THE HONG KONG POLYTECHNIC UNIVERSITY
HONG KONG COMMUNITY COLLEGE
Subject Title : Cost Accounting
Session
Subject Code
: CC2106
: Semester One, 2011/12
Numerical Answers
Section B1
Part (I)
Part (II)
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Part (III)
a. The cash that TabComp can expect to collect during April is calculated below.
April cash receipts:
b. The number of units that TabComp should order in January is calculated as follows.
Section B2
Part (I)
Net operating income would decline by $3,000 if product D84L were dropped. Therefore, the
product should not be dropped.
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Part (II)
b. The total cost of the make alternative is lower by $26,000. Thus, net operating income would
decline by $26,000 if the offer from the supplier were accepted. Therefore, the company should
continue to make the part itself.
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Section B3
Part I
Page 4 of 8
Part II
Section B4
Part (I)
4. $1,400/($0.81 - $0.80) = 140,000 pounds
6. (120,000 × 1.1 × $0.80) + $7,200 = $112,800; $112,800/$0.80 = 141,000 pounds
7. (13,000 × $14.00) + $19,600 = $201,600; ($201,600/$14)/120,000 = 0.12 hour per bag
10. (13,000 × $14.00) - $2,600 = $179,400; $179,400/13,000 = $13.80 per hour
Part (II)
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Standard machine-hours allowed for the actual output = 4.6 × 3,400 = 15,640
Indirect labor: Variable overhead rate variance = (AH × AR) - (AH × SR) = $132,805 - (15,740 ×
$8.50) = $132,805 - $133,790 = $985 F
Variable overhead efficiency variance = (AH × SR) - (SH × SR) = (15,740 × $8.50) - (15,640 ×
$8.50) = $133,790 - $132,940 = $850 U
Power: Variable overhead rate variance = (AH × AR) - (AH × SR) = $17,656 - (15,740 × $1.20) =
$17,656 - $18,888 = $1,232 F
Variable overhead efficiency variance = (AH × SR) - (SH × SR) = (15,740 × $1.20) - (15,640 ×
$1.20) = $18,888 - $18,768 = $120 U
Section B5
Part (I)
Part (II)
a. Return on investment = Net operating income ÷ Average operating assets = $150,000 ÷
$500,000 = 30%
Residual income = Net operating income - (Average operating assets × Minimum required rate of
return) = $150,000 - ($500,000 × 0.19) = $55,000
b. Return on investment = Net operating income ÷ Average operating assets = $78,000 ÷ $400,000
= 19.5%
Residual income = Net operating income - (Average operating assets × Minimum required rate of
return) = $78,000 - ($400,000 × 0.19) = $2,000
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The company should invest in this project since its rate of return exceeds the minimum required
rate of return. In other words, its residual income is positive.
Section B6
Part (I)
a. Product costs consist of direct materials, direct labor, and manufacturing overhead:
b. Period costs consist of all costs other than product costs:
Part (II)
Overall CM ratio = Total contribution margin/Total sales = $15,080/$26,000 = 0.58
Break-even point in total sales dollars = Fixed expenses/Overall CM ratio = $13,980/0.58 =
$24,103
Since Product Q91I's CM ratio is greater than Product J53Z's, a shift in the sales mix toward
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Product Q91I will result in a decrease in the company's overall break-even point.
Part (III)
The amount of overhead applied to production is determined as follows:
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