QUESTION 1 (5 MARKS)

What competitive advantage could a company obtain from a successful cost management program? Discuss using real world examples to support your statements. You must disclose the source of your information (referencing).

QUESTION 2 (5 MARKS)

The East Company manufactures several different products. Unit costs associated with Product ORD203 are as follows:

Direct materials                                          $  40

Direct manufacturing labor                              8

Variable manufacturing overhead                  12

Fixed manufacturing overhead                      23

Sales commissions (2% of sales)                      6

Administrative salaries                                     9

Total                                                          $98

REQUIRED:

1. Calculate the variable costs per unit associated with Product ORD203.
2. Calculate the fixed costs per unit associated with Product ORD203.
3. Calculate the inventoriable costs per unit associated with Product ORD203.
4. Calculate the period costs per unit associated with Product ORD203.
5. Calculate the Cost of Goods Manufactured for Product ORD203 and explain the reasons for calculating the cost of goods manufactured.

QUESTION 3 (5 MARKS)

Hormuse Manufacturing Company produces two products, X and Y.  The following information is presented for both products:

X               Y

Selling price per unit               $36            $24

Variable cost per unit                28              12

Total fixed costs are $234,000.

            Required:

a.      Calculate the contribution margin for each product.

b.      Calculate breakeven point in units (and dollars) of both X and Y if the sales mix is 3 units of X for every unit of Y.

c.      Calculate breakeven volume in total dollars (and units) if the sales mix is 2 units of X for every 3 units of Y.

d.      Can you think of reasons why the managers of a business might find it useful to know the break-even of some activity they are planning? (2 marks)

QUESTION 4 (5 MARKS)

Heavy Steel processes a single type of steel. For the current period the following information is given:

All materials are added at the beginning of the production process. The beginning inventory was 40% complete as to conversion, while the ending inventory was 30% completed for conversion purposes.

Heavy Steel uses the weighted-average costing method.

REQUIRED:

1. Use 5 steps approach to calculate the total cost assigned to the units completed and transferred out this period? (2 marks)

2. Can you think of reasons why direct labour hours are regarded as the most logical basis for allocating overhead costs? Use examples to support your discussion. You must disclose the source of your information (1.5 marks)

3. What is reason for distinguishing direct costs from indirect costs? Use examples to support your discussion. You must disclose the source of your information (1.5 marks)