ACCT90009SCM Online Practice Exam Suggested Solutions to Short Case Studies

Posted on January 5, 2024 by Cheapest Assignment

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ACCT90009SCM Online Practice Exam Suggested Solutions to Short Case Studies

Question 31
To help Alison understand process costing systems explain their similarities to the job-order costing system she is familiar with. [4 Marks]

• Both have the same basic purpose, to assign materials, labour and overhead costs to products so that a unit product cost can be calculated (for inventory valuation and/or decision making)
• Both use the same basic accounts (materials, wages, manufacturing overheads, work-in-progress and finished goods)
• The flow of costs through these accounts is basically the same in both systems
• Any other reasonable observation

Question 32
Do you think a job-order or process costing system would be more applicable for Alison’s company? Explain. [4 Marks]
The most appropriate costing system is a process costing system

• Alison’s production environment involves the manufacture of an identical single product, on a continuous basis
• A process costing system would allow costs to be accumulated by process and averaged across all units. There is no need to cost each job separately.

Question 33
Should Alison consider implementing an activity-based costing system for product costing purposes? Why or why not? [4 Marks]
No – Alison does not need to consider implementing an activity-based costing system.

• This is a single product firm so there will be no significant benefit from the better allocation of overhead costs (batch and product sustaining overhead costs) for product costing purposes. More benefits in multi-product firms where activity consumption, production volumes etc vary significantly across products.
• Thus, the costs of implementing the more sophisticated system would easily outweigh the benefits.
• If students suggest to use ABC must justify on the basis of benefits associated with better understanding (and subsequently management) of activities and activity drivers which may reduce resource consumption with the firm.

Question 34
Evaluate the approach William has taken in setting standards for concrete block production at North Melbourne Building Supplies. What are the advantages and disadvantages of his approach? What improvements to the method of setting standards may be warranted? [4 Marks]

• Consider the basis on which standards are set (historical) and whether this is appropriate in this context.
• William has set ‘ideal’ standards. Consider the implications of this within the firm. Consider available alternatives.
• William hasn’t consulted anyone else in the organisation as to what the standards should be. Must consider in response the implications of this.
• Address improvements that are required (related to points above).

Question 35
What effect will the slightly higher than anticipated production level for May have on the direct materials, direct labour and variable overhead flexible budget variances? Explain. [2 Marks]

• The slightly higher than anticipated production level will not have any effect on the direct materials, direct labour and variable overhead flexible budget variances.
• Flexible budget variances capture changes in costs that have occurred due to price/rate and/or efficiency factors. Volume variances (difference between static budget and flexible budget) would be effected by the higher production levels.

Question 36
In the month of May the actual labour rate was $12 per hour and actual direct labour hours worked were 8,800. Calculate and interpret meaningful flexiblebudget variances for direct labour. [3 Marks]

Overall flexible budget variance for direct labour = $10,600 U
Flexible Budget Amount                Actual Amount
(95,000 * 0.1 hours * $10.00)     (8,800 * $12.00)
$95,000                                                 $105,600
Direct labour efficiency variance = $7,000 F
Flexible Budget Amount                 @ actual usage
(95,000 * 0.1 hours * $10.00)       (8,800 * $10.00)
$95,000                                                     $88,000
DLEV = (AH * SR) – (SH * SR) (8,800 * $10.00) – (9,500 * $10.00)
= SR (AH-SH) $10.00 (9,500 – 8,800)
Interpretation of variances must be provided.

Direct labour rate variance = $17,600 U
@ actual usage                                 Actual Amount
(8,800 * $10.00)                            (8,800 * $12.00)
$88,000                                                $105,600
DLRV = (AH * AR) – (AH * SR) (8,800 * $12.00) – (8,800 * $10.00)
= AH (AR-SR) 8,800 ($12.00 – $10.00)
Interpretation of variances must be provided.

Question 37
Actual fixed overheads for the production of 95,000 cement blocks in May were $197,500. Fixed overheads are allocated to blocks on the basis of direct labour hours. 8,800 actual direct labour hours were worked during May. Calculate and interpret meaningful variances with respect to fixed overheads for North Melbourne Building Supplies. [3 Marks]

Fixed Overhead Spending Variance = $17,500 U
(May also refer to as the Fixed Overhead Budget Variance, is also the overall flexiblebudget variance for fixed overheads.)

Actual Fixed Overheads                              Budgeted Fixed Overheads
$197,500 –                                                                       $180,000
Interpretation must be provided.
Fixed Overhead Production Volume Variance = $10,000 F

Static Budget                                   Standard Inputs Allowed for Actual
$180,000                                                (0.1 hours * 95,000 * $20.00)
T                                                                                   $190,000


Static Budget                                    Standard Inputs Allowed for Actual
$180,000                                                     (95,000 blocks * $2.00)

Interpretation must be provided.

Question 38
Incremental unit cost if purchased:
Purchase price          $15,000
Material handling        3,000
Total                           $18,000

ncremental unit cost if manufactured:
Direct material $ 1,000
Material handling 200
Direct labour 8,000
Variable manufacturing overhead ($12,000 ´ 1/3) 4,000
Total $13,200
Increase in unit cost if purchased ($18,000 – $13,200) $ 4,800

(4 marks)

Question 39
Increase in monthly cost of acquiring part KJ37 if purchased
(10 ´ $4,800, as calculated above) $48,000
Less: Rental revenue from idle space 25,000
Increase in monthly cost $23,000

(4 marks)

Question 40
Contribution forgone by not manufacturing alternative product $52,000
Savings in the cost of acquiring KJ37
(10 ´ $4,800 as computed in requirement 2) 48,000
Opportunity cost of using the limited space to produce part KJ37 $ 4,000

(4 marks)

Question 41
Some potential pitfalls in using accounting data in decision making include the following:
(a) Decision makers often pay too much attention to sunk costs.
(b) In decision making, fixed costs should be included in the total amounts, rather than basing the analysis on unitised fixed costs. Using unitised fixed costs is dangerous, because it implies that the fixed cost per unit changes as activity changes.
(c) In some kinds of decisions, it is important to identify the avoidable costs. It is critical that the decision maker make a distinction between the amount of the fixed costs that will be avoided, and the amount that may have been arbitrarily allocated to a particular cost objective.
(d) People tend to overlook opportunity costs or to treat such costs as less important than out-of-pocket costs. Therefore, in a decision analysis, it is important to pay special attention to identifying and including opportunity costs in the analysis.

(4 marks)
Total 16 marks

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