Sunshine Co Ltd produces
Question 1 (Mini Case) (35 marks)
Sunshine Co Ltd produces two types of window frame, aluminiumand wooden. The company’s simple costing system has two direct cost categories (materials and labour) and one indirect cost pool. The simple costing system allocates indirect costs on the basis of machine hours.
Recently, the owners of Sunshine have been concerned about a decline in the market share for aluminium, usually their biggest seller. Information related to Sunshine’s production for the most recent yearfollows:
Aluminium
Wooden
Units sold
3,200
1,800
Selling price
$125
$200
Direct material cost per unit
$30
$45
Direct manufacturing labor cost per hour
$16
$16
Direct manufacturing labourhours per unit
1.50
2.25
Production runs
40
85
Material moves
72
168
Machine setups
45
155
Machine hours
5,500
4,500
Number of inspections
250
150
The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. Afteranalyzing the indirect cost pool for Sunshine, six activities wereidentified as
generating indirect costs: production scheduling, material handling,machine setup, assembly, inspection, and marketing. Sunshine collected the following data related to the indirect cost activities:
Activity
Activity Cost
Activity Cost Driver
Production scheduling
$95,000
Production runs
Material handling
$45,000
Material moves
Machine setup
$25,000
Machine setups
Assembly
$60,000
Machine hours
Inspection
$8,000
Number of inspections
Marketing costs were determined to be 3% of the sales revenue for each type of window.
Required:
aCalculate the costofan window and a window underthe existing costing(8
bCalculate the costofan window and a window underan costing(14
c the costs ofthe window in (a) and (b).Explain the and costing differinthe costofanwindow and a window (6
d howSunshine Ltd use the newcostfromits costingto address the decliningshare forinteriordoors. (7
Question 2 (25 marks)
Ting Ho Company began operations in January 20×2. All its costs are fixed; they do not vary with output.
Ting Ho Company is located in Science Park and has its ownhydroelectric plant to supply power, light, and heat. The companymanufactures a synthetic energy bar from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by adjusting a few dials on a control panel.
The following budgeted and actual data are for the operations of Ting Ho Company. Ting Ho uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold.
20×2
20×3
Sales
10,000 tons
10,000 tons
Production
20,000 tons
0 tons
Selling price
$25 per ton
$25 per ton
Costs (all fixed):
Manufacturing
$380,000
$380,000
Operating
$35,000
$35,000
Required:
a with one for20x2, one for20x3, and one forthe two using(a)costingand (b)absorption costinga of10,000 tons. (18
b the costs thatwould be carried in the balancesheeton 31 20×2 and 20×3, undereach (3
c thatthe ofthe top ofthe is and on the basis ofreported operating Which costing would the prefer? Explain.
(4 marks)
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Sunshine Co Ltd produces was first posted on August 29, 2019 at 9:55 am.
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Sunshine Co Ltd produces was first posted on August 29, 2019 at 9:57 am.
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