SectionA 40marks
AnswerQuestionNo. 1,thenattemptanyotherTHREEquestions.
1. Transactiondriverscount howoftenan activityisperformed.
Durationdriversrepresenttheamountof timerequiredtoperforman activity.
Intensitydrivers directlychargefortheresourcesused eachtimean activityis performed. Also, aweighted indexapproachmightbeused to simulateanintensitydriver.
a. Giveanexampleof eachof thefourtypesof driversdescribedabove. b. Explainwheneachofthefourtypesof driversshouldbeused.
c.For eachof the first threetypesof drivers,explaintheassumptionsabouttheactivityandthe objectof the activity.
d. For eachof the followingactivitiesidentifyatransactiondriver,adurationdriver, andan intensitydriver.
Machinemaintenance
MachinesetupQuality controlMaterialorderingProductionschedulingWarehouseexpenseEngineeringdesign
AttemptanyTHREEquestionsof thefollowing
2. Describethestepsin thePDCAcycle.
3. Describesomeof thedrawbacksofusing theoperatingbudgetasa controldevice.
4. Whatrolehastheincreasinglycompetitivebusinessenvironmentplayed inthe developmentofmanagementaccounting?
5. Explain howtraditionalcost systems,using only unitlevelcost drivers,distortproductcosts.
SectionB 60marks
ReadthefollowingFOURcases,thenanswertherequiredquestionsafter eachcase.
Case1
ProfitsharingKnightMedicalDevices makesdevicesandequipmentthat it sellstohospitals.The organizationhasaprofit-sharingplan thatiswordedasfollows:
The companywillmakeavailableaprofit-sharingpoolthatwill be thelower ofthefollowingtwo items:
1.40%ofincomebeforetaxesin excessof thetargetprofitlevel,whichis18%of net assets,or
2.$14million.
The individualemployeeis paid ashareof theprofit-sharingpoolequal totheratio of that employee’ssalarytothetotalsalarypaid to allemployees.
Required
(a) Ifthe companyearned$90millionof earningsbeforetaxesandhadnetassetsof$200 million, whatwouldbetheamountavailablefordistributionfromtheprofit-sharingpool?
(b) Supposethat BobKnight’ssalarywas$136,000 andthattotalsalariespaidinthe company were$50million. Whatwould Bob’sprofit sharebe?
Sunshine,Inc.sellsasingle product.The company’smostrecentincomestatementisgivenbelow.
| Sales (4,000units) | $120,000 |
| Lessvariableexpenses | (68,000) |
| Contributionmargin | 52,000 |
| Less fixedexpenses | (40,000) |
| Netincome | $ 12,000 |
Required:
a. Contribution marginper unit is
b. Ifsalesaredoubledto$240,000,
totalvariablecostswillequal
c.Ifsalesaredoubled to$240,000,
totalfixedcostswillequal
d. IfSunshineispast thebreakevenpointand
10 moreunitsaresold,profitswillincreaseby
e.Computehowmanyunits must besold to breakeven.
f. Computehow manyunits mustbesold to achieveaprofit of$20,000.
The CrandonMillhastwodivisions. The CuttingDivision preparestimberat itssawmills. The AssemblyDivision preparesthe cut lumber intofinishedwoodforthefurnitureindustry.Duringthe year,theCuttingDivision prepared60,000cords ofwoodatacost of$660,000.All thelumber was transferredtotheAssemblyDivisionwhereadditionaloperatingcostsof $6per cord wereincurred. The 600,000boardfeetoffinishedwood weresoldfor $2,500,000.
Required:
a. Determinetheoperatingincomeforeachdivisionif thetransferpricefromCuttingtoAssembly isat cost,$11acord.
b. Determinetheoperatingincomeforeachdivisionif the transferpriceis$9 per cord.
c.Since theCuttingDivisionsellsallofits wood internallytotheAssemblyDivision,doesthe managercarewhat priceisselected?Why?ShouldtheCuttingDivision be acost centeroraprofit centerunderthe circumstances?
AbbotCorporationproduces200,000,000units ofproductXand80,000,000of productYwiththe followingcosts andmachinehours.
ProductX ProductY Total
Directcosts
(materialplus labor) $18,000,000 $8,000,000
Environmental
support 28,000,000
Nonenvironmental
support 44,000,000 58,000,000
Totalsupport $44,000,000 $86,000,000 $130,000,000
Totalmachinehours 20,000,000 12,000,000 32,000,000
Required
a. Determinetotalproductcostper unit for each productusing atraditionalcostingsystemwith machinehoursasthe cost driver.
b. Determinetotalproductcost per unit for each productusing an activitybasedcostingsystem. Usethe number of unitsas the costdriverfor each activity.
TheEnd
