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Question 1 (TPA)
Will and Macy operates separate divisions making and selling products with identical cost
structures as follows:
Sales price per unit $50.00
Direct material per unit $12.00
Direct labour per unit $8.00
Fixed production overheads of $200,000 per month are absorbed across the normal production
level of 10,000 units per month. In each division, assume a bottleneck capacity of 20,000 hours.
In the month of April, Will makes and sells exactly 10,000 units whilst Macy makes 12,000 units
and sells only 9,500. Neither Will nor Macy has any opening or closing inventory of raw materials
or components.
Required:
Show which manager would benefit if bonuses were given on:
(a) Profit (absorption costing used)
(b) TPARs
(c) Contribution (Marginal Costing principles)
Question 2 (TQM)
a) Prepare a cost analysis which shows the four categories of quality costs for the year ended 31st
December 2010. Your statement should clearly show the total cost of quality for each category
and also for the whole Clean division.
b) Comment briefly on whether the statement prepared (in part (a) above) provides a full picture
of the quality situation for the Clean division.
Required:
Calculate the target cost:
(i) If the profit margin is 26%.
(ii) If the profit mark-up is 25%