BioChem produces trail mix packaged for sale in convenience stores. At the beginning of April 2015, BioChem has

QUESTION 1                                                                                                                        40 marks

BioChem produces trail mix packaged for sale in convenience stores. At the beginning of April 2015, BioChem has no inventory of trail mix. Demand for the three month period from April to June is expected  to remain constant at 50,000 bags per month. However, considering the fact many of the employees take holiday in May, BioChem plans to produce 70,000 bags in April. The costs and revenues for April are expected to be as follows:

Sales revenue                                                                                               $6.00 per bag

Direct materials cost                                                                                   $0.80 per bag

Direct manufacturing labour cost                                                          $0.45 per bag

Variable manufacturing overhead cost                                               $0.30 per bag

Variable selling cost                                                                                      2.5% of sales

Fixed manufacturing overhead costs                                     $105,000 per month

Fixed administrative costs                                                             $35,000 per month Actual sales in April                                                                                                                 50,000 bags

Required:

(a)           Compute the unit product cost under variable costing and absorption costing                       (10 marks)

(b)           Calculate the net operating income under variable costing.                                                            (10 marks)

(c)           Prepare an income statement using absorption costing.                                                                  (10 marks)

(d)           Reconcile the variable costing and absorption costing net operating incomes in (b) and (c) above.

(e)           Critics of absorption costing have increasing emphasised its potential for leading to undesirable incentives for managers. State two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of plant manager.

(5 marks)

(5 marks)

QUESTION 2                                                                                                                        40 marks

PART A

Wollongong Pathology is a medical testing laboratory situated in Wollongong. Dr. Curin Strong the CEO of the centre is in the process of making estimation on the cost of X‐rays of the centre. The number of X‐rays taken and X‐ray costs over the last nine months in Wollongong Pathology are given below:

Month

X‐Rays Taken

X‐Ray Costs($)

January

6,250

$28,000

February

7,000

$29,000

March

5,000

$23,000

April

4,250

$20,000

May

4,500

$22,000

June

3,000

$17,000

July

3,750

$18,000

August

5,500

$24,000

September

3,250

$16,000

Required:

(a)                Using High‐Low method, estimate the cost formula for X‐ray costs.                                    (10 marks)

(b)                Estimate the cost of X‐rays for October using both regression and high‐low methods, assuming a least‐square regression analysis estimated the total fixed costs to be $5,920 per month and the variable cost to be $3.38. The number of X‐ rays for October is expected to be 4,000. Comment on the accuracy of your high‐ low estimates.

(10 marks)

PART B

SuperCools Company is the exclusive distributer for revolutionary two types of cooling bag Deluxe and Superior. The budgeted income statement for next period is as follows:

Deluxe

Superior

Total

Sales Mix Units sold

187 500

62 500

250 000

Revenues

$5 250 000

$3 125 000

$8 375 000

Variable

$3 375 000

$1 875 000

$5 250 000

Contribution margins

$1 875 000

$1 250 000

$3 125 000

Fixed cost

$2 250 000

Profit

$   875 000

Required:

Calculate the estimated break‐even point in units and dollars that the planned sales mix is attained

(20 marks)

QUESTION 3                                                                                                                        20 marks

ABC & Associates is a public accounting firm that specialises in providing accounting and auditing service.  Its job‐costing system has one direct cost pool, professional labour and a single indirect cost pool that includes all supporting costs of running the office. The support costs are allocated to clients on the basis of professional labour‐hours. In addition to the two senior partners, ABC has six partners who work directly with clients. Each of the eight partners is expected to work for approximately 2 650 hours a year. Budgeted and actual costs for 2016 were:

Budgeted professional labour costs

$4 240 000

Budgeted support costs

$2 000 000

Actual professional labour costs

$4 893 000

Actual support costs

$2 400 000

Actual total professional hours

23 300 hours

Required:

Calculate the direct costs rate per professional labour‐hour under:

(a)     Actual costing                                                                                                                                (10 marks)

(b)     Normal costing                                                                                                                              (10 marks)