ASSIGNMENT

SUBJECT: COST ACCOUNTING

 PART A

Question 1: Calculation of Variances

(i) Total material variance = Standard cost of material for actual production - Actual cost
of material

Standard quantity for actual production = 8,900 units × 4 kg = 35,600 kg

Total material variance = (35,600 kg × $4.50) - $161,043

= $160,200 - $161,043

= $843 unfavorable

(ii) Material usage variance =(Standard quantity for actual production - Actual quantity
used) × Standard price

(35,600 kg - 34,928 kg) × $4.50

= $3,024 favourable

(iii) Material price variance = (Standard price - Actual price) × Actual quantity purchased

= ($4.50 - $4.60904) × 35,464 kg

= $3,867 unfavorable

(iv) Total labour variance = Standard labour cost for actual production - Actual labour
cost

Standard hours for actual production = 8,900 units × 5 hours = 44,500 hours

Total labour variance = (44,500 hours × $5) - 224,515

= $222,500 - $224,515

= $2,015 unfavorable

(v) Labour efficiency variance = (Standard hours for actual production - Actual hours) ×
Standard rate

= (44,500 hours - 45,400 hours) × $5

= $4,500 unfavorable

(vi) Labour rate variance = (Standard rate - Actual rate) × Actual hours

Actual rate = $224,515 ÷ 45,400 hours = $4.9453

= ($5 - $4.94526) × 45,400 hours

= $2,485 favourable
 PART B
Question 1.
Total material required is less than the available supplies but labor hours required is
higher than the available hours.

Correct Answer is C as Direct labor hour are limiting factor

Question 2
2) Contribution per unit = sale price- variable costs = $11.6 -$3.4 -($11.6×5%) = $11.6-
$3.4-$0.58 =$7.62

Breakeven point = Fixed costs / contribution per unit = ($430500+$198150)/$7.62 =

82500 units

Margin of safety % = ( Total sales- breakeven sales)/total sales =

(90000-82500)/90000= 0.0833 or 8.33% = D

Question 3
 Amount($
Particulars Working
)
Sales 25,000 10000 x $2.5
($800 + $1000
Cost of Sales (Direct & Variable + 1,000 +
8,800
Costs) $3,000 +
$3,000)
Gross Profit (Contribution) 16,200
(2,000 + 5,000
Overheads (Indirect/Fixed Costs) 13,000
+ 6,000)
Net Profit 3,200

Variable Expenses = Bread buns + Cheese + Light and heat + Meat + Salad

Indirect / fixed costs = Depreciation + Rent + Salaries

b) Variable cost per burger = $8,800 / 10,000 = $0.88

c) Contribution per burger = $16,200 / 10,000 = $1.62

Question 4
(i) contribution = 1687500-360000-270000-180000-90000 = 787500

Contribution margin= 787500/1687500 = 46.67%

Sales revenue needed to break even = fixed cost / contribution margin = (133500 +
60000) / 46.67% = 414613

(ii) margin of safety as percentage of sales revenue = ( current sales - break even
sales ) / current sales = (1687500 - 414613) / 1687500 = 0.7543 = 75.43%

(iii) contribution per unit = 787500 / 45000 = 17.5

Break even units = 414613 / 37.5 = 11056

Number of units that would have to be sold to earn a profit of 28000 = ( 28000 / 17.5 ) +
11056 = 1600 + 11056 = 12656

Question 5
Labour rate variance = actual hours paid * ( standard rate - actual rate) = 61500 * ( 9 -
8.5 ) = 30750 (favourable)

Labour efficiency variance = standard rate * (standard hours for actual output - actual
hours worked) = 9 * (58600 - 56000) = 23400 (favourable)

Idle time variance = idle hours * standard rate = (61500 - 56000) * 9 = 49500 (adverse)

Question 6
Revenue - cost of sales = Gross profit

Gross profit - Total expenses = Net profit

Cost of Sale (2019) = 41300 – 26075 = 15225

Gross Profit (2020) = 42350 – 15750 = 26600

Total Expenses (2020) = 6750 + 4500 +2500 + 4550 = 18300

Net Profit (2018) = 23775 – 15950 = 7825

Question 7
Computation of the Shortfall of the Labour Hours
Labour hours shortfall:
= Required Labour Hours – Actual Labour Hours
= (9000 X 123.75 / 16.5)+ )8000 X 74.25 / 16.5 ) + (11000 X 148.5 / 16.5) –
187500

= 202500-187500

= 15000 Hours

Question 8
 Availab Constr
Particulars X Y Z Total le aint
Minimum Demand
A (Units) 4,000.00 5,500.00 7,000.00
B Selling Price 28.00 22.00 30.00
Variable cost
Raw Materials ($1
C per Kg) 5.00 4.00 6.00
Direct Labour ($12
D per hour) 12.00 9.00 18.00
Contribution per
unit 11.00 9.00 6.00
Raw Materials
E=C/$1 required in Kgs 5.00 4.00 6.00
Labour required per
F=D/$12 unit 1.00 0.75 1.50
Total Raw Material 84,000.
G=A*E requirement 20,000.00 22,000.00 42,000.00 00 90000 -
Total Labour hours 18,625.
H=A*F requirement 4,000.00 4,125.00 10,500.00 00 18000 -625.00
Contribution per
unit of Raw
material 2.20 2.25 1.00
Priority 2 1 3

Answer:

If supplies in period 1 are restricted to raw materials 90000kgs and Labour hours 18000
hours, the limiting factor is Labour hour

In period 2 if there is shortage of raw materials then materials and no other restrictions then
materials should be allocated as per option (iv) Y, X, Z.

PART C
Question 1
Understanding your costs is vital for informed business decisions. It helps you determine the
profitability of your operations and how to set prices.

Question 2
Variable cost per unit does not vary with the number of units produced. Where as fixed
cost per unit changes with respect to units produced but total fixed cost remains
constant.

Direct materials, direct labor, sales force commission, etc

So, Fixed cost is salary of the factory supervisor. (Option D)

Question 3
1. Four Basic Principles

 Competence

The word competence simply means the ability to do something successfully or

efficiently. According to the Management Accounting, competence is a set of attributes
required to perform a particular activity. In other words, they are a collection of skills,
knowledge, proffessional values, ethics, attitudes towards solving a problem etc., that
an individual needs to complete a task.

 Confidentiality

Confidentiallity is the very important one that every accountant must have to fullfill.
According to the code of ethics "a professional accountant should respect the
confidentiality of information acquired as a result of professional and business
relationships and should not disclose any such information to third parties without
proper and specific authority unless there is a legal or professional right or duty to
disclose. Confidential information acquired as a result of professional and business
relationships should not be used for the personal advantage of the professional
accountant or thrid parties.

 Integrity

A accountant must have to follow the accounting principles and practices issued by the
GAAP or IFRS. A professional accountant should be straightforward and honest in all
professional and business relationships.A professional accountant should not be
associated with reports, returns, communications or other information where they
believe that the information: (a) Contains a materially false or misleading statement; (b)
Contains statements or information furnished recklessly; or (c) Omits or obscures
information required to be, the principle of integrity imposes an obligation on all
professional accountants to be straightforward and honest in professional and business
relationships. Integrity also implies fair dealing and truthfulness.

 Objectivity
The objectivity states that the accountant must have take decision according to the
information and the data provided. It also staes that the accountant never compromise
thier judgement because of bias, conflict of interest or the undue influence of others.
The principle of objectivity imposes an obligation on all professional accountants.The
aim of this principle is to ensure that management and accounting do not allow any
personal opinions or biases from making their way into the financial statements.

Question 4
Disadvantages of marginal costing

 In marginal costing the separation of costs into fixed and variable is difficult and
sometimes gives misleading results. .In marginal costing fixed production costs
are not spread out between units of production.
 The closing of marginal costing is not valued according to accounting standards.
 Marginal costing is not suitable for external reporting
 Marginal costing is not applicable in all types of business and not suitable for
long run and to huge industries

Question 5
The purpose of limiting factor method is to have maximum contribution as per the limiting
factor.Examples of limiting factor are material or labour hours or machine hours.

Question 6
Material Price Variance
(Std Price – Act Price) X Act Qty
Standard Price 0.8
Actual Price 0.84
Actual Qty 8200
Material Price Variance 328 Adverse
Material Usage Variance
(Std Qty – Act Qty) X Std Price
Standard Qty 6960
Actual Qty 8200
Std Price 0.8
Material Usage Variance 992 Adverse

Correct Answer is
B. $328(A) $992(A)