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1、,Management Accounting FundamentalsSuggested solutions 1 1LESSON 1 Suggested solutionsNote:In multiple-choice questions, students are asked for their numerical choice only. Explanations are not required.Question 1 (14 marks)Multiple choice (1 mark each)a.4)Management accounting provides information
2、by department, by product line, by geographical segment, and so on.b. 1)The cost of drugs would be traced to specific nursing stations in order to monitor the cost of different types of patient care.c.3)The cost of the fringe benefits should be accounted for in the same manner as the underlying labo
3、ur costs.d. 3)Differential costs are those costs which differ between alternatives. Both variable and fixed costs could differ between alternatives.e.3)Monitoring activities is a form of controlling.f.4)Throughput time is the time it takes to produce a product. The larger the work in progress, the l
4、onger it takes to complete the individual products.g. 3)The cost of goods manufactured includes the cost of direct material, direct labour, and manufacturing overhead. Therefore, manufacturing overhead consists of all manufacturing costs excluding direct material and direct labour.h. 1),Management A
5、ccounting FundamentalsSuggested solutions 1 2Fixed costs will stay the same in total but will increase on a per unit basis since a lower number of goods are consuming the same total cost.i.4)The ability to trace costs to cost objects determines whether a cost is direct or indirect.j.4)The 1,000 per
6、month is foregone once the space is no longer rented. Even though the company does not actually have to pay this amount, the 1,000 should be considered as a factor in choosing between the various options.k. 2)The cost of the machine is a sunk cost. The cost of the machine will not change no matter w
7、hat action is taken in 20X9.l.3)Prime cost= Direct materials used + Direct labour= (20,000 + 100,000 30,000) + 80,000= 90,000 + 80,000= 170,000m. 2)Conversion cost= Direct labour + Factory overhead= 80,000 + (80,000 10 8)= 80,000 + 64,000= 144,000n. 3)Cost of goods manufactured = Beginning work in p
8、rogress + Direct materials used + Direct labour + Factory overhead Ending work in progress= 40,000 + 90,000 + 80,000 + 64,000 25,000= 249,000Question 2 (16 marks)Multiple choice (2 marks each)a.2)Cost of goods manufactured will include the rental expense and will be overstated; in turn, cost of endi
9、ng inventory and cost of goods sold will also include this rental cost and will be overstated.b. 2)105,000 (65,000 10,000)c.2),Management Accounting FundamentalsSuggested solutions 1 30 + 15,000 + 20,000 + 20,000 51,000d. 3)49,000 0.7 0.3e.1)3,000 3 0.75; 3,000 3 0.25f.2)17,000 + 10,000 40,000 (14,0
10、00 + 10,000 + 12,000 12,000)g. 1)102,000 (? + 40,000 9,000) 14,000 16,000 = 40,000h. 3)32,000 (45,000 30,000) + 30,000Question 3 (5 marks)The major purposes of accounting systems are as follows:1. Formulating overall strategies and long-range plans.2. Resource allocation decisions such as product an
11、d customer emphasis and pricing.3. Cost planning and cost control of operations and activities.4. Performance evaluation of people and activities.5. Meeting external regulatory and reporting obligations.The financial accounting system captures the results of past transactions in financial terms, tha
12、t is, measured in national currency. The management accounting system goes beyond this. It often includes plans for the future such as operating budgets and long-term strategic plans. These plans are built into the accounting system to help the manager monitor the operations.1. Management accounting
13、 focuses on formulating overall strategies and long-range plans performance evaluation of people and activities2. Financial accounting focuses on meeting external regulatory and reporting obligations information on the firm as a whole, and adopts a historical orientation,Management Accounting Fundam
14、entalsSuggested solutions 1 4Question 4 (6 marks)In the case of a professional accountant performing services in a country other than the home country, the IFAC Code of Ethics for Professional Accountants states the following (Section 6, paragraph 6.3, page 33): “When a professional accountant perfo
15、rms services in a country other than the home country and differences on specific matters exist between ethical requirements of the two countries the following provisions should be applied:a) When the ethical requirements of the country in which the services are being performed are less strict than
16、the IFAC Code of Ethics, then the IFAC Code of Ethics should be applied.b) When the ethical requirements of the country in which services are being performed are stricter than the IFAC Code of Ethics, then the ethical requirements in the country where services are being performed should be applied.c
17、) When the ethical requirements of the home country are mandatory for services performed outside that country and are stricter than set out in (a) and (b) above, then the ethical requirements of the home country should be applied.”,Question 5 (29 marks)Requirement a (25 marks)Product costCost itemVa
18、riablecostFixedcostDirect materialsDirect labourManufacturing overheadPeriodcostOpportunity costSunk costa. Maintenance for sewing machine2,000*2,000b. Lubricant for sewing machines300*300c. Telephone lines and calls charges500*500d. Interest paid to the bank900900e. Rental revenue forgone to expand
19、 production1,000 1,000f.Repair cost on sewing machines500500g. Salary of Cutting departments workers10,000 10,000h. Salary of the president of the company8,0008,000i.Salary of Administrative personnel8,0008,000j.Salary of security guards for factory2,0002,000k. Raw materials used in production100,00
20、0 100,000l.Advertising costs5,0005,000m. Market analysis costs2,0002,000Management Accounting FundamentalsSuggested solutions 1 5,Product costCost itemVariablecostFixedcostDirect materialsDirect labourManufacturing overheadPeriodcostOpportunity costSunkcostn. Delivery costs to customers1,0001,000o.
21、Donation to local charity organization1,0001,000p. Royalties paid to a design company3,000*3,000q. Rental cost of equipments1,0001,000r.Lease fees for the presidents vehicle1,2001,200s. Electricity cost of factory600*600t.Heating cost of factory800*800u. Cleaning costs of factory300300v. Depreciatio
22、n of the factory building1,0001,000 1,000w. Depreciation of machines6006006,00 x. Factory supervision4,0004,000Total costs 111,40051,400 100,000 10,000 13,100 30,600 1,000 1,600* These costs could be classified as mixed costs, which means they may have a fixed component and a variable component.Mana
23、gement Accounting FundamentalsSuggested solutions 1 6,Management Accounting FundamentalsSuggested solutions 1 7Requirement b (2 marks)Only the product costs will be included in the cost of a spy uniform. The cost per uniform will be as follows:Direct product costsDirect materials. 100,000Direct labo
24、ur.10,000 110,000Indirect product costs (manufacturing overhead).13,100Total product costs. 123,100123,100 1,000 spy uniforms per year = 123.10 per spy uniformRequirement c (2 marks)The cost per spy uniform would increase. This is because the fixed costs would be spread over fewer units, causing the
25、 cost per unit to rise.Question 6 (12 marks)Requirement a (5 marks)Total cost 73,600Product costs (in 000s)Direct materials9,500Utilities for the plant600Salaries direct labour11,000Pasta equipment maintenance800Depreciation Property, plant and equipment2,000Uniforms400Insurance for the plant300Boxe
26、s and bags used in the pasta packaging6,000Overtime premiums direct labour3,500Idle time*600Fringe benefits direct labour*2,000Fringe benefits indirect labour*1,400Total period costs 38,100Period costs (in 000s)Administrative costs 10,000Rent administrative offices4,000Advertising and selling expens
27、es6,500Presidents salary15,000Total period costs 35,500,Management Accounting FundamentalsSuggested solutions 1 8* Idle time represents the costs of direct labour workers who are unable to perform their assignments due to a production problem, which could be machine breakdowns, materials shortage, a
28、nd so on). These costs are accounted for as product costs, but not as a part of direct labour costs. It is considered as overhead cost in order to spread the cost over all production of the period.* The company could treat the cost of fringe benefits relating to direct labour workers as part of manu
29、facturing overhead. This approach spreads the cost of such fringe benefits over all units of output. Alternatively, the company could treat the cost of fringe benefits relating to direct labour workers as additional direct labour cost. This approach charges the costs of fringe benefits to specific j
30、obs rather than to all units of output.Requirement b (7 marks)(i) (3 marks) The additional direct materials and direct labour costs to be incurred when expanding the business to the international arena (beginning with France and Spain) are considered as product costs. However, costs incurred to prep
31、are and provide specific documentation and inspections for the goods to get entry approval to these two countries are considered as period costs. These costs are related to the decision to sell the companys products overseas, and therefore relate to the companys marketing strategy.(ii) (4 marks)Rele
32、vant costs are those costs appropriate to a specific management decision. A relevant cost possesses two important characteristics: (1) it must be a future cost because current decisions can have no effect on past expenditures, and (2) it must differ between decision alternatives because if a cost re
33、mains the same regardless of the chosen alternative, it is irrelevant in the decision-making process. In the decision to expand into the French and Spanish markets, the company will be in the following situation: no need for additional pasta facilities more direct materials required more direct labo
34、ur cost incurred specific costs to enter these marketsYou notice that the decision to expand into France and Spain will not require any additional investment. The company has sufficient capacity for the production needed to serve the new markets. Therefore, this information is irrelevant for this de
35、cision. The other three cost items are relevant to the decision as these are future costs, and they differ between decision alternatives.,Management Accounting FundamentalsSuggested solutions 1 9Question 7 (18 marks)Requirement a (10 marks)KASPOROV CHEMICALS COMPANYSchedule of Cost of Goods Manufact
36、uredfor the year ended December 31, 20X7Direct materials:Raw materials inventory, January 1.R 20,000Add: Purchases of raw materials.80,000Raw materials available for use.100,000Deduct: Raw materials inventory, December 31.10,000Raw materials used in production.R 90,000Direct labour.340,000Manufactur
37、ing overhead:Factory Insurance.10,000Depreciation plant.40,000Depreciation machinery.80,000Lubricant for machinery .4,000Cleaning rags for factory .400Cutting tools used .1,600Indirect labour salaries.120,000Indirect labour overtime premiums.6,000Heat, light, and power factory.12,000Property taxes p
38、lant.10,000Other factory overhead costs .18,000Total overhead costs .302,000Total manufacturing costs.732,000Add: Work in progress inventory, January 1.170,000902,000Deduct: Work in progress inventory, December 31180,000Cost of goods manufacturedR 722,000Note:Direct materials 3 marks; Direct labour
39、1 mark; Manufacturing overhead 3 marks; Add: Work in progress inventory, January 1 1 mark; Deduct: Work in progress inventory, December 31 1 mark; Cost of goods manufactured 1 mark.,Management Accounting FundamentalsSuggested solutions 1 10Requirement b (8 marks)KASPOROV CHEMICALS COMPANYIncome Stat
40、ementfor the year ended December 31, 20X7Sales.R 1,250,000Less cost of goods sold:Finished goods inventory, January 1 .R 200,000Add: Cost of goods manufactured .722,000Goods available for sale.922,000Finished goods inventory, December 31 .190,000732,000Gross margin.518,000Less operating expenses:Advertising.80,000Interest and other financial charges .10,000Selling and administrative salaries.310,000Other selling and administrative expense.48,000448,000Income.R 70,000Note:Sales 2 mark; Less cost of goods sold 2 marks; Gross margin 2 mark; Less operating expenses 2 marks.100