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Pretty Pink Pte Ltd (“PP”) Uses Normal and Job Order Costing: Managerial Accounting Assignment, SUSS

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Question 1

Pretty Pink Pte Ltd (“PP”) uses normal and job order costing. All its jobs represent unique customer orders for modified vintage cars. PP had 1 job in process at the start of the year: job number 45 ($12,000). PP applies manufacturing overhead on the basis of machine-hours (“MH”). The budgeted overhead and machine activity level for the year were anticipated to be $280,000 and 50,000 MH, respectively. PP worked on four jobs during April. The direct materials used, direct labour incurred, and machine hours consumed during April were as shown in the table below.

Job numberDirect materialDirect labourMachine hours (MH)

Budgeted and actual direct labour rate is $12 and $14 per hour respectively. Manufacturing overhead incurred for April is as follows: depreciation ($12,000), indirect labour ($5,000), indirect materials used ($2,000) and other factory expenses ($5,000). PP paid cash for all overhead expenses. Manufacturing overhead variance is closed to the cost of good on a monthly basis. During April, PP completed job numbers 45 and 48. Job number 45 was sold on credit for a gross profit of $24,000.


  • Prepare journal entries (to describe the flow of production-related costs) for March to record the following:
  • Manufacturing overhead incurred.
  • Application of manufacturing overhead to production.
  • Completion of Job number 45 and 48.
  • Calculate the balances in work in process, finished goods inventory and adjusted cost of goods sold at the end of April (after closing off the manufacturing overhead variance).
  • The CEO is concerned about the impact of the manufacturing overhead variance on net profit. He believes that closing the overhead variance only to the cost of goods sold adversely impact net profit for April. Is he correct? Explain.

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Question 2

Sherry Boats (“SB”) manufactures small boats. It has three support departments: X, Y, and Z, and two operating departments: J and R. Its support departments provide services to other support and operating departments. Their usage is captured in the following table.

Provider of service
Dept XDept YDept Z
Dept Overhead Costs$300,000$200,000$400,000
Use of Service
Dept X5%
Service DeptsDept Y20%
Dept Z20%
Operating DeptsDept J30%25%20%
Dept R70%50%60%

SB uses the step-down method to allocate support department costs to operating departments, and a plant-wide method based on direct labor hours to allocate manufacturing overheads to products. Each operating department manufactures a separate line of products. SB prices its products on a cost plus mark-up basis.


  • (i)Jerry, the cost accountant, believes department Z should be allocated first as it has the highest support department costs. Without performing any calculations explain if Jerry is correct.
  • Ignoring your answer in part (i), calculate the support department costs allocated to each of the operating departments J and R; by using the step-down method beginning with department Y, followed by department Z, and department X. Provide your final answer to the nearest dollar.
  • Without performing any calculations, explain if using the step-down approach will lead to more accurate costing for SB than using the direct or reciprocal methods to allocate support department costs.

Question 3

Goldivar Chocolate produces premium chocolates that pass through different departments: (1) Milling and Pressing department; (2) Ingredient Mixing and Conching Department; and (3) Packaging Department. The Company uses the First-In-First-Out (FIFO) process costing method and estimates the normal spoilage to be 1% of the inputs in kg, started in the period. Inspection for deformed, dented outputs or chocolates that started to melt is done when the outputs are completed and awaiting transfer to the Packaging Department.

The production process in the Ingredient Mixing and Conching Department requires the input of three main types of ingredients listed as follows:

  • The basic ingredients (milk and sugar);
  • The second key ingredient, cocoa butter, is transferred from the previous milling and pressing department; and
  • The third ingredient is cocoa liquor.

100% of the basic ingredients and cocoa butter are added at the beginning of the process.

For the cocoa liquor, 50% of the required quantities are added at the beginning of the process, 40% is added midway (i.e. 50% of conversion done) through the process and the remainder is added at the end of the process.

The following information relates to the operation of the Ingredient Mixing and Conching Department for October 2019.

Beginning work-in process (BWIP) (1 October 2019): 2,500 kg were 30% completed with respect to conversion costs (CC). Costs pertaining to the BWIP as at 1 October 2019 were: basic ingredients (milk and sugar) – $10,100; cocoa butter – $31,000; cocoa liquor – $12,900; and CC – $12,000.

Units started in the month were 300,000 kg. Costs added to production during the month of October 2019 were: basic ingredients – $1,215,025; cocoa butter – $3,508,250; cocoa liquor – $1,800,000; and CC – $1,446,960.

Ending WIP as at 31 October 2019 was 3,500 kg and 70% completed with respect to CC. 298,500 kg of outputs were transferred to the Packaging Department.


  • Calculate the number of actual spoilage units in kg in the Ingredient Mixing and Conching Department and explain the accounting treatment for this spoilage. Assume that the spoilage is all from the current production units and not the BWIP.
  • (i)Calculate the equivalent units of production for Goldivar Chocolate in the Ingredient Mixing and Conching department and the costs per equivalent unit for each cost category (give your answers to the nearest two decimal places of the dollar) for the month of October.
  • Calculate the value of completed products transferred to the Packaging Department in the Ingredient Mixing and Conching department at the end of October.
  • Calculate the cost per kg of completed outputs transferred to the Packaging Department, rounding your answer to two decimal places of a dollar.
  • Prepare journal entries to illustrate the transfer of completed outputs to the next department.

Question 4

Aery Electronics is a small subsidiary of a larger group specializing in sales of semiconductor components in Singapore. Due to the rise in Artificial Intelligence in recent years, the semiconductor industry has grown in leaps and bounds. Aery Electronics adopts a participative budgeting approach and allows the front-line managers to dictate the targets without any senior management intervention. Sales managers are remunerated with a fixed monthly salary. Upon achievement of the sales budget, sales managers are rewarded with a one-month bonus.

  • Revenue in March 2019 was $550,000.
  • Sales are budgeted at $560,000 for April; $530,000 for May; and $510,000 for June.
  • Collections are expected to be 30% in the month of sale, 69% in the month following the sale, and 1% uncollectible.
  • The cost of goods sold is 80% of sales.
  • The company incurs 50% of its cost of goods sold in the month prior to the month of sale and 50% in the month of sale. Payments are made in the month following the incurrence of the cost of goods sold.
  • Other monthly expenses (which are paid in cash) are $105,500.
  • The monthly depreciation is $45,000.
  • Ignore taxes.

Aery Electronics

Statement of Financial Position

As at 31 March 2019

Accounts Receivable (net)$379,500
Cash and cash equivalent200,000
Total Current Assets849,500
Property, Plant & Equipment (net)1,458,000
Total Assets2,307,500
Accounts Payable444,000
Ordinary Share Capital1,700,000
Retained Earnings163,500


  • Prepare a cash budget for the three (3) months of April to June, showing:
  • The expected cash receipts for each month and a quarterly total.
  • The total expected cash disbursements for each month and a quarterly total.
  • The ending cash balance for each month and for the quarter.
  • Evaluate the current budgeting approach and organizational architecture (OA) of Aery Electronics. Describe one (1) improvement to the current system.

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