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Individual Assignment Sydney Graduate School of Management School of Business 200494 Management Accounting Individual Assignment (20%), Quarter 3, 2016 Key factors to keep in mind when writing your submission are: 1. The due date for the hard copy of the individual assignment is at the beginning of your seminar in Week 8, week commencing 15 August 2016. The electronic copy is to be lodged on vUWS by 12:00 midnight on Monday, 15 August 2016. 2. You must submit Microsoft Word (electronic) copy of your assignment through vUWS by 12:00 midnight on Monday, 15 August 2016. Please also refer to instructions within the Learning Guide. 3. The file name for the electronic copy must follow the following pattern: your student ID number followed by 200494Assignment. For example if your student ID number is 17432968, the file name should be 17432968_200494Assignment. 4. Students are to keep a copy of all assignments submitted for marking. 5. Ensure you use accurate spelling and grammar. It is often best to state things simply and clearly rather than using complicated language in the wrong context. Prior to submission make sure you use tools like spelling and grammar checkers in WORD. You may also want to make use of online tools (e.g. the Writer’s Diet http://writersdiet.com/WT.php?home to improve the quality of your written work). 6. All sources of information must be appropriately acknowledged. Ensure that all in-text references are accurate and comply with the Harvard referencing style. A guide is available on the UWS Library website with examples to assist you. Ensure you use only credible sources appropriate to your level of studies. Wikipedia, for example, is not a credible source. A Reference list of all works cited in your submission must be provided. 7. THIS IS AN INDIVIDUAL ASSIGNMENT CONTAINING EIGHT (8) QUESTIONS. IT IS NOT A GROUP ASSIGNMENT. Please refer to the Misconduct Policy. For the full definition of academic misconduct and the consequences of such behaviour, you are advised to read the Student Misconduct Rule at http://www.westernsydney.edu.au/about_uws/leadership/governance/student_misconduct_rule. Each student must present their own work. Failure to do so could lead to accusations of academic misconduct. 8. As a guide to what is expected from you for the assignment, a previous semester’s assignment with solution, marking guide and feedback is available on vUWS. This will assist in the preparation and presentation of your assignment as you can be more aware of and better able to avoid some of the pitfalls. 9. Use the Assignment Cover Sheet and include your Name and Student ID on the cover sheet. Ensure that the declaration is signed and dated on the Assignment Cover Sheet. 10. In addition to loss of marks for incorrect answers, marks may be deducted for untidy presentation including inappropriate formatting. Begin each question on a new page. All journals, tables and statements must have appropriate headings and be presented in a proper format. All answers must be supported by relevant calculations. 11. Solutions to the questions contained in this assignment may require research beyond the recommended textbook. 12. Assessment percentage 20% (out of 100% total for the unit). Assignment will be marked out of 100 and converted to 20%. Marks for each question are shown alongside the question number. Question 1: Cost estimation – Regression (12 Marks) University Press Pty Ltd operates printing press to print text books for a number of draftes in Sydney who supply books to several major universities. The firm’s management accountant is accumulating data to be used in preparing the annual budget for the coming year. The cost behaviour pattern of the firm’s printing equipment maintenance costs must be determined. Data regarding number of books printed, maintenance hours and costs for last year are as follows: Month Number of photocopies Hours of maintenance service Maintenance costs July 600,000 3,938 $35,325 August 510,000 3,788 $32,325 September 517,500 2,325 $22,425 October 480,000 3,713 $31,500 November 675,000 2,363 $22,500 December 637,500 3,638 $31,613 January 412,500 2,363 $22,125 February 637,500 3,038 $27,600 March 465,000 3,563 $30,750 April 615,000 2,588 $24,375 May 450,000 2,625 $24,450 June 2,625,000 2,513 $22,613 Total 8,625,000 36,450 $327,600 Average 718,750 3,038 $27,300 Required: 1 Use Excel and multiple regression analysis to estimate the behaviour of University Press’s maintenance costs. Include in your answer the following. (Note: Copy and paste your Excel and multiple regression analysis solution on a Word Document for submission) a. How much is the constant, or intercept? 3 mark b. How much is the the coefficient of the two variables; the number of books and the number of hours of maintenance? 3 mark c. Write the regression equation. 2 mark 2 Calculate R2 and interpret the above statistic.2 marks 3 Calculate the total variable cost and the fixed cost per maintenance hour at 3,750 hours of maintenance and 637,500 books. 2 marks Question 2: Process costing: manufacturer (13 Marks) Steelworks Limited’s Machining Department had 20,000 units in work in process (WIP) on 1 March. These units were 40 per cent complete with respect to conversion. Direct materials are added at the beginning of the production process, while conversion costs are incurred uniformly throughout the process. An additional 40,000 units were started during March, and 10,000 units were in WIP on 31 March. The units in WIP on 31 March were 20 per cent complete with respect to conversion. Costs incurred in the Machining Department for March were as follows: WIP 1 March Costs incurred during March Total Direct material $78,000 $252,000 $330,000 Conversion $23,200 $132,800 $156,000 $101,200 $384,800 $486,000 Required: 1. Using an example, explain the concept of equivalent units. Explain why an understanding of equivalent units is necessary to undertake process costing. 2 marks 2. Explain how the calculation of equivalent units differs between the weighted average and FIFO methods of process costing. 2 marks 3. Using the weighted average method of process costing, calculate the cost of goods completed and transferred out during March and the cost of WIP at 31 March. Show all workings. (Note: Round to two decimal places. 9 marks Question 3: Plantwide and departmental overhead rates: manufacturer (13 marks) Colours Ltd produces two types of computer printers, a laser model and an inkjet model, which pass through two production departments, Fabrication and Assembly. The following data relate to the year just ended: Fabrication Assembly Budgeted overhead $270 000 $135 000 Expected activity (in direct labour hours) 22 500 90 000 Expected activity (in machine hours) 45 000 12 375 Actual overhead costs for the year were $450 000. Laser Inkjet Units produced 11 250 112 500 Prime costs (material and labour) $90 000 $675 000 Direct labour hours used: Fabrication 1 500 21 000 Assembly 30 000 72 000 Machine hours used: Fabrication 15 000 30 000 Assembly 1 500 12 000 Required: 1 Calculate the predetermined plantwide overhead rate based on direct labour hours. 1 mark. 2 Calculate the per unit cost of the laser and inkjet printers, based on a plantwide overhead rate assuming that direct labour hours is the cost driver. 3 marks. 3 Calculate predetermined departmental overhead rates, assuming that machine hours is the cost driver in Fabrication and direct labour hours is the cost driver in Assembly. 2 marks. 4 Calculate the per unit cost of the laser and inkjet printers, based on the departmental overhead rates. 3 marks. 5 Estimate the amount of underapplied or overapplied overhead using: a. Plantwide overhead rate. 1 marks. b. Departmental overhead rates. 1 marks. 6 Which approach is best for Perfect Image: a plantwide overhead rate or departmental overhead rates? Why? 2 marks. Question 4: Activity-based costing (16 marks) The management of Camden Wines Pty Ltd is contemplating the introduction of an activity-based costing system and has just conducted an activity-based costing exercise in its bottling plant. The costs of the plant, summarised into cost categories for the year, are as follows: Bottling Plant costs Total cost ($) Resource driver Total amount of resource driver Wages $2 000 000 No. of employees 40 employees Building costs 200 000 Floor area 50 000 square metres Machinery costs 900 000 Machine hours 90 000 machine hours Energy costs 1 200 000 Kilowatt hours 600 000 kilowatt hours Other 45 000 Machine hours 90 000 machine hours $4 345 000 Four activity centres have been identified in the plant, with the following resource driver consumption patterns: Bottling Plant activity centres Resource drivers Activity centre No. of employees Floor area (m2) Machine hours Kilowatt hours Filling 20 15 000 40 000 250 000 Corking 10 5 000 15 000 100 000 Labelling 4 10 000 10 000 50 000 Packing 6 20 000 25 000 200 000 Total 40 50 000 90 000 600 000 The work in the Labelling Centre has been broken down into the following five activities. Their use of resource drivers is also shown. Labelling Centre activities Resource drivers Activity No. of employees Floor area (m2) Machine hours Kilowatt hours Set up front label machines 0.5 – – – Operate front label machines 1.0 3 000 7 000 30 000 Set up back label machines 0.5 – – – Operate back label machines 1.0 2 000 3 000 20 000 Inspect labelled bottles 1.0 5 000 – – Total 4.0 10 000 10 000 50 000 Required: 1 Calculate the cost of each activity centre. 6 marks. 2 Calculate the cost of the activities performed in the Labelling Centre. 6 marks. 3 Why would Camden Wines contemplate using an activity-based product costing system? 2 marks. 4 What are the limitations of activity-based product costing? 2 mark. Question 5: Preparation of budget (12 marks) Rockhampton Bags Ltd makes and sells computer carry bags. Bill Blake, the company accountant, is responsible for preparing the company’s annual budget. In compiling the budget data for next year, Blake has learned that new automated production equipment will be installed on 1 March. This will reduce the direct labour per unit from 1 hour to 0.75 hour. Labour-related costs include employer superannuation contributions of 9 per cent of employee wages, workers’ compensation insurance of $0.20 per hour, and payroll tax equal to 7 per cent of employee wages. These ‘on-costs’ are treated as an additional direct labour cost. The accountant estimates that a wage increase for production workers of $2.00 per hour will take place on 1 April. Management expects to have 16,000 bags on hand at the beginning of the budget year, and has a policy of carrying an end-of-month inventory of 100 per cent of the following month’s sales plus 50 per cent of the second following month’s sales. This and other data compiled by Blake are summarised in the following table: January February March April May Direct labour hours per unit 1.0 1.0 0.75 0.75 0.75 Wage per direct labour hour $32.00 $32.00 $32.00 $36.00 $36.00 Estimated unit sales 20 000 24 000 16 000 18 000 18 000 Sales price per unit $50.00 $47.50 $47.50 $47.50 $47.50 Manufacturing overhead: Shipping and handling (per unit sold) $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 Purchasing and material handling (per unit produced) $ 4.50 $ 4.50 $ 4.50 $ 4.50 $ 4.50 Other (per direct labour hour) $10.50 $10.50 $10.50 $10.50 $10.50 Required: 1 Prepare a production budget for Rockhampton Bags, by month and for the first quarter of the next budget year. 4 marks 2 Prepare a direct labour budget for Rockhampton Bags, by month and for the first quarter of the next budget year. The direct labour budget should include direct labour hours and show the detail for each direct labour cost category. 4 marks 3 For each item used in the firm’s production budget and direct labour budget, identify the other components of the annual budget that would also use these data. 2 marks 4 Prepare a manufacturing overhead budget for each month and for the first quarter. 2 marks Question 6: Support department cost allocation (12 marks) Westmead Instrument Company manufactures gauges for the construction industry. The company has two production departments: Machining and Finishing. There are also three support departments: Human Resources (HR), Maintenance and Design. The budgeted overhead costs for the year for each department are as follows: HR $250,000 Maintenance 230,000 Design 350,000 Machining 800,000 Finishing 400,000 The budgeted machine hours for the Machining Department are 30,000, and the budgeted direct labour hours for the Finishing Department are 10,000. These activities are used to allocate manufacturing overhead costs to products in the two departments. The usage of the support departments’ output for the year is as follows: Provision of Service Output (hours of service) Provider of the service User of the service HR Maintenance Design HR – – – Maintenance 500 – – Design 500 500 – Machining 4,000 3,500 4,500 Finishing 5,000 4,000 1,500 Total 10,000 8,000 6,000 Required: 1 Assuming Westmead Instrument Company uses sequential (or step) method based on support department that serves the largest number of other support departments is allocated first. List the sequence that should be used to allocate the support department costs to production departments using the step-down method. 2 marks. 2 Use the sequential method to allocate support costs to production departments, and determine the predetermined manufacturing overhead rates for the two production departments. 10 marks. Question 7: Special order (14 marks) Winner’s Circle Ltd manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current monthly production is 7,500 medals. The company normally charges $175 per medal. Variable costs and fixed costs for the current activity level of 75 per cent of capacity are as follows: Production costs Variable costs Manufacturing: Direct labour $ 375,000 Direct material $262,500 Marketing $187,500 Total variable costs $ 825 000 Fixed costs Manufacturing $ 275,000 Marketing $175,000 Total fixed costs $ 450,000 Total costs $1,275,000 Variable cost per unit $110 Fixed cost per unit $60 Average unit cost $170 Winner’s Circle has just received a special one-time order for 2,500 medals at $100 per medal. For this particular offer, no variable marketing costs will be incurred. Cathy Donato, a management accountant with Winner’s Circle, has been assigned the task of analysing this order and recommending whether the company should accept or reject it. After examining the costs, Donato suggested to her supervisor, Gerard LePenn, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high. LePenn insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Donato later discovered that LePenn is a brother-in-law of the owner of the current raw material supply vendor. Required: 1 Identify and explain the costs that will be relevant to Cathy Donato’s analysis of the special order being considered by Winner’s Circle Ltd. 2 marks 2 Determine whether Winner’s Circle should accept the special order. In explaining your answer, calculate both the new average unit cost and the incremental unit cost for the special order. 10 marks 3 Discuss any other considerations that Donato should include in her analysis of the special order. 2 marks 8: Environmental and social costs (8 marks) An aluminium refinery in Rydalmere is planning to implement an environmental management project. The project is to purchase new equipment that will lower operating costs and reduce emissions from the refinery, which is currently spread over nearby residential districts. Additional costs ($) Cost savings ($) Reduction in emissions (tonnes of airborne particles) Initial outlay $289,000 Year 1 145,500 $20,500 50 Year 2 130,000 20,500 50 Year 3 125,000 20,500 50 Year 4 125,000 20,500 50 Year 5 125,000 20,500 50 It is estimated that each tonne of emissions currently causes health costs that average $1 per annum for each of Gladstone’s 50,000 residents. Required: 1 Calculate the net financial cost to the refinery of investing in the new equipment. 4 marks 2 Calculate the financial cost or benefit to the community over the five years.2 marks 3 What other information might you need to gather in order to undertake a more comprehensive analysis of the project? (Note: Please provide a minimum of four) 2 marks The end

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