ACCTN101-Accounting for Management at University of  Waikato

 

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• Referencing Styles: APA
• Course Code: ACCTN101
• Course Title: Accounting for management

 

Assignment Sample Question

 

Wine Plus Ltd is famous for its wine products. Ordinary Wine is standard Wine, while Miracle Wine is produced using a secret recipe. Only Wine Plus Ltd can produce the Miracle Wine. All costing information is based on the following expected output for 2020.

 

particulars	Ordinary Wine	Miracle Wine
Sales Price (per bottle)	$100	$130
Expected demand and output for 2020	180,000 bottles	60,000 bottles

 

Budgeted Costs for 2020
Direct Costs	Ordinary Wine	Miracle Wine	Total
Direct Material Costs	$398,250	$288,900	$687,150
Direct Labour Costs	$211,512	$126,000	$337,512
Total Direct Costs	$609,762	$414,900	$1,024,662

 

Sophie, the accountant for Wine Plus Ltd has been using the traditional approach to overhead allocation. Production overheads are allocated to products using labour as the allocation base. Variable production overheads are 15% of labour cost. Fixed production overheads are 110% of labour cost at the budgeted 2020 level of production. Selling and Administration is 10% of the selling price, with half being fixed and half being variable.

Recently, Sophie has had some concerns about the accuracy of the costing information produced. The production system is significantly automated, but the traditional overhead allocation is based on labour costs. She has investigated the activity-based costing (ABC) approach and has come up with the following budgeted figures for the cost drivers and their related activities.

 

ABC Approach

 

 

Activity	2020 Budgeted Cost	Driver
Machine set-ups	$757,500	Machine set-ups
Machine running	$951,750	Machine hours
Materials handling	$340,804	Number of materials requisitions
Inspections	$268,944	Number of inspections
Sales order processing	$227,026	Number of orders processed
Total Cost	$2,546,024

 

Expected use of activity drivers for the level of production predicted for 2020

 

Driver	Ordinary Wine	Miracle Wine	Total
Machine set-ups	1200	1800	3000
Machine hours	12000	18000	30000
Number of materials requisitions	240	660	900
Number of inspections	180	420	600
Number of orders processed	900	600	1500

 

Required:

(a)Use the traditional overhead allocation method to calculate for each Wine product:

(i)The total cost (round to nearest $)

(ii)The profit percentage (round to nearest %)

 

(b)Use the ABC approach to calculate for each Wine product:

(i)The total cost (round to nearest $)

(ii)The profit percentage (round to nearest %)

 

(c)Based on your findings from parts (a) and (b) above (total costs and profit), what recommendations should Sophie make to Wine Plus Ltd?

 

(d)A special order for Miracle Wine has been received by Wine Plus Ltd. The customer wants to place an order of 15,000 bottles for a special price of $120 per bottle. The factory is working at 80% capacity at its current budgeted level. The variable cost per unit has been estimated to be $36 per bottle. There will be no other fixed costs incurred for this special order.

 

Should Sophie advise Wine Plus Ltd to accept the special order from the customer? Give your reasons and supporting calculations.

The customer was pleased with the quality and popularity of the Miracle Wine and now wants to increase the order to 75,000 units on an annual basis at the same special price of $120 per bottle. Should Wine Plus Ltd continue to supply this customer on an annual basis at this price? Provide clear explanations to justify your answer.

 

 

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