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:


Materials Rs 18,000
Direct Labor
Molding department 8000
Decorating department 21000 29000
Prime cost Rs 47000

FOH
Molding Department:1200 x 2.67 3204
Decorating: 21000 x 55/100 11550 14754
Cost of production 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
J an 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) 10500 liters
All Materials were put into process in department 1

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 55000 U
Transferred from department 3 39500 U
Units still in process 10500
Units Lost 5000 55000 U

Cost charged to the department: Total Unit cost
Cost transferred from department 1

99000 1.80
Cost added by the department
Labor (39500+1/3 of 10500) 27520 Rs 0.64
FOH 15480 0.36
Total cost Added 43000 Rs 1.00
Adjustment for lost units
Rs 99000/(55000-5000)
=Rs 1.98- Rs 1.80 =
Total cost to be accounted for




142000


0.18
Rs 2.98
Cost accounted for as follows

Transferred to Next department@ 2.98 39500 Rs 117,710

Ending work in process
Cost from preceding department (10500@
Rs1.98
20,790
Labor (0.64 x 1/3 of 10500)
FOH (----do----)
Total cost accounted for
2240
1260

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) = 1225 Units
(0.40) X ($ 3)



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 J une. 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 Budget
allowance
Applied FOH Spending
Variance
Idle capacity
Variance
15847 14968 16234 879 UF 1266 F