Comm294 Assignment

Comm294 Assignment Words: 1352

COMMERCE 294 WINTER 2011 ASSIGNMENT # 1 DUE: Monday, January 30 HAND IN ONLY THE PAGES BEGINNING WITH THE NAME SPACES (Pages 5-9) Question #1 Cost Behavior [Chapter 6] (15 marks) Guy Cabling Inc (Guy) supplies and installs fiber optic cable for data transmission. Guy has been approached by UBC to lay fiber optic cable in the existing space and the new development, in the Henry Angus building. You were hired for the summer by Guy, the owner of the company because of your remarkable success in Commerce 294.

Guy will be relying upon you to assist in the assessment of this project for the company. To date, the company has not demonstrated much sophistication in understanding how their costs behave and in predicting costs. You spent some time pouring through financial information and you were able to obtain the following information from past projects that Guy had completed: Job # 1 2 3 4 5 6 7 8 9 Meters of cable laid in project 4000 5500 6500 3000 250 5000 3500 4500 6000 Project Cost $ 152,100 208,250 250,675 125,550 30,125 190,450 141,750 170,400 254,750 The costs in the table above include: ?

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Custom fibre optic cable: Guy purchases the custom fiber optic cable from a German supplier at a rate of $17. 50/m. The supplier confirmed the price of $17. 50 up to and including 6600 metre spools. For spools beyond 6,600 metres, the order requires a heavier cable and the cost increases by $2. 50/m for the entire spool. ( i. e. , for every metre in the spool). ? Cable installers are contract labourers and are paid $1,100 per 100 metres of cable installed. ? Building amortization is allocated at $2,500 per job. ? The project costs include a charge of $5,000 for an engineer.

Memos in the project files indicate that one engineer was just able to handle projects of this size, however, with the higher amounts of cable, there was a diminished ability of the engineer to service the project. It was recommended that in the future, any job (project) greater than 5,000 metres should include two engineers. ? Each job is allocated $3,000 of the marketing administration costs. ? Project Logistics includes shop supplies, support labour and other additional costs needed to support the projects. Guy charges a contractors fee of 15 percent on all of his projects.

This represents the profit component for the company. This has not been included in the table above. 1 Required: a) For the Projects Costs, Identify the behaviour of each of the costs should be included (be specific). Explain why you may have excluded some costs. b) Using the hi/lo method, provide the cost function for logistics support costs. c) The Henry Angus project is estimated to be 6,750 metres of cable. Guy would like you to prepare a detailed analysis of this project. Ensure that you indicate what the different costs of the project would be. ) The Sauder School of Business has been given an approved budget by the UBC Senate of $300,000 for the fiber optic cabling of Henry Angus. Should Guy accept this contract? Explain your answer. e) Guy has seen your analysis and is quite concerned about the method that you used to predict the logistics support costs. He feels that the model selected cannot work with the activity level suggested. Identify what Guy is likely concerned about and address his concerns. Question #2 [Chapter 3] (15 marks) Analysis of Cost Flows and Inventories under Job-Order Costing Quickmix Ltd. manufactures electric mixers and chopping tools.

A job-order costing system is used, since the products are manufactured in batches rather than on a continuous basis. The company started operations on January 2, 2009. Operating activities during the first 11 months of the year (through November 30) resulted in the following balances in selected accounts: ? Raw Materials*, Beginning Balance: 36,000 *The raw materials account includes (both) direct materials and indirect materials ? Work-in-Process, Beginning Balance: 1,200,000 ? Finished Goods, Beginning Balance: 2,785,000 ? Cost of Goods Sold, Beginning Balance: 14,200,000 ?

Manufacturing Overhead: the debits to the manufacturing overhead account for the first eleven months of the year: 2,260,000 The following additional information is available on the company: a. The work-in-process inventory at November 30 consisted of two jobs: Total Cost as of Job No. Units Item November 30 5011 …………… 48,000 6011 …………… 39,000 Professional mixers Base mixers $700,000 500,000 $1,200,000 b. The finished goods inventory at November 30 consisted of five separate items in stock: Items Quantity and Unit Cost Total Cost Professional mixers ………… ,000 units at $22 each Premium mixers …………….. 115,000 units at $17 each Brass choppers ……………… 10,000 units at $14 each Steel choppers ………………. 5,000 units at $16 each Mixer utensil set …………….. 100,000 units at $5 each $110,000 1,955,000 140,000 80,000 500,000 2 $2,785,000 c. Manufacturing overhead is applied to jobs on a basis of direct labour-hours. For 2009, management estimated that the company would work 450,000 direct labour-hours and incur $3,150,000 in manufacturing overhead costs.

A total of 367,000 direct labour-hours were worked during the first 11 months of the year. d. Items (e) through (j) below summarize the activity that took place in the company during the month of December 2009. e. f. A total of $708,000 in raw materials was purchased during the month. Raw materials were requisitioned as follows: Job No. Quantity and Items 5011 …………………………….. See above 6011 …………………………….. See above 1021 …………………………….. 30,000 Steel choppers 2021 …………………………….. 10,000 Premium mixers 3021 …………………………….. 0,000 Costco mixers – ………………………………. Indirect materials g. The payroll during December was as follows: Job No. Hours 5011 ……………………………………………. 6,000 6011 ……………………………………………. 2,500 1021 ………………………………………….. 18,000 2021 ………………………………………………. 500 3021 ……………………………………………. 5,000 Indirect labour ………………………………. 8,000 Sales and administration ………………… – h.

Materials $210,000 6,000 181,000 92,000 163,000 20,000 $672,000 Total Cost $62,000 26,000 182,000 5,000 52,000 84,000 120,000 $531,000 Other costs incurred in the factory during December were: Amortization ………………………………… $62,500 Utilities …………………………………………. 15,000 Insurance ……………………………………….. 1,000 Property taxes …………………………………. 3,500 Maintenance ……………………………….. 5,000 $87,000 Jobs completed during December and the units transferred to the finished goods warehouse were as follows: Job No.

Quantity Items 5011 ……………………………… 48,000 units 6011 …………………………… 39,000 units 1021 ………………………………. 30,000 units 3021 ……………………………… 50,000 units Professional mixer Base mixers Steel choppers Costco mixers i. 3 j. Finished products were shipped to customers during December as follows: Items Quantity Professional mixers ……………………………………….. 16,000 units Premium mixers ……………………………………………. 2,000 units Base mixers …………………………………………………. 20,000 units Costco mixers ………………………………………………. 22,000 units Brass choppers ………………………………………………. 5,000 units Steel choppers ……………………………………………… 10,000 units Mixer utensil set ……………………………………………. 26,000 units Required: a) Determine the amount of under/over-applied manufacturing overhead for the year 2009 and indicate whether it is underapplied or overapplied. ) Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs? c) What is the appropriate accounting treatment for under-or overapplied overhead in general- i. e. , not for this specific case. d) Determine the dollar balance in the work-in-process inventory account as of December 31, 2009. Show all computations. [Ignore any under/over-applied overhead. ] e) For the Professional mixers only, determine the dollar balance in the finished goods inventory account as of December 31, 2009.

Assume a FIFO flow of units- i. e. , the professionals mixers produced the earliest are sold first. Show all computations. [Ignore any under/over-applied overhead. ] 4 294 – ASSIGNMENT #1 NAME (Last, First):_____________________________ Student No. :____________________ Section: ______ Total = _______ [out of 30] DUE: Wednesday, January 26 Q1 Grade _______ Q2 Grade _______ Question #1 Cost Behavior (15 marks) a) For the Projects Costs, Identify the behaviour of each of the costs that should be included (be specific). Explain why you may have excluded some costs. ) Using the hi/lo method, provide the cost function for logistics support costs. 5 c) The Henry Angus project is estimated to be 6,750 metres of cable. Guy would like you to prepare a detailed analysis of this project. Ensure that you indicate what the different costs of the project would be. d) The Sauder School of Business has been given an approved budget by the UBC Senate of $300,000 for the fiber optic cabling of Henry Angus. Should Guy accept this contract? Explain your answer 6 e) Guy has seen your analysis and is quite concerned about the method that you used to predict the logistics support costs.

He feels that the model selected cannot work with the activity level suggested. Identify what Guy is likely concerned about and address his concerns. Question #2 [15 marks] a) Determine the amount of under/over-applied manufacturing overhead for the year 2009 and indicate whether it is underapplied or overapplied. [Additional space is provided on the next page for your answer. ] 7 b) Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs? ) What is the appropriate accounting treatment for under/over-applied overhead in general? 8 d) Determine the dollar balance in the work-in-process inventory account as of December 31, 2009. Show all computations. [Ignore any under/over-applied overhead. ] e) For the Professional mixers only, determine the dollar balance in the finished goods inventory account as of December 31, 2009. Assume a FIFO flow of units- i. e. , the professionals mixers produced the earliest are sold first. Show all computations. [Ignore any under/over-applied overhead. ] 9

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