Costing Assignment SECTION B (Answer All Question) 1. Speedy Printing manufactures soft cover books.

For January, the following information is available: Budgeted market size (units) Budgeted market share Budgeted average contribution margin per unit Actual market size (units) Actual market share Actual average contribution margin per unit 125,000 18% $1.20 100,000 19% $1.22

Required: Compute the market-share variance, the market-size variance, and the sales-quantity variance in terms of the contribution margin.
Chapter 14: Answer: 100,000 0.19 $1.20 = $22,800 100,000 0.18 $1.20 = $21,600 125,000 0.18 $1.20 = $27,000

Market-share variance $1,200 F

Market-size variance $5,400 U

Sales-quantity variance $4,200 U

2. The fixed costs of operating the maintenance facility of General Hospital are $4,500,000 annually. Variable costs are incurred at the rate of $30 per maintenance-hour. The facility averages 40,000 maintenance-hours a year. Budgeted and actual hours per user for 20X3 are as follows: Building and grounds Operating and emergency Patient care Administration Total Budgeted hours 10,000 8,000 21,000 1,000 40,000 Actual hours 12,000 8,000 22,000 1,200 43,200

Assume that budgeted maintenance-hours are used to calculate the allocation rates. Required: a) If a single-rate cost-allocation method is used, what amount of maintenance cost will be budgeted for each department? b) If a single-rate cost-allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage? Based on budgeted usage? c) If a dual-rate cost-allocation method is used, what amount of maintenance cost will be budgeted for each department? d) If a dual-rate cost-allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage? Based on budgeted usage for fixed operating costs and actual usage for variable operating costs?

Answer: Chapter 15 a. Total costs + $4,500,000 + ($30 40,000) = $5,700,000 Single rate = $5,700,000 / 40,000 mh = $142.50 per maintenance-hour Single-rate budgeted amounts: Building and grounds $142.50 10,000 = Operating and emergency$142.50 8,000 = Patient care $142.50 21,000 = Administration $142.50 1,000 = $ 142,500 b. Total costs + $4,500,000 + ($30 40,000) = $5,700,000 Single rate = $5,700,000 / 40,000 mh = $142.50 per maintenance-hour Single-rate allocated amounts: Building and grounds $142.50 12,000 = Operating and emergency$142.50 8,000 = Patient care $142.50 22,000 = Administration $142.50 1,200 = $ 171,000 Dual-rate budgeted amounts: Building and grounds: Fixed ($4,500,000 10/40) Variable ($30 10,000) Total Operating and emergency: Fixed ($4,500,000 8/40) Variable ($30 8,000) Total Patient care: Fixed ($4,500,000 21/40) Variable ($30 21,000) Total Administration: Fixed ($4,500,000 1/40) Variable ($30 1,000) Total d. Dual-rate allocated amounts: Building and grounds: Fixed ($4,500,000 10/40) Variable ($30 12,000) Total Operating and emergency: Fixed ($4,500,000 8/40) Variable ($30 8,000) Total Patient care: Fixed ($4,500,000 21/40) Variable ($30 22,000) Total Administration: Fixed ($4,500,000 1/40) Variable ($30 1,200) Total

$1,425,000 $1,140,000 $2,992,500

$1,710,000 $1,140,000 $3,135,000

c.

$1,125,000 300,000 $1,425,000

$ 900,000 240,000 $1,140,000

$2,362,500 630,000 $2,992,500

$112,500 30,000 $142,500

$1,125,000 360,000 $1,485,000

$ 900,000 240,000 $1,140,000

$2,362,500 660,000 $3,022,500

$112,500 36,000 $148,500

3) Gotham University offers only high-tech graduate-level programs. Gotham has two principal operating departments, Engineering and Computer Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services. i. The base used to allocate facility and technology maintenance is budgeted total maintenance hours. ii. The base used to allocate enrollment services is number of credit hours for a department. iii. The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000. iv. The following chart summarizes budgeted amounts and allocation-base amounts used by each department: Services Provided: (Annually) Computer F&T Engineering Sciences Maintenance 1,000 24,000 2,000 36,000 Zero 2,000

Budget F&T Maintenance $350,000 (in hours) Enrollment Service $950,000 (in credit hrs)

Enrollment Service 5,000 Zero

Required: a) Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept. b) Compute the total amount of support costs allocated to each of the two principal operating departments, Engineering and Computer Sciences.
Answer: Chapter 15 F&T Maintenance provided to enrollment services = 5,000/8,000 Enrollment services provided to maintenance = 2,000/62,000 F&T Maintenance provides the greatest amount of service to support departments, so it is allocated first. F&T Maintenance $350,000 to Enrollment Services = $350,000 5/8= $218,750 to Engineering = $350,000 1/8= $ 43,750 to Computer Science = $350,000 2/8= $ 87,500 Enrollment Service costs of $950,000 + $218,750 = $1,168,750 are allocated to Engineering and Computer Science to Engineering = $1,168,750 24/60 = $467,500 to Computer Science = $1,168,750 36/60 = $701,250 F&T Maintenance $350,000 ($350,000) $0 Totals Enrollment Service $950,000 $218,750 ($1,168,750) $0 Engineering $ 43,750 $467,500 $511,250 Computer Science $ 87,500 $701,250 $788,750

SECTION B (Answer one(1) question only)

1. A corporation can measure its quality performance by using financial or nonfinancial

measures of quality. Discuss the merits of each method and whether the use of one precludes the use of the other.
Answer: Chapter 19 i. Financial measures of quality are quantifiable. The business can calculate the costs of setting up quality control systems, the costs of noncompliance with quality in terms of the internal and external costs (rework, warranty costs, etc.), and estimate the revenues lost as a result of quality problems. ii. Nonfinancial measures of quality are useful indicators of future long-run performance. They are helpful in revealing future needs and preferences of customers and in indicating the specific areas that need improvement. iii. The use of one measure does not preclude the use of the other. Financial measures tend to be short term in nature (what is happening now). Nonfinancial measures tend to be long term and are useful in terms of estimating trends. iv. Financial performance measures are more readily available than nonfinancial measures, but they are no more important to the overall goals of the organization. By considering nonfinancial measures, the organization can improve operational control. Superior financial performance usually follows from superior nonfinancial performance.

2. Dawn and Kim just bought a bed and breakfast inn at a very attractive price. The business had been doing poorly. Before they reopened the inn for business, they attended a seminar on operating a high quality business. Now that they are ready to open the inn, they need some advice on quality costs and management. Required: Identify four categories of quality costs. In addition, identify three items that would be classified in each of the categories.
Answer: Prevention: Hiring employees with good references Training of owners and employees Good security Good reservation system Purchasing quality furniture Verifying accuracy of reservation and registration procedures Inspecting rooms, facilities, building and grounds regularly Observing activities of employees Testing furniture and fixtures Taste testing food Recleaning rooms and facilities Restocking rooms with linens, glasses, etc. Out-of-stock supplies Reinspection Failure to bill on a timely basis Responding to complaints about rooms and food Responding to complaints about reservations Emergency cleaning of rooms when not ready on time Customer refunds because of unsatisfactory conditions Opportunity cost of lost revenue resulting from unhappy customers

Appraisal:

Internal failure:

External failure: