ACC00146 – 2016 S2
 
ASSIGNMENT 2 (20 marks)
 
QUESTION 1 (5 MARKS)
 
 
Russell Company has the following projected account balances for June 30, 20X5:
 
   Accounts payable          $40,000               Sales                         $800,000
   Accounts receivable      100,000               Capital stock              400,000
   Depreciation, factory      24,000               Retained earnings                  ?
   Inventories (5/31 & 6/30) 180,000             Cash                             56,000
   Direct materials used     200,000               Equipment, net           240,000
   Office salaries                 80,000               Buildings, net             400,000
   Insurance, factory             4,000               Utilities, factory           16,000
   Plant wages                   140,000               Selling expenses           60,000
   Bonds payable               160,000               Maintenance, factory   28,000
 
Required:
a.   Prepare a budgeted income statement for June 20X5. (1 mark)
b.    Prepare a budgeted balance sheet as of June 30, 20X5 (1 mark)
c.    How do we use computer-based budgeting in sensitivity analysis? (1.5 marks)
d.         Explain how the choice of the type of responsibility center affects managers’ behaviour. (1.5 marks)
 
 
QUESTION 2 (5 MARKS)
 
The Alex Miller Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:
 
Budgeted costs of the operating the plant
for 10,000 to 20,000 hours:
      Fixed operating costs per year                           $240,000
      Variable operating costs                                              $10  per hour
Practical capacity                                                        20,000  hours per year
Budgeted long-run usage per year:
      Lamp Division            800 hours × 12 months =     9,600  hours per year
      Flashlight Division      450 hours × 12 months =     5,400  hours per year
 
Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June.
 
Required: (1 MARK EACH)
a.    If a single-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
 
b.   For the month of June, if a single-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.
 
c.    If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
 
d.    For the month of June, if a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.
 
e.    Explain which method is the most practical?
 
QUESTION 3 (5 MARKS)
 
a. Oregon Lumber processes timber into four products. During January, the joint costs of processing were $280,000. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows: (2 marks)
 

		Sales Value at
Product	Board feet	Splitoff Point	Ending Inventory
2 x 4's	6,000,000	$0.30 per board foot	500,000 bdft.
2 x 6's	3,000,000	0.40 per board foot	250,000 bdft.
4 x 4's	2,000,000	0.45 per board foot	100,000 bdft.
Slabs	1,000,000	0.10 per board foot	50,000 bdft.

 
Required:
 
Determine the value of ending inventory if the sales value at splitoff method is used for product costing. Round to 3 decimal places when necessary.
 
 
b. Silver Company uses one raw material, silver ore, for all of its products. It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods. (3 marks)
 
Required:
 
Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?
 
 
QUESTION 4 (5 MARKS)
 
An examination of the cost records of the Wilson River P/L indicates that the materials price variance is favorable but that the materials efficiency variance is unfavorable by a substantial amount. What might this indicate? Explain using examples to support your statements.