ASSIGNMENT: ACC200 INTRODUCTION TO MANAGEMENT ACCOUNTING

ASSIGNMENT: ACC200
INTRODUCTION TO MANAGEMENT ACCOUNTING

Due date: Tuesday 13th January 2015 during Tutorial
time 9:00 AM.
This assignment may be done individually but is to be handed in Tuesday 13th
January 2015.

You have just been
hired as an accountant by GoodStyle Furniture, a manufacturer of specialty, hand-made
furniture based in South Australia. The furniture produced by Goodstyle is in
two ranges, Modern and Classical. The two ranges are different in design, but
both are high quality, hand-made furniture and are priced accordingly. The
owner of the company, Brenton Pryce, has always believed in pricing a quality
product based on how much their larger competitors are pricing theirs. His
argument has been that “our product is as good, if not better, than the mass
producers of furniture, so we should be charging at least as much, if not more,
than what they charge”.

When you arrived at
work for the first time, you learnt that the though the company has been in
existence for the last twelve years, they have never had an accountant. The
accounts were typically prepared by the Laura Peters , secretary of Brenton Pryce
and Tom Nichols, a part-time accountant who came in once or twice a month. Tom
has informed Brenton that he could no longer spare the time to come in and has
suggested the need for an accountant on a full time basis, which is why you
have been hired. Brenton, though, is still not convinced of the need for a full
time accountant. “Look, why do I need a full-time accountant? At the end of the
day, all I need to do is total up my revenues, total up my expenses and the
difference is my profit. Do I really need to understand my product costs? What
is the purpose of that? It’s not like I can lower my prices if my product costs
are lower. I just follow the big guys like Hardly Normal and Super A-mart and
price my product according to their prices. Why do I need to know what my
product costs are?” asked Brenton.

Laura, who has been
the secretary cum bookkeeper (of sorts) since the day the company started has
prepared some information for you. Trying to be helpful, she has alphabetised
the accounts. “I do not know much about accounting,” said Laura. “But Tom has
said that we need a Schedule of Cost of Goods Manufactured and a Schedule of
Cost of Goods Sold, whatever that means. I have last year’s accounts for you,
so could you please prepare those schedules or whatever and get it to Brenton?”
The alphabetised list of accounts can be found in Appendix A.

Four days into your
work, there was a fire over the weekend in the main office that stored the
accounts. The manufacturing facility was not affected and work could go on,
however, most of the information that was for the current year’s accounts was
damaged and only partial fragments were readable. Luckily your work on last
year’s accounts were not affected as you had brought them home to complete and
was still in process of completing them.

“You need to get me back all the information that’s now lost! My creditors want
to see that information and I need you to work on it asap” said Brenton
Sifting through ashes and interviewing selected employees, you have worked up
some additional information:

a) Laura remembers clearly that the predetermined overhead rate was
based on 60,000 direct-labour hours to be worked for the year and $180,000 in
overhead costs. (“Tom mentioned this before he left,” Laura said. “No idea why
it is important, but if it can help you, good luck”.)

b) The work in process balance was $4,500 at 1^st April .
Also the production supervisor’s cost sheets showed only one job in process on
30th April. Materials of $2,600 had been added to this job, and 300 direct
labour hours had been expended at $6 per hour on this job.

c) The accounts payable are for raw material purchases only, according
to Laura. She clearly remembers that the balance in the account on 1st April
was $6,000. Checking with Brenton for his cheque stubs, payments of $40,000
were made to suppliers during April. (All materials used were direct
materials.) .The balance in the Accounts Payable account was $8,000 at 30 April
.

d) A charred piece of the payroll ledger shows that 5,200 direct labour
hours were recorded for the month. Laura has confirmed that there were no
variations in pay rate (i.e. all employees were paid $6 per hour.)

e) Records in the warehouse indicate that the finished goods inventory
totalled $11,000 on 1st April.
Also the finished goods balance was $16,000
on 30^th April .

f) The balance in the Raw Materials account was $12,000 on 1^st
April.

g)Actual Manufacturing overhead incurred during April was $14,800.

h) From another
charred piece of paper, you discerned that the cost of goods manufactured for
April was $89,000.

You are now ready to
and give Brenton the information he needs before you lose your job! When you
went in to tell him that you can now start working on the information, Brenton
tells you that he has spoken to Tom (their previous part-time accountant) and
that the following information are required: “Tom says we need the following
information: Work in process at the end of April, raw materials purchased in
April, Overhead applied, Cost of goods sold in April, and Raw materials used in
April. He also suggested that we should be looking at whether the overhead was
over- or under-applied, whatever that means. “

QUESTIONS / REQUIRED TO DO:

Prepare a report (no
more than 10-pages) for Brenton Pryce that addresses the following:

a) The purpose of a product costing system.

b) Preparation of a Schedule of Cost of Goods
Manufactured and Cost of Goods Sold for last year. (The schedules may be in the
appendix). Explain why some items have been excluded from the schedules.

c) An Income Statement for last year
assuming that tax is charged at 30% on Income before tax

d)
Determine the values for the following:

i. Work in
Process at the end of April;

ii. Raw materials
purchased in April;

iii. Overhead
applied in April;

iv. Cost of Goods
sold in April;

v. Raw materials used in April; and,

vi. Over- or under-applied overhead in April.

e) Discuss how overheads can be over- or
under-applied and how the company should deal with the over- or
under-application.

SCHEDULE
A

Last years accounts

Administrative salaries.	$2,400
Advertising expense.	1,200
Depreciation – factory building	800
Depreciation — factory equipment	1,600
Depreciation — office equipment.	180
Direct labour cost.	21,900
Raw materials inventory, beginning	2,100
Raw materials inventory, ending.	3,200
Finished goods inventory, beginning.	46,980
Finished goods inventory,. Ending.	44,410
General liability insurance expense	240
Indirect labour cost	11,800
Insurance on factory.	1,400
Purchases of raw materials	14,600
Repairs and maintenance of factory. Sales 110,000	900
Sales salaries	2,000
Taxes on factory	450
Travel and entertainment expense	1,410
Work in process inventory, beginning	1,670
Work in process inventory, ending	1,110