Task Solutions- Client Support Department Costs :MGW3401

Friday this is a timed assessment
4 questions of
Basically, is calculation-based test
The question will be covering of
(CVP, Product and Service C …

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Friday this is a timed assessment
4 questions of
Basically, is calculation-based test
The question will be covering of
(CVP, Product and Service Costing, Activity Based Costing, Customer
Profitability and Pricing and Budgeting and Variance Analysis
Question will be delivered here.
Given time 1 hour 30 minutes
QUESTION 1
The Hogan Design Group provides drafting services for residential clients and
employs 20 professional draftsmen. Its job-costing system has a single direct-
cost category (professional labour) and a single indirect-cost category (client
support, which contains all the costs in the Client Support Department). Client
support costs are allocated to individual jobs using actual draftsmen labour-
hours.
Budgeted and actual amounts for 2019 are as follows:
Budget for 2019
Professional labour costs $3,000,000
Client Support Department costs $2,500,000
Professional labour-hours billed to clients 40,000
hours
Actual Results for 2019
Client Support Department costs $2,450,000
Professional labour-hours billed to clients 45,000
hours
Actual professional labour cost rate was $120 per
hour
In 2019, Hogan Design designed a new display home village for Geelong
Homebuyers Centre. Hogan Design budgeted to spend 1,000 professional
labour-hours on the project. Actual professional labour-hours spent on the
project were 1,250.
Required
(a) What is the budgeted direct cost of the new display village design? Show all
the workings. [2 marks – 1 mark without workings]
Answer
Budgeted Direct Cost
Sl
No Particular
Amoun
t
1 Professional Labour Cost
30000
00
2
Professional Labour Hour
billed 40000
3 Per Hour Rate (1/2) 75
(3000000/40000)
4 Total Hours for the project 1000
5 Budgeted Cost (3*4) 75000
1000*75
(b) Calculate the actual indirect cost allocated for the new display village design
using the budgeted rates. Show all the workings. [2 marks – 1 mark without
workings]
Answer
Actual indirect cost using budgeted rate
Sl
No Particular
Amoun
t
1
Client Support Department
cost
25000
00
2
Professional Labour Hour
billed 40000
3 Per Hour Rate (1/2) 62.5
(2500000/40000)
4 Total Hours for the project 1250
5 Budgeted Cost (3*4) 78125
1250*62.5
(c) Calculate the amount of over or under allocation of overhead for the year.
Indicate if it is over or under-allocation and why. Show all the workings. [2
marks – 1 mark without workings]
Answer
Budgeted Direct Cost Variance
Sl
No Particular
Amoun
t
1 Professional Labour 75000
2 Actual Labour hour cost
15000
0
120*1250
3 Variance0- Negative

75000
75000-150000
Budgeted Indirect Direct Cost Variance
Sl
No Particular
Amoun
t
1
Client Support Department
cost 62500
62,5*1000
2 Actual Labour hour cost
68055
.56
1250*2450000/45000
3 Variance0- Negative

5555.
56
62500-68055
QUESTION 2
Emu Manufacturing produces stylish garden vases.
The data considered for the preparation of the budget 2019 of Emu
Manufacturing are the following:
the vases normally sell for $180 per vase.
Budgeted number of vases to be produced: 50,000. It is assumed that all vases
produced are sold.
One vase requires on average 0.5 kg of clay (direct material), whose price is
$60/kg.
On average, it takes one worker 2 hrs (direct labour) to manufacture a vase, at
a pay rate of $25/hr.
Variable budgeted overhead comprises two cost areas:
ï‚· Quality control testing: according to the company policy, 6% of the
vases production will be tested for defects developed during the baking
at $50 per test;
ï‚· Indirect materials, such as varnishes: budgeted $5/vase.
The budgeted fixed overhead ($1,000,000) covers the lease of the factory and
all the equipment that is required for the production (potter ’swheels and ovens).
The actual results for 2019 were the following:
ï‚· Vases produced and sold: 48,000 at an average selling price of
$175/vase.
ï‚· Clay used (direct material): 23,520kg at the average price of
$60.5/kg.
ï‚· Direct labour: 95,600hrs worked at an average pay rate of $24.5/hr.
Variable overhead costs:
ï‚· Quality control testing: 3,200 tests performed at $45/test;
ï‚· Indirect materials cost: $5.10/vase.
Fixed overhead: $1,000,000.
Required
(a) What is the actual amount of direct costs (direct material and direct
labour) of the vases in 2019? Show all the workings. [2 marks – 1 mark
without workings]
Answer
Sl No Particular
Amoun
t
1 Clay Cost per kg 60.5
2 Quantity Used 23520
3 Total clay cost
14229
60
60.5*23520
4 Labour Hour used 95600
5 Labour Cost per Hour 24.5
6 Total Labour cost
23422
00
95600*24.5
7 Total Direct Cost
37651
60
(3+6)
8 Units Produced 48000
9 Per Unit Direct cost 78.44
(7/8)
(b) What is the flexed budget amount of direct costs (direct material and
direct labour) of the vases in 2019? Show all the workings. [2 marks – 1
mark without workings]
Answer
Sl
No Particular
Amoun
t
Budgeted
Quantity
Amoun
t
1
Clay Cost
Budgeted 60 20000
12000
00
(40000*.5)
2 Labour cost 25 80000
20000
00
(40000*2)
3 Total Direct cost
32000
00
(1+2)
(c) What is the 2019 total variance (price and efficiency) of direct labour and
its direction (favourable or unfavourable)? [2 marks – 1 mark without workings]
Answer
Price Variance
Direct Labour
(Budgeted price per
hour-Actual Price
per Hour) * Actual
Hour used
(25-24.5)
*95600
4780
0
Favourabl
e
Efficiency
Variance
Direct Labour
(Budgeted Hour-
Actual Hour) *
Budgeted Rate
(80000-
95600) *25

3900
00 Adverse
Total Labour
Variance

3422
00
QUESTION 3
Describe the market conditions where market-based pricing decisions are more
likely to occur and why? [2 marks]
Answer
Cell phone market is an example of market-based pricing. There are various
brand options in market but most of the suppliers take a cue from each other
like Apple, Samsung and Google not in case in case of feature but also in case of
pricing.
This occur when the price is set on basis of price of product or service on its
competitive market position and product market fit.
Describe the market where cost-based pricing decisions are more likely to occur
and why? [2 marks]
Answer
Cost based pricing decisions are more likely to occur in manufacturing
companies. The firm first accomplish the objective of maximizing profit by an
increase in production until marginal revenue equals marginal cost .and
accordingly a change in price which is ascertained by demand curve.
(c) How is price calculated in a cost-based pricing approach? [2 marks]
Answer
Price is computed by adding a profit percentage or fixed profit figure to the
cost of goods or services that ultimately decides their involved selling price.
QUESTION 4
Juicing Services sells two types of machines – The Superior which pulps all the
fruit including the skins or the Standard which must have the skin of the fruit
removed first by the operator. The corporate tax rate is 25%.
Table 1 – Pricing and Variable Cost information for Juicing Services
Superior Standard Total
Price per machine ($) 300 150
Variable Cost per
machine ($) 150 100
Number of machines sold 200 800 1,000
Fixed Costs ($) 20,000
Required
a) Assuming the same ratio of machines as in Table 1 is sold – what is the
number of Superior and Standard machines needed to be sold for Juicing
Services to breakeven? Show all the workings. [2 marks – 1 mark without
workings]
Answer
SL No Particular
Superio
r
Standa
rd
Sales
Mix
1 Sale Price 300 150
2
Variable cost per
Machine 150 100
3 Contribution Per Unit 150 50 70
Sale Price- Variable
Cost
4 Fixed Cost 20000 20000
2000
0
5
Break Even Sales
(4/3) 133 400 286
(b) If the current ratio of machine sales remained the same as in Table 1 and
there was a 10% increase in machine sales, what would the new After-Tax
profit be? Show all the workings. [2 marks – 1 mark without workings]
Answer
SL No Particular
Superio
r
Standa
rd
Sales
Mix
1 Sale Price 300 150
2
Variable cost per
Machine 150 100
3 Contribution Per Unit 150 50 70
4 Sales Units
200*1.1=220 220 880 1100
800*1.1=880
5 Contribution Total 33000 44000
7700
0
(3*4)
6 Fixed Cost
2000
0
7 Profit before Tax
5700
0
Contribution- Fixed
Cost
8 Tax
1425
0
(57000*25%)
9 Profit after Tax
4275
0
(57000-14250)
(c) If the sales ratio of Superior to Standard machines changed from the current
ratio to 1:5, what would the total revenue at the breakeven point be? Show all
the workings. [2 marks – 1 mark without workings]
Answer
SL No Particular
Superio
r
Standa
rd
Sales
Mix
1 Sale Price 300 150
2
Variable cost per
Machine 150 100
3 Contribution Per Unit 150 50 66.7
Mix
(150*1+50*5)/6
4 Fixed Cost
2000
0
5 Break Even Unit 300
(20000/66.7)
6 The Unit Allocation 50 250
Superior = 1*300/6
Standard = 5*300/6
7 Sale Price 300 150
8 Sales value (6*7) 15000 37500
5250
0

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