Accounting Question

College of Administration and Finance Sciences
Assignment (1)
Deadline: Saturday 02/03/2024 @ 23:59
Course Name: Cost Accounting Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: Second
CRN:
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name: Dr. Shahid Husain
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q1. Explain the role of accounting information in strategic management. How does accounting
information assist in the formulation and implementation of organizational strategies? Support
your answer by providing an example of one Saudi Company in this regard.
(2 Marks)
Note: Your answer must include a suitable example showing the role of accounting information in
strategic management of an organization.
(Chapter 1, Week 1)
Answer:
Q2. What do you mean by cost function and for what purpose does it serve for? What are the
various methods used to estimate cost functions? Explain each method with suitable numerical
examples.
(3 Marks) (Chapter 2, Week 2)
Answer:
Q3. TTL Corporation is in the manufacturer of several plastic products. TTL sells its one of the
plastic product for SAR 500. The variable costs per unit are SAR 200, and the total fixed costs
are SAR 510,000. Based on cost-volume profit analysis, calculate:
(4 Marks)
a) Contribution margin per unit and contribution margin ratio.
b) Break-even point in units and sales SAR.
c) Pretax profit if the company sells 2,200 units.
d) Profit/loss if the company sells 1,500 units.
e) Units needed to reach target pretax profit of SAR 180,000.
f) Sales SAR needed to reach the target pretax profit of SAR 180,000. (Chapter 3, Week 3)
Answer:
College of Administration and Finance Sciences
Q4. “Job costing is a method of cost accounting used by companies to find out the cost of specific
jobs or projects.” Comment on this statement and examine how actual allocation rates and
estimated allocation rates are analyzed by the companies? Support your answer with an example
of one Saudi company that use job costing.
(2 Marks) (Chapter 5, week 4 )
Answer:
Q5. A company uses a process costing system for its sole processing department. There were
4,000 units in beginning WIP inventory for June and 36,000 units were started in June. The
beginning WIP units were 60% complete and the 3,250 units in ending WIP were 40% complete.
All materials are added at the start of processing.
(4 Marks) (Chapter 6 Part 1, Week 5)
Required:
a) Compute the no. of units started & completed.
b) Compute the EUP for DM and CC using FIFO and WA methods.
Answer:
College of Administration and Finance Sciences
Assignment (1)
Deadline: Saturday 02/03/2024 @ 23:59
Course Name: Cost Accounting
Student’s Name: ELITE
Course Code: ACCT 301
Student’s ID Number:
Semester: Second
CRN:
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name: Habiba Moabber
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q1. Explain the role of accounting information in strategic management. How does accounting
information assist in the formulation and implementation of organizational strategies? Support
your answer by providing an example of one Saudi Company in this regard.
(2 Marks)
Note: Your answer must include a suitable example showing the role of accounting information in
strategic management of an organization.
(Chapter 1, Week 1)
Answer:
Q2. What do you mean by cost function and for what purpose does it serve for? What are the
various methods used to estimate cost functions? Explain each method with suitable numerical
examples.
(3 Marks) (Chapter 2, Week 2)
Answer:
Q3. TTL Corporation is in the manufacturer of several plastic products. TTL sells its one of the
plastic product for SAR 500. The variable costs per unit are SAR 200, and the total fixed costs
are SAR 510,000. Based on cost-volume profit analysis, calculate:
(4 Marks)
a) Contribution margin per unit and contribution margin ratio.
b) Break-even point in units and sales SAR.
c) Pretax profit if the company sells 2,200 units.
d) Profit/loss if the company sells 1,500 units.
e) Units needed to reach target pretax profit of SAR 180,000.
f) Sales SAR needed to reach the target pretax profit of SAR 180,000. (Chapter 3, Week 3)
Answer:
College of Administration and Finance Sciences
Q4. “Job costing is a method of cost accounting used by companies to find out the cost of specific
jobs or projects.” Comment on this statement and examine how actual allocation rates and
estimated allocation rates are analyzed by the companies? Support your answer with an example
of one Saudi company that use job costing.
(2 Marks) (Chapter 5, week 4 )
Answer:
Q5. A company uses a process costing system for its sole processing department. There were
4,000 units in beginning WIP inventory for June and 36,000 units were started in June. The
beginning WIP units were 60% complete and the 3,250 units in ending WIP were 40% complete.
All materials are added at the start of processing.
(4 Marks) (Chapter 6 Part 1, Week 5)
Required:
a) Compute the no. of units started & completed.
b) Compute the EUP for DM and CC using FIFO and WA methods.
Answer:
College of Administration and Finance Sciences
Q1
Accounting information plays a crucial role in strategic management by providing valuable data
and insights that assist organizations in formulating and implementing their strategies
effectively. Here are some ways accounting information helps in strategic management:
1.
Performance Evaluation: Accounting information helps in evaluating the financial
performance of the organization by providing key metrics such as profitability, liquidity, and
efficiency. This information allows managers to assess the effectiveness of current strategies
and make informed decisions for future strategic planning.
2.
Cost Analysis: Accounting information helps in analyzing costs associated with different
activities within the organization. By understanding the cost structure, managers can identify
areas where costs can be reduced or optimized, which is essential for developing cost-effective
strategies.
3. Budgeting and Forecasting: Accounting information is crucial for budgeting and forecasting
future financial performance. It helps in setting financial targets, allocating resources
effectively, and monitoring the progress towards achieving strategic goals.
4. Investment Decisions: Accounting information assists in evaluating investment opportunities
by providing insights into the potential returns and risks associated with different projects. This
information is essential for making strategic investment decisions that align with the
organization’s overall objectives.
5. Risk Management: Accounting information helps in identifying and managing financial risks
that may impact the organization’s strategic objectives. By analyzing financial data, managers
can develop risk mitigation strategies to safeguard the organization’s financial health.
Example of a Saudi Company: Saudi Aramco
Saudi Aramco, the world’s largest oil company, utilizes accounting information extensively in its
strategic management processes. One way accounting information assists Saudi Aramco in strategic
decision-making is through cost analysis. By analyzing costs associated with exploration, production,
and refining operations, Saudi Aramco can identify areas for cost reduction and efficiency
improvement.
Moreover, accounting information at Saudi Aramco plays a crucial role in budgeting and forecasting.
The company relies on financial data to set budgets for capital expenditures, operational expenses, and
College of Administration and Finance Sciences
revenue targets. This information allows Saudi Aramco to allocate resources effectively and monitor
financial performance against strategic objectives.
Additionally, accounting information assists Saudi Aramco in evaluating investment opportunities in
new projects or acquisitions. By analyzing financial metrics such as return on investment and cash
flow projections, Saudi Aramco can make informed decisions about strategic investments that align
with its long-term growth strategy. In conclusion, accounting information is essential for Saudi
Aramco’s strategic management processes, enabling the company to make informed decisions,
optimize costs, allocate resources effectively, and manage financial risks in pursuit of its strategic
objectives.
Q2
A cost function is a mathematical representation of the relationship between the costs incurred by a
company and the factors that affect those costs, such as production levels, labor hours, or materials
used. Cost functions help companies understand how costs change with changes in production or other
variables, allowing them to make informed decisions about pricing, production levels, and resource
allocation.
The purpose of a cost function is to predict and analyze costs under different scenarios, helping
companies optimize their operations and improve profitability. By estimating cost functions,
companies can better understand cost behavior, identify cost drivers, and make data-driven decisions
to control costs and maximize efficiency.
Various methods can be used to estimate cost functions, including:
1. High-Low Method:
The high-low method is a simple and intuitive way to estimate a cost function based on the highest
and lowest levels of activity. The method calculates the variable cost per unit of activity by dividing
the change in total costs between the high and low activity levels by the change in activity levels. The
fixed cost component is then calculated by subtracting the variable cost component from the total cost
at either the high or low activity level.
College of Administration and Finance Sciences
Example:
Let’s say a company produces 1,000 units at a total cost of $10,000 and 2,000 units at a total cost of
$15,000. Using the high-low method:
Variable cost per unit = ($15,000 – $10,000) / (2,000 – 1,000) = $5 per unit
Fixed cost = Total cost at high activity level – (Variable cost per unit * High activity level) = $15,000
– ($5 * 2,000) = $5,000
2. Scattergraph Method:
The scattergraph method involves plotting historical data points of costs against the corresponding
levels of activity on a graph. By visually inspecting the data points, analysts can identify trends and
patterns that help estimate the relationship between costs and activity levels. A line of best fit is then
drawn through the data points to estimate the cost function.
3. Least Squares Regression Method:
The least squares regression method is a statistical technique used to estimate a cost function by fitting
a linear equation to historical data points. The method minimizes the sum of squared differences
between actual costs and predicted costs based on the regression equation. This method provides a
more precise estimate of the cost function compared to other methods.
These methods are essential tools for businesses to estimate cost functions accurately and make
informed decisions about cost management and resource allocation. By understanding cost behavior
and relationships between costs and activities, companies can optimize their operations and improve
financial performance.
College of Administration and Finance Sciences
Q3
a) Contribution margin per unit and contribution margin ratio.
P =500 V = 200
Contribution margin = P-V 500-200 = 300
contribution margin ratio = P-V/P 500-200 / 500 = 60%
b) Break-even point in units and sales SAR.
BEP units = F+0/ P-V = F+0 / P-V= 510.000 +0 / 500-200 = 1700 UNITS
BEP sales = F+0 / P-V/P= 510.000 +0 / 500-200/500 = 850000
c) Pretax profit if the company sells 2,200 units. Pretax profit
= Contribution margin * fixed costs
510,000 – 2,200*300
660,000 – 510,000 =150,000
d) Profit/loss if the company sells 1,500 units
Profit/loss =
(Selling price per unit * Number of units) – (Variable cost per unit * Number of units) – Total
fixed costs
Profit/loss = (500 * 1,500) – ( 200 *1 ,500) – 510 ,000 Profit/loss= 750 ,000-300 ,000 – 510 ,000
Profit/loss= -60 ,000
e) Units needed to reach target pretax profit of SAR 180,000. F+ Profit / p-v
= 510.000+ 180.000 /500 – 200 690.000-300 = 2300
f) Sales SAR needed to reach the target pretax profit of SAR 180,000.
Sales needed = f+ profit / p- v / p 510.000 +180.000 = 690000 500-200 / 500 = 60% 690000/60% =
1.150.000
College of Administration and Finance Sciences
Q4
Job costing is indeed a method of cost accounting that is commonly used by companies to determine
the cost of specific jobs or projects. This method is particularly useful for industries where each unit
produced is unique, such as construction, custom manufacturing, and professional services.
In job costing, costs are assigned to a specific job or project based on the actual resources consumed
or used in that job. This allows companies to accurately track the costs associated with each job and
make informed decisions about pricing, resource allocation, and profitability.
Actual allocation rates refer to the costs actually incurred in completing a job, while estimated
allocation rates are predetermined rates used to allocate costs to jobs before they are completed.
Companies analyze these rates to compare the estimated costs with the actual costs incurred during the
job. This analysis helps companies identify any discrepancies, understand the reasons behind them,
and make adjustments for future job costing.
One Saudi company that uses job costing is Saudi Aramco, the national oil company of Saudi Arabia.
Saudi Aramco operates in the oil and gas industry, where each drilling project or exploration venture
is unique and requires detailed cost tracking. The company uses job costing to allocate costs such as
labor, equipment, materials, and overhead to each project accurately.
For example, when Saudi Aramco undertakes a new drilling project, they estimate the allocation rates
for labor hours, equipment usage, and materials based on historical data and industry benchmarks. As
the project progresses, they track the actual costs incurred for each of these resources and compare
them to the estimated rates. By analyzing these discrepancies, Saudi Aramco can identify areas of cost
overruns or savings and make adjustments to their cost estimates for future projects.
In conclusion, job costing is a valuable tool for companies like Saudi Aramco to accurately determine
the cost of specific jobs or projects. By analyzing actual and estimated allocation rates, companies can
improve their cost management practices, enhance decision-making processes, and ultimately increase
profitability.
College of Administration and Finance Sciences
Q5