KMP SUGGESTED ANSWER – PSPM AA025 SESSION 2017/2018

SECTION A
(a)
Accuracy The information provided must coincide with the requirements of
management functions.

Timeliness Must coincide with the time it is needed.

Understandability Must be understood by managers where most managers have no

accounting or financial background.

Relevance An informational choice must provide different results for an

activity.

Cost-effective Must be able to provide a return to cover the cost of obtaining that
information.

Flexibility Should be easily adapted to the decision needs to be made.

(b) 3 uses of breakeven point analysis

• Determine the level of sales at the break-even point
• Determine the sales required to achieve profit targeted
 Make decisions regarding pricing policies
 Make decisions regarding fixed costs and marketing strategies.
 Review the impact on profit when there is a change in the CVP analysis element.
 Calculate the safety margin

(c) 2 methods to segregate mixed cost

 High-low method
 Graph method
 Simple Regression method

(d) 2 advantages of using applied overhead than actual overhead

1. Price planning or determination
2. Estimate overhead costs

(e)
Process costing Job order costing
Example of product Cooking oil Wedding invitation card
Types of product Uniform products Various products

SECTION B
QUESTION 3

(a) Predetermined overhead rate

= Estimated factory overhead cost
Estimated direct labor cost
= RM19,800 x 100
RM24,000
= 82.5%

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KMP SUGGESTED ANSWER – PSPM AA025 SESSION 2017/2018

(b) Cost for each job

L01 L02 L03 L04 Total
Direct materials 10,330 9,750 11,200 10,760 42,040
Direct labor 9,280 7,320 8,440 9,000 34,040
Applied overhead 7,656 6,039 6,963 7,425 28,083
Total cost 27,266 23,109 26,603 27,185 104,163

(c)
Raw materials inventory 99,700
Accounts payable 99,700
(to record purchase of raw materials on account)

Work in process inventory 76,080

Raw materials inventory 42,040
Salaries payable 34,040
(to assign materials and labor to jobs)

Work in process inventory 28,083

Manufacturing overhead 28,083
(to record applied overhead)

Manufacturing overhead 31,570

Raw materials inventory 5,350
Salaries payable 4,720
Utilities payable 6,100
Maintenance payable 9,200
Accumulated depreciation 3,900
Tax payable 2,300
(to record actual overhead costs)

Cost of goods sold (28,083 – 31,570) 3,487

Manufacturing overhead 3,487
(to record adjustment of underapplied overhead)

Finished goods inventory (27,266 + 26,603 + 27,185) 81,054

Work in process inventory 81,054
(to record cost of finished goods)

QUESTION 4

(a) (i)

COST Absorption Costing Marginal Costing

(RM) (RM)
Direct materials 12 12
Direct labor 6 6
Variable overhead (RM42,000/42,000) 1 1
Fixed overhead (RM84,000/42,000) 2 -
Product cost per unit 21 19

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KMP SUGGESTED ANSWER – PSPM AA025 SESSION 2017/2018

(ii)
Applied variable overhead (43,000 x RM1) 43,000
(-) Actual variable overhead (43,000 x RM1) 43,000
Over/under applied variable overhead 0

Applied fixed overhead (43,000 x RM2) 86,000

(-) Actual fixed overhead 85,000
Overapplied fixed overhead 1,000

Bomerang Enterprise
Statement of Comprehensive Income – Absorption Costing
For the year ended 31 December 2017
RM RM
Sales (42,000 x RM30) 1,260,000
Less: Cost of goods sold
Beginning inventory (4,000 x RM21) 84,000
(+) Cost of goods manufactured (43,000 x RM21) 903,000
Cost of goods available for sale 987,000
(-) Ending inventory (5,000 x RM21) (105,000)
Cost of goods sold 882,000
(-)Overapplied overhead (1,000) (881,000)
Gross profit 379,000
Less: Operating expenses
Variable sales & administration (42,000 x RM2) 84,000
Fixed sales & administration 160,000 (244,000)
Net income 135,000

Bomerang Enterprise
Statement of Comprehensive Income – Marginal Costing
For the year ended 31 December 2017
RM RM
Sales (42,000 x RM30) 1,260,000
Less: Variable Cost
Beginning inventory (4,000 x RM19) 76,000
(+) Variable cost of goods manufactured (43,000 x RM19) 817,000
Variable cost of goods available for sale 893,000
(-)Ending inventory (5,000 x RM19) (95,000)
Variable cost of goods sold 798,000
Variable sales & administration 84,000 (882,000)
Contribution margin 378,000
Less: Fixed cost
Fixed factory overhead 85,000
Fixed sales & administration 160,000
Total of fixed cost (245,000)
Net income 133,000

(iii) Adjustment of net income difference

Absorption Costing net income RM135,000
(+) Fixed cost in beginning inventory (4,000 x 2) 8,000
(-) Fixed cost in ending inventory (5,000 x 2) (10,000)
Marginal Costing net income RM133,000

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KMP SUGGESTED ANSWER – PSPM AA025 SESSION 2017/2018

QUESTION 5

(a) (i) Price variance for direct materials

= AQ (AP – SP)
= (3.9 x 2,100) (8.00 – 7.50)
= RM4,095 U

(ii) Efficiency variance for direct labor.

= SR (AH – SH)
= 10 (0.45 x 2,100 – 0.40 x 2,100)
= RM1,050 U

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