QUESTION ONE (10 Marks) A retail company has been reviewing the adequacy of its stock control systems and has identified three products for…

QUESTION ONE (10 Marks)

A retail company has been reviewing the adequacy of its stock control systems and has identified three products for investigation. The relevant details for the three products are set out below:

The management accountant has provided you with the following additional information:

The gross margin of products A, B and C are 42, 46 and 37. The company policy is to express the gross margin as a percentage of sales.

There are six trading days a week. A trading year has 52 weeks.

All orders are delivered by suppliers into the retailer’s central warehouse. The lead-time is one week from the placement of order. A further week is required by the retailer in order to transfer stock from the central warehouse to stores. Both of these lead times can be relied on.

The information produced above represents the expected occurrence of demand and costs.

An order for item C for 250,000 units was placed 2 days ago.

REQUIRED:

Calculate for each product:

The minimum and maximum weekly sales units.                                       (3 marks)

The stock-re-order level.                                                                           (2 marks)

The maximum stock level.                                                                         (2 marks)

Comment upon the adequacy of the existing stock control of the three products.     (3 marks)

QUESTION TWO (10 MARKS)

MMC Ltd. produces machine parts on a job-order basis.  Majority of the business contracts are obtained through bidding.  Business firms competing with MMC Ltd. bid full cost plus 20 per cent mark up.  Recently, with the expectation of increase in sales.  MMC Ltd. reduced its mark up from 25 per cent to 20 per cent.

The company operates two support departments and two production departments.  The budgeted costs and the normal activity levels for each department are given below:

Additional information:

The direct costs of the maintenance department are allocated on the basis of employees while those of power department are allocated on the basis of maintenance hours.

Departmental overhead rates are used to assign costs to products.  Grinding department uses machine hours and assembly department uses labour hours.

MMC Ltd. is preparing to bid for a contract, job K, that requires three machine hours per unit produced in grinding and zero hours in assembly department.  The expected prime costs per unit are Shs. 670.

Required:

(a)        Allocate the support service costs to the production departments using the direct allocation method.                                                                                                         (3 marks)

(b)        What will be the bid for job K if the direct allocation method is used?          (3 marks)

(c)        Allocate the service costs to the production departments using the sequential allocation method.                                                                                                   (4 marks)

QUESTION THREE (10 MARKS)

Sussy Products Ltd who manufactures and retails products A, B and C employ sixty direct workers who work under a group of bonus scheme.  The company engages three grades of workers who are paid a bonus of the excess of time allowed over time taken.  The bonus paid is 75% of the workers’ base rate and is shared by the workers in proportion to the time spent on the work.  The following production data has been extracted from the company’s records for April 2014.

Required:

Percentage of hours saved to hours taken.                                                         (3 marks)

Bonus due to the group.                                                                                    (3 marks)

Gross earnings due to the group.                                                                       (4 marks)