Past Year Mid Sem Solution

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SURNAME OF CANDIDATE: FIRST NAME OF CANDIDATE: STUDENT ID: LECTURE TIME: TUTORIAL NUMBER AND TIME: TUTOR’S NAME: SIGNATURE:

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SCHOOL OF ACCOUNTING
ACCT 2522 Management Accounting: Process Improvement and Innovation Past Year Mid-Session Examination Time allowed: 90 minutes, plus 5 minutes reading time Total of 50 marks • • • • • • • The candidate may NOT retain this paper This exam represents 25% of your total mark for this course This paper consists of THREE (3) questions of unequal value Answers must be written on the lines or in the boxed area provided – any other writing will NOT be marked. Answers are to be written in ink Answer ALL questions Some spare pages have been left for y our rough workings at the end of the pap er. Workings on these pages will not be marked. Do not detach.

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED BY THE EXAM SUPERVISOR

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Question 1 (10 marks)
Mercury A sbestos Re moval Company Ltd is in the busi ness of rem oving toxic asbestos insulation and related products from buildings. There has been an on going dispute between the company’s estimator and the work supervisors. Mr Dennis Clean, the on-site supervisor, claims that the e stimators do not tak e enough care in disti nguishing between routin e wo rk such as the removal of a sbestos insulation a round heating pipes i n older homes, and nonroutine work such as the removal of asbestos-contaminated ce iling pla ster in industrial buildings. Dennis bel ieves that non-routine work i s far more expensive th an routine work and should attract higher customer charges. Mr Jonas Ca ble, one of the esti mators, su ms u p his position in this wa y: “M y job is to measure the area to b e cleared of asbe stos. As directed by top management, I simply multiply each square metre by $20.00 to deter mine the bid price. S ince our average cost is only $11.00 pe r square metre, that leaves enoug h of a cushion to take care of the additional cost of any non-routine work that shows up.” To shed light on this dispute, the company initiated an activity based costing study of all of its costs. Data from the activity-based costing system are as follows:

Cost for 2006 Wages and salaries Disposal fees On-site supplies

$ 550,000 850,000 85,000 1,485,000

Activity Cost Pool Job size Estimation and job setup Dealing with non-routine jobs Other (cost of idle capacity & organisation sustaining costs)

Activity Drivers Square metres Number of jobs* Number of non-routine jobs Not a pplicable; the se costs a re not allocated to jobs

Total Activity for 2006 125,000 650 200 n/a

* Note: The 200 non routine jobs are included in the total of 650 jobs. Both routine and nonroutine jobs require estimation and setup.

Distribution of resource consumption across activity cost pools Job Size Estimation & Dealing with Other Job Setup Nonroutine Jobs Wages and salaries 40% 10% 30% 20% Disposal fees 60% 0% 40% 0% On-site supplies 55% 30% 10% 5%

Total 100% 100% 100%

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Required
Note: Keep numbers to 2 decimal points in every step of your calculations (a) Compute the activity rates for each activity cost pool (ie cost per activity) (4.5 marks). (b) Using the activity rates, determine the total cost of cleaning (2.5 marks): i. A routine job with a total area of 100 square metres. ii. A non-routine job with a total area of 100 square metres. (c) Given your a nswers to (a) and (b) above, do you agree w ith Jonas that th e company’s present policy for bidding on jobs is adequate? Explain. (3 marks)

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Question 2 (16 marks) Part A (8 marks)

Ignore Transfer Pricing. Not included in mid-sem.

Micro HardRock Ltd produces an MP3 player known as the “m-Pod”. It has two productio n departments: the Headphone Division (HD); and the Assembly Division (AD). HD produces specially designed in-ear headphones, known as HD1000, which are transferred to AD (each m-Pod requires one unit of HD 1000). AD combines this headphone with...
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