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Task 1 Activity-Based Costing

Objective To enable the learner to differentiate between traditional costing and
activity based costing in decision making.
Marks allocated 30 marks

Persiaran Sdn. Bhd. makes a product in two qualities, called Basic and Super. The business is
able to sell these products at a price that gives a standard profit mark-up of 25 per cent of full
Full cost for one unit is calculated by charging overheads to each type of product on the basis of
direct labour hours. The costs are as follows:

Basic ($) Super ($)

Direct labour ($ 10 per hour) 40 60
Direct material 15 20

The total overhead are $1,000,000

Based on experience over recent years, in the forthcoming year the business expects to make
and sell 40,000 Basics and 10,000 Supers.

Recently, the management has undertaken an exercise to identify cost drivers based on various
activities. The finding has revealed that following analysis of the annual overhead:

Activity (and cost driver) Cost ($) 000 Annual number of activities
Total Basic Super
Number of machine set-ups 280 100 20 80
Number of quality-control inspections 220 2,000 500 1,500
Number of sales orders processed 240 5,000 1,500 3,500
General production (machine hours) 260 500,000 350,000 150,000
Total 1,000


a) Determine the full cost and selling price of each of the two products based on the present
costing system.
(10 marks)

b) Determine the full cost and selling price of each product on an activity-based costing
basis, taking accounting of the managements recent investigation.
(10 marks)

c) What conclusions can you draw? What advice would you offer the management of the
(10 marks)

Task 2 Profit Planning and Budgetary Control System

Objective To enable the learner to prepare the whole master budget of an
Marks allocated 40 marks

Berjaya Sdn. Bhd. Is preparing budgets for the quarter ending September 30. Related
information is shown as below:
Budgeted sales for the next few months are:
May 15,000 units
June 20,000 units
July 30,000 units
August 40,000 units
September 50,000 units
October 35,000 units
November 25,000 units

The selling price is $12 per unit.

All sales are on credit and the collection methods are:
(i) 50% collected in the month of sales
(ii) 30% collected in the month following sales
(iii) 20% collected in two month following sales
The management at Berjaya Sdn. Bhd. determines the ending inventory in units to be
equal to 20% of the following months budgeted sales.
To product one unit of output, 2 kilograms of direct material are needed.
Berjaya decides to have direct materials on hand at 10,000 kgs every month
Cost of direct material is estimated at $1.50 per kg.
The payment of direct materials is below:
(i) 50% purchases is paid in the month of purchase
(ii) 50% purchases is paid in the following month of purchase
To product one unit of output, 0.1 hours of direct labor is required.
Berjaya pays $8 per hour to its direct labor.
All wages are paid at the end of the month
Manufacturing is divided into variable and fixed overhead.
Variable overhead is applied to each units of output on the basis of direct labor hours.
The variable overhead rate is $10 per direct labor hour.
Fixed overhead is estimated at $40,000 cash per month.
Ending Finished Goods Inventory is made up from direct material, direct labor and
manufacturing OH.
Cost of Goods sold is computed based on the unit production cost $5.79 per unit.
Selling and administrative cost is divided into variable and fixed components.
Variable selling and administrative costs is estimated at $1.50 per unit sold.

Fixed selling and administrative cost is estimated at $50,000 per month, where $5,000 is
depreciation and not cash expense.
Berjaya identifies the cash policy as follows:
(i) Minimum cash balance of $50,000 is required for every month
(ii) Any deficiency of cash, will be making up by loans and repays back at the
following month.
(iii) The interest on loan is charged at 15% per year.
(iv) Purchase an equipment in August totaling $150,000
(v) Beginning balance of cash balance on 1 July is $55,000
Berjayas account balances as follows:
Property $ 458,047.50
Equipment 150,200 (net)
Ordinary Shares 500,000
Retained earnings 335,777.50


To prepare the whole master budget (Sales budget up to budgeted Statement of Financial
Position) for Berjaya Sdn. Bhd. for July, August and September.

(40 marks)

Task 3 Short Term Decision Making

Objective To enable the learner to identify relevant and irrelevant costs and
benefits associated to assist in decision making.
Marks allocated 30 marks

Builders SdnBhd offers three products for the construction industry: blocks, bricks and tiles. The
following income statement shows the projected results, by products, for 2010 (in $ thousands) :


(000) (000) (000)
Sales revenue $500 $800 $150 $1450
Less: Variable expenses 250 480 140 870
Contribution margin 250 320 10 580
Less direct fixed expenses:
Advertising 10 10 10 30
Salaries 37 40 35 112
Depreciation 53 40 10 103
Total direct expenses 100 90 55 245
PRODUCT margin $ 150 $230 $(45) $335
Less: common fixed expenses 125
Operating income $210

This is the third consecutive year that the tiles segment is reporting losses. The managing
director is considering dropping the product line as it would mean saving $45,000 by dismissing
the lines supervisor and also eliminating depreciation.

(a) Do you agree that the tiles division should be closed based on the above information?
(14 marks)

(b) What qualitative factors would need to be considered before a decision on whether to
keep or drop a product is adopted?
(6 marks)

(c) The marketing manager suggested that if the tile product is dropped, sales and variable
costs of blocks would reduce by 10%, and sales and variable costs of bricks by 8% since
customers tend to buy all three products together. Hence if the tile product is dropped,
customers will buy blocks and bricks elsewhere. Does this mean it is better to keep the
tile product line?
(10 marks)