ACCOUNTING

QUESTION 1 (5 MARKS)

Should a company allocate its corporate costs to divisions? Discuss using real world

examples to support your discussion. You must disclose the source of your

information (referencing)

QUESTION 2 (5 MARKS)

Big Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and

canned tomatoes. During the summer of 2013, 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

Cases

Sales Value

at Splitoff Point

Separable Costs

Selling Price

Catsup

100,000

$6 per case

$3.00 per case

$28 per case

Juice

150,000

8 per case

5.00 per case

25 per case

Canned

200,000

5 per case

2.50 per case

10 per case

Required:

1. Determine the amount allocated to each product if the estimated net realizable value method is used, and compute the cost per case for each product. (2 marks)

2. What pitfalls are there in allocating joint costs among joint products, from a decision-making point of view? (1.5 marks)

3. What guidelines can be used in determining whether a joint product should be sold at the split-off point or processed further? (1.5 marks)

QUESTION 3 (5 MARKS)

NR Toys Pty manufactures a toy called Faze. The company has recently established a

budgeted cost system to help control costs and has established the following budgets

for the Faze toy:

Direct material: 6 pieces per toy at $0.50 per piece.

Direct labour: 1.3 hours per toy at $8 per hour.

During the month of July 2013, the company produced 3,000 Faze toys. Production

data for the month on the toy follow:

Direct material: 25,000 pieces were purchased for use in production at a cost of $0.48

per piece. Some 5,000 of these pieces were still in inventory at the end of the month.

Direct labour: 4,000 direct labour hours were worked at a cost of $36,000

Required:

1. Calculate direct material price and efficiency variances (1 mark)

2. Calculate direct labour price and efficiency variances. (1 mark)

3. Why are variances generally segregated in terms of a price variance and an efficiency variance? (1 mark)

4. Prepare a brief report explaining the significance and possible cause of each variance. (2 marks)

QUESTION 4 (5 MARKS)

The following information pertains to Amigo Corporation:

Month Sales Purchases

July $30,000 $10,000

August 34,000 12,000

September 38,000 14,000

October 42,000 16,000

November 48,000 18,000

December 60,000 20,000

Cash is collected from customers in the following manner:

Month of sale (2% cash discount) 30%

Month following sale 50%

Two months following sale 15%

Amount uncollectible 5%

40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Required:

a. Prepare a summary of cash collections for the 4th quarter. (1 mark)

b. Prepare a summary of cash disbursements for the 4th quarter. (1 mark)

c. Do you think that requiring managers to work towards such predetermined (budgeted) targets might stifle their skill, flair or enthusiasm? Explain. You must support your discussion by real world examples and disclose the source of your information. (1.5 marks)

d. What is wrong with comparing current performance with past performance or the performance of others, in an effort to exercise control? Discuss. (1.5 marks)

 

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