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Managerial Accounting Discussion Set 2
Managerial Accounting Discussion Set 2
MANAGERIAL ACCOUNTING
DISCUSSION SET 2
Question 1
Explain any five differences between process costing and Job costing.
1. Nature of Work:
Process Costing: It is used when products are produced in a continuous and
repetitive manner, such as in industries like oil refining, chemical
manufacturing, or food processing. The production process is continuous, and
the products are similar.
Job Costing: It is used when products or services are unique or customized,
such as in construction projects, consulting services, or custom-made
furniture. Each job or project is distinct and has its own specifications.
2. Cost Accumulation:
Process Costing: Costs are accumulated by departments or processes. The total
costs incurred by each department/process are allocated to the units produced
during a particular period. The focus is on the cost per unit.
Job Costing: Costs are accumulated by individual jobs or projects. The costs
incurred for each specific job are tracked separately, including direct materials,
direct labor, and overhead costs.
3. Unit Cost:
Process Costing: Unit cost are computed by department on the department
production report.
Job Costing: Unit cost are computed by job on the job cost sheet.
4. Documentation
Job Costing: Job costing utilizes a job sheet or job cost record for each
individual job or project. The job sheet contains detailed information about the
job, including materials used, labor hours worked, and other direct costs
incurred. It serves as a primary document for accumulating costs and tracking
the progress of each job.
Process Costing: Process costing relies on a department production report. This
report summarizes the production and cost information for a particular
department or process over a specific period. It includes data on the units
started and completed, the total costs incurred, and the unit costs.
5. Complexity and Traceability of Costs:
Process Costing: The cost accumulation process is relatively straightforward
and less complex since the costs are accumulated by departments or
processes. It may be challenging to trace the specific costs to individual units
due to the homogeneity of products.
Job Costing: The cost accumulation process is more intricate and detailed
since the costs are directly allocated to specific jobs or projects. It allows for
better cost traceability and facilitates accurate job costing analysis.
Question 2
West African Hardware Décor manufactures cement for the construction
industry in Ghana. Provide below are data relating to kilograms of cement
processed through the Mixing Department in June, the first department in the
manufacturing process.
ii) Compute cost per equivalent unit for materials and conversion.
iii) Compute the cost of units transferred and the cost of ending
work in process inventory.
iv) Prepare a cost reconciliation report for the Mixing Department
for June
Question 3
Sister Carla Enterprise deals in Transparent Ladies Bra. The enterprise uses
the weighted-average method instead of the FIFO method in its process costing
system. Data relating to activities in Department A for the month of September
2019 is provided below:
Required:
i) Compute the equivalent units of production for September.
ii) Compute cost per equivalent unit for materials and conversion.
iii) Compute the cost of units transferred and the cost of ending
work in process inventory.
Required:
Margin of Safety (in units) = 15,000 units - 10,000 units = 5,000 units
Margin of Safety (in cedis) = 5,000 units * GH¢30 = GH¢150,000
Margin of Safety Percentage = (5,000 units / 15,000 units) * 100 = 33.33%
d. If the company wants to a target profit of at least GH¢45,000 next year,
how many units of champion should be sold to meet this target profit?
Target Units = (Fixed Costs + Target Profit) / Contribution Margin per unit
Target Units = (GH¢120,000 + GH¢45,000) / GH¢12 = 12,500 units
The company should sell at least 12,500 units of Champion to meet the
target profit of GH¢45,000.
e. Calculate the company’s degree of operating leverage at the present
level of sales.
DOL = Contribution Margin / Net Operating Income
DOL = 180,000/60,000
DOL = 3 times
f. Using the degree of operating leverage calculated in (e), by what
percentage will net operating income increases if the company’s sales
increases by 4% in next year.
Percentage Increase in NOI = Degree of Operating Leverage * Percentage
Increase in Sales
Percentage Increase in NOI = 3*4%
Percentage Increase in NOI =12%
g. If variable cost is increased by GH¢2 per unit and management expects
to increase selling price by 10%, what volume of sales should the
company make to achieve a profit of GH¢120,000.
Profit = (Sales - Variable Costs) - Fixed Costs
Given changes:
Variable cost increase = GH¢2 per unit
Selling price increase = 10%
Given changes:
Variable cost increase = GH¢2 per unit
Selling price increase = 10%
Target Profit = GH¢120,000
We need to calculate the volume of sales (X) required to achieve the target
profit.
Step 1: Calculate the new variable cost per unit after the increase:
New Variable Cost per unit = Old Variable Cost per unit + Variable cost
increase
New Variable Cost per unit = GH¢18 + GH¢2 = GH¢20
Step 2: Calculate the new selling price per unit after the increase:
New Selling Price per unit = Old Selling Price per unit + (Old Selling Price per
unit * Selling price increase)
New Selling Price per unit = GH¢30 + (GH¢30 * 0.10) = GH¢33
Question 5
Due to erratic sales of its sole product – a high-capacity battery for laptop
computers – Johane Ltd has been experiencing difficulty for some time. The
company’s contribution income statement for the most recent month is given
below:
Sales (19,500 units * $30 per unit) $585,000
Variable expenses 409,500
Contribution 175,500
Fixed Expenses 180,000
Operating Loss $(4500)
Required:
a. Compute the company’s CM ratio and its break-even point in both units
and dollars.
CM ratio = Contribution / Sales
= $175,500 / $585,000 = 0.3 or 30%
Break-even point in units = 180,000 / 9 = 20,000 units
Note: I found the Unit CM by dividing the contribution margin(175,000) by the
quantity(195000).
Break-even point in dollars = 20,000 units * $30 per unit = $600,000
d. The Marketing Department thinks that a fancy new package for the
laptop computers battery would help sales. The new package would
increase packaging costs by 75 cents per unit. Assuming no other
changes, how many units would have to be sold each month to earn a
profit of $9,750?
Sales = variable expenses + fixed expenses + profits
30Q = 21.75Q + 180,000 + 9750
30Q - 21.75Q = 180,000 + 9750
8.25Q = 189750
Q = 23000
e. By automating certain operations, the company would reduce variable
costs by $3 per unit. However, fixed costs would increase by $72,000
each month.
i. Compute the new CM ratio and the new break-even point in units and
dollars.
CM Ratio = 12/30 *100 = 40%
BEP units = 252000/12 = 21000 units
BEP dollars = 252000/0.4 = 630,000
ii. Assume that the company expects to sell 26,000 units next month.
Prepare two contribution format income statements, one assuming that
operations are n ot automated and one assuming that they are.