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Question1
MexianProductproducesfastmovingmeals,whichitsellsforRM9each.Thecompany
uses the FIFO inventory costing method, and it computes a new monthly fixed
manufacturingoverheadratebasedontheactualnumberofmealsproducedthatmonth.
Allcostsandproductionlevelsareexactlyas planned. Thefollowingdataarefromthe
companysfirsttwomonthsinbusiness:
Requirements
1. Computetheproductcostpermealproducedunderabsorptioncostingandunder
variablecostingforJanuaryandFebruary.
2. PrepareseparatemonthlyincomestatementforJanuaryandFebruaryunderboth
absorptionandvariablecostingapproach.
3. IsoperatingincomehigherunderabsorptioncostingorvariablecostinginJanuary?
InFebruary?Explainthepatternofdifferencesinoperatingincomebasedon
absorptioncostingversusvariablecosting?
Question2
A industry manufactures and sells a single product. The controller has prepared the
followingincomestatementforthemostrecentyear:
AnIndustryIncomeStatementunderAbsorptioncosting,fortheyearendedDecember31.
SalesRevenue RM1,050,000
Less:CostofGoodsSold RM675,000
GrossProfit RM375,000
Less:OperatingExpenses RM260,000
OperatingIncome RM115,000
Thecompanyproduced20,000unitsandsold15,000unitsduringtheearendingDec31.
Fixedmanufacturingoverhead(MOH)fortheyearwasRM240,000,whilefixedoperating
expenses were RM200,000. Assume per unit cost of Direct Material and direct labor is
RM20andRM8respectively.Thecompanyhadnobeginninginventory.
Requirements
1. Willthecompanysoperatingincomeundervariablecostingbehigher,lowerorthe
sameasoperatingincomeunderabsorptioncosting?Why?
2. Projectthecompanysoperatingincomeundervariablecostingwithoutpreparinga
variablecostingincomestatement
3. Prepareavariablecostingincomestatementfortheyear
Question3
Zulultdmakesandsellsthreeproductswiththefollowingsellingpricesandvariablecost:
ThecompanyisconsideringexpenditureonadvertisingandpromotionofProductAlloy
Itishopedthatsuchexpenditure,togetherwithareductioninthesellingpriceoftheproduct,would
increasesales.
Existingannualsalesvolumeofthethreeproductsis:
ProductAlloy 460,000units
ProductBronz 1.0millionunits
ProductCopper 380,000units
IfRM60,000perannumwastobeinvestedinadvertisingandsalespromotion,salesofProductAlloy
atreducedsellingpricewouldbeexpectedtobe:
590,000unitsatRM2.75perunit.
OR650,000unitsatRM2.55perunit
AnnualfixedcostarecurrentlyatRM1.71millionperannum.
Required:
(a)Calculatethecurrentbreakevensalesrevenueofthebusiness. (8mk)
(b)AdvisethemanagementofZulultdastowhethertheexpenditureonadvertisingandpromotion,
togetherwiththesellingpricereduction,shouldbeintroducedonProductAlloy
(6mk)
(c)CalculatetherequiredunitssalesofProductA,atasellingpriceofRM2.75perunitinorderto
justifytheexpenditureonadvertisingandpromotion. (5mk)
(d)ExplainthetermmarginofsafetywithparticularreferencetothecircumstancesofZulultd.
(6mk)
Question4
KotaXYZBhdmakes3productswhichhavethefollowingrevenueandcost(RMperunit)
UnitFixedcostarebaseduponthefollowingannualsalesandproduction(000units)
Required:
(a) Calculate:
(i) ThebreakevenpointsinUnitsofKotaXYZBhdbasedonthecurrentproductionmix.
(8marks)
(ii) ThebreakeveninRMofKotaXYZBhdbasedonthecurrentproductionmix
(6mk)
(iii) ThenumberofunitsofProduct2atthebreakeven pointdeterminedin(i)above.
(3mk)
Question5
UniSamaBerhadisacompanyengagedsolelyinthemanufactureofphotoalbum
whichareboughtmainlyforschoolfunctionactivities.Presentsalesaredirectto
retailers,butinrecentyearstherehasbeenasteadydeclineinoutputbecauseof
increased competition. In the last trading year (2014) the accounting report
indicatedthatthecompanyproducedthelowestprofitfor10years.Theforecastfor
2015 indicates that the resent deterioration in profits is likely to continue. The
company considers that a profit of RM80,000 should be achieved to provide an
adequatereturnoncapital.Themanagingdirectorhasaskedthatareviewbemade
of the present pricing and marketing policies. The marketing manager has
completed this review, and passes the proposals on to you for evaluation and
recommendation, together with the profit and loss account for year ending 31
December2016.
UniSamaBerhadInomestatementforyearending31December2016
RM RM RM
Salesrevenue(100,000unitsat 1.0million
RM10)
Manufacturingcostofgoods
sold
Directmaterials 100,000
DirectLabor 350,000
Variablemfgoverheads 60,000
Fixedmfgoverheads 220,000
Administrativeoverheads 140,000
(Fixed)
Sellinganddistribution
overheads
Salescommission(2%of 20,000
sales)
Deliverycost(variable) 50,000
Fixedcosts 40,000
Totalcost 980,000
OperatingIncome 20,000
Theinformationtobesubmittedtothemanagingmanagerincludesthefollowing
threeproposals:
(i)Toproceedonthebasisofanalysesofmarketresearchstudieswhichindicate
thatthedemandforthephotoalbumissuchthat10%reductioninsellingprices
wouldincreasedemandby40%.
(ii)Toproceedwithanenquirythatthemarketingdirectorhashadfromamail
ordercompanyaboutthepossibilityofpurchasing50,000unitsannuallyifthe
sellingpriceisright.Themailordercompanywouldtransportthephotoalbum
fromUniSamaSdnBerhadtoitswarehouse,andnosalescommissionwouldbe
paidonthesesalesbyUniSamaSdnBerhad.However,ifanacceptablepricecanbe
negotiated,TabuanSBhdwouldbeexpectedtocontributeRM60,000perannum
towardsthecostofproducingthemailordercatalogue.Itwouldbenecessaryfor
UniSamaSdnBerhadtoprovidespecialadditionalpackagingatacostofRM0.50
perphotoalbum.Themarketingmanagerconsidersthatin2015thesalesfrom
existingbusinesswouldremainunchangedat100,000units,basedonsellingprice
ofRM10ifthemailordercontractisundertaken.
(iii)Toproceedonthebasisofaviewbythemarketingmanagerthata10%price
reduction,togetherwithanationaladvertisingcampaigncostingRM30,000may
increasesalestothemaximumcapacityof160,000unitsofphotoalbum.
YouareRequired:
(a)ThecalculationofbreakEvensalesvaluebasedonthe2016accounts
(b)Afinancialevaluationofproposal(i)andacalculationofthenumberofunits
UniSamaSdnBerhadwouldrequiretosellatRM9.00eachtoearnthetargetprofit
ofRM80,000.
(c)Acalculationoftheminimumpricesthatwouldhavetobequotedtothemail
ordercompany,first,toensurethatUniSamaSdnBerhadwould,atleast,break
evenonthemailordercontract,secondly,toensurethatthesameoverallprofitis
earnedasproposal(i)and,thirdly,toensurethattheoveralltargetprofitisearned.
(d)Afinancialevaluationofproposal(iii)
Question 6
CJD ltd makes plastic components for the car industry. The following budgeted information is
available for three of their key plastic components:
The total number of activities for each of the three products for the period is as follows:
No. of inspection in hours 1200 1800 2000
No. of set up 240 260 300
Required:
1.Calculate the budgeted profit per unit for each of the three products using ABC budgeting.
2. If the budgeting has been traditionally calculated on the basis of direct labor cost, calculate the
budgeted profit per unit for each of the three products.
Question 7 (ABC )
Details of information regarding the four products belonging to ABC Berhad are given below for
one period:
PRODUCT A B C D
Direct Labor 28 21 14 21
The four products are similar and are usually produced in productions run of 20 units and sold in
batches of 10 units
The production overhead is currently absorbed by using a machine hour rate, and the total of the
production overhead for the period has been analysed as follows:
DETAILS OF COSTS RM
3,600
Stores receiving
2,100
Inspection/Quality Control
Materials handling and dispatch 4,620
Total RM26,000
You have ascertained that the cost drivers to be used are as listed below for the overhead costs
shown:
COST COST DRIVER
The number of requisitions raised on the stores was 20 for each product and the number of orders
executed was 42, each order being for a batch of 10 of a product.
(b) To calculate the costs per unit for each product, using activity based costing
(c) To compare the unit product cost from your figures in (a) and (b) above, to show the
differences and to comments briefly on any conclusions which may be drawn which could
have pricing and profit implication.