Ac Solve Paper

Spring 2006Cost and management Accounting

Q1) Distinguish between financial and cost/management accounting and discuss the efficacy of cost/management accounting? Ans

Managerial Accounting

a) Users of information

Managers within the organization

b) Regulation:

Not required and unregulated since it is intended only for the management

c) Source of data

The organizations basic accounting system plus various sources, such as rates of defective products manufactured, physical quantities of material and labor used in the production occupancy rates in hotels and hospitals and average take offs delays in air-lines

d) Nature of reports and procedures

Reports often focus on the sub-units within the organization, such as departments, divisions, geographical regions, or product lines based on a combination of historical data, estimates and projections of future events

Financial Accounting

Interested parties, outside the organization

Required and must conform to generally accepted accounting principles. Regulated by FASB and to a lesser degree, the SECP

Almost exclusively drawn from the organization’s basic accounting system which accumulates financial information

Reports focus on the enterprise in its entirely based almost exclusively on historical transactions data.

For efficacy of cost/management Accounting refer to chapter # 1 highlighting the role of cost Accounting Q2) explain the following terms

a) Opportunity costb) Indirect costc) Sunk cost d) Conversion cost

Ans) Refer to chapters # 2 & 21 for the concept and classification of costs.

Q3) shilders, Incorporation has an annual usage of 1000 units if item M with a purchase price o Rs 5.50 per unit the following data are applicable to item M Ordering cost Rs 5 per order Carrying cost 15 %

Ans) EOQ = 2 x (co) x (Ru) Cc x cu

= 2 x (5) x (1000) (0.15) x (5.50)

= 10000 0.825

= 110 Units

Q4) Monnire, Incorporation produces cologne, Mon Roi, Which requires processing in the three departments. In third department, materials are added, doubling the number of units. The following data pertain to the operations to the operations of department 3 of March:

Units received from department 2 $ 20000Units transferred to finished goods storeroom 32000The balances of the units are still in process 100 % complete as to materials 50 % complete as to labor and overhead. Cost transferred from department 2 30000Cost added by the department Materials $ 8800 Labor 9000 Factory over head 7200 $ 25000There was no beginning work in process inventory

You are required to prepare a cost of production report for department 3 for March.

Ans)

Cost of production report for March Quantity schedule Units received from the preceding department 20000 UUnits added to the units received 20000Units transferred to finished goods 32000Units still in process 8000

40000 U 40000 U

Cost charged to the department: Total Unit costTransferred from the preceding department $ 30000 $ 1.50

Cost added by the department Materials (20000 +20000) $ 8800 $0.22Labor (32000 + 8000 x 0.5) 9000 0.25FOH (32000 + 8000 x 0.5) 7200 0.20Total cost added $ 25000 $ 0.67Cost adjusted $ 30000/40000 $ 30,000 0.75

$ 55,000 $ 1.42

Cost accounted for as follows Transferred to finished goods @ $1.42

Ending Work in progress Materials = 8000 @ 0.75Materials = 8000 @0.22Labor = 8000 x ½ x 0.25FOH = 8000 x ½ x 0.5 x 0.20

Total Cost Accounted for

$ 32,000

$ 6000$1760$1000

$800

$ 45,440

$ 9560

$ 55,000

Q5) prepare a cost of goods statement highlighting its major components with imaginary figures.

ABC CompanyCost of Goods sold

For the period ended

Direct Material Beginning Inventory $ 20,000+ Purchases 110,000Material available for use $ 130,000- Ending inventory 26,000

Material used $ 104,000Direct labor 160,000Prime Cost $ 264,000

Factory overhead $ 80,000Total manufacturing cost $ 344,000+ Beginning work in progress 40,000

$ 384,000- Ending work in progress 36,000Cost of goods manufactured $ 348,000+ Beginning finished goods 102,000

Goods available for sale $ 450,000- Ending finished goods 105,000

Cost of goods sold $ 345,000

*Major components * Results derived

Q6) Discuss in brief various functional budgets of an Industrial organization?Ans) Refer to chapters # 15 & 16 for the solution

Q7) (a) The Schlosser lawn Furniture Company uses 12 meters of aluminum pipe at $ 0.80 per meter as standard for the production of its type A Lawn chair. During one month’s operations 100000 meters of the pipe were purchased at $ 0.78 a meter and 7200 chairs were produced using 87300 meters of pipe. The materials price variance is recognized when tare purchased.

Required: The materials price and quantity Variances

(b) The processing of a product requires a standard of 8 direct labor hours per units of operations 4-082 at a standard wage rate of $ 6.75 per hour. The 2000 units actually required 1580 direct labor hours at a cost of $6.90 per hour.Required: The labor rate and efficiency Variance. Ans)

(a) Materials price variance = Difference between actual price and standard price multiplied by the actual quantity of materials purchased or

PQ x (AS-SP)100000 x (0.78 – 0.80)

= - $ 20000 F

Materials Quantity variance = Difference between actual and standard quantity multiplied by the standard price or

SP (AQ –SQ)*= 0.80 x (87300 –86400)

= $ 720 UF

* 86400 = (7200 x12)

(b) Labor rate Variance = Difference between actual rate and the standard rate multiplied by the actual hours. OR

AH (AR –SR)= 1580 x (6.90 – 6.75)

= $ 237 UF

Labor Efficiency Variance: Difference between actual hours and standard Hours by the standard hours multiplied by the standard rate Or

SRx (AH – SH)= 6.75 x (1580-1600)

= - $ 135 F

Q8) Classify these Industries with respect to the type of cost accumulation procedure generally used –job order costing or process order costing a) Meat b) Sugar c) Steel d) Breakfast cereals e) pepperboxes f) wood furniture’sg) Toys and Novelties h) coke I) Cooking Utensils j) Caskets k) pianos l) Linoleum m) Leather n) Nylon o) Baby foods p) Locomotives q) Luggage r) paint s) Car tires

Ans) Refer to Chapter 3 & 4 for the solution

Autumn 2005Cost and management Accounting

Q1) “Cost Accounting” concepts play a vital role in decision-making Comment?

Ans) refer to chapter # 1 for the role of cost accounting

Q2) following are the costs of packing department of Sona Sabun Factory for the month of September 19xxCost from preceding department Rs 1674440Direct Materials 26490Conversion Costs 8830

During the month packing department received 46,000 cakes from the preceding department and transferred out 43,700 cakes to finished stock.1, 800 cakes are still in process on which no costs is yet incurred by the department. In September there was spoilage of 500 cakes when 90% complete. The spoilage is attributed to defective materials,.There were no units in process at the beginning of September

Required: Cost of production report

Ans)

Quantity schedule

Units received from the preceding department 46,0000 Units Units transferred to finished goods 43700Units still in process 1800Units spoiled 500 46,0000 Units

Cost charged to the department: Total Unit costTransferred from the preceding department Rs 167,440 Rs 3.64

Cost added by the departmentMaterials (43700 +90% of 500) 26490 0.60Conversion costs (43700+90% of 500) 8830 0.20

Rs 35320 Rs 0.80Total cost to be accounted for 202760 4.44

Cost accounted for as follows

Transferred to finished goods @ Rs 4.44 Rs 43700 Rs 194028

Transferred to FOH:

Defective 500@ 3.64 Rs 182090% of 500 @ 0.80 360 2180Ending work in progress 1800@ 3.64 6552Total cost Accounted for Rs 202760

Q3) A company pays to its workers by accelerated price rates Following accelerated piece rate guide is provided:

Units up to 110% efficiency at basic piece rate.Units above 110% efficiency at basic piece rate + 25%Units above 130% efficiency at basic piece rate + 50%Basic piece rate for operation No 901 is Rs 0.40 and the standard output is 1,200 units per week

Required (1) prepare a schedule of piece rates for operation # 901 (2) Calculate earnings of A, B, C, D and E who produced 1,300:1,400:1,600:1,650 respectively during the week

Ans) (1) Schedule of piece rates = 0.40, 0.50, 0.60

(2) A B C D EUnits produced 1300 U 1400U 1550U 1600U 1650U

Standard Production 1200U 1200U 1200U 1200U 1200U Efficiency Rate 108.33% 116.67% 129.17% 133.33% 137.5% Bonus Rate - 25 % 25 % 50 % 50 % Regular wages Rs 520 Rs 560 Rs 620 Rs 640 Rs 660 Bonus - Rs 140 Rs 155 Rs 320 Rs 330 Total Wages Rs 520 Rs 700 Rs 775 Rs 960 Rs 990 Per unit cost Rs 0.40 Rs 0.50 Rs 0.50 Rs 0.60 Rs 0.60

Q4) The Mars Company applies factory overheads to production by means of pre-determined rate based on the expected capacity. Factory overheads at expected actual capacity of 120,000 hours are Rs 240,000 of which Rs 60,000 is fixed and Rs 180,000 is variable. Normal capacity of the company is 150,000 hours .the actual capacity attained during the year was 100,000 hours and the actual factory overhead was Rs 180,000

Calculate (1) pre-determined overhead rate based on expected actual capacity and normal capacity

(2) Over head or under-applied factory overhead based on rate used by the company

(3) Budget variance and volume variance

Ans) (a) Pre-determined overhead rate

Based on the actual capacity

Overall = Rs 240,000/120,000 = Rs 2 per hour

Fixed = Rs 60000/120,000 = Rs 0.50 per hour

Variable = Rs 180,000/120,000 = Rs 1.50 per hour

Based on normal capacity

Overall = Rs 240,000/150,000 = Rs 1.60 per hour

Fixed = Rs 60000/150,000 = Rs 0.40 per hour

Variable = Rs 180,000/150,000 = Rs 1.20 per hour

(b) Applied overhead = 100,000 x RS 2 per hour = Rs 200,000

Over–Applied = Rs 200,000-180,000 = Rs 20,000

c) Spending Variance = 180,000-(60000+100,000 x 1.50) = - Rs 30,000 F

Idle capacity Variance = 210,000-200,000 = Rs 10,000 UF Total Variance = -Rs 30000+ Rs 10,000 = -Rs 20,000 F

Q5) Swisher Company produces and sells commercial printing press Accounting record from the past four years reveals the following:

Sales in units Press Model Year 1 Year 2 Year 3 Year 4

222 100 110 120 130333 100 120 160 240444 100 95 85 70

The trends over four years are expected to extend to the fifth year as well. Inventory estimates for the year 5 are

Press model Beginning Inventory Ending Inventory222 2 4333 5 5444 4 5

Prepare sales and production estimates for the year five in units and by product.

Ans)

Press model Trend over past four years Projected units for year five 222 Increase by 10 units /year 140 units 333 Incremental Increase doubled 400 units 444 Decrease annually 5 more units 50 units

Production Estimates for year 5

Model 222 Modal 333 Model 444Units to be sold 140 400 50

+ Desired Ending Inventory 4 5 5144 405 55

- Beginning Inventory Units to be produced

2142

5400

451

Q6) write note on the following a) Makes vs. buy decision b) Opportunity cost c) Contribution margin

Ans) (a) refer to chapter # 21 (b) Refer to chapter # 21 (c) refer to chapter # 20

Q7) During the month 1200 units of topo were produced. Actual direct labor required 650 direct labor hours at actual cost of Rs 6435 .As per standard cost card for topo, one half of labor should be required per unit of topo produced, at a standard cost of Rs 10 per labor hour. Compute the labor rate variance and labor efficiency variance, indicating whether the variances are favorable or unfavorable? Ans) Labor Rate Variance = AH x (AR- SR) = 650 x (9.90- 10) = - Rs 65 (F)

Labor Efficiency Variance

= SR (AH – SH) = 10 x (650 – 600) = Rs 500 (UF)

Q8) Compare ABC costing with traditional costing system?

Ans) refer to Chapter # 8

Autumn 2004Cost and Management Accounting

Q1) briefly discuss the cost accumulation procedures used by the manufacturing organizations?

Ans) refer to chapter # 1

Q2) Elaborate the following the costs a) Variable costs b) Fixed costs c) Product cost d) Period costs e) Semi variable costs

Ans) refer to Chapter no 2

Q3) selected data concerning last year’s operations of televan’s are as follows

InventoriesBeginning Ending

Finished goods $ 90,000 $ 110,000Work-in progress 80,000 30,000Materials 75000 85000

Other data

Materials used = $ 326,000Total manufacturing cost (FOH applied @60 % of the direct labor) = $ 686,000Cost of goods available for sale = $ 26,000 Marketing and administrative expenses = $ 25 000

Required a) cost of material purchased b) direct labor cost to production c) cost of goods manufactured d) cost of goods sold

Ans) Televan’s company

Cost of goods sold for last year

Direct materials Beginning inventory + Purchases Materials available for use

- Ending Inventory Material consumed Direct labor FOH Total cost manufacturing cost +beginning work in progress - Ending work in progress

Cost of goods Manufactured + Beginning Finished goodsGoods available for sale

-ending finished goods

Cost of goods sold

= $ 75,000= $ 336,000= $ 411,000

= $ 85000= $326,000= $ 225,000= $ 135,000= $ 686,000= $ 80,000= $ 766,000= $ 30,000

= $ 736,000= $ 90,000= $ 826,000= $ 110,000

= $ 716,000

Cost of materials purchased = $ 336,000Direct Labor = $ 225,000Cost of goods manufactured = $ 736,000Cost of goods sold = $ 716,000

Q4) Rogers milling company manufactures a product requiring processing in three departments with all material put into the process in the first department. During May, 110,000 units were completed in department 1 and at a total cost of $ 176,000 and transferred out 85000 units, incurring labor cost of $ 26180 and factory overhead costs of $ 13090 .The May 31 work in process inventory of department 2 is 22000 units, ¼ completed as to labor and factory overhead .department 2’s spoilage occurs at the end of processing and is normal.

Required; prepare the cost of production report of second department for the month May

Ans)

Cost of production report for May for 2nd department

Quantity schedule Units from the department 1 110,000 UUnits transferred to next department 85,000 UUnits still in process 22,000 UUnits lost 3000 U 110,000 U

Cost charged to the department Total Unit Cost transferred from the preceding department $ 176,000 $ 1.60

Cost added by the department Labor (85000+3000+1/4 x 22000) $ 26,180 $ 0.28FOH (----DO-----) $ 13090 $ 0.14

$ 39270 $ 0.42Total cost to be accounted for $ 215270 2.02

Total accounted for as follows Transferred to next department@ $ 2.02 $85000 $171,700Ending work in processCost from the preceding department 352,0022000 @ $1.60¼ x 22000 @0.42 2310 37,510

Cost of units lost 6060 60603000@ $ 2.02 Cost accounted for as flows $ 215,270

Q5) Semiconductor Company is planning to produce and sell 100,000 units of a chip A at $ 4 a unit and 200,000 units of chip B at $3 a unit. Variable costs are 70% of sales for chip A and 80% for chip B

Required: If total planned operating profit is $ 140,000 what must be the total fixed cost be?

Ans)

Particulars Chip A Chip B Total Sales $400,000 $ 600,000 1000,000

Variable costs 280,000 480,000 760,000Contribution margin $ 120,000 $ 120,000 $ 240,000

Fixed costs 100,000Operating profit $140,000

Another way

100,000 x ($4.00-$ 2.80) + 200,000 x ($ 3.00- $2.40) - $ 140,000 = $ 100,000

Q6) Normal annual capacity for leather coordinators is 36000 labor hours, with fix factory overhead budged as $ 16920 and as estimated variable cost of $ 2.10 per labor hour During October, actual production required 2700 labor hours, with a total of $ 7959.

Required; compute applied factory overhead, spending variance and idle capacity variances

Ans)

Applied FOH Variable Rate $ 2.10 Fixed rate $16920/36000 = Total $ 2.10+ 0.47 = $ 2.57

*Amount of applied FOH 2700 x $ 2.57 =*Spending variance;$ 7959 –[ $1410 +(2700 x $2.10)] =

Idle capacity Variance : $ 7080 - $ 6939 = $ 141 UF

Total Variance :$ 879+ $ 141 = $ 1020 UF

Under applied Actual FOH – Applied $ 7959 - $ 6939 = $ 1020

$ 0.47

$ 6939

$ 879 UF

Q7) A particular material is purchased for $3 per unit. Monthly usage is 1500 units, the ordering costs are $ 50 per order, and the annual carrying costs is 40%

Required a) compute the economic order quantityb) Determine the proper size order size if the material can be based at a 50%

discount in lots of 2000 units.

Ans)

EOQ = 2 x (50) x (18000) = 1225 Units (0.40) X ($ 3)

Total inventory cost if EOQ is followed

=1.20 (1225/2) + 50x (18000/1225)= $ 1470

Total inventory cost if orders in lots of 2000 are placed

=1.20 x (2000/2) +50 x (18000/2000)= $ 1650

Increased cost = $ 1650 - $1470 = $ 180

Amount of discount 18000 x $ 3 x 5/100 = $ 2700

Therefore the company should place their orders in lots of 2000 units

Q8) Define and compare the conventional costing and marginal costing?

Ans refer to chapter no 19 for the answer

Semester spring 2004Cost and management accounting

Q1) (a) what is meant by cost management? Discuss briefly? (b) Discuss the role of cost accounting in managerial decision making?

Ans refer to chapter No 1

Q2) Wade Company uses process costing. All materials are added at the beginning of the process. The product is inspected when it is 89 % converted and spoilage is identified only at that point. Normal spoilage is expected to be 5% of goods output.During March 10,500 units were put into process. Current costs were Rs 52,500 for materials Rs 39,770 for labor and Rs 31,525 for factory overhead the 3000 units still in process at the end of March were estimated to be 90% complete .A total of 7,000 units were transferred to finished goods

Required; prepare a cost of production report for March

Ans)

Cost of production report for March

Quantity schedule

Units started in process 105,00 Units Units transferred to finished goods 7000Units still in process 3000Units spoiled 500 105,00 Units

Cost charged to the department: Total Unit costCost added by the departmentMaterials (7000+3000) 52500 5.25Labor (7000+90% of 3000) 39770 4.10FOH 31525 3.25Total cost to be accounted for 123,795 12.60


Transferred to finished goods @ 12.60 7000 88200

Ending work in process

Materials (3000 x 5.25) 15750Labor (3000 x 0.90 x 4.10)FOH (3000 x 0.90 x 3.25)Total cost accounted for

110708775 35595

123,795


Required c) compute the economic order quantityd) Determine the proper size order size if the material can be based at a 50%


Ans)

EOQ = 2 x (50) x (18000) = 1225 Units (0.40) X ($ 3)


=1.20 (1225/2) + 50x (18000/1225)= $ 1470


=1.20 x (2000/2) +50 x (18000/2000)= $ 1650

Increased cost = $ 1650 - $1470 = $ 180



Q4) In June, the FOH idle capacity Variance for sterner company was Rs 800 favorable and the spending variance was zero In July, the FOH idle capacity variance for sterner company was zero but the spending variance was Rs 500 unfavorable. In June, actual factory overhead was Rs 9000 for an output of 700 tons, while In July the factory

overhead was Rs 7,500 for a500 ton output In August, output was 400 tons actual factory overhead was Rs 5900 and the budget allowance was Rs 6000

Required: complete the variance analysis for each of the three months

Ans)

Month Actual FOH Budget Allowance

Output Applied FOH

Spending Variance

Idle Capacity

June Rs 9000 9000 700 tons 9800 0 800 F July 7500 7000 500 tons 7000 500 UF 0

August 5900 6000 400 tons 5600 100 F 400 UF

FOH applied Rate Rs 9800/700 =Rs 14 per ton

OR

7000/500 = Rs 14 per ton

Q6) Castle ton company has analyzed the costs of producing and selling units of its sole product to be sold as fallows:

Direct materials = Rs 60,000Direct labor = Rs 40,000Variable factory overhead = Rs 20,000Fixed factory overhead =Rs 30,000Variable marketing and administrative expenses = Rs 10,000Fixed marketing and administrative expenses = Rs 15,000

Required

a) compute the number of units to break even at a per unit sales price of Rs 38.50

b) Determine the number of units that must be sold to produce an Rs 18,000 profit at Rs 40 per unit sales price?

c) Determine the price castle ton must change at a 5000 unit sales level in order to get a profit equal to 20% of the sales

Ans) (a) BEQ = Rs 30000 +Rs 15000 Rs 38.50 + Rs 26.00*

*Rs 60,000 +Rs 40,000+Rs 20,000+Rs 10,000 = Rs 130,000/5000 = Rs 26.00

(b)

Number of units to sold to achieve target profit

= Rs 45000+Rs 18000 Rs 40- Rs 26

= Rs 4500 units

(c) (5000) x (X) = (26) x ( 5000)+ (45000 + 0.20 (X)(5000)

5000X = 130000+ 45000 +1000X

50000X-1000X = 130000+45000

4000X = 175000

X = 175000/-(4000) = Rs 43.75

Proof:

5000 x (43.75- 26.00) = 45000

= Rs 43750

Profit percentage = Rs 43750 x 100 = 20%

Rs 218750*

5000 x 43.75 = Rs 218750

Q5) Make a comparative study of budget and standards?

Ans) refer to chapter # 15 for the solution

Q6) (a) Define opportunity costs?

(b) Historical costs are usually irrelevant for decision making comment?


Q7) Make a comparative study of activity based costing (ABC) with traditional costing systems?

Ans) refer to chapter# 8 for the solution

Spring semester 2002Cost and Management Accounting

Q1) Write down a comprehensive note on the definition, scope and advantages of Cost and Management Accounting?


Q2) Enumerate the five parts of the cost of goods section of the income statement. Also discuss the various classifications of costs?


Q3) The ABC Company is to submit a bid on the production of 12000 ceramic plates. It is estimated that the cost of materials will be Rs 180000, and the cost of direct labor will be Rs 29000.

Factory overhead is applied at Rs 2.67 per direct labor hour in the molding department and 55% of the direct labor cost in the decorating department.

It is estimated that 1200 direct labor hors at the cost of Rs 8000 will be requiredIn molding

The company wishes a markup of 67% of its total production cost.

Required: determine the following a) Estimated cost to produceb) Estimated prime cost c) Bid price

Ans) (1) Estimated cost to produce materials:

Materials Rs 18,000Direct Labor Molding department 8000Decorating department 21000 29000Prime cost Rs 47000

FOH Molding Department:1200 x 2.67 3204Decorating: 21000 x 55/100 11550 14754Cost of production Rs 61754

(2) Estimated prime Cost Materials + direct labor Rs 18000 + RS 29000 = Rs 47000 Bid Price Estimated cost to produce = 61754+ Mark up 67 % = 41375Total = Rs 103,129

Q4) Define productivity and explain why productivity is important to the firm to workers, and to society? Also explain how can labor efficiency be determined or measured?


Q5) Department no 2 of ABC Company has reported the following production data for Jan 2002

Transferred in from department 1 55000 litersTransferred out to department 3 39500 liters In process at the end of December (with labor 1/3 and FOH) 10500 liters All Materials were put into process in department 1

The cost department collected these figures for department 2:Unit cost for the units transferred in from department 1 1.80 Labor cost in department 27520Applied factory overhead 15480

Required: Prepare a cost of production report for department 2 for January 2002

Ans) Cost of production report for January 2002

Quantity schedule

Transferred from department 1 55000 U Transferred from department 3 39500 UUnits still in process 10500Units Lost 5000 55000 U

Cost charged to the department: Total Unit cost

Cost transferred from department 1 99000 1.80

Cost added by the department Labor (39500+1/3 of 10500) 27520 Rs 0.64FOH 15480 0.36Total cost Added 43000 Rs 1.00Adjustment for lost units Rs 99000/(55000-5000)=Rs 1.98- Rs 1.80 = Total cost to be accounted for

142000 0.18 Rs 2.98


Transferred to Next department@ 2.98 39500 Rs 117,710

Ending work in process Cost from preceding department (10500@ Rs1.98

20,790

Labor (0.64 x 1/3 of 10500)FOH (----do----)Total cost accounted for

22401260 24290

Rs 142000


Required e) compute the economic order quantityf) Determine the proper size order size if the material can be based at a 50%


Ans)

EOQ = 2 x (50) x (18000) = 1225 Units (0.40) X ($ 3)


=1.20 (1225/2) + 50x (18000/1225)= $ 1470


=1.20 x (2000/2) +50 x (18000/2000)= $ 1650

Increased cost = $ 1650 - $1470 = $ 180



Q7) The ABC Company was totally destroyed by fire in June. However, certain fragments of its cost records with the favorable data were recovered:Idle capacity variance, 1266 favorable, spending variance, 879 unfavorable: and applied factory overhead, 16234.

Required: Determine the budget allowance, based on the capacity utilized and the actual factory overhead.

Ans)

Actual FOH Budget allowance

Applied FOH Spending Variance

Idle capacity Variance

15847 14968 16234 879 UF 1266 F

Semester Autumn 2002Cost and Management Accounting

Q1) Define the term “cost” and distinguish between Financial Accounting and cost accounting and management accounting?

Ans) refer to Chapter # 1 for distinction between cost and financial accounting and for concept and classification refer to Chapter # 2 for the solution

Q2) A Company’s purchases of materials during April totaled Rs 210000, and the cost of goods sold for April was Rs 445000. Factory overhead was 75% of direct labor cost. Other information pertaining to the Company’s inventories and production for the month is as fallows:

Inventories Beginning Ending Finished goods 100,000 112000 Work in process 40000 34000 Materials 19000 15000

Required:

a) prepare a schedule of the cost of goods manufactured for April b) compute the prime cost charged to work in process during April c)d) compute the conversion cost charged to work in process during April

Ans) a) Schedule of cost of goods manufactured for the month of April

Cost of goods Manufactured+ Beginning Finished Goods Goods Available for sale -Ending finished Goods Cost of Goods Sold

Rs 457,000 100,000 Rs 557,000 112,000 Rs 445,000

b)

Total Manufacturing Cost +Beginning Work in process Cost of goods to be manufactured -Ending work in process Cost of goods manufactured

Rs 451,000 40,000 491000 34000 Rs 457,000

Total Manufacturing Cost: Materials + Conversion Cost = Rs 451,000

Materials Used

Beginning Inventory + purchases Materials Available for use -Ending Materials Materials Consumed

Rs 19000Rs 210,000Rs 229,000 15,000Rs 214,000

Conversion cost = Total manufacturing cost - materials consumed

Rs 451,000-Rs 214,000 = Rs 237,000

Conversion Cost = Rs 237,000

= Direct Labor + FOH= 100 % + 75 %

= Rs 135429 + Rs 101571

Prime cost = Direct labor + materials consumed = Rs 135,429 +Rs 214000 = Rs 349,429

Q3) The ABC Company is to submit a bid on the production of 12000 ceramic plates. It is estimated that the cost of materials will be Rs 180000, and the cost of direct labor will be Rs 29000.

Factory overhead is applied at Rs 2.67 per direct labor hour in the molding department and 55% of the direct labor cost in the decorating department.

It is estimated that 1200 direct labor hors at the cost of Rs 8000 will be requiredIn molding

The company wishes a markup of 67% of its total production cost.

Required: determine the following d) Estimated cost to producee) Estimated prime cost f) Bid price

Ans) (1) Estimated cost to produce materials:

Materials Rs 18,000Direct Labor Molding department 8000Decorating department 21000 29000Prime cost Rs 47000

FOH Molding Department:1200 x 2.67 3204Decorating: 21000 x 55/100 11550 14754Cost of production Rs 61754

(2) Estimated prime Cost Materials + direct labor Rs 18000 + RS 29000 = Rs 47000 Bid Price Estimated cost to produce = 61754+ Mark up 67 % = 41375Total = Rs 103,129

Q4) Define productivity and explain why is productivity is important to the firm, to workers, and to society? Also explain how labor efficiency can be determined or increased?

Ans) refer to chapter # 9 for productivity and its importance

Q5) Department no 2 of ABC Company has reported the following production data for Jan 2002

Transferred in from department 1 55000 litersTransferred out to department 3 39500 liters In process at the end of December (with labor 1/3 and FOH) 10500 liters All Materials were put into process in department 1

The cost department collected these figures for department 2: Unit cost for the units transferred in from department 1 1.80 Labor cost in department 27520Applied factory overhead 15480

Required: Prepare a cost of production report for department 2 for January 2002

Ans) Cost of production report for January 2002

Quantity schedule

Transferred from department 1 55000 U Transferred from department 3 39500 UUnits still in process 10500Units Lost 5000 55000 U

Cost charged to the department: Total Unit costCost transferred from department 1 99000 1.80

Cost added by the department Labor (39500+1/3 of 10500) 27520 Rs 0.64FOH 15480 0.36Total cost Added 43000 Rs 1.00Adjustment for lost units Rs 99000/(55000-5000)=Rs 1.98- Rs 1.80 = Total cost to be accounted for

142000 0.18 Rs 2.98


Transferred to Next department@ 2.98 39500 Rs 117,710

Ending work in process Cost from preceding department (10500@ Rs1.98

20,790

Labor (0.64 x 1/3 of 10500)FOH (----do----)Total cost accounted for

22401260 24290

Rs 142000


Required g) compute the economic order quantityh) Determine the proper size order size if the material can be based at a 50%


Ans)

Q7) The Zaryab Mfg. Company employs 175 people, who work 8 hours a day, 6 days a week. Normal capacity is based on the Assumption that the equivalent of 48 weeks of work can be expected from an employee.

Requireda) The number of direct labor hours to be used in setting up firm’s factory

overhead rate based on normal capacity.b) The number of direct labor hours if management and workers agree on a 10-

hour, 5 day work week.

Ans) a) Number of Direct labor hours (on normal capacity) 48 x 6 x 8 = 2304 hours

c) Numbers of direct labor hours (10-hour, 5 day work week) 48 x 5 x 10 = 2400 hours

Semester Autumn 2003 Cost and Management accounting

Q1) Enumerate the requirements of a good information system.

Ans) refer to chapter #1 for the solution

Q2) The December 31, 19B Trial Balance of Crockett Company Showed:

Sales $14,500,500 Sales return and allowances $25,200Purchases 2,400,000 Factory Overhead 1,885,600 Transportation in 32,000 Advertising Expense 155,000Direct labor 3,204,000 Delivery Expense 65,000

Inventories December 31,19B December 31,19A

Finished goods $567,400 $ 620,000 Work in process 136,800 129,800Materials 196,000 176,000

Required: Determine (1) the total manufacturing cost (2)the cost of goods manufactured (3) the cost of goods sold

Ans)

Direct Materials $ $Beginning inventory 176,000+ purchases 2400,000+ transportation in 32,000Materials available for use 2608,000-Ending Inventory 196,000Material consumed 2412,000* Direct labor 3204,000*FOH 1885,6001)Total manufacturing Cost 7501,600+beginning work in process 129,800Cost of goods to be manufactured 7631,400-Ending inventory 1368002) cost of Goods manufactured 7494,600

+ beginning finished goods 620.000Goods available for sale 8114,600-Ending Finished goods 567,4003) Cost of goods sold $ 7547,200

Q3) Q4) Rogers milling company manufactures a product requiring processing in three departments with all material put into the process in the first department. During May, 110,000 units were completed in department 1 and at a total cost of $ 176,000 and transferred out 85000 units, incurring labor cost of $ 26180 and factory overhead costs of $ 13090 .The May 31 work in process inventory of department 2 is 22000 units, ¼ completed as to labor and factory overhead .department 2’s spoilage occurs at the end of processing and is normal.

Required; prepare the cost of production report of second department for the month May

Ans)

Cost of production report for May for 2nd department

Quantity schedule Units from the department 1 110,000 UUnits transferred to next department 85,000 UUnits still in process 22,000 UUnits lost 3000 U 110,000 U

Cost charged to the department Total Unit Cost transferred from the preceding department $ 176,000 $ 1.60

Cost added by the department Labor (85000+3000+1/4 x 22000) $ 26,180 $ 0.28FOH (----DO-----) $ 13090 $ 0.14

$ 39270 $ 0.42Total cost to be accounted for $ 215270 2.02

Total accounted for as follows Transferred to next department@ $ 2.02 $85000 $171,700Ending work in processCost from the preceding department 352,0022000 @ $1.60¼ x 22000 @0.42 2310 37,510

Cost of units lost 6060 60603000@ $ 2.02 Cost accounted for as flows $ 215,270

Q4) Describe methods for allocating the joint production cost to joint products?


Q5) Newton products Company has developed the following the following costs and other data pertaining to one of its raw materials Normal use per day 400units Maximum use per day 600units Minimum use per day 100 unit’s Working days per year 250days Lead time 8 days Cost of placing one order $20.00 Cost per unit of material $ 2.50 Carrying cost Percentage 10%

Required:a) Economic order quantityb) Safety stockc) Recorder point d) Normal Maximum Inventorye) Absolute Maximum Inventory f) Average Normal Inventory

Ans)(a)

Ans) EOQ = 2 x (20) x (100,000) = 4000 units (0.10) of 2.50

(b) Safety stock

Maximum: 600U x 8 = 4800U

Minimum: 400U x 8 = 3200U 1600U

(c) Re-order Point: Normal use x Lead time 400 x 8 = 3200 U + Safety Stock = 1600 U = 4800 U

(d)Normal Maximum Inventory

Order Point = 4800 Normal use = 3200 = 1600New Order = 4000 = 5600 Units

(e)Absolute Maximum Inventory

Order point = 4800Minimum use = 800 = 4800New order = 4000 = 8000 Units

(f) Average Normal Inventory

Q/2 + safety stock = 4000/2 + 1600 = 5600 Units

Q6) (a) Define productivity (b) Why is productivity important to firms, to workers, and to society?


Q7) The June Idle capacity Variance was zero and the spending variance was $600 Unfavorable. The July Idle capacity variance was $800 favorable, and the spending variance was zero. June overhead was $7000 for an output of 8000 tons, while July

overhead was $5,600 and the output was 600 tons .In August, output was 900 tons and actual factory overhead was $7,100

Required: Prepare a column analysis, indicating actual, budget allowance, Applied FOH, total Variance, Spending Variance, and Idle capacity Variance, for Each month.

Ans)

Month Actual FOH Budget Allowance

Output Applied FOH

Spending Variance

Idle Capacity

June $ 7000 6400 800 tons 6400 600 U 0 July 5600 5600 600tons 4800 0 800 U

August 7100 7700 900 tons 7200 600 F 500 U

Applied FOH Rate = 6400/800 or 4899/600 = $ 8 per personHigh Low method = 7000-5600 = Rs 7 per ton variable 800-600

Fixed = 5600-(600 x7) = $ 1400

Q8) (a) Define standard cost? (b)Name some advantages of a standard cost system

Ans) refer to chapters # 17 &18 for the solution

Semester Autumn 2001Cost & Management Accounting

Q1).A manufacturing company makes a single product in two departments. Cost and Production Data for the month of May, 1999 are:-

COST DATALabour cost $ 18860Factory Overheads $ 16400

PRODUCTION DATAUnits received in Department B: 90,000Units completed & shipped 80,000Units in process 6,000Stage of completion of closing inventory in process.Labour & Factory overhead: 33.33%

Required:1. A schedule of equivalent production.2. A cost of production report.

Ans: Cost of Production Report

Quantity Schedule

Units received in

Units completed & shipped 80000

Units still in Process 6000

Units Lost [normal] 4000

Cost added by the department

Labor 80000+1/3 of 6000$ 18860

FOH 80000+1/3 of 6000 16400

Cost to be accounted for $ 35260

90000 units

90000 units

unit cost

$0.23

0.20

0.43

Cost accounted for as fallows:

Unit completed & shipped@ 0.43 80000 U $34,400

Ending work in Process

Labor 1/3 of 6000 460

FOH 1/3 of 6000 400 860

Total cost accounted for $ $ 35260

Q.2) J. Stanley, An employee of City Corporation, submits the following data for the first week of June:

DAYS UNITS HOURS

Monday 270 8

Tuesday 230 8

Wednesday 300 8

Thursday 240 8

Friday 260 8

Required:

Prepare a schedule showing Stanley’s weekly earnings, the effective hourly rate, and labor cost per unit, assuming a 100% bonus plan with a base wage of $ 9 per hour and a standard production rate of 30 units per hour [Round off the bonus percentage to two decimal places].

Ans:

City Corporation

Labor Schedule for J.Stanley

First week of June

Hours worked 8x5 = 40 H

Units Produced 1300 Units

Standard Production [40x30] = 1200

Efficiency Rate: 1300/1200 x100 = 108.33%

Base wage: Rs. 9 per hour

Weekly Earnings 40x9x108.33 = $390

Effective Hourly Rate: $ 390 ÷ 40 =$ 9.75

Labor Cost per unit: $390/1300 $0.30

Q.3) Collery Corporation estimates factory overhead of $ 345000 for next fiscal year. It is estimated that 60000 units will be produced at a material cost of $ 575000. Conversion will require 34500, direct labor house at a cost of $ 10 per hour, with 25875 machine hours.

Required:

Compute factory overhead rate on each of the following basis:

1. Units of production 2. Material Cost 3. Labor Cost

4. Labor Hours 5. Machine Hours 6 Prime Cost

Ans:

Factory Overhead Rate

1. Unit of Production: $ 345000/60,000 = $ 5.75 per unit

2. Material cost: $345000/$575000 x 100 = 60%

3. Labor cost $345000/$345000x100 = 100%

4. Labor Hours $345000/34500 = $10 per Labor Hour

5. Machine Hours $345000/$25875 = $13.33 per Machine Hour

6. Prime cost $345000/$920000x100=37.50%

Q.4).a} Define “profit planning”, what are the advantages of profit planning available to an organization?

b) Distinguish between a budget and a forecast.

Ans: Please refer to chapter 15

Q 5) Woodley Furniture Company uses 12 meters of Aluminum pipes at $ .80 per meter as standard for the production of its lawn chairs. During one month operations, 100,000 meters of pipe were purchased at $ .78 a meter, and 7200 chairs were purchased using 87300 meters of pipe. The material pipe variance is recognized when materials are purchased.

Required: Materials price and quantity variances.

Ans:

Material Price Variance

Difference between actual price and standard price multiplied by actual quantity of material purchased or.

PQ [AP-SP]

=100000 meters x [0.78-0.80] = - $2000 F

Material Quantity variance Difference between actual and standard quantity multiplied by standard prices or.

SP [AQ-SQ]

0.80 x [87000-86400*] = $ 720 UF

*86400 = [7200X12 meters]

Q.6) Hankel Corporation is considering a purchase of a Machine worth $ 40,000, which will be depreciated on straight line basis over an eight year period with no salvage value. The machine is expected to generate cash inflow of $ 12000 a year. Assume that income tax rate is 40%.

Required:

1) Determine the pay bank period.

2) What is the average annual return on original investment?

Ans: Assuming $ 12000 is gross cash flow, we calculated yearly net cash flow:

Gross Revenue from Project $ 12000

Deduct Depreciation 5000

Net Revenue before tax $ 7000

Tax [40%] 2800

Net Income from Project $ 4200

Add Back Depreciation 5000

Net Cash Flow $ 9200

Play back period $ 40000/9200

4.35 years

Average Rate of Return: Net Income x 100

Average Investment

= $4200/40000÷2 x100 = 21%

Q.7) a) what is meant by Prime Cost and Conversion Cost?

b) Describe indirect materials and give appropriate example.

c) Describe indirect labor and give appropriate example.

Ans: Please refer to chapter 2

Q 8) a) Define Break Even point

b) What is Contribution Margin Approach?

c) What is meant by the term “cost volume profit” relationship? Why is this relationship important in Business Management?

Ans: Please refer to chapter 20.

Semester Spring 2000Cost & Management Accounting

Q.1 Selected transactions of the Romer Company for March 1999 are as follows:

a). Materials requisitioned: Rs 18,500 for production and Rs. 2,800 for indirect use.

b). Work completed and transferred to finished goods amounted to Rs 51,800

c). Materials purchased and received, Rs, 32, 000.

d). Defective materials of Rs 1500 were returned to the vender.

e) Accounts payable totaling Rs. 10000 were paid.

f) Depreciation of RS 1200 was recorded on the factory machinery.

g). Other factory overhead consisted of RS. 2450 expired insurance, and Rs, 1250 unpaid bills.

h). Factory overhead of Rs. 1800 was charged to production.

i) Sales on account totaled Rs. 92120 with a markup of 40% on the cost of goods sold.

j. Cash collections from accounts receivable totaled RS. 76000.

Prepare journal entries for these transactions.

Ans:

DEBIT CREDIT

A Work in Process 18500

FOH central 2800

Materials 21300

(Direct & indirect material issued)

B Finished Goods 51800

Work in Process 51800

(Work completed transferred)

C Materials 32000

Accounts payable 32000

(Materials purchased)

D Accounts Payable 1500

Materials 1500

(Defective materials returned)

E Accounts Payable 10000

Cash/Bank 10000

(Accounts payable settled)

F FOH Central 1200

Accumulated Depreciation Machinery 1200

(Depreciation charged)

G FOH central 3700

Unexpired Insurance 2450

Accounts Payable 1250

(Insurance and other indirect expense)

H Work in Process 1800

FOH Central 1800

FOH charged to production)

I Accounts receivable 92120

Sales 92120

(Merchandise sold on credit)

Cost of Goods Sold 65800

Finished Goods 65800

(92120 x 100/140) Recorded cost of good sold

J Cash 16000

Accounts Receivable 76000

Collected cash from customers

Q2) corporation submits the following data for September 1998

Direct labor cost Rs 30,000

Cost of goods sold Rs 111,000

(Before adjusting for over or under applied overhead)

Factory overhead is applied at the rate of 150% of the direct labor cost. Over –or under applied factory overhead is closed to the cost of goods sold account

Inventory Accounts showed these beginning and ending balances

September 1 September 30

Finished goods Rs 15000 Rs 17500

Work in process 9600 13000

Materials 7000 7400

Other Data

Factory Overhead (actual) Rs 48200

Marketing Expense 14100

General and Admin Expenses 22900

Sales for the month 182000

Required:Prepare an income Statement with a schedule showing the cost of goods manufactured and sold.

Ans)

Cost of Goods sold for September

Direct Materials Rs RsBeginning inventory 7000+ purchasesMaterials available for use-Ending Inventory 7400Material consumed* Direct labor 30,000*FOH 45,0001)Total manufacturing Cost +beginning work in process 9600Cost of goods to be manufactured

-Ending inventory 13,0002) cost of Goods manufactured + beginning finished goods 15,000Goods available for sale -Ending Finished goods 175003) Cost of goods sold 111,000+ FOH Under applied 3200Adjusted Cost of goods sold 114,200

Income Statement for the month of September

Sales = Rs 182,000Cost of goods sold = 114,200Gross profit = 67,800

Expenses Admin Expense 22900 Marketing Expense 14100 = 37000

Profit before Tax Rs = 30800

Q3) The following data originate from three different situations:a) Beginning inventory 6600 units, 1/3 complete as to materials, labor and factory

overhead Started in process, 10200 units In the process at the end of the period,4800 units ½ were completed as to

materials and ¼ complete as to labor and factory overhead Transferred 12,000 units to next department

b) Started in process, 9200 units Completed and on hand, 700 units In process at the end of period, 1000 units, complete as to materials and

4/10 Complete as to labor and factory overhead Transferred 7500 units to the next department

c) Beginning inventory 2000 units, 1/2 complete as to materials, 1/5 complete as to labor and factory overhead.

Transferred out, 20,000 units Unit lost at beginning of production, 500, a normal capacity. In process at the end of period, 2500 units complete as to materials, 1/2

complete as to labor and factory overhead.

Compute the equivalent production figures in each situation using average costing method

Ans)

(a) Materials Labor FOH Units transferred out 12000 12000 12000Units Still in process 2400 1200 1200

Units Completed 14400 13200 13200

(b)Units transferred out 7500 7500 7500Units on hand (completed) 700 700 700Units still in process 1000 400 400Units Completed 9200 8600 8600

(c)Units transferred out 20,000 20,000 20,000Units still in process 2500 1250 1250Units completed 22500 21250 21250

Q4) a). If large under absorbed factory overhead variances occur month after month, theFactory overhead rate should be revised to make unit costs more accurate. Comment

b) Normal annual capacity for Remington Company is 60000 units, with production being constant throughout the year. The October budget shows fixed factory overhead of Rs.2500 and a variable factory overhead rate of Rs.2.50 per unit During October, actual output was 4800 units, with a total factory overhead of Rs.15500.

Compute the spending and idle capacity variances.

Ans) (a) Refer to Chapter # 12

(b) Spending Variance:

Actual FOH-Budget Allowance based on capacity Utilized

Rs 15500-[2500+ (2.50 x 4800)] = Rs 1000 UF

Idle Capacity Variance Budget Allowance- Applied FOH Based on the capacity utilized

[2500+ (2.50 x 4800)] – (4800 x Rs 3) = Rs 100 UF

Total variance = Rs 1000 +Rs 100 = Rs 1100 UF

Checking:

Actual FOH- Applied FOH 15500- (4800 x 3) = Rs 1100

Unfavorable or under applied

Q5) A company manufacturers two products A and B. Forecasts for first 7 months is as under: Month Sales in Units

A BJanuary 1000 2800February 1200 2800March 1610 2400April 2000 2000May 2400 1600June 2400 1600July 2000 1800

No work in process inventory has been estimated in any moth however finished goods inventory shall be on hand equal to half the sales for the next month, in each month. This is a constant practice. Budgeted production and production costs for the year 1999 will be as follows:

Product A Product B

Production units 22000 24000Direct Materials (per unit) 12.5 19.00Direct Labor (per unit) 4.5 7.00F.O.H. (apportioned) 66000 96000

Prepare for the six months period ending June 1999, a production. Budget and a summarized production costs budgets for the year 1999

Ans) Units to be produced during first 6 months Product A = 11000 Units* Product B = 12000 Units*

*Half of the annual proposed Production

Production Budget for the period ending June

Product A Product BCost of Raw Materials Rs 137500 Rs 228,000Direct Labor 49500 84000FOH 33000 48000

220,000 360,000

- Beginning Finished Goods (500 x Rs 20)*

10,000210,000

42,000 (1400 x 30) 318,000

+ Ending Finished Goods 20,000 27000 (900 x 30)

Cost of units to produced 230,000 345,000

Product A Materials + Labor +FOH 12.50 + 4.50 +3.00Rs 20 per unit

Product B Materials + Labor + FOH19 + 7 + 4 Rs 30 per unit

FOH Rate:66000/22000 = Rs 3 ( product A)96000/24000 = Rs 4 (product B)

Q6) Kabul Company produces only one product Normal capacity is 20000 units per year, and the unit sales price is Rs.50. Relevant costs are:

Unit Variable Cost Total Fixed Cost

Materials Rs.10.00Direct labor 12.00Factory overhead 5.00 Rs. 15000 .Marketing expenses 3.00 5000Administrative expenses 6000

Compute (i) the break-even point in units of product

(ii) The break-even point in rupees of sales

(iii) The number of units of product that must be produced and sold to achieve a profit of Rs. 10000.

Ans) (1) BEQ = Rs 26000 = Rs 13000 Units Rs 50 –Rs 30

(2) BE in slaes: 1300 x Rs 50 = Rs 65000

OR Fixed Cost = Rs 26000 = Rs 65000 *CMR 0.40

*CMR = Unit contribution Margin Unit sale price

= 50- 30 = 0.40 50

(3) Number of units to sold to achieve target profit: = 26000+10000/20 = 1800 units

Q7) what are the basic differences between the discounted cash flow methods and the average annual return on investment method. Also explain advantages and disadvantages of the both methods?


Q8) Kelvin Company manufactures two products P and Q, which have sales prices of Rs.30 and Rs.25, respectively. Variable manufacturing costs are Rs.21 and Rs.19 for P and Q, respectively. The only two relevant production constraints are available cutting and assembly time. Production requirements and time available are:

Quantity Required Maximu

Constraint P Q AvailableCutting time Assembly Time

3 hours 1 hour

1 hour 1 hour

120 hours 90 hours

Determine the product mix required to maximize the company's total contribution margin.

Ans) Equation # 1 3P + Q = 120---------- (!) Equation # 2 P + Q = 90 ---------- (2)

Subtracting 2 from 1 3P + Q = 120 P + Q = 902P = 30 P = 30/2 = 15

Putting value in equation 2 P + Q = 90 15 + Q = 90 Q = 75

Checking the utilization

Cutting Time [15 x 3] + [75 x1] = 120 HoursAssembly Time [15 x1] + [75 x 1] = 90 hours

So the product Mix of 15: 75 would maximize the company’s contribution [15 x (30 -21) + 75x (25 -19)] = Rs 585

Semester Autumn 2000Cost and Management Accounting

Q1) Define cost accounting and discuss how a management accountant may respond to the challenge of providing appropriate information in a non-profit seeking organization?


Q2) How activity based costing is different form a traditional absorption approach to costing and explain why it was developed?


Q3) during the current year nauman and company produced and sold 100,000 units The unit sale price was Rs 100 each .standard and actual costs per unit, based on a production of 100,000 units were:

Variable cost Rs 25Fixed Cost 50 Total Rs 75

Required: 1) Operating Income according to direct costingBreak even point Determine the sales price of the product assuming 40 % markup

Ans) Traditional Income Statement

1)

Sales = Rs 10000,000Cost of goods sold = Rs 7500,000

Operating Profit = Rs 2500,000

Contribution Income Statement

Sales = Rs 10000,000Variable Expenses = 2500,000Contribution Margin = 7500,000Fixed cost = 5000,000 = Rs 2500,000

EBT = 100,000(100-25)-500,000 = Rs 2500,000

2)

Break even Units = Rs 5000,000 = Rs 66666.67 100-25

Break even in Amount = 66666.67 x Rs 100 = Rs 6666667

3)

Margin of safety

= 10000,000-6666667 x 100 10000,000

= 33.33 %

Q4) Following data is available for a product

Materials used March 15 Rs 750March 25 Rs 378March 31 Rs 215

Direct Labor

Week of March 21 90 hrs@ 7.5/hr.Week of March 27 75 hrs 8.1 hr.

Required:a) Enter the information on a job cost sheet b) Determine the sales price of the product assuming 40% markup.

Ans) Job order cost sheet for the period ended

Materials Hours Units AmountNo 15 Rs 750 25 378 31 215

Labor March 21 90 H Rs 750 675 27 75 H Rs 8.10 608Total cost Rs 2626

Sales price Rs 2626+ 40 % Markup 1050

Rs 3676

Q5) A company usage of material is 7200 units during 240 working days per year. Normal lead time is 20 and 45 days, respectively?

Required: Assuming the material will be required evenly throughout the year, what is the safety stock and order point?

Ans) Ordering point = 7200 x 45 240 = 30 x 45 = 1350 units

Safety stock = 1350-(30 x 32.5*) = 375 units

Average Lead time (45+20)/2 = 32.5

Q6) On March 31st, the work in process account of a company showed:W.I.P

Materials 21550 Finished Goods 37116 Labor 18125F.O.H 12621

Materials charged to the work still in process amounted to5178, FOH is a fixed percentage to labor cost.

Required: The Individual amount of FOH and labor charged to work in process.

Ans)

Work in process

Materials 21550 Finished goods 37116Labor 18125 WIP 15180FOH 12621 Material (5178)

Labor (5896)FOH (4106)

52296 52296

Q7) Enumerate the points of distinction between the discounted cash flow methods and the average annual return on investment method. Also explain the merits and demerits of both the methods.


Q8) Define standard casting and compare the use of actual cost methods to standard costing systems of inventory costing?

Ans) refer to chapter # 17 & 18

Semester Spring 1999Cost and Management Accounting

Q1) Contrast Financial and, managerial Acccounting.Managerial accounting information is described as means to an end, whereas financial Accounting information as an end in itself. In what sense is this true?


Q2) The Zaryab Co manufactures and sells a single product for Rs 40 per unit and has a contribution margin of 30 %. The Company’s fixed expenses are Rs 180,000 per Year.

Required:a) What are variable, expenses per unit?b) What is the Break even point in Units and Rupees?c) What sales level in units and sales in Rupees is required to earn an annual

profit of Rs 60000?d) If the company is able to reduce the Variable cost to Rs 4 per unit, what will

be the Company’s new break even point?

Ans) (a) Unit contribution Margin Ratio = unit contribution = 0.30 Unit sale price

Unit contribution = unit sale price x unit contribution margin ratio = Rs 40 x (0.30) = Rs 12

Variable cost per unit = Rs 40- Rs 12 = Rs 28

(b) Break even in units = Rs 180,000 = Rs 15,000 Units

40 -28

Break even in rupees = 15000 x Rs 40 = Rs 600,000

Or 180,000 = 600,000 0.30

(c)Number of units required to achieve Target profit:

= Fixed cost + Target Profit Unit contribution

180,000 +60000 = 20,000 Units 12

Sales in Rs 20,000 x Rs 40 = Rs 800,000

(d) Break even in units

= 180,000 = 5000 units 40-4

Break even in Rs = 5000 x 40 = Rs 200,000

Q3) Mahmood Inc has six departments that must share the services of a single central Computer. Management has decided that the best basis for the cost allocation is the minutes of computer time used by each department usage by department for the first week in June1999, was as follows:

Department Time consumedA 1548 Minutes B 2064 MinutesC 2280 MinutesD 1032 MinutesE 516 MinutesF 2580 Minutes

The total for all departments was 10020 minutes. The total cost of operating the computer during the week was Rs 4650.

Required:Determine the computer expense to be assigned to each department for the one-week period.

Ans)

Department Time consumed Cost assignedA 1548 Minutes Rs 718B 2064 958C 2280 1058D 1032 479E 516 240F 2580 1197

Rs 10020 Minutes Rs 4650

Q4) Define the concept of budgetary control? Also identify the components of a master budget, and describe how they are related to each other?


Q5) Yousaf and company produces handmade footballs that are sold to distributors. The Company incurred Rs 6100 actual overhead cost in November 1999. Budgeted standard overhead costs were Rs 4 of the variable overhead costs per direct labor hours plus Rs 1250 in fixed overhead costs for November. Normal capacity was set at 1000 direct labor hours per month. In November the company was able to produce 400 footballs. The time standard is 3 direct labor hours per football.

Required: compute the controllable overhead variance, volume variance, and the total overhead variance for the month of November, 1999.

Ans)

Spending Variance =

Actual Variance-Budget Allowance based on capacity utilized Rs 6100 – [1250 + (4 x 1200)] = Rs 50 Unfavorable

Idle Capacity variance =

Budget allowance based on capacity utilized – Applied FOH

Rs 6050-(1200 x5.25) = Rs 250 Favorable

Total variance = Rs 200 Favorable

(Actual FOH- Applied FOH) = 6100-6300

Q6) (A) what is meant by “Incremental Analysis” in capital Budgeting? (B) Hamza trading company has net cash inflow from operations for 1999 of Rs 42000, non profit cash expenditures of Rs 8000, and a sale of an asset that netted Rs 36000 in proceeds and involved a Rs 1000 capital gain. Using the 46% tax rate for normal income and 28 % for capital gains, compute the company’s tax liability?

Ans) Cash flow form operations Rs 42000 Less non cash expense (8000) Taxable Income 34,000 Tax 46 % (15640) Income after Tax 18360 Tax Liability = 15640 + 280* = Rs 15920

* 28% of capital gaining of Rs 1,000 = Rs 280

Q7) Noman Inc has an annual usage of 100 units of item ABC, with a purchase price of Rs 73 per unit. The following data are applicable to item ABC:

Ordering cost Rs 5 per order Carrying cost 15 %

Your are required to calculate the most economical ordering quantity

Ans)

ECQ = 2 x (5) x (100) = 10 Units (0.15) x (73)

Q8) what is the purpose of an incentive wage Plan? Also explain, in accounting for and controlling labor costs, what is the function of the:

a) Time-keeping departmentb) payroll department, andc) Cost accounting department?

Ans) Refer to chapter # 9 for the solution

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