CMA Individual assignment

Manu M
EPGPKC06054

Working sheet
Existing
A B C D Total
Material cost 15 5 10 5
Direct Labour 30 5 15 10
Varaiable Overhead 15 7.5 5 7.5
Variable cost 60 17.5 30 22.5
Fixed cost 10000 10000 12500 12500 45000
Number of units 1000 1000 1000 1000
Labour hours per unit 6 1 3 2
Total labour hours 6000 1000 3000 2000 12000
Total variable over head 15000 7500 5000 7500 35000

Total cost to be allocated 80000

Allocation rate /hour 6.67

Allotted cost 40.00 6.67 20.00 13.33

Standard cost 85.00 16.67 45.00 28.33
40% Mark up 34.00 6.67 18.00 11.33
Selling price 119.00 23.33 63.00 39.67

Industry
Standard cost 70 27.5 42.5 35
Mark on 28 11 17 14
Selling price 98 38.5 59.5 49
40% 40% 40% 40%

Margin as per industry SP 13.00 21.83 14.50 20.67

15% 131% 32% 73%

Actual volume 0 2000 1000 1000

Varaiable Overhead 7.5 5 7.5
Labour hours per unit 1 3 2
Total labour hours 2000 3000 2000 7000
15000 5000 7500 27500
Fixed overhead 45000
72500
Labour hours 7000
Allocation rate / hour 10.36

Allotted cost 10.36 31.07 20.71

Standard cost 20.36 56.07 35.71
Margin 8.14 22.43 14.29
Selling price 28.50 78.50 50.00

Industry 18.14 3.43 13.29

Margin % 89% 6% 37%

Hence product C will be discontinued

Dropping additional product - C

B D
Actual volume 3000 1000
Varaiable Overhead 7.5 7.5
Labour hours per unit 1 2
Total labour hours 3000 2000 5000
Total variable overhead 22500 7500 30000
Fixed overhead 45000
Total 75000
Overhead allocation rate 15 15 15

B D
Material 5 5
Labour 5 10
Allotted cost 15 30
Standard cost 25 45
40% Markup 10 18
Selling Price 35 63

Standard cost 27.5 35

40% mark up 11 14
Selling price 38.5 49
Profit 13.5 4
Mark up % 54% 9%

Product D to be discontinued

Answer 4
Existing
A B C D Total
Material cost 15 5 10 5
Direct Labour 30 5 15 10
Varaiable Overhead 15 7.5 5 7.5
Variable cost 60 17.5 30 22.5
Fixed cost 10000 10000 12500 12500 45000

Industry selling price 98 38.5 59.5 49

Contribution 38 21 29.5 26.5
Contribution % on sales 39% 55% 50% 54%
Product B has more contribution compared to A and D has more contribution compared to C
Answer 5 : Fixed cost allocated using current system, variable costs are correctly attributed
Revised system
Variable overhead A B C D Total
Labour hours 6 1 3 2
Number of units 1000 1000 1000 1000
Total labour hours 6000 1000 3000 2000 12000

Fixed overhead 45000

Allocation rate 3.75

Material 15 5 10 5
Labour 30 5 15 10
Variable overhead 15 7.5 5 7.5
Allocated cost 22.5 3.75 11.25 7.5
Standard cost 82.5 21.25 41.25 30
40% Mark up 33 8.5 16.5 12
Selling price 115.5 29.75 57.75 42

Industry Selling price 98 38.5 59.5 49

Margin 15.5 17.25 18.25 19
Margin % 19% 81% 44% 63%

Answer 6

A+B C+D
Variable overhead 22500 12500
Fixed overhead 20000 25000
Labour hours 7000 5000
Allocation rate 6.1 7.5

A B C D
Material 15 5 10 5
Labour 30 5 15 10
Allocated cost 36.4 6.1 22.5 15.0
Standard cost 81.43 16.07 47.50 30.00
Industry selling price 98 38.5 59.5 49
Margin 16.57 22.43 12.00 19.00
Margin % 20% 140% 25% 63%
Answers
1)CCI has to charge 8.14 , 22.43 and 14.24 from B, C and D respectively to achieve 40% margin
If the policy is to discontinue product below 25% margin , then product B has to be discontinued

2) Product D to be discontinued

3)What is going on : CCI is following burden rate for cost allocation, due to whicha)Fixed overhead is fixed not consideri
So there is difference with the industry costing method. Certain products are getting advantage of wrong allocation of c

4)Please see below

5)Please see below

6)Please see below

ad is fixed not considering labour hours b) Fixed overhead is allocated among all the products 3) Variable overhead is different for multi
of wrong allocation of cost.
erhead is different for multiple products