ALHANOOFALMTERI_ACCT301_Q3

College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 04/05/2024 @ 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:
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. 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
College of Administration and Finance Sciences
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
26,000
SAR 14
T3
18,000
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:
College of Administration and Finance Sciences
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:
College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 04/05/2024 @ 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.
Assignment Question(s):
(Marks 15)
College of Administration and Finance Sciences
Q1. What is the process of identifying activities in an organization 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:
The ABC cost hierarchy includes the following activities:
♣
♣
♣
♣
♣
♣
organization-sustaining – associated with overall organization.
facility-sustaining – associated with single manufacturing plant or service facility.
customer-sustaining – associated with a single customer.
product-sustaining – associated with product lien or single product.
batch-level – associated with each batch of product.
unit-level – associated with each unit produced.
Process is used to assign costs in an ABC system: ♣
♣
♣
♣
♣
♣
Identify the relevant cost object.
Identify activities and group homogeneous activities.
Assign costs to the activity cost pools.
Choose a cost driver for each activity cost pool.
Calculate an allocation rate for each activity cost pool.
Allocate activity costs to the final cost object.
Example: Alphabet Co. makes products A & B. Product A is a low-volume specialty item and B is a high-volume item. Estimated
factory- wide overhead is $800,000, and the number of DL hours for the year is estimated to be 50,000 hours. DL costs
are $10/hour. Each product uses 2 DL hours. Products A & B use $25 and $10 in direct materials, respectively. Alphabet
Co. is implementing an ABC system. It estimated the costs and activity levels for the upcoming year shown below.
Machine set-ups
Inspections
Materials handling
Machining dep’t
Quality control dep’t
Estimated Activity Levels
Estimated
Costs
Prod. A Prod. B
Total
$200,000
3,000
2,000
5,000
140,000
500
300
800
80,000
400
400
800
320,000
12,000
28,000
40,000
60,000
600
150
750
$800,000
Cost Driver
# set-ups
# inspections
# mat’l requistions
# machine hours
# tests
Alphabet recently completed a batch of 100 as and a batch of 100 Bs. Direct material and labor costs were as budgeted.
Information about each batch’s use of the cost drivers is below. Then the overhead allocated to each unit of A and B.
Machine set-ups allocation rate = Machine set-ups estimated cost / Estimated # set-ups = $200,000 / 5,000 = $40
Machine set-ups allocated cost on100 As = Machine set-ups allocation rate* batch’s use of the cost driver = $40*60 =
$2,400
College of Administration and Finance Sciences
Machine set-ups
Inspections
Materials handling
Machining dep’t
Quality control dep’t
100 As 100 Bs
10
60
10
2
4
2
240
120
3
1
Overhead allocated:
Machine set-ups
Inspections
Materials handling
Machining dep’t
Quality control dep’t
Overhead for batch
100 As
$2,400
1,750
400
1,920
240
$6,710
100 Bs
$400
350
200
960
80
$1,990
Overhead per unit
$67.10
$19.90
Overhead per unit = Overhead of batch / number of units on batch = $6,710 / 100 = $67.10
DL cost of each product = $10/hour * 2 (Each product uses 2 DL hours) = $20
The total cost of each product: –
Direct material
Direct labor
Overhead
Total
Prod A Prod B
$25.00 $10.00
20.00 20.00
67.10 19.90
$112.10 $49.90
College of Administration and Finance Sciences
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 the direct method.
Answer:
Department SD1 variable costs allocated to the Department OD1 =
18,000 (Department SD1 variable costs) * (200 / 300) = 12,000
200 (Number of transactions of department OD1)
300 (Number of transactions of department OD1 200 + Number of transactions of department OD2 100)
Department SD1 variable costs allocated to the Department OD2 =
18,000 (Department SD1 variable costs) * (100 / 300) = 6,000
100 (Number of transactions of department OD2)
300 (Number of transactions of department OD1 200 + Number of transactions of department OD2 100)
Department SD1 Fixed costs allocated to the Department OD1 =
20,000 (Department SD1 Fixed costs) * (35 / 65) = 10,769.23
35 (Number of employees of department OD1)
65 (Number of employees of department OD1 35 + Number of employees of department OD2 30)
College of Administration and Finance Sciences
Department SD1 Fixed costs allocated to the Department OD2 =
20,000 (Department SD1 Fixed costs) * (30 / 65) = 9,230.77
30 (Number of employees of department OD2)
65 (Number of employees of department OD1 35 + Number of employees of department OD2 30)
Department S2 variable costs allocated to the Department OD1 =
19,000 (Department SD2 variable costs) * (35 / 60) = 11,083.33
35 (Number of service requests of department OD1)
60 (Number of service requests of department OD1 35 + Number of service requests of department OD2 25)
Department SD2 variable costs allocated to the Department OD2 =
19,000 (Department SD2 variable costs) * (25 / 60) = 7,916.67
25 (Number of service requests of department OD2)
60 (Number of service requests of department OD1 35 + Number of service requests of department OD2 25)
Department SD2 Fixed costs allocated to the Department OD1 =
24,000 (Department SD2 Fixed costs) * (24 / 52) = 11,076.92
24 (Number of computers of department OD1)
52 (Number of service requests of department OD1 24 + Number of computers of department OD2 28)
Department SD2 Fixed costs allocated to the Department OD2 =
24,000 (Department SD2 Fixed costs) * (28 / 52) = 12,923.08
28 (Number of computers of department OD2)
52 (Number of computers of department OD1 24 + Number of computers of department OD2 28)
College of Administration and Finance Sciences
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:
Make (Insource) or Buy (Outsource) Decision
Managers often must determine whether to
➢ Make or buy a production input.
➢ Keep a business activity in house or outsource the activity.
The general rule for make or buy decisions is:
• Choose the alternative with the lowest relevant (incremental cost), subject to qualitative considerations.
➢ If the decision will affect other aspects of operations, these costs (or lost revenues) must be included in the analysis.
Given the following information from ABC company about a part (X) of its main product: 1- ABC company makes and uses 40,000 of part (X) per year.
2- An outside supplier was offered to supply ABC 40,000 per year at SAR 5 each.
3- Fixed production costs of SAR 20,000 associated with ABC are unavoidable.
4- The production costs per unit for manufacturing a part (X) are: A. Direct materials
SAR 1.25
B. Direct labor
SAR 1.50
C. Variable manufacturing overhead
SAR
2
D. Fixed manufacturing overhead (20,000/40,000=0.5)
SAR
0.5
SAR 5.25
First: – Relevant costs are (Direct materials, direct labor, and variable manufacturing overhead) = (1.25+1.50+2=4.75)
Second: – Since the costs of make (Insource = SAR 4.75) less than costs of buy (Outsource = SAR 5) so our decision
will make not buy from outside supplier.
College of Administration and Finance Sciences
Third: – Advantage of makeover buy = (5 – 4.75) * 40,000 = SAR 10,000
Finally: – The quantitative analysis indicates that ABC should continue to make the component.
And the following are qualitative issues should ABC consider before finalizing its decision: •
Is the quality of the manufactured component superior to the quality of the purchased component?
•
Will purchasing the component result in more timely availability of the component?
•
Would a relationship with the potential supplier benefit the company in any way?
•
Are there any worker productivity issues that affect this decision?
Constrained Resource Decisions (Two Products; One Scarce Resource)
❖ Company makes two types of cars, regular and premium. Suppose there is unlimited customer demand for each
product. The selling prices and variable costs of each product are listed below.
Item
Regular
Premium
Selling price per unit
50
150
(-) Variable cost per unit
(30)
(70)
Contribution margin per unit
20
80
Contribution margin ratio
40%
53%
Required machine hours/unit
0.5
3
Company has only 200,000 machine hours available per year
❖ In this case, the sole scarce resource was machine hours, so the company should make only the product with the
highest contribution margin per machine hour.
o Regular: CM / Machine Hour = 20 / 0.5 = 40 / Machine Hour
o Premium: CM / Machine Hour = 80 / 3 = 26.67 / Machine Hour
❖ The general rule for constrained resource decisions with one scarce resource is to first make only the product with the
highest contribution margin per unit of the constrained resource.
❖ Notice that the total contribution margin from making all Regular cars is 40 / Machine Hour x 200,000 machine hours
to be used producing Regular cars = SAR 8 million.
❖ Qualitative issues should company consider before finalizing its decision: • The assumption that customer demand is unlimited is unlikely; can this be investigated further?
• Are there any long-term strategic implications of minimizing production of the premium cars?
• What would be the effects of attempting to relax the machine hour or DL hour constraints?
• Are there any worker productivity issues that affect this decision?
College of Administration and Finance Sciences
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
26,000
SAR 14
T3
18,000
SAR 10
You are required to allocate the joint costs to each product using the physical volume method and sales value at the splitoff method.
Answer:
Physical Volume Method
Product
Units
Relative Weight
Allocated joint costs.
T1
45,000
45,000/89,000
60,674.16
T2
26,000
26,000/89,000
35,056.18
T3
18,000
18,000/89,000
24,269.66
89,000
89,000/89,000=1
120,000
Allocated joint costs for each product = Relative weight for each product * Joint costs (120,000)
Sales Value at Split-Off Method
Product
Units * Sales Value = Total Sales Value
Relative Weight
Allocated joint costs
T1
45,000
15
675,000
675,000 / 1,219,000
66,294.91
T2
26,000
14
364,000
364,000 / 1,219,000
35,832.65
T3
18,000
10
180,000
180,000 / 1,219,000
17,719.44
1,219,000
1,219,000 / 1,219,000=1
120,000
Allocated joint costs for each product = Relative weight for each product * Joint costs (120,000)
College of Administration and Finance Sciences
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:
Item
Sales in units
1,000
1,100
1,200
1,300
Revenues
500* 1,000 = 500,000
500* 1,100 = 550,000
500* 1,200 = 600,000
500* 1,300 = 650,000
(-) Variable Costs
100* 1,000 = (100,000)
100* 1,100 = (110,000)
100* 1,200 = (120,000)
100*1,300 = (130,000)
Contribution Margin
400,000
440,000
480,000
520,000
(-) Fixed Costs
(150,000)
(150,000)
(150,000)
(150,000)
Operating Income
250,000
290,000
330,000
370,000