Week 8 (Topic 7) (10 marks)
Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units
respectively. It takes half a kilogram of direct material to make one unit of finished product.
Materials inventory is maintained at 10 per cent of the next month’s budgeted production
needs. If the 30 June inventory of materials was 5000 kg, how many kilograms of direct
material should be purchased during July?
Week 9 (Topic 8) (10 marks)
Cultco Company Ltd has set the following direct material standards per unit of product: 2.5
kg @ $3.00 per kg; $7.50 per unit. During April, actual direct material purchased and used
amounted to 8000 kg at a cost of $3.10 per kg. Actual production amounted to 3000 units.
Determine the total material variance.
Week 10 (Topic 9) (10 marks)
a. Fragrance Pty Ltd has two (2) divisions: the Cologne Division and the Bottle Division. The
company is de-centralised and each division is evaluated as a profit centre.
The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle
Division’s variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per
unit. The Bottle Division’s external sales price is $3.00 per unit. No shipping costs are
incurred on sales to the Cologne Division. The Cologne Division can purchase similar
bottles in the external market for $2.50. The Bottle Division has sufficient capacity to meet
all external market demands in addition to meeting the demands of the Cologne Division.
Using the general rule, calculate the minimum transfer price from the Bottle Division to
the Cologne Division. Explain your answer (4 marks)
b. For the period just ended, Trek Corporation’s Trailer Division reported profit of $54 million
and invested capital of $450 million. Assuming an imputed interest rate of 10 per cent,
calculate Trailer’s return on investment (ROI) and residual income. Explain what each
calculation of ROI and RI means for Trek. ( 6 marks)
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