Task

This assessment consists of 3 exercises. The task is individual and off-line. Please submit your work displaying

all computations and formulas used. If the obtained results are unexplained, the grading will be materially

lower. For your safety and potential later forensics, upload a well-structured and printable spreadsheet file into

Turn-it-In.

Exercise 1: (28 marks)

Atlas Inc. is a newly organized manufacturing business that plans to manufacture and sell 500,000 units per

year of a new product. The following estimates have been made of the company’s costs and expenses (other

than income taxes):

fixed variable

Manufacturing costs per unit

DM 28 €

DL 22 €

MOH 4.400.000 € 15 €

Period costs

Selling 1 €

Administrative 3.600.000 €

OpEx 8.000.000 € 66 €

Instructions

a) What should the company establish as the sales price per unit if it sets a target of earning an operating

income of €3,000,000 by producing and selling 500,000 units during the first year of operations?

b) At the unit sales price computed in part a, how many units must the company produce and sell to break

even? (Assume all units produced are sold.)

c) What will be the margin of safety (in dollars) if the company produces and sells 500,000 units at the

sales price computed in part a? Using the margin of safety, compute operating income at 500,000 units.

d) Assume that the marketing manager thinks that the price of this product must be no higher than €78 to

ensure market penetration. Will setting the sales price at €78 enable Thermal Tent to break even, given

the plans to manufacture and sell 500,000 units? Explain your answer.

Exercise 2: (36 marks)

On March 1 of the current year, Scooter’s Catch-A-Ride Corporation compiled information to prepare a cash

budget for March, April, and May. All of the company’s sales are made on account. The following information

has been provided by Scooter’s management:

month credit sales

January 360,000 € YTD

February 420,000 € YTD

March 500,000 € FC

April 460,000 € FC

May 580,000 € FC

The company’s collection activity on credit sales historically has been as follows:

Collections in the month of the sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50%40%

Collections one month after the sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3045%

Collections two months after the sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1512%

Uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%

Scooter’s total cash expenditures for March, April, and May have been estimated at €1,488,000 (an average of

€496,000 per month). Its cash balance on March 1 of the current year is €240,000.

No financing or investing activities are anticipated during the second quarter.

• Compute Spicer’s budgeted cash balance at the ends of March, April, and May

• What conclusions can you extract from the cash forecast for the next quarter?

• How can the cash forecast be improved? (reporting and analysis)

Exercise 3: (36 marks)

Pandora Hardwood Products uses standard costs in a process cost system. At the end of the current month,

the following information is prepared by the company’s cost accountant:

DM DL MOH

actuals 96.000 € 82.500 € 123.240 €

std costs 90.000 € 84.000 € 126.000 €

DM price variance 2.400 €

DM qty variance 8.400 €-

DL rate variance 3.000 €

DL efficiency variance 1.500 €-

MOH spending variance 7.260 €

MOH volume variance 4.500 €-

The total standard cost per unit of finished product is $30. During the current month, 9,000 units were

completed and transferred to the finished goods inventory and 8,800 units were sold. The inventory of work in

process at the end of the month consists of 1,000 units that are 65 percent complete. There was no inventory

in process at the beginning of the month.

Instructions

a) Prepare journal entries to record all variances and the costs incurred (at standard) in the Work in

Process account as separate compound entries for (1) direct materials, (2) direct labor, and (3)

manufacturing overhead.

b) Prepare journal entries to record (1) the transfer of units finished to the Finished Goods Inventory

account and (2) the Cost of Goods Sold (at standard) for the month.

c) Assuming that the company operated at 90 percent of its normal capacity during the current month,

what is the amount of the budgeted fixed manufacturing overhead per month?

Formalities:

• No specific wordcount required

• Cover, Table of Contents, References and Appendix are not expected either.

• Font: Arial 12,5 pts.

Submission: End of Week 8 – Via Moodle (Turnitin). Sunday, September 18th @ 23:59

Weight: This task is a 60% of your total grade for this subject.

It assesses the following learning outcomes:

• Outcome 1: Clear understanding and differentiation of the fixed and variable costs

• Outcome 2: Distinguish and apply Break-Even and Cost Volume Profit Analysis

• Outcome 3: Understand the Cash Flow principle and its application for Cash Budgeting

• Outcome 4: Classify and interpret correctly direct and indirect costs.

• Outcome 5: Understand the challenges of bottom up vs top down budgeting.

Rubrics BCO322 · numerical course

Descriptor

90 – 100 marks | The student demonstrates an excellent understanding of the business cost concepts.

80 – 89 marks | The student demonstrates a good understanding of the business cost concepts.

70 – 79 marks | The student demonstrates a fair understanding of the business cost concepts.

60 – 69 marks | The student demonstrates some, but insufficient understanding of the biz cost concepts.

30 – 59 marks | The student demonstrates insufficient understanding of the business cost concepts.

They may mention some relevant ideas or concepts, although it is clear that the

relationship between them is not understood by the student.

10 – 29 marks | The student demonstrates insufficient understanding of the business

cost concepts and does not mention any relevant ideas or concepts.

0 marks | The student leaves the question blank or cheats.