ASSIGNMENT No. 1 Q.

1 a) Briefly describe the following terms: (5+10) i) Committed fixed cost ii) Stock out cost iii) Opportunity cost iv) Discretionary fixed costs b) 'Managerial Accounting is an Aid to Management'. Discuss the main points in support of this statement. Q. 2 a) How does job order costing differ from process costing? (5+10) b) The Gassert Company uses process costing in its two producing departments. The following information pertains to Department 2 for November. Normal spoilage is 5% of output; inspection and identification of spoilage take place at the end of the process; materials are added after inspection. Department 2 received 14,000 units from Department 1 at a cost of $140,000. Department 2 costs were $12,000 for materials and $90,000 for conversion costs. A total of 8,000 units were completed and transferred to finished goods. At the end of the month, 5,000 units were still in process, estimated to be 60% complete as to conversion costs. Required: Cost of production reports for Department 2 Q. 3 a) Describe methods for allocating the joint production cost to joint products.(5+10)

b) In the manufacture of its main product, the Washington Company produces a by-product. Joint production cost incurred to the point of separation totals $200,000. After separation, cost of $150,000 is incurred to complete the main product, and $6,000 is incun-ed to complete the by-product. The main product has a final market value of $400,000, and the by-product has a final market value of $20,000. There is no ending inventory. Required: i) Assume that the net revenue method is used to account for the by-product as other income and that the by-product's Marketing and administrative expenses are zero. How much other income should be reported on the income statement? ii) Assume that management wants to allocate $1,000 of marketing and administrative expenses to the by-product and still have a profit of 10% of the sales price. Using the market value (reversal cost) method, calculate how much of the joint cost should be allocated to the by-product. Q. 4 a) Describe the straight piecework plan, the 100-percent bonus plan, and the group bonus plan. (5+10) b) Best's Manufacturing's standard production for assembly operation X-15 is 20 units per hour. For the first week in May, a worker's record shows the following: Required: Compute the employee's earnings under each of the following conditions. Carry all computation to three decimal places. i) An incentive plan is used with a guaranteed rate of $9 per hour and a premium of 60% of the time saved on production in excess of standard for each day. ii) A piecework plan with rates of $0.40 per unit below standard, $0.48 at standard and up above standard. Each day is computed independently. iii) A 100-percent bonus plan is used with a base rate of $9 per hour. The bonus is computed based on total production for the week. Units Hours Monday 140 8 Tuesday 160 8 Wednesday 175 8 Thursday 180 8 Friday 200 8

Q. 5 a) Describe the difference between direct costing and absorption costing. (5+10) b) Nevada Company manufactures two products, L and M. L sells for $20 and M for $15. Variable costs per unit are $12 and $10 for L and M. respectively. Total fixed cost is $372,000. Management has targeted profit for the coming period at $93,000. Two units of L are expected to sell for every three units of M sold during the period. Required: i) The break-even point in units of product and in sales dollars. ii) The level of sales in units of product and dollars necessary to achieve the profit goal. Q. 6 a) Define Activity Based Costing (ABC). In tedns of the direct traceability of costs, how do traditional costing systems differ from ABC? (5+5) b) Overhead costs in Logan Company totaled $8,100,000 last year, and Product RI( used 60 direct labor hours out of the company's total of 50,000 direct labor hours used. All overhead costs are accumulated in a single cost pool and allocated based on direct labor hours. A consulting firm has just completed on ABC study for the company. The ABC study showed that, of that last year's total overhead cost, $2,000,000 represented the costs of design changes. The activity driver selected for design change costs is the number of design hours. A total of 6,000 hours were spent on design changes last year, of which 132 hours were spent making a total of three changes in the design of Product RK. Required: Considering only the costs of design changes, calculate the direction and amount of cost distortion for Product RK in the original cost system. Q. 7 The general manager of Ulysses Hardware Manufacturing Company has asked the controller to prepare an income forecast for the next year, by quarters; with sales reported for each of the two major segments---commercial and government. (10) The Marketing Department provided the following sales estimates: The Controller's office assembled the following figures: a) Cost of goods sold: 46% of total sales. b) Advertising expenditures: $6.000 each quarter. 1" Quarter 2'd Quarter 3" Quarter 41h Quarter Commercial Sales $250,000 $266,000 $275,000 $300,000 Government Sales 100,000 120,000 110,000 115,000 c), Selling expenses: 10% of total sales. d) Administrative expenses: 16.8% of gross profit. e) General office expenses: 12% of gross profit. 0 Corporate income tax rate: 40% Required: i) Prepare a budgeted income statement, by quarters and in total. All figures should be shown in thousands of dollars and rounded to the nearest thousands. Add the four quarters across to obtain total figures. ii) Prepare an analysis of the effect of a 5% increase in commercial sales revenue, using the same income statement format as for requirement I. Q. 8 Bacrometer, Inc., makes part no. 566 on one of its production lines. Each month Bacrometer, Inc. makes 60,000 of part no. 566 at a variable cost of $2.50 per part. The fixed costs for the production line are $180,000, or $3.00 per part. Bacrometer has been provided a bid for part no. 566 from another manufacturer that will make the part for $2.65 per part: Bacrometer knows the production line could be rented to another manufacturer for $5,000 per month. Should Bacrometer continue to make part no.566 or should it buy the part and rent the production line? (05)