhead
$20,000
Fixed Factory Overhead Costs
Cost per Unit
$8.00
Direct Materials
$60.00
Direct Labour
$5.00
Variable Manufacturing Overhead
$2.00
Fixed Factory Overhead Costs
$75.00
Total
Instructions
Answer each of the following independent questions:
A.
A 3,000 unit order is received from a new customer in a country in which they have never done
business. $73.50 is the offered price from the new customer. Should ABC accept the offer? How much
more or less will operating income be if they accept the offer?
B.
$72.50 is the offered price from another company to manufacture the same quality widgets.
Should ABC let someone else manufacture the widgets and focus only on distribution? How much more
or less will their costs be if they accept the offer?
Question 3 (20 marks)
ABC company makes a multi-flavour product line that has three products.
Data for one of those products, Strawberry Delight, is below.
$1,200,000
Annual Sales
$930,000
Variable Expenses
$360,000
Fixed Expenses
-$90,000
Net Loss
$60,000
The fixed costs that will remain with elimination of the line.
Instructions
Prepare an analysis showing whether the company should eliminate the line.
State how much money they will gain or lose if the line is eliminated.
Question 4 (20 marks)
ABC produces sporting equipment. Below are condensed results for the first two years of operation. ABC
has a December 31 year-end.
Year 1:
25,000
Units Produced
18,000
Units Sold
Year 2, the results were exactly reversed:
18,000
Units Produced
25,000
Units Sold
Each year the following unit prices were the same:
$100
Selling Price
$40
Variable Manufacturing Costs
$8
Variable Selling Costs
$540,000
Fixed Manufacturing Costs
$200,000
Fixed Administrative Expenses
Instructions
A.
Calculate net income under variable costing for each year.
B.
Calculate net income under absorption costing for each year.
C.
Reconcile the differences each year in income from operations under the two costing
approaches.
Question 5 (20 marks)
ABC Pumps is a division of ABC Controls. The division manufactures and sells a pump in a variety of
applications.
During the coming year, it projects the following sales:
•
25,000 units
•
$17 per unit
The manager is considering producing either this level or 10,000 units more.
The following information is available to help in the decision:
0
Beginning Inventory
25,000
Expected Sales in Units
$17.00
Expected Sales Price per Unit
$6.00
Variable Manufacturing Cost per Unit
$140,000
Total Fixed Manufacturing Overhead
$5.60
Fixed Manufacturing Costs
$4.00
Fixed Manufacturing Costs (Plus 10,000 Units)
$11.60
Total Manufacturing Costs Including Fixed
$10.00
Total Manufacturing Costs Including Fixed (Plus 10,000 Units)
$37,000
Selling and Admin Costs (All Fixed)
Instructions
A.
Prepare an absorption costing income statement showing results for both levels of production.
B.
way?
Why is income different for the two production levels when the sales levels are the same, either
Assignment 3: Activity-Based Costing (8%, 100 marks):
Question 1 (20 marks)
Describe how the application of Activity-Based Costing to service companies is the same as its
Question 2 (20 marks)
ABC Airlines is a cargo air freight company and plans to add two new routes: Victoria to Los Angeles
(Route 105) and Calgary to San Francisco (Route 106).
The company is setting its rate charges for the two routes and expects to have:
625
Containers for Route 105
375
Containers for Route 106
1000
In addition, the company must complete regulatory forms as follows:
70
Forms per Flight for Route 105
30
Forms per Flight for Route 106
100
Preparation time it takes to load the containers per flight:
110
Hours per Flight for Route 105
120
Hours per Flight for Route 106
230
The company’s total costs for the year are expected to be:
$600,000
Total Container Handling
$250,000
Total Regulatory Approval
Instructions
Under a traditional accounting system to allocate overhead using container loads as the base:
A.
Determine the amount of overhead that will be assigned to Route 105.
B.
Determine the amount of overhead that will be assigned to Route 106.
If the company switches to an ABC accounting system, then use the regulatory forms and hours to load
containers to allocate overhead costs.
C. Determine the amount of overhead that will be assigned to Route 105.
D. Determine the amount of overhead that will be assigned to Route 106.
Question 3 (20 marks)
ABC Company is considering replacing its traditional costing system with an activity-based costing system
using three activity cost pools: wages, disposal and supplies.
The company has provided the following information:
$200,000
Wages
$100,000
Disposal
$50,000
Supplies
$350,000
Total
Activity Cost Pools
Remove Galvanized Pipe
Wages
65%
Disposal
75%
Supplies
60%
Instructions
Calculate the total costs to be allocated to:
A.
Remove Galvanized Pipe
B.
Job Setup
C.
Other
Question 4 (20 marks)
ABC Company bottles and distributes ABC Fizz, a flavoured wine beverage.
$15.00 is the price the product is sold at to retailers.
Management estimates the following revenues and costs at 100% capacity:
$30,000,000
Net Sales
$7,000,000
Direct Materials
$10,000,000
Direct Labour
$4,000,000
Manufacturing Overhead—Variable
$1,700,000
Manufacturing Overhead—Fixed
$350,000
Selling Expenses—Variable
$140,000
Selling Expenses—Fixed
$150,000
Administrative Expenses—Variable
$300,000
Administrative Expenses—Fixed
Instructions
A.
How much is the net income for the year using the CVP approach?
B.
Calculate the break-even point in units and dollars.
C.
How much is the contribution margin ratio?
Question 5 (20 marks)
The Year 5 contribution format income statement for ABC Company appears below:
ABC Company
Income Statement
For the Year Ended December 31, Year 5
Sales (16,250 units)
$650,0
Variable Costs
$260,0
Contribution Margin
$390,0
Fixed Costs
$460,0
Net Loss
-$70,00
Instructions
Answer the following independent questions and show computations to support your answers.
A.
How much additional sales revenue does it take to break even?
B.
ABC wishes to become profitable. They believe that a 25% reduction in variable costs can be
achieved if fixed costs increase by $20,000. They also have a target net income of $60,000.
•
Using the new cost structure, how many units will ABC need to sell in Year 5 to achieve their
target? If your answer contains a partial unit, round up to the nearest whole unit.