2024 – Question 1 Total 9 Marks Tamworth Truck manufactures part YYY used in several of its truck

Question 1: (Total 9 Marks)

Tamworth Truck manufactures part YYY used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Direct materials	$ 45,000
Direct manufacturing labor	15,000
Variable support costs	35,000
Fixed support costs	25,000
Total costs	$120,000

Tamworth Truck has the option of purchasing part YYY from an outside supplier at $11.20 per unit. If part YYY is outsourced, 40% of the fixed costs cannot be immediately converted to other uses (i.e. cannot be avoided).

a. Describe ‘avoidable’ costs. What amount of the YYY production costs is avoidable?

b. Should Tamworth Truck outsource YYY? Why or why not?

c. What other items should Tamworth Truck consider before outsourcing any of the parts it currently manufactures?

 

Question 2: (Total 11 Marks)

Tamworth Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:

 

Product	Number of Setups	Number of Components	Direct Labor Hours
Standard	3	30	650
Deluxe	7	50	150
Overhead Costs		$20,000	$60,000

 

Required:

Assume a traditional costing system applies the $80,000 of overhead costs based on direct labor hours.

a. What is the total amount of overhead costs assigned to the standard model?

b. What is the total amount of overhead costs assigned to the deluxe model?

AND,

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

c. What is the total amount of overhead costs assigned to the standard model?

d. What is the total amount of overhead costs assigned to the deluxe model?

e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

 

Question 3: (Total 13 Marks)

Tamworth Company has the following information:

Month	Budgeted Sales
March	$50,000
April	53,000
May	51,000
June	54,500
July	52,500

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month’s cost of sales.

Required:

Prepare a purchases budget for April through June (one column for each month), giving ‘total figures’ for the quarter in the forth column.

 

Question 4: (Total 10 Marks)

Tamworth Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfil a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:

Direct materials	$100
Direct labor	125
Variable manufacturing support	60
Fixed manufacturing support	75
Total manufacturing costs	360
Markup (60%)	216
Targeted selling price	$576

Tamworth Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.

 Required:

a. For Tamworth Cabinets, what is the minimum acceptable price of this one-time-only special order?

b. Other than price, what other items should Tamworth Cabinets consider before accepting this one-time-only special order?

c. How would the analysis differ if there was limited capacity?