ACCT20001 Study Guide - Final Guide: Cost Accounting, Carpentry, Gross Margin
18 Jun 2018
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ACCT20001 Cost Management – Sample review questions – solution outlines for LMS
Task 1
Affordable Modern Furniture (AMF) Pty. Ltd. designs, manufactures and sells large amounts of standardized, ready-to-
assemble furniture (such as beds, chairs and desks), and home accessories (cushions, bedding etc.). The company is
known for its modern architectural designs for various types of accessories and furniture, and its interior design work
is often associated with an eco-friendly simplicity. In addition, the firm is known for its attention to cost control,
operational details, and continuous product development, corporate attributes that allowed AMF to lower its prices
by an average of two to three percent over the decade to 2010 during a period of global expansion.
However, the FY13 gross margin decreased significantly to 41.8% due to increased competition that lowered sales
prices and higher cost of goods sold.
AMF is amongst the largest companies in a highly competitive furniture industry. It has a total of 139,000 employees
worldwide. Consequently AMF attracts business from lage oeial ustoes ho alue the opa’s ailit
to complete higher volumes of work on predictable schedules. AMF’s ustoes ae tpiall oeed ith pie
and are happ to aept AMF’s stadad designs.
Because AMF produces large volumes of inventory, keeping prices of materials and labour low is important.
Consequently, AMF has been criticised for somewhat controversial labour operations. Production workers are paid on
an hourly basis, but individual and total hours are almost constant throughout the year. Overtime is used rarely and
only when customers are prepared to pay more for faster service.
AMF is organized into nine departments, three support, and six operations departments.
Support
Operations
Administration
Assembly
Sales
Carpentry
Supply
Gluing
Sanding
Finishing
Upholstery
The support departments at AMF are all quite large. The Supply department, which maintains the inventory of
materials used in operations, is comprised of multiple supply managers that supervise up to one hundred employees
each. The Sales department employs 2,000 international salespersons, whose primary function is to provide estimated
costs and scheduling for incoming business. 10,000 assistants help the salespeople with data entry and paperwork. The
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Administration department is comprised of 25,500 employees spanning operations such as Human Resources,
Recruitment, Legal, Accounting and IT.
a. Identify three (3) different managerial uses of cost accounting information that you believe are likely to be
among the most important for managing and operating AMF. For each of the three uses that you name,
explain how accurate and timely information regarding cost would help the business. [6 Marks]
Possible answers include:
o Inform strategic decisions/ formulate strategy: accurate and timely cost information would be important in order to
calculate profit / loss of particular strategies already undertaken or to determine whether strategies are required to
improve profitability.
o Inform operational decisions: decisions on which supplier to continue with / drop would rely on accurate on timely
cost information
o Control operations and ensure the efficient use of resources: accurate and timely cost information could be used to
measure how closely is actual cost performance tracking the budget and / or how much more could be spent before
budget limits are reached.
o Measure and report financial and non-financial performance to management and other stakeholders
o Implement corporate governance procedures, risk management and internal controls
o Setting budgets: budgeted amounts for the following year will be influenced by actual costs recorded this year.
o Establishing standards
o Analysing variances
b. Given the information provided about AMF, which type of cost accounting system do you think would be most
appropriate for this business: job, process, or operations costing? Explain using the particular characteristics
of AMF described in the case.
Best answer is either operation OR process costing. Job-costing is unlikely given that IMEA produces a large quantity
of eah good ad the ae ot ustoised – customers are willing to accept standard designs (in para 3)
Operation costing is suitable if AMF produces a variety of fairly similar products i.e., products that use same processes
but different materials (e.g., many different colours/finishes of the same chair)
Process costing is used if AMF has a few standardised products which are produced in large amounts.
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Task 2
The folloig data petai to the podutio of the Gloioski Copa’s pia podut for a recent month, with
selected items omitted. During the month, 4,000 units of product were produced. Variable OH is assigned based on DL
hours.
Required: Using the information given, calculate the amounts for each of the omitted items
(a) through (m) (1 mark each). Very clearly label your answers (for a variance, indicate Favorable or Unfavorable).
Round all calculations to two (2) digits or whole cent.
Direct Materials
Standard cost per unit: 3 pounds at $11.25 per pound
Total actual cost of materials purchased (and used): (a) pounds at $10.50 per pound
Total standard cost allowed: $ (b)
Materials flexible budget variance: $ (c)
Materials price variance: $ (d)
Materials quantity variance: $11,250 U
Direct Labor
Standard cost per unit: 0.75 hour at $18 per hour Total actual cost of labor: (e) hours
at $ (f) per hour
Total standard cost allowed: $ (g)
Labor flexible budget variance: $5,000 F Labor rate variance: $1,400
F
Labor Efficiency variance: $ (h)
Variable Overhead
Standard cost per unit: (i) hour at $6 per hour
Actual cost: $18,200
Total standard cost allowed: $ (j)
Variable overhead flexible budget variance: $ (k)
Variable overhead rate/spending variance: $ (l)
Variable overhead efficiency variance: $ (m)
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Document Summary
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