| | Denim | | | | 8 ounce | 13 ounce | 16 ounce | Total | units | Monthly production in units (bolts of fabric) | XXXXXXXXXX,000 XXXXXXXXXX,000 2,000 XXXXXXXXXX,000 bolts | Direct material cost $ | XXXXXXXXXX,000 XXXXXXXXXX,000 20,000 XXXXXXXXXX,000 $ | Direct labour cost $ | XXXXXXXXXX XXXXXXXXXX,320 XXXXXXXXXX XXXXXXXXXX,900 $ | Direct labour hours | XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX hours | Machine hours | XXXXXXXXXX XXXXXXXXXX,333 1,500 XXXXXXXXXX,333 hours | Number of set-ups for dye colour changes | XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX set-ups | Inspection time | XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX hours Combined overhead costs for the two departments follow: | Cost to operate and maintain machines | $ XXXXXXXXXX,000 | Set-up costs | $ 11,000 | Inspection costs | $ 6,996 | Total | $ 57,996 Previously, Kota Mills used a costing system focused on processes. It allocated direct materials to each product separately but allocated direct labour and conversion costs as if they were incurred equally across the units produced. Under this costing system, the overhead cost for Department 1 is $19,332 and for Department 2 it is $38,664. Direct labour hours and costs in Department 1 are 55 hours at $1,100, and the remaining are in Department 2. Direct materials for Department 1 are $15,000 for 16 ounce denim, $16,000 for 13 ounce denim, and $6,000 for 8 ounce denim. The remaining direct materials are added in Department 2. No beginning or ending inventory or abnormal spoilage is recorded for Kota Mills this period. Required: - Set up a spreadsheet to perform the calculations in ii. and iii. below. Use a data input section and cell referencing. (2 marks)
- Use conventional process costing to allocate the direct materials and conversion costs per department to total bolts produced. Develop a cost per bolt for each type of fabric. (Hint: You will need to first calculate the equivalent cost per bolt for conversion costs for each department.) (3 marks)
- Using activity-based costing (ABC), develop a cost per bolt. (12 marks)
- Compare the process costing and ABC results. Identify the products with overstated costs and those with understated costs. Explain why the costs are misstated under traditional process costing XXXXXXXXXXmarks)
- How could the Kota Mills manager use the ABC information to improve operations? (max 200 words) (3 marks)
Presentation: Cut and paste your spreadsheet results and formula view into your word document. The formula view should include the column letters and the row numbers. Question 2 Variance analysis for Divine Denim (25 marks) Helen has been using a standard cost system developed by Good Numbers and calculates the standard cost of a completed pair of RTW jeans as $72.00, as follows: | | Quantity | Price $ | Unit | Cost per pair of jeans $ Denim fabric meters 2 10 /metre 20.00 Direct labour hours 2 20 /hour 40.00 Variable factory overhead 0.4 10 /hour 4.00 Fixed factory overhead 0.4 20 /hour 8.00 Total standard cost 72.00 The fixed overhead rate is based on an estimated 600 units per month. Direct labour is nearly a fixed cost in this business. Selling and administrative costs are $4500 per month plus $2 per pair of jeans sold. The following information is for production during April: | | | Units Number of pairs of jeans made XXXXXXXXXX Jeans Purchase of 1200 metres of denim XXXXXXXXXX,200 $ Number of metres used XXXXXXXXXX,150 metres Direct labour costs XXXXXXXXXXhours) XXXXXXXXXX,500 $ Variable factory overhead costs XXXXXXXXXX,750 $ Fixed factory overhead costs XXXXXXXXXX,020 $ Selling and administrative costs XXXXXXXXXX,770 $ Divine Denim’s policy is to record materials price variances at the time materials are purchased. Use a spreadsheet to perform calculations. Required: As an accountant working for Good Numbers use a spreadsheet to: - prepare a flexible cost budget for the month of April XXXXXXXXXXmarks)
- calculate all common direct cost variances. (3 marks)
- calculate all common factory overhead variances XXXXXXXXXXmarks)
- calculate a total variance for the selling and administrative costs. (3 marks)
- prepare a production cost variance report for April XXXXXXXXXXmarks)
- prepare a report that sums all the variances necessary to prepare the reconciling journal entry at the end of the period. Explain how you would close the total variance; that is, identify the account or accounts that would be affected, and whether expenses in the accounts will be increased or decreased to adjust the records for the total variance XXXXXXXXXXmarks)
- use information in the April production cost variance report (part v. above) to identify and describequestions Helen, the owner of Devine Denim, might have about April’s production costs. (5 marks)
Presentation: Cut and paste your spreadsheet results and formula view into your word document. The formula view should include the column letters and the row numbers.
Question 3 Relevant costs (25 marks) Kota Mills produces two types of brocade, silk and polyester. Last month 450 bolts of the polyester brocade and 4,000 bolts of the silk brocade were produced and sold. Average prices and costs for the two products for last month were: | | Brocade | | Polyester | Silk | Selling price | 95 | 225 | Direct materials | 40 | 95 | Direct labour | 5 | 25 | Variable overhead | 5 | 15 | Product line fixed costs | 10 | 40 | Corporate fixed costs | 25 | 25 | Average Margin per unit | 10 | 25 The Kota brocade production line is highlyautomated. As a result, changes in production will have no impact on labour costs. The direct labour employees are all permanent and 40 hours per week checking the quality on the production line. All costs, other than corporate fixed costs listed under each product line, can be avoided if either product line is dropped. Corporate fixed costs totals $125,000 per month. Corporate fixed costs of $10,000 can be avoided if the polyester were dropped. Corporate fixed costs of $15,000 can be avoided if the silk brocade is dropped. The remaining $100,000 can only be avoided by going out of business. Haywood Mills has offered to supply the polyester brocade at a cost of $55 per bolt. Required: - Calculate the total contribution margin for each product, assuming the sales mix is the same as last month’s. (3 marks)
- Calculate the breakeven sales volume (in units produced and sold) for polyester brocade. In other words, what is the sales volume at which Kota should be financially indifferent between dropping and retaining the polyester brocade? (3 marks)
- Calculate whether the Haywood Mills offer should be accepted on financial grounds. (4 marks)
- Discuss at least five qualitative factors that would affect the decision to keep, drop or outsource the polyester brocade XXXXXXXXXXmarks)
Presentation: Cut and paste your spreadsheet results and formula view into your word document. The formula view should include the column letters and the row numbers. Question 4 Lean Thinking Divine Denim (25 marks) Helen Croker has been discussing production costs with others in the garment industry. Lean thinking was a term other producers have been discussing as a way of controlling costs. Climbing costs are eating away at Helen's profits, so to reduce costs she thought of moving production offshore. Going offshore will make it more difficult to maintain quality while keeping production onshore enables her to contribute to her local community. She has come to you, a partner in Good Numbers, asking for some information about lean thinking. Required: Prepare a report for Helen which describes the concept of lean thinking. In this report identify a business discovered through your internet searches that has adopted lean thinking. (7 marks) Using the business you identified as a case study: - explain how lean thinking has been implemented and used. (9 marks)
- outline the benefits achieved by adopting lean thinking. (9 marks)
(max 1,200 words) Presentation back to top Assessment tasks should be submitted as a Microsoft Word document. Do not submit as a PDF document. Paste the spreadsheet solution in the word file, including column headings and row numbers. Your word file will provide a complete answer to every question. Use portrait orientation wherever possible.
Answered Same Day
May 09, 2021
ACC512
Charles Sturt University
Solution
Rishi answered on
May 14 2021
Question no 1
i) Conventional process costing :-
ii) ABC Costing :-
iii) Comparison of cost as per ABC Costing and cost as per conventional costing
Cost misstated in the conventional system because it does not allocate the cost based on the actual activity consumption rather then it uses a simplified rate such as no of units produced for allocation of the cost.
iv) Kota Mills manager can use ABC costing system to identify the true cost of the production. Hence those products which are originally understated or overstated can be sold at the co
ect price in the market. This can also be used to identify the those products which are actually not profitable but just because of wrong allocation of cost it was presenting as profitable for the organization.
Thus Kota mills manager can focus on identifying its core products and work on marketing and improvement of other products which are not profitable. Based on the above assessment manager can increase the price of 8 ounce and 16 ounce and reduce the price of 13 ounce. Since sale of 13 ounce is already highest among the three category reducing the price will results in more sale of 13 ounce.
Note: - For formula view of the spreadsheet results please check the attached Excel file
Question no 2.
i) Flexible budget
ii) Direct Cost variance
a) Material
1) Material rate variance
(Standard Price- Actual price)*Actual Material purchased
(10-11)*1200
= -1200
2) Material Quantity variance
(Standard quantity- Actual Quantity)*standard Material price
(1130-1150)*10
= -200
3) Material cost variance
(Material quantity variance + Material Rate variance)
(-1200)+(-200)
= -1400
b) Labou
1) Labour rate variance
(Standard rate- Actual rate)*Actual hours worked
(20-20.42)*1200
= -500
2) Labour hours variance
(Standard Hours- Actual Hours)*standard labour rate
(1130-1200)*20
= -1400
3) Labour cost variance
(Labour hours variance + Labour Rate variance)
(-1400)+(-500)
= -1900
iii) Factory overhead cost variance
a) Fixed cost variance
(Budgeted cost- Actual cost)
(4800-4020)
= 780
b) Variable cost variance
(Standard cost- Actual cost)
(2260-2750)
= -490
iv) Selling and distribution cost variance
(Standard cost-Actual cost)
5630-3770
1860
v) Production cost variance report
vi) Report of variance :
Variance
Amount
Material rate variance
-1200
Material Quantity variance
-200
Material cost variance
-1400
Labour rate variance
-500
Labour hours variance
-1400
Labour cost variance
-1900
Fixed cost variance
780
Variable cost variance
-490
Selling and distribution cost variance
1860
vii) Helen might have the following questions :-
· What leads to purchase of Raw material at an extra price of Rs. 1
· Why 20 meter extra raw material has been used in the production
· Why the variable overhead variance is more than 10 % of the standard cost
Note: - For formula view of the spreadsheet results please check the attached Excel file
Question no 3
i) Total contribution margin
ii) Break-even point
BEP - Avoidable fixed cost/Contribution per unit
iii) Evaluation of the offer of the Haywood Mills
Haywood Mills offer should accept the offer as it will leads to profit of $ 5 per unit
iv) Qualitative factors to keep production of Polyester :-
· Segments – Dropping a product from the range will reduce the business segment. This can leads to impact the bottom line of the organization.
· Goodwill – Usually when an organization decide to discontinue a product it impact its goodwill. Managers of kota mills have to check whether there is any adverse effect on its
and image of discontinuing polyester form its operations.
· Customers – Those customers which are buying polyester
ocade from Kota mills will be lost. These customers can be a prospective customers for other range of products as well. So it has to be kept in mind and a complete research has to be done about the customer range that whether they can be our prospective customer for Polyester.
· Market share- Kota mills market share for the polyester is low however dropping the products leads to complete exit from the market.
· Capacity- It has to be considered whether the freed up capacity can be used for some other purpose. Assessing this will help kota mills to take a decision regarding the polyester. If the Opportunity cost of the freed up capacity is more than the benefit occu
ing then the alternative which is providing the opportunity cost should be considered instead of continuing the product.
Note: - For formula view of the spreadsheet results please check the attached Excel file
Question 4
Lean Thinking:-
It is a term which is used in Business It means how to think in new way so that the business operations can be done more efficiently so that the waste can be reduced and the ultimate benefit can be delivered to the society. Organization needs to identify what value it will be creating for its customers. Also understanding of the process is important as it will ultimately eliminate the waste.
There are 5 principles of lean thinking
1. Value
2. The value stream
3. Flow
4. Pull
5. Perfection
The concept of Lean thinking was evolved by studying the growth of Toyota Motor Company(Kaizen Institute , 2015)
The company which was bankrupt in early 1950 became a dominant player in global automobile industry. Toyota adopted the strategy of developing peoples reasoning ability instead of forcing them to use a traditional specialist-derived systems. In understanding the Toyota approach it is discovered that it has a unique group of experts and coordinators which is dedicated to help the managers to think in a different way which is different from other larger companies. TPS is considered as origin of lean thinking and used across the world for modern day lean manufacturing practices. (Womack, James P., Daniel, T. Jones (1996)Â Lean Thinking)
The three main ways for lean thinking are
· Identify the moments when someone clicks a new idea by any means such as visiting some places or read something
· Join the lean self-study groups. The lean methodology has been developed in the recent times hence there are many groups as well which has evolved so the organizations can join those groups as well
· Everyday practice of the lean thinking
How to implemented lean thinking:-
The most important part of lean thinking is that the instructor should not just explain the things rather than show the workers how to execute by demonstrating. The common techniques for using lean thinking are
1) Kaizen activity :- Kaizen method focus on scheduling the time in day to day business activities for improvement such as workshops in different functions, Suggestions from each individual and many more activities. This is planned by a teacher who make sure that everyone should follow the guidelines properly.
2) Visualization: - When we see what we want to happen by visualization. It became easy for us to work on that. The team which see together often learn together. This technique is a useful tool in creative thinking. This help in identifying the gap in what was standard or planned and what are the actual results.
3) Standardization: - Standardization in work is most powerful tool to makes the things simple and controllable This see the problems in a sequence and resolve them in a sequence so that workflow can be improved. This thinking teach lean thinking.
4) Kanban: - It is foundation practice of Lean thinking. Infact Toyotas production system is firstly known as Kanban system. This teaches about challenging the market behavior assumptions and our own flexibility.
5) Just in time (JIT): - JIT is a modern approach for cost optimization it means that inventory should be ordered as and when required so as to reduce the cost of holding the inventory to some extent. This has been widely used by the companies as a part of lean thinking.
6) Automation: - Automation reduce the cost associated with the manpower. Automation is a key for success for the new age companies. There are many companies which automated their production and stay ahead in competition from its competitors. This is a process of continuously reducing the human involvement in the production process.
Benefits of Lean thinking: -
The importance of this practice is more than just improving the organizational profitability there are so many benefits an organization can achieve from lean thinking some of which are as follows:
1. Improved productivity: The main objective of lean thinking is reducing waste and any activity which is not creating value for the customer is considered as waste. This ultimately results in improved productivity.
2. Smooth operation: Making standardization and understanding the work flow results in smooth operation of the business. Also when waste activities are removed from the process it will leads to smooth operations.(Kaizen culture, 2017)
3. Reduction in defects: when organization follows the approach of zero waste it can leads to reduction in defects because defects leads to rework and rework leads to more time, money and also labor cost.
4. Improved quality: Quality of the product also increase with the lean thinking
5. Satisfied consumer: when consumer gets the maximum value of its spending its satisfaction level increase to multiple times. (Kaizen culture, 2017)
6. Improved staff morale: In lean thinking benefits can be for the workforce too having a set of goal and achieving those helps the staff to increase their morale. (Kaizen culture, 2017)
7. Bottom line: - The benefits as mentioned above will also improve bottom line of the organizations. Because better quality products force the customers to back again to the organization and this relation with the customer leads to improve bottom line and profitability.
References used in question 4:
1) https:
www.kaizenkulture.com
log/10-benefits-of-applying-a-lean-methodology
2) https:
en.wikipedia.org/wiki/Lean_thinking
3) https:
in.kaizen.com
log/post/2015/07/28/what-is-lean-manufacturing-or-lean-thinking.html
Question 1
Working notes
1 Basic details
8 ounce 13 ounce 16 ounce Total
Production in units 1000 4000 2000 7000
Direct Material cost 8000 24000 20000 52000
Direct Labour cost 660 1320 920 2900
Direct Labour Hour 33 66 46 145
Machine hours 500 1333 1500 3333
No of set ups 10 30 20 60
Inspection time 83 333 167 583
2 Calcuation of Activity based cost
Activity Total activity Total cost Cost/activity
Machine hours 3333 40000 12.00
No of set ups 60 11000 183.33
Inspection time 583 6996 12.00
3 Calculation of department wise cost
Department 1 Department 2
Direct labour cost 1100 1800
Production in units 7000 7000
Direct labour cost/Unit 0.16 0.26
Overhead cost 19332 38664
Production in units 7000 7000
Overhead cost/Unit 2.76 5.52
Solutions
1 Cost as per conventional costing
8 ounce 13 ounce 16 ounce Total
Direct Material
Dept 1 6000.00 16000.00 15000.00 37000.00
Dept 2 2000.00 8000.00 5000.00 15000.00
Direct Labou
Dept 1 157.14 628.57 314.29 1100.00
Dept 2 257.14 1028.57 514.29 1800.00
Overhead
Dept 1 2761.71 11046.86 5523.43 19332.00
Dept 2 5523.43 22093.71 11046.86 38664.00
Total cost 16699.43 58797.71 37398.86 112896.00
Production in units 1000 4000 2000
Cost/unit 16.70 14.70 18.70
2 Cost as per ABC costing
8 ounce 13 ounce 16 ounce Total
Direct Material 8000.00 24000.00 20000.00 52000.00
Direct Labour 660.00 1320.00 920.00 2900.00
Overhead cost
Machine cost 6000.60 15997.60 18001.80 40000.00
set up cost 1833.33 5500.00 3666.67 11000.00
Inspection cost 996.00 3996.00 2004.00 6996.00
Total cost 17489.93 50813.60 44592.47 112896.00
Production in units 1000 4000 2000
Cost/unit 17.49 12.70 22.30
3 Comparison of cost as per ABC Costing and cost as per conventional costing
8 ounce 13 ounce 16 ounce
Cost as pert ABC 17.49 12.70 22.30
cost as per conventional 16.70 14.70 18.70
0.79 -2.00 3.60
Understated Overstated Understated
Cost misstated in the conventional system because it does not allocate the cost based on the actual activity consumption rather then It uses a simplified rate such as no of units produced for allocation of the cost
4 Kota Mills manager can use ABC costing system to identify the true cost of the prodcution. Hence those products which are originally understated can be sold at the co
ect price in the market.
Question 2
Working notes
1 Basic data
Standard cost
Qty Price Unit cost per pai
Denim fa
ic 2 10 meter 20
Direct labour hours 2 20 hour 40
Variable factory overhead 0.4 10 hour 4
Fixed factory overhead 0.4 20 hour 8
72
2 Actual data of April
Particulars Quantity Unit Price/Unit Amount
Units produced 565
Material
Purchase 1200 mtr 11 13200
used 1150 mtr 12650
Direct Labour cost 1200 Hours 20.42 24500
Variable Overhead cost 2750
Fixed Overhead cost 4020
Selling and distribution cost 3770
Solutions
1 Flexible budget
Qty Price Unit cost per pai
Units produced in April 565
Denim fa
ic 1130 10 meter 11300
Direct labour hours 1130 20 hour 22600
Variable factory overhead 226 10 hour 2260
Fixed factory overhead hour 4800
Selling and distribution overhead
Fixed 4500
variable 1130
Total cost of production 46590
2 Direct Cost variance
Material
a) Material rate variance
(Standard Price- Actual price)*Actual Material purchased
(10-11)*1200
-1200
b) Material Quantity variance
(Standard quantity- Actual Quantity)*standard Material price
(1130-1150)*10
-200
c) Material cost variance
(Material quantity variance + Material Rate variance)
(-1200)+(-200)
-1400
Labou
a) Labour rate variance
(Standard rate- Actual rate)*Actual hours worked
(20-20.42)*1200
-500
b) Labour hours variance
(Standard Hours- Actual Hours)*standard labour rate
(1130-1200)*20
-1400
c) Labour cost variance
(Labour hours variance + Labour Rate variance)
(-1400)+(-500)
-1900
3 Factory overhead cost variance
Fixed cost variance
(Budgeted cost- Actual cost)
(4800-4020)
780
Variable cost variance
(Standard cost- Actual cost)
(2260-2750)
-490
4 Selling and distribution cost variance
(Standard cost-Actual cost)
5630-3770
1860
5 Production cost variance report
Standard cost 46590
Less Material cost varince -1400
Less Labour cost varince -1900
Less Variable cost variance -490
Less Fixed Cost variance 780
Less Selling and distribution cost variance 1860
Actual cost 47740
7
Question 3
1 Total contribution margin
Polyester Silk
Selling price 95 225
Direct materials 40 95
Variable cost 5 25
Contribution per unit 50 105
No of units sold 450 4000
Total contribution margin 22500 420000
2 Break-even point (BEP)
BEP Avoidable fixed cost/Contribution per unit
Avoidable fixed cost
Corporate fixed cost 10000
Product line fixed costs 4500
Labour 2250
Contribution per unit 50
BEP 335
3 Particulars Amount
Selling price 95
Direct Material 40
Variable cost 5
Contribution 50
Amount offered 55
Profit per unit 5
Haywood Mills offer should accept the offe
4 Qualitative factors to keep production of Polyster :-
Flexible budget
QtyPriceUnitcost per pai
Units produced in April565
Denim fa
ic113010meter11300
Direct labour hours113020hour22600
Variable factory overhead22610hour2260
Fixed factory overheadhour4800
Selling and distribution overhead
Fixed 4500
variable1130
Total cost of production46590
Question 1
Working notes
1 Basic details
8 ounce 13 ounce 16 ounce Total
Production in units 1000 4000 2000 7000
Direct Material cost 8000 24000 20000 52000
Direct Labour cost 660 1320 920 2900
Direct Labour Hour 33 66 46 145
Machine hours 500 1333 1500 3333
No of set ups 10 30 20 60
Inspection time 83 333 167 583
2 Calcuation of Activity based cost
Activity Total activity Total cost Cost/activity
Machine hours 3333 40000 12.00
No of set ups 60 11000 183.33
Inspection time 583 6996 12.00
3 Calculation of department wise cost
Department 1 Department 2
Direct labour cost 1100 1800
Production in units 7000 7000
Direct labour cost/Unit 0.16 0.26
Overhead...
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