COST AND MANAGEMENT ACCOUNTING-II ASSIGNMENT

Part I: Multiple Choice Questions

Choose the letter of the best answer and Write the letter of the correct answer for the
questions that follow

Hika Kitchens is approached by Mr. Lemma, a new customer, to fulfill a large one-time-only
special order for a product similar to one offered to regular customers. The following per unit
data apply for sales to regular customers:

Direct materials Br 455

Direct labor 300

Variable manufacturing support 45

Fixed manufacturing support 100

Total manufacturing costs 900

Markup (60%) 540

Targeted selling price Br 1,440

Hika Kitchens has excess capacity. Mr. Lemma wants the cabinets in cherry rather than oak, so
direct material costs will increase by Br 50 per unit.

1. For Hika Kitchens, what is the minimum acceptable price of this one-time-only special
order?

A. Br 850
B. Br 950
C. Br 805
D. Br 1,460

Part-III: Workout

Workout Each of the Following Questions Clearly

1. Leka Auto Company manufactures a part for use in its production of automobiles. When
10,000 items are produced, the costs per unit are:

Direct materials Br 12

Direct manufacturing labor 60

Variable manufacturing overhead 24

Fixed manufacturing overhead 32

Total Br 128

Moti Company has offered to sell Leka Auto Company 10,000 units of the part for Br 120 per
unit. The plant facilities could be used to manufacture another part at a savings of Br 180,000 if
Leka Auto accepts the supplier's offer. In addition, Br 20 per unit of fixed manufacturing
overhead on the original part would be eliminated.

Required:

A. What is the relevant per unit cost for the original part?
B. Which alternative is best for Leka Auto Company? By how much?

2. The following data for the Lowbrow Garden Supplies Company pertains to the production of
2,500 garden spades during March. The spade consists of a wooden handle and a metal
forged tool that comes in contact with the ground.

Direct Materials (all materials purchased were used):

Standard cost: Br 1.00 per handle and Br 3.50 per metal tool.

Total actual cost: Br 11,350.

Materials flexible-budget efficiency variance was Br 650 unfavorable.

Direct Manufacturing Labor:

Standard cost is 5 garden spades per hour at Br 20.00 per hour.

Actual cost per hour was Br 21.00.

Labor efficiency variance was Br 400 favorable.

Required:

A. What is the standard direct material amount per garden spade?

 B. What is the standard cost allowed for all units produced?
C. What is the total direct materials flexible-budget variance?
D. What is the direct material flexible-budget price variance?
E. What is the total actual cost of direct manufacturing labor?
F. What is the labor price variance for direct manufacturing labor?

3. Wirtu Winter Woolens manufactures jackets and other wool clothing. One of its products
requires following:

Direct materials standard 2 square yards at Br 13.50 per yard

Direct manufacturing labor standard 1.5 hours at Br 20.00 per hour

During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric
costing Br 39,375. Direct labor totaled 2,100 hours for Br 45,150.

Required:

A. Compute the direct materials price and efficiency variances for the quarter.
B. Compute the direct manufacturing labor price and efficiency variances for the quarter.

4. The Harro Card Company, a producer of specialty cards, has asked you to complete several
calculations based upon the following information:

Income tax rate 30%

Selling price per unit Br 6.60

Variable cost per unit Br 5.28

Total fixed costs Br 46,200.00

Required:

A. What is the breakeven point in cards?

B. What sales volume is needed to earn an after-tax net income of Br 13,028.40?
C. How many cards must be sold to earn an after-tax net income of Br 18,480?

5. Lensa Corporation has the following budgeted sales for the next six-month period:
 Month Unit Sales

June 90,000

July 120,000

August 210,000

September 150,000

October 180,000

November 120,000

There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to
have an inventory of finished products that equal 20% of the unit sales for the next month.

Five kilograms of materials are required for each unit produced. Each kilogram of material costs
Br 8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials
inventory on June 1 was 15,000 kilograms.

Required:

A. Prepare production budgets in units for July, August, and September.

B. Prepare a purchases budget in kilograms for July, August, and September, and give total
purchases in both kilograms and birr for each month.