Assessment Task – Tutorial Questions
Unit Code: HI5017
Unit Name: Managerial Accounting Assignment: Tutorial Questions
Total Assignment Marks: 50 marks
Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit
Unit Learning Outcomes Assessed:
1. Synthesize and critically analyse information from various sources and provide recommendations to improve the operations of organisations through the application of management accounting techniques;
2. Critically evaluate the various approaches to performance measurement and control in various
types of organisations, and devise and evaluate indicators of performance.
3. Demonstrate the need for a balance between financial and non-financial information in decision making, control and performance evaluation applications of management accounting.
4. Analyse a company’s financial statements and/or management reports and identify the strengths
and weaknesses of the company and articulate these to the various stakeholders.
Description: Each week students were provided with three tutorial questions of varying degrees of difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions and submit these answers in a single document.
The questions to be answered are:
Question 2 - Week 3 (7 marks)
Tik Tok Company manufactures customized coffee tables. The following relates to Job No. X10, an order for 150 coffee tables:
Direct materials used $22 800 Direct labour hours worked 600 Direct labour rate per hour $16.00 Machine hours used 400
Applied factory overhead rate per machine hour $30.00
Question 2 - Week 5 (11 marks)
TikTok Electronics manufactures an aluminium fibre tripod model “TRI-X” which sells for
$1,600. The production cost computed per unit under traditional costing for each model in 2019 was as follows:
Direct Labour ($20/hour)
Manufacturing overhead ($38 per DLH)
Total per unit cost
In 2019, TikTok Electronics manufactured 26,000 units of TRI-X. Under traditional costing, the gross profit on TRI-X was $552 ($1,600-$1,048). Management is considering phasing out TRI- X as it has continuously failed to reach the gross profit target of $600. Before finalizing its decision, management asks TikTok Electronics management accountant to prepare and analysis using activity-based costing (ABC). The management accountant accumulates the following information about overhead for the year ended December 31, 2019.
Activity Cost Pools
Expected Use of Cost Drivers
Number of orders
Number of setups
Number of inspections
The cost drivers used:
Question 3 - Week 6 (11 marks)
A new company, is being established to manufacture and sell an electronic tracking device: the Trackit. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Trackits per month within five months and will be at that level for the remainder of the first year.
The owners will invest a total of $250,000 in cash on the first day of operations (that is the first day of July). They will also transfer non-current assets into the company.
Extracts from the company’s business plan are shown below.
The forecast sales for the first five months are:
The selling price has been set at $140 per Trackit.
Sales will be mainly through large retail outlets. The pattern for the receipt of payment is expected to be as follows:
Time of payment% of sales value
One month later25
Two months later40
Three months later15
The balance represents anticipated bad debts.
* A 4% discount will be given for immediate payment
The budget production volumes in units are:
Variable production overheads
Total variable cost
Direct materials: Payment for purchases will be made in the month following receipt of materials. There will be no opening inventory of materials in July. It will be company policy to hold inventory at the end of each month equal to 20% of the following month’s production requirements.
Direct labour will be paid in the month in which the production occurs.
Variable production overheads: 65% will be paid in the month in which production occurs and the remainder will be paid one month later.
Fixed overhead costs
Fixed overheads are estimated at $840,000 per annum and are expected to be incurred in equal amounts each month. 60% of the fixed overhead costs will be paid in the month in which they are incurred and 15% in the following month. The balance represents depreciation of noncurrent assets.
contributions (4 marks)
Perfumes Ltd has two divisions: the Perfume Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Perfume Division. The Bottle Division's variable manufacturing cost per unit is $3.00 and shipping costs are $0.20 per unit. The Bottle Division's external sales price is $4.00 per unit. No shipping costs are incurred on sales to the Perfume Division. The Perfume Division can purchase similar bottles in the external market for $3.50.
The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Perfume Division.
Selling price per unit
Variable cost per unit
Expected unit sales (annual)
Total annual fixed costs are $5,000,000. Assume the sales mix remains the same at all levels of sales.
ii) Calculate in sales units the margin of safety for IPM, assuming projected sales are 25,000 units? (1 mark)
SHOW YOUR WORKING
GEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and administrative costs
Fixed selling and administrative costs
Total unit cost
GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead.
In the present business scenario, it has been determined that financial manager are required to use several types of costing methods that can lead to identifying the values of the manufacturing process. On the other hand, these costs tend to influence the business either directly or indirectly to the growth and effectiveness of the firm (Ward, 2012). It represents the efficiency of manufacturing activity that can help the firm to maintain the potential productivity of each unit produced during the period. It consists of material, procedure, and techniques that might be changed to ensure that the firm wastes as low raw material as possible so that chances of additional costs could not be incurred by for the period.
(a): According to the given case example, Tik Tok Company is engaged in manufacturing customized coffee tables with a related Job No X10.
Direct cost of material: $22800
The direct labor hrs is mentioned in the case; hence it is essential to compute the cost of labor per day by using the formula:
Direct labor: Labor hrs * Rate
: 600hr*$16: $9600
On the other hand, material overhead cost is also need given in the case of producing table for the firm. Therefore, cost could be determined by using the below formula:
Material overhead cost: Machine hr*rate
: 400hr*$30: $12000
Total production cost: $22800+$9600+$12000
(b): As per the given information related to the coffee table manufacturing, it has been seen that a cost of $150 has been planned for coffee table. Hence, it is an important decision to have actual cost of manufacturing 1 table for the order X10. Therefore, direct material cost of $22800 is been considered to compute the per unit cost of material.
Per unit cost: $22800 /150: $152 tables
Labour cost needed: $9600 / 150: $64
Overhead cost: $12000/150: $80
Hence, 1 coffee table: $152+$80+$64: $296.
(c) In the production process, a unit cost is known as total expenses required by a Tik Tok company to manufactured coffee tables and sell one unit of a particular product for the period. This accounting a measure tends to consists of all the fixed and variable cost related to the manufacturing of product and services (Parker, 2012). The cost allocated to a chosen units as well as generally computed as the cost over a period is been divided by the total number of items produced by the company. Therefore, two of the primary use of cost per units is mentioned underneath:
According to the given case example, the application of activity based costing is considered to determine the key activities that are associated to the Tik Tok electronic company. It happens to a specific model that tends to assign mainly on indirect cost into direct one as compare to the conventional cost (Fullerton, Kennedy and Widener, 2013). However, it is taken into account to increase the better understanding of material overhead cost as well as other factors that are used to evaluate the cost related activities efficiently. Hence, it can be important to compute the actual cost incurred for the production one units of products for the period.
Activity cost pool
Expected use of cost
Number of orders
Number of set-ups
Number of inspections
Total manufacturing cost
Overhead cost per units: Total production cost / no. of units produced
: $4035000/ 26000 units
Total cost of production
Cost units income
From the above computation, it has been examined that the strategy implemented by the Tik Tok Company to discontinue for TRI-X products is less in terms of gross profit. These could incur because the firm is taking into account as traditional methods of accounting due to which they are not been able to earn a sufficient profit for the period (Cadez and Guilding, 2012). The Tik Tok Company is capable of generating a desirable amount of profit $552 at the cost of $1048. Thus, it has been seen that with the use of modern Activity based system the firm can generate maximum profit as compare to the traditional approaches. Further, they would earn a reliable income on per units cost at $625 that is sufficient enough to deal with the short-term cash balance. Overall, it has been recommended that ABC costing system assist the managers to produce more profit with the concern income level.
For any business organization, it has been determined the budget tends to play an eminent role in overall cost and expenses management of the company. The company need to make a valuable estimation of total income and expenses that are going to be levied in the production of product and services. The total spending decision intends to allow an organization to analyze the actual capacity of the firm that can enough to manage the day to day operational activity efficiently (Hiebl, 2014). On the other hand, the benefits of using a budget can take management away from their short-term and regular administration of the business. The decision that is made by the management to track their financial goal, assist in organizing the spending, and make unexpected expenses plan to control the additional cost of the company. It has been analyzed that there is various type of budgets that are prepared by the organization to manage its operation effectively. Some of them are calculated accurately below:
(a): Cash budget
Sales in units
Cash receipt (15%)
less: 4% discount
1 month 25%
2 month 40%
(b): Material purchase budget
Opening cash balance
Closing cash (20% of manufacturing)
Per units cost
Total cost of material
(c): Cash budget
Net cash receipts
Direct labor cost
Total paid cash
Working note: VC: 1000*20: 20000
: 20000*65%: 13000
Fixed cost: 70000*60%: 42000
(a): In the accounting terms, a transfer price tends to be used to describe the real price that is charged for the related organization in a global transaction. These particular issues intend to arise in a situation a firm of multinational organization resident in various legislation transfer property to others. It allows for an effective establishment of a price for product and services those are exchanges between subsidiaries that are a vital part of the large firms (Merchant, 2012). A firm can compute the minimum acceptable transfer price as equal to the variable cost include an opportunity cost. As per the given case example, it has been seen that bottle division and perfume division is been followed in the firm. On an estimation, that bottle division is having a decent output to fulfil the market requirements. Hence, per unit cost will be $3 as a transfer price to take outside market benefits.
Working note: As per the mentioned case, the bottle division would charge shipping cost worth $0.20, while the perfume division could not consist of any shipping prices.
(b): As per the given case example, it has been analyzed that bottle division would not be related to extra ability to fulfil the actual need for perfume division. Hence, it can capable of selling their products into the external market. Moreover, in this situation, the transfer price would levy as other marginal costs that tend to incur a negative profit to the firm (Joshi and Li, 2016). The formula to compute the transfer pricing is Marginal cost + opportunity cost. Hence, it would be suggested that a $4 per unit cost is accountable to earn a profit for the company.
(c) According to the case example, the actual cost price that is suitable to the perfume division is relatively less as the actual marginal cost of manufacturing the one units products in the external market. It can lead to generating a sufficient amount that can easily meet the demands of the customers. Thus, it is a tough challenge to determine the real price of perfume division that are produced for the period. Hence, the actual price would remain $3.5 per units.
(d) Cost-based price is said to be an organization ability that is required to take into account to examine the actual cost in the starting phase of the production. On the other hand, market-based price tends to remain change as per the operational demands arises in the markets. Therefore, it has been identified that the overall outcome is computed as on the fair value of the products (Senftlechner and Hiebl, 2015). Thus, a full cost is applied as a transfer price that can generate desirable revenue to the firm. Bottle division incurred a profit of 0.80 per bottle, whereas the perfume division is liable to produce 0.5 per division income respectively.
Selling cost per units
Contribution per units
SP per unit
VC in units
Weight to each printer
Weight contribution per unit
Total Fixed cost
(5000000 / 305)
Breakeven point for each printer
(c) (i): Concept of margin of safety
Margin of safety: It happens to be an important different between the intrinsic value of an inventory and market price. In the case of a break-even point, the margin of safety is total output level that can lies before a firm reached to their level. It can be computed by taking into account the actual sales minus the break-even sales amount.
(ii): calculation for projected 25000 units
Breakeven point for each printer
Number of sold units
Difference ( Sales - BEP)
Margin of safety
(a): Minimum acceptable unit cost for GEM
Minimum unit price: DM+ DL+ Overhead +selling overhead + Shipping cost+ Import duty
(b): Relevant minimum price for concern unit
According to the given scenario, if the damage is been realized in an inventory at low selling price, the expenses that are levied by the company for the sale of these stock can be managed accurately. Moreover, the scenario suggested that firm is able to generate a total amount of $10.20 per units over the variable expenses. Hence, the minimum SP for manufacturing 200 units could be considered as $2040.
(c): Recommended decision
As per the given case example, it has been realized that the projected cost is taken into account of making future decision. These decisions might be based on the total cost and profit-making ability of an organization. Thus, the case a firm has liable to incurred a high cost that can be taken into account to generate profit is useful to predict the future revenue.