Question
1. Managerial accounting helps managers fulfil their three primary responsibilities, such as Planning, directing and controlling, helping managers in decision making, analysing with real-world examples and explaining how managerial accounting differs from financial accounting. (25 Marks)
2. Examine the difference between product cost and period cost. Now that you understand the difference between product costs and period costs, let’s take a closer look at the specific costs that are treated as product costs in merchandising, manufacturing and service industries with real-world examples. (25 Marks)
3. Rotty Frozen Bhd is a company producing frozen pizza in Kajang. The company normally produces 20,000 packets of frozen pizza yearly, and each packet of frozen pizza is sold for RM40. A production of 500 packets of frozen pizza would incur the following standard costs:
In selling and distributing the frozen pizza, the company incurs fixed selling and distribution costs of RM60,000 yearly and variable selling and distribution costs of RM2.10 per packet. The fixed production overhead incurred yearly is RM120,000.
For January 2015, the following data were derived:
Question
i) Prepare the income statement for January 2015 using the following method, and briefly explain the method
- Absorption Costing (10 Marks)
- Marginal Costing (10 Marks)
4. SmartSocks incurs the following costs for 20,000 pairs of its high-tech hiking socks:
Another manufacturer has offered to sell Smart Socks similar to socks for $10 a pair, a total purchase cost of $200,000. If Smart Socks outsources and leaves its plant idle, it can save $50,000 of fixed overhead costs. Or the company can use the released facilities to make other products that will contribute $70,000 to profits. In this case, the company will not be able to avoid any fixed costs. Identify and analyse the alternatives. What is the best course of action? (15 Marks)
5. A local home improvement warehouse store shows the following product line income statement for the month. All common fixed costs are allocated to departments based on per percentage of sales revenue generated by the department
| Paint | Lumber | Lighting | Store Total | |
|---|---|---|---|---|
| Sales | $500,000 | $400,000 | $100,000 | $1,000,000 |
| Less: Variable Costs | 300,000 | 160,000 | 50,000 | 510,000 |
| Contribution margin | 200,000 | 240,000 | 50,000 | 490,000 |
| Less: Direct Fixed Costs | 40,000 | 40,000 | 45,000 | 125,000 |
| Less: Common Fixed Costs | 100,000 | 80,000 | 20,000 | 200,000 |
| Operating Income (Loss) | $50,000 | $120,000 | ($5,000) | $165,000 |
Assuming $30,000 of the Lighting Department’s direct fixed costs are avoidable, should the store managers discontinue the Lighting Department? The space currently occupied by the Lighting Department would be replaced with a Hardware Department that is expected to have sales of $200,000, variable costs of $80,000 and new direct fixed costs of $30,000. (15 Marks)