FACULTY OF BUSINESS

AND
MANAGEMENT
MANAGEMENT ACCOUNTING

Table of contents
Pages
Question 1 answer
3-4
Question 2 answer
5-8

Question 1
(a)Predetermined overhead rate = Budgeted overhead department X +
Budgeted overhead
department Y / Expected activity(direct labour hours)
department X+ Expected activity(direct labour hours) department Y.
RM150,000+RM750,000 / 75,000+15,000
RM900,000 /90,000
Predetermined overhead rate:RM10

(b) Predetermined overhead rate X units produced

=RM150,000
Direct materials +direct labour+department X budgeted overhead / units
produced
30,000+54,000
=84,000
84,000+150,000
=234,000/15,000
Per unit manufacturing cost for job 123 = RM15.50
(c)

Account receivable
Sales
Cost of goods sold
Finished goods inventory

Journal entries
Debit
327,600

Credit
327,600

234,000
234,000
2

(d)
Department X=150,000/75,000
=RM2 X 7,500
=RM15,000
Department Y=750,000/75,000
=RM10
=RM10 X 1800
=RM18,000
15,000+18,000
RM33,000/15,000
Per unit manufacturing cost for job 123 = RM2.20 per unit.
-this approach provides a more accurate unit cost because department X uses
more labour hours and department Y uses more machine hours so it provide a
more accurate unit cost when we use labour hours for department X and
machine hours for department Y to calculate per unit manufacturing cost.
(e)

Account receivable
Sales
Cost of goods sold
Finished goods inventory

Journal entries
Debit
163,800

Credit
163,800

117,000
117,000

Question 2
(a)Marginal costing(mc)=direct materials +direct labour+variable overhead/unit
Marginal costing for product S:
Product S=RM150000+500000+40000
=RM690000/200000 units
=RM3.45 per unit
Marginal costing for product Y=direct materials+directlabour+variable
overhead/unit
Product Y=RM1048000/400000 units
=RM2.62 per unit

(b)absorption costing=direct materials+directlabour+variableoverhead+fixed

overhead/unit
Product S=RM150000+500000+40000+100000
Total=790000/200000 units
=RM3.95 per unit
Product Y=RM200000+RM800000+RM48000+RM160000
Total=RM1208000/400000 units
=RM3.02 per unit.

(c)
SSB SDN BHD
INCOME STATEMENT ABSORPTION COSTING FOR
PRODUCT S FOR THE YEAR
2014
RM
Sales(180000xRM11)
(less):cost of goods sold:
Begining inventory:
+cost of goods
manufactured
(200,000xRM3.95)
Cost of goods available
for sale
-ending
inventory(200000xRm3.9
5)
Gross profit
(less)sales and admin
expenses:
Variable selling
Direct fixed selling
Common fixed selling
Net income

RM
1,980,000

790,000

790,000
(79000)

711000

1,269000

60000
70000
50000

180000
1,089,000

SSB SDN BHD

INCOME STATEMENT-ABSORPTION COSTING FOR PRODUCT Y FOR YEAR 2014
RM
RM
Sales(420000xRM9)
3780000
(less):cost of goods sold:
Beginning inventory
60,400
(200,000 unitXRM3.02)
+cost of goods
1,208,000
manufactured
(400,000xRM3.02)
Cost of goods available
1,268,400
for sale
-ending inventory
1,268,400
(0xRM3.02)
Gross profit
2,511,600
(less):sales and
administrative
Expenses:
Variable selling
120000
Direct fixed selling
80,000
Common fixed selling
50,000
250,000
Net income
2,261,600

(d)
SSB SDN BHD
INCOME STATEMENT-VARIABLE COSTING FOR PRODUCT S FOR YEAR
2014
RM
Sales(180,000 xRM11)
(-)variable costs:
Cost of goods sold
Beginning inventory
+cost of goods
manufactured
(200,000 unitsxRM3.45)
Cost of goods available
for sale
-ending
inventory(200,000 units
xRM3.45)
+variable selling
Contribution margin
(-)fixed costs:
Fixed overhead

RM
1,980,000

690,000

690,000
69,000

621,000
60,000
681,000
1,299,000
100,000
6

Direct fixed selling

Common fixed selling
Net income

70,000
50,000

220,000
1,079,000

SSB SDN BHD

INCOME STATEMENT-VARIABLE COSTING FOR PRODUCT Y FOR
YEAR 2014
RM
Sales(420,000 units
xRM9)
(less)variable costs
Cost of goods sold:
Beginning
inventory(20,000 units x
RM2.62)
+cost of goods
manufactured
(400,000 units xRM2.62)
Cost of goods available
for sale
-ending inventory(0 units
x RM3.45)
+variable selling
(less)contribution margin
(-) fixed costs
Fixed overhead
Direct fixed selling
Common fixed selling
Net income

RM
3,780,000

52,400

1,048,000

1,100,400
0
1,100,400
120,000
1,220,400
2,559,600
160,000
80,000
50,000

290,000
2,269,600

(e) Variable costing and absorption costing usually produce different net operating income

figures. The reason is that the fixed manufacturing overhead cost is not treated the same way
under two costing methods. To understand how the difference in treatment of
fixed manufacturing overhead cost changes the net operating income figures of two costing
systems, we need to prepare two income statements, one under variable costing and one
under absorption costing. This difference is because of fixed manufacturing overhead that
becomes the part of ending inventory under absorption costing system. The ending inventory
absorbs a portion of fixed manufacturing overhead and reduces the burden of the current
period. In this way a portion of fixed cost that relates to the current period is transferred to the
next period.Under variable costing, the fixed manufacturing overhead cost is not included in
7

the product cost but charged to the income statement of the relevant period in its entirety.
Therefore no portion of fixed cost is absorbed by the ending inventory.
(f) Firms measure profit using absorption and variable costing for the finished product to have
different effects on profit margins as reported on the income statement. Fixed expenses are not
figured in the cost of goods sold under the variable method, therefore the inventory is carried at a
lesser value than the full absorption method.