As the accounts assistant at Bolder Chemicals Limited you are asked to prepare:

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Instruction:   Answer all the questions

Question 1  

Drinker Ltd received an order for 1200 bottles of champagne. The units were manufactured as Job #525 and passed through three cost centres. Mixing, Bottling and Packing whose overhead absorption rates are as follows:   

Mixing  $80 per machine hour  

Bottling  $36 per labour hour  

Packing  $48 per man hour 

The following production costs and data were recorded:   

Direct Materials $5,040  

Labour:  Mixing  320 hours @ $22.00 per hour  

Bottling  560 hours @ $16.00 per hour  

Packing  240 hours @ $18.00 per hour  

160 machine hours were recorded in Mixing, and General and Administration overheads are absorbed at 20% of production cost. Profit is calculated at 40% mark-up.   

Required:  

A. Calculate the total cost and selling price for job #525 showing a summarized job card.     (20 marks)   

B. Prepare the Job Account for job #525.   (5 marks)   

(Total 25 marks)   

Question 2  

Bolder Chemicals Limited manufactures a product, Zander, within two separate processes. For the week ended September 24, 2020 the details were:  

Process1 

Materials input, 8000 kilos @ $3 per kilo 

Labour $3,680 

Overheads $4,300  

Process 2 

Materials input 4,400 kilos @$4 per kilo 

Labour $2,840 

Overheads $2,100 Normal outputs are: 

Process1, 90% of input 

Process 2, 80% of input 

All losses have a scrap value of $0.50 per kilo  

Output during the week was 7,400 kilos from Process 1 and 9,200 kilos from Process 2.  

Required:  

As the accounts assistant at Bolder Chemicals Limited you are asked to prepare:  

A. The process 1 account for the week ended 24 September 2020       (11 marks)  

B. The process 2 account for week ended 24 September 2020          (12 marks)  

C. Distinguish between normal and abnormal loss and state how the balances on the abnormal loss and abnormal gain accounts are treated at the end of the accounting period. (2 marks) 

 NB. Calculate costs per unit of expected output to the nearest cent. (Total 25 marks)    

Question 3  

Bradley Ltd. is a small company which manufactures cricket bats. For a number of years, the management accountant has dealt with the recovery of overheads in a traditional manner based on absorption costing principles. 

The business has three major production cost centres: shaping, finishing, and packing. 

PART A  

The traditional costing method has produced the following figures for period ended June2003:  

Cost centre Shaping Finishing Packing 

Overhead $75,000 $30,000 $17,500 

Machine hours            12,000  6,500  

Direct labour hours    3,300 

Overhead recovery rates per machine hour of labour $6.25 $4.62 $5.30  

 A new product The Driver is estimated to take the following hours to produce per unit: 

Shaping  3.50 

Finishing 1.60 

Packing 0.30 

  5.40 hours  

The management accountant together with the production manager agrees the following predetermined costs per unit for The Driver: 

Direct Material $17.50 

Direct labour 3,300 hours  

Required:  

Calculate the unit cost of The Driver using the company’s traditional, absorption costing method.  (10 marks) 

PART B  

The management accountant and production manager of Willows Ltd have recently analysed its value adding processes. They have identified various activities, cost drivers within those activities and production volume information, as below:   

Activity                       Cost Pool Cost driver 

Process set up         $47,500 100 set ups 

Material procurement $ 9,500 50 purchase orders 

Maintenance                   $10,000 10 standard maintenance plans 

Material Handling        $22,500 2,000 material movements 

Quality control         $20,500 250 inspectors 

Order processing         $13,000 300 customers 

                                  $122,500    

In the period ended June 2003 the company plans to produce 800 units of its new product, The Driver in addition to its existing product range. To achieve this level of output of The Driver, the following activity levels will be required:  

5 set ups 

4 purchase orders 

2 standard maintenance plans 

100 material movements 

70 inspections 

8 sales customers  

Required:  

A. Calculate the unit cost of The Driver using activity-based costing method.        (12 marks)    

B. Explain why costs per unit calculated under ABC are often very different to costs per unit calculated under traditional costing method.  (3 marks)

(Total 25 marks) 

Attachments:

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