2011-Anet302-PBSB811-Memo+June

2011-Anet302-PBSB811-Memo+June - MANAGEMENT ACCOUNTING(PBSB...

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MANAGEMENT ACCOUNTING (PBSB 811) MEMORANDUM JULY 2011 (2 nd OPPORTUNITY) – TOTAL 100 QUESTION 1 (40) 1.1 D (2) 1.2 D (2) 1.3 A (2) 1.4 A (2) 1.5 A (2) 1.6 B (3) 1.7 A (3) 1.8 D (3) 1.9 B (3) 1.10 A (3) 1.11 D (3) 1.12 A (3) 1.13 C (3) 1.14 A (3) 1.15 B (3)
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QUESTION 2 (19) 5-51 Volume-based Costing Versus ABC 2.1 Predetermined overhead rate based on machine hours = Total budgeted overhead cost / Selected level of production activity = (R100 000 + R80 000 + R200 000 + R100 000) / 10 000 machine-hours = R480 000 / 10 000 machine-hours = R48,00 per machine-hour Product Total Manufacturing Overhead Barrel OH per Barrel P5 R48,00 x 1,000 MH = R48 000 500 R96,00 G23 R48,00 x 1,000 MH = R48 000 500 R96,00 (6) 2.2 Overhead Rates: Overhead Budgeted Level of Predetermined Cost Pool Overhead Cost Driver Overhead Rate Machine set-ups R100 000 100 setups R1 000 per setup Material handling 80 000 8 000 barrels R10 per barrel Quality control 200 000 1 000 inspections R200 per inspection Other overheads 100 000 10 000 machine hrs R10 per MH Overhead Per Barrel: Manufacturing Overhead Overhead P5 G23 Cost Pool Rate Activity Overhead Activity Overhead Machine set-ups R1 000 1 R 1 000 50 R50 000 Material handling R10 500 5,000 500 5 000 Quality control R200 2 400 20 4 000 Other overheads R10 1 000 10 000 1 000 10 000 Total overhead R16 400 R69 000 Number of barrels 500 500 Cost per barrel R 32,80 R138,00 (8)
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5-51 (continued) i. The volume-based rate significantly undercosts the G23 product which requires several times the amount of machine setup and quality inspection effort relative to product P5. This means that pricing and analysis of product line profitability will be distorted. Strategic planning based on profitability analysis will also be misguided as a result. Suppose, for example, that CCO, using volume-based accounting, is asked to bid on a rather larger order for the G23 product; it is likely to win the order because the volume-based cost is distorted – too low.
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