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Question 1 (20 marks)

a. In your own words define a cost object and give 3 examples

b. DoWeCheatem Inc. produces three different paper products at its St. Thomas plantGreat, Good, and Average. Each product has its own dedicated production line at the plant. The company currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labour, and indirect manufacturing costs. Total indirect manufacturing costs of the plant in May 2018 are $150 million ($10 million of which are fixed). This total amount is allocated to each product line on the basis of direct manufacturing labour costs of each line. Summary data (in millions) for May 2018 are

Great Good Average

Direct Material Cost $84 $54 $62

Direct Manufacturing Labour Costs 14 28 8

Indirect Manufacturing Costs 46 88 28

Production 9 Kg 12 Kg 10 Kg

(i) Compute the total manufacturing cost per kilogram for each product produced in May 2018. Compute the total variable manufacturing cost per kilogram for each product produced in May 2018.

(ii) Suppose that in June 2018, production was 12 million kilograms of Great, 16 million kilograms of Good, and 18 million kilograms of Average. Why might the May 2018 information on total manufacturing costs per kilogram be misleading when predicting total manufacturing costs in June 2018

Question 2 (20 marks)

The Walk Rite Shoe Company operates a chain of shoe stores. The stores sell 10 different styles of inexpensive mens shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Walk Rite is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:

Required (Consider each question independently.)

1. What is the annual breakeven point in (a) units sold and (b) revenues?

2. If 53,000 units are sold, what will be the stores operating income (loss)?

3. If sales commissions were discontinued for individual salespeople in favour of an $18,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold and (b) revenues?

4. Refer to the original data. If the store manager were paid $0.70 per unit sold in addition to his current fixed salary, what would be the annual breakeven point in (a) units sold and (b) revenues?

5. Refer to the original data. If the store manager were paid $0.30 per unit commission on each unit sold in excess of the breakeven point, what would be the stores operating income if 50,000 units were sold? (This $0.30 is in addition to both the commission paid to the sales staff and the store managers fixed salary.

Question 3 (20 marks)

Bobs Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labour) and one indirect-cost pool (assembly support). Direct labour-hours is the allocation base for assembly support costs. In December 2016, Bob budgets 2017 assembly-support costs to be $88,000 and 2017 direct labour-hours to be 22,000.

At the end of 2017, Bob is comparing the costs of several jobs that were started and completed in 2017.

Bubba MODEL Bouie Model

Construction Period Feb June 2017 May Oct 2017

Direct Material Cost $10,655 $12,745

Direct Labour Cost $3,625 $4,113

Direct Labour Hours 95 110

Direct materials and direct labour are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labour-hours are worked. The 2017 actual assembly-support costs were $84,000, and the actual direct labour-hours were 20,000.

Required

1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?

2. What are the job costs of the Bubba Model and the Bouie Model using (a) normal costing and (b) actual costing?

3. Why might Bobs Construction prefer normal costing over actual costing?

QUESTION 4 (20 marks)

Sander Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here

REQUIRED

1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product.

2. Compute the manufacturing cost per unit for each product.

3. How might Sanders managers use the new cost information from its activity-based costing system to better manage its business

Question 5 (20 marks)

Fondi, Inc., bottles and distributes mineral water from the companys natural springs in Italy. Fondi markets two products: 12-ounce disposable plastic bottles and 1-gallon reusable plastic container. Customers can return the reusable containers and get a $0.10 government rebate.

Required

1. For 2018, Fondi marketing managers project weekly sales of 100,000 12-ounce bottles and 40,000 1-gallon containers. Average selling prices are estimated at $0.50 per 12-ounce bottle and $1.65 per 1-gallon container. Prepare a revenues budget for Fondi, Inc., for the year ending December 31, 2018. What would revenue be if Average Selling price increased by 10%?

2. Fondi begins 2018 with 380,000 1-gallon containers in inventory. The vice president of operations requests that 1-gallon containers ending inventory on December 31, 2018, be no less than 260,000 bottles. Based on sales projections as budgeted previously, what is the minimum number of 1-gallon container Fondi must produce during 2018?

3 The VP of operations requests that ending inventory of 1-gallon containers on December 31, 2018, be 300,000 units. If the production budget calls for Fondi to produce 1,200,000 1-gallon containers during 2018, what is the beginning inventory of 1-gallon containers on January 1, 2018? Is it possible for the beginning inventory balance to be negative?

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