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Published by malikkamran065529

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Published by: malikkamran065529 on Jun 24, 2009
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1. ABC Ltd. produces three components -- X, Y and Z. The Profit and Lossbudget, for the year ending 31.03.95 are as follows:
(RS. in Lacs)XYZTotal
Sales21. are absorbed at Rs.250 per Direct Labour hour.The following are the further data regarding cost volume and thecost drivers.All costs areavoidable.From theaboveinformationyou arerequired to:Computethe productcosts usinga traditionalvolume-relatedcostingsystembased ontheassumptionsthat: Alloverheadsarerecovered
Set up costsMachine repairs andmaintenanceMaterial handling andreceiving costsPackingProduction order cost50,0007,70,0005,00,0003,00,0003,80,000Total
Product ParticularsXYZSelling price per unit Rs.700Rs.750Rs.500Labour cost per hour Rs.100Rs. 75Rs. 50Labour hours perunit121Machine hours perunit112Number of set-ups 151025Number of receiptsof materials1015225Number of deliveries 10822Number of production orders10919
on the basis of direct labour hrs. (i.e.the Co.'s past productcosting system).Compute product costs using an activity-based costing system.Briefly explain the differences between the product costcomputation in (a) and (b).2. X Ltd. specializes in the distribution of pharmaceuticalproducts. X Ltd. buys from pharmaceutical companies and resellsto each of three different markets – P, Q & R.Given below is the data for the three markets, for the month of August 2007:PQRAverage revenue per deliveryRs.30,900Rs.10,500Rs.1,980Average cost of goods sold perdeliveryRs.30,000Rs.10,000Rs.1,800Number of deliveries1203001,000X Ltd. uses Gross margin percentage [(Revenue – Cost of goodssold)
Revenue] to evaluate the relative profitability of itsdifferent distribution outlets. X Ltd. decides to consider usingActivity Based Costing. The August 2007 operating costs (otherthan cost of goods sold) and the costs of each area along with thekey activity areas and the details of cost drivers are as follows:Other data for August 2007 are:Activity AreaTotal Costs in August 2007 (Rs.)1. Order processing 80,0002. Line item ordering63,8403. Store deliveries71,0004. Carton deliveries76,0005. Shelf stacking 10,240Total costs 3,01,080
Each order consists of one or more line items. A line itemrepresents a single product. Each store delivery entails delivery of 1 or more cartons of products. Each product is delivered in 1 ormore separate cartons. X Ltd. delivery staff stack cartons directlyonto display shelves in a store. Currently there is no charge forthis service and not all customers use X Ltd. for this activity.Required:1.Compute the August 2007 gross-margin percentages for itsthree distribution markets.2.What is the operating income of X Ltd.?3.Compute the operating income of each distribution marketin August 2007 using the activity-based costing information.Comment on the results. What new insights are availablewith the activity-based information?
Describe four challenging problems X Ltd. would face inassigning the total August 2007 operating costs oRs.3,01,080 to the five activity areas.ParticularsPQRTotal number of orders1403601,500Average number of lineitems per order141210Total number of storedeliveries1203001,000Average number of cartonsshipped per store delivery3008016Average number of hoursof shelf stacking per storedelivery3.00.60.1

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