AFM112 Introduction To Management Accounting: Budgeting And Management

AFM112 Introduction To Management Accounting

Questions:

Important Notes: Students MUST observe the following guidelines:
1.    A total of FOUR questions; will be marked ‘Out of 40’, and then scaled down to ‘out of 20’ as per the allocated weight for the assessment task.
2.    DO NOT reproduce questions in your assignment; only provide your responses to the questions with all necessary calculations/workings).

Question 1: (8 Marks) – 2 marks each requirement)
Luxed Construction Ltd (LCL) is a reputed construction company operating primarily in regional NSW. It allocates/applies its budgeted manufacturing overhead cost (MOH) to jobs on the bases of Direct Labor (DL) hours worked on any construction site. For 2019, LCL’s managers make the following budgets for the company as a whole and separately for the Armidale Secondary College (ASC) job, given below under their respective columns. 
                                                             LCL                          ASC job
      Direct materials                            $139,900                       $9990
      Direct labor                                  $108,900                    $11,190
      Depreciation (Office computers)   $29,100
      Manufacturing overhead costs     $129,700
      DL hours                                        189,900                       21870 

Required: Work out, showing all necessary calculations, the following for LCL:
1.    The Indirect (or MOH) cost allocation rate for allocating MOH to individual jobs for 2019 (round to 2 decimal places)?
2.    The amount of MOH cost to be allocated to the ASC job?
3.    What will be the ‘total manufacturing costs’ of the ASC job?
4.    What is LCL’s total bid price for ASC job if its policy is to add a 65% markup on a completed job’s total manufacturing costs?

Question 2: (10 Marks) – 3 marks for ‘a’; 2 for ‘b’; 5 for ‘c’)
Luxed Construction Ltd (LCL) is a large service firm with two products in its product mix – SP General and SP Special. Both products are allocated LCL’s head office’s Call Centre support costs on the basis of one cost allocation base – the Sales revenues. Currently, as a standard practice LLC allocates 0.75% of the sales revenue figure as the LCL’s head office’s Call Centre support cost to each of the two products. 

LCL’s head office’s Call Centre support costs for 2018 were $371,000.

LCL’s 2018 books reveal the following pieces of information about the two products:

    SP General    SP Special
    Info related Calls Quantity    1,250    4,850
    Info related Calls Length (average)    4 minutes    9 minutes
    Warranty related Calls Quantity    650    1,950
    Warranty related Calls Length (average)    9 minutes    19 minutes
    Sales revenue    $11,590,000    $6,990,000

Required (Show all necessary working/calculations/steps, unless otherwise stated):
a.    Under the company’s current standard practice, how much of the LCL’s head office’s Call Centre support cost is allocated to SP General and SP Special for 2018? 

b.    LCL’s management is contemplating a switch its head office’s Call Centre support costs allocation base to Info related Calls Length (average). Do you think it’s a good decision for LCL if the aim is to work out as accurate product cost as possible? Briefly explain your answer in your own words giving reasons for your agreeing or not agreeing to the decision (No calculations required; respond in about 70 words)? 

c.    If LCL’s management actually switches its head office’s Call Centre support costs allocation base to ‘total number of Info related Calls and Warranty related Calls’ (combined for both products) to allocates its 2018 head office’s Call Centre support costs, how much of the total head office’s Call Centre support costs will be allocated to each of the two products? Compute the amount of call center support costs assigned to each product line under this revised ABC system. Round off to two decimal places where required.

The two products’ consume LCL’s resources (i.e. use the business ‘activities’) in the following manner to run their respective day to day business affairs (all actual data in the table below):
                                                     SP General                  SP Special
Clients Inquiries                           2,900  hours                    6,000 hours
Clients billing                               271,500  bills                  600,000 bills
Clients credit check                      23,000  accounts             40,000 accounts
Clients correspondence               5,500  letters                    8,000 letters
Brand managers for SP General and SP Specials are paid annual retainer of $129,000 and $141,000, respectively.

Required: Work out the following showing all necessary calculations/working out (round the final answers to the nearest dollar; round individual indirect cost rates to 2 decimal places):
1.    The total cost to be assigned to SP General?
2.    The total cost to be assigned to SP Special?
3.    Briefly explain how the ABC system resulted in a more accurate costs assignment to each of the two products (respond in about 70 words)?

Question 4: (Total 10 Marks) – 5 marks for ‘1’; 3 marks for ‘2’; and 2 marks for ‘3’
Luxed Construction Ltd (LCL) is a large manufacturing firm with two products in its product mix – SP General and SP Special. LCL produces Component LMN that is used in the manufacture of both its products. LCL’s 2018 books contain the following per unit cost of producing Component LMN:
                              Direct materials                            $ 149
                              Direct labor                                   $ 131
                              Variable overhead                         $ 109
                              Fixed overhead                              $ 120
                                    Total                                        $509
Sydney Sussex Manufacturing’s (SSM) production manager approached LCL offering it a sale of 4100 Component LMN at a price of $461 each, a price less than the LCL’s per unit in-house manufacturing cost of $509. If LCL management agrees to the offer, it will be able to avoid only 40% of its fixed overhead costs. The decision under consideration for LCL’s management is whether to accept or reject SSM’s offer.

Required: Showing all necessary calculations/steps, work out for LCL:
1.    The relevant Variable costs, relevant Fixed costs and relevant Total costs for the decision under consideration at LCL.
2.    LLC’s production manager approached you as the company’s management accountant asking you to evaluate SSM’s offer and help him make a decision as to whether LLC should accept or reject SSM’s offer. Show your calculations/working out on both the alternatives and suggest financially the best one to the production manager.
3.    Briefly explain any four ‘qualitative factors’ that LLC needs to take into consideration before opting for one of the two alterative under requirement A.