MANAGEMENT INFORMATION

Time allowed – 120 minutes

Full Marks ‐ 100

Marks
1. (a) Define the following with examples: 2x2=4
(i) Cost object.
(ii) Prime cost.
(b) XYZ Ltd. has the following information about the inventory of electronic components for October 2017:
Date Quantity Cost per item (Tk.)
Beginning inventory 150 32
5 October - Purchase 200 32
17 October - Purchase 450 31
28 October - Purchase 100 33
At the end of October, 220 components remained in inventory.
If XYZ Ltd. uses the FIFO method of allocating inventory, what would be the cost of goods sold for
October? 6
2. Super Bike Manufacturing Company presents the following data for year 2017:
Sales: 8,000 Units
Production: 10,000 Units
Closing inventory: 2,000 Units
Direct materials: Tk.240
Direct labor: Tk.280
Variable manufacturing overhead expenses: Tk.100
Variable selling and administrative expenses: Tk.40
Fixed manufacturing overhead expenses: Tk.1200,000
Fixed selling and administrative expenses: Tk.800,000
Compute the unit product cost of one bike under:
(a) absorption costing systems 5
(b) marginal costing systems 5

3. (a) A selling price in excess of the full cost per unit will always result in an overall profit for the organization – Do
you agree? Please explain.
5

(b) Shikol Steel Products Co. is a manufacturer of gardening equipment. The income statement for last year
is given below developed under the Marginal costing system:
Tk.
Sales 754,000
Less: Variable manufacturing cost (102,000)
Variable marketing and general expenses (54,000)
Contribution margin 598,000
Less: Fixed manufacturing cost (78,000)
Fixed marketing and general expenses (46,000)
Operating income 474,000
The variable and fixed costs in inventories for last year were:
Beginning Inventory Ending Inventory
Work in process:
Variable cost Tk.7,000 Tk.8,000
Fixed cost 6,000 11,000
Total Tk.13,000 Tk.19,000
Finished goods:
Variable cost Tk.28,000 Tk.20,000
Fixed cost 16,000 9,000
Total Tk.44,000 Tk.29,000
There were no cost variances.

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 Required: Prepare an absorption costing income statement for last year, including inventory detail
and explain the profit difference between the systems. 9

(c) Alfath & Co. is an industrial components manufacturer. One of their products that is used as a sub-
component in coffee maker manufacturing is CFM392.
This component has the following financial structure per unit:
Tk.

Selling price 300

Direct Materials 40
Direct Labor 30
Variable Manufacturing overhead 24
Fixed Manufacturing overhead 60
Shipping and handling 6
Fixed Selling and Administrative overhead 20
Total cost 180
During the next year, CFM392 sales are expected to be 10,000 units. All of the costs will remain the
same except for material which will increase by 10% and labor by 15%.The selling price per unit for
next year will be Tk.320.
Required: Based on the above data, what will be the contribution margin from CFM392 for
next year? 6
4. (a) A wholesaler had an opening inventory of 750 units of item X valued at Tk. 80 each on 1 March.
The following receipts and sales were recorded during March.
4 March Received 180 units at a cost of Tk. 85 per unit
18 March Received 90 units at a cost of Tk. 90 per unit
24 March Sold 852 units at a price of Tk. 110 per unit
Using the weighted average cost method of valuation, what was the cost of item X sold on 24 March? 5
(b) When opening inventories were 8,500 litres and closing inventories 6,750 litres, a firm had a profit of
Tk. 62,100 using marginal costing.
Assuming that the fixed overhead absorption rate was Tk. 3 per litre, what would be the profit,
using absorption costing? 5

5. (a) “Unused capacity should be treated as a general cost to be shared across all product lines.” Do
you agree? Explain. 4 (b) Dilon,
Inc. manufactures Cell Phone Charger. Currently the company uses a plant-wide rate for
allocating manufacturing overhead costs. The plant manager believes it is time to refine the
method of cost allocation and has the accounting department to identify the primary production activities
and their cost drivers:
Activities Cost driver Allocation Rate
Material handling Number of parts Tk. 4 per part
Assembly Labour hours Tk. 40 per hour
Inspection Minutes at inspection station Tk. 6 per minute
The current traditional cost method allocates overhead costs based on direct labour hours using a rate of
Tk. 400 per labour hour.
Required:
(1) What are the manufacturing overhead costs per Charger assuming the traditional cost method
is used and a batch of 500 Chargers are produced? The batch requires 1,000 parts,
10 direct labour hours, and 15 minutes of inspection time. 4
(2) What are the manufacturing overhead costs per Charger assuming an activity-based costing method
is used and a batch of 50 Chargers are produced? The batch requires 100 parts, 6
direct manufacturing labour hours and 2.5 minutes of inspection time. 4

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6. XYZ Limited is a manufacturing company which is currently reviewing the costing arrangement for its product A.
During the first quarter of the year, they sold 50,000 units of product A at BDT 30 per unit. They produced 45,000
units of product A during the quarter and the following information has been provided for the quarter:

Per unit cost (BDT) Total cost (BDT)

Direct materials 7.00 315,000
Direct labour 16.00 720,000
Production OH 5.00 225,000

At the beginning of January, there was a stock of 10,000 units valued as follows:

Per unit cost (BDT) Total cost (BDT)

Direct materials 6.50 65,000
Direct labour 16.25 162,500
Production OH 5.00 50,000

Sales and administrative overheads for the period were as follows:

Variable BDT 55,000
Fixed BDT 50,000
It is estimated that 40% of production overheads are variable, while the remainder are fixed.
What would be the profit using absorption costing and marginal costing? 8

7. PQ Ltd makes a product which has a variable production cost of CU8 and a variable selling cost of CU2 per unit. Fixed
costs are CU40,000 per annum, the sales price per unit is CU18, and the current volume of output and sales is 6,000 units.
The company is considering whether to hire an improved machine for production. Annual hire costs would be CU10,000 and
it is expected that the variable cost of production would fall to CU6 per unit.

Requirement

(a) Determine the number of units that must be produced and sold to achieve the same profit as is currently earned, if the
machine is hired. (5)

(b) Calculate the annual profit with the machine if output and sales remain at 6,000 units per annum. (3)

8. TW manufactures two products, the D and the E, using the same material for each. Annual demand for the D is 9,000
units, while demand for the E is 12,000 units.

The variable production cost per unit of the D is CU10, and that of the E CU15. The D requires 3.5 kgs of raw material per
unit, the E requires 8 kgs of raw material per unit.

Supply of raw material will be limited to 87,500 kgs during the year. A sub contractor has quoted prices of CU17 per unit for
the D and CU25 per unit for the E to supply the product. How many of each product should TW manufacture in order to
maximise profits?

Requirement

Determine the profit-maximising production mix, assuming that monthly fixed costs are CU20,000 and that no inventories
are held. (12)

9. Rahim Enterprise can produce any of three products with its current production line. The heat treating equipment has 400
hours available during any given month. Per unit production, sales, and cost statistics are as follows:
A B C
Selling price Tk. 15 Tk. 20 Tk. 10
Variable cost Tk. 9 Tk. 12 Tk. 7
Required time in heat treat 1.5 hrs 2.5 hrs. 1.0 hrs
Maximum demand per month 100 100 100

Required:

i. How many of each product should Rahim Enterprise produce and sell? (6)
ii. Suppose the selling price of C increases to Tk.12. How many of each product should Rahim Enterprise produce and sell?
(4)

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