YANBU UNIVERSITY COLLEGE MANAGEMENT SCIENCE DEPARTMENT ACCT 315 Γ’β‚¬β€œ COST ACCOUNTING SEMESTER 151 CASE STUDY PROJECT Name: _________________________ Id No: _______________ Name: __________________________ Id No: ________________ Name: __________________________ Id No: ________________ Name: __________________________ Section: ____1__ Id No:_________________ Due Date: 14 December 2015 CLO PLO Total Marks Marks Awarded 20 20 20 60 3 PS4 4 AS3 4 AS3 TOTAL MARKS AWARDED QUESTION 1 (PS4) 20 Marks Eco green Company manufactures cloth shopping bags that it plans to sell for $5 each. Budgeted production and sales for these bags for 2011 is 800,000 bags, with a standard of 400,000 machine hours for the whole year. Budgeted fixed overhead costs are $470,000 and variable overhead cost is $1.60 per machine hour. Because of increased demand, actual production and sales of the bags for 2010 are 900,000 bags using 440,000 actual machine hours. Actual variable overhead costs are $699,600 and actual fixed overhead is $501,900. Actual selling price is $6 per bag. Direct materials and direct labor actual costs were the same as standard costs, which were $1.20 per unit and $1.80 per unit respectively. Required: 1. Calculate the variable overhead and fixed overhead variances (spending, efficiency, spending and volume) 2. Create a chart showing the Flexible Budget Variances and Sales Volume Variances for revenue, costs, contribution margin and operating income. 3. Calculate the operating income based on budgeted profit per shopping bag. 4. Reconcile the budgeted operating income from requirement 3 to the actual operating income from your chart in requirement 2. 1 5. Calculate the operating income volume variance and show how the sales volume variance is comprised of the production volume variance and the operating income volume variance. QUESTION 2 (AS3) 20 Marks Spirit Training Inc. manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same support services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support department. Variable Costs Information Technology (IT) Human Resources (HR) Clothing Shoes Total Costs Fixed Costs $500 $1500 Total Costs by Department (in thousands) $2000 $100 $900 $1000 $3000 $2500 $7100 $7000 $5500 $16900 $10000 $8000 $24000 The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based on the following: Information Technology – Number of IT labor hours worked by department Human Resources – Number of employees supported by department Data on the bases, by department, are given as follows: Department IT Hours (used) Clothing 5000 Shoes 3000 Information Technology Human Resources 2000 Number of Employees 120 40 40 Required: 1. What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology and human resources have been allocated using the reciprocal method? 2. Assume that all the work on the IT department could be outsourced to an independent company for $97.50 per hour. If Spirit Training no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Spirit outsource its IT services? Prepared by: Dr Wan Azmimi Wan Mohamed 2 YANBU UNIVERSITY COLLEGE MANAGEMENT SCIENCE DEPARTMENT Question 3 (AS3) 20 Marks Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer of 20X5, the joint costs of processing the tomatoes were $420,000. There was no beginning or ending inventories for the summer. Production and sales value information for the summer is as follows: Product Catsup Juice Canned Units Sales Value at Produced Separable Costs Split off Point (Cases) 100,000 $6 per case $3.00 per case 150,000 8 per case 5.00 per case 200,000 5 per case 2.50 per case Units Sold (Cases) Selling Price 90,000 100,000 180,000 $28 per case 25 per case 10 per case Required: Compute Red Sauce Canning income for Catsup, Juice and Canned when joint costs are allocated using the following: i. Sales Value at Split off Point ii. Net Realizable Value Method END OF QUESTIONS 3