Question 3. You have gone through the activities for the last year, 2022, and found that AMT rents a small administrative office in Seaford for $24,000 per year in addition to the manufacturing plant which costs $60,000 per year. William agreed to pay the annual salary of $50,000 to you as an accountant but you need to handle some administrative work as well. In addition to you, there is a sales manager who is paid an annual fixed salary of $30,000 plus a commission of $50 for each outboard motor sold. The miscellaneous cost incurred in the administrative office was $5,000 per year and this cost is expected to remain the same amount for years to come. In the manufacturing plant, there is a full-time supervisor who gets paid $75,000 per year for supervising the production and the casual staff. The machine maintenance cost is $10,000 per year and another factory related miscellaneous cost is $5,000 per year. These costs are expected to remain the same amount for years to come. AMT has a contractwith a delivery firm for delivering motors totheir outdoor adventure retailers. The delivery is arranged only once a month to all the retailers. The delivery information and costs for the last 6 months are as follows: Table 1: Delivery cost and units Month Motors delivered Delivery costs December 50 $2200 November 60 $2750 October 20 $1200 September 40 $1800 August 25 $1350 July 10 $750 Ju n e 45 $1950 In the last year (2022), AMT has manufactured 500 outboard motors, and the material costs incurred in the last year are given in Table 2. There was no opening inventory, workinprocess inventory, or finished goods but there were 50 motors (finished goods) remaining at the end ofthe last year. Table 2: Material quantity and cost Materials Quantity Total cost Aluminium alloy 2000 m2 $2000 Cylinder head & block 500 $25,000 Motor engine 500 $62,000 Bottom cowling 500 $12,500 Lower unit and propellor 500 $17,500 Copper cable 2000 meters $500 Electric unit and harness 500 $25,000 Nut and bolt 5,000 units $1,000 Casual staff handling all manufacturing processes. In the first phase, machine operators are manufacturing certain parts and it takes 1 hour to manufacture parts per motor. Machine operators are paid $40 per hour. In the assembling section, staff assembled the powerhead, midsection, and lower unit. This task is very labour intensive, and it takes 2 hours per motor, and staff is paid $30 per hour. Once the assembling is done, then pass tothe electrical team to do wiring and testing. It takes 0.5 hours per motor and electricians are paid $50 per hour. Question 4. In a recent meeting, William and Oliver said that "we have to make a certain decision based on our last year's operating profit\". However, you informed them that \"we can produce operating profit using two different methods: absorption costing which is required by the regulations and variable costing which can be used in our internal decision making, and profit may be different. 50, we have to be very careful when we make decisions\". However, Oliver and William questioned how profit can be different for the same period. The motors are sold for $1200 each. Required: a). Prepare the income statement for the last year using the variable costing method and absorption costing method (The normal level of production is 500 motors which is used in allocating fixed production). {Exhibit 7.3, chapter 7, 10 marks) b) Discuss what would be the reason to have two different profits and the possible undesirable effect of this. Use profit reconciliation to support your arguments. {Chapter 7, 5 marks) Question 5. You received an order for 100 outboard motors from 'Great Adventure' retailers and they are happy to offer $900 per motor. However, it required a special logo printed on the machine and it has to buy from an external supplier for $25 each. Each motor required one logo and it won't take an additional machine hour. William wants to know the manufacturing cost for thisjob. AMT has a production budget of 600 motors for the current year. AMT used direct labour hours for machine operating and assembling (not electrician's hours) as an overhead cost allocation base to allocate manufacturing overhead costs. Assume the current year's budgeted overhead is the same as last year's. Required: a). Calculate the predetermined overhead allocation rate (POHR), the overhead allocated amount for thisjob, the direct manufacturing cost for this job, and the total manufacturing cost for this job. (Job costing and overhead allocation, chapter 3, 10 marks) b). After seeing your unit cost for the current year, Oliver said that \"there might be something wrong in your calculation. Last year our production was 500 motors and this year if we produced 600 units, the total manufacturing cost should be higher compared to last year as production has increased. Thus, the unit cost will also increase". Is Oliver right or wrong in his statement? Show your calculation for supporting your argument. (Chapter 2, 10 marks] c). Even though the production budget is prepared for 600 motors, the business has manufactured only 550 motors. Is it under-allocated OH or overallocated OH? How much? Show your work. (Assume actual overhead is the same as the budgeted) What would be the impact of the cost of goods sold and gross profit if this over/under amount write off to the cost of goods sold? (Budgeted indirect costs and end-of-period adjustment, chapter 3, 10 marks) Question 6. In a recent meeting, the sales manager of AMT highlights that there is a huge demand for speed outboard motors like Pro and Jet versions more than our Four Stroke motors. Then Oliver asked if we better increased our product range and manufacture Pro and Jet versions of Outboard motors. You remarked that we can do but there are additional processes and costs incurred. Manufacture Pro and Jet version of outboard motors, it required powerful motor engine. A Pro motor engine costs $50 more than Four Stroke motor engine and a Jet version motor engine costs 100% higher than Four Stroke motor engine. In addition, each of these versions is required a special electric unit 81 harness system. The pro version electric unit and harness system is $25 higher than FourStroke one and the Jetversion electric unit and harness system is $50 higher than Four Stroke one. In terms of labour, both the Pro and Jet version might take an additional 30 min of assembling time and an additional 1 hour of electrician time. The sale manager says that the Jet version outboard motor could be sold for $1,500, but the Pro version has a variety of prices in the market model. so, we could come up with the price for the Pro version. However, you are not sure whether the price for the Jet version is sufficient. You said you need to do calculations before making any decision. Required: a). Make your decision whether it is worth processing the Four Stroke motor to the Jet version and selling it for $1500. Use calculation for supporting your argument. {Sell andfurther processing, Joint costing, chapter 6, 5 marks) b). If the business decides to go for the Pro version, which is the minimum price AMT should set for the Pro version outboard motor for it being worth processing further from a Four Stroke outboard motor. (Sell and further processing, Joint costing, chapter 6, 5 marks) Income statement under variable costing Revenue Deduct variable cost variable cost of good sold (450 x $19 ..... ) Other vairable costs (admin, selling. distribution) Contribution margin Deduct -fixed costs Operating profit Reconciliation Operating profit under variable costing Change in inventory Operating profit under abosrption costing Income statement under absorption costing Revenue Deduct Cost of good sold (450 x $....) Gross margin Deduct- Admin and selling costs Operating profit Total budgeted Manufacturing OH XXX (you calcualted in Q3 part C) Budgeted units 600 a). PHOR Total budgeted MOH Total budgeted machine operating and assembling hours Order quantity = 100 motors How to allocate MOH to the job? calcualte how many machine operating and assembling hours required for this job x PHOR Job cost DM XXX DL XXX OH allocated to the job XXX Total costs XXXX b). Think about cost per unit ? Variable cost and fixed cost when we increse production C ). OH allocation = machine hours operating and assembling required for 550 motors x PHOR Actual OH = $ Compare OH allocated Vs Actual OH