Accounts 18

1875 Words Feb 3rd, 2012 8 Pages
Question One (25 marks)

Based on module 7 – Budgeting

Retail outlets purchase snowboards from Slopes Ltd., throughout the year. However, in anticipation of late summer and early autumn purchases, outlets ramp up inventories from January through May. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, Slopes’ accountant projects 20% of invoices are paid in the month invoiced, 50% are paid in the following month, and 30% of invoices are paid two months after the month of invoice. The average selling price per snowboard is $450.

To meet demand, Slopes increases production from December through March, because the snowboards are produced a month prior to their projected sale.
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(b) Determine which alternative Grace Inc should select to maximise net income.
Show your calculations.

Marking Criteria:
Application of CVP to question 2a 9 marks
Application and interpretation of CVP to question 2b 16 marks

Question Three

Based on module 8 – Costing in an entity (25 marks)

Alex’s Fine Art Studio is a company offering art services. The owner Alex Touch has been contacted by the manager of Ruthven Cars Company who complained about the price charged for some art work. On the same day Alex was also contacted by the manager of Books Galore who was delighted with the work and the price charged.

Alex uses a cost-based approach to pricing (billing) each job. Currently it uses a single direct-cost category (professional labour hours) and a single indirect-cost pool (general support). Indirect costs are allocated to jobs on the basis of professional labour-hours per job. Professional labour costs at Alex’s Fine Art Studio are $70 an hour. Indirect costs are allocated to jobs at $105 an hour. Total indirect costs in the most recent period were $21 000. The job files show the following:

Professional Labour
Ruthven Cars Company 104 hours
Books Galore 96 hours (Assume these two jobs were the only jobs completed in this period.)

(a) Compute

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