Process Costing Systems 

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Question 1 – Process Costing Systems Recently, Sunshine Coast Pty Ltd expanded its market by becoming an original equipment supplier to Robert Pty Ltd. Sunshine Coast produces factory upgraded speakers specifically for Robert Pty Ltd. The speaker cabinets and associated components are outsourced with assembly remaining in-house. Sunshine Coast assemble the product by placing the speakers and other components in cabinets that define an audio package upgrade. Speaker cabinets and associated components are added at the beginning of the assembly process.  Assume that Sunshine Coast uses the weighted average method to cost out the audio package. The following are cost and production data for the assembly process for AugustRequired:  A.    Prepare a physical flow analysis for the assembly department for the month of August.   D    [4 Marks]B.    Calculate equivalent units of production for the assembly department for the month ofAugust.                                                                                                              [4 Marks]C.    Calculate unit cost for the assembly department for the month of August.                         S                                                                                                                        [4 Marks]D.    Calculate the cost of units transferred out and the cost of ending WIP inventory.              D    [4 Marks]E.    Prepare a cost reconciliation for the assembly department for the month of August.         V                                                                                                                       [4 Marks]  Question 2 – Accounting for Sustainability                                                  [15 Marks]Hannah Pty Ltd is a manufacturer of spices currently considering making dramatic changes to the company. It currently has production facilities in Gold Coast, Queensland, as well as in Asia. The CEO, Jim Carlos, is concerned about several issues currently facing the company and she would like to solve these using a sustainability approach.First, the major supplies of spices are imported from the small countries of East Asia. In both countries toxic chemical sprays are used on plantations, and these sprays have a long life. The spice processors in both countries pay their employees only A$3 per hour. The employees work long hours and breathe in chemical fumes, which over time may burn their lungs. Jim is considering setting up a factory for preliminary processing of spices in East Asia. Finance manager, Belen Bilanco, believes that setting up this factory is a good idea, as the setup costs will be only A$1.2 million. The current cost of processing spices at Gold Coast is $0.33 per kilogram but will fall to $0.11 per kilogram if pre-processing is undertaken in East Asia. The Gold Coast figure is based on the following costs:Matt Carlton, the production manager, believes that the quality of the final spice products will not reduce if the pre-processing is undertaken off shore.Second, although the Gold Coast plant currently meets the required environmental emissions standards, it has been prosecuted in the past for several violations of air pollution standards, and neighbours still complain about the smell. An improved filtering system would cost $290 000 to purchase and $17 500 per annum to run. Belen Bilanco believes there would be no financial benefits in improving the air quality since the facility meets government standards. He does not think that the new system should be purchased. The quality manager, Jullian Ses, disagrees and believes that the improvements would enhance the company’s reputation and reduce discolouration of the buildings. The local newspaper has twice run stories that were critical of Hannah Pty Ltd. A recent story suggested that they were also water polluters, an assertion that the company claims is untrue. No contaminated water is released into the waterways; it is all evaporated using recycling ponds and a septic system.The third problem is continuing low employee morale at the Gold Coast plant. The previous production manager came to the plant from the army, and ran the factory very smoothly and efficiently, but using a military style. This led to serious clashes with some of the production staff and 12 of these staff continue to be unhappy. Jim has thought about offering these staff redundancies at a total cost of $285 000. Another alternative is to engage an external consultant to act as a mediator between management and staff, to see if problems can be resolved and to help improve the morale. The approximate cost of the consultant would be $43 000. Belen Bilanco is opposed to this as the performance indicator for staff in the company’s social and environmental report is already satisfactory and is getting better every year. The money would therefore be wasted in trying to calm only 12 staff.Required:For each of the three problems previously outlined:A.    Explain the financial, environmental, social and broader economic issues that the company needs to take into account.B.    Discuss any further information that the company may need to gather before it can resolve these issues.   Question 3 – Cost Behaviour
Required: A.    Draw a scatter diagram of the cost data for the Shipping Department.                [2 Marks]B.    Estimate the Shipping Department’s cost behaviour using the high–low method. Use anequation to express the results of this estimation method.                                    [5 Marks]C.    Using the equations estimated in Part 2 predict the Shipping Department’s costs for a month when loads totalling 5500 kilograms are moved. D.    Prepare least squares regression analysis to estimate the variable and fixed componentsfor the Shipping Department costs.                                                                       [5 Marks]E.    Based on your spreadsheet write the least squares regression equation for theDepartment’s costs.                                                                                                [2 Marks]F.    Using the equation from Part E, predict the firm’s Shipping Department’s costs for a month when loads totalling 5500 kilograms are moved. G.    Why do these cost predictions estimated using the high–low and regression methods differ? Which method do you recommend? Explain your answer. Question 4: Cost-Volume-Profit Analysis and Income Statement                         [20 Marks]                    Part A:  Cost-Volume-Profit Analysis                                                                    [10 Marks]Hillar Ltd produces a variety of chemicals. One division makes reagents for laboratories. The division’s projected income statement for the coming year is:  Required: A.    Compute the contribution margin per unit and calculate the break-even point in units.  Calculate the contribution margin ratio and the break-even sales revenue.      [2 Marks]B.    The divisional manager has decided to increase the advertising budget by $250 000. This will increase sales revenues by $1 million. By how much will operating income increase or decrease as a result of this action?                                                  [2 Marks]C.    Suppose sales revenues exceed the estimated amount on the income statement by $1 500 000. Without preparing a new income statement, by how much are profits underestimated?                                                                                                  [2 Marks]D.    Compute the margin of safety based on the original income statement.             [2 Marks]E.    Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income?                                                                                              [2 Marks] Part B:  Absorption and Variable Costing Income Statement                              [10 Marks]Billy Ltd produces and sells wooden pallets that are used for moving and stacking materials. The operating costs for the past year were as follows: During the year, Billy produced 200 000 wooden pallets and sold 204 300 at $9 each. Billy had 8200 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing.  Required:  A.    What is the per-unit inventory cost that is acceptable for reporting on Billy balance sheet at the end of the year? How many units are in ending inventory? What is the total cost of ending inventory?                                                                                   [2 Marks]B.    Prepare absorption-costing income statement.                                                  [2 Marks]C.    What would the per-unit inventory cost be under variable costing? Does this differ from the unit cost computed in requirement 1? Why? [2 Marks]D.    Prepare variable-costing income statement.                                                        [2 Marks]E.    Suppose that Billy Ltd had sold 196 700 pallets during the year. What wouldabsorption-costing operating income have been? Variable-costing operating income?  [2 Marks] 

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