COST AND MANAGEMENT ACCOUNTING

Assignment Group 6

Submission Deadline December 30, 2020

1. From the following data prepare a statement of cost of goods manufactured and cost of goods sold of
Popular Stoves Manufacturing Co. for the year 2011:
Rs.

Stock of materials on 1-1-2011 35,000

Stock of materials on 31-12-2011 4,900
Purchase of materials 52,500
Factory wages 95,000
Factory expenses 17,500
Office expenses 10,000
Completed stock in hand on 1-1-2011 Nil
Completed stock in hand on 31-12-2011 35,000
Sales 1,89,000

The number of stoves manufactured during the year 2011 was 4,000.

The company wants to quote for a contract for the supply of 1,000 Electric Stoves during the year 2012.
The stoves to be quoted are of uniform quality and make similar to those manufactured in the previous
year; but cost of materials has increased by 15% and cost of factory labour by 10%.

Prepare a statement showing the price to be quoted to give the same percentage of net profit on
turnover as was realized during the year 2011, assuming that the cost per unit of overhead charges
will be the same as in the previous year.

2. Jones, an accountant for G.Ltd. has decided to estimate the fixed and variable
components associated with the company’s repair activity. She has collected the
following data for the past six months:

Repair Hours Total Repair costs

10 Rs.800
20 1,100
15 900
12 900
18 1,050
25 1,250

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Required:

a) Estimate the fixed and variable components for the repair costs using the high-low
method. Using the cost formula, predict the total cost of repair if 14 hours are used.

b) Estimate the fixed and variable components using the method of least squares.
Translate your results into the form of a cost formula, and using that formula, predict
the total cost of repairs if 14 hours are used.

3. Brass Products Company uses a normal job-order costing system. Currently, a plant-
wide overhead rate based on machine hours is used. The plant manager has heard that
departmental overhead rates can offer significantly better cost assignments than a
plantwide rate can offer. Brass has the following data for its two departments for the
coming year:

Department A Department B

Overhead costs (expected) Rs.2,50,000 Rs.2,20,000

Normal activity (machine hours) 40,000 10,000

Required

a. Compute a predetermined overhead rate for the plant as a whole based on machine
hours.

b. Compute predetermined overhead rates for each department using machine hours.

c. Job #73 used 20 machine hours from Department A and 50 machine hours from
Department B. Job #74 used 50 machine hours from Department A and 20 machine
hours from Department B. Compute the overhead cost assigned to each job using the
plantwide rate computed in Requirement a. Repeat the computation using the
departmental rates found in Requirement b. Which of the two approaches gives the
fairer assignment? Why?

d. Repeat Requirement c assuming the expected overhead cost for department B is

Rs.62,500. In this case, would you recommend departmental rates over a plantwide
rate for the company?

4. Computo Ltd. manufactures two parts ‘P’ and ‘Q’ for Computer Industry.

P: annual production and sales of 1, 00,000 units at a selling price of Rs. 100.05 per

unit.

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 Q: annual production and sales of 50,000 units at a selling price of Rs. 150 per unit.

Direct and Indirect costs incurred on these two parts are as follows:

(Rs. in thousand)

P Q Total

Direct Material cost (variable) 4,200 3,000 7,200

Labour cost (variable) 1,500 1,000 2,500
Direct Machining cost (See Note)* 700 550 1,250

Indirect Costs:

Machine set up cost 462

Testing cost 2,375
Engineering cost 2,250

Total 16,037

Note: Direct machining costs represent the cost of machine capacity dedicated to the
production of each product. These costs are fixed and are not expected to vary over the
long-run horizon.

Additional information is as follows:

P Q

Production Batch Size 1,000 units 500 units

Set up time per batch 30 hours 36 hours

Testing time per unit 5 hours 9 hours

Engineering cost incurred on each product 8.40 lacs 14.10 lacs

A foreign competitor has introduced product very similar to ‘P’. To maintain the
company’s share and profit, Computo Ltd. has to reduce the price to Rs. 86.25. The
company calls for a meeting and comes up with a proposal to change design of product
‘P’. The expected effect of new design is as follows:

· Direct Material cost is expected to decrease by Rs. 5 per unit.

· Labour cost is expected to decrease by Rs. 2 per unit.

· Machine time is expected to decrease by 15 minutes; previously it took 3 hours to

produce 1 unit of ‘P’. The machine will be dedicated to the production of new design.

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· Set up time will be 28 hours for each set up.

· Time required for testing each unit will be reduced by 1 hour.

· Engineering cost and batch size will be unchanged.

Required:

(a) Company management identifies that cost driver for Machine set-up costs is ‘set up
hours used in batch setting’ and for testing costs is ‘testing time’. Engineering costs

are assigned to products by special study. Calculate the full cost per unit for ‘P’ and

‘Q’ using Activity-based costing.

(b) What is the Mark-up on full cost per unit of P?

5. A company’s projected profit for the coming year is as follows:

Total Per Unit

---------------------------------------------------------------------

Sales Rs.2,00,000 Rs.20

Less: Variable expenses 1,20,000 12
---------------- --------
Contribution margin 80,000 8
Less: Fixed expenses 64,000
----------------
Operating income 16,000
---------------

Required

a. Compute the break-even point in units.

b. How many units must be sold to earn a profit of Rs.30,000?

c. Compute the contribution margin ratio. Using the contribution margin ratio, compute
the additional profit that the company would earn if sales were Rs.25,000 more than
expected.

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d. Suppose the company would like to earn operating income equal to 20 percent of
sales revenue. How many units must be sold for this goal to be realized? Prepare an
income statement to prove your answer.

e. For the projected level of sales, compute the margin of safety.

6. Riley’s Paper Company manufactures computer paper for laser printers. The
following information is related to production costs incurred in the manufacturing
process during the month of March:

Reams of Paper Production Costs

Beginning work in process (40% complete) 35,000 Rs.44,58,500
Current-period production 93,000 197,41,000
Ending work in process (65% complete) 20,000
The company uses the weighted average method of computing equivalent units and
assigning product costs. Production costs include both the cost of raw materials and
conversion costs that are incurred uniformly in the production process.

A. How many reams of paper were completed in March?

B. Of the reams of paper completed in March, how many were started and completed
during the month?
C. How many equivalent finished units did the company complete in March?
D. What is the cost per equivalent unit?
E. Calculate the cost of the ending work in process inventory and the cost of goods
manufactured in March.

7. Holbrook, Inc., has identified the following overhead costs and cost drivers for next
year:

Overhead Item Expected Cost    Cost Driver Expected Quantity

Setup costs Rs.960,000 Number of setups   4,800

Ordering costs   160,000 Number of orders  20,000

Maintenance  640,000 Machine hours  64,000

Power    80,000 Kilowatt hours 200,000

The following are two of the jobs completed during the year:

Job 701 Job 702

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Prime costs Rs.25,000 Rs.18,000
Units completed 650 500
Direct labor hours 180 220\
Number of setups 12 15
Number of orders 16 30
Machine hours 360 300
Kilowatt hours 180 650
The company's normal activity is 40,000 direct labor hours.
Required:
a. Determine the unit cost for each job using direct labor hours to apply overhead.
b. Determine the unit cost for each job using the four cost drivers. (Round
amounts to two decimal places.)
c. Which method produces the more accurate cost assignment? Why?

8. The Hemp Division of West Company produces rope. One-third (10,000 feet) of the
Hemp Division’s output is sold to the Hammock Products Division of West; the
remainder (20,000 feet) is sold to outside customers. The Hemp Division’s estimated
sales and cost data for the fiscal year ending September 30 are as follows:

Hammock Products Outsiders Sales

Sales Rs.7,50,000 Rs.20,00,000
Variable costs 5,00,000 10,00,000
Fixed costs 1,50,000 3,00,000
Gross margin Rs.1,00,000 Rs.7,00,000
Unit sales 10,000 20,000

The Hemp Division has an opportunity to purchase 10,000 feet of identical-quality rope
from an outside supplier at a cost of Rs.62.50 per unit on a continuing basis. Assume
that the Hemp Division cannot sell any additional product to outside customers.

A. Should West allow its Hemp Division to purchase the rope from the outside
supplier? Why or why not?
B. Assume that the Hemp Division is now at full capacity and that sufficient demand
exists to sell all production to outsiders at present prices. What is the differential cost
(benefit) of producing the rope internally?
C. Assume that the quality of the rope is found to be of a lesser, but still satisfactory,
quality. What factors should be considered?
D. Assume that the quality of the rope is found to be of questionable quality but that the
price is Rs. 50 per unit. What factors should be considered in the decision?

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9. The Laurel Company manufactures two products. Information about the two
product lines for the year is as follows:
Product A Product B
Selling price per unit Rs.70 Rs.100
Variable costs per unit 30    40
Contribution margin per unit Rs.40 Rs.60
The company expects fixed costs to be Rs.144,000 in 2012. The firm expects 60
percent of its sales (in units) to be Product A.

Required:

Determine the break-even point in units for both Product A and Product B.

10. Smoluk Mining Company currently is operating at less than 50 percent of capacity.
The management of the company expects sales to drop below the present level of
10,000 tons of ore per month very soon. The sales price per ton is Rs.150 and the
variable cost per ton is Rs.100. Fixed costs per month total Rs.5,00,000.
Management is concerned that a further drop in sales volume will generate a loss
and, accordingly, is considering the temporary suspension of operations until
demand in the metals markets rebounds and prices once again rise. Over the past
year, management has implemented a cost-reduction program that has been
successful in reducing costs to the point that suspending operations appears to be
the only viable alternative. Management estimates that suspending operations
would reduce fixed costs by Rs.3,00,000 per month.

A. Why does management estimate that the fixed costs will persist at Rs. 2,00,000
even though the mine is temporarily closed?

B. At what sales volume will the loss be greater or less than the shutdown cost of
Rs.2,00,000 per month?

C. List any qualitative factors that you think management should consider in this
decision and discuss the potential impact of each factor on the decision.

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