| University | Singapore Management University (SMU) |
| Subject | ACCT102 Management Accounting Report |
Question 1
Assume Verve does not carry any materials, WIP and finished goods inventories. Prepare the budgeted income statement for the year using the contribution margin format:
| Original Range | Premium Range | Total | |
|
|
(10 marks)
Question 2
Compute the sales of the two products for the company to breakeven. Round up to the nearest $.
(10 marks)
Question 3
Compute the total indirect costs for the Production and Shipping departments by using the direct method to allocate the costs of support departments. Explain the reasons for your choice of the cost allocation base.
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Question 4
Verve allocates production overheads on the basis of production quantity.
(a) Compute the manufacturing overhead application rate. Answer in 3 decimals.
(b) Compute the unit cost of the two products. Answer in 3 decimals.
(10 marks)
Question 5
Verve recently started a task force to study the indirect costs as they have risen significantly over the years. The study revealed the following information:
(i)
| Activity | Activity Cost Driver |
| Receiving and inspection of materials
Staff in the receiving department inspect materials to ensure they meet quality standards before they are used in production.
|
Inspection hours |
| Production Control
Production control department plans and ensures the required resources are available for each production batch. It also monitors the process during the production run.
|
Number of production runs |
| Machine-related activities
These include machine maintenance and repairs. |
Number of machine hours |
| Shipping
Each order is packaged and shipped individually. About the same amount of work is required, regardless of the number of items in the order. |
No. of customer orders |
(ii)
| Receiving Inspection | Production control | Machine-related | Shipping | Total | |
| Production Department | |||||
| Indirect factory salaries | $292,800 | $297,000 | $152,200 | $742,000 | |
| Factory equipment depreciation | $100,000 | $100,000 | $238,000 | $438,000 | |
| Factory utilities | $80,000 | $50,000 | $200,000 | $330,000 | |
| Factory building lease | $120,000 | $120,000 | $0 | $240,000 | |
| Packaging and manufacturing supplies | $250,000 | 250,000 | |||
| $2,000,000 | |||||
| Shipping Department | |||||
| Staff salaries | $120,000 | $120,000 | |||
| Shipping office equipment depreciation | $30,000 | $30,000 | |||
| Shipping office utilities | $10,000 | $10,000 | |||
| Shipping office lease | $40,000 | $40,000 | |||
| $200,000 | |||||
| IT and Admin Department | 20% | 30% | 10% | 40% | $360,000 |
| Facilities Mgmt Department | 20% | 50% | 10% | 20% | $240,000 |
| Total Indirect Costs | $2,800,000 | ||||
Compute the activity rates. Answer in 2 decimals.
(5 marks)
Question 6
Use the activity-based costing method to determine the unit cost of the two products. Answer in 3 decimals.
Question 7
At the end of the year when Verve reviewed the actual financial performance (you may assume that actual sales achieved budgeted sales), it was puzzled why the company made a loss for the year when the company sales were more than what was needed to breakeven. Explain the reasons using the analysis that you have done in the previous questions.
(10 marks)
Question 8
A local farmer offers to sell and deliver Herb-X for $580 per kg. Analyse the considerations (both quantitative and qualitative) for Verve to accept or reject the offer. You may make assumptions where necessary.
(20 marks)
Question 9
Design an appropriate balanced scorecard with the key performance indicators (KPIs) in each of the four perspectives for Verve. Show the causal links between the KPIs. Explain your key considerations for the KPIs that you have included in the scorecard. If necessary, you may make reasonable assumptions.
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