Question 2: Manufacturing Statement and Income Statement (20 marks in total) Lake Ltd.’s… 1 answer below »

Question 2: Manufacturing Statement and Income Statement (20 marks in total)

Lake Ltd.’s accounting department provided following financial information:

Depreciation Expense – Factory Equipment

$ 90,000

Direct Labour

$ 1,284,000

Raw Material Inventory (1st July, 2016)

$ 183,000

Raw Material Inventory (30th June, 2017)

$ 186,000

Factory Rent

$ 152,820

Finished Goods (1st July, 2016)

$ 264,000

Finished Goods (30th June, 2017)

$ 345,000

Indirect Labour

$ 75,000

Indirect Materials

$ 52,500

Sales Revenue

$ 6,751,500

Administration Expenses

$ 600,000

Selling & Distribution Expenses

$ 1,200,000

Purchase of Raw Material

$ 1,200,360

Freight In

$ 90,000

Work in Process (1st July, 2016)

$ 60,600

Work in Process (30th June, 2017)

$ 57,330

Required:prepare a statement of Cost of Goods Manufactured and an Income Statement for Lake Ltd. for the year ended 30th June 2017. You can prepare the statements in an Excel spreadsheet then paste into Word.

Question 3: Job order costing (20 marks in total)

The Port Furniture Company manufactures tables. In March 2017, the two production departments had budgeted allocation bases of 4,000 machine-hours in Department A and 8,000 direct manufacturing labour-hours in Department B. The budgeted manufacturing overheads for the month were $57,500 and $62,500, respectively. For Job X, the actual costs incurred in the two departments were as follows:

Financial Information for Job X

Department A

Department B

Direct materials purchased on account

$ 110,000.00

$ 177,500.00

Direct materials used

$ 32,500.00

$ 13,500.00

Direct labour

$ 52,500.00

$ 53,500.00

Indirect labour

$ 11,000.00

$ 9,000.00

Indirect materials used

$ 7,500.00

$ 4,750.00

Lease on equipment

$ 16,250.00

$ 3,750.00

Manufacturing Utilities

$ 1,000.00

$ 1,250.00


3a. Determine the budgeted manufacturing overhead rate for each department.

3b. Prepare necessary journal entries to summarise the March transactions for Department A.

3c. Determine the total cost of Job X.

3d. What are some of the major cost objects that managers often focus on in companies using job costing? Use the textbook or other references to support your answers.

Question 4: Service department cost allocation (20 marks in total)

Inns Battery Company has two service departments: Maintenance and Personnel. Maintenance Department costs are allocated on the basis of budgeted maintenance-hours. Personnel Department costs are allocated based on the number of employees. Data on budgeted maintenance-hours and number of employees are as follows:

Support Departments

Production Departments

Maintenance Department

Personnel Department



Budgeted costs





Budgeted maintenance-hours





Number of employees






4a. Using the direct method, determine the amount of support department costs to be allocated to Production Department A.

4b. Using the step-down method, determine the amount of Maintenance Department costs to be allocated to Production Department A, if the service department with the highest percentage of interdepartmental support service is allocated first.

4c. Using the reciprocal method, determine the amount of maintenance department costs to be allocated to Production Department A (round up to nearest dollar).

4d. List and explain two possible reasons why a manager might prefer that budgeted rather than actual cost-allocation rates be used when cost is being allocated to his/her department from another department. Use the textbook and/or other relevant resources to support your answer.

Question 5: Activity Based Costing (20 marks in total)

Come-On-In company produces two types of entry doors: Standard and Deluxe. The assignment basis for manufacturing overheads has been direct labour hours. For 2016, the company complied the following data for the two products:



Sales units

400,000 Doors

50,000 Doors

Sales price per unit

$ 475

$ 690

Direct material cost per unit

$ 90

$ 120

Direct labour cost per unit

$ 40

$ 60

Manufacturing overhead cost per unit

$ 120

$ 80

During 2016, the company purchased a state-of-art robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. The information gathered is as follows:


Cost Driver






Number of setups




$ 2,900,000


Number of machine hours




$ 44,100,000


Number of shipments




$ 5,000,000


5a. Using the current cost system, determine the total cost of manufacturing one unit of each product and the profit per unit for each product.

5b. Under the current cost system, estimated manufacturing overhead per unit are less for the deluxe door ($80) than the standard door ($120). What is a likely explanation for this?

5c. Using the activity-based costing data, compute the cost driver rate for each overhead activity.

5d. Compute the revised manufacturing overhead cost per unit for each type of product.

5e. Is the deluxe door as profitable as the original data estimated using previous cost system? Why or why not? Explain.