QUESTION
Question One Ethics 20 marks
The following are extracts from an article published by Paul McDougall in “Information Week” dated 3rd April 2006
Extract 1
“Dinner and drinks at posh restaurants, vendor-provided tickets to premium events, quid pro quo contracts awarded to big customers: They’re part of the way big business is done”.
Extract 2
“Some companies evaluate gift giving case by case. Equity One recently returned four iPods that were a gift from a vendor that had just sealed a big deal with the shopping center operator, CIO Ilan Zachar says. Equity One, however, will allow gifts or trips from vendors provided there are valid business reasons, he says”.
Required:
Referring to the above extracts, do you agree with both the extracts? Briefly explain.
In explaining, identify and explain the IMA code of ethics that are raised in both of the above extracts.
(The length of your answer should be between 250-300 words)
Above questions Extract 1 just 50 words are enough and for Extract 2 just 50 words please.
Question Two 20 Marks
Holtz Company makes three products in a single facility. Data concerning these products follow:
|
|
|
Product |
||
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|
|
A |
B |
C |
| Selling price per unit…………………………… |
$75.90 |
$71.10 |
$73.40 |
|
| Direct materials…………………………………. |
$29.70 |
$30.20 |
$33.40 |
|
| Direct labour……………………………………… |
$21.20 |
$19.80 |
$19.60 |
|
| Variable manufacturing overhead………… |
$4.90 |
$5.60 |
$7.60 |
|
| Variable selling cost per unit……………….. |
$1.30 |
$3.90 |
$1.80 |
|
| Mixing minutes per unit………………………. |
2.10 |
1.70 |
1.30 |
|
| Monthly demand in units…………………….. |
4,000 |
1,000 |
2,000 |
|
The mixing machines are potentially the constraint in the production facility.
A total of 12,500 minutes are available per month on these machines.
Direct labour is a variable cost in this company.
Required:
- How many minutes of mixing machine time would be required to satisfy demand for all four products?
(4 marks)
- How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.)
(10 marks)
- Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.) Briefly explain your answer.
(6 marks)
Question three 20 Marks
Imai Draperies makes custom draperies for homes and businesses. The company uses an
activity-based costing system for its overhead costs. The company has provided the following
data concerning its annual overhead costs and its activity cost pools.
| Overhead costs:
|
|
|
| Production overhead… |
$240,000 |
|
|
Office expense…………. |
160,000 |
|
|
Total……………………….. |
$400,000 |
| Distribution of resource consumption:
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||||||
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|
|
Making |
Job |
|
|
|
|
|
Activity Cost Pools |
Drapes |
Support |
Other |
Total |
|
|
Production overhead……… |
35% |
45% |
20% |
100% |
||
|
Office expense………………. |
15% |
55% |
30% |
100% |
||
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
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|
Activity Cost Pool |
Annual Activity |
|
Making drapes…… |
4,000 metres |
|
|
Job support……….. |
100 jobs |
|
|
Other………………… |
Not applicable |
Required:
- Prepare the first-stage allocation of overhead costs to the activity cost pools.
(5 marks)
- Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools.
(5 marks)
- Prepare a Job Margin report for Job # 2022 that involves making 53 metres of drapes. For Job #2022 direct materials and direct labor cost were $1,480 while the sales revenue from this job was $5,200.
(10 marks)
SOLUTION
| Overhead costs: | ||||||||||||||
| Production overhead | $240,000 | |||||||||||||
| Office expense | $160,000 | Distribution of resource consumption: | Activity Cost Pool | Annual Activity | ||||||||||
| Total | $400,000 | Making | Job | Making drapes | 4,000 metres | |||||||||
| Activity Cost Pools | Drapes | Support | Other | Total | Job support | 100 jobs | ||||||||
| 35% | 45% | 20% | 100% | Other | Not applicable | |||||||||
| Production overhead | ||||||||||||||
| Office expense | 15% | 55% | 30% | 100% | ||||||||||
| First Stage Allocation | Activity Rates | |||||||||||||
| Making drapes | 27 | $/ mtr | ||||||||||||
| Making | Job | Job support | 1960 | $ per job | ||||||||||
| Activity Cost Pools | Drapes | Support | Other | Total | ||||||||||
| Production overhead | $84,000 | $108,000 | $48,000 | $240,000 | ||||||||||
| Office expense | $24,000 | $88,000 | $48,000 | $160,000 | ||||||||||
| $108,000 | $196,000 | $96,000 | $400,000 | |||||||||||
| 0.27 | ||||||||||||||
KG58
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