MAA262 – Management Accounting Assessment Task 1

Question 2

Jonathan is reviewing the activities for the past year. Sleep Well Inc. rents a small administrative office in Melbourne's central business district (CBD) for $40,000 per year and a large warehouse in Geelong for $60,000 per year.
Sleep Well Inc. has a staff handling all the administrative work in the office in CBD, and pays the staff with an annual salary of $60,000. Sleep Well Inc. has hired a professional marketing firm for managing the sales and this marketing firm charges a commission of $15 for each completed sale; each sale equals one bed sold. The invoicing system used by Sleep Well is outsourced and for each sale completed the outsourced firm charges $5; each sale equals one bed sold. The miscellaneous cost that incurred in the administrative office was $4,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come.
In the warehouse in Geelong there is one full-time employee who gets paid $80,000 per year for supervising the casual staff working in the warehouse. The warehouse had miscellaneous costs of $8,000 in the past year and is expected to remain the same amount for years to come.
Sleep Well Inc. has a contract with a delivery firm for delivering the beds to their clients, but Jonathan is not able to find the contract and is not sure how much the delivery firm charges per transaction. The only information he can gather is regarding the past few years:

Table 1 – Annual unit delivery and costs
Year              Delivery Cost           Units Delivered
2016                $758                                  470
2017                $870                                  550
2018                $940                                 600
2019                $1,010                               650

Below is a table listing all the material used during the past year to manufacture 500 beds and the costs incurred. There was no stock or work in process in the beginning or end of the year.

Table 2 – Material costs
Material                                        Quantity                             Total Cost
Fabric                                              1,500 m2                                  $3,000
Timber                                            6000 Units                              $36,000
Foam                                                500 Kilograms                      $500
Button stud                                   5,000 Units                             $500
Varnish                                           500 Litres                                $10,000
Bolt                                                   5,000 Units                             $500

The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $20 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per bed. Once the timber is ready for being assembled, a casual staff is paid $30 per hour for assembling the bed frame with the bolts and then adding (fabric, foam, and button studs) to make the mattress attached to the bed frame. The assembling takes only 2 hours per bed. The final stage of manufacturing is varnishing the bed frame. A casual staff is paid $30 per hour for varnishing the bed frame and this task takes 1 hours.

Required
a) Jonathan is having some trouble crunching the numbers and has asked for your help identifying and classifying all the costs between (a) fixed, mixed, or variable, (b) direct or indirect, and (c) product cost or period cost. Use a table for presenting the answer to this question, as format suggested below.
(Chapter 2, 10 marks)
Cost item           Fixed, mixed, or variable cost      Direct or indirect cost   Product or period cost
[cost item #1]
[cost item #2]
[cost item #3]
[....]

b) Use the high-low method for estimating the cost function for annual delivery costs. (Chapter 9, 10 marks)
c) Jonathan is also having trouble and asked for your help in calculating the per unit product cost and cost of goods sold for the 500 beds for the past year for Sleep Well Inc. (Chapter 2, 10 marks)