COST ACCOUNTING

ASSIGNMENT This assignment will contribute 20 % of your total grade. The raw total marks for this assignment is 50 marks. Question 1 (12 marks) [Lecture 2: Chapter 2 Cost concepts] Helix Inc. uses manufacturing cells to produce its products. A manufacturing cell is a manufacturing unit dedicated to the production of subassemblies or products. One manufacturing cell produces small motors for lawn mowers. Suppose that the motor manufacturing cell is the cost object. Assume that all or a portion of the following costs must be assigned to the cell. a. b. c. d. e. f. g. h. Salary of cell supervisor Power to heat and cool the plant in which the cell is located. There are several manufacturing cells in the plant. Materials used to produce the motors Labour used to produce the motors Cafeteria that services the plant’s employees Deprecation on equipment used to produce the motors Engineering support (provided by the engineering department) Cost of maintaining the plant and the grounds

Required: (i) Identify which cost assignment method would most likely be used to assign the cost of each activity to the small manufacturing cell: direct tracing, driver tracing or allocation. (ii) When driver tracing and allocation methods are identified, specify a potential driver/ allocation base that could be used for cost assignment.. Use the table on the following page.

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Answer Item (i) Cost Assignment method (ii) Cost driver /Allocation base for driver tracing and allocation methods.

a. b. c. d. e. f. g. h.

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Question 2 (18 marks) [Lecture 5, Chapter 7 Activity -based costing] Southwest Veterinary Clinic (SVC), operates in Albany and offers farm animals services and pet care services. The services may require travel by vets to the farms (house calls) administering of drugs, surgery, consultation, and accounting/ office activities. SVC’s manager wants to determine which of the services is more profitable as they are considering expansion of the business. SVC currently uses a simple costing method for allocation of total costs using number of calls/appointments. The accountant, a new graduate from ECU, has suggested that SVC adopt activity-based costing (ABC) to allocate costs as the two services entail different use of activities. The budgeted data for the current year were: Budgeted Overhead Activity Cost Pools Cost Drug treatment $64,000 Surgery $70,000 Travel $28,000 Consultation 63,000 Accounting/ office $50,000 Total budgeted overheads $275,000

Total Expected Activity 4,000 800 28,000 5,000 5,000

The budgeted number of calls/appointment is 5,000 calls/ appointments in total, with 3,000 calls/ appointments budgeted for Farm animals services and 2,000 for Pet care services. The actual activity and actual costs for the year were: Actual Activity for the Year Farm animals Pet care 2,300 1,800 700 300 26,000 3,000 3,800 2,300 4,200 2,000

Activity Cost Pools Drug treatment Surgery Travel Consultation Accounting/ office Total actual overheads

Total $65,000 71,500 30,900 63,000 $55,000 $285,400

The actual number of calls/appointment is 5,500 calls/ appointment in total, with 3,000 calls/appointments for farm animals services and 2,500 for Pet care services.

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Question 2 contd.

Required: 1. Using ABC, calculate the activity rate for each of the five activities, Drug treatment, Surgery, Travel, Consultation and Accounting/ office. Round calculations to the nearest cent. (5 marks) Using ABC, calculate for each service, the overhead costs per call/ appointment. (6 marks) 3. Compare the overhead costs per call/ appointment derived under ABC (Requirement 3) with those calculated under simple costing (Requirement 1). Explain why the unit overhead costs have changed. Show supporting calculations, if any. (5 marks) Calculate the amount the overhead costs were over- or underallocated for travel activity. Discuss briefly what may have caused the over or under allocation. (2 marks)

2.

WIP inventory costs Transferred-in costs

Question 3 (20 marks) Bin Ltd manufactures large metal waste containers that are purchased by local sanitation departments. Containers are produced in two processing departments, Fabricating and Painting. In the Painting Department, materials are added evenly throughout the first half of the process, (that is, when conversion is 50%, materials will be 100% complete), while conversion costs are added evenly throughout the whole process. Production data for the Painting Department in December are as follows: Painting Department 100 $6,300 $2,700 $3,000 500 $41,000 $10,400 $18,122 510 ?

Beginning WIP inventory (units) Beginning WIP inventory costs Transferred-in costs (? complete) Materials (80 % complete) Conversion (40% complete) December data Transferred-in and Started (units) December costs Transferred-in costs Materials Conversion Transferred-out (units) Ending WIP inventory (units) Transferred-in costs (? complete) Materials (? complete) Conversion (70% complete) WIP: Work in process

1.

Prepare a physical flow schedule and compute the equivalent units for all inputs, assuming FIFO method is used. (5 marks)

2.

Using FIFO method, calculate the costs per equivalent unit for all inputs. (3 marks) Using FIFO method, calculate: a. the total cost of goods transferred out of the Painting Department; and (3 marks) b. the cost of ending Work in Process: Painting Department. (3 marks)

3.

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4.

Prepare journal entries (narrations are not required) to record the following transactions: a. transferred-in costs incurred; b. conversion costs incurred; and c. transfer out of goods completed.

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