You are on page 1of 3

ACC4206 Advanced Management Accounting

Topic 2 – Tutorial Questions

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)

Sanho Electrical is a manufacturing business which manufactures a variety of household electrical


goods in its many divisions of the organization throughout the country. The Clean division, which
makes white goods such as washing machines, has seen a recent decrease in both its sales and
profit figures. This division receives some of its components from other divisions within the
company. The Production Director, Mr. Hopkins is concerned about the decline of his division’s
performance and asserts that this poor performance can be attributed due to the decline in quality
of the product that’s being produced by the Clean division.
Data concerning the Clean division’s performance for the year ending 31st December 2010 are:
Staff training costs $120,000
Number of production inspection hours 15,000
Cost per production inspection hour $20
Number of design engineering hours 5,000
Cost per design engineering hours $40
Number of process engineering hours 4,000
Cost per process engineering hours $35
Number of units rejected during inspections 350
Cost of reworking rejected units per unit $130
Total cost of materials wasted during production
- Components transferred from other divisions $100,000
- Within Clean division $20,000
Number of units requiring repair under warranty 950
Cost of warranty repair per unit $60
Number of units requiring re-work 800
Cost of re-working per unit $80
Distribution costs for warranty repaired units per unit $10
Customer support costs for warranty repaired units per unit $5
Required:

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.

Question 3 (Target Costing)


A roller skate manufacturer wants to calculate a target cost for a new type of roller-blade, a
competitive market price will be at $250 per unit.

Required:
Calculate the target cost:
(i) If the profit margin is 26%.
(ii) If the profit mark-up is 25%

Question 4 (Target Costing)


ABC Ltd makes and sells two products, X and Y. Both products are produced through two
consecutive processes – machining and assembly.
Raw material is input at the start of the machining process.
An activity based costing approach is used in the absorption of product specific conversion costs.
The following estimated information is available for the period ending 31 Dec 20X6:
Product X Product Y Total
Production/sales (units) 9,000 5,400
Selling price per unit $80 $75
Direct material cost/unit $30 $25
ABC variable conversion cost/unit
- machining $18 $8
- assembly $14 $18
Product specific fixed costs £60,000 £40,000
Company fixed costs - - £85,000
ABC Ltd uses a minimum c/s ratio (contribution to sales ratio) of target of 30% when assessing
the viability of a product. In addition, management wishes to achieve an overall net profit margin
of 15% on sales in this period in order to meet return on capital targets.
Required:
Explain how target costing may be used in achieving the required returns and suggest specific
areas of investigation.

Question 5 (Target Costing)


Sam produces rabbit hutches and he is about to launch a new top of the range hutch which he
believes can be sold for $125. He demands a profit margin of 25%.
Cost information for the new hutch are:
i. Timber - good quality timber is essential – the hutch needs 10m of good quality plain
timber. Sam can acquire this at a cost of $48.
ii. Felt roofing material – 2m² are required. Roofing material costs $17.50 per m².
iii. Wire – 1m of wire is needed at a cost of $1.50 per m
iv. Labor – the hutch will take 2 hours to make – labor is paid at a rate of $7.00 per hour.
v. Variable overhead – these will be incurred at a rate of $1.50 per labor hour.
Required:
a) Calculate the target cost of the new hutch and identify any cost gap that may exist?
b) Suggest FOUR (4) ways on how to close the ‘cost gap’ calculated above?

You might also like