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DIPLOMA IN MANAGEMENT STUDIES
ACC 2103 MANAGEMENT ACCOUNTING (Jan – March 2021)
CA1: INDIVIDUAL ASSIGNMENT (50 marks; 30% of the overall weightage)
NOTE:
(1) Show ALL workings clearly.
(2) Complete this assignment on your own! Do NOT share your work.
(3) Answer the theory questions using your own words (other than the use of technical
term / description). Do NOT“cut and paste”from various sources of information.
QUESTION 1 (11 marks)
Olympia Company, a manufacturing firm, has supplied the following information from its
accounting records for the month of December 2020:
$
Beginning raw materials inventory 3,000
Ending raw materials inventory 7,200
Beginning work in process inventory 4,200
Ending work in process inventory 3,000
Beginning finished goods inventory 2,250
Ending finished goods inventory 3,750
Purchases of raw materials 25,000
Wages of assembly line workers
Indirect materials
Indirect labour
Property tax (apportioned equally
between factory and administrative)
Factory supplies
Utilities (apportioned 70% to factory
and 30% to administrative)
Distribution expenses
Administrative expenses
Sales revenue
4,600
120,000
Required:
(a) A Statement of cost of goods manufactured for December 2020, showing clearly the
details of the costs. (6 marks)
(b) A Statement of cost of goods sold for December 2020. (2 marks)
(c) An Income statement for December 2020. (3 marks)
Page 2 of 3
QUESTION 2 (15 marks)
Bottomless Pot operates a restaurant that offers“all-you-can-eat buffet”.
The following data shows the costs of food for the buffet and the number of diners that ordered
the buffet for last year, 2020. The restaurant manager is interested in finding the relationship
between the costs of food and the number of diners.
Month Number of
diners
Costs of food
$
January 2,832 55,900
February 4,895 68,600
March 3,920 59,700
April 3,840 58,600
May 4,150 62,000
June 2,395 54,600
July 4,272 63,300
August 3,985 60,400
September 2,520 53,900
October 4,732 69,900
November 2,633 56.900
December 3,935 51,200
Required:
(a) The cost of food is a mixed cost.
(i) Describe what is a mixed cost.
(ii) Explain briefly why you think the cost of food for the buffet is a mixed cost.
(4 marks)
(b) Using the high-low method, develop the cost formula for the total costs of food.
(5 marks)
(c) Estimate the total costs of food for the first quarter of 2021 if Bottomless Pot expects
15,500 diners for the quarter.
(2 marks)
(d) (i) Explain what is“relevant range”.
(ii) Explain, using an example why would cost behaviour change outside the
relevant range. The given example should use Bottomless Pot as reference.
(4 marks)
Page 3 of 3
QUESTION 3 (24 marks)
NOTE: To incorporate data / calculations from Question 2 when answering Question 3.
In addition to the“all-you-can-eat buffet”, Bottomless Pot is considering offering set-meals
for diners in 2021. The costs of food for the set-meals is expected to be $4 per set-meal and
the direct fixed costs are $5,000 per month.
Besides the costs of food, there are additional variable costs of $7 per diner regardless of
whether they ordered buffet or set-meals.
Other than the costs of food, Bottomless Pot expects to incur common fixed selling and
administrative costs totalling $80,262 per month.
It is estimated that 80% of the diners would order the buffet and the remaining diners would
order the set-meals. Bottomless Pot charges each diner $50 for the buffet and $30 for the setmeal.
Required:
(a) Bottomless Pot expects 5,850 diners in January 2021. Calculate January’s operating
income for buffet, set-meals and the restaurant as a whole.
(4 marks)
(b) Refer to (a). Calculate the number of diners to break-even per month.
(5 marks)
(c) Refer to (a).
(i) Calculate the margin of safety (in sales dollars) for January 2021.
(ii) Define“margin of safety”.
(iii) Explain briefly the significance of Bottomless Pot’s margin of safety for January.
(7 marks)
(d) Bottomless Pot observes that the profit margin for the buffet is much higher than setmeals.
It is considering reducing the price of the buffet to $45 per diner; and estimates
that with the price reduction, 90% of the diners would order buffet instead of set-meals.
(i) Re-calculate the operating income for 5,850 diners.
(ii) How much is the change in operating income as compared to (a). Should
Bottomless Pot go ahead with this change?
(8 marks)
End of Assignment