Spring 2006 Cost and management Accounting Q1) Distinguish between financial and cost/management accounting and discuss

the efficacy of cost/management accounting? Ans Managerial Accounting a) Users of information Managers within the organization b) Regulation: Not required and unregulated since it is intended only for the management c) Source of data The organizations basic accounting system plus various sources, such as rates of defective products manufactured, physical quantities of material and labor used in the production occupancy rates in hotels and hospitals and average take offs delays in air-lines d) Nature of reports and procedures Reports often focus on the sub-units within the organization, such as departments, divisions, geographical regions, or product lines based on a combination of historical data, estimates and projections of future events Reports focus on the enterprise in its entirely based almost exclusively on historical transactions data. Almost exclusively drawn from the organizations basic accounting system which accumulates financial information Required and must conform to generally accepted accounting principles. Regulated by FASB and to a lesser degree, the SECP Interested parties, outside the organization Financial Accounting

For efficacy of cost/management Accounting refer to chapter # 1 highlighting the role of cost Accounting Q2) explain the following terms a) Opportunity cost b) Indirect cost c) Sunk cost d) Conversion cost

Ans) Refer to chapters # 2 & 21 for the concept and classification of costs. Q3) shilders, Incorporation has an annual usage of 1000 units if item M with a purchase price o Rs 5.50 per unit the following data are applicable to item M Ordering cost Rs 5 per order Carrying cost 15 % Ans) EOQ = = 2 x (co) x (Ru) Cc x cu 2 x (5) x (1000) (0.15) x (5.50) 10000 0.825 110 Units

= =

Q4) Monnire, Incorporation produces cologne, Mon Roi, Which requires processing in the three departments. In third department, materials are added, doubling the number of units. The following data pertain to the operations to the operations of department 3 of March: Units received from department 2 Units transferred to finished goods storeroom The balances of the units are still in process 100 % complete as to materials 50 % complete as to labor and overhead. Cost transferred from department 2 Cost added by the department Materials Labor Factory over head There was no beginning work in process inventory $ 20000 32000

30000 $ 8800 9000 7200

$ 25000

You are required to prepare a cost of production report for department 3 for March.

Ans)

Cost of production report for March Quantity schedule Units received from the preceding department Units added to the units received Units transferred to finished goods Units still in process Cost charged to the department: Transferred from the preceding department Cost added by the department Materials (20000 +20000) Labor (32000 + 8000 x 0.5) FOH (32000 + 8000 x 0.5) Total cost added Cost adjusted $ 30000/40000 Cost accounted for as follows Transferred to finished goods @ $1.42 Ending Work in progress Materials = 8000 @ 0.75 Materials = 8000 @0.22 Labor = 8000 x x 0.25 FOH = 8000 x x 0.5 x 0.20 Total Cost Accounted for

20000 U 20000 32000 8000 40000 U Total $ 30000 $ 8800 9000 7200 $ 25000 $ 30,000 $ 55,000 $ 32,000 $ 6000 $1760 $1000 $800 40000 U Unit cost $ 1.50 $0.22 0.25 0.20 $ 0.67 0.75 $ 1.42 $ 45,440

$ 9560 $ 55,000

Q5) prepare a cost of goods statement highlighting its major components with imaginary figures. ABC Company Cost of Goods sold For the period ended Direct Material Beginning Inventory + Purchases Material available for use - Ending inventory Material used Direct labor Prime Cost Factory overhead Total manufacturing cost + Beginning work in progress - Ending work in progress Cost of goods manufactured + Beginning finished goods Goods available for sale - Ending finished goods Cost of goods sold *Major components * Results derived Q6) Discuss in brief various functional budgets of an Industrial organization? Ans) Refer to chapters # 15 & 16 for the solution Q7) (a) The Schlosser lawn Furniture Company uses 12 meters of aluminum pipe at $ 0.80 per meter as standard for the production of its type A Lawn chair. During one months operations 100000 meters of the pipe were purchased at $ 0.78 a meter and 7200 chairs were produced using 87300 meters of pipe. The materials price variance is recognized when tare purchased. Required: The materials price and quantity Variances $ 20,000 110,000 $ 130,000 26,000 $ 104,000 160,000 $ 264,000 $ 80,000 $ 344,000 40,000 $ 384,000 36,000 $ 348,000 102,000 $ 450,000 105,000 $ 345,000

(b) The processing of a product requires a standard of 8 direct labor hours per units of operations 4-082 at a standard wage rate of $ 6.75 per hour. The 2000 units actually required 1580 direct labor hours at a cost of $6.90 per hour. Required: The labor rate and efficiency Variance. Ans) (a) Materials price variance = Difference between actual price and standard price multiplied by the actual quantity of materials purchased or PQ x (AS-SP) 100000 x (0.78 0.80) = - $ 20000 F Materials Quantity variance = Difference between actual and standard quantity multiplied by the standard price or SP (AQ SQ)* = 0.80 x (87300 86400) = $ 720 UF * 86400 = (7200 x12)

(b) Labor rate Variance = Difference between actual rate and the standard rate multiplied by the actual hours. OR AH (AR SR) = 1580 x (6.90 6.75) = $ 237 UF Labor Efficiency Variance: Difference between actual hours and standard Hours by the standard hours multiplied by the standard rate Or SRx (AH SH) = 6.75 x (1580-1600) = - $ 135 F Q8) Classify these Industries with respect to the type of cost accumulation procedure generally used job order costing or process order costing a) Meat b) Sugar c) Steel d) Breakfast cereals e) pepperboxes f) wood furnitures g) Toys and Novelties h) coke I) Cooking Utensils j) Caskets k) pianos l) Linoleum m) Leather n) Nylon o) Baby foods p) Locomotives q) Luggage r) paint s) Car tires Ans) Refer to Chapter 3 & 4 for the solution

Autumn 2005 Cost and management Accounting Q1) Cost Accounting concepts play a vital role in decision-making Comment? Ans) refer to chapter # 1 for the role of cost accounting

Q2) following are the costs of packing department of Sona Sabun Factory for the month of September 19xx Cost from preceding department Rs 1674440 Direct Materials 26490 Conversion Costs 8830 During the month packing department received 46,000 cakes from the preceding department and transferred out 43,700 cakes to finished stock.1, 800 cakes are still in process on which no costs is yet incurred by the department. In September there was spoilage of 500 cakes when 90% complete. The spoilage is attributed to defective materials,.There were no units in process at the beginning of September Required: Cost of production report Ans) Quantity schedule Units received from the preceding department Units transferred to finished goods Units still in process Units spoiled Cost charged to the department: Transferred from the preceding department Cost added by the department Materials (43700 +90% of 500) Conversion costs (43700+90% of 500) Total cost to be accounted for Cost accounted for as follows Transferred to finished goods @ Rs 4.44 Transferred to FOH: Rs 43700 Rs 194028 46,0000 Units 43700 1800 500 Total Rs 167,440 26490 8830 Rs 35320 202760 46,0000 Units Unit cost Rs 3.64 0.60 0.20 Rs 0.80 4.44

Defective 500@ 3.64 90% of 500 @ 0.80 Ending work in progress 1800@ 3.64 Total cost Accounted for

Rs 1820 360

2180 6552 Rs 202760

Q3) A company pays to its workers by accelerated price rates Following accelerated piece rate guide is provided: Units up to 110% efficiency at basic piece rate. Units above 110% efficiency at basic piece rate + 25% Units above 130% efficiency at basic piece rate + 50% Basic piece rate for operation No 901 is Rs 0.40 and the standard output is 1,200 units per week Required (1) prepare a schedule of piece rates for operation # 901 (2) Calculate earnings of A, B, C, D and E who produced 1,300:1,400:1,600:1,650 respectively during the week Ans) (1) Schedule of piece rates = 0.40, 0.50, 0.60 (2) Units produced Standard Production Efficiency Rate Bonus Rate Regular wages Bonus Total Wages Per unit cost A 1300 U 1200U 108.33% Rs 520 Rs 520 Rs 0.40 B 1400U 1200U 116.67% 25 % Rs 560 Rs 140 Rs 700 Rs 0.50 C 1550U 1200U 129.17% 25 % Rs 620 Rs 155 Rs 775 Rs 0.50 D 1600U 1200U 133.33% 50 % Rs 640 Rs 320 Rs 960 Rs 0.60 E 1650U 1200U 137.5% 50 % Rs 660 Rs 330 Rs 990 Rs 0.60

Q4) The Mars Company applies factory overheads to production by means of predetermined rate based on the expected capacity. Factory overheads at expected actual capacity of 120,000 hours are Rs 240,000 of which Rs 60,000 is fixed and Rs 180,000 is variable. Normal capacity of the company is 150,000 hours .the actual capacity attained during the year was 100,000 hours and the actual factory overhead was Rs 180,000 Calculate (1) pre-determined overhead rate based on expected actual capacity and normal capacity

(2) Over head or under-applied factory overhead based on rate used by the company (3) Budget variance and volume variance Ans) (a) Pre-determined overhead rate Based on the actual capacity Overall = Rs 240,000/120,000 = Rs 2 per hour Fixed = Rs 60000/120,000 = Rs 0.50 per hour Variable = Rs 180,000/120,000 = Rs 1.50 per hour Based on normal capacity Overall = Rs 240,000/150,000 = Rs 1.60 per hour Fixed = Rs 60000/150,000 = Rs 0.40 per hour Variable = Rs 180,000/150,000 = Rs 1.20 per hour (b) Applied overhead = 100,000 x RS 2 per hour = Rs 200,000 OverApplied = Rs 200,000-180,000 = Rs 20,000 c) Spending Variance = 180,000-(60000+100,000 x 1.50) = - Rs 30,000 F Idle capacity Variance = 210,000-200,000 = Rs 10,000 UF Total Variance = -Rs 30000+ Rs 10,000 = -Rs 20,000 F Q5) Swisher Company produces and sells commercial printing press Accounting record from the past four years reveals the following:

Press Model 222 333 444

Year 1 100 100 100

Sales in units Year 2 110 120 95

Year 3 120 160 85

Year 4 130 240 70

The trends over four years are expected to extend to the fifth year as well. Inventory estimates for the year 5 are Press model 222 333 444 Beginning Inventory 2 5 4 Ending Inventory 4 5 5

Prepare sales and production estimates for the year five in units and by product. Ans) Press model 222 333 444 Trend over past four years Increase by 10 units /year Incremental Increase doubled Decrease annually 5 more units Projected units for year five 140 units 400 units 50 units

Production Estimates for year 5 Units to be sold + Desired Ending Inventory - Beginning Inventory Units to be produced Model 222 140 4 144 2 142 Modal 333 400 5 405 5 400 Model 444 50 5 55 4 51

Q6) write note on the following a) Makes vs. buy decision b) Opportunity cost c) Contribution margin Ans) (a) refer to chapter # 21 (b) Refer to chapter # 21 (c) refer to chapter # 20

Q7) During the month 1200 units of topo were produced. Actual direct labor required 650 direct labor hours at actual cost of Rs 6435 .As per standard cost card for topo, one half of labor should be required per unit of topo produced, at a standard cost of Rs 10 per labor hour. Compute the labor rate variance and labor efficiency variance, indicating whether the variances are favorable or unfavorable? Ans) Labor Rate Variance = AH x (AR- SR) = 650 x (9.90- 10)

= - Rs 65 (F)

Labor Efficiency Variance = = = SR (AH SH) 10 x (650 600) Rs 500 (UF)

Q8) Compare ABC costing with traditional costing system? Ans) refer to Chapter # 8

Autumn 2004 Cost and Management Accounting Q1) briefly discuss the cost accumulation procedures used by the manufacturing organizations? Ans) refer to chapter # 1 Q2) Elaborate the following the costs a) Variable costs b) Fixed costs c) Product cost d) Period costs e) Semi variable costs Ans) refer to Chapter no 2 Q3) selected data concerning last years operations of televans are as follows Inventories Beginning Ending $ 90,000 $ 110,000 80,000 30,000 75000 85000

Finished goods Work-in progress Materials Other data

Materials used Total manufacturing cost (FOH applied @60 % of the direct labor) Cost of goods available for sale Marketing and administrative expenses Required a) cost of material purchased b) direct labor cost to production c) cost of goods manufactured d) cost of goods sold

= $ 326,000 = $ 686,000 = $ 26,000 = $ 25 000

Ans)

Televans company

Cost of goods sold for last year Direct materials Beginning inventory + Purchases Materials available for use - Ending Inventory Material consumed Direct labor FOH Total cost manufacturing cost +beginning work in progress - Ending work in progress Cost of goods Manufactured + Beginning Finished goods Goods available for sale -ending finished goods Cost of goods sold

= $ 75,000 = $ 336,000 = $ 411,000 = $ 85000 = $326,000 = $ 225,000 = $ 135,000 = $ 686,000 = $ 80,000 = $ 766,000 = $ 30,000 =$ =$ =$ =$ 736,000 90,000 826,000 110,000

= $ 716,000

Cost of materials purchased Direct Labor Cost of goods manufactured Cost of goods sold

= $ 336,000 = $ 225,000 = $ 736,000 = $ 716,000

Q4) Rogers milling company manufactures a product requiring processing in three departments with all material put into the process in the first department. During May, 110,000 units were completed in department 1 and at a total cost of $ 176,000 and transferred out 85000 units, incurring labor cost of $ 26180 and factory overhead costs of $ 13090 .The May 31 work in process inventory of department 2 is 22000 units, completed as to labor and factory overhead .department 2s spoilage occurs at the end of processing and is normal. Required; prepare the cost of production report of second department for the month May

Ans) Cost of production report for May for 2nd department Quantity schedule Units from the department 1 Units transferred to next department Units still in process Units lost Cost charged to the department Cost transferred from the preceding department Cost added by the department Labor (85000+3000+1/4 x 22000) FOH (----DO-----) Total cost to be accounted for Total accounted for as follows Transferred to next department@ $ 2.02 Ending work in process Cost from the preceding department 22000 @ $1.60 x 22000 @0.42 Cost of units lost 3000@ $ 2.02 Cost accounted for as flows

110,000 U 85,000 U 22,000 U 3000 U Total $ 176,000 $ 26,180 $ 13090 $ 39270 $ 215270 $85000 352,00 2310 6060 37,510 6060 $ 215,270 110,000 U Unit $ 1.60 $ 0.28 $ 0.14 $ 0.42 2.02 $171,700

Q5) Semiconductor Company is planning to produce and sell 100,000 units of a chip A at $ 4 a unit and 200,000 units of chip B at $3 a unit. Variable costs are 70% of sales for chip A and 80% for chip B Required: If total planned operating profit is $ 140,000 what must be the total fixed cost be?

Ans)

Particulars Sales Variable costs Contribution margin Fixed costs Operating profit Another way

Chip A $400,000 280,000 $ 120,000

Chip B $ 600,000 480,000 $ 120,000

Total 1000,000 760,000 $ 240,000 100,000 $140,000

100,000 x ($4.00-$ 2.80) + 200,000 x ($ 3.00- $2.40) - $ 140,000 = $ 100,000

Q6) Normal annual capacity for leather coordinators is 36000 labor hours, with fix factory overhead budged as $ 16920 and as estimated variable cost of $ 2.10 per labor hour During October, actual production required 2700 labor hours, with a total of $ 7959. Required; compute applied factory overhead, spending variance and idle capacity variances Ans) Applied FOH Variable Rate Fixed rate $16920/36000 = Total $ 2.10+ 0.47 = $ 2.57 *Amount of applied FOH 2700 x $ 2.57 = *Spending variance; $ 7959 [ $1410 +(2700 x $2.10)] = Idle capacity Variance : $ 7080 - $ 6939 = $ 141 UF Total Variance : $ 879+ $ 141 = $ 1020 UF Under applied Actual FOH Applied $ 7959 - $ 6939 = $ 1020 $ 2.10 $ 0.47 $ 6939 $ 879 UF

Q7) A particular material is purchased for $3 per unit. Monthly usage is 1500 units, the ordering costs are $ 50 per order, and the annual carrying costs is 40% Required a) compute the economic order quantity b) Determine the proper size order size if the material can be based at a 50% discount in lots of 2000 units. Ans) EOQ = 2 x (50) x (18000) (0.40) X ($ 3) = 1225 Units

Total inventory cost if EOQ is followed =1.20 (1225/2) + 50x (18000/1225) = $ 1470 Total inventory cost if orders in lots of 2000 are placed =1.20 x (2000/2) +50 x (18000/2000) = $ 1650 Increased cost = $ 1650 - $1470 = $ 180 Amount of discount 18000 x $ 3 x 5/100 = $ 2700 Therefore the company should place their orders in lots of 2000 units Q8) Define and compare the conventional costing and marginal costing? Ans refer to chapter no 19 for the answer

Semester spring 2004 Cost and management accounting Q1) (a) what is meant by cost management? Discuss briefly? (b) Discuss the role of cost accounting in managerial decision making? Ans refer to chapter No 1 Q2) Wade Company uses process costing. All materials are added at the beginning of the process. The product is inspected when it is 89 % converted and spoilage is identified only at that point. Normal spoilage is expected to be 5% of goods output. During March 10,500 units were put into process. Current costs were Rs 52,500 for materials Rs 39,770 for labor and Rs 31,525 for factory overhead the 3000 units still in process at the end of March were estimated to be 90% complete .A total of 7,000 units were transferred to finished goods Required; prepare a cost of production report for March Ans) Cost of production report for March Quantity schedule Units started in process Units transferred to finished goods Units still in process Units spoiled Cost charged to the department: Cost added by the department Materials (7000+3000) Labor (7000+90% of 3000) FOH Total cost to be accounted for Cost accounted for as follows Transferred to finished goods @ 12.60 Ending work in process 7000 88200 105,00 Units 7000 3000 500 Total 52500 39770 31525 123,795 105,00 Units Unit cost 5.25 4.10 3.25 12.60

Materials (3000 x 5.25) Labor (3000 x 0.90 x 4.10) FOH (3000 x 0.90 x 3.25) Total cost accounted for

15750 11070 8775

35595 123,795

Q3) A particular material is purchased for $3 per unit. Monthly usage is 1500 units, the ordering costs are $ 50 per order, and the annual carrying costs is 40% Required c) compute the economic order quantity d) Determine the proper size order size if the material can be based at a 50% discount in lots of 2000 units. Ans) EOQ = 2 x (50) x (18000) (0.40) X ($ 3) = 1225 Units

Total inventory cost if EOQ is followed =1.20 (1225/2) + 50x (18000/1225) = $ 1470 Total inventory cost if orders in lots of 2000 are placed =1.20 x (2000/2) +50 x (18000/2000) = $ 1650 Increased cost = $ 1650 - $1470 = $ 180 Amount of discount 18000 x $ 3 x 5/100 = $ 2700 Therefore the company should place their orders in lots of 2000 units

Q4) In June, the FOH idle capacity Variance for sterner company was Rs 800 favorable and the spending variance was zero In July, the FOH idle capacity variance for sterner company was zero but the spending variance was Rs 500 unfavorable. In June, actual factory overhead was Rs 9000 for an output of 700 tons, while In July the factory

overhead was Rs 7,500 for a500 ton output In August, output was 400 tons actual factory overhead was Rs 5900 and the budget allowance was Rs 6000 Required: complete the variance analysis for each of the three months Ans) Month June July August Actual FOH Rs 9000 7500 5900 Budget Allowance 9000 7000 6000 Output 700 tons 500 tons 400 tons Applied FOH 9800 7000 5600 Spending Variance 0 500 UF 100 F Idle Capacity 800 F 0 400 UF

FOH applied Rate Rs 9800/700 =Rs 14 per ton OR 7000/500 = Rs 14 per ton Q6) Castle ton company has analyzed the costs of producing and selling units of its sole product to be sold as fallows: Direct materials = Rs 60,000 Direct labor = Rs 40,000 Variable factory overhead = Rs 20,000 Fixed factory overhead =Rs 30,000 Variable marketing and administrative expenses = Rs 10,000 Fixed marketing and administrative expenses = Rs 15,000 Required a) compute the number of units to break even at a per unit sales price of Rs 38.50 b) Determine the number of units that must be sold to produce an Rs 18,000 profit at Rs 40 per unit sales price? c) Determine the price castle ton must change at a 5000 unit sales level in order to get a profit equal to 20% of the sales

Ans) (a) BEQ = Rs 30000 +Rs 15000 Rs 38.50 + Rs 26.00* (b) Number of units to sold to achieve target profit = Rs 45000+Rs 18000 Rs 40- Rs 26 *Rs 60,000 +Rs 40,000+Rs 20,000+Rs 10,000 = Rs 130,000/5000 = Rs 26.00

= Rs 4500 units

(c)

(5000) x (X) = (26) x ( 5000)+ (45000 + 0.20 (X)(5000) 5000X = 130000+ 45000 +1000X 50000X-1000X = 130000+45000 4000X = 175000 X = 175000/-(4000) = Rs 43.75

Proof: 5000 x (43.75- 26.00) = 45000 = Rs 43750 Profit percentage = Rs 43750 x 100 Rs 218750* 5000 x 43.75 = Rs 218750 = 20%

Q5) Make a comparative study of budget and standards? Ans) refer to chapter # 15 for the solution

Q6) (a) Define opportunity costs? (b) Historical costs are usually irrelevant for decision making comment? Ans) refer to chapter # 21 for the solution

Q7) Make a comparative study of activity based costing (ABC) with traditional costing systems? Ans) refer to chapter# 8 for the solution

Spring semester 2002 Cost and Management Accounting Q1) Write down a comprehensive note on the definition, scope and advantages of Cost and Management Accounting? Ans) refer to chapter # 1 Q2) Enumerate the five parts of the cost of goods section of the income statement. Also discuss the various classifications of costs? Ans) refer to chapter # 2 Q3) The ABC Company is to submit a bid on the production of 12000 ceramic plates. It is estimated that the cost of materials will be Rs 180000, and the cost of direct labor will be Rs 29000. Factory overhead is applied at Rs 2.67 per direct labor hour in the molding department and 55% of the direct labor cost in the decorating department. It is estimated that 1200 direct labor hors at the cost of Rs 8000 will be required In molding The company wishes a markup of 67% of its total production cost. Required: determine the following a) Estimated cost to produce b) Estimated prime cost c) Bid price Ans) (1) Estimated cost to produce materials: Rs 18,000 8000 21000 29000 Rs 47000

Materials Direct Labor Molding department Decorating department Prime cost FOH Molding Department:1200 x 2.67 Decorating: 21000 x 55/100 Cost of production

3204 11550

14754 Rs 61754

(2) Estimated prime Cost Materials + direct labor Rs 18000 + RS 29000 = Rs 47000 Bid Price Estimated cost to produce = 61754 + Mark up 67 % = 41375 Total = Rs 103,129

Q4) Define productivity and explain why productivity is important to the firm to workers, and to society? Also explain how can labor efficiency be determined or measured? Ans) refer to chapter # 9 for the solution Q5) Department no 2 of ABC Company has reported the following production data for Jan 2002 Transferred in from department 1 55000 liters Transferred out to department 3 39500 liters In process at the end of December (with labor 1/3 and FOH) All Materials were put into process in department 1

10500 liters

The cost department collected these figures for department 2: Unit cost for the units transferred in from department 1 1.80 Labor cost in department 27520 Applied factory overhead 15480 Required: Prepare a cost of production report for department 2 for January 2002 Ans) Cost of production report for January 2002 Quantity schedule Transferred from department 1 Transferred from department 3 Units still in process Units Lost Cost charged to the department: 55000 U 39500 U 10500 5000 Total 55000 U Unit cost

Cost transferred from department 1 Cost added by the department Labor (39500+1/3 of 10500) FOH Total cost Added Adjustment for lost units Rs 99000/(55000-5000) =Rs 1.98- Rs 1.80 = Total cost to be accounted for Cost accounted for as follows Transferred to Next department@ 2.98 Ending work in process Cost from preceding department (10500@ Rs1.98 Labor (0.64 x 1/3 of 10500) FOH (----do----) Total cost accounted for

99000 27520 15480 43000

1.80 Rs 0.64 0.36 Rs 1.00 0.18 Rs 2.98

142000

39500 20,790 2240 1260

Rs 117,710

24290 Rs 142000

Q6) A particular material is purchased for $3 per unit. Monthly usage is 1500 units, the ordering costs are $ 50 per order, and the annual carrying costs is 40% Required e) compute the economic order quantity f) Determine the proper size order size if the material can be based at a 50% discount in lots of 2000 units. Ans) EOQ = 2 x (50) x (18000) (0.40) X ($ 3) = 1225 Units

Total inventory cost if EOQ is followed =1.20 (1225/2) + 50x (18000/1225) = $ 1470

Total inventory cost if orders in lots of 2000 are placed =1.20 x (2000/2) +50 x (18000/2000) = $ 1650 Increased cost = $ 1650 - $1470 = $ 180 Amount of discount 18000 x $ 3 x 5/100 = $ 2700 Therefore the company should place their orders in lots of 2000 units Q7) The ABC Company was totally destroyed by fire in June. However, certain fragments of its cost records with the favorable data were recovered: Idle capacity variance, 1266 favorable, spending variance, 879 unfavorable: and applied factory overhead, 16234. Required: Determine the budget allowance, based on the capacity utilized and the actual factory overhead. Ans) Actual FOH 15847 Budget allowance 14968 Applied FOH 16234 Spending Variance 879 UF Idle capacity Variance 1266 F

Semester Autumn 2002 Cost and Management Accounting Q1) Define the term cost and distinguish between Financial Accounting and cost accounting and management accounting? Ans) refer to Chapter # 1 for distinction between cost and financial accounting and for concept and classification refer to Chapter # 2 for the solution

Q2) A Companys purchases of materials during April totaled Rs 210000, and the cost of goods sold for April was Rs 445000. Factory overhead was 75% of direct labor cost. Other information pertaining to the Companys inventories and production for the month is as fallows: Inventories Finished goods Work in process Materials Required: a) prepare a schedule of the cost of goods manufactured for April b) compute the prime cost charged to work in process during April c) d) compute the conversion cost charged to work in process during April Ans) a) Schedule of cost of goods manufactured for the month of April Cost of goods Manufactured + Beginning Finished Goods Goods Available for sale -Ending finished Goods Cost of Goods Sold b) Total Manufacturing Cost +Beginning Work in process Cost of goods to be manufactured -Ending work in process Cost of goods manufactured Rs 451,000 40,000 491000 34000 Rs 457,000 Rs 457,000 100,000 Rs 557,000 112,000 Rs 445,000 Beginning 100,000 40000 19000 Ending 112000 34000 15000

Total Manufacturing Cost: Materials + Conversion Cost = Rs 451,000 Materials Used Beginning Inventory + purchases Materials Available for use -Ending Materials Materials Consumed Rs 19000 Rs 210,000 Rs 229,000 15,000 Rs 214,000

Conversion cost = Total manufacturing cost - materials consumed

Rs 451,000-Rs 214,000 = Rs 237,000 Conversion Cost = Rs 237,000 = Direct Labor + FOH = 100 % + 75 % = Rs 135429 + Rs 101571 Prime cost = Direct labor + materials consumed = Rs 135,429 +Rs 214000 = Rs 349,429

Q3) The ABC Company is to submit a bid on the production of 12000 ceramic plates. It is estimated that the cost of materials will be Rs 180000, and the cost of direct labor will be Rs 29000. Factory overhead is applied at Rs 2.67 per direct labor hour in the molding department and 55% of the direct labor cost in the decorating department. It is estimated that 1200 direct labor hors at the cost of Rs 8000 will be required In molding The company wishes a markup of 67% of its total production cost. Required: determine the following d) Estimated cost to produce e) Estimated prime cost f) Bid price

Ans)

(1) Estimated cost to produce materials: Rs 18,000 8000 21000 29000 Rs 47000

Materials Direct Labor Molding department Decorating department Prime cost FOH Molding Department:1200 x 2.67 Decorating: 21000 x 55/100 Cost of production (2) Estimated prime Cost Materials + direct labor Rs 18000 + RS 29000 = Rs 47000 Bid Price Estimated cost to produce = 61754 + Mark up 67 % = 41375 Total = Rs 103,129

3204 11550

14754 Rs 61754

Q4) Define productivity and explain why is productivity is important to the firm, to workers, and to society? Also explain how labor efficiency can be determined or increased? Ans) refer to chapter # 9 for productivity and its importance

Q5) Department no 2 of ABC Company has reported the following production data for Jan 2002 Transferred in from department 1 55000 liters Transferred out to department 3 39500 liters In process at the end of December (with labor 1/3 and FOH) All Materials were put into process in department 1

10500 liters

The cost department collected these figures for department 2: Unit cost for the units transferred in from department 1 1.80 Labor cost in department 27520 Applied factory overhead 15480

Required: Prepare a cost of production report for department 2 for January 2002 Ans) Cost of production report for January 2002 Quantity schedule Transferred from department 1 Transferred from department 3 Units still in process Units Lost Cost charged to the department: Cost transferred from department 1 Cost added by the department Labor (39500+1/3 of 10500) FOH Total cost Added Adjustment for lost units Rs 99000/(55000-5000) =Rs 1.98- Rs 1.80 = Total cost to be accounted for Cost accounted for as follows Transferred to Next department@ 2.98 Ending work in process Cost from preceding department (10500@ Rs1.98 Labor (0.64 x 1/3 of 10500) FOH (----do----) Total cost accounted for 39500 20,790 2240 1260 24290 Rs 142000 Rs 117,710 55000 U 39500 U 10500 5000 Total 99000 27520 15480 43000 55000 U Unit cost 1.80 Rs 0.64 0.36 Rs 1.00 0.18 Rs 2.98

142000

Q6) A particular material is purchased for $30 per unit. Monthly usage is 15000 units, the ordering costs are $ 500 per order, and the annual carrying costs is 50% Required g) compute the economic order quantity h) Determine the proper size order size if the material can be based at a 50% discount in lots of 2000 units.

Ans)

Q7) The Zaryab Mfg. Company employs 175 people, who work 8 hours a day, 6 days a week. Normal capacity is based on the Assumption that the equivalent of 48 weeks of work can be expected from an employee. Required a) The number of direct labor hours to be used in setting up firms factory overhead rate based on normal capacity. b) The number of direct labor hours if management and workers agree on a 10hour, 5 day work week. Ans) a) Number of Direct labor hours (on normal capacity) 48 x 6 x 8 = 2304 hours c) Numbers of direct labor hours (10-hour, 5 day work week) 48 x 5 x 10 = 2400 hours

Semester Autumn 2003 Cost and Management accounting Q1) Enumerate the requirements of a good information system. Ans) refer to chapter #1 for the solution

Q2) The December 31, 19B Trial Balance of Crockett Company Showed: Sales $14,500,500 Purchases 2,400,000 Transportation in 32,000 Direct labor 3,204,000 Sales return and allowances $25,200 Factory Overhead 1,885,600 Advertising Expense 155,000 Delivery Expense 65,000

Inventories Finished goods Work in process Materials

December 31,19B $567,400 136,800 196,000

December 31,19A $ 620,000 129,800 176,000

Required: Determine (1) the total manufacturing cost (2)the cost of goods manufactured (3) the cost of goods sold Ans) Direct Materials Beginning inventory + purchases + transportation in Materials available for use -Ending Inventory Material consumed * Direct labor *FOH 1)Total manufacturing Cost +beginning work in process Cost of goods to be manufactured -Ending inventory 2) cost of Goods manufactured $ 176,000 2400,000 32,000 2608,000 196,000 $

2412,000 3204,000 1885,600 7501,600 129,800 7631,400 136800 7494,600

+ beginning finished goods Goods available for sale -Ending Finished goods 3) Cost of goods sold

620.000 8114,600 567,400 $ 7547,200

Q3) Q4) Rogers milling company manufactures a product requiring processing in three departments with all material put into the process in the first department. During May, 110,000 units were completed in department 1 and at a total cost of $ 176,000 and transferred out 85000 units, incurring labor cost of $ 26180 and factory overhead costs of $ 13090 .The May 31 work in process inventory of department 2 is 22000 units, completed as to labor and factory overhead .department 2s spoilage occurs at the end of processing and is normal. Required; prepare the cost of production report of second department for the month May Ans) Cost of production report for May for 2nd department Quantity schedule Units from the department 1 Units transferred to next department Units still in process Units lost Cost charged to the department Cost transferred from the preceding department Cost added by the department Labor (85000+3000+1/4 x 22000) FOH (----DO-----) Total cost to be accounted for Total accounted for as follows Transferred to next department@ $ 2.02 Ending work in process Cost from the preceding department 22000 @ $1.60 x 22000 @0.42

110,000 U 85,000 U 22,000 U 3000 U Total $ 176,000 $ 26,180 $ 13090 $ 39270 $ 215270 $85000 352,00 2310 37,510 110,000 U Unit $ 1.60 $ 0.28 $ 0.14 $ 0.42 2.02 $171,700

Cost of units lost 3000@ $ 2.02 Cost accounted for as flows

6060

6060 $ 215,270

Q4) Describe methods for allocating the joint production cost to joint products? Ans) refer to chapter # 6 for the solution

Q5) Newton products Company has developed the following the following costs and other data pertaining to one of its raw materials Normal use per day 400units Maximum use per day 600units Minimum use per day 100 units Working days per year 250days Lead time 8 days Cost of placing one order $20.00 Cost per unit of material $ 2.50 Carrying cost Percentage 10% Required: a) Economic order quantity b) Safety stock c) Recorder point d) Normal Maximum Inventory e) Absolute Maximum Inventory f) Average Normal Inventory Ans) (a) Ans) EOQ = 2 x (20) x (100,000) (0.10) of 2.50 (b) Safety stock Maximum: 600U x 8 = 4800U = 4000 units

Minimum: 400U x 8 = 3200U 1600U (c) Re-order Point: Normal use x Lead time 400 x 8 + Safety Stock

= 3200 U = 1600 U = 4800 U

(d)Normal Maximum Inventory Order Point = 4800 Normal use = 3200 = 1600 New Order = 4000 = 5600 Units

(e)Absolute Maximum Inventory Order point = 4800 Minimum use = 800 = 4800 New order = 4000 = 8000 Units (f) Average Normal Inventory Q/2 + safety stock = 4000/2 + 1600 = 5600 Units

Q6) (a) Define productivity (b) Why is productivity important to firms, to workers, and to society? Ans) refer to chapter # 9 for the solution

Q7) The June Idle capacity Variance was zero and the spending variance was $600 Unfavorable. The July Idle capacity variance was $800 favorable, and the spending variance was zero. June overhead was $7000 for an output of 8000 tons, while July

overhead was $5,600 and the output was 600 tons .In August, output was 900 tons and actual factory overhead was $7,100 Required: Prepare a column analysis, indicating actual, budget allowance, Applied FOH, total Variance, Spending Variance, and Idle capacity Variance, for Each month. Ans) Month June July August Actual FOH $ 7000 5600 7100 Budget Allowance 6400 5600 7700 Output 800 tons 600tons 900 tons Applied FOH 6400 4800 7200 Spending Variance 600 U 0 600 F Idle Capacity 0 800 U 500 U

Applied FOH Rate = 6400/800 or 4899/600 = $ 8 per person High Low method = 7000-5600 = Rs 7 per ton variable 800-600 Fixed = 5600-(600 x7) = $ 1400 Q8) (a) Define standard cost? (b)Name some advantages of a standard cost system Ans) refer to chapters # 17 &18 for the solution

Semester Autumn 2001 Cost & Management Accounting Q1).A manufacturing company makes a single product in two departments. Cost and Production Data for the month of May, 1999 are:COST DATA

Labour cost Factory Overheads

PRODUCTION DATA

$ 18860 $ 16400

Units received in Department B: 90,000 Units completed & shipped 80,000 Units in process 6,000 Stage of completion of closing inventory in process. Labour & Factory overhead: 33.33% Required: 1. A schedule of equivalent production. 2. A cost of production report.

Ans: Cost of Production Report Quantity Schedule Units received in Units completed & shipped Units still in Process Units Lost [normal] Cost added by the department 80000 6000 4000 90000 units unit cost Labor 80000+1/3 of 6000$ FOH 80000+1/3 of 6000 Cost to be accounted for $ 18860 16400 35260 $0.23 0.20 0.43 90000 units

Cost accounted for as fallows:

Unit completed & shipped@ 0.43 Ending work in Process Labor 1/3 of 6000 FOH 1/3 of 6000 Total cost accounted for $

80000 U

$34,400

460 400 860 $ 35260

Q.2) J. Stanley, An employee of City Corporation, submits the following data for the first week of June: DAYS Monday Tuesday Wednesday Thursday Friday Required: Prepare a schedule showing Stanleys weekly earnings, the effective hourly rate, and labor cost per unit, assuming a 100% bonus plan with a base wage of $ 9 per hour and a standard production rate of 30 units per hour [Round off the bonus percentage to two decimal places]. UNITS 270 230 300 240 260 HOURS 8 8 8 8 8

Ans:

City Corporation Labor Schedule for J.Stanley First week of June Hours worked Units Produced Standard Production Efficiency Rate: Base wage: Weekly Earnings Effective Hourly Rate: Labor Cost per unit: 8x5 = 40 H 1300 Units [40x30] = 1200 1300/1200 x100 = 108.33% Rs. 9 per hour 40x9x108.33 = $390 $ 390 40 =$ 9.75 $390/1300 $0.30

Q.3) Collery Corporation estimates factory overhead of $ 345000 for next fiscal year. It is estimated that 60000 units will be produced at a material cost of $ 575000. Conversion will require 34500, direct labor house at a cost of $ 10 per hour, with 25875 machine hours. Required: Compute factory overhead rate on each of the following basis: 1. Units of production 4. Labor Hours 2. Material Cost 5. Machine Hours 3. Labor Cost 6 Prime Cost

Ans: Factory Overhead Rate 1. Unit of Production: 2. Material cost: $ 345000/60,000 = $ 5.75 per unit $345000/$575000 x 100 = 60%

3. Labor cost 4. Labor Hours 5. Machine Hours 6. Prime cost

$345000/$345000x100 = 100% $345000/34500 = $10 per Labor Hour $345000/$25875 = $13.33 per Machine Hour $345000/$920000x100=37.50%

Q.4).a} Define profit planning, what are the advantages of profit planning available to an organization? b) Distinguish between a budget and a forecast.

Ans: Please refer to chapter 15

Q 5) Woodley Furniture Company uses 12 meters of Aluminum pipes at $ .80 per meter as standard for the production of its lawn chairs. During one month operations, 100,000 meters of pipe were purchased at $ .78 a meter, and 7200 chairs were purchased using 87300 meters of pipe. The material pipe variance is recognized when materials are purchased. Required: Materials price and quantity variances.

Ans: Material Price Variance Difference between actual price and standard price multiplied by actual quantity of material purchased or. PQ [AP-SP] =100000 meters x [0.78-0.80] = - $2000 F

Material Quantity variance Difference between actual and standard quantity multiplied by standard prices or. SP [AQ-SQ] 0.80 x [87000-86400*] = $ 720 UF *86400 = [7200X12 meters]

Q.6) Hankel Corporation is considering a purchase of a Machine worth $ 40,000, which will be depreciated on straight line basis over an eight year period with no salvage value. The machine is expected to generate cash inflow of $ 12000 a year. Assume that income tax rate is 40%. Required: 1) Determine the pay bank period. 2) What is the average annual return on original investment?

Ans:

Assuming $ 12000 is gross cash flow, we calculated yearly net cash flow:

Gross Revenue from Project Deduct Depreciation Net Revenue before tax Tax [40%] Net Income from Project Add Back Depreciation Net Cash Flow Play back period

$ 12000 5000 $ 7000 2800 $ 4200 5000 $ 9200 $ 40000/9200 4.35 years

Average Rate of Return:

Net Income x

100

Average Investment

= $4200/400002 x100 = 21%

Q.7)

a) what is meant by Prime Cost and Conversion Cost? b) Describe indirect materials and give appropriate example. c) Describe indirect labor and give appropriate example.

Ans: Please refer to chapter 2

Q 8)

a) Define Break Even point b) What is Contribution Margin Approach? c) What is meant by the term cost volume profit relationship? Why is this relationship important in Business Management?

Ans: Please refer to chapter 20.

Semester Spring 2000 Cost & Management Accounting

Q.1 Selected transactions of the Romer Company for March 1999 are as follows: a). Materials requisitioned: Rs 18,500 for production and Rs. 2,800 for indirect use. b). Work completed and transferred to finished goods amounted to Rs 51,800 c). Materials purchased and received, Rs, 32, 000. d). Defective materials of Rs 1500 were returned to the vender. e) Accounts payable totaling Rs. 10000 were paid. f) Depreciation of RS 1200 was recorded on the factory machinery. g). Other factory overhead consisted of RS. 2450 expired insurance, and Rs, 1250 unpaid bills. h). Factory overhead of Rs. 1800 was charged to production. i) Sales on account totaled Rs. 92120 with a markup of 40% on the cost of goods sold. j. Cash collections from accounts receivable totaled RS. 76000. Prepare journal entries for these transactions.

Ans:

DEBIT A Work in Process FOH central Materials 18500 2800

CREDIT

21300

(Direct & indirect material issued) B Finished Goods Work in Process (Work completed transferred) C Materials Accounts payable (Materials purchased) D Accounts Payable Materials (Defective materials returned) E Accounts Payable Cash/Bank (Accounts payable settled) F FOH Central Accumulated Depreciation Machinery (Depreciation charged) G FOH central Unexpired Insurance 3700 2450 1200 1200 10000 10000 1500 1500 32000 32000 51800 51800

Accounts Payable (Insurance and other indirect expense) H Work in Process FOH Central FOH charged to production) I Accounts receivable Sales (Merchandise sold on credit) Cost of Goods Sold Finished Goods (92120 x 100/140) Recorded cost of good sold J Cash Accounts Receivable Collected cash from customers 16000 65800 92120 1800

1250

1800

92120

65800

76000

Q2) corporation submits the following data for September 1998 Direct labor cost Rs 30,000 Cost of goods sold Rs 111,000 (Before adjusting for over or under applied overhead)

Factory overhead is applied at the rate of 150% of the direct labor cost. Over or under applied factory overhead is closed to the cost of goods sold account Inventory Accounts showed these beginning and ending balances

September 1 Finished goods Work in process Materials Other Data Factory Overhead (actual) Marketing Expense General and Admin Expenses Sales for the month Rs 15000 9600 7000

September 30 Rs 17500 13000 7400

Rs 48200 14100 22900 182000

Required:Prepare an income Statement with a schedule showing the cost of goods manufactured and sold. Ans) Cost of Goods sold for September Direct Materials Beginning inventory + purchases Materials available for use -Ending Inventory Material consumed * Direct labor *FOH 1)Total manufacturing Cost +beginning work in process Cost of goods to be manufactured Rs 7000 7400 30,000 45,000 9600 Rs

-Ending inventory 2) cost of Goods manufactured + beginning finished goods Goods available for sale -Ending Finished goods 3) Cost of goods sold + FOH Under applied Adjusted Cost of goods sold Income Statement for the month of September Sales Cost of goods sold Gross profit Expenses Admin Expense Marketing Expense Profit before Tax 22900 14100 = Rs 182,000 = 114,200 = 67,800 = 37000

13,000 15,000 17500 111,000 3200 114,200

Rs = 30800

Q3) The following data originate from three different situations: a) Beginning inventory 6600 units, 1/3 complete as to materials, labor and factory overhead Started in process, 10200 units In the process at the end of the period,4800 units were completed as to materials and complete as to labor and factory overhead Transferred 12,000 units to next department b) Started in process, 9200 units Completed and on hand, 700 units In process at the end of period, 1000 units, complete as to materials and 4/10 Complete as to labor and factory overhead Transferred 7500 units to the next department c) Beginning inventory 2000 units, 1/2 complete as to materials, 1/5 complete as to labor and factory overhead. Transferred out, 20,000 units Unit lost at beginning of production, 500, a normal capacity. In process at the end of period, 2500 units complete as to materials, 1/2 complete as to labor and factory overhead.

Compute the equivalent production figures in each situation using average costing method

Ans) (a) Units transferred out Units Still in process Units Completed (b) Units transferred out Units on hand (completed) Units still in process Units Completed (c) Units transferred out Units still in process Units completed Materials 12000 2400 14400 7500 700 1000 9200 20,000 2500 22500 Labor 12000 1200 13200 7500 700 400 8600 20,000 1250 21250 FOH 12000 1200 13200 7500 700 400 8600 20,000 1250 21250

Q4) a). If large under absorbed factory overhead variances occur month after month, the Factory overhead rate should be revised to make unit costs more accurate. Comment b) Normal annual capacity for Remington Company is 60000 units, with production being constant throughout the year. The October budget shows fixed factory overhead of Rs.2500 and a variable factory overhead rate of Rs.2.50 per unit During October, actual output was 4800 units, with a total factory overhead of Rs.15500. Compute the spending and idle capacity variances. Ans) (a) Refer to Chapter # 12 (b) Spending Variance: Actual FOH-Budget Allowance based on capacity Utilized

Rs 15500-[2500+ (2.50 x 4800)] = Rs 1000 UF Idle Capacity Variance Budget Allowance- Applied FOH Based on the capacity utilized [2500+ (2.50 x 4800)] (4800 x Rs 3) = Rs 100 UF Total variance = Rs 1000 +Rs 100 = Rs 1100 UF Checking: Actual FOH- Applied FOH 15500- (4800 x 3) = Rs 1100 Unfavorable or under applied

Q5) A company manufacturers two products A and B. Forecasts for first 7 months is as under: Month Sales in Units January February March April May June July A 1000 1200 1610 2000 2400 2400 2000 B 2800 2800 2400 2000 1600 1600 1800

No work in process inventory has been estimated in any moth however finished goods inventory shall be on hand equal to half the sales for the next month, in each month. This is a constant practice. Budgeted production and production costs for the year 1999 will be as follows: Product A Production units Direct Materials (per unit) Direct Labor (per unit) F.O.H. (apportioned) 22000 12.5 4.5 66000 Product B 24000 19.00 7.00 96000

Prepare for the six months period ending June 1999, a production. Budget and a summarized production costs budgets for the year 1999

Ans) Units to be produced during first 6 months Product A = 11000 Units* Product B = 12000 Units* *Half of the annual proposed Production Production Budget for the period ending June Cost of Raw Materials Direct Labor FOH - Beginning Finished Goods (500 x Rs 20)* + Ending Finished Goods Cost of units to produced Product A Materials + Labor +FOH 12.50 + 4.50 +3.00 Rs 20 per unit Product B Materials + Labor + FOH 19 + 7 + 4 Rs 30 per unit FOH Rate: 66000/22000 = Rs 3 ( product A) 96000/24000 = Rs 4 (product B) Product A Rs 137500 49500 33000 220,000 10,000 210,000 20,000 230,000 Product B Rs 228,000 84000 48000 360,000 42,000 (1400 x 30) 318,000 27000 (900 x 30) 345,000

Q6) Kabul Company produces only one product Normal capacity is 20000 units per year, and the unit sales price is Rs.50. Relevant costs are: Unit Variable Cost Materials Direct labor Factory overhead Marketing expenses Rs.10.00 12.00 5.00 3.00 Total Fixed Cost

Rs. 15000 . 5000

Administrative expenses Compute (i) the break-even point in units of product (ii) The break-even point in rupees of sales

6000

(iii) The number of units of product that must be produced and sold to achieve a profit of Rs. 10000.

Ans) (1)

BEQ = Rs 26000 = Rs 13000 Units Rs 50 Rs 30

(2) BE in slaes: 1300 x Rs 50 = Rs 65000 OR Fixed Cost *CMR = Rs 26000 0.40 = Rs 65000

*CMR = Unit contribution Margin Unit sale price = 50- 30 50 = 0.40

(3) Number of units to sold to achieve target profit: = 26000+10000/20 = 1800 units

Q7) what are the basic differences between the discounted cash flow methods and the average annual return on investment method. Also explain advantages and disadvantages of the both methods? Ans) refer to chapter # 23 for the solution

Q8) Kelvin Company manufactures two products P and Q, which have sales prices of Rs.30 and Rs.25, respectively. Variable manufacturing costs are Rs.21 and Rs.19 for P and Q, respectively. The only two relevant production constraints are available cutting and assembly time. Production requirements and time available are:

Constraint Cutting time Assembly Time Determine the product mix required to maximize the company's total contribution margin.

Quantity Required P Q 1 hour 3 hours 1 hour 1 hour

Maximu Available 120 hours 90 hours

Ans) Equation # 1 Equation # 2 Subtracting 2 from 1 3P + Q = 120 P + Q = 90 2P = 30 P = 30/2 = 15 Putting value in equation 2 P + Q = 90 15 + Q = 90 Q = 75 Checking the utilization Cutting Time Assembly Time

3P + Q = 120---------- (!) P + Q = 90 ---------- (2)

[15 x 3] + [75 x1] = 120 Hours [15 x1] + [75 x 1] = 90 hours

So the product Mix of 15: 75 would maximize the companys contribution [15 x (30 -21) + 75x (25 -19)] = Rs 585

Semester Autumn 2000 Cost and Management Accounting Q1) Define cost accounting and discuss how a management accountant may respond to the challenge of providing appropriate information in a non-profit seeking organization? Ans) refer to chapter # 1 Q2) How activity based costing is different form a traditional absorption approach to costing and explain why it was developed? Ans) refer to chapter # 19 Q3) during the current year nauman and company produced and sold 100,000 units The unit sale price was Rs 100 each .standard and actual costs per unit, based on a production of 100,000 units were: Variable cost Rs 25 Fixed Cost 50 Total Rs 75 Required: 1) Operating Income according to direct costing Break even point Determine the sales price of the product assuming 40 % markup Ans) 1) Sales = Rs 10000,000 Cost of goods sold = Rs 7500,000 Operating Profit = Rs 2500,000 Traditional Income Statement

Contribution Income Statement Sales = Rs 10000,000 Variable Expenses = 2500,000 Contribution Margin = 7500,000 Fixed cost = 5000,000 = Rs 2500,000 EBT = 100,000(100-25)-500,000 = Rs 2500,000 2) Break even Units = Rs 5000,000 100-25 = Rs 66666.67

Break even in Amount = 66666.67 x Rs 100 = Rs 6666667 3) Margin of safety = 10000,000-6666667 x 100 10000,000

= 33.33 % Q4) Following data is available for a product Materials used March 15 March 25 March 31 Direct Labor Week of March 21 Week of March 27 90 hrs@ 7.5/hr. 75 hrs 8.1 hr. Rs 750 Rs 378 Rs 215

Required: a) Enter the information on a job cost sheet b) Determine the sales price of the product assuming 40% markup.

Ans) Materials No 15 25 31 Labor March 21 27 Total cost Sales price + 40 % Markup

Job order cost sheet for the period ended Hours Units Amount Rs 750 378 215 675 608 Rs 2626 Rs 2626 1050 Rs 3676

90 H 75 H

Rs 750 Rs 8.10

Q5) A company usage of material is 7200 units during 240 working days per year. Normal lead time is 20 and 45 days, respectively? Required: Assuming the material will be required evenly throughout the year, what is the safety stock and order point?

Ans) Ordering point = 7200 x 45 240 = 30 x 45 = 1350 units Safety stock = 1350-(30 x 32.5*) = 375 units Average Lead time (45+20)/2 = 32.5

Q6) On March 31st, the work in process account of a company showed: W.I.P Materials 21550 Labor 18125 F.O.H 12621 Finished Goods 37116

Materials charged to the work still in process amounted to5178, FOH is a fixed percentage to labor cost. Required: The Individual amount of FOH and labor charged to work in process. Ans) Work in process Materials Labor FOH 21550 18125 12621 52296 Finished goods WIP Material (5178) Labor (5896) FOH (4106) 37116 15180

52296

Q7) Enumerate the points of distinction between the discounted cash flow methods and the average annual return on investment method. Also explain the merits and demerits of both the methods. Ans) refer to chapter # 23

Q8) Define standard casting and compare the use of actual cost methods to standard costing systems of inventory costing? Ans) refer to chapter # 17 & 18

Semester Spring 1999 Cost and Management Accounting Q1) Contrast Financial and, managerial Acccounting.Managerial accounting information is described as means to an end, whereas financial Accounting information as an end in itself. In what sense is this true? Ans) refer to chapter # 1

Q2) The Zaryab Co manufactures and sells a single product for Rs 40 per unit and has a contribution margin of 30 %. The Companys fixed expenses are Rs 180,000 per Year. Required: a) What are variable, expenses per unit? b) What is the Break even point in Units and Rupees? c) What sales level in units and sales in Rupees is required to earn an annual profit of Rs 60000? d) If the company is able to reduce the Variable cost to Rs 4 per unit, what will be the Companys new break even point?

Ans) (a) Unit contribution Margin Ratio = unit contribution Unit sale price

= 0.30

Unit contribution = unit sale price x unit contribution margin ratio = Rs 40 x (0.30) = Rs 12 Variable cost per unit = Rs 40- Rs 12 = Rs 28

(b) Break even in units = Rs 180,000 40 -28

= Rs 15,000 Units

Break even in rupees = 15000 x Rs 40 = Rs 600,000 Or 180,000 = 600,000 0.30

(c)Number of units required to achieve Target profit: = Fixed cost + Target Profit Unit contribution 180,000 +60000 = 20,000 Units 12 Sales in Rs 20,000 x Rs 40 = Rs 800,000

(d) Break even in units = 180,000 = 5000 units 40-4 Break even in Rs = 5000 x 40 = Rs 200,000

Q3) Mahmood Inc has six departments that must share the services of a single central Computer. Management has decided that the best basis for the cost allocation is the minutes of computer time used by each department usage by department for the first week in June1999, was as follows: Department A B C D E F Time consumed 1548 Minutes 2064 Minutes 2280 Minutes 1032 Minutes 516 Minutes 2580 Minutes

The total for all departments was 10020 minutes. The total cost of operating the computer during the week was Rs 4650. Required: Determine the computer expense to be assigned to each department for the oneweek period.

Ans) Department A B C D E F Time consumed 1548 Minutes 2064 2280 1032 516 2580 Rs 10020 Minutes Cost assigned Rs 718 958 1058 479 240 1197 Rs 4650

Q4) Define the concept of budgetary control? Also identify the components of a master budget, and describe how they are related to each other? Ans) refer to chapter # 15 Q5) Yousaf and company produces handmade footballs that are sold to distributors. The Company incurred Rs 6100 actual overhead cost in November 1999. Budgeted standard overhead costs were Rs 4 of the variable overhead costs per direct labor hours plus Rs 1250 in fixed overhead costs for November. Normal capacity was set at 1000 direct labor hours per month. In November the company was able to produce 400 footballs. The time standard is 3 direct labor hours per football. Required: compute the controllable overhead variance, volume variance, and the total overhead variance for the month of November, 1999. Ans) Spending Variance = Actual Variance-Budget Allowance based on capacity utilized Rs 6100 [1250 + (4 x 1200)] = Rs 50 Unfavorable Idle Capacity variance =

Budget allowance based on capacity utilized Applied FOH Rs 6050-(1200 x5.25) = Rs 250 Favorable Total variance = Rs 200 Favorable (Actual FOH- Applied FOH) = 6100-6300 Q6) (A) what is meant by Incremental Analysis in capital Budgeting? (B) Hamza trading company has net cash inflow from operations for 1999 of Rs 42000, non profit cash expenditures of Rs 8000, and a sale of an asset that netted Rs 36000 in proceeds and involved a Rs 1000 capital gain. Using the 46% tax rate for normal income and 28 % for capital gains, compute the companys tax liability? Ans) Cash flow form operations Rs 42000 Less non cash expense (8000) Taxable Income 34,000 Tax 46 % (15640) Income after Tax 18360 Tax Liability = 15640 + 280* = Rs 15920 * 28% of capital gaining of Rs 1,000 = Rs 280

Q7) Noman Inc has an annual usage of 100 units of item ABC, with a purchase price of Rs 73 per unit. The following data are applicable to item ABC: Ordering cost Rs 5 per order Carrying cost 15 % Your are required to calculate the most economical ordering quantity Ans) ECQ = 2 x (5) x (100) (0.15) x (73) = 10 Units

Q8) what is the purpose of an incentive wage Plan? Also explain, in accounting for and controlling labor costs, what is the function of the: a) Time-keeping department b) payroll department, and c) Cost accounting department?

Ans) Refer to chapter # 9 for the solution