ABC Cost Accounting & Decision Making Outline

Q1. What is the process of identifying activities in an organisation and assigning costs under the Activity
Based Costing (ABC) system? Elucidate. You will need to include the right numerical examples to support
your answer.
(2 Marks) (Chapter 7, Week 7)
Answer:
Q2. PPLC Company has two support departments, SD1 and SD2, and two operating departments, OD1 and
OD2. The company decided to use the direct method and allocate variable SD1 dept. costs based on the
number of transactions and fixed SD1 dept. costs based on the number of employees. SD2 dept. variable costs
will be allocated based on the number of service requests, and fixed costs will be allocated based on the
number of computers. The following information is provided:
(4 Marks) (Chapter
8, Week 10)
Support Departments Operating Departments
SD1
SD2
OD1
OD2
Total Department variable costs
18,000
19,000
51,000
35,000
Total department fixed costs
20,000
24,000
56,000
30,000
Number of transactions
30
40
200
100
Number of employees
14
18
35
30
Number of service requests
28
18
35
25
Number of computers
15
20
24
28
You are required to allocate variable and fixed costs using direct method.
Answer:
Q3. What are an organization’s “outsourcing decisions” and “constrained resource decisions?” Provide a
suitable numerical example of these decisions and explain how quantitative and qualitative considerations
support a company’s decision-making process.
(2 Marks) (Chapter 4, Week 9)
Note: Your answer must include suitable numerical examples. You are required to assume values of your own,
and
they
should
not
be
copied
from
any
sources.
Answer:
Q4. VBN plastic industry makes three plastic toys: T1, T2, and T3. The joint costs of the three products in 2017
were SAR 120,000. The total number of units for each product and the selling price per unit is given
below:
(3 Marks) (Chapter 9, Week 11)
Product Units Selling Price per unit
T1
45,000
SAR 15
T2
T3
26,000
18,000
SAR 14
SAR 10
You are required to allocate the joint costs to each product using the physical volume method and sales value at the
split-off method.
Answer:
Q5. MN&M Corporation is preparing a budget for 2018. The company provides you with the following details which
will help you to prepare the budget:
(4 Marks) (Chapter 10, Week
12)
Budgeted selling price per unit = SAR 500 per unit
Total fixed costs = SAR 150,000
Variable costs = SAR 100 per unit
Required:
You are required to prepare a flexible budget for 1,000, 1,100, 1,200 and 1,300 units.
Answer